Sep 042016
 
 September 4, 2016  Posted by at 9:58 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle September 4 2016


NPC “Georgetown-Marines game” 1923

Dollar Hegemony Endures As Share Of Global Transactions Keeps Rising (AEP)
US Has 9.93 Million More Government Workers Than Manufacturing Workers (CI)
German Budget Surpluses Are Bad For The Global Economy (Economist)
ECB’s Mersch: Central Banking Based On “Mathematical Models”, Not Reality (ZH)
Europe’s Broken Banks Need the Urge to Merge (BBG)
Economic Czars Warn G-20 of Risk From Populist Backlash on Trade (BBG)
Chinese Consumers Take Credit For Boom In Car Loans (R.)
6 Steps To Avoiding All EU (Incl. Irish) And US Taxes Via Ireland (PP)
Rural France Pledges To Vote For Marine Le Pen As Next President (G.)
Shops Set For Christmas Price Hikes As Millions Of Shipments Stranded (Ind.)
Row On Tarmac An Awkward G20 Start For US, China (R.)
Barack Obama ‘Deliberately Snubbed’ By Chinese In Chaotic Arrival At G20 (G.)
Half The Forms Of Life On Earth Will Be Gone By 2050 (ZH)

 

 

It’s nice to be able to agree with Ambrose once in a while.

Dollar Hegemony Endures As Share Of Global Transactions Keeps Rising (AEP)

The US dollar is tightening its grip on the global financial system at the expense of the euro, entrenching American hegemony and rendering the US Federal Reserve more powerful than at any time in history. Newly-released data from the Bank for International Settlements (BIS) show that the dollar’s share of the $5.1 trillion in foreign exchange trades each day has continued rising to 87.6pc of all transactions. It is the latest evidence confirming the extraordinary resilience of the dollar-based international order, confounding expectations of US financial decline a decade ago. Roughly 60pc of the global economy is either in the dollar zone or closely tied to it through currency pegs or ‘dirty floats’, and the level of debt issued in dollars outside US jurisdiction has soared to $9 trillion.

This has profound implications for monetary policy. The Fed has become the world’s central bank whether it likes it or not, setting borrowing costs for much of the global system. The BIS data shows that the volume of transactions in which the euro was on one side of the trade has slipped to 31.3pc from 37pc in 2007. The dollar share has ratcheted up to 87.6pc over the same period. It is much the same picture for the foreign exchange reserves of central banks, a good barometer of global trust. The dollar share has recovered to 63.6pc, roughly where it was a decade ago. The euro share has tumbled over the last eight years from 28pc to 20.4pc, and is barely above Deutsche Mark share in the early 1990s.

“There are no foreseeable rivals to the dollar as a viable reserve currency,” said Eswar Prasad from Cornell University, author of “The Dollar Trap: How the US Dollar Tightened Its Grip on Global Finance”. “The US is hard to beat. The US has deep financial markets, a powerful central bank and legal framework the rest of the world has a great deal of trust in,” he said. The eurozone is crippled by the lack of a unified EU treasury, joint bond issuance, and a genuine banking union to back up the currency. It would require a change in the German constitution to open the way for fiscal union, an unthinkable prospect in the current political climate.

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Many years ago I dubbed it the ‘Bulgaria Model’.

US Has 9.93 Million More Government Workers Than Manufacturing Workers (CI)

The August jobs report was filled with some interest factoids, like there are now 9.93 million government workers than there are manufacturing workers. That is a ratio of 1.81 government workers for every manufacturing worker. Such was not always the case. But a variety of factors such as labor cost differentials, EPA regulations and taxes had led to manufacturing jobs to be sent overseas. Now a 1.81 government to manufacturing employment ratio is called OVERHEAD. And you wonder why high paying manufacturing jobs are fleeing to other countries?

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“German saving and Greek suffering are two sides of the same coin..”

German Budget Surpluses Are Bad For The Global Economy (Economist)

On August 24th Germans received news to warm any Teutonic heart. Figures revealed a larger-than-expected budget surplus in the first half of 2016, and put Germany on track for its third year in a row in the black. To many such excess seems harmless enough—admirable even. Were Greece half as fiscally responsible as Germany, it might not be facing its eighth year of economic contraction in a decade. Yet German saving and Greek suffering are two sides of the same coin. Seemingly prudent budgeting in economies like Germany’s produce dangerous strains globally. The pressure may yet be the undoing of the euro area. German frugality and economic woes elsewhere are linked through global trade and capital flows.

In recent years, as Germany’s budget balance flipped from red to black, its current-account surplus—which reflects net cross-border flows of goods, services and investment—has soared, to nearly 9% of German GDP this year. The connection between budgets and current accounts might not be immediately obvious. But in a series of papers published in 2011 IMF economists found evidence that cutting budget deficits is associated with reduced investment, greater saving and a shift in the current account from deficit toward surplus. Two IMF economists, John Bluedorn and Daniel Leigh, reckoned that a fiscal consolidation of one percentage point of GDP led to an improvement in the ratio of the current-account balance to GDP of 0.6 percentage points.

On that reckoning, the German government’s thriftiness accounts for a small but meaningful share of its growing current-account surplus; perhaps as much as three percentage points of GDP over the past five years.

That has helped to resurrect an old problem. Global imbalances were a scourge of the world economy before the financial crisis of 2007-08. Back then, China and oil-exporting economies accounted for the surplus side of the world’s trade ledger, which reached nearly 3% of the world’s GDP on the eve of the crisis. Other countries, notably America, ran correspondingly large current-account deficits, financed in part by flows of investment from surplus countries that flooded into the country’s overheating housing market. A similar dynamic played out in miniature within the euro area, as core economies like Germany ran current-account surpluses and peripheral countries like Spain ran deficits.

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Taking away their powers is the only solution. But … that’s not going to happen.

ECB’s Mersch: Central Banking Based On “Mathematical Models”, Not Reality (ZH)

At first (literally the day the Fed announced QE1) it was just “tinfoil fringe blogs” who predicted the failure of the central bank’s attempt to boost the economy by printing money, instead warning that all the Fed would do is unleash an unprecedented income and wealth divide that may culminate in civil war and hyperinflation. Then, gradually, analysts, pundits and even the mainstream press admitted the truth, i.e., that tin-foilers were right all along, until recently even the Fed’s own mouthpiece, Jon Hilsenrath, one day before the Jackson Hole meeting wrote that “Years of Fed Missteps Fueled Disillusion With the Economy and Washington”, an article which set the stage for the pivot to the US issuance of much more debt, because apparently $9 trillion in new debt under Obama is not considered enough “fiscal stimulus.”

However, with virtually everyone else now slamming central banks for fooling the world for the past 7 years that they knew what they were doing, now that even Yellen admitted she has no idea what will happen in just the next 3 years projecting a 70% confidence interval of the Fed Funds rate of between 0% and 5% by the end of 2018 (we wonder what a 100% confidence would look like)…

.. overnight central bankers themselves attacked central bank policies, when ECB board member Yves Mersch warned on Saturday against using “extreme [policy] measures [with] unacceptable side effects” to shore up the eurozone’s weak economy, which he said could undermine trust in the single currency, a warning aimed squarely at Mario Draghi. Mersch’s comments come amid a growing debate over whether central banks in Europe and Japan should bolster economic growth by turning to even more tools such as “helicopter money.” Even more ludicrous, as we reported yesterday, Reuters already lobbed a tentative trial balloon, hinting that the ECB may be “forced” to buy ETFs and equities having virtually run out of bonds to monetize. Still, despite all ongoing ECB deflationary counter-measures, eurozone inflation was just 0.2% in August, far below the ECB’s near-2% target. Investors are increasingly concerned that the central bank is running out of tools.

Surprisingly, at this point Mersch joined the Weidmann bandwagon, and cautioned against “academic proposals [that] seem to prefer sophisticated models to social psychology.” Or in other words, for the first time, a central banker has suggested that broken (which is a far more accurate definition that sophisticated) financial models should be ignored when dealing with reality. “We cannot fulfill our mandate with mathematical equations, but only with instruments that maintain trust in the currency,” Mersch said at an annual economic forum on the shores of Lake Como, Italy. Expanding his tongue in cheek criticism of Mario Draghi’s relentless crusade to hurt the euro and reflate asset prices at all costs, Mersch then said that “extreme measures or legal violations of our mandate aren’t among those instruments.”

