Jan 062017
 
 January 6, 2017  Posted by at 4:52 pm Finance Tagged with: , , , , , , ,  4 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

 

Since the new year will bring yuuge and bigly changes to us all (I truly hope both the year and the changes will leave you happy), I thought I’d start off by ‘reduxing’ two articles that contain further ‘reduxes’, Russian doll style. I do this because the man the articles are about is set to play a large role in those changes, certainly where Europe is concerned. And since the changes in Europe will be weally weally bigly, they will impact the entire world.

That is to say, we must seriously doubt if the EU -or rather, what’s left of it post-Brexit-, will live to see January 1 2018 in one piece. This is hardly an exaggeration, as you may be inclined to think. As I said recently, in Europe it’s not and-and, it’s if-or: with elections in Germany, France, Holland and probably Italy coming up, they don’t all have to turn out ‘badly’ for the pro-EU camp, if just one of them goes against the EU, it may well be game over.

Therefore Beppe Grillo, leader of the Five Star movement, is a man to keep an eye on. And not just for that. The first item below, a 1998 video, is an addition to my original article from November 14 2014, and it makes clear, once more, that Beppe is no fool. Nor is he a right wing nut, or anything remotely like that. Beppe actually understands what money is, much much better than any of the politicians and economists that rule the old continent. That makes him a threat to them.

Below that video from 1998, my November 14 2014 article, which in turn cites a 2013 article. I know some things will look dated, but you’ll get it, I’m sure. I hope you also get why I repost it all: 2017 has begun.

 

Beppe Grillo: Whom does the money belong to? Who does its ownership belong to? To the State, fine, so to us, we are the State.

You know that the State doesn’t exist, it is only a legal entity. WE are the state, the money is ours.

Then tell me one thing: if the money belongs to us, why do they lend it to us?

 

 

 

From November 14 2014: That says quite something, that title. And it’s probably not entirely true, it’s just that I can’t think of any others. And also, I’m in Europe myself right now, and I still have a European passport too. So there’s two of us at least. Moreover, I visited Beppe Grillo three years ago, before his 5-Star Movement (M5S) became a solid force in Italian politics. So we have a connection too.

Just now, I noticed via the BBC and Zero Hedge that Beppe not only expects to gather far more signatures than he said he would recently (1 million before vs 4 million today) for his plan to hold a referendum on the euro, he also claims to have a 2/3 majority in the Italian parliament. Well done. But he can’t do it alone.

Martin Armstrong thinks the EU may have him murdered for this before they allow it to take place. Which is a very good reason for everyone, certainly Europeans, to come out in support for the only man in Europe who makes any sense. I know many Italians find Beppe too coarse, but they need to understand he’s their only way out of this mess.

The smear campaigns against him are endless. The easier ones put him at the same level as Nigel Farage and Marine Le Pen, the more insidious ones paint him off as a George Soros patsy. There’ll be a lot more of that. And given the success of this year’s anti-Putin campaign in Europe, and the ongoing pro-Euro one, it’s going to take a lot not to have people believe whatever they are told to.

Just take this to heart: since Italy joined the euro, its industrial production has fallen by 25%. How is that not a disaster? Meanwhile, the eurozone economy is in awful shape, and the longer that lasts, the more countries like Italy will be disproportionally affected and dragged down further. There’s a reason for that numbers such as that: it’s not like Germany and Holland lost 25% of their production.

The eurozone must end before it starts to do irreversible damage, and before it turns Europe into a warzone, a far more real and imminent risk than anyone dares suggest.

The first bit here is from Zero Hedge, and then after that I will repost a lengthy piece about Beppe that I first published on February 12, 2013.

Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase.

Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

As Martin Armstrong asks rather pointedly…

Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro. Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.

And then here’s my February 2013 article; it seems silly to try and rewrite it. There is nobody in Europe other than him who understands what is going on, and is willing to fight for it. Grillo is a very smart man, a trained accountant and an avid reader of anything he can get his hands on. The image of him as a populist loud mouthed good for little comedian is just plain false. It was Grillo who exposed the Parmalat scandal, and the Monte Dei Paschi one.

Never forget what political and behind the veil powers he’s up against in his country, and how they seek to define the image the world has of him. What Beppe Grillo does takes a lot of courage. Not a lot of people volunteer to be smeared and insulted this way, let alone run the risk of being murdered. Those who do deserve our support.

