media Archives - Page 5 of 5 - The Automatic Earth

Now only one question matters for global investors – Wo ist der Hubschrauber? (Where is the helicopter?). The decline of European commercial bank share-prices before Brexit made it clear that a monetary reflation of Europe was failing. The collapse in these same share-prices post-Brexit means that even the politicians now realise that the ECB acting alone cannot stabilize the European economy. Indeed, given the evident political strains in the European Union, saving the economy from recession is now key to saving the European political union project itself. So, will Mrs Merkel abolish fiscal austerity across Europe and permit each of the states of the European political union expand their debt mountains at the same time that the ECB is buying that debt?

Are the keys to der Hubschrauber to be handed over? To save the European political union Germany must now confront its greatest fear and enfranchise the political union’s central bank to conduct outright monetary financing of all its constituent governments. Investors need to remain very cautious indeed as it is in no way clear that Mrs Merkel will hand over the keys to der Hubschruaber. Should she do so, however, major changes in investment allocation are necessary as helicopter money will be raining from the skies in Japan, the Eurozone, the UK and even in the USA if President Clinton also wins the House and the Senate.

This form of reflation will likely work and in due course work too much. Few things are binary in investment, but this huge decision to be taken in Berlin is the biggest binary event for investors this analyst has yet come across. The repercussions will reverberate throughout this century. This analyst would like to present you with a firm forecast as to the possibility of ‘helicopter money’ coming to the European political union. However, it is too close to call. Even if that assertion is correct, this is truly dire news for financial markets.

What? “..the global yield grab is raising questions about whether rates can prove reliable economic indicators.” That’s an actual question?

• Black Hole of Negative Rates Is Dragging Down Yields Everywhere (WSJ)

The free fall in yields on developed-world government debt is dragging down rates on global bonds broadly, from sovereign debt in Taiwan and Lithuania to corporate bonds in the U.S., as investors fan out further in search of income. The ever-widening rush for yield could create problems if interest rates snap back, which would cause losses on investors’ low-yielding portfolios, or if credit quality falls. And the global yield grab is raising questions about whether rates can prove reliable economic indicators. Yields in the U.S., Europe and Japan have been plummeting as investors pile into government debt in the face of tepid growth, low inflation and high uncertainty, and as central banks cut rates into negative territory in many countries.

Even Friday, despite a strong U.S. jobs report that helped send the S&P 500 to nearly a record, yields on the 10-year Treasury note ultimately declined to a record close of 1.366% as investors took advantage of a brief rise in yields on the report’s headlines to buy more bonds. Yields move in the opposite direction of price. As yields keep falling in these haven markets, investors are looking for income elsewhere, creating a black hole that is sucking down rates in ever longer maturities, emerging markets and riskier corporate debt. “What we are seeing is a mechanical yield grab taking place in global bonds,” said Jack Kelly at Standard Life Investments. “The pace of that yield grab accelerates as more bond markets move into negative yields and investors search for a smaller pool of substitutes.”

Self-fulfilling perversity.

• 70% Of German Bonds Are No Longer Eligible For ECB Purchases (ZH)

Back in April of 2015, we warned that the biggest risk facing the ECB is running out of eligible securities which the central bank can monetize. Draghi’s recent launch of the CSPP, in which the ECB has been buying not only investment grade but also junk bonds, is an indirect confirmation of that. A direct one comes courtesy of a Bloomberg calculation according to which following a seventh straight week of gains in German bunds, the yields on securities of all maturities has plunged to unprecedented lows, which has left about $801 billion of debt out of the statutory reach of the ECB. As noted earlier, there is now $13 trillion of global negative-yielding debt. That compares with $11 trillion before the Brexit vote.

The surge in sovereign debt since Britain’s vote to exit the European Union last month has pushed yields on about 70% of the securities in the $1.1-trillion Bloomberg Germany Sovereign Bond Index below the ECB’s -0.4% deposit rate, making them ineligible for the institution’s quantitative-easing program. For the euro area as a whole, the total rises to almost $2 trillion. As Bloomberg adds, following a rush for safety and a scramble for capital appreciation ahead of more ECB debt purchases, the yield on German 10-year bunds to a record-low, and those on securities due in up to 15 years below zero, even though – paradoxically – the rush to buy these bonds has made them no longer eligible for direct ECB purchases as they now have a yield lower than the ECB’s deposit rate threshold.

Or rather, they are ineligible for the time being. As a result, the rally has boosted the same concerns we warned about for the first time in the summer of 2014, namely that the ECB’s Public Sector Purchase Programme could run into scarcity problems well before its completion date of March 2017, prompting speculation policy makers may tweak their plan.

“..the economic gods created market-based price discovery for a reason. It was to insure that in the great arena of financial market supply and demand, the forces of fear and greed would contend on a level playing field..”

• Wall Street Monkeyshines – Look Ma, No Hands! (David Stockman)

The boys and girls on Wall Street are now riding their bikes with no hands and eyes wide shut. That’s the only way to explain Friday’s lunatic buying spree in response to another jobs report that proves exactly nothing about an allegedly resurgent economy. When the S&P 500 first hit 2130 back in May 2015, reported LTM earnings were $99.25 per share, and that was already down 6.4% from the cyclical high of $106 per share in September 2014. Thus, stocks were being valued at a nosebleed 21.5X in the face of falling earnings. During the four quarters since then, reported LTM earnings have slumped by a further 12.3% to $87 per share. So that brings the “cap rate” to 24.5X earnings that have shrunk by 18% over the last six quarters. Wee!

You have to use the parenthetical because the casino is not capitalizing anything rational. It’s just drifting higher in daredevil fashion until something big and nasty stops it. That something would be global deflation and US recession. Both are racing down the pike at accelerating speed. Needless to say, when these lethal economic forces finally hit home, the puppy pile-up on Wall Street is going to be one bloody mess. But that’s the price you pay when you have destroyed honest price discovery entirely, and have transformed the money and capital markets into robo-machine driven venues of rank speculation. Janet Yellen and the other 100 clowns who run the world’s central banks, of course, have no clue as to the financial doomsday machine they have enabled. Indeed, they apparently think efficient pricing and allocation of capital doesn’t matter.

After all, their entire modus operandi is to peg the price of money, bonds and the yield curve sharply below market-clearing levels – so that households and business will borrow and spend more than otherwise. Likewise, they aim to goose stock prices to ever higher levels. That’s so the top 10% and the top 1%, who own the preponderant share of equities, will feel the wealth(effects) and then spend-up and invest-up a storm. But the economic gods created market-based price discovery for a reason. It was to insure that in the great arena of financial market supply and demand, the forces of fear and greed would contend on a level playing field. Short-sellers and contrarians heading south were to intercept the lemmings of greed heading north before they reached the edge of the cliff. Now there is nothing but cliff.

The idea is that simply because pensions buy stocks, these will go up in ‘value’. Yeah, that should work.. For a week.

• China Pension Readies $300 Billion Warchest for Stock Market (BBG)

China’s pension funds are about to become stock investors. The country’s local retirement savings managers, which have about 2 trillion yuan ($300 billion) for investment, are handing over some of their cash to the National Council for Social Security Fund, which will oversee their investments in securities including equities. The organization will start deploying the cash in the second half, according to China International Capital and CIMB Securities. Chinese policy makers announced the change last year in a bid to boost yields for a pension system that has long suffered low returns by limiting its investments to deposits and government bonds.

For the nation’s equity markets – which are dominated by retail investors and among the world’s worst performers this year – the state fund’s presence is even more valuable than its cash, said Hao Hong, chief China strategist at Bocom International Holdings. The NCSSF has “such a good reputation in being a value investor that if they take the lead, the signaling effect is actually quite strong,” said Hong, who had predicted the start and peak of China’s equity boom last year. “It’s almost like Warren Buffett saying he is buying a stock.” The NCSSF, which oversees 1.5 trillion yuan in reserves for China’s social security system, has returned an average 8.8% a year since 2000, the Securities Daily reported earlier this year, citing official data. The larger pension system, on the other hand, has been locally managed and made just 2.3% annually through 2014, the newspaper said.

Is someone overestimating demand perhaps?

• Massive Stockpile Means Oil Rebound Is Over: Barclays (CNBC)

A massive global stockpile of oil could mean trouble ahead for the global crude market, according to Barclays. Crude oil prices dropped to a two month low on Thursday, after the Energy Information Administration reported a smaller-than-expected decrease in oil stockpiles. That may be a canary in the coalmine, a top energy market watcher explained. “For the last 6 quarters there’s been this discrepancy between global supply and global demand,” Michael Cohen, head of energy commodities research at Barclays, said last week on CNBC’s “Futures Now.” Cohen said Barclays is bearish on oil for the next six to eight months, because the current stockpile could increase in an economic downturn, likely to drive prices lower.

In the summer months, increased travel often increases the demand for gasoline, and drags up crude oil by default. Yet once that season ends, inventory levels may continue to rise. Looking at a chart of the expected crude oil supply compared with the current amount, Cohen said the disconnect is staggering. The chart accounts for oil supply from the 38 countries in the Organization for Economic Cooperation and Development (OECD), which includes the U.S., U.K., France, Germany and Canada, among others. During the recent financial crisis, crude production overhang was 138 million barrels. Now, the overhang is twice that, at 383 million barrels among the OECD, Cohen said.

Given what a disaster Abenomics is, one wonders: how inept can Japan’s opposition be? Abe wins a two-thirds majority?! Can also change the constitution so Japan can go back to war.

• Japan PM Abe To ‘Accelerate Abenomics’ After Huge Election Win (BBG)

Japanese Prime Minister Shinzo Abe’s conservative coalition scored a convincing upper house election win, putting it on course for a two-thirds majority that would allow Abe to press ahead with plans to revise the country’s pacifist constitution. The Liberal Democratic Party secured 56 of the 121 seats in contention, public broadcaster NHK said, while junior coalition partner Komeito had 14. Alongside others who support Abe’s view on constitutional revision, plus uncontested seats, the prime minister is set for a super majority, it said. The results raise questions over whether Abe will switch his focus to altering the postwar U.S.-imposed constitution, a potentially time-consuming process that could expend his political capital and distract the government from its economic program.

Abe vowed during the campaign to focus on policies aimed at expanding the size of the economy to 600 trillion yen ($6 trillion) from 500 trillion yen. “If Prime Minister Abe’s coalition scores a hot, two-thirds majority on Sunday, it might be tempted to pass constitutional changes, draining political capital away from urgently needed economic reforms,” Frederic Neumann at HSBC in Hong Kong, wrote in an e-mailed note before the election. Tokyo shares headed for their biggest gain in almost three months after the upper house election result and as jobs data eased concerns over the U.S. economy. The Topix index added 2.8% to 1,243.93 at 9:43 a.m. in Tokyo.

“Abe said he’ll continue to put together his economic policy package, so that optimism is going to continue to support Japanese shares,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center. Abe’s coalition, which previously held 136 of the 242 seats in the chamber, fended off a challenge from opposition parties that had sought to unify the anti-government vote by avoiding running candidates against one another in many districts. “I think this means I am being told to accelerate Abenomics, so I want to respond to the expectations of the people,” Abe told TBS television after early results were announced.

But EU demands bail-ins these days?

• Deutsche Bank Chief Economist Calls For €150 Billion Bailout Of EU Banks (ZH)

The cards have been tipped, and it appears Italy’s Prime Minister may have been right. In the aftermath of Brexit, much of the investing public’s attention has turned to Italian banks which are in desperate need of a bailout as a result of €360 billion in bad loans growing worse by the day (and not a bail-in, as European regulations mandate, as that would lead to an immediate bank run) to avoid a freeze and/or collapse of Italy’s banking sector. This has pushed stock prices – and default risk – on Italian banks to record levels. So far Italy’s bailout requests have mostly fallen on deaf ears, as Germany’s political leaders have resisted Renzi’s recurring pleas for a taxpayer funded rescue.

However, as we have alleged, and as the Italian Prime Minister admitted last week, the core risk for Europe is not just the Italian banking sector but the biggest bank of all in Europe: Deutsche Bank. Recall last Thursday, when Matteo Renzi said other European banks had much bigger problems than their Italian counterparts. “If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said. He was, of course, referring to the tens of trillions of derivatives on Deutsche Bank’s books. Today, we got the most definitive confirmation yet that the noose is tightening not only around Italy, but Germany itself [..], when none other than David Folkerts-Landau, the chief economist of Deutsche Bank, has called for a multi-billion dollar bailout for European banks.

Speaking to Germany’s Welt am Sonntag, the economist said European institutions should get fresh capital for a recapitalization following a similar bailout in the US. What he didn’t say is that the US bailout took place nearly a decade ago, in the meantime Europe’s financial sector was supposed to be fixed courtesy of “prudent” fiscal and monetary policy. It wasn’t. As Landau says the US helped its banks with $475 billion dollars, and such a program is now needed in Europe, especially for Italian banks. In other words, just because the US did it, now it’s Europe’s turn to ask for more of the same.

“In Europe, the bailout does not need to be so large. A €150 billion program should be enough to help European banks recapitalize,” said David Folkerts-Landau. He adds that the decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a “dangerous” deflation. “Europe is seriously ill and needs to address very quickly the existing problems, or face an accident,” said the chief economist.

Good read. “It’s the inevitable consequence of medieval governance falling prey to the fangs of Wall Street..”

• Bank Born Out of Black Death Struggles to Survive (BBG)

Siena, the medieval city renowned for its Palio horse races, is home to the world’s oldest bank. Within its aging walls lies a distinctly 21st-century tale of devastation wrought by local politicians and global financiers. Banca Monte dei Paschi di Siena, Italy’s third-largest lender, is struggling to survive as it seeks to repay a second bailout or face nationalization. Its downfall proved a boon to global investment banks. They offered merger and investment advice to executives beholden to politicians that helped wipe out 93 percent of Monte Paschi’s value. Then they sold it complex derivatives that hid, even worsened the losses. Efforts to rescue the 541-year-old lender have cost Italian taxpayers €4.1 billion.

The investment banks, including Merrill Lynch, JPMorgan and Deutsche Bank, earned more than $200 million in fees from 2008 through 2011, filings and deal memos show. “These international banks come to exploit, and Italy is vulnerable,” said former Senator Elio Lannutti, who heads Adusbef, a consumer group for Italian bank customers. “On one side, there’s the local incompetence, and on the other side the bad faith of the international investment banks.” Franco Debenedetti, a former CEO of Olivetti, was even blunter. “It’s the inevitable consequence of medieval governance falling prey to the fangs of Wall Street,” said Debenedetti, now chairman of Italy’s Bruno Leoni Institute, a pro-free-market research group in Turin.

[..] ..the heritage of a bank with 2,300 branches and 28,500 employees that traces its origins to combating excessive loan rates. Siena officials founded Monte Paschi in 1472, after the Black Death wiped out more than half the city’s population. They modeled it on the pawnshops Franciscan monks had set up to counter usury. As it grew, the lender helped fuel the Renaissance in Tuscany that pulled Europe from the Middle Ages.

Well, they did it. Congrats! Young people can’t afford to live in their own communities any more. Is there a govenment responsibility here somewhere?

• Australia First-Home Buyers Hit Lowest Level In A Decade (Domain)

First-home buyers are now at their lowest levels in more than a decade, data released on Monday shows. As a proportion of all home buyers, first-home buyers dropped to 13.9% in May, according to housing finance data released by the Australian Bureau of Statistics. Down from 14.4% in April, this latest result is the lowest since 2004. At that time, the proportion fell to a record low 12.8% as grants for first-home buyers came to an end. For first-home buyers to make a significant return prices would have to fall, BIS Shrapnel senior manager of residential Angie Zigomanis said. “A drop in prices of some sort is needed, but we’ll also need a reduction in expectations in terms of what [first-home buyers] are looking for,” Mr Zigomanis said.

“At some point they have to come back, in theory … but for now the market is tough.” And a slowdown might be on the cards. While month-to-month figures can be volatile, overall lending figures are slowing from the frenzied levels of 2015, HSBC chief economist Paul Bloxham said. “We’re seeing a pullback in [housing finance] that has been going on since late last year, which is consistent with the idea that the housing market is set to cool,” he said. “[It’s a result of] tighter prudential settings and is also a sign that the exuberance has come out of the market … there was concern that strong activity from investors was overheating the market.”

Same in Kiwiland: “The leader of the Government is more worried about the short-term fates of leveraged-up speculators and developers than the long-term fate of Generation Rent.”

• The Great New Zealand Housing Down-Trou (Hickey)

Former Reserve Bank Chairman Arthur Grimes essentially undressed our politicians in front of us this week when he challenged them to embrace a 40% fall in Auckland house prices. He exposed them as emperors without clothes. “What I do is whenever I find a politician who says they want affordable housing, I ask them a very simple question: ‘How much do you want house prices to fall by overall?’ “And not one of them has been able to answer that very simple question,” Grimes said this week. He was talking about the extraordinary response to his suggestion 150,000 houses be built in six years to push Auckland prices down. Prime Minister John Key’s response was immediate – and betrayed where he stands on the issue of using a supply shock to make housing affordable.

It was “crazy”, would leave people in the market with huge losses and put pressure on developers. So there we have it. The leader of the Government is more worried about the short-term fates of leveraged-up speculators and developers than the long-term fate of Generation Rent. Despite years of saying the only way to improve housing affordability is to increase supply, his position is any increase in supply that hurts the investors who have bought in the past couple of years is out of the question. The Prime Minister who boasts his Government is aspirational had this to say about going for a really big response to the challenge: “Where you’d get 150,000 homes from overnight, I don’t know.”

Key said he hoped house-price inflation could be slowed by the Government’s measures, with the implication affordability would somehow creep up on everyone with wage increases. The Treasury forecasts wages will rise by an average of 2.2% over the next six years. It also forecasts house prices will rise by an average of 5.7% over the same period. The Government’s own forecasts show this magical affordability catch-up is not going to happen – and is expected to get much worse. Auckland houses cost nearly 10 times household income. That’s double what it was in the early 2000s and almost double the rest of the country. The accepted model for affordability around the world is closer to three times income.

British media are anti-journalism.

• The Media Against Jeremy Corbyn (Jacobin)

The British media has never had much time for Jeremy Corbyn. Within a week of his election as Labour Party leader in September, it was engaging in a campaign the Media Reform Coalition characterized as an attempt to “systematically undermine” his position. In an avalanche of negative coverage 60% of all articles which appeared in the mainstream press about Corbyn were negative with only 13% positive. The newsroom, ostensibly the objective arm of the media, had an even worse record: 62% negative with only 9% positive. This sustained attack had itself followed a month of wildly misleading headlines about Corbyn and his policies in these same outlets. Concerns about sexual assaults on public transport were construed as campaigning for women-only trains.

Advocacy for Keynesian fiscal and monetary policies was presented as a plan to “turn Britain into Zimbabwe.” An appeal to reconsider the foreign policy approach of the last decade was presented as an association with Putin’s Russia. In the months which followed the attacks continued. Particularly egregious examples, such as the criticism of Corbyn for refusing to “bow deeply enough” while paying his respects on Remembrance Day, stick in the memory. But it is the insidious rather than the ridiculous which best characterizes the British media’s approach to Corbyn. One example of this occurred in January when it was revealed that the BBC’s political editor Laura Kuenssberg had coordinated the resignation of a member of Corbyn’s shadow cabinet so that it would occur live on television. Planned for minutes before Corbyn was due to engage in Prime Minister’s Questions, it was a transparent attempt to inflict the maximum damage possible to his leadership.

“..political bribes aren’t free speech and corporations aren’t persons.”

• How the Corporate Food Industry Destroys Democracy (Hartmann)

On July 1, Vermont implemented a law requiring disclosure labels on all food products that contain genetically engineered ingredients, also known as genetically modified organisms or GMOs. Wenonah Hauter, executive director of Food and Water Watch, hailed the law as “the first law enacted in the US that would provide clear labels identifying food made with genetically engineered ingredients. Indeed, stores across the country are already stocking food with clear on-package labels thanks to the Vermont law, because it’s much easier for a company to provide GMO labels on all of the products in its supply chain than just the ones going to one state.”

What that means is that the Vermont labeling law is changing the landscape of our grocery stores, and making it easier than ever to know which products contain GMOs. And less than a week later after that law went into effect, it is under attack. Monsanto and its bought-and-paid-for toadies in Congress are pushing legislation to override Vermont’s law. Democrats who oppose this effort call the Stabenow/Roberts legislation the “Deny Americans the Right to Know” Act, or DARK Act. This isn’t the first time that a DARK Act has been brought forward in the Senate, and one version of the bill was already shot down earlier this year. The most recent version of the bill was brought forward by Michigan Democratic Sen. Debbie Stabenow and Kansas Republican Sen. Pat Roberts, both recipients of substantial contributions from Big Agriculture.

Stabenow has received more than $600,000 in campaign contributions since 2011 from the Crop Production and Basic Processing Industry, and Pat Roberts has received more than $600,000 from the Agricultural Services and Products industry. When Senator Stabenow unveiled the industry-friendly legislation, she boasted that, “For the first time ever, consumers will have a national, mandatory label for food products that contain genetically modified ingredients.” Which sounds great, and it would be great, if it were true. But the fact is, the DARK Act would set up a system of voluntary labeling that would overturn Vermont’s labeling law and replace it with a law that’s riddled with so many loopholes and exemptions that it would only apply to very few products, and there’s no enforcement mechanism and no penalties or consequences of any kind for defying the bill.

[..] If our democracy actually worked, this bill never would have seen the light of day, because people overwhelmingly want to know what’s in their food and support GMO labeling. But our democracy doesn’t work, because our lawmakers are bought and paid for by special interests like Monsanto. If we want our lawmakers to pass popular laws that actually work, we need to get money out of politics, we need to overturn Citizens United and we need to amend the Constitution to make it clear that political bribes aren’t free speech and corporations aren’t persons.

” It’s not the independence of Britain from Europe, but the independence of Europe from the USA.”

• 10 Years (Or Less): Orwell’s Vision Coming True (SHTF)

In the wake of all of the Brexit vote, a chilling blurb made headlines and it went largely unnoticed and uncommented upon. The line was couched within comments made by Boris Titov, an economic policy maker for Russia’s Kremlin. Actually all of the following merits attention, but one line stands out. The source for this excerpt is a Facebook post by Titov. Here it is: “…it seems it has happened — UK out!!! In my opinion, the most important long-term consequence of all this is that the exit will take Europe away from the anglo-saxons, meaning from the USA. It’s not the independence of Britain from Europe, but the independence of Europe from the USA. And it’s not long until a united Eurasia — about 10 years.”

This is a very revealing post to show how unfavorably the past 50 years of post-World War II American imperialism has been viewed. The tipping point, as mentioned in a previous article was the outright 180º that George H.W. Bush pulled on Mikhail Gorbachev: the promise of NATO membership upon reunification of the two Germany’s and the dissolution of the Soviet Union, and then not fulfilling that promise.

The American corporate interests inserted themselves, as the communist government shattered, leaving in its wake oligarchs, the Russian mafia, and a “Wild West” environment within Russia proper and the ex-SSR’s, the former Soviet satellite nations. A tremendous amount of chaos occurred for a decade that was both enabled and further fostered by the United States. The perception in Russia even before the Soviet Union came into being was that Russians were in an economic war with Great Britain, and the United States was looked upon as an “extension” of Britain: a country with language, law, and cultural parallels,especially in terms of expansion.

As of the past several years, the United States has been encroaching upon Russian territory and economic interests. That encroachment has intensified into a U.S.-created “Cold War Resurrection” stance with the bolstering of NATO forces in the Baltic states. The U.S. is virtually thumbing its nose at Russia with the distribution of the “anti-ballistic missile systems” emplaced in places such as Moldova. As Putin pointed out, it takes not even a sneeze and a couple of hours to convert those platforms into use for Tomahawks with nuclear capability. The Russians did not exercise “en passant” with such an opener, and are placing missiles of their own to face the U.S. assets.

9/11, 3/11, 7/7, 11/13

Nov 152015

November 15, 2015 Posted by Raúl Ilargi Meijer at 8:47 pm Finance Tagged with: civilization, dead, media, narrative, oppressors, Paris, respect, terminal, terror 11 Responses »

Osama Hajjaj Madeleine Pleure 2015

9/11, 3/11, 7/7, 11/13 = New York, Madrid, London, Paris

Better to wait a day before writing, after a night like that. What does one write after such a night anyway? And why write anything at all if you can be dead sure to always antagonize some one on some side of some spectrum, ideological or not, no matter what you write, unless you tag some safe official line, and even then, or especially then?

Better to soak in what the official media have to say, or so one might think. After all, they got all the resources and the reporters and the analysts and -access to- the politicians, and most of all the attention of the people.

Unfortunately, all that firepower -pun intended- is used only to tag official lines. To provide air space to ‘leaders’ who profess their utmost grief and sadness and anger and solidarity over barbarous criminal “acts of war” that they swear will be avenged with all the power they have. It’s so predictable it’s like all of their spin doctors have been sent on a Caribbean holiday at the same time, and together.

Still, it also doesn’t seem very appropriate to address the economic issues we usually talk about, at least not at first glance. Respect for victims and families must come first, that is a given. Then again, it does seem appropriate, out of that very same respect, to get to the bottom of what’s behind these attacks that will at final count leave perhaps 200 people dead on what started as a nice and balmy autumn evening in the city of lights. And the politicians’ truisms and platitudes don’t exactly help.

But how does one go about that truth finding? French President Hollande declared eerily early in the ‘game’ he was sure ISIS is behind the tragedy, and ISIS statements seem to confirm that conclusion. But what is ISIS? And where does it come from?

It’s no longer really credible to entirely ignore the role of the west, including France, in the origins of the ‘movement’, if it can be called that. From Al Queda to ISIS, and scores of groups and factions in between and beyond, there is at least some kind of link to western military action in the middle East. And that link goes back quite a few years, if not decades.

So if we really want to pay the kind of respect to the victims that comes with trying to figure out what’s behind these attacks, it would seem that we can’t get it done without a critical look at our own roles in what led up to this. Not to say that we’re the only guilty party, or that the perpetrators are not cuckoos, but to say we’re not credible if we completely ignore our own roles and don’t look in a mirror.

Hence, the first reaction we probably might want to have is that it’s enough alright with the ‘us’ vs ‘them’ meme. Even if, or exactly because, that reaction is, obviously, 180º removed from what the initial reactions to the attacks are, whether they’re provoked by media coverage or not. And they are. It cannot be only ‘us’ vs ‘them’. No black, no white. To understand this world you need a lot more than that.

If we try to phrase it that way, and we’re only halfway decent and honest about it, there’s no escaping that in the final analysis we indeed are them. We’re not like them, we are them. ‘We’ have spread terror, death and mayhem across the Middle East and North Africa (MENA) regions for a long time (to a large extent because that’s where the oil is, but that’s a story for a different day).

And then ‘we’ took it up a notch with the removal of the likes of Saddam and Gaddafi, leaving rudderless societies in their wake.

We can’t pretend to be honest and still ignore the fact that for many people in the Middle East a day like this Friday 13th is their everyday routine. And that that’s what makes them refugees. Many Parisians -or New Yorkers, for that matter- would do the same, get out of Dodge, if this were a common event in their city. Not only because of the danger and the fear, but also because there would be no functioning society or economy left, and hence no future.

No matter how you look at it, there’s no denying it’s kind of ironic that attacks on Beirut that were similar in many regards to the ones in Paris, even took place at the same time, and similar attacks on several other places, receive no media coverage at all in the west, while the Paris attacks dominate all western media.

That is not a coincidence. And it’s not either because most Americans would find it as easy to find Damascus or Beirut on a map as they would Paris. That is, they would not. But still Paris is on American TV about 48/7 (that’s the attention span limit), interrupted only by either a Kardashian body part -or two- or by the single The Donald’s body part that sticks in memory.

And that’s where we find our link to economics, because in geo-politics as in economics, we, all of us, think, talk and live exclusively in narratives. We have stories pre-fabricated for us, and these stories determine how we see the world, and our lives, and other people’s lives and dreams and wishes.

That is to say, whatever it is we want and dream of is per definition just and justified, and other people’s desires are not, as soon as they threaten to interfere with ours. As we read ad nauseam post-Paris in literally countless references to the ‘freedom’ that ‘we’ have and ‘they’ hate, and to ‘our way of life’ that is under threat -with nary a soul knowing what that way is.

We cannot forever fool ourselves and others into believing that we are the good guys and ‘the others’ are the bad guys. It’s tempting, and there’s a whole behemoth media apparatus to confirm it, but it doesn’t get us any closer to what happened, and why, and therefore no closer to paying our full and due respect to those who died in Paris on 11/13.

“They” don’t resent us for our freedom, “they” resent us for not allowing them to have their freedom, too. We need to recognize at some point that we owe our affluence to the misery of others, not to our superior intelligence or morals or religion or way of life. But there’s not a single voice among us which wants to make that recognition happen.

We are not a benevolent force, no matter what we tell ourselves or how many times we repeat it. We are a civilization of oppressors. Just like the Romans and the Mongols and so many others before and after. We seek to uphold our status and our wealth at the expense of others, of strangers, people who live conveniently far enough away in conveniently impoverished conditions.

We have been building our empire this way since well before Columbus, we’ve greatly expanded it over the past 500 years, and we’re now looking at the terminal phase of that empire. Just like the Romans and the Mongols and so many others before and after.

Interestingly enough, it’s our own technological prowess and ‘progress’ that leads us into that phase. The very moment we started exporting our oil drilling technologies, our smartphones, our databases and most of all our modern weaponry to what we still see as colonies, the very foundations of our civilization and our power started eroding.

But that’s getting too philosophical, and it would require too many words and lead us too far astray from Paris and the due diligence we owe those who lost their lives and those who mourn them.

Pope Francis said in a reaction to the Friday 13th attacks: “This is not human”. Unfortunately, 2000 years of Christianity say he’s dead wrong, wrong as he could be. This is very human. It’s as human as feeling an overbearing love for our children. It’s all human.

It’s very human, too, to go for the ‘us’ vs ‘them’ meme. Because it feels good, and you can be sure it makes those around you feel good too. Which is a big help in times of fear and insecurity and not having the answer, not having any other answers than the ubiquitous ones the media feed you.

But that still is not what the dead deserve. They deserve much more. They deserve that we try the best we can, not to settle for the first thing that comes to our reptilian minds. Not to make our entire lives come down to just fight or flight, but to attempt to find that area in between that is as close to truth finding as we know we can come.

To honor the dead, we need to look inside ourselves, and inside the societies we live in. And only when we’ve found, and eradicated, those things that make both us, and our communities, ‘guilty by association’ -for lack of a better term-, will we have paid proper respect to those who lost their lives.

2014: The Year Propaganda Came Of Age

Dec 262014

December 26, 2014 Posted by Raúl Ilargi Meijer at 9:23 pm Finance Tagged with: GDP growth, Goebbels, media, MH17, propaganda, Putin, Ukraine 27 Responses »

Dorothea Lange Drought hit OK farm family on way to CA Aug 1936

From just about as early in my life as I can remember, growing up as a child in Holland, there were stories about World War II, and not just about Anne Frank and the huge amounts of people who, like her, had been dragged off to camps in eastern Europe never to come back, but also about the thousands who had risked their lives to hide Jewish and other refugees, and the scores who had been executed for doing so, often betrayed by their own neighbors.

And then there were those who had risked their lives in equally courageous ways to get news out to people, putting out newspapers and radio broadcasts just so there would be a version of events out there that was real, and not just what the Germans wanted one to believe. This happened in all Nazi – and Nazi friendly – occupied European nations. The courage of these people is hard to gauge for us today, and I’m convinced there’s no way to say whom amongst us would show that kind of bravery if we were put to the test; I certainly wouldn’t be sure about myself.

Still, without wanting to put myself anywhere near the level of those very very real heroes, please don’t get me wrong about that, that’s not what I mean, I was thinking about them with regards to what is happening in our media today. I’ve mentioned before that I don’t think Joseph Goebbels had anything on US and European media today.

That propaganda as a strategic and political instrument has been refined to a huge extent over the past 70-odd years since Goebbels first picked up on Freud’s lessons on how to influence the unconscious mind, and the ‘mass-mind’, as a way to ‘steer’ an entire people, not just as a means to make them buy detergent. These days, the media can make people believe just about anything, and they have the added benefit that they can pose as friends of the people, not the enemy.

But there is a reason why such a large ‘industry’ has developed on the web with people writing articles that don’t say what the mass media say. That reason for is, obviously, first and foremost that not everybody believes whatever they are told. The problem is equally obvious: not nearly enough people are being reached to make a true difference, and to question the official narratives.

Me, I have no claim to fame outside of the appreciation I get from first, my readers and second, from my colleagues and peers. I get a lot of both, and I thank you for that, but this certainly is not about me. If anything, it’s about trying to live up to the desire for truth in the face of odds squarely stacked against it, and against the people I try to reach out to. Trying to do just 0.1% of what the WWII underground press was about.

A few days ago, I wrote in About That Interview :

The FBI claims they are certain the hackers are North Korean, but they have provided no proof of that claim. We have to trust them on their beautiful blue eyes. I think if anything defines 2014 for me, it’s the advent of incessant claims for which no proof – apparently – needs to be provided. Everything related to Ukraine over the past year carries that trait. The year of ‘beautiful blue eyes’, in other words. Never no proof, you just have to believe what your government says.

And that truly defines 2014 for me. A level of propaganda I don’t recognize, and I don’t think I’ve ever seen before. 2014 has for me been the year of utter nonsense. To wit, it just finished in fine form with a 5% US GDP growth number, just to name one example. Really, guys? 5%? Really? With all the numbers presented lately, the negative Thanksgiving sales data – minus 11% from what I remember -, the so-so at best Christmas store numbers to date, shrinking durable goods in November and all? Plus 5%?

It really doesn’t matter what I say, does it? You have enough people believing ridiculous numbers like that to make it worth your while. After all, that’s all that counts. It’s a democracy, isn’t it? If a majority believes something, it becomes true. If you can get more than 50% of people to believe whatever you say, that’s case closed.

With well over 90 million working age Americans counted as being out of the labor force, and with 43 million on food stamps, you can still present a 5% GDP growth number, if only you can get a sufficiently large number of people to ‘believe’. And you do, I’ll give you that. As far as the media goes, we have achieved the change we can believe in. We may not have that change, but we sure do believe we have, don’t we? And isn’t that what counts? Are congratulations in order?

Well, not where I’m at, they’re not. I should do a shout out to the likes of Zero Hedge, Yves Smith, David Stockman, Wolf Richter, Mish, Steve Keen, Jim Kunstler, and so many others, we’re a solid crowd by now even if we’re neglected, and please don’t feel left out if you’re not in that list, I know who you are. The problem is, we’re all completely neglected by the mass media, even though there are a ton of very sharp minds in this ‘finance blogosphere’. And perhaps we should make it a point to break through that ridiculous black-out in 2015.