Read more …

Restructure. Only way. And again, not going to happen.

Europe’s Broken Banks Need the Urge to Merge (BBG)

The recent flurry of excitement at the idea that Germany’s Deutsche Bank and Commerzbank contemplated a merger reinforces the view that the European finance industry is ripe for consolidation. Banking leaders themselves talk about the need for mergers in an overbanked market, but no one among the bigger banks seems to want to go first. If something doesn’t change soon, Europe won’t have a banking industry worthy of the name. The relentless collapse in bank share prices this year may speak to difficult market conditions, but they also suggest that Europe’s banking model is broken, amid a deadly combination of negative interest rates, anemic economic growth and a lack of clarity about the future regulatory outlook (albeit in large part because European banks have fought every line of every proposed rule change).

The region’s banks have lost almost a quarter of their value this year, according to the Stoxx 600 Banks index. As Germany has by far the least consolidated banking sector in the euro zone, it’s no surprise that both Commerzbank and Deutsche Bank have done even worse. Merger talk sparked a bit of a rally in the two German banks in recent days, even though the discussions, reported to have taken place over two weeks this summer, have been abandoned. With both banks embarking on major cost-cutting and restructuring projects, it may have been too early to talk of a merger.

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It’s all in the choice of terminology: populism, protectionism, they sound very negative, so they are what you read. But it makes no difference: without growth, centralization withers away all by itself.

Economic Czars Warn G-20 of Risk From Populist Backlash on Trade (BBG)

The heads of three world economic bodies warned of the risk to trade from the protectionist headwinds sweeping many developed nations as global leaders met in Hangzhou, China. In a panel session Saturday ahead of the Group of 20 summit, Christine Lagarde, Managing Director of the IMF, urged business chiefs to lobby governments to help keep trade flows up as she issued a warning about the outlook for growth into 2017. Her views were echoed by Roberto Azevedo, Director-General of the WTO. “Trade is way too low and has been way too low for a long time,” Lagarde said. “There is at the moment an undercurrent of anti-trade movement. It’s at the political level. It’s at the public opinion level” and also being reflected in policy, she added.

“If there is no international trade, if there is no cross-border investment, if services, capital, people and goods do not cross borders, then it’s less activity for you, it’s less jobs in whichever country you are headquartered,” she said. Lagarde’s comments come as momentum for ratifying the U.S.-led Trans-Pacific Partnership, which would link 12 nations making up about 40% of the world economy, falters in the final months of U.S. President Barack Obama’s term. Both presidential candidates have spoken against the deal, which does not include China, while progress on a U.S.-EU trade and investment deal, known as TTIP, has also stalled.

France’s trade minister Matthias Fekl said late last month that the U.S. hasn’t offered anything substantial in negotiations with the EU on the free-trade deal and that talks should come to an end. His comments followed those of German Economy Minister Sigmar Gabriel, who said discussions on the TTIP “have de-facto broken down, even if no one wants to say so.” Many Western nations are grappling with a mood of protectionism that is leading to calls for caution on free trade, and on foreign investment in things like property and utilities. Chinese companies recently were dealt a blow on prospective projects in both the U.K. and Australia.

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Let’s see: more debt AND more cars. It’s a win-win! Happy days!

Chinese Consumers Take Credit For Boom In Car Loans (R.)

Chinese households, traditional savers with an aversion to debt, are rapidly warming to the idea of borrowing to buy a car, as automakers push financing deals to boost sales and margins in an increasingly competitive market. Nearly 30% of Chinese car buyers bought on credit last year, up from 18% in 2013, according to analysts from Sanford C. Bernstein and Deloitte, helping a rebound in the car market after a sticky 2015. That is welcome news to China’s government, which wants consumers to borrow and spend more to shift its slowing economy away from heavy industry and investment-led growth. Beijing resident Wang Danian said he planned to buy his first car on credit, saying it was the smart move.

“I can use my cash to do other things,” the 28-year-old said. “If I use all my savings at once to buy a car, and then something happens, I can’t manage the risk.” Six consumers interviewed by Reuters said they would all consider loans, lured by low-fee and interest-free deals, with half saying they’d prefer to buy on credit and save cash for other items. “I’d estimate after the manufacturer came out with the low-interest deal that about 30% of potential cash buyers switched to buying on credit,” said a salesman at a Volkswagen dealership in eastern China’s Jiangsu province who gave his name as Mr. Zhao. That is still a far cry from the more than 80% of cars bought on loans in the United States, but Deloitte predicts China will reach 50% by 2020.

[..] China’s auto market struggled last year thanks to the slowest economic growth in 25 years and a stock market rout, but rebounded in October when the government cut sales tax on smaller cars. By July, vehicle sales were rising at their fastest monthly rate in three and a half years. “While the government’s tax reduction was the most obvious explanation for the rebound in Chinese car sales at the end of 2015, soaring auto financing penetration represented another, lesser noticed, driver of the boom,” Bernstein said in April.

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Excellent thread from The Property Pin. A lot more under the link.

6 Steps To Avoiding All EU (Incl. Irish) And US Taxes Via Ireland (PP)

1. Making the Intellectual Property (IP). Let’s say that Apple US spent $200m (validly) developing iOS (it’s iPhone operating system). What Apple does next is to “sell” a non-US version of iOS to an Apple Ireland entity (generic name), for c $500m. Apple US will then pay full US taxes on this gain of $300m. Easy so far. The US IRS is already starting to probe these “internal” sales.

2. Stepping up the IP value (when the “magic” happens). Specialist IP corporate finances (why Dublin accountancy firms have big corporate finance practices) make two discoveries. First, if the Apple device has no iOS software, it can’t function. iOS is the “secret sauce” (like a drug patent). They then show Apple Ireland that it has done an amazing deal at the expense of its parent, Apple US. They show that if the non-US version of iOS is converted in to 200 different languages (and local network formats), then Apple Ireland can sell devices all over the world (fancy that). The global commercial value is over €50bn (why many MNC jobs in Ireland are “localisation”, or language translation, jobs). Apple has the tax equivalent of “Alchemy”.

3. Avoiding tax on the IP step-up. A €50bn gain in Apple Ireland is going to incur tax (both Irish and US), and would distort Ireland’s National Accounts (our 2014 GDP was only €200bn). Apple, and the Irish State, worked a scheme to have Apple Ireland both resident in Ireland (essential so Apple Ireland can avail of EU TP (Transfer Pricing) rules; you can’t do EU TP from Cayman, or worse, “Stateless” locations), and non-resident in Ireland (to avoid Irish tax). The EU’s Apple report, proves the recent 26% increase in Irish GDP (“leprechaun economics”) was all Apple, forced to unwind it’s “dual” status (as EU report drew near). Apple paid a once-off tax on the transfer (€500m vs. €50bn gain), which increased our EU GDP levies by 380m. Per Annum.

4. Executing the TP of this IP into Europe. Before step 3., if Apple Ireland sold an iPhone in Germany for €500, Apple Germany would offset valid incurred cash costs (Apple China/Foxconn manufacturing costs of about €150, and Apple Germany marketing costs of about €50) giving a German profit of €300 on that iPhone. German Revenue would take €100 of this in German taxes, and €200 can go back to Ireland. EU TP rules allow EU resident companies, like Apple Ireland, to charge Apple Germany a share of their €50bn IP value, expressed as a royalty charge. Charging this royalty to Apple Germany wipes out all Apple’s German profits. Apple Germany pays no German taxes, and the full €300 goes back to Apple Ireland tax-free.

5. The Cherry on Top. EU challenged step 4. in 2011 (we will get to CCCTB), but the UK Veto stopped it (Osborne was turning Britain into an even bigger EU tax-haven than Ireland). Despite Ireland having the “golden ticket” of being INSIDE the EU’s TP system (why Apple Ireland had to be legally resident in Ireland), AND having the lowest EU corporate tax rate, that was not enough. In 2010, Apple Ireland’s tax rate collapsed from a tiny 0.5% to effectively 0%. Apple Ireland’s profits quadrupled (and doubled every year after). The Irish State had perfected a “straw” for Apple, stuck into the EU, allowing Apple to suck all its EU profits (Germany, France, Italy etc.), via Ireland, to offshore locations, free of EU, Irish and US taxes.

