Jun 272015
 


Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

A Gay-Rights Decision for the Ages (Bloomberg)
An End to the Blackmail (Alexis Tsipras)
Tsipras Calls Referendum on Greek Debt Deal for July 5 (Bloomberg)
An Alternative Version Of How The Greek Crisis Could Have Played Out (Whelan)
“With The Euro, We’ll Forever Have A Noose Around Our Necks” (WSJ)
Creditors To Ringfence Greek Economy If Tsipras Refuses To Give In (Guardian)
Why It Won’t Be a Default If Greece Misses IMF Payment Next Week (Bloomberg)
Is The Greek Crisis Too Big For Europe’s Most Powerful Woman? (Augstein)
Tsipras Rejects Bailout Extension, “Won’t Be Blackmailed” (ZH)
Paul Craig Roberts: Greek Government May Be Assassinated If They Pivot East (KWN)
There Will Be No “Grexit” (Jim Rickards)
Greece Will Survive, But Will The Euro Or The EU? (MarketWatch)
Euro-Area Bank Lending Grows at Fastest Pace Since February 2012 (Bloomberg)
China Politburo Opines On Market Crash: “Black Friday Massacre” (Zero Hedge)
For The First Time Ever, QE Has Officially Failed (Zero Hedge)
Dutch City Utrecht To Try Out Universal, Unconditional ‘Basic Income’ (Ind.)
Half Of Europe’s Electricity Set To Be From Renewables By 2030 (Guardian)

Wow, look at that. Even Bloomberg manages to get it right. Congrats to all my gay friends- happy to say they are plentiful. Big day no matter how you look at it.

A Gay-Rights Decision for the Ages (Bloomberg)

This one is for the ages. Justice Anthony Kennedy’s opinion for the U.S. Supreme Court announcing a right to gay marriage in Obergefell v. Hodges will take its place alongside Brown v. Board of Education and Loving v. Virginia in the pantheon of great liberal opinions. The only tragic contrast with those landmarks in the history of equality is that both of those were decided unanimously. Friday’s gay-rights opinion went 5-4, with each of the court’s conservative justices writing a dissent of his own. Eventually, legal equality for gay people will seem just as automatic and natural as legal equality for blacks. But history will recall that when decided, Obergefell didn’t reflect national consensus, much less the consensus of the court itself.

Kennedy’s opinion offered two different yet interrelated constitutional rationales, one focused on the institution of marriage, the other on the equality of gay people. First, he made the case that marriage is a fundamental liberty right under the due process clause of the Constitution, which says no one may be deprived of life, liberty or property without due process of law. Applying what’s known as “substantive” due process analysis, Kennedy held that the government may not infringe the liberty to marry absent a compelling interest and along narrowly tailored lines to achieve that interest. Because no such interest exists, gay people as well as straight people must have the right to marry. This same approach was used by the court in the Loving case, which struck down laws barring interracial marriage.

It was symbolically important for Kennedy to connect same-sex marriage to marriage between the races. Kennedy’s favorite concept of dignity figured large in the finding that marriage is a fundamental right. “The lifelong union of a man and a woman always has promised nobility and dignity to all persons, without regard to their station in life.” The reference to dignity connected the decision to Kennedy’s earlier gay-rights decisions, which featured the concept centrally. It is now an important part of our constitutional law — no matter that it doesn’t appear in the Constitution. Another crucial feature of the opinion was Kennedy’s recognition that marriage has evolved over time. This acknowledgement counteracted the conservatives’ emphasis on tradition in their dissents.

It also resonated with the doctrine of due process, which looks to evolving tradition to identify the content of protected liberty. When it came to equality, Kennedy avoided announcing that laws burdening gay people would be subject to especially strict scrutiny, like laws burdening racial minorities, or even what’s called intermediate scrutiny, like laws differentially burdening the sexes. Instead, he spoke of the “synergy” between due process and equality. In legal terms, this almost certainly meant that once a fundamental right is invoked, any distinction between people for any reason requires strict scrutiny – a longtime doctrinal norm.

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Integral text. Worth the space.

An End to the Blackmail (Alexis Tsipras)

Televized speech, Athens, June 27, 2015, 1 AM local time. For six months now the Greek government has been waging a battle in conditions of unprecedented economic suffocation to implement the mandate you gave us on January 25. The mandate we were negotiating with our partners was to end the austerity and to allow prosperity and social justice to return to our country. It was a mandate for a sustainable agreement that would respect both democracy and common European rules and lead to the final exit from the crisis. Throughout this period of negotiations, we were asked to implement the agreements concluded by the previous governments with the Memoranda, although they were categorically condemned by the Greek people in the recent elections. However, not for a moment did we think of surrendering, that is to betray your trust.

After five months of hard bargaining, our partners, unfortunately, issued at the Eurogroup the day before yesterday an ultimatum to Greek democracy and to the Greek people. An ultimatum that is contrary to the founding principles and values of Europe, the values of our common European project. They asked the Greek government to accept a proposal that accumulates a new unsustainable burden on the Greek people and undermines the recovery of the Greek economy and society, a proposal that not only perpetuates the state of uncertainty but accentuates social inequalities even more. The proposal of institutions includes: measures leading to further deregulation of the labor market, pension cuts, further reductions in public sector wages and an increase in VAT on food, dining and tourism, while eliminating tax breaks for the Greek islands.

These proposals directly violate the European social and fundamental rights: they show that concerning work, equality and dignity, the aim of some of the partners and institutions is not a viable and beneficial agreement for all parties but the humiliation of the entire Greek people. These proposals mainly highlight the insistence of the IMF in the harsh and punitive austerity and make more timely than ever the need for the leading European powers to seize the opportunity and take initiatives which will finally bring to a definitive end the Greek sovereign debt crisis, a crisis affecting other European countries and threatening the very future of European integration.

Fellow Greeks, right now weighs on our shoulders the historic responsibility towards the struggles and sacrifices of the Greek people for the consolidation of democracy and national sovereignty. Our responsibility for the future of our country. And this responsibility requires us to answer the ultimatum on the basis of the sovereign will of the Greek people. A short while ago at the cabinet meeting I suggested the organization of a referendum, so that the Greek people are able to decide in a sovereign way. The suggestion was unanimously accepted.

Tomorrow the House of Representatives will be urgently convened to ratify the proposal of the cabinet for a referendum next Sunday, July 5 on the question of the acceptance or the rejection of the proposal of institutions. I have already informed about my decision the president of France and the chancellor of Germany, the president of the ECB, and tomorrow my letter will formally ask the EU leaders and institutions to extend for a few days the current program in order for the Greek people to decide, free from any pressure and blackmail, as required by the constitution of our country and the democratic tradition of Europe.

Fellow Greeks, to the blackmailing of the ultimatum that asks us to accept a severe and degrading austerity without end and without any prospect for a social and economic recovery, I ask you to respond in a sovereign and proud way, as the history of the Greek people commands. To authoritarianism and harsh austerity, we will respond with democracy, calmly and decisively. Greece, the birthplace of democracy will send a resounding democratic response to Europe and the world. I am personally committed to respect the outcome of your democratic choice, whatever that is. And I’m absolutely confident that your choice will honor the history of our country and send a message of dignity to the world.

In these critical moments, we all have to remember that Europe is the common home of peoples. That in Europe there are no owners and guests. Greece is and will remain an integral part of Europe and Europe is an integral part of Greece. But without democracy, Europe will be a Europe without identity and without a compass. I invite you all to display national unity and calm in order to take the right decisions. For us, for future generations, for the history of the Greeks. For the sovereignty and dignity of our people.

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Still no debt relief proposed, though troika has knpwn all along that would break any deal. Not in good faith.

Tsipras Calls Referendum on Greek Debt Deal for July 5 (Bloomberg)

Greek Prime Minister Alexis Tsipras called a referendum on the terms offered by creditors for the latest aid package, saying they’re seeking to humiliate the Greek people who must provide a democratic response. The vote will take place on July 5, Tsipras said in a televised address in the early hours of Saturday. A Greek government official said the country’s banks will open as normal on Monday and no capital controls are planned, asking not to be identified in line with policy. Tsipras said that German Chancellor Angela Merkel and European Central Bank chief Mario Draghi have been informed of the plan, and he’ll request an extension of Greece’s existing bailout, due to end June 30, by a few days to permit the vote. Further details weren’t immediately clear.

Later on Saturday, European finance ministers were due to discuss details of their latest proposal, which would unlock €15.5 billion and extend Greece’s program through November, in return for a commitment to pension cuts and higher taxes that Tsipras opposes. While German Chancellor Angela Merkel touted the five-month bailout extension as “very generous,” Tsipras compared its terms to an “ultimatum” and “blackmail.” It doesn’t include the debt relief that his government seeks.