2014, in my eyes, has been the year of propaganda outdoing even its own very purpose, and succeeding too. We are supposed to be living in a time of the best educated people in the history of mankind, and everyone thinks (s)he’s mighty smart, but precious few have even an inkling of a clue of what transpires in the world they live in. Talk about a lost generation. Or two.

We really need to question the value of higher education, if all we get for it is a generation of people so easily duped by utter blubber. What do they teach people at our universities these days? Certainly not to think for themselves, that much is clear. And then what is the use? Why spend all that time raising an entire generation of highly educated pawns, sheep and robots? I can think of some people liking that, but for society as a whole, it’s devastating if that’s all higher education is.

And if you would like to raise doubts here, the very existence of finance blogosphere I mentioned before is proof that we indeed have raised a generation of sheep. If we had functioning media, there’d be no need for that blogosphere. We are the people who keep on pointing out where the mass media fail, let alone the politicians, simply by being there and being supported to the extent we are by the few people who escape the sheep mentality.

But that’s not nearly enough. Journalists, reporters, whatever they call themselves, working for Bloomberg, Reuters, CNBC etc. should at the very least quote Zero Hedge on a daily basis, and Mish, and Steve, and Yves, and perhaps even me – though it’s fine if they continue to ignore me, as long as they give the rest their rightful place.

There are many people in the blogosphere who are many times smarter than the people who write for the mass media, and that’s a very simple and hardly disputable fact that needs to be recognized. When you read something in your paper or at your online news provider, it should be second nature to ask yourself: but what would Tyler Durden say, or the Automatic Earth, or Naked Capitalism, or David Stockman?

But we’re nowhere near that, are we? We’ve been fooled with economic stats for years, not just in the US, not even just in the west, but all over, they all grabbed on to the potential of providing people with numbers that have little to do with reality, but that simply feel good. Or even just look good.

Still, boy, have we been, and are we being, fooled. Then again, most of you wouldn’t know, would you? We people tend to discount the future, to see today as more important than tomorrow, and in the same manner we find our children’s future much less important than our own. Because that feels good too. If we are comfy right now, screw them. Not that we’d ever put it into those terms.

But you know, that’s really all old hack by now. 2014 brought us a whole other class of nonsense. And we swallowed it all hook line and entire sinker.

2014 gave us Ukraine. And you just try and find anyone today who doesn’t think Vladimir Putin is and was the evil genius mind behind the whole thing, including the 4500+ people who died there over the past 10 months. Why is it so hard to anyone who doubts that narrative? Because our media told us Putin is the bogeyman. And ‘we’ never asked for any proof. That is, except for those of us in that same blogosphere.

Meanwhile, round after round of sanctions against Russia have been set up and activated by EU and US, causing hardship for both Russian people and European businesses. But why, what exactly is Putin allegedly guilty of?

The US/EU installed a government in Kiev in February (yeah, yap about it), which is still in place, with a bunch of US citizens recently added for good measure – and for profit-. The chocolate prince president was indeed elected months later, but the prime minister – Yats – was handpicked by America, and is still -amazingly – in place. That’s the same government that had it own army murder thousands of its own citizens, and not a thing has been resolved so far.

The whole thing came to a head when MH17 was shot down over the summer. That too was blamed on Putin. Or was it? Well, not directly, nobody said Putin ordered that plane to be shot. Nor did anyone say Russia shot it. There is the accusation that Russian speaking Ukrainian ‘rebels’ did it, but proof for that was never provided in the 6 months since the incident. And there must be a best before date in there somewhere.

Is it possible the ‘rebels’ did it? We can’t exclude it, but that’s for the same reason we can’t exclude the option that little green Martians did it: we don’t know. But even then, even if they did, there’s the question whether that would have been on purpose. Which seems really stretching it: nothing they want would be served by shooting down a plane full of European, Malaysian and Australian holiday goers.

But here we are: no proof and layer upon layer of sanctions. And nary a voice is raised in the west. If one is, it’s to denounce the Russians as bloodthirsty barbarians. Even though there is no proof they did anything other than protecting what they see as their own people. Something we all would do too, no questions asked.

Ukraine defines 2014 as the year western propaganda came into its own. Not just fictional stories about an economic recovery anymore, no, we had our politico-media establishment ram an entire new cold war down our throats. And we swallowed it whole. We may have had a million more years of higher education than our parents and grandparents, but we sure don’t seem to have gotten any smarter than them.

There is a lot of information out there, written by people inspired by things other than monetary incentives or job security or anything like that, people who simply want to get information out that your trusted media won’t give you anymore than Goebbels’ media did in occupied Europe in the 1940s. And you don’t even have to risk your lives to access that information. All you have to do is to get off your couch.

The Automatic Earth is but a small part of a very valuable and fast growing resource that warrants a lot more attention than it’s been receiving to date. A reported 5% US GDP growth print is one reason why, the entire Ukraine fantasy story is another. The blogosphere is full of functioning neurons, which is more than you can say for your papers and online MSM.

As far as media is concerned, 2014 has been downright scary in its distortion of reality. Let’s try and move 2015 a little bit closer towards what’s actually happening.

Debt Rattle Sep 2 2014: This Is As Big As We Will Get

Sep 022014

September 2, 2014 Posted by Raúl Ilargi Meijer at 3:40 pm Finance Tagged with: Growth, lies, limits, media, NATO, Putin, Russia, Ukraine 15 Responses »

Peter Sekaer Times Square with Father Duffy statue 1937

This is it. This is the biggest we’re going to get. We won’t grow anymore. Not bigger, not wider, not taller (just thicker perhaps, in the sense of more stupid). I return to this from time to time, and still I never see even just one voice in the media with even one hair’s breadth of doubt about the overarching theme of growth at all costs. Is this a sign that economists and other poorly educated people have taken over the world, or is it simply what we are all programmed for?

The only discussion out there is how we can best return to growth. Never if we should return to it. But still, when I look around me I don’t have the feeling that we desperately need to grow bigger. That we need to consume more than we already do, that we need to drive our cars more or move into larger homes or buy more clothes or gadgets or anything.

At least 99% of the time I think that it’s all more than enough. And not just because of the damage our consumption patterns inflicts on our lives and our health and our planet, but certainly also because of what these patterns do to my own mind and soul.

To say that this is it, and we won’t grow any bigger, is not just some spurious remark. The world economy hasn’t actually grown for decades, other than through debt.

The credit issued by Jimmy Stewart in It’s a Wonderful Life could bolster growth. But in a world that’s steeped as deeply in debt as we have become, that debt actually turns into the opposite of growth. We know this happens when more debt is needed every day just to not shrink, like the Red Queen running just to stand still.

From that moment on, more debt can only buy you the appearance and illusion of growth, not the real thing. We passed that point some 40 years ago. If not earlier. You can argue about the exact timing. But not about the fact itself. Still, there’s no argument out there about either.

Joseph Stiglitz has a piece in today’s Guardian entitled ‘Capitalism Needs New Rules To Restore Postwar Growth And Stability’. It secures Stiglitz’s place in history as a useless man, not capable of original thought, like all Fake Nobel for Economics winners. They are people capable of thought alright, provided it’s limited to one dimension only.

The US is the undisputed best of the rest these days. Its GDP growth may be sucked out of some highly paid circle of experts’ thumbs, but at least it doesn’t yet shrink too dramatically. That the entire American growth recovery illusion has been built on ‘debtsand’ is complete and utter anathema. For obvious reasons.

Unfortunately for the American economy, the economies of rest of the world are not so fortunate. They can’t even keep up appearances anymore. Though, granted, that’s not for lack of trying. Which makes sense from the overall storyline point of view. Which dictates that we all must, and therefore will, return to growth. Viewed from that hilltop, any non-growth can only be temporary. And some economist will find the solution to the problem, at which point angels will start singing.

Japan may be the worst of the basket cases. We don’t see everything there is to see yet, since the Tokyo spin machine is perhaps the best asset the country has left. But there can be no doubt that Abenomics is going to turn out brutal. And for many Japanese already has. The last straw will be the GPIF, world’s largest pension fund, switch to stocks just ahead of a giant stock market crash. Then there’ll be nothing left.

China is an economic miracle that’s rapidly turning into a 1.4 billion people size disaster. An empire of debt built on plastic trinkets and quasi slave labor that’s seeing the rest of the world’s debt collapse devastate its own air castles. The unreal estate industry that made up over 20% of the economy has nowhere left to turn. Those local officials who borrowed the most are set to be either imprisoned or have their kneecaps redesigned by the shadow banking backers. Or both. The rest will try hard to fade into the background in some far away location.

Europe is awaiting one last cheap credit splurge that may or may not come, but in a giant spoiler alert we all already know the end of the story. Europe doesn’t just have the global economic meltdown to cope with, it’s also stuck in a horribly failed currency experiment that seeks to force people of very different cultures and languages into a straight jacket that’s already strangling and suffocating some 200 million of them.

Who will be increasingly subject to power politics and vested interests in Brussels, as their lives deteriorate in further decline. The only thing the EU talks about right now is who’s going to get the big jobs in the musical chairs of the new European Committee. It’s the politicians who are important, not the people. Still that’s an issue that will solve itself as circumstances get worse. It won’t be pretty, but it will be resolved.

But come on, who among you can look at the world, at your country, your town, your own homes and lives, and tell yourselves we’re not big enough yet? What more would you want to add? Once again I’ll ask: are you happier than your parents and grandparents? And if not, what exactly are you doing, what are you trying to achieve? Be honest, shouldn’t you lose a little weight?

I can’t leave Ukraine alone when the Kiev government insinuates that Putin has threatened to drop nuclear bombs on them. That’s way beyond the pale.

Just when you think things can’t get crazier, Ukraine’s Defense Minister Valery Geletey claims Russia has in the recent past repeatedly threatened nuclear attacks on Ukraine. That one takes the cake. That is to say, until tomorrow, when Kiev may yet again try to outdo itself in the realm of absurd allegations. Geletey also talked about the threat of tens of thousands of deaths in a ‘Great Patriotic War’, the worst in Europe since WWII. As in, worse than the Balkans.

Obviously, Russia would never threaten Ukraine with nukes, if only because there is no need. At the same time, something Putin actually did say was spun, in a case of deliberate misinterpretation, to insinuate that Russia has plans to conquer Kiev. What Putin really said – to EU head Barroso – was that Russia could take Kiev, in two weeks, if it wanted to. But if Moscow had any such plans, it would just do it, not announce it. However, there are no such plans.

The narrative continues to be built to prepare for the big NATO top September 4-5. There will be many voices calling for Ukraine to be made a member, so European soldiers can be sent into the country, and what’s left of the Donbass after months of Ukraine bombing can be finished of by NATO planes. Let’s hope that plan doesn’t come to fruition, because it would greatly escalate the crisis, and NATO has no chance of winning, it would only lead to more bloodshed.

A number of retired US Army, CIA, FBI, NSA and other intelligence officers sent an open letter to Angela Merkel to urge her not to fall into the NATO propaganda trap:

US Intelligence Veterans Urge Merkel To Avoid All-Out Ukraine War

We the undersigned are longtime veterans of U.S. intelligence. We take the unusual step of writing this open letter to you to ensure that you have an opportunity to be briefed on our views prior to the NATO summit on September 4-5. You need to know, for example, that accusations of a major Russian “invasion” of Ukraine appear not to be supported by reliable intelligence. Rather, the “intelligence” seems to be of the same dubious, politically “fixed” kind used 12 years ago to “justify” the U.S.-led attack on Iraq. [..]

Obama has only tenuous control over the policymakers in his administration – who, sadly, lack much sense of history, know little of war, and substitute anti-Russian invective for a policy. [..] Largely because of the growing prominence of, and apparent reliance on, intelligence we believe to be spurious, we think the possibility of hostilities escalating beyond the borders of Ukraine has increased significantly over the past several days.

Hopefully, your advisers have reminded you of NATO Secretary General Anders Fogh Rasmussen’s checkered record for credibility. It appears to us that Rasmussen’s speeches continue to be drafted by Washington. This was abundantly clear on the day before the U.S.-led invasion of Iraq when, as Danish Prime Minister, he told his Parliament: “Iraq has weapons of mass destruction. This is not something we just believe. We know.”

Photos can be worth a thousand words; they can also deceive. We have considerable experience collecting, analyzing, and reporting on all kinds of satellite and other imagery, as well as other kinds of intelligence. Suffice it to say that the images released by NATO on August 28 provide a very flimsy basis on which to charge Russia with invading Ukraine. Sadly, they bear a strong resemblance to the images shown by Colin Powell at the UN on February 5, 2003 [..]

[..] Although President Vladimir Putin has until now showed considerable reserve on the conflict in the Ukraine, it behooves us to remember that Russia, too, can “shock and awe.” In our view, if there is the slightest chance of that kind of thing eventually happening to Europe because of Ukraine, sober-minded leaders need to think this through very carefully. If the photos that NATO and the US have released represent the best available “proof” of an invasion from Russia, our suspicions increase that a major effort is under way to fortify arguments for the NATO summit to approve actions that Russia is sure to regard as provocative.

According to a February 1, 2008 cable (published by WikiLeaks) from the US embassy in Moscow to Secretary of State Condoleezza Rice, US Ambassador William Burns was called in by Foreign Minister Sergey Lavrov, who explained Russia’s strong opposition to NATO membership for Ukraine. Lavrov warned pointedly of “fears that the issue could potentially split the country in two, leading to violence or even, some claim, civil war,which would force Russia to decide whether to intervene.” Burns gave his cable the unusual title, “Nyet Means Nyet: Russia’s Nato Enlargement Redlines,” and sent it off to Washington with IMMEDIATE precedence. Two months later, at their summit in Bucharest NATO leaders issued a formal declaration that “Georgia and Ukraine will be in NATO.”

The conversation in the west should evolve around American and European, not Russian, involvement in Ukraine. But to get there, we would need actual journalists. There don’t seem to be any left. All we have is parrots, parakeets, chameleons and weasels. And obviously, the way we are fed information about our fatally indebted economies is very much like the way our media feed us misinformation about Ukraine and Russia.

• Russia Outraged After Kiev Accuses Moscow Of Nuclear Attack Threats (RT)

Following comments from Ukraine’s Defense Minister Valery Geletey of Moscow threatening with a nuclear attack on its neighbor, Moscow said it was shocked by the statement. Russia warned that such rhetoric only deepens the civil stand-off in Ukraine. “Geletey’s calls to get ready for ‘tens of thousands’ of new victims in what he called ‘Great Patriotic War’ and what in fact is a new punitive operation in his own country are appalling. He only drags the Ukrainian people into a new round of the bloody civil stand-off,” Russia’s Foreign Ministry said in a statement Monday. Earlier Geletey wrote in his Facebook that the operation “to cleanse Ukraine’s east from terrorists” was over. He, however, proceeded to accuse Russia of direct military involvement in the east that followed the rebels’ “defeat.” “A big war has come to our home, a war Europe has not seen since WWII,” Geletey wrote alleging that Russia not only attempted to secure its position on the rebel-held territories, but also advance onto other regions.

He said that Moscow – through “unofficial channels” – has “repeatedly threatened to use tactical nuclear weapons” on Ukraine if Kiev continues to resist. “It is hard to believe that such statements can come from a defense minister of a civilized state. Otherwise, it’s just not clear how tens of thousands of Ukrainian families could entrust this official with lives of their children, brothers and husbands, mobilized into the Ukrainian army to wage a fratricidal war in their own country,” Moscow said, adding that this was a “blatant” attempt on Geletey’s behalf to secure his own post. Earlier on Monday, Russian Foreign Minister Sergey Lavrov stressed there would be “no military intervention by Russia into the conflict in Ukraine”. Lavrov said he hopes that the Monday peace talks held in Minsk will pave the way to agreeing on “an immediate unconditional ceasefire” in eastern Ukraine.

• US Intelligence Veterans Urge Merkel To Avoid All-Out Ukraine War (ZH)

We the undersigned are longtime veterans of U.S. intelligence. We take the unusual step of writing this open letter to you to ensure that you have an opportunity to be briefed on our views prior to the NATO summit on September 4-5. You need to know, for example, that accusations of a major Russian “invasion” of Ukraine appear not to be supported by reliable intelligence. Rather, the “intelligence” seems to be of the same dubious, politically “fixed” kind used 12 years ago to “justify” the U.S.-led attack on Iraq. We saw no credible evidence of weapons of mass destruction in Iraq then; we see no credible evidence of a Russian invasion now. Twelve years ago, former Chancellor Gerhard Schroeder, mindful of the flimsiness of the evidence on Iraqi WMD, refused to join in the attack on Iraq. In our view, you should be appropriately suspicions of charges made by the US State Department and NATO officials alleging a Russian invasion of Ukraine.

President Barack Obama tried yesterday to cool the rhetoric of his own senior diplomats and the corporate media, when he publicly described recent activity in the Ukraine, as “a continuation of what’s been taking place for months now … it’s not really a shift.” Obama, however, has only tenuous control over the policymakers in his administration – who, sadly, lack much sense of history, know little of war, and substitute anti-Russian invective for a policy. One year ago, hawkish State Department officials and their friends in the media very nearly got Mr. Obama to launch a major attack on Syria based, once again, on “intelligence” that was dubious, at best. Largely because of the growing prominence of, and apparent reliance on, intelligence we believe to be spurious, we think the possibility of hostilities escalating beyond the borders of Ukraine has increased significantly over the past several days. More important, we believe that this likelihood can be avoided, depending on the degree of judicious skepticism you and other European leaders bring to the NATO summit next week.

Hopefully, your advisers have reminded you of NATO Secretary General Anders Fogh Rasmussen’s checkered record for credibility. It appears to us that Rasmussen’s speeches continue to be drafted by Washington. This was abundantly clear on the day before the U.S.-led invasion of Iraq when, as Danish Prime Minister, he told his Parliament: “Iraq has weapons of mass destruction. This is not something we just believe. We know.” Photos can be worth a thousand words; they can also deceive. We have considerable experience collecting, analyzing, and reporting on all kinds of satellite and other imagery, as well as other kinds of intelligence. Suffice it to say that the images released by NATO on August 28 provide a very flimsy basis on which to charge Russia with invading Ukraine. Sadly, they bear a strong resemblance to the images shown by Colin Powell at the UN on February 5, 2003 that, likewise, proved nothing.

[..] Although President Vladimir Putin has until now showed considerable reserve on the conflict in the Ukraine, it behooves us to remember that Russia, too, can “shock and awe.” In our view, if there is the slightest chance of that kind of thing eventually happening to Europe because of Ukraine, sober-minded leaders need to think this through very carefully. If the photos that NATO and the US have released represent the best available “proof” of an invasion from Russia, our suspicions increase that a major effort is under way to fortify arguments for the NATO summit to approve actions that Russia is sure to regard as provocative. Caveat emptor is an expression with which you are no doubt familiar. Suffice it to add that one should be very cautious regarding what Mr. Rasmussen, or even Secretary of State John Kerry, are peddling. We trust that your advisers have kept you informed regarding the crisis in Ukraine from the beginning of 2014, and how the possibility that Ukraine would become a member of NATO is anathema to the Kremlin.

According to a February 1, 2008 cable (published by WikiLeaks) from the US embassy in Moscow to Secretary of State Condoleezza Rice, US Ambassador William Burns was called in by Foreign Minister Sergey Lavrov, who explained Russia’s strong opposition to NATO membership for Ukraine. Lavrov warned pointedly of “fears that the issue could potentially split the country in two, leading to violence or even, some claim, civil war, which would force Russia to decide whether to intervene.” Burns gave his cable the unusual title, “NYET MEANS NYET: RUSSIA’S NATO ENLARGEMENT REDLINES,” and sent it off to Washington with IMMEDIATE precedence. Two months later, at their summit in Bucharest NATO leaders issued a formal declaration that “Georgia and Ukraine will be in NATO.”

For the Steering Group, Veteran Intelligence Professionals for Sanity

William Binney, former Technical Director, World Geopolitical & Military Analysis, NSA; co-founder, SIGINT Automation Research Center (ret.)
David MacMichael, National Intelligence Council (ret.)
Ray McGovern, former US Army infantry/intelligence officer & CIA analyst (ret.)
Elizabeth Murray, Deputy National Intelligence Officer for Middle East (ret.)
Todd E. Pierce, MAJ, US Army Judge Advocate (Ret.)
Coleen Rowley, Division Counsel & Special Agent, FBI (ret.)
Ann Wright, Col., US Army (ret.); Foreign Service Officer (resigned)

What else can they do?

• Russia To Adjust Military Doctrine Due To Nato Expansion, Ukraine Crisis (RT)

Moscow is to review its military doctrine, a move that is caused by expansion of NATO in Eastern Europe, problems of missile defense and the crisis situation in neighboring Ukraine, says an official from the Russia’s Security Council. “I have no doubts that the issue of drawing of military infrastructure of NATO member-countries to the borders of our country, including via enlargement, will remain one of the external military threats for the Russian Federation,” Mikhail Popov, deputy secretary of the Security Council said in an interview to RIA Novosti. All NATO’s actions show that both the US and NATO are trying to escalate a deterioration of relations with Russia, he added. “We consider that the defining factor in [Moscow’s] relations with NATO will remain the unacceptability for Russia of the expansion plans of alliance’s military infrastructure to our borders, including via enlargement,” he stated.

Establishing and deploying of strategic missile defense systems which are undermining the global stability, as well as bringing the weapons into space, will also remain major military threats for Russia, he added. “The USA wants to strengthen its troops in Baltic States. [They] have already decided to transfer its heavy weapons and military equipment, including tanks and armored infantry vehicles, to Estonia. And all this next to Russia’s border.” The acting military doctrine was adopted in 2010. The new version will be released by the end of 2014, said Popov. According to Popov, the pursuit of the USA and NATO members to increase its strategic offensive potential is becoming more evident. They are trying to do this “at the expense of development of a global missile defense system” and “the elaboration of new weapons, including advanced hypersonic weapon (AHW).”

The 2010 military doctrine caused the most acute reaction in the USA and NATO, said Popov. “Many high-ranked officials reproached the leaders of our country saying that NATO isn’t a Russia’s enemy and will never attack Russia. But is that true?” he asked. “We were assured of good intentions, but the actions of recent years show entirely different things.” He added that Russia had not managed to establish an equal dialogue with its Western partners. “Everyone wants one-sided concessions from Russia in many international relations issues.” According to Popov, “the role of Russia in the Ukraine crisis is subjectively defined and thus wrong conclusions are drawn and wrong measures are applied.” “There is an unprecedented informational-propagandist campaign against Russia. The image of the enemy is presented in the face of Russia and its politics is considered as a new threat to NATO.”

There is no other way left.

• Donetsk, Lugansk Republics Urge Kiev To Recognize Their ‘Special Status’ (RT)

At talks in Minsk, the self-proclaimed Donetsk and Lugansk People’s Republics have urged Kiev to acknowledge their “special status.” If their demands are met, they will not lay claim to other parts of Ukraine, the rebel republics said. The initial statement said that if Kiev guarantees their “special status,” then the Donetsk and Lugansk republics will do everything possible “to preserve Ukraine’s common economic, cultural and political space and the space of the entire Ukraine-Russian civilization.” This was interpreted as the two self-proclaimed republics seeking autonomy within Ukraine while wishing to remain part of it.

However, later Donetsk People’s Republic Deputy PM Andrey Purgin explained that it’s about “the common security space of Ukraine, Donetsk and Lugansk People’s Republics, about post-war reconstruction of the economic, cultural, and social connections with Ukraine, and also about the fact that the DNR and LNR wouldn’t lay claim to other Ukrainian territories.” The statement comes after a contact group on the crisis in eastern Ukraine finished its work in Minsk, Belarus. In their initial demands, LNR and DNR representatives called on the Ukrainian government to end their military operation in the country’s east so that parliamentary and local elections can take place freely.

“The president, government and [parliament] Verkhovna Rada should accept… decrees granting immediate recovery from the humanitarian catastrophe, acknowledging the special status of the territories under the control of the People’s Republics, creating conditions – first of all stopping the ‘anti-terror’ operations – for free elections of local authorities and MPs,” the document with the republics’ position reads. The document also urged Kiev to guarantee “the right to use the Russian language at an official level on the territories of the People’s Republics.” After the government of President Viktor Yanukovich was ousted in March, the new authorities immediately started to introduce the legislation curbing the Russian language. Though the law failed to materialize in the end, the initiative was one of the major factors that triggered the conflict in eastern Ukraine. The self-proclaimed republics were represented by DNR Deputy PM Andrey Purgin and the chairman of the LNR’s Supreme Council, Aleksey Karyakin.

Yeah, LNG from Qatar. That’s their plan.

• Europe Drafts Emergency Energy Plan With Eye On Russia Gas Shutdown (Reuters)

The European Union could ban gas exports and limit industrial use as part of emergency measures to protect household energy supplies this winter, a source told Reuters, as it braces for a possible halt in Russian gas as a result of the Ukraine crisis. Russia is Europe’s biggest supplier of oil, coal and natural gas, and its pipelines through Ukraine are currently the subject of political maneuvering – not for the first time – as Europe and Moscow clash over the latter’s military action in Ukraine. Kiev is warning that Russia plans to halt gas supplies while Moscow says Ukraine could siphon off energy destined for the European Union – which has just threatened new sanctions if Moscow fails to pull its forces out of Ukraine. While buyers of oil and coal can find new suppliers relatively quickly, southeast Europe receives most of its gas from Kremlin-controlled Gazprom.

Tankers from Qatar and Algeria bring liquefied natural gas (LNG) to Europe via ports along the Atlantic and Mediterranean oceans, but European buyers often re-sell those cargoes abroad for higher prices rather than supplying their domestic market. A source at the EU Commission said it was considering a ban on the practice of re-selling to bolster reserves. “In the short-term, we are very worried about winter supplies in southeast Europe,” said the source, who has direct knowledge of the Commission’s energy emergency plans. “Our best hope in case of a cut is emergency measure 994/2010 which could prevent LNG from leaving Europe as well as limit industrial gas use in order to protect households,” the source said.

• Factory Activity In Europe, Asia Cools (Reuters)

Factory activity in Europe and Asia cooled in August after a strong July, as new orders dwindled in the face of escalating tensions in Ukraine and a patchy recovery in China, purchasing managers indexes showed. Despite euro zone manufacturers barely raising their prices, growth in the region slowed slightly more than initially thought, and activity in China’s vast factory sector slackened on weak foreign and domestic demand, stoking speculation that further policy stimulus would be needed. “A concerted slowdown in the China, euro zone and UK manufacturing PMIs as the second quarter gets under way raises alarm bells about global demand conditions,” said Lena Komileva, chief economist at G+ Economics in London. “This raises serious questions about the ability of major economies such as the U.S. and the UK, to weather higher interest rates, or in the case of the euro zone to withstand deflationary pressures without further stimulus.”

Euro zone factories stumbled with the final August PMI at 50.7, the lowest in over a year, as new orders slowed amidst rising tensions over Ukraine that have triggered sanctions from the West and countermeasures from Russia. Still, that was the 14th month the index has been above the 50 line that separates growth from contraction. The factory PMI for Germany, Russia’s biggest trade partner in the European Union, fell to an 11-month low while in the bloc’s second-largest economy France it dropped further below the breakeven mark. The drop in euro zone manufacturing activity came despite factories barely increasing prices and, with inflation dropping to a fresh five year low of 0.3% in August, that raises risks of the region slipping into deflation.

That’s a good way to look at it.

• Mario Draghi May As Well Roll The Dice – We’ve Tried Everything Else (Satyajit Das)

Despite investor enthusiasm and strong bond and stock markets, the economic and political risks are increasing in Europe. The actions of the European Central Bank (ECB) have reduced borrowing rates for eurozone members. While making existing high debt levels more manageable, the falling funding costs removes incentives for reducing debt and undertaking structural reforms. The Italian government proposes to use the benefit of lower rates, estimated at around €10bn (£8bn) over three years, to increase spending and relax fiscal policy. Expectations of further falls in the credit spread of Italy, Spain and previously vulnerable peripheral nations is driving purchases of their government bonds supporting the value of the euro, at least in the short term.

A weaker euro policy may also prove problematic in the medium to long term. Falls in the euro may not trigger the hoped for rise in economic activity driven by exports. A high proportion of trade is conducted in euros within the eurozone itself, limiting the currency effect. Weak growth in export markets, such as the US and emerging countries, may limit the benefits. The US, UK and Japanese experience suggest that monetary policy may not be able to increase inflation significantly, reflecting the effects of deleveraging by companies, households, banks and governments. Falls in the euro may increase the cost of imported products, driving higher inflation. But the erosion of real household incomes may reduce consumption, limiting any pick-up in growth. A weaker euro entails pursuance of a “beggar-thy-neighbour” policy. Retaliation through competing monetary easing or capital controls may defeat the ECB’s efforts to weaken the currency.

When in debt, Borrow!

• Why Peripheral Euro Zone Debt Is Worrying Investors Again (CNBC)

Companies in the peripheral euro zone countries which caused the near-disaster of the euro zone debt crisis are borrowing big again. Leveraged loan borrowing from peripheral euro zone nations is at its highest level for the year to date since 2007, according to Dealogic. While the amount borrowed this year so far, $43.7billion, is still substantially lower than the equivalent $76.2 billion in 2007, it is 64% higher than the same time in 2013, and may increase concerns that leverage levels may reach dangerous levels once more. Companies based in Ireland, acclaimed as a poster boy for bailout-imposed austerity, have been the biggest borrowers in the peripheral euro zone, as optimism returns to the country’s economy following its bailout exit. In contrast, there have been no leveraged loans signed by Greek companies this year, for the first time in nearly two decades.

This may partly be due to a rush to re-finance before the period of historically low interest rates draws to a close. And investors are looking for somewhere to put the huge sums of cheap money pumped into the financial system by Western central banks. There are particular concerns about new issues of bank bonds. On Tuesday, Spain’s biggest bank Santander announced a plan to issue up to 2.5 billion euros ($3.28 billion) in contingent convertible “CoCo” bonds. This kind of bond, which is relatively high yielding but can be written off entirely if the bank’s capital levels drop below a certain level has caused concerns about increasing risks to investors. There are expected to be a number of new peripheral euro zone bank bond issues of these kinds of bonds in coming months. “The time to worry about bank capital is when the weaker banks try to deluge the markets,” Bill Blain, strategist at Mint Partners, warned.

• China Manufacturing Slowdown Ripples Through Region (Reuters)

Growth in China’s vast factory sector slackened in August as foreign and domestic demand slowed, stoking speculation that further policy easing would be needed to prevent the economy from stumbling once more. The surveys of purchasing managers (PMI) from across Asia told a tale of underwhelming new orders and faltering exports, overshadowing brighter spots such as India and Taiwan. That was a taster for a feast of euro zone PMIs due later Monday where any weakness would only add to pressure on the European Central Bank to at least open the door to more monetary stimulus at its policy meeting this week. The Chinese surveys come in both official and private sector flavors. The National Bureau of Statistic’s version fell from a 27-month high to 51.1 in August, as factories shed jobs for at least the 24th consecutive month.

More worrying was the HSBC/Markit PMI, which eased to 50.2 in August, only a whisker above the 50-point mark that separates expansion from contraction. The official survey showed falls across output, employment, new orders, delivery time and raw material inventory, while the private version highlighted subdued demand. “The economy is healthier than it was in early 2014, but the recovery is tepid and patchy, with housing weakness a weighty anchor on both activity and confidence,” said Huw McKay, a senior international economist at Westpac in Sydney. “The authorities would be wise to stay the course with easier policy settings, especially on the fiscal side.”

• Asian Property Prices Fall ‘As If There’s A Global Financial Crisis’ (ZH)

With China’s property developers slashing prices, piling on incentives, and still seeing sales slump; it is no surprise that demand from the top to the bottom across Asia is falling. As Reuters reports, even Singapore’s Sentosa Cove (the man-made island resort billed as Asia’s Monte Carlo) is eerily silent as the billionaires seem to be staying away with prices down over 20-30% in the past year. New mortgage business is down over 40% as “the rential can’t even cover the mortgage anymore.” As one analyst notes, “the tables have turned,” adding rather ominously that, “The way prices have fallen, it’s as if there is a global financial crisis.”

More vulture victims lining up.

• Not Just Argentina: Other Nations In Debt Doldrums (CNBC)

Argentina’s lengthy debt saga returned to the spotlight this week, with its second default in only 12 years triggering George Soros and other investors to sue Bank of New York Mellon for withholding interest payments. This came after Argentina refused to comply with a U.S. legal ruling ordering it to repay $1.3 billion to creditors, triggering a selective default. Moody’s Investors Service downgraded its outlook for the country’s debt to “negative” at the end of July and confirmed its long-term credit rating at “Caa1″—meaning it views Argentine debt as a highly risky investment at the precarious end of the “junk bond” spectrum.

Argentina is, nonetheless, only one of several countries whose shaky finances leave them on the brink of being unable to repay their obligations. Moody’s currently rates 10 other countries’ debt as equally or even more risky than that of Argentina. These span the globe, from nearby by Venezuela and Ecuador to Pakistan and Greece. The table below shows the countries around the world judged as most likely to default on their sovereign debt by Moody’s. Countries rated Caa1, like Egypt, are judged as risky as Argentina, while those rated Caa2 or Caa3 are even more speculative:

Wonder what the details are.

• Goldman Loaned Espirito Santo $835 Million Weeks Before Bailout (Bloomberg)

Goldman Sachs loaned Portugal’s Banco Espirito Santo $835 million in July, just weeks before the group’s units sought creditor protection in a cascade of insolvencies that resulted in the lender’s bailout. Goldman Sachs made the loan through Oak Finance Luxembourg, an investment company that raised funds destined for a Venezuelan oil refinery project, according to the unit’s offer document. Banco Espirito Santo, once Portugal’s biggest publicly traded lender by market value, was bailed out Aug. 3 after it disclosed potential losses on loans to other Grupo Espirito Santo companies and regulators ordered the lender to raise more capital. The bank was split in two with deposits and healthy assets becoming Novo Banco in a bailout by the central bank’s Resolution Fund.

The Wall Street Journal reported earlier that Goldman Sachs sold some of Oak Finance’s securities at a loss to hedge funds and the New York-based firm is still holding some of the debt, citing a person it didn’t identify. Goldman Sachs had agreed to the funding on May 16, the offer document shows. Four days later, Banco Espirito Santo warned investors buying stock in its rights offer of irregularities in the accounts of a parent company and that the “serious financial situation” of the parent firm could be damaging to the bank’s reputation. Regulators are examining how the group’s companies helped fund each other.

Stiglitz only wants growth, like all economists do.