6. Locking it in. US tax law requires US MNCs to remit non-US profits back to the US for final taxing. US tax rate is high at 35% (even by EU standards). The Double Tax Treaty system allows the MNCs to get a credit for taxes paid in the countries in which the profits were made. If Apple pays 35% on German profits, no further US taxes apply. The US IRS allows MNCs to leave non-US profits outside of the US if these non-US profits are going to be re-invested in the non-US location. Apple claimed this right in their US 10K Returns (Margrethe showed how Apple violate this). That is how Apple built the largest offshore cash hoard of modern economic history. Profits from the EU, on which they have never paid EU, Irish or US taxes. Period.

Read more …

In France, as in UK and US and many other places, voters vote against someone, not for.

Rural France Pledges To Vote For Marine Le Pen As Next President (G.)

In the picturesque hamlet of Brachay, in scorching late summer heat, Marine Le Pen was preaching to the politically converted. “Marine, président”, they chanted. “On va gagner” (we’re going to win). A banner stretching the length of one of the stone buildings overlooking the village square read: “Marine: Save France.” Le Pen’s stump speech was the most closely watched and significant campaign launch of la rentrée, the national return to work after the long summer holidays, and the leader of France’s far-right Front National was welcomed like a conquering hero. Le Pen has been largely absent from the political scene for several weeks and has refrained from adding her 10 cents’ worth to the raging polemic over the burkini and rows about security following deadly attacks by Islamic fundamentalists, both fertile ground for her party.

In the meantime, the country’s governing Socialists and centre-right opposition Les Républicains have engaged in what one FN heavyweight described with schadenfreude as a “bloodbath, left and right”. The Parti Socialiste is bitterly split and in turmoil over whether François Hollande, with his calamitous popularity ratings will, or indeed should, stand for a second term. The alternative, to stand down, would be unprecedented for a serving leader. Emmanuel Macron, the finance minister who resigned last week, might be the rabbit that the party pulls out of the hat, but he is disliked by the PS’s leftwing, which is fielding its own candidates. In any case, Macron has not said whether he will even throw his hat into the presidential ring.

On the right, things are scarcely more harmonious. The deadline for Les Républicains candidates is Friday, and already former president Nicolas Sarkozy, mayor of Bordeaux Alain Juppé and former prime minister François Fillon have either announced they are standing or are expected to do so. Amid this political free-for-all, Le Pen is trying to throw off the party’s divisive reputation and market herself as a politician above and beyond the fray of the same-old-same-old French elite: a new, unifying, patriotic force who will break the shackles of Europe, end “mass immigration” and give France back to the French. Her slogan is La France apaisée – a soothed France.

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So if people have to spend more to buy the same stuff, that’s good for the economy, right?

Shops Set For Christmas Price Hikes As Millions Of Shipments Stranded (Ind.)

Summer is not yet over but Christmas could be about to get more expensive as millions of gifts including TVs and electrical gadgets could be stranded at sea for months. Retailers have been thrown into turmoil after one of the world’s largest shipping companies collapsed into bankruptcy. South Korean company Hanjin’s vessels have been seized at Chinese ports, while others have been banned from docking until unpaid fees are received. As a result, the cost of transporting goods from Asia to the US and Europe has jumped by more than half, threatening margins as retailers begin stocking up for Christmas. September marks the start of the busiest period of the year for transporting goods.

The US National Retail Federation, the world’s largest retail trade association, wrote to Penny Pritzker, secretary of commerce, on Thursday, urging them to work with the South Korean government, ports and others to prevent disruptions. The bankruptcy is having “a ripple effect throughout the global supply chain” that could cause significant harm to both consumers and the economy, the association wrote. “Retailers’ main concern is that there (are) millions of dollars’ worth of merchandise that needs to be on store shelves that could be impacted by this,” said Jonathan Gold, the group’s vice president for supply chain and customs policy.

“Some of it is sitting in Asia waiting to be loaded on ships, some is already aboard ships out on the ocean and some is sitting on US docks waiting to be picked up. It is understandable that port terminal operators, railroads, trucking companies and others don’t want to do work for Hanjin if they are concerned they won’t get paid.” With an estimated half a million 40-foot containers full of goods stuck at sea or in ports there appears to be little hope of a quick resolution to the issue. September marks the start of the busiest time of the year for transporting goods, but a Korean court on Thursday set a deadline of 25 November to submit a plan to resolve the dispute.

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Hilarious!

Row On Tarmac An Awkward G20 Start For US, China (R.)

A Chinese official confronted U.S. President Barack Obama’s national security adviser on the tarmac on Saturday prompting the Secret Service to intervene, an unusual altercation as China implements strict controls ahead of a big summit. The stakes are high for China to pull off a trouble-free G20 summit of the world’s top economies, its highest profile event of the year, as it looks to cement its global standing and avoid acrimony over a long list of tensions with Washington. Shortly after Obama’s plane landed in the eastern city of Hangzhou, a Chinese official attempted to prevent his national security adviser Susan Rice from walking to the motorcade as she crossed a media rope line, speaking angrily to her before a Secret Service agent stepped between the two.

Rice responded but her comments were inaudible to reporters standing underneath the wing of Air Force One. It was unclear if the official, whose name was not immediately clear, knew that Rice was a senior official and not a reporter. The same official shouted at a White House press aide who was instructing foreign reporters on where to stand as they recorded Obama disembarking from the plane. “This is our country. This is our airport,” the official said in English, pointing and speaking angrily with the aide. The U.S. aide insisted that the journalists be allowed to stand behind a rope line, and they were able to record the interaction and Obama’s arrival uninterrupted, typical practice for U.S. press traveling with the president.

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“.. the leader of the world’s largest economy, who is on his final tour of Asia, was forced to disembark from Air Force One through a little-used exit in the plane’s belly..”

Barack Obama ‘Deliberately Snubbed’ By Chinese In Chaotic Arrival At G20 (G.)

China’s leaders have been accused of delivering a calculated diplomatic snub to Barack Obama after the US president was not provided with a staircase to leave his plane during his chaotic arrival in Hangzhou ahead of the start of the G20. Chinese authorities have rolled out the red carpet for leaders including India’s prime pinister Narendra Modi, Russian president Vladimir Putin, South Korean president Park Geun-hye, Brazil’s president Michel Temer and British prime minister Theresa May, who touched down on Sunday morning. But the leader of the world’s largest economy, who is on his final tour of Asia, was forced to disembark from Air Force One through a little-used exit in the plane’s belly after no rolling staircase was provided when he landed in the eastern Chinese city on Saturday afternoon.

When Obama did find his way onto a red carpet on the tarmac below there were heated altercations between US and Chinese officials, with one Chinese official caught on video shouting: “This is our country! This is our airport!” “The reception that President Obama and his staff got when they arrived here Saturday afternoon was bruising, even by Chinese standards,” the New York Times reported. Jorge Guajardo, Mexico’s former ambassador to China, said he was convinced Obama’s treatment was part of a calculated snub. “These things do not happen by mistake. Not with the Chinese,” Guajardo, who hosted presidents Enrique Peña Nieto and Felipe Calderón during his time in Beijing, told the Guardian.

“I’ve dealt with the Chinese for six years. I’ve done these visits. I took Xi Jinping to Mexico. I received two Mexican presidents in China. I know exactly how these things get worked out. It’s down to the last detail in everything. It’s not a mistake. It’s not.” Guajardo added: “It’s a snub. It’s a way of saying: ‘You know, you’re not that special to us.’ It’s part of the new Chinese arrogance. It’s part of stirring up Chinese nationalism. It’s part of saying: ‘China stands up to the superpower.’ It’s part of saying: ‘And by the way, you’re just someone else to us.’ It works very well with the local audience. “Why [did it happen]?” the former diplomat, who was ambassador from 2007 until 2013, added. “I guess it is part of Xi Jinping playing the nationalist card. That’s my guess.”

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I am not optimistic.

Half The Forms Of Life On Earth Will Be Gone By 2050 (ZH)

Humanity should start saving nature and switch to 80% renewables by 2030, otherwise the Earth will keep losing species, and within 33 years around 800,000 forms of life will be gone, conservation biologist Reese Halter told RT’s News with Ed. Humans have changed the Earth so much that some scientists think we have entered a new geological age. According to a report in the Science Magazine, the Earth is now in the anthropocene epoch. Millions of years from now our impact on Earth will be found in rocks just like we see fossils of plants and animals which lived years ago – except this time scientists of the future will find radioactive elements from nuclear bombs and fossilized plastic.