Tsipras came to power with a mandate to end the austerity imposed by Greece’s creditors while keeping the country in the euro. By calling a referendum on the latest EU offer, his government “will argue that it does not have the mandate to sign it without consulting the Greek people,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “I am convinced that such a referendum would be comfortably won,” he said. “However, it will be risky as the uncertainty is likely to see deposits flee and deposit controls imposed until the result.” Failure to reach a Greek deal also puts at risk a payment due June 30 to the International Monetary Fund.

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Must read.

An Alternative Version Of How The Greek Crisis Could Have Played Out (Whelan)

The Grexit scenario relies crucially on the Eurozone not having a proper lender of last resort or a functioning banking union. It is easy to imagine an alternative scenario to the current one. Consider the following alternative version of how the Greek crisis could have played out. As tension builds up in Greece prior to the Greek election in early 2015, Mario Draghi assures depositors in Greece that the ECB has fully tested the Greek banks and they do not have capital shortfalls. For this reason, their money is safe. Draghi announces that the ECB will thus provide full support to the Greek banks even if the government defaults on its debts, subject to those banks remaining solvent.

Eurozone governments agree that, should Greek banks require recapitalisation to maintain solvency, the European Stabilisation Mechanism (ESM) will provide the capital in return for an ownership stake in the banks. Provided with assurances of liquidity and solvency support, there is no bank run as Greek citizens believe there banking system is safe even if the government’s negotiations with creditors go badly. The ECB stays out of the negotiations for a new creditor deal for Greece (because they are not a political organisation and are not involved in directly loaning money to the government) and its officials assure everyone that the integrity of the common currency is in no way at stake. There are no legal impediments to this scenario.

Despite the constant blather from ECB officials about how it is constantly constrained by its own persnikety rules, it is well known that the ECB can stretch these rules pretty much as far as it likes. Supporting banks that you have deemed solvent is pretty standard central banking practice. So Draghi’s ECB could have provided full and unequivocal support to the Greek banks if they wished. They just chose not to. Similarly, procedures are in place for the ESM to invest directly in banks so a credible assurance of solvency could have been offered. Why did this not happen? Politics. European governments did not feel like providing assurances to Greek citizens about their banking system at the same time as their government was openly discussing the possibility of not paying back existing loans from European governments. Indeed, the ability to unleash the bank-driven Grexit mechanism has been the ace in the creditors’ pack all along.

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And you children too.

“With The Euro, We’ll Forever Have A Noose Around Our Necks” (WSJ)

CHALKIDA, Greece—This small city once had a major cement plant, timber mill and ironworks. All are gone. It is trying to develop a tourism industry, but there is no money to upgrade hotels or roads. This week, as with most places in Greece, it is waiting for the country’s future to be decided in meeting rooms in Brussels. Many here are urging Prime Minister Alexis Tspiras to stand firm in his battle with Europe. “He’s doing the right thing,” said Yannis Liopides, a retired electrician in a textile factory, sitting in a square on Thursday afternoon. The square abuts a promenade fronting onto a crystalline sea. “If Tsipras doesn’t do anything, the only ones left are Golden Dawn,” he said, referring to the far-right party whose leaders are on trial for allegedly running a criminal organization.

Mr. Tsipras may be isolated in negotiations with his fellow European leaders, but he still has plenty of friends here. Many Greeks—and many well beyond Mr. Tsipras’s coterie on the far left—have adopted a mood of resistance, forged by a perception that the country’s European creditors are pushing their demands too far. Europe and the IMF “want a country that is a colony,” said Thanasis Stratis, a cement-plant worker laid off in September. “They want to squeeze every last drop from it.” Chalkida sits at the neck of a narrow sea channel that separates a long island from the Greek mainland. Outside the city, patchwork fields lead to pine forests and on to rocky mountains. Along the coast is a port and shipyards and the hulking cement plant where Mr. Stratis once worked in the accounting department.

A big wave of industrialization came to Chalkida in the 1970s, said Mayor Christos Pagonis. Deindustrialization began in the 1990s and accelerated. “It has created thousands of unemployed,” said Mr. Pagonis, who puts the unemployment rate at more than 30%. The cement plant shut in spring 2013. The economic crisis had all but stopped construction activity in Greece. The plant was incurring losses, said a spokeswoman for Lafarge SA, which owned the facility. At the time, the company estimated that closure would save it €18 million ($20 million) a year. Prevented by Greek labor law from firing the 236 workers en masse, the French industrial company instead has laid them off in small chunks of a dozen or so each month. Only a few remain on the payroll to guard the now-quiet plant, where dogs nap in the sun and eucalyptus trees flutter in the sharp breeze.

Mr. Stratis and a handful of other plant workers man a kiosk in the city center, where they post the number of days the plant has been closed (821, as of Thursday). The names of the laid-off workers are stapled to the wall on 16 laminated sheets. Elias Koukouras, the union president and one of the few still remaining on the payroll, said Greece should quit the eurozone. “The country needs to be rebuilt. With the euro, we’ll forever have a noose around our necks.”

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Wishful fencing.

Creditors To Ringfence Greek Economy If Tsipras Refuses To Give In (Guardian)

Eurozone finance ministers and Greece’s creditors are to draw up plans for emergency measures to ringfence the country’s financial system unless the Greek prime minister, Alexis Tsipras, accepts the creditors’ terms for a five-month extension of Athens’ bailout on Saturday. Greece has its last chance to bow to the lenders’ terms following five months of stalemate at a meeting of eurozone finance ministers in Brussels on Saturday afternoon, the fifth such session in 10 days. Fearing a financial implosion and social unrest in the event of the negotiations collapsing, the ministers are scheduled to draw up plans on Saturday that could involve Greece imposing capital controls, including curbs on ATM withdrawals, to stem a flood of funds out of the ailing Greek financial system.

“Game over”, said senior EU officials engaged in back-to-back meetings and negotiations for the past 10 days, as the brinkmanship in the Greek negotiations reached breaking point. If no deal is agreed at the weekend, Greece will miss a €1.6bn payment due to the International Monetary Fund next Tuesday, along with access to emergency support from the ECB that is keeping the Greek banking system afloat. The creditors have prepared a new funding offer, providing a lifeline to keep Greece afloat until the end of November by extending the bailout by five months and supplying €15.5bn in loans tied to budget cuts and tax rises.

As a two-day EU leaders’ summit ended in Brussels on Friday, several senior officials said Tsipras had to make a choice between accepting the creditors’ ultimatum or embarking on a road that could take Greece out of the euro. The chances of saving Greece were put at 50-50. Angela Merkel, the German chancellor, who talked privately with the Greek leader in Brussels on Friday morning, urged him to go the “extra step” and accept what she described as “a very generous offer”. She ruled out any more emergency summits on the Greek crisis and delivered a pointed message to Tsipras by stressing how, during the Cyprus bailout two years ago, Cypriot banks had to be closed “for a few days”, forcing the political leaders to come to Brussels to deal with the creditor institutions and the Eurogroup finance ministers in order to resolve the issue.

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The refrendum trumps all this. Let’s see of Lagarde has the guts to get even more political.

Why It Won’t Be a Default If Greece Misses IMF Payment Next Week (Bloomberg)

If Greece fails to pay the $1.7 billion it owes the IMF on Tuesday, it might be worse for the lender than for Greece. There’s a difference between missing a payment to bond investors, and to an official institution such as the IMF. Under the fund’s policy, countries that miss payments are deemed to be in “arrears.” The lender plans to stick to that language, rather than using the term “default,” IMF spokesman Gerry Rice said Thursday. The three major credit-rating companies have also said failure to pay the IMF wouldn’t constitute a formal default. So while the practical consequences for Greece may be temporary and small as long as the nation remains in talks with creditors for an accord, the blow to the IMF’s reputation as the world’s lender of last resort could be longer-lasting, making it tougher for the fund to win support for some future bailouts.

“There’s going to be severe scrutiny of interventions in countries that can either be considered wealthy in their own right or are part of a larger geo-economic structure like the euro zone,” Benn Steil, director of international economics at the Council on Foreign Relations in New York. Non-payment would land Greece in a club of countries in arrears that currently includes Zimbabwe, Sudan and Somalia. The three nations have combined overdue payments of about $1.8 billion. The bottom line is that a missed IMF payment probably won’t trigger a wave of defaults on other loans provided by the country’s other official creditors or debt held by private investors. “Non-payment of the IMF is unlikely to cause a catastrophic cascade of other liabilities,” said Zoso Davies, a credit strategist at Barclays Plc in London.

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Good to see some incisive words on the disaster that’s fast enveloping Merkel and her legacy. Can you save that legacy in the next 7 days?