• Capitalism Needs New Rules To Restore Postwar Growth And Stability (Stiglitz)

The reception in the US, and in other advanced economies, of Thomas Piketty’s recent book Capital in the Twenty-First Century attests to growing concern about rising inequality. His book lends further weight to the already overwhelming body of evidence concerning the soaring share of income and wealth at the very top. Piketty’s book, moreover, provides a different perspective on the 30 or so years that followed the Great Depression and the second world war, viewing this period as a historical anomaly, perhaps caused by the unusual social cohesion that cataclysmic events can stimulate. In that era of rapid economic growth, prosperity was widely shared, with all groups advancing, but with those at the bottom seeing larger percentage gains. Piketty also sheds new light on the “reforms” sold by Ronald Reagan and Margaret Thatcher in the 1980s as growth enhancers from which all would benefit. Their reforms were followed by slower growth and heightened global instability, and what growth did occur benefited mostly those at the top.

But Piketty’s work raises fundamental issues concerning both economic theory and the future of capitalism. He documents large increases in the wealth/output ratio. In standard theory, such increases would be associated with a fall in the return to capital and an increase in wages. But today the return to capital does not seem to have diminished, though wages have. (In the US, for example, average wages are down 7% over the past four decades.) The most obvious explanation is that the increase in measured wealth does not correspond to an increase in productive capital – and the data seem consistent with this interpretation. Much of the increase in wealth stemmed from an increase in the value of real estate. Before the 2008 financial crisis, a real-estate bubble was evident in many countries; even now, there may not have been a full “correction”. The rise in value also can represent competition among the rich for “positional” goods – a house on the beach or an apartment on New York City’s Fifth Avenue.

We’ll hear a lot about this case.

• Detroit Brings Bankruptcy Plan to Court With Billionaires (Bloomberg)

Detroit’s plan to fix its finances with hundreds of millions of dollars in private donations comes years after the U.S. automotive capital got hooked on philanthropy to rebuild its blighted neighborhoods, revamp its riverfront and lure new businesses. Since at least 2003, few big-city governments in the U.S. have leaned as heavily as Detroit on charity for community redevelopment, a habit that won’t change as it seeks to shed about $7.4 billion of debt and end court oversight of its finances. U.S. Bankruptcy Judge Steven Rhodes is to start a trial today in Detroit on whether to approve the city’s plan to exit its record $18 billion municipal bankruptcy with handouts from some of the richest foundations in the world.

Under a deal with state lawmakers and wealthy donors, the foundations offered to shore up Detroit pension funds as long as the city didn’t use its art collection to pay debts. The city may call billionaire Dan Gilbert, the founder of Quicken Loans Inc., and Penske Corp. founder Roger Penske as witnesses to testify in support of the plan. “There is a growing concern about who is controlling the decision-making here,” said Dale Thomson, director of the Institute for Local Government at the University of Michigan at Dearborn. “The scale and length of commitment in Detroit is unique,” according to Thomson, who’s writing a book about the role of foundations in urban revitalization.

Could have seen that coming from miles away. The IMF brings in Monsanto. While Ukraine has large swaths of black earth, where no chemicals are needed at all even if you’re prone to using them. Monsanto will end up killing off some of the most fertile soil on the planet.

• Monsanto To Use Ukraine As GMO Testing Ground, Backdoor Into EU (RT)

Ukraine’s bid for closer ties with the west could come at a cost. With the IMF set to loan the country $17 billion, the deal could also see GMO crops grown in some of the most fertile lands on the continent, warns Frederic Mousseau. Very few, not least the Ukrainian population, are aware of these details, but according to Mousseau, who is a Policy Director at The Oakland Institute, in return for the cash, Ukraine could very well become a test ground for GMO crops in Europe, something the rest of the European Union has been looking to prevent. RT caught up with the Frenchman, who voiced his concerns at what may lay ahead.

RT: When this $17 billion deal is approved by the IMF and the Ukrainian ban on GM crops is lifted, does that mean it is just a matter of time before Ukrainian farmers grow modified crops?
Frederic Mousseau: This is very likely because there is a lot of pressure from the bio-technological industry, such as Monsanto, to have these approved in Ukraine. It is also part of the EU Association Agreement, which has a particular article which calls for the expansion of bio-technology and GMOs in Ukraine.

RT: If it was one of the pre-conditions of the multi-billion dollar loan, do you think it is fair to say that Monsanto has considerable influence over the IMF and the World Bank and even dictates terms to them?
FM: We saw in 2013 that Monsanto invested $140 million in new seed plans in Ukraine. It is clearly the bread basket of Europe and it is a key target for a company like Monsanto, which sees this huge potential for production and this huge market. Europe has been quite resistant in allowing GMOs, but if they are successful in Ukraine then there might be a domino effect in Europe.

RT: Was it a coincidence or a pre-planned action back in December 2013, when the ban on GM goods was lifted in Ukraine, just weeks before the IMF was supposed to give that county a loan?
FM: It can’t be a coincidence because we have seen a very strong mobilization of the industry and the agro business in lobbying the government and the EU to have these changes in the legislation. Also we have seen this investment coming in prior to any adoption of GMOs. So clearly this pressure was there and to have such a clause in the EU Association Agreement means that the lobbyists in the industry must have been at work for months before that.

RT: The president of the US-Ukraine Business Council has said that it is necessary to get the Ukrainian government out of the agriculture business and transform it into a private sector industry. Can we say that America has set its sights on the vast fields that could be a gold mine for agriculture?
FM: There are these seed businesses like Monsanto and pesticide companies, but there is also the land of Ukraine, which has so far been under the control of the Ukrainian government and has not been available for sale. There will be a big push to privatize this land and make it a valuable commodity, which can be acquired by foreign corporations. What we have seen in recent years is that even if the land could not be purchased, it has been leased on a massive scale. Already 1.6 million hectares have been acquired by foreign entities and it is very likely that if the reform programs continue, there will be more companies, more interest and they will be looking to strike deals for Ukrainian land.

How can that be a surprise?

• Poll Finds Rapid Shift In Favour Of Scottish Independence (FT)

Scottish voters are shifting rapidly toward support for independence with less than three weeks to go to a referendum that could end the 307-year-old political union at the heart of the U.K., a new opinion poll suggests. The YouGov survey for the Sun newspaper puts the pro-union lead at just 6 percentage points when undecided voters are excluded, down from the 22 points it found less than a month ago and the 14 points it reported in mid-August.The poll offers a huge morale boost to campaigners for a Yes vote in this month’s independence referendum, particularly since YouGov has consistently reported relatively low levels of support for independence compared with other pollsters.

“If even YouGov have it this close, then you better believe we’re winning this folks,” tweeted one independence supporter.The result will fuel doubts about the performance of the cross-party pro-union Better Together campaign after a week in which its advertising strategy has been widely questioned.The No camp lead had “collapsed”, with the independence campaign now “in touching distance of victory”, Peter Kellner, YouGov president, wrote in the Sun.

Go East, young man.

• Russia and China Launch Construction of World’s Biggest Gas Pipeline (BBC)

Russia and China have begun the construction of a new gas pipeline linking the countries, with a ceremony in the Siberian city of Yakutsk. China’s CNPC has agreed to buy $400bn (£240bn) of gas from Russia’s Gazprom. Russia will ship 38 billion cubic metres (bcm) of gas annually over a period of 30 years. The deal will lessen Russia’s dependence on European buyers, who have imposed economic sanctions because of the crisis in Ukraine. The construction ceremony was attended by Russian President Vladmir Putin and Chinese Vice-Premier Zhang Gaoli.

China will start work on the construction of its side of the pipeline in the first half of 2015, Mr Zhang said. The first gas will be pumped from Siberia to north-east China in early 2019. Over the past 10 years, China has used other gas suppliers. Turkmenistan is now China’s largest foreign gas supplier. Last year, it started importing piped natural gas from Myanmar. China is Russia’s largest single trading partner, with bilateral trade flows of $90bn (£53bn) in 2013. The two neighbours aim to double the volume to $200bn in 10 years.

• A Doomed Earth Of Science Fiction May Well Become A Reality (Guardian)

There’s a scene in the newly-restored science fiction classic The Day the Earth Caught Fire (premiered last week in the summer open air cinema at the British Museum) when The Daily Express’s fictional, bull-nosed science reporter, Bill Maguire, barks at a newsroom junior to fetch him information on the melting points of various substances. It’s to illustrate a spread in the paper which is investigating how massive nuclear tests have shifted the planet on its axis, causing chaotic weather and a heat wave to slowly marinate London. The screening launched the British Films Institute’s Sci-Fi season, whose light-hearted tone was set with kitsch alien facemasks given to the audience. A giant promotional selfie was taken before the film began. At the end, the friend I’d watched it with, who works for an official environmental body, went very quiet. “Do you know what I’ve been doing in the last few days?” she asked rhetorically. “Looking into the melting points of various substances in the event of worsening heat waves hitting London.” We both went quiet then.

Research into heat thresholds shows what happens when science fiction becomes science fact. At 20C legionalla bacteria start developing in normal drinking water. At 24C London Underground start work to prevent track buckling. Less than a degree more, at 24.7C for a two-day duration, and deaths and hospital admissions rise. An estimated 600 more people died in London than usual during the 2003 heat wave. Even well-insulated houses overheat at 27C. Power cables start getting hit at around 30C and the likelihood of power outages for businesses goes up. At 33C road surfaces begin to soften and melt. For comparison, in the 2003 heat wave, there were air temperatures recorded on the tubes and platforms of 41.5C and 36.2C respectively. The UK’s highest outdoor daytime temperature recorded so far was 38.5C, outside London in Gravesend, Kent.

When are they going to evacuate everybody from there?

• Fukushima OKs Nuke Waste Storages, Gets Paid $3 Billion In ‘Subsidies’ (RT)

Fukushima’s governor has officially agreed to allow the country’s authorities to store radioactive waste for 30 years in two municipalities in exchange for 300 billion yen ($2.89 billion) in subsidies. “It’s a difficult decision, but I want to accept the construction plan,” Governor Yuhei Sato told journalists on Saturday. Sato told The Japan Times he accepted the plan because he sees it as “necessary to advance decontamination and realize recovery of the environment.” The mayor’s formal acceptance should be also sent to Environment Minister Nobuteru Ishihara and Reconstruction Minister Takumi Nemoto on Monday, and he is also set to meet with the country’s premier Shinzo Abe in Tokyo.

On Wednesday, two Fukushima prefecture municipalities made the decision that they would accept the government’s package of subsidies, allowing to build the storages. “We succeeded in greatly deepening (local officials’) understanding (of our storage facility plan),” Nobuteru Ishihara, environment minister, told journalists on Tuesday, as quoted by The Asahi Shimbun media outlet, following his meeting with members of the town assemblies of Futaba and Okuma. The central government is to pay subsidies totaling 301 billion yen ($2.89 billion) to support the locals and revive the community. Documents containing explanations of the government assistance are set to be provided for local residents. A telephone line will also be set up to answer questions from locals.

• Antarctic Coastal Waters ‘Rising Faster’ (BBC)

Melting ice is fuelling sea-level rise around the coast of Antarctica, a new report in Nature Geoscience finds. Near-shore waters went up by about 2mm per year more than the general trend for the Southern Ocean as a whole in the period between 1992 and 2011. Scientists say the melting of glaciers and the thinning of ice shelves are dumping 350 billion tonnes of additional water into the sea annually. This influx is warming and freshening the ocean, pushing up its surface. “Freshwater is less dense than salt water and so in regions where an excess of freshwater has accumulated we expect a localised rise in sea level,” explained Dr Craig Rye from the University of Southampton, UK, and lead author on the new journal paper. Globally, sea levels are going up, in part because of the contribution of the world’s diminishing ice fields. This is well known.

But the Nature Geoscience report is the first to show the direct consequences to sea surface height (SSH) around Antarctica itself. While the satellite data record indicates there has been a general upward trend in SSH in the Southern Ocean south of 50 degrees of up to 2.4mm per year, those satellites also indicate a more rapid rise in waters sitting on the continental shelf. Modelling by Dr Rye’s team suggests that this additional 2mm per year can be attributed almost exclusively to freshwater runoff from Antarctica, and not to some climatic oscillation that might make sea levels “breathe” up and down on decadal timescales. “We can estimate the amount of water that wind is pushing on to the continental shelf, and show with some certainty that it is very unlikely that this wind forcing is causing the sea level rise,” Dr Rye told BBC News.

Debt Rattle Aug 15 2014: Conditioned To Catch The Falling Knife

Aug 152014

August 15, 2014 Posted by Raúl Ilargi Meijer at 6:48 pm Finance Tagged with: conditioning, Freud, Jung, media, politics 5 Responses »

DPC The shores of Biscayne Bay, Miami, Florida 1910

That’s not a bad metaphor to work with. “Conditioned to catch the falling knife”. The expression comes from the investment world, but it describes a much larger world today pretty accurately.

Investors use it to describe people who see a stock fall, rapidly, from for instance $50 to $20, call the low, and decide it’s a good buy, only to be stuck with huge losses (the knife that cuts their hand) as it goes down all the way to 25 cents.

Tyler Durden quotes Bloomberg’s Richard Breslow as saying this about financial markets:

Conditioned To Catch The Falling Knife

“ … there is this enormous consensus in all ideas and positions, everyone knows that central banks are there and driving everyone’s positioning“; my friend Bob Savage said yesterday:

“We’ve been trained to catch the falling knife by the central banks, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum.

It’s becoming harder and harder to look at the news and then guess what markets did in response [..] the expectation tends to be much more logical than the reaction.

If you look at how markets are trading, they move ahead of a central bank meeting, or a strong or weak number, then everyone is caught with the same position and you end up being right but proven wrong.”

Just like most of today’s investors are Pavlovians potty trained by central banks, most people don’t have opinions of their own on most other issues either; some never did, some recently lost them, but all of them are shaped by media and politics, not innate critical thinking.

It may seem that this is something of all times, but there is a difference, since as one’s exposure to media rapidly increases, so does the influence they have, or the way in which they have it.

In earlier days, most people’s opinions were formed by the communities they lived in, the churches they visited, the schools they attended – if any -, albeit admittedly in ways no less nefarious than the present ones.

But in those days far fewer people were even under the impression that they indeed did form their own opinions – who could read and write? – and were capable of critical thinking.

Now, just about everyone does, and that makes for a different view of the world of the individual. And a different approach to manipulation for opinion makers, of both the individual and the masses.

I’ve often talked with friends about how and why 100 years ago people went into World War 1 in Europe’s battlefields from all over the world. How all those Canadian boys got to be killed over in Belgium and France. And how none of us could imagine doing anything like that in this day and age.

But people then did, partly because the risk of dying wasn’t perceived as being as high as it turned out to be, but certainly also because of community pressure, shaped by schools and churches. If all boys in town go, who are you to stay behind?

Things have changed. We are to a much larger extent individuals now. We live in smaller family units, with much more space per capita and therefore much less direct interaction with others.

We also have had a lot more education, and feel that entitles us to pass judgments. We think school has provided us with objective ideas about the world.

But that’s where the pinch is. We are being fed preconceived ideas from day one – though that’s never what they’re called – and few of us can shake them.

To name an example, there are very few people who will tell you a particular TV ad for a detergent makes them buy the product, but that ad wouldn’t be there if it didn’t work, ergo: who buys the stuff? We have Freud and Jung and their findings of the sub- and unconscious to thank for that.

So how does a government today go about justifying going to war? How does it create an “enormous consensus in all ideas and positions”? It’s not that hard, when you think about it.

Political ideas and ideologies, and politicians themselves, can all be sold to the individual, and the masses, the same way detergent is. By appealing to the unconscious. The means through which ideas are transferred may have changed, but the “pillars” they are based on have not. Jung spent a lot of time working on archetypes, and the bogeyman stands out as a prime example of that. If you give the enemy a name and a face, the job’s half done.

Add to that that the enemy and his people do terrible things to babies, eat them, bury them alive, the image has always worked wonders, and still does. Throw in horrid abuse of women and it’s clear sailing. Rinse and repeat. Lots of rapid repetition, something our present media are ideally suited for. Repetition works miracles, in politics as it does in advertizing. It’s not a huge stretch to say that repetition outweighs evidence.

That’s how Saddam Hussein, Gadaffi and Osama Bin Laden, and today Vladimir V. Putin, have become household names in the US and Europe. And everyone recognizes their portraits too. Though Saddam was never proven to have had WMD, there’s no evidence for Bin Laden’s involvement in 9/11, and Putin so far is merely an unsubstantiated evil media figurehead as well.

People at a certain point simply feel sure that they “know”. Because they’ve seen the names and faces so many times a day, confirming their earlier preconceptions. It has precious little to do with critical thinking. It has to do with what everyone around them says.

To get back to the falling knife, investors – potty trained as they are – all think they’re going to come out winners, even though they know they can’t all win, and even though they know all of their friends and competitors think the exact same way they do, and make the same decisions.

That is the herd mentality. Perhaps not an archetype as such, but, if anything, something even older and more deeply engrained in our brains. What Richard Breslow says is that the vast majority of investors will end up catching the knife in their bare hands, and it’s going to hurt something bad. ” … everyone is caught with the same position and you end up being right but proven wrong”

That is, but of course, exactly what will happen to all of us who blindly follow our politicians and their cleverly disguised media messages on our bogeyman enemies and the wars we have to wage against them.

All we want is to be right in the end, that is to say, we want to conform to the meme common to our herd, and whether or not that will prove us wrong is not on our radar.

Still, just as investors will get burned by blindly following every single move and every single word that comes out of the Fed, we will all get burned and cut and hurt by following every word our politicians and media rinse and repeat. We risk doing quasi irreparable damage to our relations with various people in Russia and Iraq and many other places around the world, who don’t want us as their enemies anymore than we want them, just because our “leaders” seek to advance their agenda’s by demonizing these people.

It’s a dangerous sort of deceit, which doesn’t start when war, be it physical or trade or any other kind, is declared, it starts with how and why we elect the people who have the power to declare it in our name.

And then “when the knife slips you will really have a taper tantrum.”, or in other words, when you find out your Pavlovian preconceptions (yes, you!) have been awfully off the mark, you still have to deal with the consequences, and they may hurt. Whether it’s oil that’s no longer delivered, so you’re cold and miserable and stuck where you are and everything runs to a standstill, or it’s someone attacking your communities because the leaders you elected chose to attack theirs halfway around the world, you may find you’re the one who ends up catching that knife.

And then, inevitably, maybe someday you’ll realize that what you’ve caught, and got cut by, and have fallen into, is your own knife. You threw it up into the air. And you were conditioned to catch it.

• Conditioned To Catch The Falling Knife (Zero Hedge)

The numbers out last night were once again largely on the weak side of disappointing, with very little reaction and even less of an intuitive reaction. As Bloomberg’s Richard Breslow writes, this is the downside of everyone having the same positions. Simply put, we’ve been trained to catch the falling knife by the CBs, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum. Via Bloomberg’s Trader’s Notes…

Some strategists are even finding good news in the euro area growth data, noting that it is impressive there is any growth at all when none was expected, unlike U.S. where 1H numbers disappointed — some people just don’t like black and white analysis. As we have mentioned before, it seems there is this enormous consensus in all ideas and positions, everyone knows that central banks are there and driving everyone’s positioning, my friend Bob Savage said yesterday: “we’ve been trained to catch the falling knife by the central banks, one of those trading strategies that will work until it doesn’t and when the knife slips you will really have a taper tantrum.”

It’s becoming harder and harder to look at the news and then guess what market did in response – although it’s a fun game to play at 3 in the morning when you can’t sleep. May perhaps be better to consider not so much trading the reaction to events, instead trade movements in anticipation thereof, trade the expectation, then go into the number flat, the expectation tends to be much more logical than the reaction. If you look at how markets are trading, they move ahead of a central bank meeting, or a strong or weak number, then everyone is caught with same position and you end up being right but proven wrong.

Welcome to the new normal.

Two articles about a serious hiccup in the oil that keeps the engine sputtering along.

• Banks Retreat From Repo Market That Keeps Cash Flowing (WSJ)

A critical part of the plumbing that keeps money flowing through the financial system is experiencing turmoil as new regulations prompt banks to step back from the multitrillion-dollar “repo” market. The large and opaque market for repurchase agreements helps keep finance and trading moving, allowing hedge funds, investment banks and other financial firms to borrow and lend short-term funds, often overnight. But there have been increasing signs of trouble. Big banks, which act as middlemen between borrowers and lenders, have been pulling back. In recent weeks, senior bankers have said they are reluctant to participate in the market because of regulatory requirements that make repo trading more expensive. Goldman Sachs reduced its repo activity by about $42 billion in the first six months of this year, citing capital requirements. Barclays cut back lending through repos and similar agreements by roughly $25 billion, to $289 billion in the first half of the year.

Bank of America and Citigroup made first-half reductions in repo lending of about $11.4 billion and about $8 billion, respectively. J.P. Morgan’s repo lending stayed roughly flat. Repos function as short-term loans, which are backed by collateral, such as a U.S. government bond. Borrowers agree to sell the bonds to another party for cash, with the promise to repurchase the bond at a slightly higher price some time in the future. Borrowers are often hedge funds and lenders are typically money-market funds. The banks’ pullback could make it harder for hedge funds to borrow, and money-market funds may have fewer places to invest. Investors generally may find it harder to find a trading partner for hedges or short sales. Risks posed by the repo market are the focus of a conference on Wednesday sponsored by the Federal Reserve Bank of New York. The diminishing role of banks in repos “could exacerbate swings in markets when interest rates rise” or other financial turbulence emerges, said Barclays analyst Joseph Abate.

• From A Flood Of Treasury Debt To A Scarcity Of Repo Collateral (Stockman)

Here’s a shocking tidbit. The Fed’s financial repression policies have so contorted the government bond market that repo on 5-year treasuries has recently been trading at a negative 25 basis points. That’s right. The hunger for good collateral is so great on Wall Street that some players are willing to lend short-term cash at a negative rate in order to get their hands on Uncle Sam’s debt paper. Now that’s some kind of financial deformation. For the past 14 years, in fact, Washington has been spewing red ink at unprecedented rates. Since the year 2000, publicly held treasury debt has soared from $3.5 trillion to about $12.6 trillion at present. And its first cousin—–defacto government debt issued by GSE’s such as Fannie and Freddie—-has exploded from $2 trillion to more than $6 trillion. So in theory, the markets should be floating on a sea of “good” collateral.

But that’s where this century’s massive outbreak of central bank money printing comes in. In their lunatic quest to stimulate jobs and growth through ultra-low interest rates, the central banks have absorbed massive amounts on government debt through their QE operations. The US central bank alone has expanded its balance sheet from $500 billion to nearly $4.5 trillion since the time of the dotcom bust in 2000. That means that enormous amounts of otherwise available collateral has been stuffed in the vaults of the state’s monetary central planning agency. During the final phase of QE, in fact, the Fed has focused its purchases on the so-called “belly” of the curve, scarfing up huge amounts of treasury paper in the 3-7 year maturity range. Accordingly, it has created an enormous and insensible scarcity which, in turn, has driven the yield on the 5-year treasury note to the absurd level of 1.6%.

Now the fact of the matter is that US treasuries are taxable; the current CPI rate is running at 2%; and it has averaged 2.4% over the last decade and one-half. So the real after-tax return on the 5-year note is deeply negative. Needless to say, nothing like that could happen in an honest free market for debt that was not pegged and administered by the Fed. Moreover, the Fed has had a lot of central bank help in creating this destructive artificial scarcity in the government debt market. Altogether, the central banks of the world and their sovereign investment fund affiliates own about $6 trillion or nearly half of the publicly held US treasury debt. It has simply been stuffed in the central bank vaults which function as a convoy of monetary roach motels: The bonds go in, but they never come out!

Yeah, let’s start complaining about the meth running out.

• More Money Down Adds to U.S. First-Time Buyer Blues (Bloomberg)

The challenges facing prospective buyers of the least expensive homes in the U.S. are getting harder to overcome. Already beset by stagnant wages, growing student debt and competition from investors who are snapping up listings, those looking to purchase moderately priced houses must also provide more cash up front. The median down payment for the cheapest 25% of properties sold in 2013 was $9,480 compared with $6,037 in 2007, the last year of the previous economic expansion, according to data from 25 of the largest metro areas compiled by brokerage firm Redfin Corp. The higher bar is a symptom of still-tight credit that is crowding out first-time buyers even as interest rates remain near historical lows. Younger adults, who would normally be making initial forays into real estate, are among those most affected, weakening the foundations of the housing market and limiting its contribution to economic growth.

“The numbers tell the story of why we have millions of potential homeowners who are renters or living with their parents,” said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “What has changed is the ability to become an owner. And that’s changed through a down payment that’s more than doubled.” [..] Mortgage originations dropped last quarter to the lowest level in 14 years, contributing to a decline in total consumer debt, the Fed of New York reported today. Mortgage originations decreased by $46 billion in the second quarter to $286 billion, marking the lowest level of new mortgage activity since 2000, the data show. Banks don’t want to make loans to borrowers they consider to be riskier because they’re worried about having to buy back the loans, said Mike Calhoun, president of the Center for Responsible Lending. And if they do give mortgages to borrowers who have lower credit scores, they’ll require a larger down payment to offset that risk, he said.

Germany should get out of the eurozone just as much as Italy should. Much better for both.

• End of the Wirtschaftswunder? Germany’s Sudden Slowdown (Reuters)

The German soccer team’s romp to victory in last month’s World Cup was hailed at home as a symbol of the country’s emergence as a confident global economic power. But in an ironic twist, the feel-good triumph in Brazil may have come at a time when Germany’s new “Wirtschaftswunder”, or economic miracle, is coming to an end. In recent weeks, the economy that proud German politicians have taken to describing as a “growth locomotive” and “stability anchor” for Europe, has been hit by a barrage of bad news that has surprised even the most ardent Germany skeptics. The big shocker came on Thursday, when the Federal Statistics Office revealed that GDP had contracted by 0.2% in the second quarter. The euphoria that we’ve seen, the perception that the German economy is booming is simply misplaced,” said Marcel Fratzscher, director of the DIW economic institute in Berlin. So why is Germany suddenly ailing? The standoff with Russia over Ukraine has received its fair share of blame in the German media.

But that conflict may not hit the economy with full force until the third quarter. It was only last month that Europe stung Moscow with economic sanctions, prompting a tit-for-tat response from Russian President Putin. In reality, economists and some government officials acknowledge, there are deeper reasons for the recent downturn. And they have little to do with the spike in geopolitical tensions in eastern Europe or the Middle East. They start at home, where Chancellor Angela Merkel’s abrupt exit from nuclear energy after the Fukushima disaster in Japan and aggressive push into renewables has unnerved German industry. A recent overhaul of the country’s complex renewable energy law has done little to alleviate uncertainty over future policy or assuage fears about German energy competitiveness. “Energy intensive industries in particular have lost confidence in the future of Germany as a business location,” said Thomas Mayer, a former chief economist at Deutsche Bank. “I think this is a major issue that will burden German industry for years to come.”

Would QE have been good for Europe? Put it this way: has the US really reached escape velocity, or is that just an illusion brought about by debt, an illusion that will crack as soon as interest rates go up?

• Germany Is Itself A Victim Of EMU Austerity Fanatics (AEP)

So now we learn. Germany had a double-dip recession last year without telling us. This could soon turn into triple-dip after contraction of 0.2% in the second quarter. German bond yields are pricing in stagnation as far as the eye can see. 10-year Bunds fell below 1% this morning for the first time in history, and far below levels seen during the deflationary episodes of the Second Reich in the late 19th Century. The bond markets are flashing deflation warnings, but they are also indicting the European authorities for gross incompetence. Professor Paul De Grauwe from the London School of Economics says policy elites have misdiagnosed the fundamental cause of Europe’s chronic slump and its failure to recover. They are treating a demand crisis as if it were a supply crisis, imposing “reforms” – an Orwellian touch – that can only exacerbate EMU-wide distress in the short-run. “They are doing everything they can to stop recovery taking off, so they should not be surprised if there is in fact no take-off,” he said.

“It is balanced-budget fundamentalism, and it has become religious. We know from the 1930s that if everybody is trying to pay off debt and the government then deleverages at the same time, the result is a downward spiral,” he said. “The rigidities in the European economy have been there for ages. They have absolutely nothing to do with the problem we face today.” The claim that Spain’s recovery validates the EMU strategy of retrenchment and reform makes you want to weep. To the extent that Spain has reached self-sustaining take-off – questionable given the collapse of investment and the damage from labour hysteresis – it is largely because Spain is pursuing a beggar-thy-neighbour wage squeeze policy, just as Germany did nine years ago with such malign effects for the eurozone as a whole. This displaces the contractionary pressures into France and Italy. “You can do this in one country but it can’t possibly be a model for the whole eurozone. If everybody does this it leads to generalised deflation, and that is what we are seeing,” he said.

Too late.

• France Calls On ECB To Act As Eurozone Growth Grinds To A Halt (Guardian)

France piled pressure on the European Central Bank to do more to boost growth on Thursday after news that economic activity across the 18-nation single currency area came to a halt in the second quarter. With France registering zero growth for a second successive quarter, Michel Sapin, the country’s finance minister, halved his growth forecast for this year, abandoned the deficit reduction target and said it was up to the Frankfurt-based ECB to respond to an “exceptional situation of weak growth and weak inflation across the eurozone”. Sapin’s demand came as the latest figures from Eurostat, the European Union’s statistical agency, showed that problems in the single currency’s Big Three economies – Germany, France and Italy – resulted in no increase in eurozone gross domestic product in the three months to June. That compares with an increase of 0.2% in the first quarter.

But financial markets saw no immediate prospect of the ECB launching its own money creation (quantitative easing) programme until next year at the earliest, amid concerns that countries such as France and Italy would row back on structural reform if fresh growth-boosting stimulus policies were introduced. The interest rate – or yield – on 10-year German bonds briefly fell below 1% for the first time as dealers anticipated a protracted period of low growth, low inflation and low interest rates. Markets already knew that Italian output had contracted by 0.2% in the second quarter but were surprised by a similar-sized fall in Germany, which was hurt by a more challenging climate for its key export sector.

France made it clear it blamed foot-dragging on the part of the ECB for the failure of the eurozone’s second-biggest economy as it reduced its growth forecast for 2014 from 1% to 0.5% and ditched the 1.7% forecast for 2015, saying it would not expand by much more than 1%. Francois Hollande’s government had negotiated special dispensation from Brussels to run a budget deficit of 3.8% of GDP this year rather than 3%, but Sapin said it was the ECB’s fault that this would not be hit. “We must adapt the pace of deficit reduction to the exceptional situation … of growth that is too weak everywhere in Europe and the exceptional situation of inflation that is too weak across Europe,” Sapin told Europe 1 radio. He also used an article in Le Monde to urge the ECB to do more to combat the threat of deflation and to reduce the level of the euro. “The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year despite a complete control of spending.”

What else could they possible do?

• France Risks EU Deficit Clash After Scrapping Targets (Bloomberg)

The French government abandoned its 2014 deficit targets after the economy unexpectedly failed to grow for a second straight quarter, risking a clash with European partners striving to meet their own fiscal goals. Finance Minister Michel Sapin said that European policy is partly to blame for the lack of expansion in the region’s second-biggest economy. French gross domestic product stagnated in the three months through June, national statistics office Insee said today in Paris. Economists forecast a 0.1% gain, a Bloomberg survey showed. Sapin’s comments will fan a debate about France’s repeated inability to meet European Union fiscal rules it helped write, with Germany advocating reforms and prudent spending to help meet deficit targets and other EU members led by Italy seeking more budgetary leeway. The European Commission has already allowed France to delay deficit targets twice in the wake of the region’s sovereign debt crisis. “There are European causes and there are French causes for the lack of growth,” Sapin said on Europe 1 radio. “The rules allow flexibility for the situation we are facing.”

Wait a minute: if not consumer spending or exports, where did the UK get its (was it 5.1%?! UPDATE: it was 3.1%, just raised to 3.2%) growth number from?

• UK Exports To EU Are ‘Dead In The Water’ (BBC)

The UK’s economic recovery is unlikely to be export driven as its biggest trading partner is “dead in the water”, a Bank of England policymaker has said. In a rare interview by a Monetary Policy Committee member, David Miles told the BBC it was “pretty difficult” to see UK exports growing because of economic problems in the eurozone. But he said the UK’s recovery was no longer being led by consumer spending. Earlier official figures showed eurozone GDP was flat. Professor Miles told Radio 5 Live’s Wake up to Money, UK export growth had been “pretty disappointing” over the last two or three years. He said the “single biggest factor” behind the lack of export growth had been that demand in the eurozone had been close to zero during that time. Professor Miles added: “So our single biggest export market has been, I’m tempted to say, dead in the water. It hasn’t been growing at all. And it’s pretty difficult in that environment to see exports growing very strongly. So the recovery, very welcome as it is, has been a bit dependant on consumer spending.”

The Bank policymaker’s comments highlight the difficulties the government faces in its attempts to re-balance the economy and boost exports. The government wants UK exports to reach £1trn in value a year by 2020 and for 100,000 more UK companies to be exporting by the end of the decade. In his March Budget statement, the chancellor announced help for firms to encourage more investment and exports. The annual 100% tax allowance for business investment was doubled to £500,000 and will run to the end of 2015. The amount of government credit available to support overseas sales was also doubled, to £3bn. “We’re not going to have a secure economic future if Britain doesn’t earn its way in the world,” Mr Osborne said at the time. “We need our businesses to export more, build more, invest more and manufacture more.” Professor Miles’ remarks followed official figures released on Wednesday showing average wages grew at their slowest annual pace since records began in 2001.

Germany, France and Italy are 2/3 of the Eurozone economy. That 2/3 contracted.

• Europe’s Economy Is Broken (Bloomberg)

Investors were expecting bad numbers, but not this bad: Europe’s economies stalled in the second quarter, new figures show. How much longer will Europe’s policy makers just stand there? Since the global financial crisis of 2008, the U.S. and the U.K. have seen output grow more slowly than in previous recoveries. That’s nothing to boast about. Still, six years on, gross domestic product is higher in both countries than it was at the pre-crisis peak. Europe’s output remains 2.4% below that benchmark. And the gap isn’t closing. All three of the euro area’s biggest economies — Germany, France and Italy — are failing. Germany’s output actually fell in the second quarter. So did Italy’s, for the second consecutive quarter. (Whether this is a new recession for Italy or a continuation of the old one is debatable.) The European Central Bank currently forecasts a rise in euro-area output of 1% this year. Expect that to be revised down next month.