 

 

Beppe Grillo Wants To Give Italy Democracy

In the fall of 2011, The Automatic Earth was on another European lecture tour. Nicole Foss had done a series of talks in Italy the previous year, and there was demand for more. This was remarkable, really, since a knowledge of the English language sufficient to understand Nicole’s lectures is not obvious in Italy, so we had to work with translators. Certainly none of this would have happened if not for the limitless drive and energy of Transition Italy’s Ellen Bermann.

In the run-up to the tour I had asked if Ellen could perhaps set up a meeting with an Italian I found very intriguing ever since I read he had organized meetings which drew as many as a million people at a time for a new – political – movement. Other than that, I didn’t know much about him. We were to find out, however, that every single Italian did, and was in awe of the man. A few weeks before arriving, we got word that he was gracious enough to agree to a meeting; gracious, because he’d never heard of us either and his agenda was overloaded as it was.

So in late October we drove the crazy 100+ tunnel road from the French border to Genoa to meet with Beppe Grillo in what turned out to be his unbelievable villa in Genoa Nervi, high on the mountain ridge, overlooking – with a stunning view – the Mediterranean, and set in a lovely and comfortable sunny afternoon. I think the first thing we noticed was that Beppe is a wealthy man; it had been a long time since I had been in a home where the maids wear uniforms. The grand piano was stacked with piles of books on all sorts of weighty topics, politics, environment, energy, finance. The house said: I’m a man of wealth and taste.

 


Eugenio Belgeri, Raúl Ilargi Meijer, Beppe Grillo, Nicole Foss and Ellen Bermann in Genoa Nervi, October 2011

 

I don’t speak Italian, and Beppe doesn’t speak much English (or French, German, Dutch), so it was at times a bit difficult to communicate. Not that it mattered much, though; Beppe Grillo has been a super charged Duracell bunny of an entertainer and performer all his life, and he will be the center of any conversation and any gathering he’s a part of no matter what the setting. Moreover, our Italian friends who were with us – and couldn’t believe they were there – could do a bit of translating. And so we spent a wonderful afternoon in Genoa, and managed to find out a lot about our very entertaining host and his ideas and activities.

Beppe had set up his Five Star movement (MoVimento Cinque Stelle, M5S) a few years prior. He had been organizing V-day “happenings” since 2007, and they drew those huge crowds. The V stands for “Vaffanculo”, which can really only be translated as “F**k off” or “Go f**k yourself”: the driving idea was to get rid of the corruption so rampant in Italian politics, and for all sitting politicians to go “Vaffanculo”.

At the time we met, the movement was focusing on local elections – they have since won many seats, have become the biggest party on Sicily (after Beppe swam there across the Straits of Messina from the mainland) and got one of their own installed as mayor of the city of Parma.

Grillo explained that M5S is not a political party, and he himself doesn’t run for office. He wants young people to step forward, and he’s already in his sixties. Anyone can become a candidate for M5S, provided they have no ties to other parties, no criminal record (Beppe does have one through a 1980 traffic accident); they can’t serve more than two terms (no career politicians) and they have to give back 75% of what they get paid for a public function (you can’t get rich off of politics).

I found it surprising that our friends at Transition Italy and the general left were reluctant to endorse Grillo politically; many even wanted nothing to do with him, they seemed to find him too coarse, too loud and too angry. At the same time, they were in absolute awe of him, openly or not, since he had always been such a big star, a hugely popular comedian when they grew up. Grillo offered to appear through a video link at Nicole’s next talk near Milan, but the organizers refused. It was only the first sign of a lot of mistrust among Italians even if they all share the same discontent with corrupt politics. Which have made trust a major issue in Italy.

 

 

This may have to do with the fact that Grillo is a comedian in the vein of perhaps people like George Carlin or Richard Pryor in the US. On steroids, and with a much wider appeal. Rough language, no holds barred comedy turns a lot of people off. Still, I was thinking that they could all use the visibility and popularity of the man to get their ideas across; they preferred anonymity, however.