Is The Greek Crisis Too Big For Europe’s Most Powerful Woman? (Augstein)

nngela Merkel has recently been making much use of the old cliche, “Where there’s a will, there’s a way”. She has rolled it out to Alexis Tsipras and the Greek people, and David Cameron has heard it fall from her lips at least once – because, of course, she knows all too well that a Greek exit from the euro would hardly bolster Britain’s enthusiasm for the EU. The Greek crisis is the biggest challenge Merkel has had to face in the 10 years of her chancellorship. If Greece had to exit the single currency, Merkel would go down in history as the one politician who had the power to stop the EU’s decline but failed to do so. Some experts believe that to a large extent she contributed to the crisis: had she wholeheartedly backed a full bailout in 2010, the collapse of the Greek economy might have been averted.

Instead, Merkel involved the IMF– against the advice of her finance minister, Wolfgang Schäuble. Those well disposed towards the German chancellor say she brought in the IMF to prevent Greece from putting the European commission under too much pressure. But at least as important is the less flattering interpretation: that the most powerful woman in Europe (if not the world) shied away from taking sole responsibility for Greece’s fate because sharing it out among as many players as possible was a way of protecting herself from any blame. Unlike her mentor, the former German chancellor Helmut Kohl, Merkel did not embark on her political career with much instinctive passion for the European project.

During her childhood in the GDR, her mother’s praise of the west coloured Merkel’s view of the world – but the west then was the United States. Realising that the EU is worth every political effort has been something she has had to learn. Added to the reticence with which Merkel approaches any momentous decision, it is easy to see why the German government did so little to nip the Greek crisis in the bud. Acting in unison, the German leader and her finance minister, the IMF, the European commission and the European Central Bank forced an austerity programme on the Greek people based on the principles of neoliberal economics. In the former eastern bloc states such shock therapy had succeeded in returning struggling economies to growth. However, it generated immense hardship and created profound social divisions: the well-off benefited because investments became cheaper, but the bulk of the population suffered.

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“We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow.”

Tsipras Rejects Bailout Extension, “Won’t Be Blackmailed” (ZH)

Update: Protothema now says the Greek parliament will meet on Saturday and a referendum will be called as early as next week. Whether this is simply a last minute attempt to put pressure on EU finance ministers ahead of Saturday’s Eurogroup meeting remains to be seen, but one thing is for sure: Tsipras is playing a dangerous game with the ECB ahead of a difficult week that could very well see the imposition of capital controls. Update: Protothema is reporting that Tsipras has confided in a fellow EU official that if the country’s creditors insist on sticking to pension and VAT red lines and if Friday’s bailout extension proposal (which the Greek government apparently views as a patronizing stopgap) is the troika’s final offer, he is prepared to call for snap elections. Via Protothema (Google translated):

“The dramatic developments of the last few hours, following the government’s move to reject the proposal of the creditors may conceal preparation for use of the popular verdict, a decision which is expected to be finalized in the next few hours if the lenders do not move from its rigid positions. According secure information protothema.gr, a few hours ago he Prime Minister Alexis Tsipras European leader confided in Eurozone member country adjacent friendly in Greece that the data are up to this moment is ready even to call early elections. This revelation of thought by the Greek prime minister to the foreign leader can be interpreted in two ways: Either Mr. Tsipras is ready for “plan B” if tomorrow the negotiation fails or leaked deliberately in order to exert indirect pressure on lenders to mitigate their requirements.

Upon completion of the meeting Mr. Tsipras with Angela Merkel and Francois Hollande, the Greek side revealed that the Prime Minister pointed out to the leaders of Germany and France that he does not understand why the institutions insist on so hard measures. The prime minister insisted his decision to reject the proposal of the creditors for a five-month extension of the existing agreement with a funding of €15.5 billions. “The proposal does not cover us, because the financial part of barely meets the needs for payment of installments to the lenders, not help anywhere else the economy,” emphasized a close associate of Alexis Tsipras and adds: “We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow.”

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And then there’s this.

Paul Craig Roberts: Greek Government May Be Assassinated If They Pivot East (KWN)

The Greek people and the Greek government have before them the unique opportunity to prevent World War III. All the Greek government needs to do, if the Greek people will get behind the government, is to default on the loans, resign from the EU and from NATO, and accept the deal that the Russians have offered them This would begin the unraveling of NATO. Very quickly Spain and Italy would follow. So southern Europe would desert NATO and so would Austria, Hungary and the Czech Republic. NATO is the mechanism that Washington uses to cause conflict with Russia. So as the EU and NATO unravel, the ability of Washington to produce this conflict disappears. The Greek government understands that what is being imposed on Greece is not workable.

Since the (implementation of) austerity the Greek economy has declined by 27%. That’s a depression. And they keep hoping that the Germans wake up one day and realize that austerity is not the way you cure debt, and that the Greek government cannot agree to conditions that drive the Greek population into the ground. They (the troika) are talking about (a) genocide (of the Greek population). The Russians understand that Greece is being plundered by the West and met with the leader of Greece and offered him a deal. They said: “We’ll finance you. But not to pay off the German and Dutch banks, the New York hedge funds or the IMF”. [..]

The troika has no interest in the facts of the matter. They have another agenda that we already discussed. And the Greek government has to see that there is no interest on the part of the troika to resolve the issue. That does suggest they understand that the real solution is not open to them. That they will not be permitted to leave the EU and NATO and make this deal with the Russians. I wouldn’t be surprised if they have simply been told, ‘You can make a good show of it, but if you leave (the EU,) you are dead.’

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Don’t think this is Jim’s strongest field.

There Will Be No “Grexit” (Jim Rickards)

Let me spend a minute on what I call the game theoretic approach. It will show why this scenario is unlikely. Europe would like to tell Greece to just put up or shut up. And Greece would like to tell Europe that they’re not going to put up with any more austerity. But what you have to do is you have to think two or three moves ahead. You have to say, “What would that actually mean? How will that actually play out? If one side acts that way, what does it mean for their constituency? Or other people — will the rest of the European Union or, for that matter, Austrian, Dutch, or German citizens be on the receiving end of any bad consequences?” Some analysts claim “Greece leaving the euro is no big deal.” I couldn’t disagree more.

Think of such a situation three steps ahead from the Institutions’ perspective. It is true that Greece is not a big part of the world economy. It is true that if Greece’s GDP disappeared, that, by itself, it wouldn’t make that large of an impact on the world. But that’s not the danger. The danger is contagion. The danger is that dominos that start falling. Going back to 2007, 2008, I remember when JPMorgan rescued Bear Stearns in March 2008. Everyone said, “The crisis is over.” Then Fannie and Freddie were rescued in July of 2008, and everybody said, “The crisis is over.” And I kept looking at the situation and saying, “This crisis is not over. These are dominoes that are falling. Each one’s hitting the next one and taking the crisis further. We don’t have resolution.”

As I expected, Lehman Brothers was next, and then AIG behind that. Then we saw how bad things got between October of 2008 and the stock market bottom in March 2009 when investors lost 30 to 50 percent of their net worth on that market decline. Not just stocks, but real estate and other assets across the board. So I see these dominos falling if Greece goes. It’s not about Greece — it’s about Spain, Italy, Portugal, Ireland. It’s about the whole eurozone. It’s about confidence. That doesn’t mean that if Greece quits the euro, that the next day Italy says, “Oh, we’re quitting too.” I’m not saying that. What I’m saying is that markets will do the job for them.

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“This artificial construct foisted on a European public by a political elite far less idealistic than it pretended is wearing out its welcome.”

Greece Will Survive, But Will The Euro Or The EU? (MarketWatch)

Whatever happens with the bailout talks, the one certain thing is that Greece will survive, in or outside the eurozone. One of the most beautiful countries in the world in an incredibly strategic location, it will remain a world-class tourist destination and a sought-after ally. In the past century alone, the country has survived Nazi occupation, civil war, military dictatorship, and decades of a political class riven with corruption. It will survive European Union’s austerity policies, or Grexit, or default. So don’t cry for Greece — the country has been there for millennia and it’s not going anywhere. What is far less certain is whether the euro and the EU will survive. This artificial construct foisted on a European public by a political elite far less idealistic than it pretended is wearing out its welcome.

With its bloated and corrupt bureaucracy in Brussels, the craven submission of its political leaders to a dominant reunified Germany, its increasingly obvious disrespect for democratic principles, the EU has strayed far from the founders’ concept of a free-trade zone designed to contain a defeated Germany. It is not just about Greece — or Portugal, which MarketWatch columnist Matthew Lynn identified as the next country to fall, or Spain, or Italy — but about the whole concept of political and economic integration across the entire continent, the so-called “European project.” It is difficult to see how Britain can retreat from David Cameron’s rejection of the “ever closer union” enshrined in the EU treaties as he seeks to renegotiate the terms of his country’s membership.