With inflation in the euro area running at 0.4% — way below the ECB’s target of less than but close to 2%, and far too close to outright deflation — why isn’t the ECB trying harder to ease monetary policy? Its official answer is that it adopted new measures in June, including an expanded program of support for bank lending. These, it says, should be given time to work. Patience is often a virtue in central banking, but not in this case. The ECB’s measures in June were timid, and the risks are increasingly skewed toward deflation and further prolonged stagnation or worse. The euro area needs quantitative easing of the kind applied by the U.S. Federal Reserve and the Bank of England. The case for this has been strong for months; now it’s overwhelming. The ECB is nervous because outright QE faces political and legal obstacles. One way or another, those issues will have to be resolved — and that’s what ECB President Mario Draghi needs to start saying. Whatever it takes, Mr. Draghi.

Nothing blip about it.

• Japan’s Sudden, Sharp Contraction May Be More Than A Blip (Economist)

The government of Shinzo Abe, Japan’s prime minister, has put a brave face on the news that GDP shrank by 1.7% in the second quarter of this year. Akira Amari, the economy minister, blamed the fall, of an annualised 6.8%—the steepest since the earthquake and tsunami that pummelled Japan in 2011—on the decision to raise the consumption tax from 5% to 8% in April and said the economy will rebound. Not everyone is so sanguine. Worryingly, private consumption plunged by 5% from the previous quarter. Besides having stocked up ahead of the tax rise, households are feeling squeezed by higher prices in the shops. Mr Abe’s most vaunted achievement has been to reverse years of stubborn deflation, a strategy that depends on wages rising. Yet in real terms they fell by 3.2% year-on-year in the second quarter, the steepest drop in 18 quarters, according to Barclays Research in Tokyo.

Most analysts expect Japan’s increasingly tight labour market to push wages up in the coming months, but many of the jobs created under Mr Abe are “non-regular”, with lower pay and benefits. That will embolden critics of Abenomics, who claim that it is enriching corporations and investors and leaving the rest behind. The signs for Mr Abe are ominous: his popularity has fallen below 50% for the first time since he took office in December 2012. The Bank of Japan has pumped billions of dollars into the economy to buy up government debt, which has driven the yen down against the dollar. Yet exports have been sluggish; the main impact of the cheaper yen seems to have been to push up the price of Japan’s imported-fuel bill. The new data also complicate Mr Abe’s pledge to raise the consumption tax by a further two%age points next year. Everyone remembers the effect of a previous tax hike, from 3% to 5%, in 1997. Then, a recovering economy tumbled back into recession.

But as income sources for the shadow banks are repleted through government policies, the highly leveraged products they hold risk blowing up in domino fashion.

• China’s Savers Put Record $2.1 Trillion in Wealth Products (Bloomberg)

Chinese households increased the amount of savings diverted into wealth-management products to a record 12.7 trillion yuan ($2.1 trillion) as the government tries to manage risks from an explosion in shadow banking. The outstanding value rose 24% in the first half from the end of last year, the China Banking Wealth Management Registration System said on its website today. The average annualized return was 5.2%, compared with 3% for benchmark one-year deposits. As signs emerge of weakening demand and rising default risks for higher-yield trust products, sales of the wealth products may keep surging. For banks, a more than 12-fold increase in the value of the products since 2009 is pushing up funding costs, threatening to weigh on profits. “Compared with trust products, wealth-management products are less risky,” Cao Yang, an analyst at Shanghai Pudong Development Bank Co., said by phone.

China’s government is trying to contain risks outside the formal banking system while sustaining growth as the property market slumps and the economy heads for the slowest expansion since 1990. Trust companies’ assets under management fell in June, the China Trustee Association said Aug. 11. Investors have protested outside some banks this year after delays in trust-product payments. Wealth-management products typically require a minimum investment of 50,000 yuan, while trusts target wealthy clients with a minimum investment of 1 million yuan. Today’s number compares with a 44% gain in the value of the wealth products in 2013, according to the China Banking Regulatory Commission. Almost 70% of the outstanding value of the wealth funds was invested in bonds, the money market and bank deposits as of the end of June, according to today’s report. About 23% were in so-called non-standard credit assets, such as loans.

From a 1.4% increase in January to 1.2% in July to 0.4% now. Pretty fast. What’s next?

• Bank of Japan Mulls Cutting 2014 Growth Forecast – Again (Bloomberg)

The Bank of Japan may cut its growth forecast for this fiscal year for a fourth time, as exports fail to bolster an economy weakened by April’s sales-tax increase, according to people familiar with the central bank’s discussions. The expansion for the 12 months through March 2015 is likely to be lower than the 1% median forecast of BOJ board members, said the people, who asked not to be named because the talks are private. Growth is likely to be 0.4%, according to the median estimate in a survey of 24 economists by Bloomberg News on Aug. 13-14.

Another downward revision when the board reviews its outlook in October would underscore waning momentum in the world’s third-biggest economy. Governor Haruhiko Kuroda faces increased pressure to boost his unprecedented stimulus after Japan’s deepest contraction in more than three years in the second quarter, according to economists at Citigroup Inc. and Morgan Stanley MUFG Securities Co. “We think the BOJ will have no option but to revise down its projections again,” said Takeshi Yamaguchi, an economist at Morgan Stanley MUFG Securities Co. The weaker outlook contrasts with the government’s decision last month to raise its assessment of the economy for the first time in six months. The downturn in demand that followed the sales-tax increase was easing, the Cabinet Office said in a report on July 17.

• The Flame-Out Of Abenomics, in One Crucial Chart (WolfStreet)

Abenomics had its moments. At first, given the soaring stock market and the feel-good atmosphere, the economy perked up, growing in the first half of calendar year 2013 at a nice clip. Then stocks tanked, optimism faded. Promise, hype, and hope were replaced by reality and by “inflation without compensation.” Hence near stagnation in the second half of 2013. Then a miracle happened: The effective date of the consumption tax hike, April 1, the beginning of Japan’s fiscal year, moved closer and triggered a historic bout of frontloading by consumers and businesses alike. In an environment where money in low-risk investments earned nothing, and where inflation was rising, the government had handed consumers and businesses a way to save 3% at every major purchase. It’s like 3% risk-free income. For households, it was tax-free! Frontloading turned into a frenzy. And GDP jumped 1.6% in the January-March quarter. It was the finest moment of Prime Minister Shinzo Abe’s regime, and Abenomics apologists scattered across the globe, praising his endless wisdom.

Then in the April-June quarter (Q1 in Japan), a terrific hangover set in. More than a hangover.GDP plunged 1.7% from prior quarter, an annual rate of -6.8%, the Cabinet Office reported. It was the worst decline since January-March 2011 when the earthquake and tsunami on March 11, and the subsequent triple meltdowns at the Fukushima nuclear plant, nearly brought the Japanese economy to a halt, freezing up supply chains and transportation systems. Thousands of aftershocks, some of them serious earthquakes in their own right, continued to wreak havoc for months. Electricity was in short supply…. Those were terrible months. During that tragic quarter, GDP plummeted 1.9%.That GDP in the April-June quarter this year was just two notches less terrible (-1.7%) is a sign that it wasn’t just a hangover from a bout of frontloading. It ate up not only the entire growth of the January-March quarter (+1.6%) but also half of the growth of the September-December quarter (+0.2%). It’s not a pretty picture:

Note the sudden impact of the stimulus after the earthquake in 2011, followed by its big fade that lasted four quarters. That’s how stimulus works. Then, in the first half of 2013, the beginning of the Abenomics era, the economy got high on promise, hype, and hope and on money-printing. In the second half, reality set in, and the economy languished. And so far in 2014, the net effect of frontloading and hangover is that GDP has actually declined. The last quarter was ugly throughout. Consumption by households dropped 5.2%, and excluding “imputed rent,” 6.2%. Consumers drastically cut back on buying big-ticket items and confronted steep price increases while their incomes stagnated. Private residential investment plunged 10.3%. Only government consumption ticked up. But that’s not the whole story to the GDP fiasco: Imports had soared during the quarter, compared to the same period a year earlier, while exports limped along. So the trade deficit for the quarter ballooned by 23.6% year over year.

“The more interesting mystery is how the ISIS fighters learned how to use Uncle Sam’s advanced weaponry so quickly. Perhaps the CIA knows.”

• Washington’s Iraq Puzzle Palace Keeps Getting Curiouser (Stockman)

Not surprisingly, after the US had “liberated” Iraq from 90 years of dictatorship—democracy took hold with lightening speed subsequent to the 2011 departure of American GIs. The “rule of the majority”—that is, the Shiite majority—-soon ripped through most governmental institutions, but especially the military. In short order the “Iraqi” army became a Shiite army. Hence the precipitous surrender and flight from the battles of Mosul and other northern cities. That was Sunni and Kurd territory—–not a place where Shiite soldiers wanted to be shot dead or caught alive. The more interesting mystery is how the ISIS fighters learned how to use Uncle Sam’s advanced weaponry so quickly. Perhaps the CIA knows. It did train several thousand anti-Assad fighters in its secret camps in Jordan in preparation for Washington’s “regime change” campaign in Syria. Undoubtedly, in the fog of war—-especially the sectarian wars in the Islamic heartland that have been raging for 13 centuries—it is difficult to have friend and foe vetted effectively.

But effective vetting or no, the purpose of training Sunni fighters in Syria was to achieve a key Washington strategic objective. Namely, to breakup and disable the fearsome “Shiite Crescent”, ranging from Hezbollah in Lebanon through Assad’s Alawite-Shiite regime in Syria to the seat of the Axis-Of-Evil itself—-the purportedly nuke seeking Shiite theocracy of Iran. To be sure, the CIA had re-certified as recently as 2008 that the Iranians had disbanded a few incipient nuclear weapons experiments years earlier. Likewise, the medieval mullahs who rule Iran had issued fatwas against a nuclear weapons program in any form. But so great was the Shiite threat deemed to be by Washington that both Secretary of State Hillary Clinton and the peace president himself announced the Assad “must go” peacefully or Washington would wage war against him. And this was all part of the grand scheme of disabling the fearsome Shiite Crescent.

“It’s very difficult for the EU to squeeze Islamic State through sanctions because the group is selling oil in a global market through Turkey, and is doing so at a 75% discount of about $25 a barrel …”

• EU Weighs Oil Steps Against Islamists While Arming Kurds (Bloomberg)

European Union governments are set to explore ways to squeeze the finances of Islamist militants bolstered by oil fields captured during their advance through Iraq. EU foreign ministers due to attend an emergency meeting in Brussels today plan to consider options on oil-market measures and the direct supply of arms to Kurdish forces fighting Islamic State in northern Iraq, an EU official told reporters, asking not be named because the discussions are private. Representatives of the 28 EU governments are stepping up their collective response with the U.S. to the cross-border threat posed by Islamic State that has prompted thousands of Yezidis and Christians to flee their advance. Iraq and Ukraine are on the agenda for the talks called by EU foreign-policy chief Catherine Ashton, scheduled to start at noon.

The EU will have an uphill struggle to curb the militants’ revenue from oil, Philipp Chladek, a London-based energy analyst at Bloomberg Intelligence, said by phone. “It’s very difficult for the EU to squeeze Islamic State through sanctions because the group is selling oil in a global market through Turkey, and is doing so at a 75% discount of about $25 a barrel,” he said. On Ukraine, the foreign ministers will discuss the outlook for international humanitarian aid for eastern areas of the country, where government forces are fighting pro-Russian rebels, and the impact of Russia’s recent ban on imports of some EU foods. The ministers will probably stop short of expanding sanctions against Russia imposed as a result of its encroachment in Ukraine, the EU official said yesterday.

Key line: “European energy companies will have to agree major contract revisions when purchasing Russian natural gas”…

• Ukraine Approves Law On Sanctions Against Russia (Reuters)

The Ukrainian parliament approved a law on Thursday to impose sanctions on Russian companies and individuals supporting and financing separatist rebels in eastern Ukraine. The government has already prepared a list of 172 citizens of Russia and other countries, and of 65 Russian companies, including gas export giant Gazprom, on whom they could impose sanctions “for financing terrorism”. After Thursday’s vote, Prime Minister Arseny Yatseniuk told parliament that Ukraine had taken a historic step. “By approving the law on sanctions, we showed that the country is able to protect itself,” he said. “The law should give a clear answer to any aggressor or terrorist who threatens our national security, our government and our citizens.” Ukraine said on Monday that European energy companies will have to agree major contract revisions when purchasing Russian natural gas if parliament approved sanctions on Gazprom.

So who’s paying and arming them? Or should we say: who’s actually doing the fighting?

• Ukraine’s Broke Military Is Underpaid and Undertrained (BW)

A group of men and a few women clad in neat, matching camouflage uniforms and combat boots walk through an airport, presumably on their way to the front. As the soldiers make their way toward their gate, people around them rise in applause. A message appears on the screen: “Come back alive,” along with directions for contacting Ukraine’s volunteer brigades and donating to the military. The video commercial shows the army Ukraine would like to have: a streamlined, battle-ready group that’s a source of pride for the country. But it also hints at the fighting force that Ukraine has today: one with a heavy reliance on support from volunteer soldiers and donations from across the country to help keep it properly outfitted. “At the beginning of March, there was nothing,” says Oleksiy Melnyk, an analyst with Razmykov Center, an independent think tank in Kiev. When Russia annexed Crimea about a month after the EuroMaidan uprising, the interim government had limited options.

To prevent the loss of Ukraine’s eastern Donetsk and Lugansk regions to pro-Russia separatists, the government has reinstated the military draft and launched a national campaign asking for donations to replenish the military’s depleted coffers. Thus far the donation campaign has raised more than $11.7 million, according to the BBC. Volunteers, many spurred on by a rise in patriotism in the wake of the Maidan protests, have also helped to boost the armed forces’ numbers. The National Guard has integrated former members from Maidan’s self-defense forces into its ranks. Other informal fighting battalions have emerged in recent months that are sometimes very loosely affiliated with, or entirely independent from, official government forces. The emergence of such battalions is a reflection of how weak Ukraine’s military was at the beginning of the eastern conflict. “I think the only reason that these battalions get a chance is because at this time, three months ago, the Ukrainian government was ready to accept probably any help it could get,” says Melnyk.

And he’ll keep on making the deals, one by one.

• Putin Says Russia Should Aim To Sell Energy In Roubles (Reuters)

President Vladimir Putin said on Thursday Russia should aim to sell its oil and gas for roubles globally because the dollar monopoly in energy trade was damaging Russia’s economy. “We should act carefully. At the moment we are trying to agree with some countries to trade in national currencies,” Putin said during a visit to the Crimea region, which Moscow annexed from Ukraine earlier this year.

Hungary is in an interesting location.

• Europe “Shot Itself In The Foot” With Russia Sanctions: Hungary PM (Reuters)

The European Union has shot itself in the foot economically with the sanctions its has imposed on Russia over Ukraine, Hungarian Prime Minister Viktor Orban said on Friday, calling for a rethink of policy. “The sanctions policy pursued by the West, that is, ourselves, a necessary consequence of which has been what the Russians are doing, causes more harm to us than to Russia,” Orban said in a radio interview. “In politics, this is called shooting oneself in the foot.”

Scarier by the day.

• Evidence Suggests Ebola Toll Vastly Underestimated (Reuters)

Staff with the World Health Organization battling an Ebola outbreak in West Africa see evidence the numbers of reported cases and deaths vastly underestimates the scale of the outbreak, the U.N. agency said on its website on Thursday. The death toll from the world’s worst outbreak of Ebola stood on Wednesday at 1,069 from 1,975 confirmed, probable and suspected cases, the agency said. The majority were in Guinea, Sierra Leone and Liberia, while four people have died in Nigeria. The agency’s apparent acknowledgement the situation is worse than previously thought could spur governments and aid organizations to take stronger measures against the virus. “Staff at the outbreak sites see evidence that the numbers of reported cases and deaths vastly underestimate the magnitude of the outbreak,” the organization said on its website. “WHO is coordinating a massive scaling up of the international response, marshaling support from individual countries, disease control agencies, agencies within the United Nations system, and others.”

Misleading numbers: you can’t maintain a stable grid with more than 15% intermittent energy. So Germany can only be this “green” because its neighbors, on the same grid, are not.

• Germany Gets 31% of Its Electricity From Renewables (BW)

As Europe struggles to ease its dependency on Russian gas, Germany is getting ever greener: During the first half of 2014, the nation generated 31% of its electricity from renewable energy sources, according to a recent report by the Fraunhofer Institute. Excluding hydro, renewables accounted for 27% of electricity production, up from 24% last year. “Solar and wind alone made up a whopping 17% of power generation, up from around 12% to 13% in the past few years,” according to Renewables International, which provides a helpful rundown of the Fraunhofer report. The country’s solar power plants increased total production by 28% compared with the first half of 2013, while wind power grew about 19%. Germany still derives most of its energy from coal, though consumption of brown coal dropped 4%. Power from natural gas fell 25%, while nuclear power decreased by only about 2%.

The U.S. produces far more renewable energy than Germany in terms of quantity. But as a % of total energy production, America falls short. In 2013 wind accounted for 4% of total electricity generation, and solar made up 0.23%, according to the U.S. Energy Information Administration. Geothermal was at 0.41%; biomass, 1.48%. Germany’s government and population are famous for their environmental zeal. “Green, do-gooding Germans have long been at the sharp end of jokes, often for good reason,” writes Rose Jacobs in her Newsweek piece, “Doing It the German Way.” “Their water conservation efforts were so enthusiastic in the 1990s and early 2000s that by 2009 sewage systems were suffering from too little water running through them.”

Debt Rattle Aug 12 2014: The Lost Art of Empire

Aug 122014

August 12, 2014 Posted by Raúl Ilargi Meijer at 4:18 pm Finance Tagged with: empire, EU, media, Ukraine, US 6 Responses »

NPC Penn Oil Co., Massachusetts Avenue and North Capitol, Washington DC 1920

I can’t seem to get away from Ukraine and Iraq lately. Don’t know if I should apologize for that, but I certainly never had any intention of writing about politics. It’s just that it all seems to come together now, power games, waning energy resources and – the remnants of – hugely indebted societies. We’re taking our first baby steps on the downward ladder, so to speak, and we’re already having trouble keeping our balance. Where will this lead?

The US, UK and France are dropping supplies aimed at helping the Yazidi people on Mount Sinjar in western Iraq. Russia sends 280 trucks with supplies towards the Ukraine border, supplies aimed at helping the people in Luhansk (where people have had no power or water supply in at least 10 days) and Donetsk. The first set of supplies gets applauded, the second one is treated with allegations and suspicions (“fears of a full-scale Russian invasion disguised as humanitarian assistance”).

Russia says it may take a few days before the convoy reaches the border. There’s no full agreement with the Red Cross yet on the operation, something broadly explained as bad and terrifying, but if they wait until that agreement is in place, even more days go by without aid for the population. So why not do it this way?

A similar point is that the trucks have been painted white, also – but of course – ‘advertized’ as suspicious: “They’re really army trucks”! Excuse me, but where else would you find that many trucks on such short notice? And do you think it would be better for anyone involved if they were left in army colors?

As for Russia seeking to pull a Trojan horse, that would not seem very smart. They expect the trucks to be searched. And besides, if Russia would want to invade Ukraine, I think they would simply do it, or even simply already have done it. Who’s going to stop them? NATO? Ukraine is not a NATO country.

Isn’t it perhaps possible that everyone’s just running away with wave after wave of unfounded suspicions and allegations, while in reality Putin has no intention of invading Ukraine? That all he wants is to prevent a massacre? If “we” continue like this, we may force him to act. That would be very unfortunate, and it would all be on our shoulders, not Russia’s.

Russia was very uncomfortable with what happened in Kiev in February, when the elected president Yanukovych was toppled. Putin didn’t like the guy at all, but he was not going to topple him either. “We” did, though. And that was a direct threat to Russia’s only warm water ports, which is why he accepted Crimea’s request to join Russia, and its pipelines in Ukraine. The threat to those still exists. How or why should Russia not be uneasy about all this?

Victoria Nuland said the US had funded all sorts of ‘civil’ groups in Ukraine with $5 billion before February. The EU spent at least $600 million the same way. Of course he’s uneasy, even of he spent money himself as well.

I wrote yesterday on our Automatic Earth Facebook page:

Multiple parties are now talking about a humanitarian mission to Donetsk and Luhansk. Red Cross. At the same time, there’s constant talk about a fear that Russia will send troops to help the people there. (As if that would be terribly out of whack, to help people under siege who speak your language, from threats uttered by questionable forces. But that aside.)

Last week, NATO said 20,000 Russian troops were gathered at the border. Russia said a few days later that the exercise they had conducted had ended, and the troops were being withdrawn towards their homebase. Nobody in the west or Ukraine at the time denied that.

Then, just now, the Ukraine government says there are presently 45,000 Russian troops are at the border, with details about huge numbers of tanks, troops, artillery etc.

And in Holland someone from the military police told parliament this afternoon that the threat of a Russian invasion was the reason the recovery mission at the MH17 crash site was halted 5 days ago. That is, when that threat was, for all I know, a figment of somebody’s imagination. Another thing this guy said was that the threat of recovery workers being kidnapped had risen (that one was new to me).

Of course, no proof of anything was provided. But how real was either threat, ever? How real were NATO’s 20,000 numbers last week? Why are Ukraine’s numbers twice as high now? Is that because NATO can’t count? More importantly, where is the evidence? Are we now just squeezing anything that sounds somewhat credible out of this situation, because there simply is no more? And the folks at home still eat it up like candy anyway?

Why does anybody listen to, and take decisions based on, anything Ukraine says any longer? Is there even one thing the Kiev government has said since July 17 that’s not been found to be false? I can’t think of one single example.

Dutch military is right now telling a news program – not for the first time – about how respectful the rebels have treated everything on the crash site, the bodies, everything. But nobody hears it anymore. They’re all focused on the very first reports, 25 days ago, in the first hours/days, which said the rebels were monsters. Reports which all came from Kiev. It’s embarrassing and humiliating to see our western media, our politicians and our fellow citizens stoop to such levels.

But perhaps help is on its way, from sources that are likely even more unlikely than the cavalry. That is to say, the – right-wing – Daily Telegraph in Britain has started reporting on the dark sides of Ukraine’s government, and our attitude towards the country. Over the weekend, Christopher Booker wrote:

Fresh Evidence Of How The West Lured Ukraine Into Its Orbit

How odd it has been to read all those accounts of Europe sleepwalking into war in the summer of 1914, and how such madness must never happen again, against the background of the most misrepresented major story of 2014 – the gathering crisis between Russia and the West over Ukraine,

For months the West has been demonising President Putin, with figures such as the Prince of Wales and Hillary Clinton comparing him with Hitler, oblivious to the fact that what set this crisis in motion were those recklessly provocative moves to absorb Ukraine into the EU. There was never any way that this drive to suck the original cradle of Russian identity into the Brussels empire was not going to provoke Moscow to react – not least due to the prospect that its only warm-water ports, in Crimea, might soon be taken over by Nato.

And still scarcely reported here have been the billions of dollars and euros the West has been more or less secretively pouring into Ukraine to promote the cause: not just to prop up its bankrupt government and banking system, but to fund scores of bogus “pro-European” groups making up what the EU calls “civil society”.

… the European Commission told a journalist that, between 2004 and 2013, these groups had only been given €31 million [..] the true figure, shown on the commission’s own “Financial Transparency” website, was €496 million.

The 200 front organisations receiving this colossal sum have such names as “Center for European Co-operation” or the “Donetsk Regional Public Organisation with Hope for the Future”

One of my readers heard from a Ukrainian woman working in Britain that her husband back home earns €200 a month as an electrician, but is paid another €200 a month, from a German bank, to join demonstrations [..]

However dangerous this crisis becomes, it is the West which has brought it about; and our hysterical vilifying of Russia is more reminiscent of that fateful mood in the summer of 1914 than we should find it comfortable to contemplate.

Then yesterday, the same Telegraph published a very damning piece about the swastika brandishing units the Ukraine government uses against its fellow Ukrainians in the east:

The Neo-Nazi Brigade Fighting Pro-Russian Separatists

As Ukraine’s armed forces tighten the noose around pro-Russian separatists in the east of the country, the western-backed government in Kiev is throwing militia groups – some openly neo-Nazi – into the front of the battle. The Azov battalion has the most chilling reputation of all.

Kiev’s use of volunteer paramilitaries to stamp out the Russian-backed Donetsk and Luhansk “people’s republics”, proclaimed in eastern Ukraine in March, should send a shiver down Europe’s spine. Recently formed battalions such as Donbas, Dnipro and Azov, with several thousand men under their command, are officially under the control of the interior ministry but their financing is murky, their training inadequate and their ideology often alarming.

The Azov men use the neo-Nazi Wolfsangel (Wolf’s Hook) symbol on their banner and members of the battalion are openly white supremacists, or anti-Semites. [..] Two more militiamen died on Sunday fighting north of Donetsk. Petro Poroshenko, Ukraine’s president, called one of them a hero.

“The historic mission of our nation in this critical moment is to lead the White Races of the world in a final crusade for their survival,” [battalion’s commander Andriy Biletsky] wrote in a recent commentary. “A crusade against the Semite-led Untermenschen.”

Azov’s extremist profile and slick English–language pages on social media have even attracted foreign fighters. Mr Biletsky says he has men from Ireland, Italy, Greece and Scandinavia. At the base in Urzuf, Mikael Skillt, 37, a former sniper with the Swedish Army and National Guard, leads and trains a reconnaissance unit. Mr Skillt says he called himself a National Socialist as a young man and more recently he was active in the extreme right wing Party of the Swedes.

Ukraine’s government is unrepentant about using the neo-Nazis. “The most important thing is their spirit and their desire to make Ukraine free and independent,” said Anton Gerashchenko, an adviser to Arsen Avakov, the interior minister.

Mark Galeotti, an expert on Russian and Ukrainian security affairs at New York University: “The danger is that this is part of the building up of a toxic legacy for when the war ends,” he said.[..] “And what do you do when the war is over and you get veterans from Azov swaggering down your high street, and in your own lives?”

You sure you want those guys representing your side, paid by your tax dollars?

Today, Irish journalist and playwright Bryan MacDonald summarizes this development:

UK Media Approaching ‘Mea Culpa’ Moment On Russia

Russia has been suffering from vilification and falsity in much of the Western mainstream press since the US and EU ignited a needless civil war in Ukraine. I’ve already covered in a previous dispatch how the UK media managed to charge, try and sentence President Putin within hours of the appalling MH17 disaster – “Putin’s missile” as the internationally little-known court of ‘The Sun’ in London adjudicated. Never mind that there was no evidence. In fact, nearly a month on and there’s still not a shred of proof connecting the rebels to the tragedy – much less the Kremlin. [..]

When the media gets it wrong, they usually wait a few years (or even decades) before issuing the ‘mea culpa’, but it seems the UK media this week is beginning to realize that it backed the wrong horse in Ukraine and is in early apology mode. Let’s be very clear here – the three newspapers which form UK political opinion on external affairs are the The Daily Mail, The Daily Telegraph and The (Sunday and daily) Times. The Sun plays a huge role domestically, but not on extraneous matters as the red-top doesn’t prioritize foreign coverage.

This weekend, The Telegraph (which is effectively the ruling Tory party’s in-house journal) admitted that the EU paid protestors at the Maidan rallies. This clashes with a previously widely-held UK media viewpoint that Russia was paying protestors on the other side of Ukraine’s divide. I have to admit, I sputtered into my cornflakes when I first read it but I can clearly see where this new stance is headed. The ‘mea culpa’ is beginning to form a head of steam in double-quick time. [..]

Amid all this lunacy, there is also the re-emergence of aged ‘Cold Warriors’ who last had a day in the sun when the Soviet Union was coughing its dying breaths. After years of being ignored, they are back in (temporary) vogue and determined to make their voices heard, no matter how humungous a time-warp they are stuck in. Indeed, 86-year-old Zbigniew Brzezinski, last seen arming the mujahedeen in Afghanistan in the 1980’s, has re-appeared like a scarier version of The Simpson’s Mr Burns. His Afghan policy was so successful that it created Al Qaeda so what could possibly go wrong by following his advice on Russia?

Below them, there is a younger generation of ‘Russia experts’ who largely chose Russian or Slavic topics in their academic years, and have been lifelong non-entities as the region became a fringe topic in a West obsessed with problems in the Islamic world. As a consequence of an abrupt (probably fleeting) interest in Ukraine, they have been brought in from the ether and are determined to milk the moment they’ve spent their adult lives building up to. Previously niche authors, published on obscure websites, suddenly find themselves called on to write big-time magazine cover stories demonizing Putin to fit the new ‘bogeyman’ narrative and they are delirious with the acclaim.

Others who, until recently, could not command the attention of a few drunks at a Washington or London bar for their Russian rantings are overcome with joy at being invited on CNN/Sky News/NBC etc. to discuss their favorite topic. Basically, they are all partying like it is 1989. [..] However, last orders at their little shindig seems to be approaching as Western popular media edges towards its ‘mea culpa moment’ and editors realize that backing the wrong horse, no matter how generous the odds, has only ever made the punters poorer.

And I don’t even get around to the western escapades in the desert today, where in Baghdad Shi’ite private armies may be called upon to battle each other in the name of the constitution, or just power, and where “we” think we have some sort of right to once again interfere, due to past successes. Tell me: would you think this is how Rome built its empire, or how it lost it?

The other day, I said it might be good if you write to your Congressperson or MP and ask for the proof that their views and policies are based on. Our good friend Euan Mearns – of Oil Drum fame – in Aberdeen has taken up the challenge, and written to no-one less than a UK Secretary of State. This can be you blueprint, copy and paste, and send it off. I’m very curious to see what responses the mailman will deliver:

Dear Mr Hammond,

I am writing to you in your capacity as the UK Secretary of State for Foreign and Commonwealth Affairs.

A report by Raúl Ilargi Meijer, who runs the blog The Automatic Earth
, links to an article from the Malaysian New Straits Times that says:

“KUALA LUMPUR: INTELLIGENCE analysts in the United States had already concluded that Malaysia Airlines flight MH17 was shot down by an air-to-air missile, and that the Ukrainian government had had something to do with it. This corroborates an emerging theory postulated by local investigators that the Boeing 777-200 was crippled by an air-to-air missile and finished off with cannon fire from a fighter that had been shadowing it as it plummeted to earth. In a damning report dated Aug 3, headlined “Flight 17 Shoot-Down Scenario Shifts”, Associated Press reporter Robert Parry said “some US intelligence sources had concluded that the rebels and Russia were likely not at fault and that it appears Ukrainian government forces were to blame”.”

https://www.theautomaticearth.com/follow-the-money-all-the-way-to-the-next-war/#post-14511

https://www.nst.com.my/node/20925

I gather that the UK has joined EU partners and the USA in widening sanctions against Russia in the wake of this tragedy. I have to presume that the UK is in possession of EVIDENCE that unequivocally places blame for this incident on East Ukraine separatists with or without assistance from Russia and I hereby request that you make said evidence available for public scrutiny.

I look forward to your swift reply.

Yours sincerely,

Dr Euan Mearns, Aberdeen

• Fresh Evidence Of How The West Lured Ukraine Into Its Orbit (Telegraph)

How odd it has been to read all those accounts of Europe sleepwalking into war in the summer of 1914, and how such madness must never happen again, against the background of the most misrepresented major story of 2014 – the gathering crisis between Russia and the West over Ukraine, as we watch developments in that very nasty civil war, with 20,000 Russian troops massing on the border. For months the West has been demonising President Putin, with figures such as the Prince of Wales and Hillary Clinton comparing him with Hitler, oblivious to the fact that what set this crisis in motion were those recklessly provocative moves to absorb Ukraine into the EU. There was never any way that this drive to suck the original cradle of Russian identity into the Brussels empire was not going to provoke Moscow to react – not least due to the prospect that its only warm-water ports, in Crimea, might soon be taken over by Nato.

And still scarcely reported here have been the billions of dollars and euros the West has been more or less secretively pouring into Ukraine to promote the cause: not just to prop up its bankrupt government and banking system, but to fund scores of bogus “pro-European” groups making up what the EU calls “civil society”. When the European Commission told a journalist that, between 2004 and 2013, these groups had only been given €31 million, my co-author Richard North was soon reporting on his EU Referendum blog that the true figure, shown on the commission’s own “Financial Transparency” website, was €496 million. The 200 front organisations receiving this colossal sum have such names as “Center for European Co-operation” or the “Donetsk Regional Public Organisation with Hope for the Future” (the very first page shows how many are in eastern Ukraine or Crimea, with their largely Russian populations).

One of my readers heard from a Ukrainian woman working in Britain that her husband back home earns €200 a month as an electrician, but is paid another €200 a month, from a German bank, to join demonstrations such as the one last March when hundreds of thousands – many doubtless entirely sincere – turned out in Kiev to chant “Europe, Europe” at Baroness Ashton, the EU’s visiting “foreign minister”. However dangerous this crisis becomes, it is the West which has brought it about; and our hysterical vilifying of Russia is more reminiscent of that fateful mood in the summer of 1914 than we should find it comfortable to contemplate.

• The Neo-Nazi Brigade Fighting Pro-Russian Separatists (Telegraph)

The fighters of the Azov battalion lined up in single file to say farewell to their fallen comrade. His pallid corpse lay under the sun in an open casket trimmed with blue velvet. Some of the men placed carnations by the body, others roses. Many struck their chests with a closed fist before touching their dead friend’s arm. One fighter had an SS tattoo on his neck. Sergiy Grek, 22, lost a leg and died from massive blood loss after a radio-controlled anti-tank mine exploded near to him. As Ukraine’s armed forces tighten the noose around pro-Russian separatists in the east of the country, the western-backed government in Kiev is throwing militia groups – some openly neo-Nazi – into the front of the battle. The Azov battalion has the most chilling reputation of all. Last week, it came to the fore as it mounted a bold attack on the rebel redoubt of Donetsk, striking deep into the suburbs of a city under siege. In Marinka, on the western outskirts, the battalion was sent forward ahead of tanks and armoured vehicles of the Ukrainian army’s 51st Mechanised Brigade.

A ferocious close-quarters fight ensued as they got caught in an ambush laid by well-trained separatists, who shot from 30 yards away. The Azov irregulars replied with a squall of fire, fending off the attack and seizing a rebel checkpoint. Mr Grek, also known as “Balagan”, died in the battle and 14 others were wounded. Speaking after the ceremony Andriy Biletsky, the battalion’s commander, told the Telegraph the operation had been a “100% success”. “The battalion is a family and every death is painful to us but these were minimal losses,” he said. “Most important of all, we established a bridgehead for the attack on Donetsk. And when that comes we will be leading the way.” The military achievement is hard to dispute. By securing Marinka the battalion “widened the front and tightened the circle”, around the rebels’ capital, as another fighter put it.