RT: Tell us about this new age.
Reese Halter: Yes. There are three things that come to mind. First of all, imagine you’re back on the football field. Each year in America – America alone – we throw away the equivalent of one football field, a 100 miles deep. That is the first thing. The second thing, we’ve entered the age of climate instability. That means from burning subsidized climate altering fossil fuels our food security is in jeopardy. The third thing that is striking is we’re losing species a thousand times faster than in the last 65 million years. At this rate within 33 years, by midcentury – that means 800,000 forms of life, or half of everything we know will be gone. The only way we can reverse this is to two things: save nature now, our life support system, and we do this by switching to 80% renewables by 2030. It is a WWIII mentality. In America we have the technology; we have the blueprint. We lack the political will just right now. But in the next short while we will, because it is a matter of survival.

RT: We’ve just gone through the hottest month on record. There is plenty of data out there to suggest that we truly are entering something our world has never seen in our lifetime. To brand it as a new geological age, what impact is that going to have? RH: It’s got the impact that humans are here. As I said earlier, we’re talking a 160% more than mother Earth can sustain 7.4 billion people. The way to do it is to pull it back to 90%. If we were a big bathtub the ring will read: toxicity, toxicity, toxicity. We’ve got to peal that back, because what we do to the Earth, we do to ourselves.

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Dec 292015
 
 December 29, 2015  Posted by at 9:40 am Finance Tagged with: , , , , , , , ,  


DPC Sloss City furnaces, Birmingham, Alabama 1906

Weak Demand, Vessel Surplus Mean Horror 2016 For Commodities Shipping (Reuters)
Energy Stocks Fall Along With Oil Prices (WSJ)
Saudi Riyal In Danger As Oil War Escalates (AEP)
Saudis Plan Unprecedented Subsidy Cuts to Counter Oil Plunge (BBG)
Saudi Arabia Plans Subsidy Cuts as King Unveils 2016 Budget (BBG)
Where Next For The Three Arrows Of Abenomics? (Telegraph)
Record Merger Boom Won’t Stop In 2016, Because Money Is Still Cheap (Forbes)
China Control Freaks (BBG)
China Clamps Down on Online Lenders, Vows to Cleanse Market (BBG)
China Central Bank Says To Keep Reasonable Credit Growth, Yuan Stable (Reuters)
Cost Of UK Floods Tops £5 Billion, Thousands Face Financial Ruin (Guardian)
UK Factories Forecast To Shed Tens Of Thousands Of Jobs In 2016 (Guardian)
Questions and Answers (Jim Kunstler)
Qatari Royals Rush To Switzerland In Nine Planes After Emir Breaks Leg (AFP)
Freak Storm In Atlantic To Push Arctic Temps Over 50º Above Normal (WaPo)
German States To Spend At Least €17 Billion On Refugees In 2016 (Reuters)
Schaeuble Slams Greece Over Refugee Crisis, Aims For Joint EU Army (Reuters)
Selfishness On Refugees Has Brought EU ‘To Its Knees’ (IT)
Refugee Arrivals In Greece Rise More Than Tenfold In A Year (Kath.)

Forward looking.

Weak Demand, Vessel Surplus Mean Horror 2016 For Commodities Shipping (Reuters)

Shipping companies that transport commodities such as coal, iron ore and grain face a painful year ahead, with only the strongest expected to weather a deepening crisis caused by tepid demand and a surplus of vessels for hire. The predicament facing firms that ship commodities in large unpackaged amounts – known as dry bulk – is partly the result of slower coal and iron ore demand from leading global importer China in the second half of 2015. The Baltic Exchange’s main sea freight index – which tracks rates for ships carrying dry bulk commodities – plunged to an all-time low this month. In stark contrast, however, tankers that transport oil have in recent months enjoyed their best earnings in years. As crude prices have plummeted, bargain-buying has driven up demand, while owners have moved more aggressively to scrap vessels to head off the kind of surplus seen in the dry bulk market.

Symeon Pariaros, chief administrative officer of Athens-run and New York-listed shipping firm Euroseas, said the outlook for the dry bulk market was “very challenging”. “Demand fundamentals are so weak. The Chinese economy, which is the main driver of dry bulk, is way below expectations,” he added. “Only companies with very strong balance sheets will get through this storm.” The dry bulk shipping downturn began in 2008, after the onset of the financial crisis, and has worsened significantly this year as the Chinese economy has slowed. The Baltic Exchange’s main BDI index – which gauges the cost of shipping such commodities, also including cement and fertiliser – is more than 95% down from a record high hit in 2008. The index is often regarded as a forward-looking economic indicator. With about 90% of the world’s traded goods by volume transported by sea, global investors look to the BDI for any signs of changes in sentiment for industrial demand.

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Very thin trading.

Energy Stocks Fall Along With Oil Prices (WSJ)

A fresh selloff in the oil market weighed down U.S. stocks, with energy shares posting sharp losses. Major U.S. indexes pared their steepest declines but still ended the day in negative territory, returning some of last week’s gains. The Dow Jones Industrial Average lost 23.90 points, or 0.1%, to 17528.27, after falling as much as 115 points intraday. The S&P 500 index fell 4.49, or 0.2%, to 2056.50. The Nasdaq Composite Index declined 7.51, or 0.1%, to 5040.99. Just 4.8 billion shares changed hands Monday, marking the lowest full day of U.S. trading volume this year, in a holiday-shortened week. Markets in London and Australia were closed Monday for Boxing Day. The U.S. stock market will be closed Friday for New Year’s Day. Energy stocks notched some of the steepest declines across the market. Chevron posted the heaviest loss among Dow components, falling $1.69, or 1.8%, to $90.36.

Marathon Oil shed 95 cents, or 6.8%, to 12.98. “We’re just following the price of oil,” said Peter Cardillo, chief market economist at brokerage First Standard Financial. December has been marked by unusually wide swings in U.S. stocks. A long-awaited interest-rate increase by the Federal Reserve earlier in the month has failed to quiet the recent volatility. A respite from the decline in oil prices last week helped lure investors into the energy sector. U.S. stocks last week posted their biggest weekly gains in more than a month, driven by the energy sector. But both oil prices and energy stocks remain sharply lower this year, even with last week’s rally. A global glut of crude oil has contributed to a 30% fall in U.S. oil prices this year. On Monday, U.S. crude prices fell 3.4% to $36.81 a barrel. Energy stocks in the S&P 500 are down 23% so far in 2015, while the S&P 500 is on track for a loss of 0.1%.

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if the dollar stays strong, the peg is history.

Saudi Riyal In Danger As Oil War Escalates (AEP)

Saudi Arabia is burning through foreign reserves at an unsustainable rate and may be forced to give up its prized dollar exchange peg as the oil slump drags on, the country’s former reserve chief has warned. “If anything happens to the riyal exchange peg, the consequences will be dramatic. There will be a serious loss of confidence,” said Khalid Alsweilem, the former head of asset management at the Saudi central bank (SAMA). “But if the reserves keep going down as they are now, they will not be able to keep the peg,” he told The Telegraph. His warning came as the Saudi finance ministry revealed that the country’s deficit leapt to 367bn riyals (£66bn) this year, up from 54bn riyals the previous year. The IMF has suggested Saudia Arabia could be running a deficit of around $140bn.

Remittances by foreign workers in Saudi Arabia are draining a further $36bn a year, and capital outflows were picking up even before the oil price crash. Bank of America estimates that the deficit could rise to nearer $180bn if oil prices settle near $30 a barrel, testing the riyal peg to breaking point. Dr Alsweilem said the country does not have deep enough pockets to wage a long war of attrition in the global crude markets, whatever the superficial appearances. Concern has become acute after 12-month forward contracts on the Saudi Riyal reached 730 basis points over recent days, the highest since the worst days of last oil crisis in February 1999. The contracts are watched closely by traders for signs of currency stress. The latest spike suggests that the riyal is under concerted attack by hedge funds and speculators in the region, risking a surge of capital flight.