And without this goal — or without Britain — how can the EU hope for anything but sliding back into a loose trade confederation? The British are so done with the EU, as the Greek debacle confirms all their worst fears about the ever closer union and the joint currency. Last week, former Chancellor of the Exchequer Norman Lamont celebrated his decision in 1991 to opt out of the euro in an op-ed titled “The euro was doomed from the start.” “The creation of the euro has been an error of historic dimensions and done great harm to the EU,” Lamont wrote in The Telegraph. The early decades of European integration helped bring prosperity to Europe, Lamont continued, as rich and poor countries alike benefited from lower tariffs and increased internal trade.

“Britain is extremely fortunate that it is not at the ‘heart of Europe,’” this Conservative politician wrote, “but it still needs a real, robust renegotiation to make sure it is protected against Europe’s dangerous dreams and visions.” Telegraph columnist Ambrose Evans-Pritchard, a longtime opponent of monetary union, was even less measured in his comments on the bullying tactics employed against Greece by the EU, the ECB and the IMF. “Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world,” he railed in a column last week.

He took particular umbrage at the report from the Greek central bank — a component after all of the European System of Central Banks — that undermined the government’s negotiating position by warning that failure to reach a deal could lead to an “uncontrollable crisis.” The report, as it no doubt was intended to do, drove capital flight out of Greece to a new level, an unconscionable act of sabotage, Evans-Pritchard felt, by an institution that is supposed to be a “guardian of financial stability.” “If we want to date the moment when the Atlantic liberal order lost its authority — and when the European Project ceased to be a motivating historic force — this may well be it,” he concluded.

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The new normal doesn’t look very solid. If the recovery must be borrowed, then where are we?

Euro-Area Bank Lending Grows at Fastest Pace Since February 2012 (Bloomberg)

Euro-area banks expanded lending at the fastest pace in more than three years in a sign that credit is starting to support the region’s recovery. Bank loans to companies and households increased 0.5% in May from a year earlier, the most since February 2012, ECB data showed on Friday. Loans posted annual declines every month from May 2012 until February 2015. The ECB has deployed a range of unconventional tools to promote lending, including targeted long-term loans to banks and government-bond purchases that cut market borrowing costs. After deleveraging since the financial crisis, banks are showing an increasing appetite for supplying credit to the region’s fragile recovery.

“The lending aggregates to the real economy still have ample scope to improve in the months ahead, so financial conditions should support growth,” said Colin Bermingham, an economist at BNP Paribas SA in London. In June, euro-area banks took up almost €74 billion of targeted central-bank loans, known as TLTROs, that they can access if they increase lending to companies and households. Since the start of the program last year, the ECB has handed out €384 billion in total. The ECB’s measures have contributed to “more favorable borrowing conditions for firms and households,” ECB President Mario Draghi said in a press conference on June 3. “The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion.”

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Monday will be interesting.

China Politburo Opines On Market Crash: “Black Friday Massacre” (Zero Hedge)

[..] as Xinhua reports (via Google Translate): Shanghai and Shenzhen stock markets plunged more than 7% today fall 4200, over 1500 stocks daily limit. Will this “roller coaster” market stop there? Will history continue to repeat itself? How much further will it fall after the massacre on the A-share stock market day and after. In this rampant speculation, full of legends of the stock market wealth, wealth and opportunities and risks coexist forever; while everyone wants to share the wealth with this situation in the stock market to make a profit, we hope investors can have more risk awareness!

Local analysts are much more concerned… “It’s a do-or-die moment for all investors,” said Dong Jun, a Shanghai-based hedge fund manager. “If retail investors become skittish now, panic selling will continue next week.” “I think this is a very dangerous moment,” says Anne Stevenson-Yang of J Capital Research, the Beijing-based research firm. She’s right. Not only are there the technical liquidity factors she cites, but anything could further rock confidence. “The tide is going to go out, and there’s going to be a lot of people without their swimming trunks on,” Ewen Cameron Watt, chief investment strategist at BlackRock — which oversees $4.8 trillion as the world’s biggest money manager — said in an interview on Bloomberg Television in London. “We’re seeing it deflating quite rapidly.”

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Unofficially, it has done nothing else.

For The First Time Ever, QE Has Officially Failed (Zero Hedge)

Over two years ago in “Desperately Seeking $11.2 Trillion In Collateral”, Zero Hedge first warned that as a result of relentless central bank monetization of debt, liquidity in bond markets would decline at an ever faster pace even as, paradoxically, these same central banks added “phantom liquidity” (the topic of another post from two years ago) to equity markets in their attempt to artificially inflate stock prices to record levels without fundamental justification. Sure enough, with the usual 2-5 year delay, in 2015 the primary financial topic sweeping the mainstream financial media and all the “serious” pundits, is the collapse in bond market liquidity. Some, the more naive ones, blame regulation.

Others, such as iconic Citigroup credit strategist Matt King strategist explained – once again – that Dodd Frank is a negligible reason for the total plunge in bond market liquidity which is the result of, just as we warned, central bank intervention and the relentless ascent of algorithmic trading. But even as everyone is finally arguing about the cause of the plunging bond market liquidity and has no clue how to resolve this biggest nightmare for what once used to be the deepest and most liquidity of markets (at least not without forcing central banks to sell the trillions in bonds they hold, a step which would free up collateral but also result in the biggest market crash ever), a far more ominous question has reappeared. One which, as usual, we asked nearly three years ago: what happens when central banks soak up too much liquidity.

Our answer, at that point, QE will have officially failed, because instead of lowering bond yields – which as a reminder is the primary QE transmission mechanism, one which forces investor to reach not only for yield but also for risk in other asset classes such as equities – any incremental bond purchases will start raising yields as the adverse impact from the illiquidity “premium” surpasses the price appreciation benefit from frontrun central bank buying. Impossible, you say? Not only not impossible but in one country it just happened. Sweden, and as Bloomberg sarcastically notes, “It’s probably not what the Riksbank expected.”

What is “it”? Precisely what we said would happen three years ago: Quantitative easing is supposed to drive down longer-dated yields. But as investors obsess over market depth, the Riksbank’s bond purchases are undermining liquidity and driving Swedish yields higher. The financial conditions — the currency and the bond yields — are moving in the wrong direction,” Roger Josefsson, chief economist at Danske Bank A/S in Stockholm, said by phone. The assumption is that “the Riksbank wants yields to go down and the krona to weaken, but it’s been the opposite direction recently. That should pose a problem.”

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This should be a huge, widespread project all over Europe. Greece and Italy!

Dutch City Utrecht To Try Out Universal, Unconditional ‘Basic Income’ (Ind.)

The Dutch city of Utrecht will start an experiment which hopes to determine whether society works effectively with universal, unconditional income introduced. The city has paired up with the local university to establish whether the concept of ‘basic income’ can work in real life, and plans to begin the experiment at the end of the summer holidays. Basic income is a universal, unconditional form of payment to individuals, which covers their living costs. The concept is to allow people to choose to work more flexible hours in a less regimented society, allowing more time for care, volunteering and study. University College Utrecht has paired with the city to place people on welfare on a living income, to see if a system of welfare without requirements will be successful.

The Netherlands as a country is no stranger to less traditional work environments – it has the highest proportion of part time workers in the EU, 46.1%. However, Utrecht’s experiment with welfare is expected to be the first of its kind in the country. Alderman for Work and Income Victor Everhardt told DeStad Utrecht: “One group is will have compensation and consideration for an allowance, another group with a basic income without rules and of course a control group which adhere to the current rules.” “Our data shows that less than 1.5% abuse the welfare, but, before we get into all kinds of principled debate about whether we should or should not enter, we need to first examine if basic income even really works. ”

What happens if someone gets a monthly amount without rules and controls? Will someone be sitting passively at home or do people develop themselves and provide a meaningful contribution to our society?” The city is also planning to talk to other municipalities about setting up similar experiments, including Nijmegen, Wageningen, Tilburg and Groningen, awaiting permission from The Hague in order to do so.

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Don’t believe the hype.

Half Of Europe’s Electricity Set To Be From Renewables By 2030 (Guardian)

Europe will likely get more than half of its electricity from renewable sources by the end of the next decade if EU countries meet their climate pledges, according to a draft commission paper. A planned overhaul of the continent’s electricity grids will now need to be sped up, says the leaked text, seen by the Guardian. “Reaching the European Union 2030 energy and climate objectives means the share of renewables is likely to reach 50% of installed electricity capacity,” says the consultation paper, due to be published on 15 July. “This means that changes to the electricity system in favour of decarbonisation will have to come even faster.”