• UK Media Approaching ‘Mea Culpa’ Moment On Russia (RT)

When the media gets it wrong, they usually wait a few years (or even decades) before issuing the ‘mea culpa’, but it seems the UK media this week is beginning to realize that it backed the wrong horse in Ukraine and is in early apology mode. Let’s be very clear here – the three newspapers which form UK political opinion on external affairs are the The Daily Mail, The Daily Telegraph and The (Sunday and daily) Times. The Sun plays a huge role domestically, but not on extraneous matters as the red-top doesn’t prioritize foreign coverage. This weekend, The Telegraph (which is effectively the ruling Tory party’s in-house journal) admitted that the EU paid protestors at the Maidan rallies. This clashes with a previously widely-held UK media viewpoint that Russia was paying protestors on the other side of Ukraine’s divide. I have to admit, I sputtered into my cornflakes when I first read it but I can clearly see where this new stance is headed. The ‘mea culpa’ is beginning to form a head of steam in double-quick time.

“Scarcely reported here have been the billions of dollars and euros the West has been more or less secretly pouring into Ukraine to promote the cause: not just to prop up its bankrupt government and banking system, but to fund scores of bogus “pro-European” groups making up what the EU calls “civil society”. “One of my readers heard from a Ukrainian woman working in Britain that her husband back home earns €200 a month as an electrician, but is paid another €200 a month, from a German bank, to join demonstrations such as the one last March when hundreds of thousands – many doubtless entirely sincere – turned out in Kiev to chant ‘Europe, Europe’ at Baroness Ashton, the EU’s visiting ‘foreign minister’,” wrote columnist Christopher Booker.

Booker went on to quote the author Richard North who has reported that the EU’s own ‘financial transparency’ website proves that €496 million has been given to these ‘pro-European’ groups, who have been presented by a generally pliant Western media as harmless NGO’s driven by people-power. Meanwhile, over at The Daily Mail, the respected Peter Hitchens has also been drawing from North’s research, writing about “how astonishing the amounts the EU have given to Ukraine are.” He continues: “Rebuilding schools and nurseries and providing school buses, all helpfully emblazoned with EU stars, paying for doctors and then rebuilding agricultural storage plants – it’s amazing that any one person could be found to vote against closer partnership with the EU after that.”

“Tourism revenues from Russia increased 42% last year”…

• Russian Sanctions Dim Greek Hopes for Exit From Recession (Bloomberg)

Greece’s hopes of a 2014 exit from its deepest recession in a half-century may hit a stumbling block after Russia banned European Union food imports in retaliation for sanctions stemming from the insurgency in Ukraine. “The estimated total cost of Russian counter-sanctions for the Greek economy may look tolerable, but the impact could be quite damaging for industries such as tourism and agriculture amid the fragility of a slowly recovering economy,” said Thanos Dokos, director-general of the Hellenic Foundation for European and Foreign Policy, a Greek think-tank. “It also raises questions about energy security in the coming autumn and winter.” Russia is Greece’s biggest trading partner, mostly because of gas and oil exports, according to data compiled by Bloomberg. The value of total trade between the two nations reached €9.3 billion ($12.5 billion) in 2013, surpassing trade flows between Greece and fellow EU-member Germany.

The recent depreciation of the ruble amid the sanctions and the situation in Ukraine may mean that Greece will see 200,000 fewer Russian tourists this year than originally expected, said Xenophon Petropoulos, director of communications at the Association of Greek Tourism Enterprises, also known as SETE. That could deal a potential €300 million blow to Greece’s biggest industry, based on preliminary estimates. “Arrivals from Ukraine will drop by 50% and arrivals from Russia are expected to reach 1.1 million, instead of 1.3 million,” Petropoulos said. The ruble is the worst performer among 24 currencies of emerging countries tracked by Bloomberg in the last month, with a 5% decline against the dollar. Tourism contributes more than 16% to Greek gross domestic product, according to SETE data, and Russia has been the fastest growing source market for visitors to Greece. Tourism revenues from Russia increased 42% last year to €1.34 billion, according to Bank of Greece data.

• Global Nausea (Jim Kunstler)

There is not a nation on earth that is preparing intelligently for the end of oil — and by that I mean 1) the end of cheap, affordable oil, and 2) the permanent destabilization of existing oil supply lines. Both of these conditions should be visible now in the evolving geopolitical dynamic, but nobody is paying attention, for instance, in the hubbub over Ukraine. That feckless, unfortunate, and tragic would-be nation, prompted by EU and US puppeteers, just replied to the latest trade sanction salvo from Russia by declaring it would block the delivery of Russian gas to Europe through pipelines on its territory. I hope everybody west of Dnepropetrovsk is getting ready to burn the furniture come November. But that just shows how completely irrational the situation has become… and I stray from my point.

Which is that in the worst case that ISIS succeeds in establishing a sprawling caliphate, they will never be able to govern it successfully, only preside over an awesome episode of bloodletting and social collapse. This is especially true in what is now called Saudi Arabia, with its sclerotic ruling elite clinging to power. If and when the ISIS maniacs come rolling in on a cavalcade of You-Tube beheading videos, what are the chances that the technicians running the oil infrastructure there will stick around on the job? And could ISIS run all that machinery themselves? I wouldn’t count on it. And I wouldn’t count on global oil supply lines continuing to function in the way the world requires them to. If you’re looking for the near-future spark of World War Three, start there.

By the way, the US is no less idiotic than Ukraine. We’ve sold ourselves the story that shale oil will insulate us from all the woes and conflicts breaking out elsewhere in the world over the dissolving oil economy paradigm. The shale oil story is false. By my reckoning we have about a year left of the drive-to-Walmart-economy before the public broadly gets what trouble we’re in. The amazing thing is that the public might get to that realization even before its political leadership does. That dynamic leads straight to the previously unthinkable (not for 150 years, anyway) breakup of the United States.

• US Government Likely Hiding Truth in Malaysia Airlines Flight 17 Crash (Ron Paul)

The U.S. government has grown strangely quiet on the accusation that it was Russia or her allies that brought down the Malaysian airliner with a buck anti-aircraft missile. The little that we have heard from U.S. intelligence is that it has no evidence that Russia was involved. Yet the war propaganda was successful in convincing the American public that it was all Russia’s fault. It’s hard to believe that the U.S., with all of its spy satellites available for monitoring everything in Ukraine that precise proof of who did what and when is not available. When evidence contradicts our government’s accusations, the evidence is never revealed to the public—for national security reasons, of course. Some independent sources claim that the crash site revealed evidence that bullet holes may have come from a fighter jet. If true, it would implicate western Ukraine. Questions do remain regarding the serious international incident. Too bad we can’t count on our government to just tell us the truth and show us the evidence. I’m convinced that it knows a lot more than it’s telling us.

As Germany goes, so goes Europe.

• The Economic Outlook For Germany In One Word: ‘Grim’ (BI)

The ZEW investor confidence survey index plunged to 44.3 in August from 61.8 a month ago. This was much worse than the 54.0 expected by economists. To make things worse, the expectations index crashed to 8.6 from 27.1. This was the lowest reading since December 2012. Economists were expecting 17.0. “In one line: Grim, as slump in investor sentiment deepens,” said Pantheon Economics’ Claus Vistesen. “Given the recent sharp drawdown in equities, a drop in sentiment was expected, but the decline was larger than anticipated, reinforcing downside risk to the economy.” Some of this deterioration is likely due to the escalating conflict with Russia, which recently imposed a ban on food imports from the European Union. “We expect the escalation of the Russian Ukrainian conflict as well as the persisting political turmoil in the Middle East to have a negative impact on the market environment,” said Henkel CEO Kasper Rorsted earlier Tuesday. Based in Dusseldorf, Henkel supplies the world with a variety of consumer goods ranging from laundry detergent to toothpaste.

The economic data out of Germany has been astonishingly bad this month, highlighted by sharp drops in industrial production and factory orders. “All Europe has been affected by these tensions as well as by the stalling of the German economy,” said Cumberland Adviors Bill Witherell on Friday. “The Italian economy, for example, appears to be slipping into recession. The French economy also has failed to establish sustainable growth. While the Spanish economy is seen as having been transformed by its structural reforms, industrial production in Spain fell by -0.8% month-to-month in June, following a -0.6% drop in May.” “The German ZEW survey suggests the euro-area economy will continue to slow through the first half of next year,” said Bloomberg economists David Powell and Niraj Shah. “That will provide ammunition for the proponents of quantitative easing at the European Central Bank.”

• In the U.K., Work Doesn’t Pay (Bloomberg)

A conundrum confronts U.K. policy makers, both at the central bank and in government: Why aren’t wages keeping pace with inflation, never mind increasing, in what’s likely to be the fastest-growing economy among the Group of Seven industrialized nations? Consumer prices are rising at an annual pace of 1.9%, according to the most recent data. Figures scheduled for release this week, though, will show average weekly earnings dropping by 0.1%, according to the median forecast of economists surveyed by Bloomberg News. Only 38% of U.K. employers have conducted a pay review since the beginning of the year, a figure that drops to 26% for small- and medium-sized enterprises, according to a survey published today by the Chartered Institute of Personnel & Development, a London-based trade body for the human resources profession. Just 25% have made marginal improvements to starting salaries, with the majority leaving them unchanged, the report said:

This is despite a growing recognition among some employers that the cost of living or inflation is placing upward pressure on employers to award their pay increases. Among those workers who have enjoyed a basic pay rise, the median increase has fallen to 2% this year from 2.5% in 2013.

Oh man …

• Margin Calls Hit Hedge Funds Speculating in Freddie/Fannie Bonds (Stockman)

Markets are more dangerous than ever before because six years of radical financial repression by the central banks have planted booby-traps everywhere. Ground zero consists of massive and reckless speculation in newly invented “structured finance” products which were designed to quench the market’s insatiable thirst for yield in the Fed’s whacky world of ZIRP. So below is news of margin calls on hedge funds that had piled into a 12 month old product called “risk sharing RMBS bonds”. It seems that Wall Street dealers had provided 80% leverage on these new fangled securities issued by the nation’s accomplished market wreckers – Fannie and Freddie. Various tranches of this new variant of synthetic CDOs—that is, the Wall Street created toxic waste that blew-up in 2007/2008 – offered yields of 200-700 basis points over LIBOR, but so great was the demand for an alternative to the Bernanke-Yellen ukase of zero return that prices of the first Freddie Mac issue were driven up by 30% over the past year.

Now imagine that. Speculators purchased newly invented and unseasoned securities from proven financial malefactors on 80% leverage and then saw their price rise by 30% in 12 months, meaning that the return on their own invested equity was a cool 150%. Stated differently, the scramble for yield got so frenzied that securities originally issued at a yield premium of 7.15% over LIBOR last summer had soared to the point that they yielded only 2.5% over LIBOR before the market broke a few weeks ago. A recent WSJ article captured the thought that irrational exuberance had indeed erupted in this newly invented “asset class”:

But, the rally was overextended by investors’ search for yield as Federal Reserve stimulus cut returns on safer assets, some investors said. Prices on Freddie Mac’s first issue of July 2013 had soared more than 30% through May, reducing yield premiums over the one-month London interbank offered rate to 2.5 percentage points from 7.15 percentage points. “Investors got too complacent,” Mr. Hentemann said. “They kept buying high-yielding assets to a point where prices and yields didn’t compensate you for the risk.”

“When it comes to a bilateral relationship with a sovereign country and the violation of its immunities, it is necessary for the executive branch to intervene,” Capitanich said. “The executive has a monopoly on relations with other countries.”

• Argentina Calls On US Government To Intervene In Debt Case (Reuters)

Argentina on Monday called on Washington to intervene in a court case over the country’s defaulted debt after a U.S. district judge threatened the South American country with contempt for making what he called false statements. U.S. Judge Thomas Griesa, overseeing Argentina’s long-running battle with hedge funds over defaulted debt, said on Friday he would issue a contempt of court order unless the government stopped publicly claiming it had met its obligations and was not in default. Cabinet chief Jorge Capitanich countered on Monday that a contempt order would violate Argentina’s sovereign immunity and he called on the Obama administration to rein in Griesa. “When it comes to a bilateral relationship with a sovereign country and the violation of its immunities, it is necessary for the executive branch to intervene,” Capitanich said. “The executive has a monopoly on relations with other countries.”

“The United States is responsible for the actions of its branches of power, in this case the judicial branch, regardless of the independence of the functioning of those branches,” he said. In 2002 Argentina defaulted on about $100 billion in sovereign bonds. It restructured most of that debt in a deal that gave holders less than 30 cents on the dollar while a group of hedge funds went to court for full repayment. In 2012 Griesa ruled that Argentina could not repay holders of restructured debt without also paying hedge funds their court-award of $1.33 billion plus interest at the same time. Argentina says it met its obligation to the holders of restructured bonds when it deposited $539 million into the account of intermediary Bank of New York Mellon in June. Griesa called the deposit illegal and ordered the money frozen. As a result, Argentina effectively missed the coupon payment after a grace period ended on July 30, pushing it into default on its restructured debt. Griesa reiterated on Friday that “there has been no payment.”

Lovely.

• Australian Banks Face Monumental Class Action Over Late Fees (AAP/Yahoo)

A monumental class action against major banks over credit card late fees will be filed in the NSW Supreme Court today. Compensation lawyers from firm Maurice Blackburn will lodge the action on behalf of hundreds of thousands of bank customers who have had credit card late fees imposed on them. What could be the largest class action in Australian history, the action will initially be filed against ANZ, Westpac and Citibank while American Express and Commonwealth will be next in line. According to report by Fairfax, every single customer who has been hit with excessive late fees from those specific institutions will be automatically included in the action. This ‘open class’ action makes it different from other previous bank class actions, which required participants to register.

Instead, the inclusive nature of the action makes it hard to estimate the scope of the potential claim, but it is thought to be worth hundreds of millions of dollars. Maurice Blackburn principal Andrew Watson says the scope for the payout is so large because it includes every customer from ANZ, Westpac and Citibank who has ever paid a late fee. “We’re talking about an enormous action,” Watson said. “If people are a bit like myself and not as careful about paying off their credit card, then they will be in the action and stand to benefit.” Watson also says more actions are on the horizon. “In the near future we’ll be filing further claims against other banks and they’ll be on the same basis,” he said. CEO of the Consumer Action Law Centre Gerard Brody told the ABC that while banks charge varying fees for late payments in Australia, some were charging up to $20 or more.

A global phenomenon.

• Britain’s Consumer Credit Market Is A Giant Ticking Time Bomb (Telegraph)

It is increasingly clear that Britain’s army of borrowers are being lulled into a false sense of security. The cost of borrowing is actually falling, not rising, a remarkable and little-understood state of affairs which is storing up immense problems for the future. The consumer credit market is a ticking time bomb; it beggars belief that so many folk and companies who should know better are so relaxed about it. At some point, central banks, led by the Bank of England and the Federal Reserve, will start tightening monetary policy in earnest, and this is bound to eventually have a knock-on effect on the cost of consumer borrowing. When this does happen, the shock to borrowers, practical as well as psychological, will be immense. But for the time being, they are laughing all the way to the bank and pocketing the gains created by the authorities’ obsession with subsidising credit.

The figures are remarkable and help explain why the number of first-time buyers shot up by 19pc year on year in June, reaching the highest level since 2007 and keeping the housing market boom on track. The recent regulatory changes to the mortgage market, which now involve borrowers having to disclose far more information about their expenditure patterns, only temporarily delayed the flow of credit. Perhaps most surprisingly of all, the reduction in the number of financial institutions, and the fact that they must hold hugely more capital to protect themselves in case of losses, has still gone hand in hand with lower rates. Of course, the cost of borrowing would be even lower in the absence of these regulatory shifts but the scale of the changes are striking nonetheless.

The average mortgage rate paid by first-time buyers is down by 0.3 percentage points over the past year, an analysis by Citigroup reveals. The interest rate on the average two-year fixed mortgage with a 25pc deposit fell by 0.07pc month on month in July and the average rate on two-year fixed with a 10pc deposit fell 0.04pc. Both categories are down by more than one percentage point compared with two years ago. It is not just secured loans that are getting cheaper. The average cost of borrowing £10,000 was just 5.12pc in July, down from 5.23pc in June and 6.10pc a year ago. It is now at the lowest level since data began in 1995. As Michael Saunders, Citi’s chief economist, points out, the interest rate on a £10,000 unsecured loan is down 5.7 percentage points since late-2009 – in other words, it has more than halved since the height of the credit crunch. No wonder UK domestic car sales are booming.

Smirk.

• Over 150 Chinese ‘Economic Fugitives’ At Large In US (Reuters)

More than 150 economic fugitives, many of whom are corrupt officials or suspected of graft in China, are at large in the United States, Chinese state media said on Monday, citing a senior official from the public security ministry. The United States “has become the top destination for Chinese fugitives fleeing the law,” the China Daily newspaper said, citing Liao Jinrong, director general of the ministry’s International Cooperation Bureau. Chinese President Xi Jinping has made fighting pervasive graft a central theme and has warned, like others before him, that corruption threatens the Communist Party’s survival.

Beijing has long grappled with the issue of so-called “naked officials” – government workers whose husbands, wives or children are all overseas – who use foreign family connections to illegally shift assets out of China or to avoid investigation. Some estimates put the number of Chinese officials and family members moving assets offshore at more than 1 million in the past five years. But bringing these fugitives back to China isn’t easy. There is no extradition treaty between China and the United States, and foreign governments have expressed reluctance to hand over Chinese suspects as they could face the death penalty in China. “We face practical difficulties in getting fugitives who fled to the United States back to face trial due to the lack of an extradition treaty and the complex and lengthy procedures,” the China Daily cited Liao as saying.

Empire!

• US Reassures China As 2,500 Marines Head To Australia (AFP)

The United States stressed Tuesday it welcomes the rise of China and wants to work constructively with Beijing as it signed a deal to deploy 2,500 Marines to Australia as part of its “rebalance” to Asia. China bristled when the agreement to deploy Marines to the northern city of Darwin was first announced by President Barack Obama in 2011. But after signing the deal at the Australia-United States Ministerial Consultations (AUSMIN) in Sydney, US Secretary of State John Kerry said Washington was not interested in conflict with the Asian powerhouse. “We welcome the rise of China as a global partner, hopefully as a powerful economy, as a full participating constructive member of the international community,” he said.

“We are not seeking conflict and confrontation. And our hope is that China will likewise take advantage of the opportunities that are in front of it and be that cooperative partner.” Australia’s Foreign Minister Julie Bishop earlier defended the deal to bring US Marines and Air Force personnel to the Northern Territory, denying it was aimed at China which is embroiled in maritime disputes with neighbours. “That’s not what it is directed to do at all. It’s about working closely with the United States to ensure that we can work on regional peace and security,” she told a radio programme. “The United States is rebalancing to the Asia-Pacific so it’s ways we can work together to support economic development as well as security and peace.”

Do it already!

• Interest Rate Rise More Likely As Property Market Takes Off Again (Guardian)

The latest mortgage lending data has added to the Bank of England’s dilemma over interest rates after a sharp rise in borrowing showed the property market had regained its previous momentum. The number of mortgages increased in June by 4% on the previous month, suggesting that tighter borrowing criteria imposed by the financial regulator this year had only cooled the market for a few months. The Council of Mortgage Lenders said a survey of the biggest lenders showed that 60,500 house purchase loans, worth £10bn, were taken out during the month, an increase of 5% by number and 6% by value on May’s figures. Compared with June 2013, the figures were 15% and 23% higher respectively. More than half of those loans were taken out by home movers, although the number of first-time buyers showed a bigger month-on-month increase, making up slightly less than half of the total at 28,600.

Chris Williamson, chief economist at Markit, said a continuing stream of positive data on the housing market would add to the pressure on the Bank to increase rates. “A few more months of data showing the property market is booming and double-digit price growth will add to the pressure on the Bank,” he said. Affordability tests, which force lenders to check applicants’ outgoings as well as their income and to stress-test their borrowing to ensure they can afford repayments if interest rates increase, appeared to damp the market after they were imposed in April. The central bank is under pressure to increase rates in response to the booming economy and the sharp increase in the number of people in work. Rising house prices have also triggered calls for an increase from the current historic low base rate of 0.5% to deter buyers and take the heat out of the market.

Who do you think will pay for the decommissioning? The French?

• French Energy Company EDF Shuts Down Four UK Nuclear Reactors (FT)

EDF Energy said on Monday that it had shut down four of its UK nuclear reactors for eight weeks, or roughly a quarter of its total nuclear generating capacity, after discovering a fault in a boiler unit during a routine inspection. The UK subsidiary of French state-owned utility EDF owns and operates eight nuclear power stations in the country with a combined electricity generation capacity of roughly 8.8m kilowatts – just over 10 per cent of the UK total. The shutdowns highlight how reliant the UK has become on a fleet of nuclear plants that is nearing the end of its service life. All but one of EDF’s plants are scheduled to close by the end of 2023, and the company has been seeking life extensions for many of them. It is also planning to build a new multibillion pound power station at Hinkley Point C in Somerset, and last year signed an investment contract for the plant with the government guaranteeing it a price for the electricity generated of £92.50 per megawatt hour – roughly twice the current price.

The reactors that are to be shut down are at Heysham in Lancashire and Hartlepool. EDF said that during a planned outage at one of its two Heysham 1 reactors, an “unexpected result” was found during a routine inspection of a boiler unit. The reactor was returned to service early this year on a reduced load, with the affected part of the boiler isolated pending further tests. More detailed inspections during an outage that started in June confirmed a defect and the reactor remains shut down. But EDF Energy said it had taken the “conservative decision” to shut down three other reactors that are of similar design to the affected plant – a second at Heysham and two at Hartlepool. The closures will allow the company “to carry out further inspections in order to satisfy itself and the regulator that the reactors can be safely returned to service”, it said.

HA!

• California Drought Can’t Stop Production Of Bottled Water (CNBC)

California’s severe drought—now in its third year—has led to major hardships in the state. The list includes dwindling water sources, declining revenues for water districts from conservation; and mandatory fines up to $500 for hosing down driveways or for overwatering lawns. Not to mention the loss of agriculture crops and related jobs. But what the drought hasn’t done is stop the use of California’s water supply for making bottled water products. “Water is essential and if people weren’t drinking our bottled water, they’d be drinking tap water or soda or beer,” said Jane Lazgin, director of corporate communications at Nestle. Nestle owns and operates Arrowhead Mountain Spring Water, which has been bottling water from a spring in Millard Canyon, California, some 80 miles east of Los Angeles.

It also makes water under its Pure Life brand from the same source, which is located on the Morongo Indian Reservation. Nestle pays the tribe for the water. Because the reservation is considered a sovereign nation, it’s not under any obligation to comply with state laws concerning the drought. However, at least one state water supplier said Nestle is getting an unfair break. “The restrictions we have here should be felt statewide regardless of the water source,” said said Kurt Born, general manager of Clear Creek CSD, located in the northern California town of Anderson.

Tick tick tick.

• California Drought Transforms Global Food Market (Bloomberg)

For more than 70 years, Fred Starrh’s family was among the most prominent cotton growers in California’s San Joaquin Valley. Then shifting global markets and rising water prices told him that wouldn’t work anymore. So he replaced most of the cotton plants on his farm near Shafter, 120 miles northwest of Los Angeles, and planted almonds, which make more money per acre and are increasingly popular with consumers in Asia. “You can’t pay $1,000 an acre-foot to grow cotton,” said Starrh, 85, crouching to inspect a drip irrigator gently gurgling under an almond tree. Such crop switching is one sign of a sweeping transformation going on in California – the nation’s biggest agricultural state by value – driven by a three-year drought that climate scientists say is a glimpse of a drier future. The result will affect everything from the price of milk in China to the source of cherries eaten by Americans. It has already inflamed competition for water between farmers and homeowners.

Growers have adapted to the record-low rainfall by installing high-technology irrigation systems, watering with treated municipal wastewater and even recycling waste from the processing of pomegranates to feed dairy cows. Some are taking land out of production altogether, bulldozing withered orange trees and leaving hundreds of thousands of acres unplanted. “There will be some definite changes, probably structural changes, to the entire industry” as drought persists, said American Farm Bureau Federation President Bob Stallman. “Farmers have made changes. They’ve shifted. This is what farmers do.”

In the long term, California will probably move away from commodity crops produced in bulk elsewhere to high-value products that make more money for the water used, said Richard Howitt, a farm economist at the University of California at Davis. The state still has advantages in almonds, pistachios and wine grapes, and its location means it will always be well-situated to export what can be profitably grown. That may mean less farmland in production as growers abandon corn and cotton because of the high cost of water. Corn acreage in California has dropped 34% from last year, and wheat is down 53%, according to the USDA.

I think it’s man.

• Great Barrier Reef’s Greatest Threat Is Climate Change (AAP)

Climate change is the most serious threat to the Great Barrier Reef, according to a major new report. Warmer ocean currents are also likely to remain a threat to the Queensland coral ecosystem for many years, the Great Barrier Reef Outlook Report 2014 said. “It is already affecting the reef and is likely to have far-reaching consequences in the decades to come,” the 300-page report said. Climate change remains the reef’s biggest threat, despite improvements since the last report five years ago. While the northern third of the reef enjoys good water quality, other areas are in jeopardy. “Key habitats, species and ecosystems in the central and southern inshore areas continued to deteriorate,” the report said. Poor water quality from land-based run-off, coastal development and fishing remain concerns.

But the report noted progress in the rising numbers of humpback whales, estuarine crocodiles and loggerhead turtles. The Great Barrier Reef Marine Park Authority has prepared the report with contributions from Australian and Queensland government agencies and scientists. “More needs to be done at reef-wide, regional and local scales,” it said. The report came ahead of the United Nations’ world heritage committee decision, due in 2015, on whether to give the reef “in danger” status. At its annual meeting in June, Unesco decided it would give Australia until 1 Feburary next year to prove it was looking after the reef.

Go home and watch the telly!

• British Pubs Closing At Rate Of 31 A Week (Guardian)

The rate at which British pubs are closing down has accelerated to 31 a week and 3% of pubs in the suburbs have shut in the past six months, the real ale group Camra has warned. Campaigners are calling for an urgent change in the law to make it harder for pubs to be demolished or converted to supermarkets and convenience stores. At the start of its annual Great British Beer Festival, real ale group The peak closure period was between January and June 2009 when 52 pubs ceased trading every week, and there are now 54,490 pubs left in the country. Camra has launched a campaign calling for a planning application to be required before a pub is demolished or converted to another use. Pubs can currently be converted to a range of uses without planning permission.

Camra says that in most cases communities have been powerless to save their locals. Tom Stainer, head of communications at Camra, said: “Popular and profitable pubs are being left vulnerable by gaps in English planning legislation as pubs are increasingly being targeted by those wishing to take advantage of the absence of proper planning control. “It is utterly perverse that developers are able to demolish or convert a pub into a convenience store or many other uses without any requirement to apply for planning permission. It is wrong that communities are left powerless when a popular local pub is threatened with demolition or conversion into a Tesco store.” Camra is urging more than 55,000 festivalgoers to lobby their MPs to support a change to the law. It is hoping for a repeat of its successful campaign to scrap the beer duty escalator, which automatically increased taxes by 2% above inflation.

”Greenspan’s intellectual hero, Ayn Rand, also turned her back on her own philosophy, living off of Social Security and other government aid before she died of cancer in 1982.”

• Celebrating Greenspan’s Legacy of Failure (Barry Ritholtz)

On this day in 1987, Alan Greenspan became chairman of the Federal Reserve Board. This anniversary allows us to take a quick look at what followed over the next two decades. As it turned out, it was one of the most interesting and, to be blunt, weirdest tenures ever for a Fed chairman. This was largely because of the strange ways Greenspan’s infatuation with the philosophy of Ayn Rand manifested themselves. He was a free marketer who loved to intervene in the markets, a chief bank regulator who seemingly failed to understand even the most basic premise of bank regulations. The stock market was having a scorching year in 1987, up 44% during the first seven months of the year. Stocks peaked within weeks of Greenspan being sworn in. He was still settling into the job when Black Monday came along and U.S. markets plummeted 23% on Oct. 19. Welcome to Wall Street, Mr. Chairman. The contradictions between Greenspan’s philosophy and his actions led to many key events over his career. The ones that stand out the most in my mind are as follows:

The 1987 Crash: The day after Black Monday, the Federal Reserve issued the following statement: “The Federal Reserve System, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the financial and economic system.”

FOMC chastises its chairman for cutting rates between meetings: During the 1990–1991 recession, markets were dealing with a variety of macroeconomic factors: the S&L crisis, a real estate slump, the first Persian Gulf War, and a spike in energy prices had all taken their toll. Greenspan decided on his own to cut rates half a point, days prior to the February Open Market Committee meeting.

The Greenspan Put: In July 1995, the Fed cut the funds rate 25 basis points. What made this so odd was that it followed a string of seven rate increases over the previous 12 months. There was another 25 basis point rate cut in December, and yet another in January of the following year. There was no real justification for these cuts.

Slashing Rates in 2001-02: Amid the 2001 recession, and immediately following the Sept. 11 attacks, the FOMC brought rates down to new lows. Rates were under two% for three years, and at one% for a full year. This was simply unprecedented, and the impact was severe. Everything priced in dollars ramped higher.

The Flaw: Greenspan ultimately conceded there was a “flaw” in his market ideology. Easy Al, as traders had taken to calling him, recognized that allowing radical deregulation of credit markets was a mistake, as was opposing rules on derivatives and ignoring the subprime and non-bank lenders at the heart of the financial crisis.

It’s worth noting that, Greenspan’s intellectual hero, Ayn Rand, also turned her back on her own philosophy, living off of Social Security and other government aid before she died of cancer in 1982.

Follow The Money All The Way To The Next War

Aug 092014

August 9, 2014 Posted by Raúl Ilargi Meijer at 8:02 pm Finance Tagged with: media, MH17, Ukraine, war 13 Responses »

Harris & Ewing Young boy with bucket and pole on the Potomac Jun 1929

A lot of people will be paying attention today to the open letter published in his own paper by Gabor Steingart, the publisher of Germany’s leading financial newspaper Handelsblatt. And it’s admittedly not an everyday occurrence when a man like Steingart writes a letter like that. But the content is not that big a deal. He doesn’t call out any lies.

Mind you, the Handelsblatt is not some small paper, it’s Germany’s major financial publication, and Germany is Europe’s largest economic power. For the proper perspective, think of the publisher of the Wall Street Journal or the Financial Times writing a major article, in 3 languages, that denounces the politics of their respective governments and the coalitions they are part of.

Thing is, if either of the latter would write such a thing, our first thought would be, and rightly so, that there are political reasons behind it. Steingart’s letter seems to fit that pattern. He doesn’t go so far as to say what the western media are claiming about Ukraine and Russia is wrong, he merely says that ‘our’ politics vis à vis the situation, and Putin in particular, are. Because they harm German interests.

I don’t think that goes nearly far enough. I don’t think we should say that what our politicians and press have claimed over the past 23 days since MH17 crashed is fine, or acceptable, or even pardonable, and that we should simply only try and find a different approach towards Russia going forward, because that would be more constructive. It wouldn’t help us understand, let alone solve, what happened, and more importantly, what’s wrong with us that makes us blindly follow the lies (a.k.a. lack of evidence).

In my view, it’s time for every single one of us to take a few large strides back and look at what evidence there is, and what there is not. When we’re done looking at that, and we know right from wrong, we can assign blame, and perhaps punishment. With a clear conscience. Right now, we have done no such thing, and we risk not ever doing it.

We’re instead engaged in a shouting contest for assigning blame, and we shout so loud precisely because we have no evidence. The louder our screams, the less the evidence seems to matter. In the course of this, we risk doing things that we will not easily, or not at all, be able to take back. We risk doing serious and lasting damage without a shred of evidence. Because our politicians and media tell us that’s the thing to do. It obviously is not.

Since the crash that killed 298 people, I have, right here at The Automatic Earth, been through what evidence I think we should demand, at least the minimum amount of it, before we pass judgment.

Politicians and media tell us the MH17 was brought down with a BUK rocket, but not one square inch of such a rocket was found on the crash site. Which means the involvement of such a rocket is merely a theory, nothing more. Nothing.

We don’t know what information is on the black boxes, though they were handed over to a British lab two weeks or so ago. We don’t know what’s on the Air Traffic Control logs, because those were taken away by the Ukraine Secret Service the day of the crash, and no-one ever heard from them again.

We don’t know why there were Ukraine jets near the MH17 plane when it got hit, but ti’s getting hard to deny that they were there. We don’t know why Ukraine deployed BUK installations in the area not long before July 17.

Malaysia was obviously one of the main parties involved in the crash: it lost many people, and it pretty much lost its major airline, which was delisted and taken over by its government at a huge price. Malaysia’s no. 1 newspaper, The New Straits Times, maybe not quite as big as the Handelsblatt, but still, published this 3 days ago:

US Analysts Conclude MH17 Downed By Aircraft

Intelligence analysts in the United States had already concluded that Malaysia Airlines flight MH17 was shot down by an air-to-air missile, and that the Ukrainian government had had something to do with it. This corroborates an emerging theory postulated by local investigators that the Boeing 777-200 was crippled by an air-to-air missile and finished off with cannon fire from a fighter that had been shadowing it as it plummeted to earth.

In a damning report dated Aug 3, headlined “Flight 17 Shoot-Down Scenario Shifts”, Associated Press reporter Robert Parry said “some US intelligence sources had concluded that the rebels and Russia were likely not at fault and that it appears Ukrainian government forces were to blame”.

In a statement released by the Ukrainian embassy on Tuesday, Kiev denied that its fighters were airborne during the time MH17 was shot down. This follows a statement released by the Russian Defence Ministry that its air traffic control had detected Ukrainian Air Force activity in the area on the same day .[..]

Yesterday, the New Straits Times quoted experts who had said that photographs of the blast fragmentation patterns on the fuselage of the airliner showed two distinct shapes – the shredding pattern associated with a warhead packed with “flechettes”, and the more uniform, round-type penetration holes consistent with that of cannon rounds. [..]

Parry also cited a July 29 Canadian Broadcasting Corporation interview with Michael Bociurkiw, one of the first Organisation for Security and Cooperation in Europe (OSCE) investigators to arrive at the scene of the disaster, near Donetsk. Bociurkiw is a Ukrainian-Canadian monitor with OSCE who, along with another colleague, were the first international monitors to reach the wreckage after flight MH17 was brought down over eastern Ukraine. In the CBC interview, the reporter in the video preceded it with: “The wreckage was still smouldering when a small team from the OSCE got there. No other officials arrived for days”.

That rhymes with the video of a rebel leader saying nobody came to pick up the bodies, and after 3 days they themselves started doing it – with respect -, because it seemed the right thing to do, and because leaving dead bodies in 3 days of 35ºC heat is a really bad idea. Nobody ever came in the first days.