A string of oil states have had to abandon their currency pegs over recent weeks. The Azerbaijani manat crashed by a third last Monday after the authorities finally admitted defeat. The dollar peg has been the anchor of Saudi economic policy and credibility for over three decades. A forced devaluation would heighten fears that the crisis is spinning out of political control, further enflaming disputes within the royal family. Foreign reserves and assets have fallen to $647bn from a peak of $746bn in August 2014, but headline figures often mean little in the complex world of central bank finances and derivative contracts. Dr Alsweilem, now at Harvard University, said the Saudi authorities have taken a big gamble by flooding the world with oil to gain market share and drive out rivals. “The thinking that lower oil prices will bring down the US oil industry is just nonsense and will not work.”

The policy is contentious even within the Saudi royal family. Optimists hope that this episode will be a repeat of the mid-1980s when the kingdom pursued the same strategy and succeeded in curbing non-OPEC investment, and preperaring the ground for recovery in prices. But the current situation is sui generis. The shale revolution has turned the US into a mid-cost swing producer, able to keep drilling at $50bn a barrel, according to the latest OPEC report. US shale frackers can switch output on and off relatively quickly, acting as a future headwind against price rises.

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End of free money.

Saudis Plan Unprecedented Subsidy Cuts to Counter Oil Plunge (BBG)

Confronting a drop in oil prices and mounting regional turmoil, Saudi Arabia reduced energy subsidies and allocated the biggest part of government spending in next year’s budget to defense and security. Authorities announced increases to the prices of fuel, electricity and water as part of a plan to restructure subsidies within five years. The government intends to cut spending next year and gradually privatize some state-owned entities and introduce value-added taxation as well as a levy on tobacco. The biggest shake-up of Saudi economic policy in recent history coincides with growing regional unrest, including a war in Yemen, where a Saudi-led coalition is battling pro-Iranian Shiite rebels.

In attempting to reduce its reliance on oil, the kingdom is seeking to put an end to the population’s dependence on government handouts, a move that political analysts had considered risky after the 2011 revolts that swept parts of the Middle East. “This is the beginning of the end of the era of free money,” said Ghanem Nuseibeh, founder of London-based consulting firm Cornerstone Global Associates. “Saudi society will have to get used to a new way of working with the government. This is a wake-up call for both Saudi society and the government that things are changing.” This is the first budget under King Salman, who ascended to the throne in January, and for an economic council dominated by his increasingly powerful son, Deputy Crown Prince Mohammed bin Salman.

In its first months in power, the new administration brought swift change to the traditionally slow-moving kingdom, overhauling the cabinet, merging ministries and realigning the royal succession. The new measures are the beginning of a “big program that the economic council will launch,” Economy and Planning Minister Adel Fakeih told reporters in Riyadh. The subsidy cuts won’t have a “large effect” on people with low or middle income, he said.

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Immediate danger for House of Saud.

Saudi Arabia Plans Subsidy Cuts as King Unveils 2016 Budget (BBG)

Saudi Arabia said it plans to gradually cut subsidies and sell stakes in government entities as it seeks to counter a slump in oil revenue. The government expects the 2016 budget deficit to narrow to 326 billion riyals ($87 billion) from 367 billion in 2015. Spending, which reached 975 billion riyals this year, is projected to drop to 840 billion. Revenue is forecast to decline to 513.8 billion riyals from 608 billion riyals. The budget is the first under King Salman, who ascended to the throne in January, and an economic council dominated by his increasingly powerful son, Deputy Crown Prince Mohammed bin Salman. The collapse in oil prices has slashed government revenue, forcing officials to draw on reserves and issue bonds for the first time in nearly a decade.

“The budget was approved amid challenging economic and financial circumstances in the region and the world,” the Finance Ministry said. “The deficit will be financed through a plan that considers the best available options, including domestic and external borrowing.” The 2015 deficit is about 16% of GDP, according to Alp Eke, senior economist at National Bank of Abu Dhabi. The median estimate of 10 economists in a Bloomberg survey was a shortfall of 20%. Oil made up 73% of this year’s revenue, according to the Finance Ministry. Non-oil income rose 29% to 163.5 billion riyals. The government has managed to reign in “some spending in the second half of the year,” Monica Malik at Abu Dhabi Commercial Bank said. “With the further fiscal retrenchment that we expect in 2016, we think that the fiscal deficit should narrow to about 10.8% of GDP.”

For 2016, the government allocated 213 billion riyals for military and security spending, the largest component of the budget as the kingdom fights a war in Yemen against Shiite rebels. “In terms of defense expenditure in particular there’s the burden of the war in Yemen,” Nasser Saidi, president of Nasser Saidi & Associates, said by phone. The outcome for 2016 depends on “the course of the war in Yemen, oil prices, how much will subsidies actually get reduced, how effective are they in reigning in public spending and rationalizing some of the spending on large projects, and finally how good are they at reigning in current spending,” he said.

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” Japan’s debt pile is huge, at around 240pc of GDP, and the OECD warned this year that it could balloon to 400pc of GDP..”

Where Next For The Three Arrows Of Abenomics? (Telegraph)

The last sales tax increase threw the world’s third largest economy into recession. For this reason, things may start getting more complicated at the checkout. Policymakers announced last week that they plan to exempt food from the next hike. This would be the first time Japan has adopted different consumption tax rates since it was introduced in 1989. The government estimates this will cost about one trillion yen (£5.5bn) in lost revenues – equivalent to about a fifth of what it expects the increase to bring in. While cynics highlight the move as a ploy to win votes ahead of next year’s upper house elections, it is also a reminder that steering Japan out of its two-decade malaise remains a challenge. It’s been three years since prime minister Shinzo Abe took power with a promise to smash deflation and “take back Japan”.

Under the stewardship of Bank of Japan governor Haruhiko Kuroda, the country launched a multi trillion yen quantitative easing programme in 2013 that was beefed up to ¥80 trillion (£446bn) annually last October. Pessimists argue that Japan’s monetary steroids have had little impact. As economists at BNP Paribas highlight, real GDP has grown by just 2.2pc between the fourth quarter of 2012 and the third quarter of this year – or an average of just 0.8pc per year – a poor performance compared with its G7 peers. Japan’s recovery has been lacklustre since the 2008 crisis, and the economy would currently be in a quintuple-dip recession if growth for the third quarter of 2015 had not been revised up this month. This month, the Bank of Japan revised down its growth forecast for the year ending next March to 1.2pc, from 1.7pc, citing weaker global growth.

It also pushed back its expectation of achieving 2pc inflation to the second half of the year or early 2017, from a previous forecast of mid-2016. This is the second time the target date has been moved since Mr Kuroda pledged in April 2013 to lift consumer inflation to 2pc in “around two years”. Policymakers are already talking down their chances of reflating the economy. Consumer prices rose by just 0.3pc in the year to October, while core inflation, which strips out the impact of volatile food and energy prices, stood at 0.7pc. “If consumer prices were rising more than 1.5pc then I don’t think you could complain when talking about the price target,” said Akira Amari, Japan’s economy minister.

On a brighter note, nominal GDP, or the cash size of the economy, has risen at a more robust pace. This is important because nominal GDP determines a country’s ability to pay down its debt, most of which is fixed in cash terms. Japan’s debt pile is huge, at around 240pc of GDP, and the OECD warned this year that it could balloon to 400pc of GDP unless policymakers implemented vital structural reforms.

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M&A as a means to hide one’s indebtedness.

Record Merger Boom Won’t Stop In 2016, Because Money Is Still Cheap (Forbes)

It was a year for the record books when it comes to merger and acquisition activity. Nearly $5 trillion in deals were cut globally, a new all-time high, as dealmakers used consolidation to uncover cost cuts, bolster their scale and take advantage of historically low borrowing costs. Though 2016 may be a tougher year if emerging market growth slows further and the impact of a sharp rout in commodities hits North America, few expect today’s merger boom to slow. After all, most of the reasons M&A climbed from $3 trillion to $4 trillion and now a rounding error below $5 trillion remain. Corporations are using cheap debt financing to buy competitors and wrench out synergies that can quickly grow their earnings. Amid a mostly halting economic recovery in the United States, M&A has proven far more attractive and easy to pitch to investors than an expansion, which might require increased plant and equipment and rising expenses.