The EU has set itself a goal of cutting emissions 40% on 1990 levels by 2030, and an aspiration for a 27% share for renewables across Europe’s full energy mix, which includes sectors such as transport, agriculture and buildings that do not necessarily rely on electricity. Around a quarter of Europe’s electricity currently comes from renewable sources. Oliver Joy, a spokesman for the European Wind Energy Association welcomed the draft text but noted the 27% goal for 2030 was non-binding, and some countries were looking likely to even miss an earlier goal, for 2020, that is binding. “Even with a binding provision, we are seeing the Netherlands, UK and France potentially missing their 2020 target [to source a fifth of energy provision from renewables].”

Joy called for the commission to deliver a governance system for renewables that prevented slacker states from hiding behind the more fast-moving ones. Downing Street would almost certainly resist more stringent oversight from Brussels on renewable energy. Other measures put up for discussion in the paper could be an anathema to the government’s eurosceptic backbenchers.

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Jan 042015
 
 January 4, 2015  Posted by at 12:20 pm Finance Tagged with: , , , , , , ,  3 Responses »


Unknown Pontiacs being unloaded from freight cars, San Francisco 1941

Germany Believes Eurozone Could Cope With Greece Exit (Reuters)
Greek Euro Exit Would Be ‘Lehman Brothers Squared’ (MarketWatch)
A Stress Test For Mario Draghi And The ECB (NY Times)
Ten Warning Signs Of A Market Crash In 2015 (Telegraph)
Bosten Fed’s Rosengren: Rate Increases May Be Bumpy For Markets (MarketWatch)
Wall Street’s Big Problem In 2015 Is Trust (CFA Institute)
Japan’s Cash Helicopter May Be First To Take Off (Reuters)
Oil Price Slump May Spur European Oil and Gas Deal-Making (NY Times)
Endangered Species: Young US Entrepreneurs (WSJ)
North Korea Responds With Fury To US Sanctions (Guardian)
Retired Workers Could Be Given Right To Sell Their Pensions (Guardian)
The West Is Wrong Again In Its Fight Against Terror (Independent)
‘Premier Of War’: Czech President Says Yatsenyuk Not Seeking Peace (RT)
Dresden Crowds Tell A Chilling Tale Of Europe’s Fear Of Migrants (Observer)
Inside The Favela Too Violent For Rio’s Armed Police (Observer)
Ecuadorian Student Invents Revolutionary ‘Bat Sonar’ Suit For The Blind (RT)

This is just bluff in the ‘fight’ to keep SYRIZA from winning the January 25 elections. Merkel knows the risk of the eurozone falling apart.

Germany Believes Eurozone Could Cope With Greece Exit (Reuters)

The German government believes that the euro zone would now be able to cope with a Greece exit if that proved to be necessary, Der Spiegel news magazine reported on Saturday, citing unnamed government sources. Both Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble believe the euro zone has implemented enough reforms since the height of the regional crisis in 2012 to make a potential Greece exit manageable, Der Spiegel reported.”The danger of contagion is limited because Portugal and Ireland are considered rehabilitated,” the weekly news magazine quoted one government source saying.

In addition, the European Stability Mechanism (ESM), the euro zone’s bailout fund, is an “effective” rescue mechanism and was now available, another source added. Major banks would be protected by the banking union. It is still unclear how a euro zone member country could leave the euro and still remain in the European Union, but Der Spiegel quoted a “high-ranking currency expert” as saying that “resourceful lawyers” would be able to clarify. According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsipras wins an election set for Jan. 25.

The Greek election was called after lawmakers failed to elect a president last month. It pits Prime Minister Antonis Samaras’ conservative New Democracy party, which imposed unpopular budget cuts under Greece’s bailout deal, against Tsipras’ Syriza, who want to cancel austerity measures and a chunk of Greek debt. Opinion polls show Syriza is holding a lead over New Democracy, although its margin has narrowed to about three%age points in the run-up to the vote. German Finance Minister Schaeuble has already warned Greece against straying from a path of economic reform, saying any new government would be held to the pledges made by the current Samaras government.

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“.. the euro “is a historic disaster.” “It doesn’t mean it is easy to break up,”

Greek Euro Exit Would Be ‘Lehman Brothers Squared’ (MarketWatch)

A decision by a new Greek government to leave the eurozone would set off devastating turmoil in financial markets even worse than the collapse of Lehman Brothers in 2008, a leading international economist warned Saturday. A Greek exit would likely spark runs on Greek banks and the country’s stock market and end with the imposition of severe capital controls, said Barry Eichengreen, an economic historian at the University of California at Berkeley. He spoke as part of a panel discussion on the euro crisis at the American Economic Association’s annual meeting. The exit would also spill into other countries as investors speculate about which might be next to leave the currency union, he said. “In the short run, it would be Lehman Brothers squared,” Eichengreen warned.

He predicted that European politicians would “swallow hard once again” and make the compromises necessary to keep Greece in the currency union. “While holding the eurozone together will be costly and difficult and painful for the politicians, breaking it up will be even more costly and more difficult,” he said. In general, the panel, consisting of four prominent American economists, was pessimistic about the outlook for the single-currency project. Jeffrey Frankel, an economics professor at Harvard University, said that global investors “have piled back into” European markets over the last years as the crisis ebbed. Now, there will likely be a repeat of the periods of market turmoil in the region and spreads between sovereign European bonds could widen sharply.

Kenneth Rogoff, a former chief economist at the International Monetary Fund and a Harvard professor, said the euro “is a historic disaster.” “It doesn’t mean it is easy to break up,” he said. Martin Feldstein, a longtime critic of the euro project, said all the attempts to return Europe to healthy growth have failed. “I think there may be no way to end to euro crisis,” Feldstein said. The options being discussed to stem the crisis, including launch of full scale quantitative easing by the European Central Bank, “are in my judgment not likely to be any more successful,” Feldstein said. The best way to ensure the euro’s survival would be for each individual eurozone member state to enact its own tax policies to spur demand, including cutting the value-added tax for the next five years to increase consumer spending, Feldstein said.

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“A central bank claiming that it will do ‘whatever it takes’ while not delivering with actions eventually loses its credibility ..”

A Stress Test For Mario Draghi And The ECB (NY Times)

Mario Draghi indulged the photographers and their rapid-fire shutters for a few moments, making his first appearance for the news media in the European Central Bank’s ostentatious new high-rise headquarters in Frankfurt. Then he shooed the cameras away. He had an important message to deliver. Mr. Draghi, the central bank’s president, told reporters on that early December afternoon that it was ready to deploy new weapons against the eurozone’s dangerously low inflation rate. Though this 19-nation bloc is one of the world’s richest economies, it has never really recovered from the 2008 global financial crisis. And low inflation is one of the impediments to growth. Emphasizing every word, Mr. Draghi said that the bank’s governing council had just agreed to prepare “for further measures, which could, if needed, be implemented in a timely manner.”

In the past, such assurances had bought time for Mr. Draghi. His famous vow in 2012 to “do whatever it takes” to save the euro currency union had seemed to work without the bank having to actually take much action. But on this day, after months of Mr. Draghi’s saying the equivalent of “stay tuned,” his statement of resolve failed to work the old magic. European stock markets sagged even as he spoke. The reaction by investors, whose money and faith will be crucial to any true economic recovery, raised an ominous question: Is the man who is arguably the most powerful official in Europe really powerful enough to pull the eurozone out of its doldrums?

“A central bank claiming that it will do ‘whatever it takes’ while not delivering with actions eventually loses its credibility,” said Athanasios Orphanides, a former ECB board member. “It is difficult to escape the conclusion that the E.C.B. has not been operating in a manner that promotes fulfillment of its mandate.” Mr. Draghi’s quandary is that the actions that might save the eurozone also threaten to divide it. As he begins the fourth year of an eight-year term, the central bank has still not pursued the path that many economists say offers the greatest hope to millions of Europeans to escape from a “lost decade” of stagnation: buying government bonds and other financial assets in huge numbers. Such an approach, known as quantitative easing, was used successfully by the Federal Reserve in the United States. The idea is to pump money into the financial system, encouraging more lending and spending and kick-starting the economy.

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Interest rates may trigger all of these.

Ten Warning Signs Of A Market Crash In 2015 (Telegraph)

The FTSE 100 slid on the first day of trading in 2015. Here are 10 warning signs that the markets may drop further.

Vix fear gauge For five years, investor fear of risk has been drugged into somnolence by repeated injections of quantitative easing. The lack of fear has led to a world where price and risk have become estranged. As credit conditions are tightened in the US and China, the law of unintended consequences will hold sway in 2015 as investors wake up. The Vix, the so-called “fear index” that measures volatility, spiked to 18.4 on Friday, above the average of 14.5 recorded last year.