“There have been two or three pieces of fuselage that have been really pockmarked with what almost looks like machinegun fire; very, very strong machinegun fire,” Bociurkiw said in the interview. Parry had said that Bociurkiw’s testimony is “as close to virgin, untouched evidence and testimony as we’ll ever get. Unlike a black-box interpretation-analysis long afterward by the Russian, British or Ukrainian governments, each of which has a horse in this race, this testimony from Bociurkiw is raw, independent and comes from one of the two earliest witnesses to the physical evidence. [..]

Retired Lufthansa pilot Peter Haisenko had also weighed in on the new shootdown theory with Parry and pointed to the entry and exit holes centred around the cockpit. “You can see the entry and exit holes. The edge of a portion of the holes is bent inwards. These are the smaller holes, round and clean, showing the entry points most likely that of a 30mm caliber projectile. [..]

“It had to have been a hail of bullets from both sides that brought the plane down. This is Haisenko’s main discovery. You can’t have projectiles going in both directions — into the left-hand-side fuselage panel from both its left and right sides — unless they are coming at the panel from different directions. “Nobody before Haisenko had noticed that the projectiles had ripped through that panel from both its left side and its right side. This is what rules out any ground-fired missile,” Parry had said.

Ironclad evidence? Certainly not. But no less credible than what we’ve heard thus far, and what nigh all western opinion is based on, much of which, especially in the first days, came from the US repeating what Kiev government social media said, information that has since all been torn to bits, or 99% of it: no source has less reliable than Kiev.

Come to think of it, if ever you needed proof that the Ukraine government consists of a set of handpuppets, you can now be satisfied. PM Yatsenyuk announced on Friday that the country considers shutting off the Russian pipelines under its territory, so no gas can be delivered to Europe.

Ukraine would not dare say any such thing of its own accord. The Ukraine ‘leaders’ are handpuppets to US and EU interests. In turn, EU leaders are US handpuppets, or they would have never accepted a list of sanctions that hurt them, but not America. It spells ‘follow the money’ all the way to the next war. They all sing the same tune, and as long as they can get the majority of their people to go along, they can take it further. And risk doing serious and lasting damage. Without a shred of evidence.

Do read Steingart’s The Escalation of Politics : The West Has Lost Direction , and do read Dmitry Orlov’s reaction to it, but don’t forget, it’s important you make up your own mind about all this.

To that end, may I suggest y’all write to your Congressmen and MPs or whatever they’re called where you are, and your newspapers and TV outlets, and ask them to provide you the proof that either the east Ukrainians or the Russians, or all of the above, those parties that everyone today lays the blame on, are responsible for the crash of flight MH17. And that they crashed it on purpose, which is not a minor detail.

If you don’t receive- detailed – proof from anyone, that should tell you a lot. Don’t accept some ‘trust us’ line, that won’t do. Go for actual evidence. I for one would like to see some, any, evidence. I’d like to know what happened. And nobody wants to tell me.

I’d like to know so I can stop thinking about it, and writing about it, but most of all so I no longer have to listen to all the lies my ‘own people’ tell me 24/7.

Sometimes it makes me feel like I’m some kind of second class citizen, just because I don’t like war party talk, and I want to see with my own eyes, and judge with my own brain.

I should never have to feel like that just for asking questions. And if I do have to, that means there’s something wrong with ‘my people’.

Or, sure, with me.

• The West Is On The Wrong Path (Handelsblatt)

German journalism has switched from level-headed to agitated in a matter of weeks. The spectrum of opinions has been narrowed to the field of vision of a sniper scope. Newspapers we thought to be all about thoughts and ideas now march in lock-step with politicians in their calls for sanctions against Russia’s President Putin. Even the headlines betray an aggressive tension as is usually characteristic of hooligans when they ‘support’ their respective teams. The Tagesspiegel: “Enough talk!“ The FAZ: “Show strength“. The Süddeutsche Zeitung: “Now or never.“ The Spiegel calls for an “End to cowardice“: “Putin’s web of lies, propaganda, and deception has been exposed. The wreckage of MH 17 is also the result of a crashed diplomacy.“ Western politics and German media agree.

Every reflexive string of accusations results in the same outcome: in no time allegations and counter-allegations become so entangled that the facts become almost completely obscured. Who deceived who first? Did it all start with the Russian invasion of the Crimean or did the West first promote the destabilization of the Ukraine? Does Russia want to expand into the West or NATO into the East? Or did maybe two world-powers meet at the same door in the middle of the night, driven by very similar intentions towards a defenseless third that now pays for the resulting quagmire with the first phases of a civil war? If at this point you are still waiting for an answer as to whose fault it is, you might as well just stop reading. You will not miss anything. We are not trying to unearth this hidden truth. We don’t know how it started. We don’t know how it will end. And we are sitting right here, in the middle of it. At least Peter Sloterdijk has a few words of consolation for us: “To live in the world means to live in uncertainty.“

Our purpose is to wipe off some of the foam that has formed on the debating mouths, to steal words from the mouths of both the rabble-rousers and the roused, and put new words there instead. One word that has become disused of late is this: realism. The politics of escalation show that Europe sorely misses a realistic goal. It’s a different thing in the US. Threats and posturing are simply part of the election preparations. When Hillary Clinton compares Putin with Hitler, she does so only to appeal to the Republican vote, i.e. people who do not own a passport. For many of them, Hitler is the only foreigner they know, which is why Adolf Putin is a very welcome fictitious campaign effigy. In this respect, Clinton and Obama have a realistic goal: to appeal to the people, to win elections, to win another Democratic presidency.

Angela Merkel can hardly claim these mitigating circumstances for herself. Geography forces every German Chancellor to be a bit more serious. As neighbors of Russia, as part of the European community bound in destiny, as recipient of energy and supplier of this and that, we Germans have a clearly more vital interest in stability and communication. We cannot afford to look at Russia through the eyes of the American Tea Party. [..]

If the West had judged the then US government which marched into Iraq without a resolution by the UN and without proof of the existence of “WMDs“ by the same standards as today Putin, then George W. Bush would have immediately been banned from entering the EU. The foreign investments of Warren Buffett should have been frozen, the export of vehicles of the brands GM, Ford, and Chrysler banned. The American tendency to verbal and then also military escalation, the isolation, demonization, and attacking of enemies has not proven effective. The last successful major military action the US conducted was the Normandy landing. Everything else – Korea, Vietnam, Iraq, and Afghanistan – was a clear failure. Moving NATO units towards the Polish border and thinking about arming Ukraine is a continuation of a lack of diplomacy by the military means. This policy of running your head against the wall – and doing so exactly where the wall is the thickest – just gives you a head ache and not much else. And this considering that the wall has a huge door in the relationship of Europe to Russia.

• German Stunner: “West is on the Wrong Path” (Dmitry Orlov)

Gabor Steingart, the the publisher of Germany’s leading financial newspaper Handelsblatt, just let loose with an editorial directly challenging Washington’s idiotic anti-Russian policies. The appearance of this document is very timely: just yesterday Russia unleashed the first round of counter-sanctions, banning the import of foodstuffs from the US and the EU. These counter-sanctions are cleverly designed to cause pain in proportion to the level of anti-Russian activity of the country in question; thus, the three Baltic countries, which are virulently anti-Russian in spite of having large Russian populations and surviving largely through trade with Russia, face staggering losses, followed by equally anti-Russian Poland, followed by the rest of the EU, including poor Greece, which is friendly to Russia and should be considered collateral damage.

The greatest beneficiaries of these sanctions are all those countries that opposed (11) or abstained (58) when the UN voted to condemn Russia’s annexation of Crimea: they get to leapfrog over EU and US economically by exporting foodstuffs to Russia. Russia’s consumers and Russia’s agricultural sector are also among the winners: Russians will eat healthier food, with no GMO contamination, while profits that used to flow to the US and the EU will now be invested in domestic agriculture, making Russia more self-sufficient in food and aiding in the development of rural districts. Another clever element to these sanctions is that farmers tend to be politically vocal and influential. I see tractors clogging the streets of Europe’s capitals and dumptruck-loads of manure decorating the steps of government buildings before too long.

As to his diagnosis of Obama’s true motivation, I think he has it wrong. It’s not all about pleasing the Tea Party. They, and American voters in general, are irrelevant, it makes no difference who gets elected, and Obama’s policies are not Obama’s. There is a deeper reason why the oligarchs who own and operate the country formerly known as America are currently attempting to enlarge every problem they see, be it stoking civil war in Ukraine or provoking ISIS into attacking Americans: they are desperate to avoid a scenario where the US collapses on its own, with no external enemy to blame. Not only would it be just too humiliating, but also the population, suddenly brought out of its stupor, might turn on those actually responsible rather than helplessly blame some foreign scapegoat. Putin has to fit the bill, reality be damned.

Steingart’s editorial is full of appeals to reason, ethics, morality, and historical wisdom. But he is the publisher of a financial newspaper, and I suspect that he did some arithmetic prior to writing his piece, and that his motivation for writing it might be rather basic: he realized that Obama just took away his sausage. I hope that other Germans, and other Europeans, make this realization as well, and start behaving accordingly.

Hear that, guys?

• We Will See A 25% To 30% Correction In The Second Half Of 2014 (Saxo Bank)

We’ve largely ignored geo-political risks, ignored a slowdown in European growth, ignored the fact that Germany is deteriorating fast while increasing the amount of risk we take. That’s the view of Saxo Bank’s Steen Jakobsen who says the market is so one sided and complacent he feels a need to scream.

Steen is urging traders and investors to take a serious reality check, pointing out that this decline is illustrated perfectly well on fixed income markets. German yields have fallen to record lows and there’s now a move towards safe haven assets. In recent weeks, we’ve seen an increase in global risks, not least with Russia and Ukraine and in the Middle East. On Thursday, President Obama authorised the use of airstrikes over Iraq. Steen tells investors not to panic.However, he’s predicted for a long time that in the second half of 2014 we would see a 25 to 30% correction from the top and that growth would slow dramatically.

I changed the title of this, because it’s so good.

• The Whole Global Financial System Is Booby Trapped (King World News)

Eric King: “Michael Belkin also told KWN that the Fed doesn’t understand the leverage they have created. Their easy money policy and money printing funnels into all kinds of hedge funds in mid-town Manhattan and according to Belkin, ‘they leverage up the wazoo in al these weird, arcane derivatives.’ He warned a great deleveraging is coming that is going to feed on itself.”

Stockman: “Yes. I think the whole global financial system is booby trapped with both visible and hidden leverage. The problem with the Fed, and Yellen in particular, is that they are looking at a very narrow set of indicators. For instance, the nominal balance sheets of the big banks. But the biggest source of leverage in the economy today is the whole area of structured finance and options trading of one type or another. These Wall Street mechanisms are inherently leveraged; and the market has been coiled up like a spring everywhere owing to the endless bid funded by that massive leverage. Well, on the way up this forces assets values to continue to inflate and rise. But on the way down, when these positions are liquidated, the adjustment can become very violent in the other direction.”

Eric King: “It sounds like we have a train wreck in front of us.”

Stockman: “Train wreck is a pretty good term to describe what is coming. But this train wreck isn’t simply going to hit a wall out of the blue. Actually, it has been forming and accumulating and expanding for many years now, and yet it has simply been ignored, particularly by the financial markets which have ridden this bubble to these extreme and historic heights. But when you take the balance sheet of the Fed from $900 billion to $4.5 trillion in less than 70 months, and when that pattern is replicated around the world, that is a train wreck in slow motion. The only issue is, when does it hit the wall? The answer to that question is it’s not very far down the road, and I can promise you that is when all hell is going to break loose.”

Shell left all its Arctic options. How desparate is Exxon? Still, Washington lets them do what they want in Russia … What does that tell you?

• Exxon Drilling Russian Arctic Shows Sanction Lack Bite (Bloomberg)

Sanctions, what sanctions? Exxon Mobil Corp. will start drilling a $700 million well in the Arctic Ocean tomorrow, Russia’s government said, showing that for all the talk of action against Vladimir Putin’s oil industry, the largest U.S. energy company is undeterred. As Russia’s relations with Europe and the U.S. deteriorated to the lowest point since the Cold war over the conflict in Ukraine, the European Union imposed a third round of sanctions last week, restricting the export of equipment used for offshore oil production. That doesn’t affect Exxon’s plans because the contract to hire the rig was signed before the measures were announced.

Developing the Arctic is vital for Russia, where energy provides half the state’s revenue, to maintain oil production near a post-Soviet high of more than 10 million barrels a day. For Exxon, where output fell to a five-year low in the second quarter, a discovery would offer a vital new source of crude. “The well is very important, it’s probably one of the most interesting wells in the global oil industry for many years,” James Henderson, a senior research fellow at the Oxford Institute for Energy Studies, said in a phone interview. After more than two years’ planning Exxon and its partner OAO Rosneft, Russia’s state oil producer, will start drilling the Universitetskaya prospect tomorrow, the Kremlin said in a statement today. Putin will give the signal to start Russia’s northernmost well accompanied by Rosneft Chief Executive Igor Sechin, who’s subject to U.S. sanctions himself, and Exxon Mobil Russia head Glenn Waller.

• Ukraine Threatens Oil and Gas Cut-Off in Russia Sanctions (Bloomberg)

Ukraine threatened to block Russian oil and gas supplies to Europe in new sanctions against Vladimir Putin’s government, which it blames for a separatist uprising that has ravaged the country’s east. Ukraine, which no longer receives any gas from Russia but acts as a conduit for its neighbor’s European customers, is considering a “complete or partial ban on the transit of all resources” across its territory, Prime Minister Arseniy Yatsenyuk told reporters today in Kiev. It may also ban Russian planes from its airspace and cut defense-industry cooperation.

“There’s no doubt that Russia will continue its course – started a decade ago – aimed at banning imports of Ukrainian goods, limiting cooperation with Ukraine, pressure and blackmail,” Yatsenyuk said. “In the most negative scenario for Ukraine, losses during the first year may reach $7 billion, not only because of sanctions but also because of the Kremlin’s aggressive policy.” The threat may signal that the government in Kiev calculates it has little to lose. It comes a day after Russia banned food imports from Ukraine, the U.S., the European Union and other countries that blame it for stoking the worst geo-political crisis since the Cold War. Gas prices in western Europe rose on the news of Ukraine’s sanctions plan, which would require parliamentary approval.

Great piece by Orlov, but making fun of it won’t make the blood go away.

• Saving Face (Dmitry Orlov)

in the case of flight MH17, the false flag theory rests on an untenable assumption: that the Ukrainians, if tasked with shooting it down, would in fact succeed in shooting it down. All previous evidence illustrates that when Ukrainians want to shoot down a plane, they may succeed in shooting down a nursery school, a maternity ward, an apartment building full of elderly Ukrainians, but never a plane. Conversely, if Ukrainians set out to destroy a maternity ward or a kindergarten (as they are known to sometimes do) odds are that they will hit a Boeing. They inherited a now rather obsolete Buk M1 air defense system from the USSR, which, in skilled hands, is quite capable of shooting down a Boeing flying at cruising altitude, but you’d be wrong to think that they have figured out how it works. They held exactly one training exercise using this system, in 2001, and succeeded in… shooting down a Russian civilian airliner!

There were no training exercises in using this system until… it was used to shoot down MH17! It was used in Georgia during the war of 2008 over South Ossetia, where it did shoot down four Russian military aircraft, but there it was commanded by American mercenaries of Polish descent. Ukrainians excell at robbing, selling out, dismantling and destroying their own country; but achieving a specific, precise result as part of a highly coordinated mission? Not so much. Case in point: some Australian and Dutch troops wanted to go and maintain security at the crash site, but couldn’t, because the Ukrainians chose the occasion of their arrival to attack some neighboring towns and villages. You’d think that they would treat the opportunity to get some NATO boots on the ground as a Godsend, and act accordingly, but such rational behavior would be, you know, un-Ukrainian. The proper thing for them to do is to go and strafe some nearby village, and get themselves ambushed and slaughtered to a man by an angry babushka with a Kalashnikov.

Once you discount the theory that the downing of MH17 was a highly orchestrated false flag operation, everything falls into place. Why did the Ukrainians deploy their Buk M1 batteries and radar in Donetsk region, even though there was no enemy for them to shoot at? Because they are idiots. Why was there a Ukrainian Sukhoi 25 jet fighter in the air there? Trailing behind passenger jets and using them as human shields is standard Ukrainian practice. Why did that fighter zoom up into the Boeing’s flight corridor and pop up on air traffic control radar at the exact time the Boeing was shot down? That’s a standard evasive maneuver: the pilot saw a missile being launched, and tried to get out of its way by aiming up. If he hadn’t done that, then the story would have been that Ukrainians shot down their own jet fighter as part of a successful (by Ukrainian standards) exercise, held in the vicinity of an international passenger flight just to spice things up.

Why did Dnepropetrovsk APC redirect the flight over the war zone and the Buk M1 batteries? Because the Ukrainians had recently issued an order that closed the airspace over Donetsk, well below the plane’s cruising altitude and away from its flight path, but perhaps something was lost in translation to Ukraine’s wonderfully precise official language, and so the APC redirected the flight right over the closed airspace and told it to fly right above the minimum altitude. Why did the Ukrainians launch the rocket?[..] … the Ukrainian government, so carefully slapped together out of US State Department-approved dregs of Ukrainian society, has in the meantime come unstuck. The coalition goverment failed after a spectacular fistfight on the floor of the Supreme Rada, with the two rabidly nationalist parties walking out (OK, I won’t call them Nazi, but only today).

Prime minister Yatsenyuk (who had been hand-picked for the job and nicknamed “Yats” by Victoria Nuland of the US State Department) has resigned. [Update: he changed his mind and decided to stay: or did his American handlers change his mind for him?] President Piglet is still there, but it’s unclear what it is he is doing. In fact, it is becoming unclear whether there even is a Ukrainian government; of late, the officials in Donetsk have been receiving very strange, barely coherent missives from Kiev, obviously written in American English and clumsily translated, then signed and stamped by some Ukrainian monkey to make them look slightly more legit. If the Ukrainian translators run away too, then the American minders will be forced to resort to using Google Translate, making it the world’s first experiment in governance through word salad.

How long before we send tropps back in? Bombing desert sand has never proven to be a great idea.

• Washington Opened The Gates Of Hell In Iraq: Now Come The Furies (Stockman)

The late, great critic of the American Imperium, Chalmers Johnson, popularized the salient concept of “blowback”. That is, the notion that if you bomb, drone, invade, desecrate and slaughter—collaterally or otherwise— a people and their lands, they might find ways to return the favor. But even Johnson could not have imagined the kind of blowback coming ferociously Washington’s way now. Namely, the mayhem being visited on much of Iraq by American tanks, armored personnel carriers, heavy artillery, anti-aircraft batteries and other advanced weaponry that has fallen into the hands of the very jihadist radicals that have been the ostensible target of Washington’s entire multi-trillion “war on terrorism”. No question about it. The ISIS terrorists are winning against the hapless Iraqi military and even the formidable Kurdish peshmerga fighters—using some of the most lethal arms that the US military-industrial complex could concoct.

Yes, that wasn’t supposed to happen. During the bloody years after George W. Bush declared “mission accomplished” the Iraqi’s were ostensibly provided the arms and training to provide for their own defense. The American “occupation”, therefore, was really not all that. Instead, it was actually an exercise in “nation-building” that would bequeath to the people Washington had “liberated” a self-governing democracy equipped with the means to insure internal order and external security. Washington politicians—including President Obama—gave endless speeches about that. You can look them up! Except…except….Iraq was never a nation. At least the Ottomans knew that you don’t put Shiite’s, Sunni and Kurds in the same parliament or police force, and most certainly not the same army!

By contrast, it was the British and French foreign offices which in 1916 drew the Sykes-Picot boundaries and created the historical illusion that a nation called Iraq actually existed. And it was their successors in the west which installed a series of corrupt and brutal rulers, including kings, generals and Saddam Hussein himself, who maintained an always tentative and frequently blood-soaked semblance of governance within these artificial borders. Then came the neo-cons who for no discernible reason of national security could not leave well enough alone. By god, they were going to have regime change, a stable supplier of 6 million barrels of oil per day, and a stalwart ally armed to the teeth on the very doorstep of the Axis-Of-Evil; that is, the Iranian Shiite theocracy which happened to be religious kin to the single largest block of the Iraqi population.

Ambrose is an idealist, not a neutral observer.

• China Is Exporting Deflation To The World Again (AEP)

Two quick words of caution on the explosive rise in China’s exports in July. (Amazing how China always beats OECD states in compiling trade data). The category known as “non-specified exports” rose by 92pc in a single month, according to Morgan Stanley this morning. This is widely thought to be capital outflows, disguised in the trade data through over-invoicing. It typically occurs through Hong Kong and Taiwan. The 17.5pc rise in exports to Europe is probably real (since that data is harder to fiddle). Far from being healthy, it is alarming. Euroland is clearly not booming. A wealth of data suggests that the eurozone already has one foot in recession. Hans Redeker from Morgan Stanley said the 5pc-6pc fall the Chinese yuan against the euro in the first half of the year is undercutting southern Europe. Portugal and Italy – among others, with Spain a borderline case – have a great number of small companies in textiles, shoes, furniture, tiles, and increasingly electrical goods, machinery, and telecommunications that compete toe-to-toe with China.

They are famously “fishing in the same pool”, mostly mid-tier technology. The complementary index for European and Chinese exports shows that the EU is in direct competition with China on 35pc of 5,775 types of goods covered, up from 15 per cent in 2000. Germany is hit too, of course. Its solar industry has been largely wiped out by cheap Chinese copies. But it is southern Europe that is suffering the worst damage. China’s imports from the rest of the world fell 1.6pc year-on-year. Some of this is a base effect, no doubt. Yet the underlying pattern is that China is draining global demand. To the extent that its record surplus of $47.3bn is genuine, it is essentially negative for the world trading system.

The country is not rebalancing. The reforms have not yet gone much beyond talk. It is still over-investing, and still exporting deflation worldwide. The European Central Bank could take defensive action to weaken the euro by relaxing its extremely tight monetary policy (as defined by credit contraction and M3 contraction across Euroland, ex-Germany). Instead it is sitting on its hands, engaged in theological discussions about the definition of deflation, at best trying to talk down the euro without actually doing anything. Other than that, China’s soaring exports are marvellous news.

Didn’t see that one coming?

• Canadian Banks’ Rating Outlooks Downgraded to Negative by S&P (Bloomberg)

Canada’s six biggest banks including Toronto-Dominion Bank and Royal Bank of Canada had their outlooks cut to negative from stable by Standard & Poor’s because of regulatory changes that could affect bondholders. “The outlook revision reflects our expectation of reduced potential for extraordinary government support arising from implementation of the proposed new elements of the resolution framework for Canadian banks,” Tom Connell, an S&P credit analyst, said in a statement today. The other banks affected are Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Bank of Montreal and National Bank of Canada, according to the statement.

• Are Central Banks Out of Options? (Phoenix)

The Central Bank interventions of the last five years can be broken into two categories: actual monetary policy changes and verbal interventions. The period from 2009-2012 largely saw Central Banks engaging in the former. The only problem is that two primary monetary policies in Central Banks arsenals (cutting interest rates, launching QE programs) are either useless in combating solvency issues or have little to no effect in terms of generating growth. Regarding the first issue, if you are insolvent as most of the large banks in the world are, the ability to borrow more money at lower interest rates is of next to no value. If you’re leveraged at 26 to 1 or higher, borrowing more money accomplishes nothing when your equity is wiped out by a 4% drop in asset prices. Regarding the second issue (QE’s failure to generate growth), consider that both Japan and the UK have engaged in QE policies equal to or greater than 25% of their respective GDPs and have failed to generate a significant uptick in their GDPs or employment.

Moreover, the positive aspect of QE, the alleged “wealth effect” or the belief that individuals would spend more money based on higher asset prices, can quickly become a political issue as it is largely the top 1% of individuals who benefit most from this. As a result of this, beginning in 2012 Central Banks began to move towards using verbal intervention more than monetary policy. After all, if you can get the positive benefit of QE (higher stock prices) without actually having to do anything from a monetary perspective… why engage in QE at all? The Fed bucked the trend in 2012, launching QE 3 and QE 4 to boost Obama’s reelection chances. Since that time, every positive move the Fed has made has been verbal in nature (promising to maintain low interest rates, etc.). In terms of monetary moves, since that time Fed has been actively tapering QE.

However, we may be reaching the end of efficacy even for verbal intervention. Consider that Mario Draghi managed to kick off a two year rally in stocks and two year drop in bond yields in Europe simply by promising to “do whatever it takes” in mid-2012. The ECB didn’t implement any new monetary policies until June 2014 when it cut interest rates to negative. Since that time, EU markets have largely sold off. And when Draghi mentioned that the ECB was “considering QE” in yesterday’s press conference, the intraday rally was short-lived. In simple terms, the markets want Draghi to act again, not simply engage in verbal intervention. So, globally interest rates are at ZERO or even negative and the markets have realized that QE doesn’t do much. What exactly does this leave for Central Banks to do? Not much. The question is when the markets realize this…

I think by now Wall Street’s buying it all, hiding it from view.

• The US High Yield Bond Theatre Is On Fire (WolfStreet)

Suddenly there’s a laundry list of what went wrong. A “more hawkish Fed stance, heightened geopolitical risks,” Argentina’s default, another bank collapse and panicky bailout in Europe (Banco Espirito Santo), “and concerns over stretched valuations,” wrote Matthew Mish, Head of Credit Strategy at UBS Investment Bank, and Thibault Colle, Associate Credit Strategist; it triggered “a cascade of mutual fund outflows in recent weeks.” They weren’t exaggerating. Investors yanked $7.1 billion out of junk bond funds in the week ending Wednesday, a record amount, according to Lipper. This has been going on since early July, and junk bond prices have dropped, yields have jumped from all-time lows, and yield spreads have suddenly widened. After having been inflated to dizzying proportions, the junk-bond bubble has been pricked. And the hot air is hissing out of it. This chart by UBS is a picture of investors suddenly bailing out while they still can. The vicious taper tantrum of last summer looks comparatively tame:

Neither glorious economic fundamentals nor corporate financial engineering caused investors to pile helter-skelter, eyes-closed into this high-yield junk. The Fed’s financial repression did. The Fed has made it impossible for yield investors to earn a noticeable return above the rate of inflation with low-risk paper. So they chased after whatever yield they could get and they held their noses and ventured deeper and deeper into a swamp they normally wouldn’t want to be in. They did that in unison. The demand they created for junk drove up valuations and repressed yields further into low-yield purgatory, where potential losses are huge and potential gains very meager. Exactly as the Fed had wanted them to. But the Fed has changed its mind. And it’s communicating it on a near daily basis. The force that has driven up the junk bond market and that has allowed overleveraged corporations to sell a mountain of junk bonds at record low cost is in the process of disappearing: QE will be tapered out of existence this fall; ZIRP will be whittled down later. Instead of the Fed’s free money flowing into the high-yield market, money is now draining out of it.

The new FICO scores, and Tyler Durden’s take on them.

• FICO Recalibrates Its Credit Scores (WSJ)

A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans. Fair Isaac Corp said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency. The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk. Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report.

The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores. “It expands banks’ ability to make loans for people who might not have qualified and to offer a lower price [for others],” said Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, a trade group. As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian. And of the 106.5 million consumers with a collection on their report, 9.4 million had no balance—and won’t be penalized under the new credit-score system. Some critics said that loosening standards could bring losses for borrowers and lenders. “A lot of people really just can’t handle credit—you’re not really helping them by allowing them to dig themselves into debt,” said Howard Strong, a lawyer in Tarzana, Calif. “It’s like a sharp knife—if you don’t know how to use it, you can cut yourself.”

Many types of debt, including credit cards, can be discharged in bankruptcy. If borrowers fall behind, they could file for bankruptcy and cause lenders to suffer losses, Mr. Strong said. Under the current system, collections can impact credit scores as much as foreclosures and bankruptcies do. But the infractions are often small. Borrowers can be on time paying their debts, for example, but thrown by a medical emergency. Collections stay on credit reports for as long as seven years, even if a borrower has paid off that balance and remained up-to-date on other debts. Some experts said the new model for FICO scores walks a fine line: It loosens standards without overstating the creditworthiness of borrowers. Fair Isaac said it ran studies to determine how likely borrowers are to repay their debts if they had a stellar credit record with the exception of such collections.

• A New ‘Housing Recovery’ Scheme Emerges: Boost FICO Scores (Zero Hedge)

Now that the the fourth dead cat bounce in US housing since the Lehman crisis is rapidly fading, and laundered Chinese “hot money” transfers into US luxury real estate no longer provides a firm base to the ultra-luxury segment, the US government is scrambling to find ways to boost that all important – and missing – aspect of any US recovery: the housing market. This is further amplified by the recent admission by the Fed that it is in fact encouraging asset bubbles, not only in stocks but certainly in all assets, such as houses. Well, the government may have just stumbled on the solution to kick the can yet again and force yet another credit-driven housing bubble, a solution so simple we are shocked some bureaucrat didn’t think of it earlier: changing the definition of the all important FICO score, the most important number at the base of every mortgage application.

First, a tangent. Recall that as we reported last week, a shocking 77 million Americans currently face debt collectors, a number that previously had received no prominence because credit card companies report delinquency numbers, not the number that is “what happens next” after a delinquency is charged off and goes to the repo man. Sure enough, as delinquencies have been declining over the past several years – a widely trumpeted phenomenon to boost confidence in the recoveryless recovery – collection numbers were never mentioned as the realization that 77 million Americans effectively have zero access to credit because of (partial) defaults, they are no longer seen as eligible debtors.

Well, not any more. According to the WSJ, in what is a desperate attempt to boost the pool of eligible, credit-worthy mortgage recipients, Fair Isaac, the company behind the crucial FICO score that determines every consumer’s credit rating, “will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency.” In doing so, it will “make it easier for tens of millions of Americans to get loans.” How many millions?

As of July, about 64.3 million consumers in the U.S. had a medical collection on their credit report, according to data from credit bureau Experian. And of the 106.5 million consumers with a collection on their report, 9.4 million had no balance—and won’t be penalized under the new credit-score system.

Because nothing says a stable recovery like picking at lowest hanging fruit – changing the definition of an eligible creditor – to prove the point. The impact won’t be long in coming: “The changes are expected to boost consumer lending, especially among borrowers shut out of the market or charged high interest rates because of their low scores. “It expands banks’ ability to make loans for people who might not have qualified and to offer a lower price [for others],” said Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association, a trade group.”

And they still deny there’s a bubble.

• Average House Prices In London Jump 19% In A Year (Guardian)

Average house prices in London have jumped 19% in a year, with the typical cost of a property in one borough set to pass the £2m mark for the first time within weeks, according to new data. The report, issued by estate agency group LSL Property Services and research firm Acadata, stated that, following a “temporary waning” of growth in the capital’s market, the average London house saw 2% – or almost £11,000 – added to its value in June alone. In Lambeth the annual rate of price growth is running at 38.5%, while Wandsworth and Waltham Forest each notched up 25%-plus. Meanwhile, the average price-tag in Kensington and Chelsea – dubbed by some “the richest borough in Europe” – has climbed to £1.99m and “looks poised to set an average property price of £2m within the next few weeks”.

The report said the average price paid for a house in England and Wales now stood at £270,636 – up 9.9% on a year earlier. But David Newnes, director of Reeds Rains and Your Move estate agents, owned by LSL, said the government’s policies on housing “should not be led astray” by what was happening in prime central London. He added: “If London and the south-east are removed from the equation, the annual change in average houses prices drops to 4.6% … Outside of London, the south-east and east Midlands, prices dropped and stabilised across all other seven regions in June.” Newnes said further interventions or tighter rules “could fracture the health of the recovery”.

Obama! You’re on!

• Argentina Threatened With Contempt Order By US Judge (Reuters)

Argentina’s economy ministry once again defiantly asserted the country has made a required debt payment on restructured sovereign bonds on Friday night, just hours after a U.S. judge threatened a contempt-of-court order if Argentina did not stop issuing such statements. U.S. District Judge Thomas Griesa, who has overseen the nation’s long-running debt battle with hedge funds, railed at Argentina’s lawyers at a hearing in New York a day after the publication of another so-called legal notice insisting the government has met its payment requirements and was therefore not in default.

Holding a newspaper copy of the notice, Griesa said if the false statements did not stop, a contempt of court order will become necessary. Later on Friday, however, Argentina’s economy ministry issued a statement accusing Griesa of “clear partiality in favor of the vulture funds.” “Judge Griesa continues contradicting himself and the facts by saying that Argentina did not pay,” the statement said. Meanwhile, a spokeswoman for the U.S. State Department said the United States would not permit the International Justice Court in The Hague to hear Argentina’s claims that U.S. court decisions had violated its sovereignty.

Ben and Jerry know how hard it is to be GMO free. It’s not about stop moving backward any more, it’s about needing to move forward, attack, or else.

• The GMO Fight Ripples Down the Food Chain (WSJ)

Two years ago, Ben & Jerry’s Homemade Inc. initiated a plan to eliminate genetically modified ingredients from its ice cream, an effort to address a nascent consumer backlash and to fulfill its own environmental goals. This fall, nearly a year behind schedule, it expects to finish phase one, affecting its flavorful “chunks and swirls” like cookie dough and caramel. The only part left to convert: the milk that makes ice cream itself. Thanks to the complexities of sourcing milk deemed free of genetically modified material, that could take five to 10 more years. “There’s a lot more that goes into it than people realize,” said Rob Michalak, Ben & Jerry’s director of social mission.

Two decades after the first genetically engineered seeds were sold commercially in the U.S., genetically modified organisms—the crops grown from such seeds—are the norm in the American diet, used to make ingredients in about 80% of packaged food, according to industry estimates. Now an intensifying campaign, spearheaded by consumer and environmental advocacy groups like Green America, is causing a small but growing number of mainstream food makers to jettison genetically modified organisms, or GMOs. In addition to Ben & Jerry’s, a subsidiary of Unilever, General Mills this year started selling its original flavor Cheerios without GMOs. Post Holdings took the GMOs out of Grape-Nuts. Boulder Brands’ Smart Balance has converted to non-GMO for its line of margarine and other spreads. Chipotle is switching to non-GMO corn tortillas.

“Non-GMO” is one of the fastest-growing label trends on U.S. food packages, with sales of such items growing 28% last year to about $3 billion, according to market-research firm Nielsen. In a poll of nearly 1,200 U.S. consumers for The Wall Street Journal, Nielsen found that 61% of consumers had heard of GMOs and nearly half of those people said they avoid eating them. The biggest reason was because it “doesn’t sound like something I should eat.” Grass roots campaigns in several states are pushing for mandatory labeling of foods with GMOs – something most food companies staunchly oppose. In May, Vermont adopted the first state law requiring companies to label GMO foods, starting in 2016.