For the nation’s largest companies, there’s also been a race to increase market power, or respond to consolidation among competitors. In pharmaceuticals, these trends have manifest themselves in the race to merge with European-domiciled drugmakers who can access cash stockpiles without triggering repatriation tax and aren’t charged at U.S. rates globally. This has spurred a pharma merger wave that hit new records in 2015 and it isn’t expected to slow anytime soon. In technology, mergers are yet to hinge on tax savings. Instead, semiconductors facing tectonic shifts such as the adoption wireless devices and cloud computing are merging in an effort to round out their services. Consolidation in cable and telecommunications is being used to adapt to the commoditization of once lucrative services like video and data bundles.

The combination of overlapping wireless and broadband networks is also seen as an efficient way to build the infrastructure that’s needed to serve consumers’ shift to streaming media. Spongy financing markets have aided the M&A boom. Low economic growth, modest inflation and weak pricing power are all causing CEOs to look at engineering profits through share buybacks and mergers. Meanwhile, activist shareholders are putting pressure on C-Suites to provide a clear plan on how they reinvest profits. Bold bets have to be justified with credible return expectations and these days it seems the returns by way of M&A, not capital expenditure or expansion.

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Casino control.

China Control Freaks (BBG)

Can authorities in China really take a back seat? In the midst of a bull market (stocks are up more than 20% from their August lows), Beijing appears to be handing control over to companies for all new initial public offerings from March onward. The shift toward a more U.S.-style disclosure system, where any company can list so long as they provide the requisite information, has been a long time coming. In a more market-oriented system, the regulator concentrates on supervising publicly traded firms rather than acting as a gatekeeper. Such a system would give China’s cash-strapped corporates a funding alternative to shadow banks and online peer-to-peer lenders, and help clear a logjam of almost 700 companies waiting to sell shares for the first time. The question is, can Beijing truly stop its tinkering?

According to KPMG, China has imposed moratoriums on IPOs nine times in the A-share market’s relatively short 25-year history – four of those in the last decade during periods when things were heading south. The most recent halt, enforced in July after several blockbuster share sales and some stomach-churning stock declines, ended only last month when a government-engineered rally revived the market.Even when IPOs have been approved, social policy dominates. A few years ago, when China was trying to cool its then-heady real estate sector and rein in burgeoning bad loans, no developer or city commercial bank would have stood a chance getting listing approval. Instead, some went to Hong Kong to raise funds. The conundrum for the China Securities Regulatory Commission is that letting any (qualified) company sell shares would result in a glut and damp appetite for the state-owned firms that dominate the market.

However, rationing admittance to the IPO market means bureaucrats rather than investors are making the decisions, and has resulted in an insatiable demand for new stock. An even bigger challenge for the CSRC, whose seven-member listing committee currently vets IPO applications, is managing investor expectations. In a nation where investment options tend to be limited to volatile wealth management products, equally choppy real estate or low-yielding bank accounts, people have little recourse for their some $22 trillion in savings beyond stocks. That explains why retail investors own about 80% of publicly traded companies’ tradeable shares unlike the U.S., where institutional investors dominate. Such a prevalence of individuals, who don’t have class action lawsuits to fall back on in cases of corporate malfeasance, also makes for a stock market more akin to a casino than a funding tool.

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Shadow banking clamp down.

China Clamps Down on Online Lenders, Vows to Cleanse Market (BBG)

China’s banking regulator laid out planned restrictions on thousands of online peer-to-peer lenders, pledging to “cleanse the market” as failed platforms and suspected frauds highlight risks within a booming industry. Online platforms shouldn’t take deposits from the public, pool investors’ money, or guarantee returns, the China Banking Regulatory Commission said on Monday, publishing a draft rule that will be its first for the industry. The thrust of the CBRC’s approach is that the platforms are intermediaries – matchmakers between borrowers and lenders – that shouldn’t themselves raise or lend money. It rules out P2P sites distributing wealth-management products, a tactic that some hoped would diversify their revenue sources, and limits their use for crowdfunding.

“The rule is quite strict,” Shanghai-based Maizi Financial Services, which operates a P2P site and other investment platforms, said in a statement. “The industry’s hope of upgrading itself with wealth management products and adopting a diversified business model is completely dashed.” The banking regulator issued its plan at the same time as the central bank put out a rule to tighten oversight of online-payment firms. The looming clampdown – the regulator asked for feedback by Jan. 27 – comes as the police probe Ezubo, an online site that raised billions of dollars from investors according to Yingcan Group, a company which provides industry data. It also follows a stock boom and bust that was fueled by leverage, including some channeled through online lenders.

China had 2,612 online lending platforms operating normally as of November, with more than 400 billion yuan ($61.7 billion) of loans outstanding, while another 1,000 were “problematic,” the CBRC said. Firms such as Tiger Global Management, Standard Chartered and Sequoia Capital are among those to invest in the industry, which China initially allowed to develop without regulation. Under the planned rule, P2P platforms will need to register with local financial regulators and cannot help borrowers who want to raise money to invest in the stock market. They’re banned from crowdfunding “for equities and physical items,” a description that wasn’t clarified in the CBRC statement. “Many online lenders have strayed from the role of information intermediary,” the CBRC said in a separate statement, adding that it wanted to protect consumers and “cleanse the market.”

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Control clowns: “..a goal of doubling GDP and per capita income by 2020 from 2010..”

China Central Bank Says To Keep Reasonable Credit Growth, Yuan Stable (Reuters)

China’s central bank said on Monday that it would “flexibly” use various policy tools to maintain appropriate liquidity and reasonable growth in credit and social financing. The People’s Bank of China will keep the yuan basically stable while forging ahead with reforms to help improve its currency regime, it said in a statement summarizing the fourth-quarter monetary policy committee meeting. The PBOC said it would maintain a prudent monetary policy, keeping its stance “neither too tight nor too loose”. The prudent policy has been in place since 2011. “We will improve and optimize financing and credit structures, increase the proportion of direct financing and reduce financing costs,” it said. The central bank said it would closely watch changes in China’s economy and financial markets, as well as international capital flows.

Top leaders at the annual Central Economic Work Conference pledged to make China’s monetary policy more flexible and expand its budget deficit in 2016 to support a slowing economy as they seek to push forward “supply-side reform”. The PBOC has cut interest rates six times since November 2014 and lowered banks’ reserve requirements, or the amount of cash that banks must set aside as reserves. But such policy steps have yielded limited impact on the economy, as the government has been struggling to reach its growth target of about 7% this year. President Xi Jinping has said China must keep annual average growth of no less than 6.5% over the next five years to hit a goal of doubling GDP and per capita income by 2020 from 2010.

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Betcha Cameron is more concerned right now with London’s flood control than Lancashire’s.

Cost Of UK Floods Tops £5 Billion, Thousands Face Financial Ruin (Guardian)

The cost of the UK’s winter floods will top £5bn and thousands of families and businesses will face financial ruin because they have inadequate or non-existent insurance, a leading accountant has warned, as the government defended its record on flood defences. The prime minister faced growing anger from politicians in the north of England who accused the government of creating “a north-south gap” in financial support for flood-prevention schemes. On a tour of the region, David Cameron defended spending levels amid mounting criticism from MPs and council leaders. “We are spending more in this parliament than the last one and in the last parliament we spent more than the one before that,” he said during a stop in York.

“I think with any of these events we have to look at what we are planning to spend and think: ‘Do we need to do more?’ We are going to spend £2.3bn on flood defences in this parliament but we will look at what’s happened here and see what needs to be done. We have to look at what’s happened in terms of the flooding, what flood defences have worked and the places where they haven’t worked well enough.” But Judith Blake, leader of Leeds city council, said a flood prevention scheme for the city was ditched by the government in 2011, and warned that there was “a very strong feeling” across the region that the north was being short-changed.

“I think there’s a real anger growing across the north about the fact that the cuts have been made to the flood defences and we’ll be having those conversations as soon as we are sure that people are safe and that we start the clean-up process and really begin the assess the scale of the damage. “So there are some very serious questions for government to answer on this and we’ll be putting as much pressure on as possible to redress the balance and get the funding situation equalised so the north get its fair share.” Labour MP Ivan Lewis, meanwhile, challenged Cameron to back up his vision of the Northern Powerhouse by sending immediate help to residents and businesses in his Bury South constituency.