Rising US Treasury yields With the Federal Reserve poised to raise interest rates for the first time in almost a decade, and the latest QE3 bond-buying programme ending in October last year, credit markets are expecting a poor year for US Treasuries. The yield on two-year US Treasuries has more than doubled from 0.31pc to 0.74pc since October.

Credit insurance Along with the increased US Treasury yields, the cost of insuring against corporate credits going bad is also going up. The cost of insuring investment grade US corporate credit against default has become 20pc more expensive, rising from lows of 55 to 66 since July, according to Markit.

Rising US credit risk The wider credit market is also flashing warning signs. The TED spread, as reported by Bloomberg, is the difference between the rate US banks are willing to lend to each other and the Federal Reserve rate, which is seen as risk free. The TED spread is taken as the perceived credit risk in the general economy, and increased 9pc in December to its highest level since the end of 2013.

Rising UK bank risk In the UK, a key measure of risk in the London banking sector is the difference between the London interbank offered rate (Libor) and the overnight indexed swap (OIS) rate, also called the Libor-OIS spread. This shows the difference between the rate at which London banks are willing to lend to each other and the Federal Reserve rate which is seen as risk free. On Friday, the Libor-OIS spread reached its highest level since October 2012.

Interest rate shock Interest rates have been held at emergency lows in the UK and US for around five years. The US is expected to move first, with rates starting to rise from the current 0-0.25pc around the middle of the year. Investors have already starting buying dollars in anticipation of a strengthening US currency, with the pound falling 10pc against the dollar since July to hit 1.538 on Friday. UK interest rate rises are expected by the end of the year.

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Bumpy?!

Bosten Fed’s Rosengren: Rate Increases May Be Bumpy For Markets (MarketWatch)

Low long-term interest rates signal that the Federal Reserve’s coming increases could be bumpy for investors, Eric Rosengren, the president of the Boston regional branch of the U.S. central bank, said Saturday. The 10-year bond’s current 2.15% yield is “not a rate that is going to be sustainable in a completely normalized economy, which does imply the 10-year rate at some point in the normalization process will not be as low as it currently is,” Rosengren told the American Economic Association. That indicates that there may be “bumpier ride” than the prior two Fed tightening cycles in 1994 and 2004 “just because there needs to be an adjustment at some point along the cycle,” Rosengren said.

The Boston Fed president also noted that it is also “unusual” how much the stock market has risen before the first rate increased compared with the last two periods. Offsetting concerns about possible volatility is that the Fed can afford to be “patient” in tightening because inflation is so low, he said. “As long as we’re experiencing very low inflation, there is no reason for the path[of rate hikes] to be particularly abrupt,” Rosengren said. Mark Gertler, an expert on monetary policy at New York University, told the same panel that the Fed funds rate could reach 4%-5% over a two-year period once the central bank starts tightening. Rosengren said his estimate was a little less, with the funds rate reaching 3.75%-4% over the same period.

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“Trust, not cash, is the fuel that makes the financial system function ..”

Wall Street’s Big Problem In 2015 Is Trust (CFA Institute)

To the U.S. prosecutors moving forward with insider trading charges all I can say is “good luck.” Wall Street isn’t afraid of you. The U.S. appeals court’s stunning, unanimous decision to overturn the December 2012 convictions of two hedge fund traders has blown the doors off the legal definition of insider trading. According to the ruling, insider trading may be legal in certain circumstances, even if it gives an investor an unfair advantage. This decision will likely reinforce the lack of trust in financial services professionals and the belief that the markets are rigged for a select few. It was yet another reputation-damaging year in the financial services industry: the collapse of Espirito Santo bank, corruption scandals in Brazil’s state oil company Petrobras and investigations of insider-trading at France’s BNP Paribas.

Closer to home, the SEC is investigating fees charged by private equity advisers, and five major U.S. banks agreed to pay $4.3 billion to settle charges of systematically manipulating the foreign currency markets, with criminal prosecutions still a possibility. It’s clear that recent scandals and the regulatory reforms they provoked have not sufficiently changed how some participants in the financial industry conduct their business. As participants in that industry, we’re doing the public – and ourselves – an injustice if we write the litany of scandals off as “just a few bad apples” or even worse, as the price of doing business. We are making it too easy for the public to equate the finance industry with self-dealing, dishonesty and corruption. Trust, not cash, is the fuel that makes the financial system function, and when investors, big and small, start to regard the system as one rigged against them, the risk of collapse will never be far away.

Acting on this belief for the past four years we’ve conducted a Global Market Sentiment Survey (GMSS) to invite the insights and perspectives of our members — respected industry experts — on the economy, market integrity, and their expectations for the coming year. This year, members said that they expect the world economy to grow, and their concerns over the negative impact of central banks’ tapering of quantitative easing programs have eased. On the other hand, their optimism is tempered by the potential for continued weakness in developed economies as well as the ongoing effects of political instability in many regions. The greatest area of concern for the health of the global economy, however, remains the same as it has year after year: the lack of trust in the industry.

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Thing is, you’d have to repeat this all the time.

Japan’s Cash Helicopter May Be First To Take Off (Reuters)

Japan could become the first rich nation to launch helicopter money. Dissatisfaction with deflation and growing disillusionment with quantitative easing might prompt the country to reach for the final trick in the monetarist playbook. Economist Milton Friedman first conjured up the enticing image of bank notes dropping from the skies in 1969. Thirty years later, Ben Bernanke proposed a helicopter drop of cash as an antidote for Japan’s anaemic demand and falling prices. The future Fed chairman’s suggestion was too outlandish for what was then still a conservative Bank of Japan. The central bank had already cut interest rates to zero, and subsequently embarked on quantitative easing. But that’s about as far as it has been prepared to go.

Yet QE is failing to live up to its billing. The monetary authority is buying staggeringly large quantities of financial assets from banks in return for newly-printed yen. Government bonds worth about $1.7 trillion – a quarter of the outstanding amount – have already vanished into the BOJ’s vaults. This bond-buying spree has yet to launch a self-sustaining cycle of private demand, or lift inflation to the central bank’s 2% target. A panicky BOJ policy board decided in October to expand its asset purchases by as much as 60%. QE makes cheap cash available to banks to lend, but they can’t do so unless there are willing borrowers with profitable investment opportunities – a problem in ageing Japan. This is where Friedman’s helicopter comes in by giving cash directly to households.

The mechanics would be relatively straightforward. Assume each of Japan’s 52 million households received a debit card with, say, 200,000 yen ($1,700) loaded onto it by the central bank. Any remaining balance on the cards would disappear after a year, ensuring that recipients spent the windfall. The move would inject an extra 10 trillion yen, or 2% of GDP, of private purchasing power into the economy. This in turn would encourage companies to invest and pay higher wages. The net effect would resemble a tax cut, but one financed by newly printed money rather than government debt. For Japan, whose government debt already equals 245% of GDP, being able to stimulate the economy without having to sell more bonds would be a major advantage. Consumers could spend freely in the knowledge that they would not have to repay the windfall in future in the form of higher taxes.

But if Friedman’s helicopter is such a doughty anti-deflation tool, why has no central bank used it yet? The usual answer is that tax cuts are fiscal decisions that only elected governments can make. Monetising the government’s debt is a recipe for a debased currency and hyperinflation. Japan has given cash to its citizens in the past and may do so again. But the cheques have always come from the government, not the central bank. Upsetting this status quo will mean the finance ministry loses control of fiscal policy. Politicians won’t let such a thing happen. The BOJ might also baulk at such a radical move: its policy board only narrowly approved the recent expansion of QE. Yet Japan could introduce a money-financed tax cut by stealth. Suppose that QE ends in late 2016. By then, the BOJ will own almost two-fifths of Japan’s government debt. Any attempt to sell those bonds back to the private sector could undermine the country’s economic and financial stability.

Adair Turner, former chairman of Britain’s Financial Services Authority, has suggested converting the central bank’s government bonds into perpetual, zero-coupon securities. With one stroke of its pen, the government would be free of its obligation to repay the debt. The pressing need for Japan to raise taxes would vanish. The fragile consumer economy, which buckled under the burden of a modest increase in the sales tax last April, would breathe a sigh of relief. This too will be a money-financed tax cut by the back door, without the need for helicopters or debit cards. Such an experiment in monetary manipulation would attract a worldwide audience. Many rich nations have depleted their rate-cutting arsenal. If the fight against long-term deflationary stagnation becomes a losing battle, Friedman’s helicopters might not just be flying over Japan.

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“The industry has a cost problem that cannot be met forever by shrinking capital expenditures and selling assets.”