• Canada Quarantines Man With Ebola Symptoms (AFP)

A Canadian hospital put a patient in isolation Friday after he arrived in the country from Nigeria with symptoms of fever and flu – possible signs he is infected with Ebola – local media said. Nigeria is one of several countries in West Africa that has had confirmed cases of Ebola, in the world’s largest ever outbreak of the deadly haemorrhagic fever that has seen nearly 1 000 deaths and more than 1 700 people infected since the beginning of the year.

A doctor at the Brampton, Ontario hospital, near Toronto, said the patient had a fever and other symptoms similar to those seen in Ebola cases, the news channel CP24 said. Authorities decided to place him in isolation as a precaution, though there has been no official diagnosis and there are multiple diseases that could have caused his symptoms, stressed Eileen de Villa, an official with the region’s Public Health office, according to CTV news. In addition to quarantining the patient, the hospital also enacted other strict precautionary measures, she said.

Debt Rattle Jul 2 2014: Optimism Bias Squared

Jul 022014

July 2, 2014 Posted by Raúl Ilargi Meijer at 4:37 pm Finance Tagged with: Freud, GDP, jobs, media, optimism 3 Responses »

Marion Post Wolcott Main street of old mining town Leadville, Colorado. Sep 1941

Oh yeah, sure, optimism is oozing from every single one of America’s pores. Or so they’ll have you believe. 281,000 new jobs says the ADP report, most since December 2012. Of which small business added 117,000 and medium sized business 115,000. And the media are just besides themselves with joy. Shame that the markets react lukewarm at best. Then again, they do better the worse the news gets, all they reflect anymore these days is the level of distortion and convolution that they obey (or is that the other way around?).

One might be inclined to think US small and medium business owners were so busy hiring those new employees that they had no time to read last month that US GDP plunged that -2.96% in Q1. But maybe that’s not quite true, because three weeks ago, the National Federation of Independent Business issued this news release:

NFIB Optimism Index rose 1.4 points in May to 96.6, the highest reading since September 2007. However, while May is the third up month in a row, the Index is still far below readings that have normally accompanied an expansion and there have been similar gains in the past that haven’t panned out in this recovery period. Five Index components improved, one was unchanged and four fell, although not by much.

“May’s numbers bring the Index to it’s highest level since September 2007. However, the four components most closely related to GDP and employment growth (job openings, job creation plans, inventory and capital spending plans) collectively fell 1 point in May. So the entire gain in optimism was driven by soft components such as expectations about sales and business conditions,” said NFIB chief economist Bill Dunkelberg. “With prices being raised more frequently in response to rising labor and higher energy costs it is clear that small businesses are unwilling to invest in an uncertain future. As long as this is the case the economy will continue to be “bifurcated”, with the small business sector not pulling its historical weight in the GDP numbers.”

‘The entire gain in optimism’ was based on nothing but .. optimism bias. That news release does not make small busniess sound anywhere near as optimistic as today’s news reports. How you get from that to a way above expectations hiring spree is not immediately clear. Isn’t it perhaps true that America is so desperate for that recovery to finally materialize that it’s now damn the truth and the torpedoes time?

Things like this from Bloomberg, written earlier today before the ADP report came out, sound as if they’ve been written solely to create a mood in the country. Some people tell some survey they plan something. Thing is, how do you get from there to journalism?

Americans on the Road Again as Economic Recovery Gains Traction

About 34.8 million people plan to drive 50 miles or more from home during the five days ending July 6, up from 34.1 million last year and the most since 2007, AAA, the biggest U.S. motoring organization, said June 26. The travel recovery is boosting sales for hotels and attractions, a sign that consumer confidence and consumer spending are on the mend, said Mark Zandi, chief economist at Moody’s Analytics. “Stronger business travel and tourism is a very good barometer of the health of the broader economy,” Zandi said. “Spending on travel is more discretionary and expensive. The revival in travel is thus a good sign that the economic recovery is gaining traction.”

What recovery? How is -2.96 Q1 GDP growth a recovery? In what universe? This next one is also from Bloomberg and written before the ADP report came out:

U.S. Companies Show Broad Recovery as Hiring Pace Surges

Industries from construction to autos to oil and gas are increasing jobs as growth accelerates after a harsh winter stunted business. As some sectors, such as floor retail sales, have yet to rebound and wages have been kept in check, the recovery is likely to be a steady climb rather than a boom, according to Jeffrey Joerres, executive chairman of Manpowergroup Inc. Nonfarm payrolls may rise by 215,000 in June, which would mark a fifth straight month of increases topping 200,000, according to the median of 89 economists. That also would be the longest streak of monthly gains since September 1999-January 2000. [..]

The U.S. economy is forecast to accelerate after year-on-year growth slowed to 1.5% in the first quarter when severe snowstorms battered the U.S. and kept customers away from stores, shut factories and gummed up transportation of goods. With consumer spending still tepid, companies aren’t hiring in anticipation demand will rise, as in other recoveries, Joerres said. Instead they are they are expanding when they have orders in hand, he said. “We’re not seeing wage inflation at the rate you would think and we’re not seeing increased hours worked at the rate you would think,” said Joerres, whose firm has more than 400,000 clients worldwide.

What is this, a charm offensive? “Year-on-year growth slowed to 1.5% in the first quarter”? You sure that’s all? We have numbers that say otherwise. Plus, wages are not rising, hours are not increasing, but still ‘U.S. Companies Show Broad Recovery as Hiring Pace Surges’? Got a sneak peek at the ADP numbers perhaps?

I can’t help wondering what a reporter or editor expect from publishing nonsense like this. What use is it exactly to make people feel better about a lousy economy? It only lasts for a day. Factory orders just come in, down 0.5%. Guess they’re going to lay off all those 281,00 new hires again over the summer. The thing for me is, I’m getting so tired of all this empty fluff.

What I would want to see from well-paid journalists at Bloomberg and other main media is research into the effects of QE on the US economy, what the price is the American public has to pay to have stock markets rally to new records, what those markets would look like without QE, what home prices are expected to do without it, what the effects of rising interest rates will be on the man in the street and his home in that same street. And don’t go ask the usual expert suspects at Bloomberg or Reuters, they’re the most biased clowns in the crowd.

We live in the age of triggering responses from people’s unconsciousness, where they are most vulnerable, both individual and collective, almost 100 years after Freud and his nephew Edward Bernays, for very different reasons, figured out how to do that. The best proof we live in that age is probably that we never talk about it.

This means that unless you want to be a clueless victim of advertizing and other, more sinister, sorts of manipulation, you need to be awake and alert. And even then. And what better place to start than to write to your Congressman and to your newspaper and tell them you’re a grown up and you can take quite a bit of truth, and if they don’t stop incessantly bullshitting you, you’re not going to vote for them or buy their paper anymore.

• World’s ATM Moves to Frankfurt as Yellen’s Fed Slows Cash (Bloomberg)

As Janet Yellen winds down the Federal Reserve’s money-printing operation, Mario Draghi is boosting Europe’s cash supply. That means the dollars Yellen’s Fed is removing could be compensated for by cheap euros from the European Central Bank. The result may be enough cash sloshing around to underpin this year’s run-up in risk assets even if the Fed begins mulling higher interest rates too, says Marios Maratheftis at Standard Chartered in Dubai. “If any central bank can take over the Fed’s role in terms of its impact on global liquidity, it’s the ECB,” according to a June 30 report by Maratheftis and colleagues David Mann and Italo Lombardi. They reckon the relative importance of the Fed in propelling liquidity worldwide has fallen since April 2013. During the last year it has slowed the bond buying it began in December 2008 as financial panic gripped the world.

Regulators’ more recent demands that banks increase reserves also may mean a higher money supply in the U.S. boosts liquidity less elsewhere too. For every $10 billion increase in the U.S. money supply, there is now a $20.5 billion increase globally, down from $24.4 billion a year ago, according to the Standard Chartered economists. Meantime, for every $10 billion rise in the euro area’s money supply there’s a $19.7 billion boost globally, up from $18 billion. With its quantitative-easing program winding down, the Fed has gone from having 35% more impact than the ECB a year ago to 5% today. The economists also calculate that to keep global money supply stable, the ECB would need to provide $10 billion of liquidity for every $9.5 billion withdrawn by the Fed.

• Global Investors Pare Risky Bond Holdings, Brace For Sell-off (Reuters)

Some of the biggest global investors have started to pull back from riskier fixed-income assets even as the Federal Reserve keeps on a green light for risk. Loomis Sayles, GAM, and Standish are among those who say U.S. investment grade and high yield corporate bond prices have gone too far, making returns less compelling. They’re aiming to get ahead of a market reversal that could be unpleasant once the Fed starts raising interest rates, probably next year. “Valuations are getting stretched,” said Jack Flaherty, investment manager at GAM, part of GAM Holding AG, a publicly-listed Swiss company with more than $120 billion in assets. “You’d rather be early in getting out because when it does turn, it could be more violent than expected.” Bonds had a solid start to 2014, with the Barclays U.S. Aggregate Index returning about 3.8 percent for the first six months of the year. Interest from overseas investors and pensions has kept flows into fixed income funds strong.

That has reduced the extra premium investors are willing to pay to hold these bonds instead of the safer U.S. Treasuries. This premium, or spread, is now at its lowest since 2007, and suggests confidence in the prospects of the U.S. corporation issuing the debt. GAM has pared its U.S. high-yield bond holdings, and plans to cut back more over the next few months. It’s re-allocated to emerging market local debt and convertible bonds – debt that can be converted into shares of stock. Flaherty is concerned that after the Fed raises rates, liquidity could be a big problem because of Wall Street brokerages’ reduced presence in the corporate bond market. in the past, big banks could be counted on to make it easier to buy and sell bonds because of their sizable inventory. But new rules have made it more costly to hold such assets.

‘ … when one lends him more money in order for him to pay back what he owes, one is not bailing him out but rather pushing him in a bigger hole!’

• Credit: The Molotov Cocktail (Macronomics)

When somebody has too much debt and cannot reimburse it, how do you bail him out? Obviously by restructuring his debts, which imply losses for his creditors. But when one lends him more money in order for him to pay back what he owes, one is not bailing him out but rather pushing him in a bigger hole! The game until now has been to “print” more money and to add more debt on the shoulders of the indebted ones, to gain some time in the hope that growth will resume and reduce de facto the weight of the existing debt burden and the additional new debt issued to support the initial debt troubles. This is a big misunderstanding of debt dynamics and its effects on the economy. When debt becomes too big, which it is now the case in many parts of Europe, the servicing drains all the available cash flows and reduces the growth potential. Credit dynamic is based on Growth. No growth or weak growth can lead to defaults and asset deflation. We hate sounding like a broken record but: no credit, no loan growth, no loan growth, no economic growth and no reduction of aforementioned budget deficits and debt levels. [..]

Again we reminded ourselves the wise words of Dr Jochen Felsenheimer: “Banks employ too much debt, because they know that they will ultimately be bailed out. Governments do exactly the same thing. Particularly those in currency unions with explicit – or at least implicit guarantees. It is just such structures that let governments increase their debt at the cost of the community. For example, in order to finance very moderate tax rates for their citizens so as to increase the chance of their own re-election (see Italy). Or to finance low rates of tax for companies and at the same time boost their domestic banking system (see Ireland). Or to raise social security benefits and support infrastructure projects which are intended to benefit the domestic economy (see Greece). Or to boost the property market (Spain and the USA). This results in some people postulating a direct relationship between failure of the market and failure of democracy.”

I think they already have.

• Central Banks Risk Making Global Economy Permanently Unstable: BIS (Telegraph)

Ultra low interest rates and the failure of policy to “lean against” the build-up of financial imbalances are in danger of making the global economy permanently unstable, the Bank for International Settlements has warned. In its annual report, the Swiss-based “bank of central banks” spelled out the risks of relying too heavily on monetary policy to stimulate the economy. The BIS warned that central banks including the Bank of England and US Federal Reserve could keep monetary policy loose for too long, with potentially damaging consequences. “The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly,” the BIS said on Sunday.

It added that a “persistent easing bias” by fiscal, monetary and prudential policymakers had lulled governments “into a false sense of security” that delayed needed consolidation and created a risk that instability could “entrench itself” in the system. “Policy does not lean against the booms but eases aggressively and persistently during busts,” the BIS said. “This induces a downward bias in interest rates and an upward bias in debt levels, which in turn makes it hard to raise rates without damaging the economy – a debt trap. “Systemic financial crises do not become less frequent or intense, private and public debts continue to grow, the economy fails to climb onto a stronger sustainable path, and monetary and fiscal policies run out of ammunition. Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent.”

‘ If the Fed can just create money to increase demand, why bother doing it the hard way? Why do you need to earn money to create demand when you can just create it?’

• Don’t Mistake This Sham Boom for the Real Thing (Bonner)

The US economy is 70% consumer spending, reason the geniuses at the Fed. So anything they can do to boost consumer spending will also boost the economy. This sort of simpleminded logic is either breathtakingly naïve or mind-bogglingly stupid. Consumers need to have money to spend before they can spend it. If the economy is working properly, they earn it from honest bussing and schlepping. But suppose the economy is in a funk? Then what are they supposed to do? No problem, say the economists. We’ll just create it. This ersatz money is supposed to stimulate the consumer to spend… whereupon, businesses will spring to life. They’ll offer him a job, boost his wages… and then he’ll have real money to spend! But wait. If the Fed can just create money to increase demand, why bother doing it the hard way? Why do you need to earn money to create demand when you can just create it?

This point has never been clarified. Nor have the feds ever noticed that consumer demand is the result of savings, investment, work, skill… and all the other things that go into producing a real product or service. Consumer demand is not what causes those things to happen. In the abstract, demand is unlimited. But output is not. Nor has it ever been demonstrated that central financial planning works. And as of last week we have more evidence that it doesn’t … What last week’s figures tell us is there is no real recovery. Just a sham boom created by EZ money. We’ve now got two months of figures for the second quarter. They tell us the same thing the first quarter’s numbers told us. Consumers aren’t spending like it was 2007. They’re spending like it was 2009… or 2010… or 2011.

In other words, they’re spending as though they were reasonable people who have realized how the system works. The Fed creates a world where its friends and cronies can borrow at below the rate of consumer price inflation. The 1% gets richer. The other 99% struggles to keep up with the bills. As we have been warning, consumer prices are rising faster than the Fed admits. That leaves the typical household with less money to spend than the numbers suggest. We see the effect of it on consumer spending. The Fed pinched off savings, investment and employment. Now, it gets what you’d expect: low GDP! Six years of “stimulating” the economy by giving it more of what it least needed has produced no real recovery… just more debt. It has also produced a corrupt money system in which almost every race is fixed. The 1% wins every time. The consumer is barely able to limp around the track.

• Fooling All The Experts With Seasonal Adjustments, All Of The Time (Zero Hedge)

Reading the economists’ comments in response to today’s ISM report (which, incidentally, missed expectations) one would think that the US has practically entered a second golden age. Here is a sample:

Manufacturing index “has now stabilized at a level reflecting a solid pace of expansion,” Thomas Simons, economist at Jefferies, writes in note

June data consistent with Barclays estimate of 2Q GDP growth rate of 4%, according to note from Cooper Howes, economist at firm.

June’s reading of 55.3 “has to be viewed as a good result, even if it was lower than expectations,” Rob Carnell, economist at ING, writes in note

ISM index shows factories humming along in Q2, according to UBS

And especially this one from TD Securities: Increase in new orders, as tracked by ISM factory report, is “especially encouraging as it augurs very well for future manufacturing sector activity”

So what exactly are all these “experts” looking at to be so convinced, once again, that the “imminent” economic surge that thay have all been predicting for so long, incorrectly, is finally here. The answer – the all import New Orders index – the key driver of the headline ISM print and the one most important sub-headline index. And if we were also simply looking at the reported number of 58.9, which printed at the highest level since December, we too would assume that the US economy is finally rebounding. Alas, here lies the rub: what none of the abovementioned experts realize is that for some inexplicable reason, the ISM survey is, just like the vast majority of all other economic indicators, also seasonally adjusted.

Recall that it was ISM’s seasonal adjustment SNAFU last month, when it used the wrong “adjustment factor”, that caused the reported number to become a humiliating farce after the ISM had to revise it not once but twice with what ultimately ended up being a “factor” leading to a far higher, and consensus expectation-beating, headline ISM print of 55.4. But what really happened in June? For the answer we need a refresher of just how the ISM survey results in reported numbers. What the ISM does is ask respondents to comment on how they are seeing any given query category as performing in the current month. The response options are simple: better, same, or worse. The ISM then takes the%age of “better” responses and adds half the%age of “same” (ignoring the worse answers) for any of the following categories:

New Orders (58.9 in June)

Production (60.0)

Employment (52.8)

Delivery Time (51.9)

Inventories (53.0)

Then it simply takes the equal-weighted average of these 5 series and gets the final number (in the case of June 55.3 down from May’s adjusted 55.4). However, before the final tabulation, the ISM also applies a little-known seasonal adjustment factor to the actual unadjusted survey reponse result before getting a seasonally adjusted number that feeds into the above calculation. Why a survey needs to be seasonally adjusted – considering it merely captures sentiment which already reflects the periodicity of the seasons when it is, well, experienced – is beyond the scope of this article, and/or logic.

And that’s a big problem when they come invest in you home town. But nobody talks about it.

• Quality Of Chinese Data ‘Unknowable’ (CNBC)

Founder of short-seller Muddy Waters Research, Carson Block, claimed on Tuesday that Chinese economic data lacked credibility following the release of China PMI data, which came in at a 6-month high. Block is well-known for issuing damning research and short selling Chinese companies mostly listed in the U.S. and Canada. He became a controversial figure after claiming the firms he was shorting were fraudulent. The companies, meanwhile, have questioned Muddy Waters’ sources. Chinese mobile security software company NQ Mobile, which saw a huge drop in its shares after Block described the firm as a “massive fraud”, has said Block’s firm does not disclose who its researchers are and what documents they examine.

Block said the China was facing a “massive credit and asset bubble” and questioned the legitimacy and quality of Chinese GDP prints. “I think we have to understand (that) what China is printing on GDP is really for political reasons internally. It is unknowable what the quality of the data really is,” Block told CNBC. Block is the not the first voice in the market to question the credibility of Chinese data. China’s official purchasing manager’s index (PMI) for June came in at a six-month high of 51, in line with expectations and up from 50.8 in May.

Global chief economist at Unicredit, Erik Nielsen said the figures were “curious”. “Why is it that the Chinese are having PMIs around 50 and growth at about 6 or 6.5%? It is constructive in every other country for 50 to be above flat,” he said. “It is simply a curious question, if you look through GDP numbers in any other country, you cannot construct any logical explanation for why they have such little volatility in growth in China,” he said. Block argued that a corrupt elite in China controls the banking system. “They control a huge swath of the economy through non-financial state owned enterprises. The core of the economy is subject to this kind of corruption,” he said. Block also questioned the legitimacy of the anti-corruption crackdown launched by President Xi Jinping, adding “things aren’t getting any different”.

• Is Asia The Next Financial Center Of The World? (CNBC)

In 1602 the Dutch East India Company opened the world’s first stock exchange in Amsterdam. The new company was on its way to dominating the lucrative international trade in spices from the Far East, and it needed huge amounts of cash to finance its fleet of merchant ships. Hence, the Amsterdam Bourse, which started life as an open-air market where traders could buy and sell the East India Company’s stocks and bonds. Those traders soon invented the first derivative contracts, simple call and put options that gave them the right to trade shares in the future. Other companies started issuing shares on the Bourse, which moved to a handsome new building in 1611. Rival European capitals launched their own stock exchanges. The securitization of the world was under way.

Today the Amsterdam Bourse is a branch of Euronext, an exchange holding company that also operates the Brussels and Paris exchanges. Euronext, in turn, is owned by Atlanta-based IntercontinentalExchange (ICE), which operates a total of 23 exchanges around the world, including the venerable New York Stock Exchange, which it acquired late last year for $8.2 billion. It’s worth remembering the original Amsterdam Bourse because it established the template for the modern financial center, a physical place where finance professionals help companies access the capital they need to grow.

Location obviously matters somewhat less in an era of exchange consolidation, globalized capital and 24/7 electronic trading. Even so, the complex infrastructure of modern finance is still clustered in a few major cities around the world. “If you have a laptop and a satellite phone, you can trade from on top of a mountain,” said Mark Yeandle, associate director of London’s Z/Yen Group, which produces a biannual ranking of the world’s top financial centers. “And yet people naturally want to cluster in cities near their clients and suppliers, even if they don’t have to.”

‘ … offering to buy back homes above the purchase price?!’

• China Developers Offering Home Buybacks in Weakest Markets (Bloomberg)

Property developers in two of China’s weakest housing markets are offering to buy back homes above the purchase price to boost sales as demand slows. In Hangzhou, where home prices fell the most in May among 70 Chinese cities watched by the government, Shanheng Real Estate Group is giving homebuyers an option to sell back their apartments in five years for 40% above the purchase price. In Wenzhou, DoThink Group is offering to repurchase homes at three of its projects for 120% of the purchase price after three years. The offers are the latest strategy by developers across China, including reducing prices, delaying project launches and offering incentives to potential buyers, as they seek to maintain sales targets. Prices of new homes fell in May from April in half the 70 cities tracked by the government, the largest proportion since May 2012, according to government data.

A more persistent and sharper downturn in the property sector is the biggest risk for China’s economy in the next couple of years, according to UBS AG. “Obviously they’re relatively cash-thirsty,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “If it works, there surely will be other developers following suit.” China’s home sales slumped 10.2% in the first five months of this year from the same period a year earlier amid tight credit and an economic slowdown, reversing last year’s 27% jump. The average new-home price in 100 cities tracked by SouFun Holdings fell 0.5% in June from the previous month, accelerating from the 0.3% decline in May that ended 23 consecutive months of gains.

The Communist party as a bunch of desperate sorcerer’s apprentices.

• China’s Repression of Savers Eases (Bloomberg)

The extra interest Yin Xuelan earned last year by socking her savings into wealth management products instead of bank deposits paid for a tour of Taiwan and a microwave oven. “I didn’t need to go to Taiwan and I didn’t need to buy a microwave oven, but with this extra money, why not?” said retired schoolteacher Yin, 60, as she put receipts into her pink purse at an Industrial & Commercial Bank of China branch in central Beijing. “It’s like free money.” Yin is a beneficiary of an easing in China’s financial repression, a term that describes the way savers have suffered artificially low returns on deposits in order to provide cheap loans for investment. Measures used for the size of the toll – such as inflation-adjusted deposit rates, the gap between rates on loans and the pace of economic growth – have shifted in favor of savers in the past four years.

The burden has dropped to the equivalent of about 1% of gross domestic product annually from 5% to 8% as recently as three to four years ago, estimates Michael Pettis, a finance professor at Peking University. That’s a shift of as much as 2.6 trillion yuan ($420 billion) to households from borrowers from 2010 to 2013. “It is a turning point,” said Chen Zhiwu, a finance professor at Yale University in New Haven, Connecticut, and a former adviser to China’s State Council. “It will afford more growth opportunities for domestic consumption and the service sector.” Financial repression refers to policies that force savers to accept returns below the rate of inflation and that enable banks to provide cheap loans to companies and governments, reducing the burden of their debt repayments.

A sustained easing would channel more of China’s wealth to the average person while squeezing bank margins and the debt-fueled investment that’s evoked comparisons with the excesses that generated Japan’s lost decades and the Asian financial crisis. On the flip side, slimmer bank profits may add to risks for an industry grappling with the fallout from record lending in the aftermath of the global financial crisis. “Many local governments and state enterprises have made low-return investments based on the low-cost funding,” said David Dollar, a former U.S. Treasury Department official in China who is now a senior fellow at the Brookings Institution in Washington. “As the cost of capital rises, some of them no doubt will have difficulty servicing their debts and may even be pushed into bankruptcy.”

Debt.

• Record Bond Sales Show China Focused on GDP Growth Over Debt (Bloomberg)

China’s Premier Li Keqiang has promised to cut credit while also meeting a 7.5% economic growth target. Record bond sales last quarter show which pledge he’s prioritizing. Issuance jumped 54% from the previous three months to 1.55 trillion yuan ($250 billion), the most in data compiled by Bloomberg. Yields on two-year AAA rated corporate notes have dropped 137 basis points this year to near a 10-month low of 4.86%, as authorities eased after tightening that had sparked credit crunches in 2013. When Premier Li took office last year he stressed the need for painful reforms to pare the influence of the state, wean industries with overcapacity from debt and ease access to funds for smaller enterprises. The latest filings of more than 4,000 publicly traded non-financial Chinese companies show $2.05 trillion of obligations, up from $1.8 trillion at the end of 2012, with the 10 biggest state-owned borrowers accounting for 18% of the liabilities.

“The government may have sped up the approval of corporate bonds to help stabilize the economy,” said Xu Hanfei, a bond analyst in Shanghai at Guotai Junan Securities, the nation’s third-biggest brokerage. “The issuance may continue to increase in the third quarter because that’s when rising bond sales help the government’s stimulus measures work.” The Finance Ministry called for faster spending of budgeted funds in May, and the State Council said it would increase support to service industries amid “relatively large” downward economic pressure. That followed steps outlined in April for faster railway spending and tax breaks to help ensure the government meets its economic expansion goal. China’s manufacturing expanded in June at the fastest pace this year, the Purchasing Managers’ Index showed yesterday. While such signals support Premier Li’s contention the nation will meet its 7.5% growth target this year, the government’s efforts to prod expansion have added to concern borrowings may continue to rise.

‘ … the golden age of China’s economic boom is long past’

• China’s Infamous Swag Markets Lose Their Shine (CNBC)

As far as market vendor Chang Yu is concerned the golden age of China’s economic boom is long past. “When I arrived [eight years ago], there were so many people you couldn’t even walk here,” she told CNBC, gesturing toward the empty isle where she sells wigs in Beijing’s YaShow market. Beijing’s markets were once the pride of China where the state-supported manufacturing industry supplied the west with a steady stream of goods and lifted millions of people from poverty. These markets thrived in the late 1990’s and early 2000’s, selling surplus, flawed and copycat items. They were meccas for tourists looking to buy something genuine or close to it for next to nothing. For years, young migrant vendors haggled hard to bring home the bacon.

Now they are in decline. [..] Dozens of vendors in Beijing’s famous markets who once proudly paraded their wares before celebrities and heads of state told CNBC that business has never been worse. As China outgrows low-end manufacturing, property values soar and seasoned consumers seek greater convenience and choices online, these markets must evolve or die. Rising production costs have pushed some foreign companies to move production to less developed Asian countries. Average wages in China’s manufacturing sector have risen 96% since 2007, according to Thomas Orlik, an economist at Bloomberg Financial and author of Understanding China’s Economic Indicators. “Manufacturers are facing rising costs for labor, rent and electricity and they have passed some of those on to shopkeepers,” Orlik said.

You have to wonder when France can expect the first real attacks from the markets.

• Europe’s ‘Sick Man’ Fights Housing Crisis (CNBC)

France has in recent weeks unveiled a slew of measures to boost its ailing construction sector and revive growth for the euro zone’s “sick man”, but analysts warn the measures will fall short. The country’s construction sector is currently going through a deep crisis as new building reaches historically low levels. The latest official figures reveal that new housing starts in the twelve months to May were at the weakest level since 1998. It comes as growth in the euro zone’s second-largest economy stalls and France is labeled the “sick man of Europe”. Some 8.5% of the country’s jobs come from the construction sector. The decline in the sector – activity fell 1.4% in the first quarter, well below overall economic output – is expected to continue for the third consecutive year.[..]

Last week, the government unveiled its latest action plan to stimulate the sector with an extension to interest free loans which had been set to be scrapped by the end of 2014. The “0% interest loan”, introduced in 2011, was meant to help middle and low-income first-time buyers by offering them cheap financing. The repayments could be deferred for five years. That figure has now been raised to seven years. Initially restricted to new-build homes, their use has now been extended to old properties in need of renovation in certain areas and access to the loans has been increased. The government believes that the number of beneficiaries will be increased by 60% a year from 40,000 currently to 70,000. But analysts doubt the measures will have much of an impact, given the value of the loans available is fairly modest, especially if you want to buy in Paris, where prices are the highest in the country.

• Biggest Pension Fund Replaces Bank Of Japan Driving Stock Rally (Bloomberg)

Move over, Haruhiko Kuroda. Stock investors, tired of waiting for a boost from the Japanese central bank, have found a new hero in the nation’s 128.6 trillion yen ($1.3 trillion) retirement fund, said Societe Generale Securities. The Topix index rebounded 5% last quarter as the Government Pension Investment Fund moved closer to an asset overhaul that’s expected to pour 3.6 trillion yen into Japan’s equities. The gauge started the year with the developed world’s steepest quarterly slump as the yen gained and Kuroda dashed expectations for more stimulus. “The BOJ’s role is over and the market is now counting on GPIF,” said Akihiro Ohara, head of Japan sales trading at Societe Generale. “I expect the fund to change its asset allocation around September.”

“Economic data and company outlooks suggest Japan is overcoming the tax hike,” Kazuhiro Miyake, chief strategist at Daiwa Institute of Research in Tokyo, said by phone on June 27. “Public pension funds will boost their equity weighting in stages and that will improve supply and demand conditions for the market.” The world’s biggest pension fund may change its strategy as soon as August, Yasuhiro Yonezawa, who heads GPIF’s investment committee, told the Nikkei newspaper last month. It will increase its target for holdings of domestic shares to 20% from 12%, while cutting local bonds to 40% from 60%, according to the median estimates in a Bloomberg survey of analysts and investors in May.

Great idea. Squeeze the young!

• US Student Loan Interest Rates Just Went Up 20% (BW)

July is here, which brings an important development to student borrowers: Higher interest rates for education loans kick in today. Loans for undergraduates will increase to 4.66%, from 3.86%, for all new borrowing during the 2014-15 school year. (Loans that students already took out aren’t affected by the hike.) Historically, Congress set a fixed rate for students loans. It was lowered to 3.4% during the financial crisis. Last summer, that temporary reduction was set to expire, which would have caused the rates to double to 6.8%. A last-minute deal pegged the rates to the government’s borrowing costs, which are at historic lows. The roughly seven out of 10 college seniors who borrow to attend school graduate with about $29,400 in loans on average. If the 2014-15 rate increase were applied to the full debt, the average monthly payment would go up about $10 a month—an amount that won’t make or break many borrowers. Over 10 years, the increase could add about $1,350 in interest expenses.

While recalls continue to rise.

• US Auto Sales Close To Hitting The Brakes (CNBC)

America’s auto industry, in the midst of a five-year run where sales have rebounded more than 55%, is close to seeing a slowdown according to a new study. The AlixPartners 2014 Automotive Study suggests sales of cars and trucks in the U.S. will hit a peak this year and then gradually pull back. “This is a cyclical industry and we think this current cycle has just about run its course,” said Mark Wakefield of AlixPartners. “We’re a little less optimistic than others about the demand for new vehicles staying this strong.” For 2015, AlixPartners estimates U.S. sales will peak at 16.7 million before gradually starting to pull back. A primary reason new vehicle sales are poised to slow down, according to the new study, is the expectation of rising interest rates. “We’re living in an unusually calm world for interest rates,” said Wakefield. “We believe the Fed will start to raise rates and when that happens, interest rates for auto loans will also go up.”

As a result, Wakefield believes the purchasing power for potential car and truck buyers will diminish. He calculates a 3% rise in interest rates will reduce purchasing power by $2,500 while a jump of 7% would cut into consumer’s purchasing power by $5,250. “The threat of higher rates is a very real one and if they go up it will impact auto sales,” said Wakefield. The latest study by AlixPartners highlights two trends that will alter how many see the auto industry. In the U.S., car sharing is a fast-growing trend that has many potential buyers now opting to car share instead. By the end of the decade, an estimated 4 million people will participate in car-sharing programs, up from 1.3 million this year. Meanwhile, the growth of auto sales in China will be slowing down throughout the rest of this decade. “China is still the growth engine for the auto industry, but its growth is slowing,” said Wakefield.

Good. Ban. But they’ll come after you for the rest of your – public – life.

• NY Towns Have Authority To Ban Gas Drilling, Fracking (Reuters)

New York state’s top court ruled on Monday that towns have the authority to ban gas drilling within their borders, giving a boost to opponents of the drilling method known as fracking. The Court of Appeals in a 5-2 decision upheld drilling bans in the Ithaca suburb of Dryden and in Middlefield, near Cooperstown, saying the laws were extensions of the towns’ zoning authority. Drilling company Norse Energy USA and an upstate dairy farmer separately sued the towns, claiming the bans violated a law designed to create uniform statewide regulations on the oil and gas industry. The court disagreed, saying the law was designed to bar only local ordinances that could impede the state’s ability to regulate drilling activities. “Plainly, the zoning laws in these cases are directed at regulating land use generally and do not attempt to govern the details, procedures or operations of the oil and gas industries,” Judge Victoria Graffeo wrote for the court.

The decision affirmed rulings by three lower courts. The plaintiffs had told the court that upholding the bans would make drilling companies reluctant to invest in the state, since they would be faced with a patchwork of local laws that could change. In 2011, Dryden and Middlefield were among the first of more than 170 municipalities in New York to ban gas drilling as state officials considered whether to lift a moratorium on fracking, which is still in place. Fracking involves blasting chemical-laced water and sand deep below ground to release oil and natural gas trapped within rock formations. It has allowed companies to tap a wealth of new natural gas reserves in other states, but critics say the procedure has polluted water and air, and caused seismic activity near wells.

Let’s see … How about you stop feeding antibiotics to farm and feedlot animals?!

• Superbugs ‘Could Send UK Back To The Dark Ages’ (Daily Mail)

David Cameron has vowed Britain will lead a global fightback against antibiotic-resistant superbugs. The Prime Minister said concerted action was needed to prevent the world from being ‘cast back into the dark ages of medicine’. The rise of untreatable bacteria is one of the biggest health threats facing the world, threatening an ‘unthinkable scenario’ where minor infections could once again kill. Tens of thousands of people are already dying of infections that have evolved resistance to common treatments. The World Health Organisation has warned that routine operations and minor scratches could become fatal if nothing is done. Mr Cameron said: ‘For many of us, we only know a world where infections or sicknesses can be quickly remedied by a visit to the doctor and a course of antibiotics.

‘This great British discovery has kept our families safe for decades, while saving billions of lives around the world. ‘But that protection is at risk as never before. ‘Resistance to antibiotics is now a very real and worrying threat, as bacteria mutates to become immune to its effect.’ He warned 25,000 people in Europe already die every year from infections resistant to anti-biotic drugs. ‘This is not some distant threat but something happening right now’, he added. ‘If we fail to act, we are looking at an almost unthinkable scenario where antibiotics no longer work and we are cast back into the dark ages of medicine where treatable infections and injuries will kill once again. ‘That simply cannot be allowed to happened and I want to see a stronger, more coherent global response, with nations, business and the world of science working together to up our game in the field of antibiotics.