[..] On Monday, as the waters receded in the worst hit areas, residents began to face up the scale of the damage. In York telephone lines and internet connections were down and some cash machines were not working. Many of the bars and shops that were open were only taking cash. In Hebden Bridge in Calderdale, volunteers spent the day clearing out schools, shops and homes that had been overwhelmed by filthy floodwater – a scene repeated in scores of towns and cities across the region. Forecasters warned another storm – Storm Frank – is expected to bring more rain to the west and north of the UK on Wednesday. It is feared that up to 80mm (3in) will fall on high ground and as much as 120mm (4.7in) in exposed locations, accompanied by gale force winds..

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Oh yeah, an economy others are jealous of.

UK Factories Forecast To Shed Tens Of Thousands Of Jobs In 2016 (Guardian)

British manufacturers will shed tens of thousands of jobs next year as they battle a tough export market, the fallout from steel plant closures and a collapse in demand from the embattled North Sea oil industry, an industry group has forecast. The manufacturers’ organisation EEF said the factory sector will shrug off this year’s recession and eke out modest growth in 2016 but it warned a number of risks loom on the horizon, chief among them a sharper downturn in China that could trigger a global slump. A cautious mood has prompted many firms to plan cuts to both jobs and investment in a further blow to George Osborne, after the latest official figures showed UK economic growth had faltered and that his “march of the makers” vow had failed to translate into a manufacturing revival.

EEF said its latest snapshot of manufacturers’ mood shows some bright spots for 2016, however, particularly in the car, aerospace and pharmaceutical sub-sectors. They will be the main drivers behind overall manufacturing growth of 0.8% in 2016, following an expected 0.1% contraction this year. Those sub-sectors will also buck the wider manufacturing trend of job cuts with an employment increase in 2016, EEF predicts. “Some of the headwinds have been a consistent theme over 2015 – the collapse in oil and gas activity, weakness in key export markets, and strong sterling. Others, like disappointing construction activity and the breakdown in the steel industry, have piled on the pain since the second quarter of 2015,” said EEF’s chief economist, Lee Hopley, in the report. “It’s not all doom and gloom however, with the resilience of the transport sectors and the rejuvenation of the pharmaceuticals industry providing reasons for cheer in UK manufacturing.”

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“..it would require dedication to clear goals and the hard work of altering all our current arrangements – and giving up these childish fantasy distractions about space and technology.”

Questions and Answers (Jim Kunstler)

The really big item in last night’s 60-Minutes newsbreak was that the latest Star Wars movie passed the billion dollar profit gate a week after release. That says just about everything you need to know about our floundering society, including the state of the legacy news media. The cherry on top last week was Elon Musk’s SpaceX company’s feat landing the first spent stage of its Falcon 9 rocket to be (theoretically) recycled and thus hugely lowering the cost of firing things into space. The media spooged all over itself on that one, since behind this feat stands Mr. Musk’s heroic quest to land humans on Mars. This culture has lost a lot in the past 40 years, but among the least recognized is the loss of its critical faculties. We’ve become a nation of six-year-olds.

News flash: we’re not going Mars. Notwithstanding the accolades for Ridley Scott’s neatly-rationalized fantasy, The Martian (based on Andy Weir’s novel), any human journey to the red planet would be a one-way trip. Anyway, all that begs the question: why are we so eager to journey to a dead planet with none of the elements necessary for human life when we can’t seem to manage human life on a planet superbly equipped to support us? Answer: because we are lost in raptures of techno-narcissism. What do I mean by that? We’re convinced that all the unanticipated consequences of our brief techno-industrial orgy can be solved by… more and better technology! Notice that this narrative is being served up to a society now held hostage to the images on little screens, by skilled people who, more and more, act as though these screens have become the new dwelling place of reality.

How psychotic is that? All of this grandstanding about the glories of space goes on at the expense of paying attention to our troubles on this planet, including the existential question as to how badly we are fucking it up with burning the fossil fuels that power our techno-industrial activities. Personally, I don’t believe that any international accord will work to mitigate that quandary. But what will work, and what I fully expect, is a financial breakdown that will lead to a forced re-set of human endeavor at a lower scale of technological activity. The additional question really is how much hardship will that transition entail and the answer is that there is plenty within our power to make that journey less harsh.

But it would require dedication to clear goals and the hard work of altering all our current arrangements – and giving up these childish fantasy distractions about space and technology. Dreaming about rockets to Mars is easy compared to, say, transitioning our futureless Agri-Biz racket to other methods of agriculture that don’t destroy soils, water tables, ecosystems, and bodies. It’s easier than rearranging our lives on the landscape so we’re not hostage to motoring everywhere for everything. It’s easier than educating people to both think and develop real hands-on skills not dependent on complex machines and electric-powered devices.

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Wild theories welcome.

Qatari Royals Rush To Switzerland In Nine Planes After Emir Breaks Leg (AFP)

Unidentified individuals travelling in as many as nine planes belonging to Qatar’s royal family made an emergency trip to Switzerland over the weekend for medical reasons, according to a Swiss official. A spokesman for Switzerland’s federal office of civil aviation confirmed local media reports that multiple aircraft made unscheduled landings at the Zurich-Kloten airport overnight from 25 to 26 December and that the planes were part of the Qatari royal fleet. He gave no details as to who was on board or who any of the potential patients may have been. “The emergency landing clearance was given by the Swiss air force,” he told AFP, explaining that the civil aviation office was closed during the hours in question.

Qatari authorities later said that the country’s former ruler, Sheikh Hamad bin Khalifa Al Thani, had been flown to Switzerland over the weekend for surgery after breaking a leg. The Qatari government’s communications office said early on Tuesday that Sheihk Hamad suffered “a broken leg while on holiday” and was flown to Zurich on Saturday to receive treatment. The office says the 63-year-old sheikh underwent a successful operation and was in Zurich “recovering and undergoing physiotherapy.” The government declined to say how or where Sheikh Hamad broke his leg but the royal family had reportedly been on holiday in Morocco at a resort in the Atlas mountains. Night landings and takeoffs are typically forbidden at Zurich-Kloten to avoid disturbing local residents.

Swiss foreign ministry spokesman Georg Farago told AFP in an email that the federation was informed about the “stay of members of Qatar’s royal family in Switzerland”, without giving further details. According to Zurich’s Tages Anzeiger newspaper, the first Qatari plane, an Airbus, landed in Zurich from Marrakesh shortly after midnight on 26 December. A second flight landed at Zurich-Kloten at 5am (0400 GMT) on 26 December, with a third plane coming 15 minutes later, both having originated in Doha, the paper reported. According to Tages Anzeiger, the medical emergency in question was so significant that six more planes linked to the Qatari royal family and government landed in Zurich through the weekend. Sheikh Hamad is believed to have been in poor health for years. He ruled the oil-and-gas-rich Qatar from 1995 until handing over power to his son, Sheikh Tamim, in 2013.

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“It’s as if a bomb went off. And, in fact, it did.”

Freak Storm In Atlantic To Push Arctic Temps Over 50º Above Normal (WaPo)

The vigorous low pressure system that helped spawn devastating tornadoes in the Dallas area on Saturday is forecast to explode into a monstrous storm over Iceland by Wednesday. Big Icelandic storms are common in winter, but this one may rank among the strongest and will draw northward an incredible surge of warmth pushing temperatures at the North Pole over 50 degrees above normal. This is mind-boggling. And the storm will batter the United Kingdom, reeling from recent flooding, with another round of rain and wind. Computer model simulations show the storm, sweeping across the north central Atlantic today, rapidly intensifying along a jet stream ripping above the ocean at 230 mph. The storm’s pressure is forecast by the GFS model to plummet more than 50 millibars in 24 hours between Monday night and Tuesday night, easily meeting the criteria of a ‘bomb cyclone’ (a drop in pressure of at least 24 mb in 24 hours),

By Wednesday morning, when the storm reaches Iceland and nears maximum strength, its minimum pressure is forecast to be near 923 mb, which would rank among the great storms of the North Atlantic. (Note: there is some uncertainty as to how much it will intensify. The European model only drops the minimum pressure to around 936 mb, which is strong but not that unusual). Winds of hurricane force are likely to span hundreds of miles in the North Atlantic. Environmental blogger Robert Scribbler notes this storm will be linked within a “daisy chain” of two other powerful North Atlantic low pressure systems forming a “truly extreme storm system.” He adds: “The Icelandic coast and near off-shore regions are expected to see heavy precipitation hurled over the island by 90 to 100 mile per hour or stronger winds raging out of 35-40 foot seas. Meanwhile, the UK will find itself in the grips of an extraordinarily strong southerly gale running over the backs of 30 foot swells.”