Oil Price Slump May Spur European Oil and Gas Deal-Making (NY Times)

There was $383 billion in mergers and acquisitions in the oil and gas sector last year, as of Dec. 11. Yet Europe has largely missed out: About three-quarters of the targets have been in North America, according to Thomson Reuters data. Shale has played a big role. In 2015, oil and gas bankers in Europe will get a bigger slice of the action. The sharp drop in the price of crude oil, to around $60 a barrel, will make it harder to get deals done in the short term. It makes everyone more cautious. Buyers worry that prices can fall further, while the seller’s instinct is to hold out for a recovery. The last big fall in oil prices, at the end of 2008, was too short to push a big merger and acquisition wave.

But if the current oil price persists, financial stress may make small players vulnerable. Net debt at explorers including Afren, EnQuest, Premier Oil and Tullow Oil could all reach three times earnings before interest, taxes, depreciation and amortization, or more, if oil remains at $60 through 2015, Barclays estimates. Cash-rich Repsol of Spain already took the plunge with an $8.3 billion bid last month for the Canadian oil and natural gas producer Talisman Energy. Chinese companies, active in the past, have a lot on their plate with big capital commitments, but buyout groups have raised billions of dollars to invest, including in energy infrastructure assets.

All-stock defensive mergers of the type seen in the late 1990s are possible, too. This has already started on a small scale with Ophir Energy’s all-share takeover of Salamander Energy. The industry has a cost problem that cannot be met forever by shrinking capital expenditures and selling assets. BP’s former chairman, John Browne, wrote in his memoir that a merger with Shell, pondered while he was at the helm, might have delivered $9 billion in annual synergies. BP faces big liabilities in the Gulf of Mexico and volatility in Russia. BG Group of Britain has long been a target, and the new chief executive starts in March. It’s not clear that Shell, the wallflower in the 1990s, will make a move. Exxon and other majors in the United States might be tempted. Either way, chances are Big Oil will get even bigger next year.

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“The average net worth of households under 30 has fallen 48% since 2007 to $44,354.”

Endangered Species: Young US Entrepreneurs (WSJ)

The share of people under age 30 who own private businesses has reached a 24-year-low, according to new data, underscoring financial challenges and a low tolerance for risk among young Americans. Roughly 3.6% of households headed by adults younger than 30 owned stakes in private companies, according to an analysis by The Wall Street Journal of recently released Federal Reserve data from 2013. That compares with 10.6% in 1989—when the central bank began collecting standard data on Americans’ incomes and net worth—and 6.1% in 2010. The Journal’s findings run counter to the widely held stereotype of 20-somethings as entrepreneurial risk-takers. The sharp decline in business ownership among young adults, even when taking into account the aging population, adds to worries about business formation heading into 2015, economists said.

The number of new U.S. business establishments fell in the first quarter of 2014, according to the latest available data from the U.S. Labor Department. It is difficult to pinpoint the precise reasons for the decline in private business ownership among young Americans. One theory is that they face more postrecession challenges raising money. Such fast-growing sectors as energy and health care likely require a significant access to credit or capital. The decline also reflects a generation struggling to find a spot in the workforce. Younger workers have had trouble gaining the skills and experience that can be helpful in starting a business. Some doubt their ability. Business ownership among young adults likely remained at low levels in the year that just ended, say some economists.

“I wouldn’t expect to see a major pickup” in young adults starting or owning businesses this year, given that it’s easier for them to find jobs, said Robert Litan, a Brookings Institution economist. [..] The plunge in business ownership captured in the Fed survey is an “interesting and worrisome finding,” said John Davis, faculty chair of the Families in Business Program at Harvard Business School. If the trend continues, he said, the U.S. economy could become less vibrant. “We need startups not only for employment, but also for ideas,” Mr. Davis said. “It’s part of the vitality of this country to have people starting new businesses and trying new things.” The decline in young entrepreneurs is part of a broader drop in private business ownership over the past 25 years.

Between 2000 and 2012, new business formation slowed even in such high-growth sectors as technology, according to economists John Haltiwanger and Ryan Decker of the University of Maryland and Javier Miranda of the Census Bureau. Slowing U.S. population growth since the early 1980s has reduced the supply of potential entrepreneurs of all ages, and lessened demand for new goods and services, said Mr. Litan of the Brookings Institution. Meanwhile, business consolidation has led to more formidable competition for startups, making it harder for new entrants to gain a spot in the market, he said. Overall, the U.S. “startup rate”—new firms as a portion of all firms—fell by nearly half between 1978 and 2011, according to an analysis by Mr. Litan and his research partner, economist Ian Hathaway.[..] The average net worth of households under 30 has fallen 48% since 2007 to $44,354.

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Let’s see some proof.

North Korea Responds With Fury To US Sanctions (Guardian)

North Korea has issued a furious statement slamming the United States for imposing sanctions in retaliation for its alleged cyber-attack on Sony Pictures. It again denied any role in the breach of tens of thousands of confidential Sony emails and business files. An unnamed spokesman at North Korea’s foreign ministry on Sunday accused the US of “groundlessly” stirring up hostility toward Pyongyang and claimed the new sanctions would not weaken the country’s military might. US president Barack Obama last week authorised a new layer of sanctions on several Pyongyang institutions and officials, in the wake of the crippling hacking attack on the Hollywood movie studio. US investigators have said North Korea was behind the attack in November, but some experts have raised doubts about the conclusions of the FBI probe.

Pyongyang has repeatedly denied involvement and demanded a joint investigation into the attack – a proposal the US has ignored. North Korea’s foreign ministry said Washington’s rejection of the proposal revealed its “guilty conscience”. It said the US was using the attack to further isolate the North in the international community. “The persistent and unilateral action taken by the White House to slap ’sanctions’ … patently proves that it is still not away from inveterate repugnancy and hostility toward [North Korea],” the ministry spokesman told the state-run KCNA news agency. The impoverished but nuclear-armed state is already heavily sanctioned following a series of nuclear and missile tests staged in violation of UN resolutions. The spokesman also said the new sanctions would further push the North to strengthen its military-first policy known as Songgun.

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And have it managed by banks, for a nice fee.

Retired Workers Could Be Given Right To Sell Their Pensions (Guardian)

Millions of retired workers could be given the right to sell their pensions under plans being floated by a Liberal Democrat minister. Pensions minister Steve Webb said that he wanted to build on reforms in last year’s Budget which will mean that from April, working people will be able to cash in their pension savings for a lump sum when they retire. In an interview with The Sunday Telegraph, he said that he wanted to extend the scheme to existing pensioners, enabling them to sell the annuities they had been required to buy under the old rules to the highest bidder. “I want to see people trusted with their own money wherever possible. I have already heard from people around the country who would like to see this change made,” he said.

“I want to see if we can get these freedoms extended to those who are receiving an annuity, but who might prefer a cash lump sum. “No one would be obliged to do so, but for those who would prefer up-front capital to regular income, I can see no reason why this should not be an option.” Webb said that he would like to launch a public consultation and publish an agreed coalition plan before the general election. But with time running out ahead of polling day on May 7, he indicated that he would be seeking support from Labour so as to ensure the reforms could be carried through early in the next parliament, regardless of the outcome of the election.

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Intentional errors?

The West Is Wrong Again In Its Fight Against Terror (Independent)

Islamic State (Isis) will remain at the centre of the escalating crisis in the Middle East this year as it was in 2014. The territories it conquered in a series of lightning campaigns last summer remain almost entirely under its control, even though it has lost some towns to the Kurds and Shia militias in recent weeks. United States air strikes in Iraq from 8 August and Syria from 23 September may have slowed up Isis advances and inflicted heavy casualties on its forces in the Syrian Kurdish town of Kobani. But Isis has its own state machinery and is conscripting tens of thousands of fighters to replace casualties, enabling it to fight on multiple fronts from Jalawla on Iraq’s border with Iran to the outskirts of Aleppo in Syria.

In western Syria, Isis is a growing power as the Syrian government of President Bashar al-Assad loses its advantage of fighting a fragmented opposition, that is now uniting under the leadership of Isis and Jabhat al-Nusra, the Syrian affiliate of al-Qaeda. Yet it is only a year ago that President Obama dismissed the importance of Isis, comparing it to a junior university basketball team. Speaking of Isis last January, he said that “the analogy we use around here sometimes, and I think it is accurate, is if a JV [junior varsity] team puts on Lakers uniforms it doesn’t make them Kobe Bryant [famed player for the Los Angeles Lakers basketball team].” A year later Obama’s flip tone and disastrously inaccurate judgement jumps out at one from the page, but at the time it must have been the majority view of his national security staff.