This means it’s now part of the ecosystem, just not in animals’ stomachs anymore, but in their veins. That can’t be good.

• Plastic Garbage On Ocean Surface Is Mysteriously Disappearing (LiveScience)

A vast amount of the plastic garbage littering the surface of the ocean may be disappearing, a new study suggests. Exactly what is happening to this ocean debris is a mystery, though the researchers hypothesize that the trash could be breaking down into tiny, undetectable pieces. Alternatively, the garbage may be traveling deep into the ocean’s interior. “The deep ocean is a great unknown,” study co-author Andrés Cózar, an ecologist at the University of Cadiz in Spain, said in an email. “Sadly, the accumulation of plastic in the deep ocean would be modifying this mysterious ecosystem – the largest of the world – before we can know it.” Researchers drew their conclusion about the disappearing trash by analyzing the amount of plastic debris floating in the ocean, as well as global plastic production and disposal rates.

The modern period has been dubbed the Plastic Age. As society produces more and more of the material, storm water runoff carries more and more of the detritus of modern life into the ocean. Ocean currents, acting as giant conveyer belts, then carry the plastic into several subtropical regions, such as the infamous Pacific Ocean Garbage Patch. In the 1970s, the National Academy of Sciences estimated that about 45,000 tons of plastic reaches the oceans every year. Since then, the world’s production of plastic has quintupled. Cózar and his colleagues wanted to understand the size and extent of the ocean’s garbage problem. The researchers circumnavigated the globe in a ship called the Malaspina in 2010, collecting surface water samples and measuring plastic concentrations. The team also analyzed data from several other expeditions, looking at a total of 3,070 samples.

What they found was strange. Despite the drastic increase in plastic produced since the 1970s, the researchers estimated there were between 7,000 and 35,000 tons of plastic in the oceans. Based on crude calculations, there should have been millions of tons of garbage in the oceans. Because each large piece of plastic can break down into many additional, smaller pieces of plastic, the researchers expected to find more tiny pieces of debris. But the vast majority of the small plastic pieces, measuring less than 0.2 inches (5 millimeters) in size, were missing, Cózar said.

• Caribbean Coral Reefs ‘Will Be Lost Within 20 Years’ (Guardian)

Most Caribbean coral reefs will disappear within the next 20 years, primarily due to the decline of grazers such as sea urchins and parrotfish, a new report has warned. A comprehensive analysis by 90 experts of more than 35,000 surveys conducted at nearly 100 Caribbean locations since 1970 shows that the region’s corals have declined by more than 50%. But restoring key fish populations and improving protection from overfishing and pollution could help the reefs recover and make them more resilient to the impacts of climate change, according to the study from the Global Coral Reef Monitoring Network, the International Union for Conservation of Nature and the United Nations Environment Programme. While climate change and the resulting ocean acidification and coral bleaching does pose a major threat to the region, the report – Status and Trends of Caribbean Coral Reefs: 1970-2012 – found that local pressures such as tourism, overfishing and pollution posed the biggest problems.

And these factors have made the loss of the two main grazer species, the parrotfish and sea urchin, the key driver of coral decline in the Caribbean. Grazers are important fish in the marine ecosystem as they eat the algae that can smother corals. An unidentified disease led to a mass mortality of the sea urchin in 1983 and overfishing throughout the 20th century has brought the parrotfish population to the brink of extinction in some regions, according to the report. Reefs where parrotfish are not protected have suffered significant declines, including Jamaica, the entire Florida reef tract from Miami to Key West, and the US Virgin Islands. At the same time, the report showed that some of the healthiest Caribbean coral reefs are those that are home to big populations of grazing parrotfish. These include the US Flower Garden Banks national marine sanctuary in the northern Gulf of Mexico, Bermuda and Bonaire – all of which have restricted or banned fishing practices that harm parrotfish.

Debt Rattle Jun 13 2014: American Consumers Paused For Breath In May?

Jun 132014

June 13, 2014 Posted by Raúl Ilargi Meijer at 3:49 pm Finance Tagged with: American Consumers, forecasts, GDP, government, media 2 Responses »

Jack Delano Military sentry at bridge over Colorado River, Topock, Arizona March 1943

With consensus building, after new health care data were released, that Q1 US GDP contracted by -2%, which is even worse than the latest -1% estimate, you’d think a bit of realism would pervade news reports. Think again. The ‘make it up as you go along’ factor only increases as numbers get worse. And, naive as I am, I can’t help wondering what the reason is for a journalist, whose MO should, at least in my view, contain a healthy dose of objectivity, to insist on making things look better and richer and growing more and faster than they really are. This attitude, which leans far too close for my comfort to viewing the world from a religious myopia, is practically all pervasive. And I strongly suggest that people keep that in the back of their heads no matter what they read. I personally – obviously – read lots of mainstream articles, and post links to quite a few, and I feel fine doing it because I have my BS radar on all the time. And I read and write lots of non-mainstream things to counter balance them. Hopefully, you do too. Here’s that latest contraction estimate (and again, I do adapt headlines at times to get to the essence of things):

US Q1 GDP Revised Downward To A -2% Contraction (WSJ)

The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government. Some analysts said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession. The Commerce Department’s latest estimate of GDP, the broadest measure of output across the economy, said it shrank at a seasonally adjusted annual rate of 1% in the first quarter. A revised estimate will be released June 25, and it could show an even larger contraction. That’s based on the Commerce Department’s Quarterly Estimates for Selected Service Industries report for the first quarter, released Wednesday. It showed that revenue in the U.S. health-care and social-assistance sector fell 2% in the first quarter from the fourth quarter of 2013, not adjusted for seasonal variations or price changes.

That’s pretty bad regardless of any other issues. If US GDP shrinks by -2% six-odd years into an alleged recovery, that is, to be frank, pretty frightening. That’s not how recoveries work or are supposed to work. Period. And while the mainstream press refuses to let go of the Q1 snow and ice story, and the non mainstream keeps on blowing holes in it, we did leave Q1 ten full weeks ago and things are not showing pent up demand or great surges in spending or recovery or anything like that. I mean, you can always hand pick a bunch of data and ignore the rest, but that just won’t do. Look, May is not Q1, it’s well into Q2:

Wholesale Prices in U.S. Unexpectedly Decreased in May

Wholesale prices in the U.S. unexpectedly fell in May, suggesting demand isn’t robust enough to push inflation closer to the Federal Reserve’s target. The 0.2% decrease in the producer price index compared with the median estimate in a Bloomberg survey of 71 economists that called for a 0.1% gain. Over the past 12 months, costs climbed 2%, figures from the Labor Department showed today. The May dip, the first in three months, suggests pricing power hasn’t yet materialized as the global economy is slow to accelerate. Muted costs are a problem for Federal Reserve policy makers, who have said they want inflation to increase closer to their 2% goal, a sign they will keep interest rate low well into 2015. “Producer price inflation is still fairly contained despite the big increases in the last few months,” Omair Sharif at RBS Securities said in a research note.

The most ‘out there’, and funniest at the same time, example today has got to be this Bloomberg piece, which was originally titled ‘May Sales Rise Less Than Forecast As Americans Take Respite’, and later changed into:

Cooling Sales Curb Optimism on U.S. Growth Rebound

American consumers paused for breath in May as retail sales climbed less than forecast following an impressive three-month run, tempering forecasts for a rebound in growth this quarter.

Americans took a breath, or a respite? From what, staying home in the cold? Or is it huge spending in April? Perhaps not.

This is from a May 13 Reuters article on April retail sales, Retail Sales Slow, But Growth Outlook Still Upbeat

… growth is expected to top a 3% rate this quarter. [..] While a gauge of consumer spending slipped in April, economists said the weak growth performance at the start of the year had probably made households more careful about spending. “It’s possible that consumers are being a bit more cautious in their spending habits as they await confirmation that the economy is, in fact, poised to reaccelerate,” said Jim Baird, CIO at Plante Moran Financial Advisors.

Wait, wait, hold on. Consumer spending slipped in April after a -2% Q1 number, and that’s because they were no longer cold, but … eh, but what? They were afraid it would get cold again? Or could it perhaps be that they spent all their money trying to stay warm? Just saying …

So-called core sales, which strip out automobiles, gasoline, building materials and food services and correspond most closely with the consumer spending component of GDP, dipped 0.1% in April. That followed a 1.3% advance in March. Still, economists were largely unframed by the drop and said consumer spending was on track to post a third consecutive quarter of robust growth, citing a firming labor market. “Despite an overall seemingly weak April retail sales report, thanks to the pop in March, the second quarter is starting off at a higher level that is consistent with strong consumption in the quarter,” said Bricklin Dwyer, economist at BNP Paribas.

A -2% Q1 GDP, but a “pop in March”, and ‘consumer spending slipped in April’. Now I’m getting confused. Anyway, April was weak, May was weak, but we still think Q2 GDP will ‘top a 3% rate’? That means June need to give us what, a 6%,7% gain? Really?

And moving back to the Bloomberg piece, excuse me, an impressive three-month run? What happened to the snow then? You see, three months ago we were still mired in Q1, and GDP fell -2% in that quarter. Did I miss something?

“It’s a story of gradual improvement,” said Michelle Girard, chief U.S. economist at RBS Securities [..] “We’re not getting the big acceleration that many people hoped for.”

That’s what I thought. No pent-up demand in sight. But that does make me wonder why someone would call it ‘gradual improvement’.

Consumers’ spirits are rising as job prospects strengthen. [..] “The most important of all economic indicators is employment, and since the jobs picture has improved, consumer attitudes are more upbeat,” said Richard Yamarone, a senior economist at Bloomberg. “If sustained, this could result in greater spending and overall economic growth.”

How is this not merely wishful thinking? If retail sales are cooling one month after GDP, 70% of which is consumers, was down -2%, where and how are ‘consumer spirits rising’?

Let’s try this angle: there was a cold winter, we all agree, but why don’t we subtract the increase in heating costs from the GDP number on the premise that it’s not an actual boost to the economy, since for many people it involved money they couldn’t spend twice, i.e. it directly interfered with the promise of any pent-up spending behavior. What would GDP look like then? How about -3%? I think we can all at least figure out the direction it would go in, even if not the exact percentage or amount. And yeah, unemployment at 6.3% is less bad than it was, but between ‘out of the labor force’ data and WalMart greeter and burger flipper “jobs”, don’t we all of us by now have a hunch of what jobless numbers are really like stateside? Why must we insist to persist in fooling one another about them? It only leads to a bewildering sequence of awfully wrong forecasts.

Governments, analysts, experts, pundits and journalists. A huge conspiracy built up to fool the American people. The Automatic Earth would do much better, attendance-wise and financially, if we were to simply follow that trend. Just keep on telling people the next quarter will be better, much better, and only have to swallow that sort of thing back half a year later, when no-one cares anymore and everyone’s fixated on newer data again. The media can say they only quoted government and experts, who in turn can claim their models really showed that dramatic uptick. But then every single one of you would be walking around in the emperor’s new clothes, perhaps feeling better short term, but exposed to ridicule, the elements and the debt you’ve gathered.

Let’s get this clear: the US economy is not doing well, at all, and it’s not picking up in any significant sense either, despite all the forecasts that always need to be revised downward at some later date (that’s not a coincidence, it’s an MO). Nor are other economies. China, Japan, EU, they’re all gasping for breath, not taking a breath. They’re also all issuing forecasts that are as rosy as they are absolute nonsense. But, you know, if everybody does it, that’s a safe place to be in, for who’s going to blame you?

I think Americans should be taking a breath alright, just not from spending money they don’t have to begin with or getting even deeper into debt, they should take a breath from “reports” intended to make them look like dumb-ass patsies.

• US Q1 GDP Revised Downward To A -2% Contraction (WSJ)

The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government. Some analysts said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession. The Commerce Department’s latest estimate of gross domestic product, the broadest measure of output across the economy, said GDP shrank at a seasonally adjusted annual rate of 1% in the first quarter. A revised estimate will be released June 25, and it could show an even larger contraction. That’s based on the Commerce Department’s Quarterly Estimates for Selected Service Industries report for the first quarter, released Wednesday.

It showed that revenue in the U.S. health-care and social-assistance sector fell 2% in the first quarter from the fourth quarter of 2013, not adjusted for seasonal variations or price changes. Hospital revenue fell a seasonally adjusted 1.3% from the prior quarter. The Commerce Department’s last GDP report, though, said inflation-adjusted spending on health-care services surged to a seasonally adjusted annual level of $1.848 trillion in the first quarter from $1.808 trillion in the fourth quarter of 2013. That estimate for spending on health care boosted overall GDP growth by 1.01%age point, keeping the 1% contraction from being even worse.

J.P. Morgan Chase economist Daniel Silver and Pierpont Securities economist Stephen Stanley both cautioned that it’s not clear exactly how the Commerce Department will adjust GDP to account for the new health-care services data. But they and other analysts downgraded their estimates for the first quarter based on the new survey, as well as other recently released data. Mr. Silver predicted GDP declined at a 1.6% pace in the first three months of the year. Mr. Stanley predicted contraction at a 2% pace. Macroeconomic Advisers also estimated GDP shrank at a 2% pace. “Ouch,” Mr. Stanley said in a note to clients.

• Cooling Sales Curb Optimism on US Economy (Bloomberg)

American consumers paused for breath in May as retail sales climbed less than forecast following an impressive three-month run, tempering forecasts for a rebound in growth this quarter. The 0.3% increase in purchases last month fell short of the median estimate of economists surveyed by Bloomberg that projected a 0.6% advance, Commerce Department figures showed today. Receipts for April were revised up to cap the strongest three months in almost two years. The slowdown in demand last month prompted some economists to shave forecasts for second-quarter gross domestic product just as reports this week signaled the economy slumped at the start of the year even more than previously estimated.

Other data today showing consumer confidence is firming and the job market is healing brighten the outlook for the rest of 2014. “It’s a story of gradual improvement,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut, and the second-best forecaster of retail sales over the past two years, according to Bloomberg data. “We’re not getting the big acceleration that many people hoped for.”

Central banks cannot win, they can only try to temporarily give the impression they can. Don’t be fooled.

• Carry Trade Nirvana Stymies Central Banks (Bloomberg)

Policy makers in Australia, New Zealand and Japan face the threat that the $5.3 trillion a day global foreign exchange market will derail their efforts to deliver sustainable economic growth. Central bank chiefs Glenn Stevens, Graeme Wheeler and Haruhiko Kuroda are struggling to rein in surging demand for their nations’ assets as their currencies climbed this week with investors focused on falling volatility and Japanese stocks. The kiwi and Aussie led gains among 31 major peers since June 6 while the yen is poised for its strongest week since early April. One-month implied volatility for Australia’s dollar slid its lowest level since 1996 yesterday, prompting traders to ignore this year’s 32% drop in prices for iron ore, the nation’s biggest export.

“As volatility moves lower, it’s really hard to fight the attraction of the Aussie and kiwi as carry trade currencies,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “With the RBA clearly going no where for a long time to come, whenever volatility falls the carry attraction of the Aussie increases, which seems to be overriding every other factor at the moment.” In carry trades, investors buy high-yielding assets using money from nations with lower interest rates. A drop in the funding currency or a rise in the target exchange rate adds to the return from the interest-rate differential. Lower volatility lessens the chances the trade gets upended by sharp swings in exchange rates.

They’ve painted themselves into a corner they can only get out of by inflicting damage.

• Carney Sees Housing Debt Risk as Rate Increases Near (Bloomberg)

Mark Carney said rising U.K. mortgage debt may threaten Britain’s recovery as he signaled interest rates might start to rise earlier than anticipated. While investors don’t see the Bank of England’s benchmark rate increasing until next April, the central bank governor said it “could happen sooner than markets currently expect.” Speaking yesterday at the annual Mansion House speech in the City of London, he said higher borrowing costs could stretch over-leveraged households and undermine financial stability. The pound rose after the comments, which followed a pledge from Chancellor of the Exchequer George Osborne that the BOE’s Financial Policy Committee will get new powers to curb mortgage lending as a surging housing market raises concern about a potential bubble. Using those measures to head off a potential crisis could allow Carney to keep interest rates at a record-low for longer.

Employing such macroprudential tools “might also give Mr. Carney a bit of breathing space,” Neil MacKinnon, an economist at VTB Capital in London and a former U.K. Treasury official, said in a note. “However, market economists will be bringing forward the timing of the first U.K. rate hike into the end of this year.” MacKinnon said he will stick with his own forecast for an interest-rate increase in October. Before the speech, more than half the 29 financial institutions surveyed by Bloomberg predicted an increase in central bank rates by March, while forward contracts based on the sterling overnight interbank average, or Sonia, showed investors were betting the benchmark rate would rise 25 basis points by May.

• Carney Gets New Powers To Curb Mortgages To Prevent Asset Bubble (Guardian)

George Osborne is to give the Bank of England sweeping new powers to control the size of mortgages, as the Bank governor warns that interest rates are likely to rise before Christmas. Amid fears that rapidly rising house prices risk becoming a bubble that would threaten Britain’s economic recovery, the mortgage control measures will give Threadneedle Street the ability to impose direct curbs on the property market for the first time since the deregulation of the 1980s abolished queues for home loans. The moves by the Treasury to limit the amount of money people can borrow are an attempt to avoid damaging the entire economy with an increase in interest rates – something the governor of the Bank, Mark Carney, warned on Thursday could happen before the end of the year.

Carney said: “There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect.” The City expects the first increase in official borrowing costs since 2007 to take place early next year. The new powers, which Osborne intends to push through parliament before next year’s election, were rejected as too draconian two years ago when the Treasury was deciding on the weapons needed by the Bank to prevent surges in asset prices causing financial crises. But the rapid recovery in the property market – especially in London, where price increases have averaged 18% over the last year – has forced a rethink, with Osborne convinced that the Bank should have a full range of alternatives to higher interest rates as a way of cooling down the housing market.

Unintended consequences?!

• UK Housebuilders Collapse On Rate Rise Fears (Telegraph)

Investors took fright and dumped shares in housebuilders after Mark Carney, the Governor of the Bank of England, signalled an earlier than expected interest rate rise, and Chancellor George Osborne gave the central bank new powers to curb mortgage lending in an effort to stave off a housing bubble. Persimmon dropped 4.8pc and Barratt Developments slid 4pc – the two heaviest fallers in the FTSE 100. In the mid-cap FTSE 250, Taylor Wimpey tumbled 4.7pc, Berkeley Group shed 4.2pc and Bovis Homes lost 4.1pc. Fears about the impact of a rate rise extended beyond the housebuilder stocks. Travis Perkins, the builders’ merchant also fell 2.6pc, while B&Q-owner Kingfisher cheapened 2.7pc. Howden Joinery, the kitchen supplier, was another casualty and declined 4.1pc.

Real estate investment trusts also fell, with British Land down 3.4pc and Land Securities off 3.2pc. The declines weighed on the wider market, with the FTSE 100 sliding 0.5pc to 6,809 and the FTSE 250 plunging 1.9pc to 15,826. Rebecca O’Keeffe, head of investment at broker Interactive Investor, said: “After months of managing market expectations on interest rates, we’ve seen the first hawkish signs from Mark Carney. “The remarks from the Governor have widened his immediate options as he starts to prepare the market for a return to higher rates. “With house price rises now a serious political issue and an increasing threat to financial stability, the Governor’s comments are the first warning to households that the landscape may be changing and that interest rates may rise sooner than expected.”

Dropping fast. Gravity at work.

• China May Home Sales Decline 11%, New Property Construction Down 19% (BW)

China’s home sales fell 11% in May from a year earlier amid slowing demand even after the central bank ordered easing of mortgage lending. The value of homes sold declined to 446.1 billion yuan ($72 billion) from 503 billion yuan in the same month in 2013, according to the difference between National Statistics Bureau data for the first half of the year and the first five months. The value of sales from January to May fell 10.2% to 1.97 trillion yuan from a year earlier, the data showed. China’s housing market, which faces a surplus of empty units as prices fall, has become a drag on the growth of the world’s second-largest economy. The central bank last month called on the nation’s biggest lenders to accelerate the granting of mortgages, urging them to give priority to first-home buyers.

“The property market is still not improving,” said Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG. “Developers may cut prices further, but the question is whether that will attract buyers.” Home prices fell for the first time on a monthly basis in May since June 2012, according to SouFun Holdings Ltd., China’s biggest real estate website owner. New property construction fell 19% to 599.1 million square meters (6.4 billion square feet) in the first five months of 2014 from a year earlier, today’s data showed.

Down down down. The danger here is that they borrowed huge amounts of money to grow, and there is no growth, but the loans still need to be paid back.

• China Real Estate Developers Face More Price Cuts In Q3 (Reuters)

Chinese property developers may be forced to embrace steeper price cuts, broader promotions or a change in strategy in the third quarter as they scramble to meet 2014 sales targets after many achieved less than 30% of their forecasts in the first five months. Price cuts would help boost sales and lower inventories, easing an oversupply of housing in the world’s second-largest economy. The cuts could however, come at the cost of profitability for many developers. Some developers are opting to adjust their strategies by introducing more basic housing where demand is solid compared to luxury apartments and by turning to commercial projects. “We are seeing more developers changing to renting their properties from selling because the market is very slow. By renting they can at least get some revenue,” said Raymond Wei, the Shanghai-based general manager for the commercial sector for realtor Centaline Property Agency Ltd.

Rating agency Standard and Poor’s said this week it expects China’s property sales to pick up from June, boosted by price cuts, and forecast full-year sales volume to rise 10%. Thomas Frank, the head of valuation in China for property consultancy Knight Frank, said a 20% cut in prices in second and third-tier cities would be more healthy for sales. China’s revenues from property sales dropped 8.5% in the first five months from a year earlier, the National Bureau of Statistics said on Friday, while growth in average new home prices in China slowed to a near one-year low in April, official data showed in May.

After seeing record sales of 8.14 trillion yuan ($1.31 trillion) in 2013, developers lifted their targets for this year by as much as 60%, despite a forecast slowdown in the real estate market as liquidity tightened and Beijing continued to cool the overheated sector. In the first five months, at least 13 Hong Kong-listed Chinese developers said they recorded a drop in sales compared to a year earlier, with declines ranging from single digits to more than 50%. China Resources Land said its sales fell 32%, resulting in it meeting just 28% of its full-year target.

Wrong lessons learned.

• China No-Money-Down Housing Echoes U.S. Subprime Loan Risks (Bloomberg)

China’s home buyers are being offered no-money-down purchases in an echo of the subprime lending that triggered a U.S. economic meltdown and the global financial crisis. Deals skirting government requirements for minimum 30% down payments have emerged this year from Guangzhou and Shenzhen in the south to Beijing in the north as real-estate sales slump, according to state media and statements by government agencies and developers. Loosening down-payment requirements could erode China’s financial stability by adding to risks for property companies, lenders and an economy already heading for the weakest growth in 24 years. Government warnings to consumers indicate that officials will strive to limit such arrangements, a sign of stress in a property market with a glut of homes. “The risk is severe for developers and third parties because there is no commitment from home buyers,” said Ding Shuang, senior China economist at Citigroup Inc in Hong Kong.

“Zero down payment has appeared in the U.S. before. It basically enabled unqualified people to buy houses,” said Ding, who used to work for the International Monetary Fund. “We need to see whether this will become widespread,” Ding said. “For now, it seems still sporadic.” The practice threatens to add to the build-up of risks in China’s $7 trillion shadow banking industry, with developers or third parties arranging funding to cover down-payment requirements, according to Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd. In Guangzhou, in the southern province of Guangdong, nearly 20 housing developments rolled out no-down-payment plans to boost sales, Nanfang Daily, Guangdong’s official Communist Party newspaper, reported in April, as government agencies in Guangzhou and Shenzhen issued warnings against the practice. [..]

A 22% drop in the construction of new buildings in the first four months of 2014 highlighted the potential for property to drag down an economy projected to grow 7.3% this year, the slowest pace since 1990. UBS AG has estimated real-estate accounts for more than 25% of demand in the economy, including spin-offs from construction machinery to household appliances. “The oversupply problem is very severe,” Gan Li, director of the Survey and Research Center for China Household Finance, said in Beijing on June 10, citing a survey of 28,000 households in 29 provinces that indicated 22% of urban homes were vacant in 2013.

Pushing on a string.

• China’s New Loans, Money Supply Top Estimates (Bloomberg)

China’s new yuan loans and money supply topped estimates in May as the government supports economic growth while reining in shadow banking. Local-currency loans were 870.8 billion yuan ($140 billion), the People’s Bank of China said on its website yesterday. M2, the broadest measure of money supply, rose 13.4%, compared with a median projection for 13.1%. China is in danger of missing a 2014 target for economic growth of about 7.5%, prompting Premier Li Keqiang to speed up government spending and make limited cuts to lenders’ reserve requirements. The World Bank warned last week that rapid credit growth and debt accumulation by local governments are risks to financial stability.

“May is the first month this year we’ve seen a sizable easing of liquidity as evidenced by the strong new bank loans,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “It suggests that policy makers are turning more serious about the downside risks to the economy and began ramping up pro-growth measures.” The PBOC’s report was released after the close of China’s stock markets. The benchmark Shanghai Composite Index fell for the first time this week on concern economic data to be released later today for May industrial output and retail sales, and January-May fixed-asset investment, will be weaker than analysts estimate.

Portrait of a collapsing market.

• China’s First-Home Buyers Shrink as Market Slows (Bloomberg)

The ranks of China’s first-home buyers have shrunk amid a market slowdown, according to a report from the Survey and Research Center for China Household Finance. About 20% of buyers are purchasing homes for the first time this year, according to a survey between August and March, compared with 48% in 2012, said Gan Li, director of the center and a professor at Southwestern University of Finance Economics. Such buyers accounted for 90% in 2000, said Gan, who surveyed 28,000 households in 29 Chinese provinces. “The era of Chinese real estate industry being driven by first-time homebuyer demand is over,” Gan said after a press conference in Beijing today. “The market is going to be driven by investment and improvement in demand that is sensitive to price.”

Chinese government’s four-year efforts to rein in property prices have been aimed at squeezing speculative investments out of the market by increasing second-home mortgages and imposing home-purchase restrictions. Home prices fell for the first-time in May on a monthly base since June 2012, according to SouFun Holdings Ltd., the country’s biggest real estate website. More than 55% of households purchasing new homes this year already own one place, compared with 43% in 2013, according to the report. 21% of Chinese urban households own more than one home, it said.

‘Sticks With Easing’ doesn’t begin to tell the story. Abe is wagering it all. But the problem in Japan is not the money supply – which he’s fast increasing – , it’s consumer spending. And the only way to increase that is by trying to hurt people’s savings even more than he already has. However, that does not make people spend, it just makes them even more scared, and less prone to spending.

• BOJ Sticks With Easing as Analysts Delay Action Calls (Bloomberg)

The Bank of Japan raised its view of overseas economies while maintaining unprecedented stimulus as Governor Haruhiko Kuroda strives to boost inflation that remains short of a 2% target. The central bank will continue to expand the monetary base at a pace of 60 trillion yen to 70 trillion yen ($688 billion) per year, it said in a statement today in Tokyo, in line with estimates of all 33 economists in a Bloomberg News survey. A rebound in consumer sentiment and signs of strength in business investment indicate some resilience in the world’s third-biggest economy after April’s sales-tax increase. At the same time, a rebound in the yen after last year’s 18% decline against the dollar threatens to undercut inflation, with most economists surveyed by Bloomberg forecasting the central bank will boost stimulus this year to achieve its goal.

“The BOJ is growing more confident about the economy and its outlook,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “Still, weakness in consumer spending and a halt in yen declines make it doubtful inflation will accelerate, prompting the BOJ to add to easing in October.” Consumer prices excluding fresh food rose 3.2% in April, the fastest pace since 1991. Stripping the impact of the 3%age point increase in the sales tax, core prices — the BOJ’s preferred inflation gauge — climbed 1.5%, according to a BOJ estimate.

What is the benefit to society of this? And why then do we tolerate it?

• Dark Pools, Off-Exchange Trading Of US Stocks On The Rise (Bloomberg)

The rise of off-exchange trading in the U.S. stock market continues unabated even as regulators question the wisdom of allowing the shift to continue. Shares changing hands in private venues such as dark pools accounted for 40.4% of total share volume on June 10, according to data compiled by Bloomberg. That’s the most since 41.7% took place off-exchange on June 22, 2012. The three biggest exchange companies each matched about 20% of trading on June 10. The high came after Securities and Exchange Chair Mary Jo White last week voiced concerns about the level of trading taking place on venues where bids and offers are kept private, masking the true depth of demand for shares. The rise in off-exchange trading came as calmness pervaded markets, with the Chicago Board Options Exchange Volatility Index, also known as the VIX, sliding to a seven-year low last week.

“Its been clearly demonstrated that the less volatile markets are, the more people trade away from exchanges,” Justin Schack, partner and managing director for market structure analysis at Rosenblatt Securities Inc., said in a phone interview. “Brokers also have an incentive to avoid exchanges and their fees, and with overall volumes low, the pressure to avoid costs is quite high.” The total number of shares traded on June 10 was 5.19 billion, according to data compiled by Bloomberg, compared with this year’s daily average of about 6.5 billion. Alternative trading systems, broker-run private venues which include dark pools, have been under increasing scrutiny in recent months. The New York attorney general has requested information from them in a probe related to high-frequency trading, a person familiar with the matter said last month. In May, ATSs began reporting more data on their trading to the Financial Industry Regulatory Authority, which posted the information on its website.

How many zeroes can you take before getting dizzy?

• 12 Numbers From The Global Financial Ponzi Scheme (M. Snyder)

The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises. It is literally a miracle that it has survived for so long without collapsing already. When Americans think about the financial crisis that we are facing, the largest number that they usually can think of is the size of the U.S. national debt. And at over $17 trillion, it truly is massive. But it is actually the 2nd-smallest number on the list below. The following are 12 numbers about the global financial Ponzi scheme that should be burned into your brain…

• $1,280,000,000,000 – Most people are really surprised when they hear this number. Right now, there is only $1.28 trillion worth of U.S. currency floating around out there.
• $17,555,165,805,212.27 – This is the size of the U.S. national debt. It has grown by more than $10 trillion over the past ten years.
• $32,000,000,000,000 – This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
• $48,611,684,000,000 – This is the total exposure that Goldman Sachs has to derivatives contracts.
• $59,398,590,000,000 – This is the total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system. 40 years ago, this number was just a little bit above $2 trillion.
• $70,088,625,000,000 – This is the total exposure that JPMorgan Chase has to derivatives contracts.
• $71,830,000,000,000 – This is the approximate size of the GDP of the entire world.
• $75,000,000,000,000 – This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
• $100,000,000,000,000 – This is the total amount of government debt in the entire world. This amount has grown by $30 trillion just since mid-2007.
• $223,300,000,000,000 – This is the approximate size of the total amount of debt in the entire world.
• $236,637,271,000,000 – According to the U.S. government, this is the total exposure that the top 25 banks in the United States have to derivatives contracts. But those banks only have total assets of about $9.4 trillion combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 25 to 1.
• $710,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives contracts generally fall within this range. At the high end of the range, the ratio of derivatives exposure to global GDP is about 21 to 1.

Must read from George. Get to know yourself.

• Shifting Baseline Syndrome And The Values Ratchet (Monbiot)

Any political movement that fails to understand two basic psychological traits will, before long, fizzle out. The first is Shifting Baseline Syndrome. Coined by the biologist Daniel Pauly, it originally described our relationship to ecosystems, but it’s just as relevant to politics. We perceive the circumstances of our youth as normal and unexceptional – however sparse or cruel they may be. By this means, over the generations, we adjust to almost any degree of deprivation or oppression, imagining it to be natural and immutable.

The second is the Values Ratchet (also known as policy feedback). If, for example, your country has a public health system which ensures that everyone who needs treatment receives it without payment, it helps instil the belief that it is normal to care for strangers, and abnormal and wrong to neglect them. If you live in a country where people are left to die, this embeds the idea that you have no responsibility towards the poor and weak. The existence of these traits is supported by a vast body of experimental and observational research, of which Labour and the US Democrats appear determined to know nothing.

We are not born with our core values: they are strongly shaped by our social environment. These values can be placed on a spectrum between extrinsic and intrinsic. People towards the intrinsic end have high levels of self-acceptance, strong bonds of intimacy and a powerful desire to help other people. People at the other end are drawn to external signifiers, such as fame, financial success, image and attractiveness. They seek praise and rewards from others. Research across 70 countries suggests that intrinsic values are strongly associated with an understanding of others, tolerance, appreciation, cooperation and empathy. Those with strong extrinsic values tend to have lower empathy, a stronger attraction towards power, hierarchy and inequality, greater prejudice towards outsiders and less concern for global justice and the natural world. These clusters exist in opposition to each other: as one set of values strengthens, the other weakens.

People at the extrinsic end tend to report higher levels of stress, anxiety, anger, envy, dissatisfaction and depression than those at the intrinsic end of the spectrum. Societies in which extrinsic goals are widely adopted are more unequal and uncooperative than those with deep intrinsic values. In one experiment, people with strong extrinsic values who were given a resource to share soon exhausted it (unlike a group with strong intrinsic values), as they all sought to take more than their due(15).

Spain and Britain can now do what they always wanted: let her rip! Monsanto wins another one.

• EU Deal Opens Floodgate to GMO Crops (RT)

European Union governments have decided to let member states go their own way when it comes to genetically modified organisms (GMOs), allowing EU nations to either ban the crops or grow them as they see fit. The move ends years of legislative deadlock. At a meeting in Luxembourg, EU environment ministers from 26 out of 28 member states put their weight behind a 2010 proposal to give national governments an opt out from rules, making the 28-member bloc a single market for GMOs. Only Belgium and Luxembourg voted against it, although the final decision rests with the European Parliament, which is expected to endorse the plan, Bloomberg Businessweek reports.

A political split in Europe between countries in favor of GMOs, such as Britain and Spain, and those firmly against them, including France, has delayed EU-wide permission to grow them. This has prompted complaints from trading partners – such as the US, where GMOs are legal – which are seeking to expand the global bio seed market, which is valued at almost US$16 billion a year. The law will accelerate EU level endorsements for requests from US companies like Monsanto to plant genetically altered crops, which have been cleared as safe by scientists working for the European Commission. “This is a real step forward in unblocking the dysfunctional EU process for approving GM crops, which is currently letting down our farmers and stopping scientific development,” said Owen Paterson, UK secretary of state for the environment.

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