[..] Ahead of the storm, the surge of warm air making a beeline towards the North Pole is astonishing. [..] It’s as if a bomb went off. And, in fact, it did. The exploding storm acts a remarkably efficient heat engine, drawing warm air from the tropics to the top of the Earth. The GFS model projects the temperature at the North Pole to reach near freezing or 32 degrees early Wednesday. Consider the average winter temperature there is around 20 degrees below zero. If the temperature rises to freezing, it would signify a departure from normal of over 50 degrees.

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Hope some of that goes toward giving them jobs.

German States To Spend At Least €17 Billion On Refugees In 2016 (Reuters)

Germany’s federal states are planning to spend around €17 billion on dealing with the refugee crisis in 2016, newspaper Die Welt said on Tuesday, citing a survey it conducted among their finance ministries. The sum, bigger than the €15.3 billion that the central government planned to allocate to its education and research ministry in 2015, is a measure of the strain that the influx is causing across the country as a whole. Germany is the favoured destination for many of the hundreds of thousands of refugees fleeing conflict and poverty in the Middle East and Africa, partly due to the generous benefits that it offers.

The German states have repeatedly complained that they are struggling to cope, and Chancellor Angela Merkel’s open-door policy has caused tensions within her conservative camp. Die Welt said that excluding the small city state of Bremen, which did not provide any details, current plans suggested the states’ combined expenditure would be €16.5 billion. The paper said actual costs would probably be even higher because the regional finance ministries had based their budgets on an estimate from the federal government that 800,000 refugees would come to Germany in 2015. In fact, 965,000 asylum seekers had already arrived by the end of November.

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Finance ministers have no place intervening in politics.

Schaeuble Slams Greece Over Refugee Crisis, Aims For Joint EU Army (Reuters)

Germany’s finance minister Wolfgang Schaeuble and a senior Bavarian politician criticized Greece on Sunday over the way it is managing its role in Europe’s biggest migration crisis since World War Two. Schaeuble, who has clashed repeatedly with Greek officials this year over economic policy, told Bild am Sonntag that Athens has for years ignored the rules that oblige migrants to file for asylum in the European Union country they arrive in first. He said German courts had decided some time ago that refugees were not being treated humanely in Greece and could therefore not be sent back there. “The Greeks should not put the blame for their problems only on others, they should also see how they can do better themselves,” Schaeuble said.

Greece, a main gateway to Europe for migrants crossing the Aegean sea, has faced criticism from other EU governments who say it has done little to manage the flow of hundreds of thousands of people arriving on its shores. Joachim Herrmann, the interior minister of the southern state of Bavaria, that has taken the brunt of the refugee influx to Germany, criticized the way Greece is securing its external borders. “What Greece is doing is a farce,” Herrmann said in an interview with Die Welt am Sonntag newspaper, adding any that any country that does not meet its obligations to secure its external borders should leave the Schengen zone, where internal border controls have been abolished.

[..] In contrast to his criticism of Greece, Schaeuble sought to offer to compromise with eastern European countries that have voiced reluctance to accept migrants under EU quotas. “Solidarity doesn’t start by insulting each other,” Schaeuble said. “Eastern European states will also have to take in refugees, but fewer than Germany.” The influx of hundreds of thousands of migrants, many fleeing war and poverty in the Middle East, also means that European countries will have to increase spending on defense, he said. “Ultimately our aim must be a joint European army. The funds that we spend on our 28 national armies could be used far more effectively together,” Schaeuble said.

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No, EU indifference on refugees has brought it down.

Selfishness On Refugees Has Brought EU ‘To Its Knees’ (IT)

The “ruinously selfish” behaviour of some member states towards refugees has brought the European Union to its knees, former attorney general Peter Sutherland has said. In a sharp denunciation of Europe’s failures on migration and social integration, Mr Sutherland, who is special representative to the United Nations secretary general for migration, said political “paralysis and ambivalence” was threatening the future of the EU and resulting in the rise of xenophobic and racist parties. With a population of 508 million, the EU should have had no insuperable problem welcoming even a million refugees “had the political leadership of the member states wanted to do so and had the effort been properly organised,” Mr Sutherland said. “But instead, ruinously selfish behaviour by some member states has brought the EU to its knees.”

There were several “honourable exceptions”, most notably German chancellor Angela Merkel, who he described as “a heroine” for showing openness and generosity towards refugees. Mr Sutherland made the remarks in the Littleton memorial lecture, which was broadcast on RTÉ radio on St Stephen’s Day. More than a million refugees and migrants arrived in the EU by land and sea in 2015, according to the International Organisation for Migration, making this the worst crisis of forced displacement on the continent since the second World War. Half of those arriving were Syrians fleeing a conflict that has left almost 250,000 people dead and displaced half the country’s pre-war population. A European Commission plan to use quotas to relocate asylum seekers arriving in southeastern Europe was adopted in the autumn against strong opposition from several states, including Hungary, Poland and the Czech Republic.

Slovakia said it would take in only a few hundred refugees, and they would have to be Christians. Mr Sutherland said the razor and barbed wire fences being erected on the Hungarian border to keep out migrants and refugees “are not just tragic but they are also particularly ironic, as Hungarians were for so long confined by the Iron Curtain.” He recalled that in 1956, after their failed revolution, 200,000 Hungarian refugees were immediately given protection throughout Europe and elsewhere. “Yet now, prime minister Viktor Orbán is the most intransigent and vociferous opponent of taking refugees in the EU.” Mr Sutherland accused some heads of government of “stoking up prejudice” by speaking of barring Muslim migrants and said the absence of EU agreement on a refugee-sharing scheme meant a Europe of internal borders was increasingly likely to become a reality across the continent.

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Waiting for the next surge as soon as the weather gets better.

Refugee Arrivals In Greece Rise More Than Tenfold In A Year (Kath.)

Over 800,000 refugees and migrants entered Greece between the start of the year and the end of November, with the number of arrivals increasing more than tenfold compared to last year’s total of 72,632, data published by the Greek Police showed Monday. The number tallies with figures from the United Nations High Commission for Refugees (UNHCR), which puts total arrivals in Greece from January 1 to December 24 at 836,672. The UNHCR also reported that in the three-day period from December 24 to 26, daily arrivals in Greece came to 2,950, with the monthly average at 3,400 per day, a significant drop from November’s average of 5,040. Most arrivals continue to enter Greece via the islands close to Turkey, the main transit point for refugees and migrants fleeing strife in the Middle East and South Asia and trying to enter the European Union.

On Lesvos alone, authorities estimate that they continue to receive from 2,000 to 2,500 arrivals every day, down from an average of over 5,000 in November. Police on the eastern Aegean island on Monday said that more than 3,500 refugees and migrants were waiting to be ferried to the mainland by this afternoon, while at the island’s main registration center in Moria, there are a further 4,000 people waiting to be processed and granted permission to leave for Athens, from where they will continue their journey north. In the capital, meanwhile, the Asylum Service of the Citizens’ Protection Ministry on Monday published data showing that only 82 of the 449 applications it has submitted so far for the relocation of refugees from Syria, Iraq and Eritrea to other parts of the European Union have been successful.

The initial plan drawn up by European authorities was for a total of 66,400 refugees to be transferred from Greece to other EU member-states, though only 13 countries have come forward, offering to take in a total of 565 asylum seekers. The repatriations that have been successful have been to Luxembourg, which took in 30 people, Finland (24), Portugal (14), Germany (10) and Lithuania, which accepted four relocations.

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


Unknown Pontiacs being unloaded from freight cars, San Francisco 1941

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

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

Germany Believes Eurozone Could Cope With Greece Exit (Reuters)

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

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

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

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

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

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

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

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

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

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

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

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

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

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Interest rates may trigger all of these.

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

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

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

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

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

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

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

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

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Bumpy?!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Endangered Species: Young US Entrepreneurs (WSJ)

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

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

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

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

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Let’s see some proof.

North Korea Responds With Fury To US Sanctions (Guardian)

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

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

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

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

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

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

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Intentional errors?

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

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

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

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

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Word.

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

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

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

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

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A huge problem all over Europe.

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

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

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

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

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

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

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

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

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

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Great story.

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

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

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

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

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