Underrating the strength of Isis was the third of three great mistakes made by the US and its Western allies in Syria since 2011, errors that fostered the explosive growth of Isis. Between 2011 and 2013 they were convinced that Assad would fall in much the same way as Muammar Gaddafi had in Libya. Despite repeated warnings from the Iraqi government, Washington never took on board that the continuing war in Syria would upset the balance of forces in Iraq and lead to a resumption of the civil war there. Instead they blamed everything that was going wrong in Iraq on Prime Minister Nouri al-Maliki, who has a great deal to answer for but was not the root cause of Iraq’s return to war. The Sunni monarchies of the Gulf were probably not so naïve and could see that aiding jihadi rebels in Syria would spill over and weaken the Shia government in Iraq.

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Word.

‘Premier Of War’: Czech President Says Yatsenyuk Not Seeking Peace (RT)

Czech President Milos Zeman has slammed Ukrainian Prime Minister Arseny Yatsenyuk, calling him “a prime minister of war” because he is unwilling to peacefully solve the civil conflict in the country. “From the statements by PM Yatsenyuk, I think that he is a ‘prime minister of war’, because he does not want a peaceful solution to the crisis [in Ukraine] recommended by the European Commission,” Zeman told Pravo, a Czech daily newspaper. Yatsenyuk wants to solve Ukrainian conflict “by the use of force,” added the Czech leader. According to Zeman, the current policy of Kiev authorities has two “faces.”

The first is the “face” of the country’s president, Petro Poroshenko, who “may be a man of peace.” The second “face” is that of PM Yatsenyuk, who has an uncompromising position toward self-defense forces in Eastern Ukraine. Zeman said he doesn’t’ believe that the February coup, during which then-President Viktor Yanukovich was deposed from power, was a democratic revolution at all. “Maidan was not a democratic revolution, and I believe that Ukraine is in a state of civil war,” Zeman said, responding to what he described as “poorly informed people” who compared Maidan with Czechoslovakia’s Velvet Revolution in 1989.

In November 2013, the initially peaceful demonstrations which started as a reaction to then-President Viktor Yanukovich’s refusal to sign the EU association deal became violent in early 2014. Kiev’s central Independence Square – Maidan Nezalezhnosty – was turned into a battlefield as Ukrainian protesters clashed with police through January and February. The unrest resulted in a coup that toppled Yanukovich and his government in February. The Republic of Crimea’s withdrawal from Ukraine was followed by a conflict in the country’s southeast. According to UN figures, at least 4,317 people have been killed and 9,921 wounded in the conflict in eastern Ukraine since April when Kiev authorities launched a so-called anti-terrorist operation in the region.

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A huge problem all over Europe.

Dresden Crowds Tell A Chilling Tale Of Europe’s Fear Of Migrants (Observer)

The precipitous rise of Pegida, or Patriotische Europäer gegen die Islamisierung des Abendlandes (Patriotic Europeans against the Islamisation of the west), a populist anti-immigrant movement, has shaken Germany’s main parties to the core and prompted an acrimonious debate at a time when Europe’s biggest economy is straining to deal with a record intake of more than 200,000 asylum seekers in 2014 – mainly from Iraq and Syria – a figure higher than any other country in Europe and which is due to rise considerably this year. Merkel’s condemnation of the group gives voice to growing concern among established parties in Europe about the impact immigration is having on domestic politics, in what will be a crucial election year across the continent.

This week Merkel will travel to London for talks with David Cameron. While the main thrust of their discussions will be on Russia and Ukraine and the economy, the two will probably not be able to avoid talking about the rise of parties such as Ukip and AfD/Pegida, or Cameron’s plans to curb migration from Europe as he seeks to renegotiate the terms of the UK’s EU membership. Merkel will visit the British Museum’s exhibition, Germany: Memories of a Nation, a trawl through 600 years of German history, which inevitably gives space to the war – one of the most striking exhibits is the gate of Buchenwald concentration camp – and will further remind Merkel why immigration is so important for her country’s image of itself as a modern, progressive and welcoming land. But it is an image that is under threat. Monday’s Pegida demonstration will be extremely closely observed, by everyone from constitutional experts to sociologists and experts in neo-Nazism.

The questions most frequently addressed are what has prompted Pegida and how it can be dealt with. To condemn it means potentially isolating voters and fuelling the movement even more. But to ignore what is after all still a fledgling movement with no mandate seems too perilous a position for German politicians duty-bound to keep in mind the country’s Nazi past. Already there are suggestions, so far unfounded, of a link between the recent apparent arson attack on a hostel for asylum seekers near Nuremberg, which was daubed with swastikas and anti-immigration slogans, and a pre-Christmas graffiti onslaught on a mosque in Dormagen in North Rhine-Westphalia, which was also smeared with swastikas and slogans such as “Get yourself to concentration camp” and “Waffen SS”. Such incidents have only served to stoke the tension.

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I’ve known Nanko for a long time, haven’t seen him in ten years or so now. Very brave man, and very respected by all sides in Rio. Which is so hard to do.

Inside The Favela Too Violent For Rio’s Armed Police (Observer)

“Yeah, I want to get out,” says Ricardo, 21. Then, relaxing, he takes the hand-grenade he has been toying with on his lap and places it amid the beer bottles on the table. In Vila Aliança in Bangu, western Rio, this is not particularly unusual behaviour. Outsiders rarely come to this lawless favela – a centre of the drugs trade in Rio de Janeiro – and the armed bandidos who guard the area from police raids and rival gangs had been monitoring my approach for miles. As our car wound through the narrow roads, smiling children and friendly teenage boys wearing shorts and flip-flops and carrying rifles appeared. Vila Aliança is not on the list of favelas earmarked for “pacification” – military intervention that paves the way for a permanent Pacifying Police Unit (UPP) to move in to improve security before the 2016 Olympics.

The UPP project has been credited with improving security in 38 communities, but this violent and dangerous favela remains beyond the pale. Nanko van Buuren, a Dutchman in his 60s, has been coming to the city’s most marginalised areas for decades. His Ibiss foundation runs the Soldados Nunca Mais (Soldiers Never More) project. In Vila Aliança he is greeted as paitrao, a Portuguese neologism that combines the words for “boss” and “father”. “Nearly all [traffickers] would get out tomorrow if they could,” says van Buuren. Most start in the drugs trade as young teenagers and four fifths are likely to die before reaching 21. Since 2000, the Soldados project has used sport, arts and peer counselling to help 4,300 “child soldiers” leave a way of life that guarantees early death or imprisonment.

It also uses sport to build bridges between youths raised on hostility towards rival gangs. “What interests me is seeing how people respond to social exclusion,” says van Buuren, referring to the resilience of people in the 64 favelas where 340 Ibiss staff work. For the former World Health Organisation psychiatrist, who came to Rio in 1985, it is the role of peacemaker of which he is proudest. Building peace in communities like Vila Aliança, where a parallel power structure has evolved over decades of state neglect, is nightmarishly difficult, as residents are routinely caught in the crossfire between gangs and police ..

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Great story.

Ecuadorian Student Invents Revolutionary ‘Bat Sonar’ Suit For The Blind (RT)

The bat’s navigation system has inspired an Ecuadorian student to create an innovative costume that allows blind people to move around freely without a cane. “The suit is equipped with ultrasonic sensors to enable the person navigate in different surroundings. It emits vibrations to direct the person and warn of different objects near him,” Inti Condo, the suit’s creator, told RT’s Spanish channel. According to Condo, his invention, which started as a student project, represents an electronic copy of a biological navigations system used by bats. His project is entitled Runa Tech (Human Technology) in Kechua, which is the most widely spoken language among the indigenous peoples of South America.

The Runa Tech costume has a total of seven sensors, which are located in strategic areas of human body, including the waist, hands and shoulders. It adjusts to the rate at which the wearer is walking and warns him or her of looming threats, including staircases and other obstacles. The intensity of vibration in the suit increases the closer the person is to a dangerous object, preventing possible accidents. A single Runa Tech costume now costs an expensive $5,000, and the technology is so far unable to withstand contact with water. It’s also currently impossible to wear a coat or any other overclothes with the suit, as it would prevent the sensors from working, Pichincha Universal website reports.

But the project has already attracted interest from private investors, with Ecuador’s Yachay Tech University also promising to help the student improve his suit. “Our organization looking into the issue to advise on the ergonomics of the invention and the feasibility of its subsequent mass production,” Hector Rodriguez, Yachay’s geneneral director, said. Condo is a member of an ethnic diversification program at the San Francisco de Quito University, which attracts students from Ecuador’s indigenous communities. “These guys really want to achieve great success and commit themselves to the development of the Indian peoples. They prove that they are only needed to be given a chance in order to prove themselves,” David Romo, who heads the ethnic diversification program, said.

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