By the way, the Five Stars, perhaps somewhat loosely translated, stand for energy, information, economy, transport and health. What we found during our conversation is that Beppe Grillo’s views on several topics were a little naive and unrealistic. For instance, like so many others, he saw a transition to alternative energy sources as much easier than it would realistically be. That said, energy and environment issues are important for him and the movement, and in that regard his focus on decentralization could carry real benefits.

Still, I don’t see the present naive ideas as being all that bad. After all, there are limits to what people can do and learn in a given amount of time. And Beppe certainly has a lot to do, he’s leading a revolution, so it’s fine if the learning process takes some time. Ideally, he would take a crash Automatic Earth primer course, but language will be a barrier there. I hope he finds a way, he’s certainly smart and curious enough.

 

 

When his career took off in the late 70’s, early 80’s, Beppe Grillo was just a funny man, who even appeared on Silvio Berlusconi’s TV channels. Only later did he become more political; but then he did it with a vengeance.

Grillo was first banned from Italian TV as early as 1987, when he quipped about then Prime Minister Bettino Craxi and his Socialist Party that if all Chinese are indeed socialists, who do they steal from? The ban was later made permanent. In the early 90’s, Operation Clean Hands was supposed to have cleaned up corruption in politics. Just 15 years later, Beppe Grillo started the Five Star movement. That’s how deeply engrained corruption is in Italy, stretching across politics, business and media.

We are- almost – all of us living in non-functioning democracies, but in Italy it’s all far more rampant and obvious. There’s a long history of deep-seated corruption, through the mafia, through lodges like P5 and Opus Dei, through many successive governments, and through the collaboration between all of the above, so much so that many Italians just see it as a fact of life. And that’s what Beppe Grillo wants to fight.

Ironically, he himself gets called a neo-nazi and a fascist these days. To which he replies that perhaps he’s the only thing standing between Italy and a next bout of fascism. I’ve read a whole bunch of articles the past few days, the international press discovers the man in the wake of the general elections scheduled for February 24-25, and a lot of it is quite negative, starting with the all too obvious notion that a clown shouldn’t enter politics. I don’t know, but I think Berlusconi is much more of a clown in that regard than Grillo is. A whole lot more of a clown and a whole lot less funny.

Beppe is called a populist for rejecting both right and left wing parties, a neo-nazi for refusing to block members of a right wing group from M5S, a Jew hater in connection with the fact that his beautiful wife was born in Iran, and a dictator because he’s very strict in demanding potential M5S candidates adhere to the rules he has set. Oh, and there are the inevitable right wing people calling him a communist.

There are of course tons of details that I don’t know, backgrounds, I’m largely an outsider, willing to be informed and corrected. And this would always be much more about the ideas than about the man. Then again, I did talk to the man in his own home and I don’t have the impression that Grillo is a fraud, or part of the same system he purports to fight as some allege, that he is somehow just the existing system’s court jester. He strikes me as being too loud and too embarrassing for that. And too genuinely angry.

Moreover, I think Italy is a perfect place for a nasty smear campaign, and since they can’t very well murder the man – he’s too popular – what better option than to make him look bad?! If anything, it would be strange if nobody did try to paint him off as a demagogue, a nazi or a sad old clown.

 


Photo: AFP: Marcello Paternostro

 

After being banned from TV, Grillo went on the build one of the most visited blogs/websites in the world, and the number one in Europe. Ironically, he is now in some media labeled something of a coward for not appearing in televised election debates. But Beppe doesn’t do TV, or – domestic – newspapers. For more than one reason.

Because he was banned from TV, because of the success of the internet campaign, and because Silvio Berlusconi incessantly used “lewd” talk shows on his own TV channels to conduct politics, Beppe Grillo insists his councilors and candidates stay off TV too, and he has his own unique way of making clear why and how: When a female Five Star member recently ignored this and appeared on a talk show anyway, Grillo said “the lure of television is like the G-spot, which gives you an orgasm in talk-show studios. It is Andy Warhol’s 15 minutes of fame. At home, your friends and relations applaud emotionally as they share the excitement of a brief moment of celebrity.”. Of course Beppe was labeled a sexist for saying this.

The internet is central to Grillo’s ideas. Not only as a tool to reach out to people, but even more as a way to conduct direct democracy. Because that is what he seeks to create: a system where people can participate directly. Grillo wants to bring (back) democracy, the real thing, and he’s long since understood that the internet is a brilliant tool with which to achieve that goal. One of his spear points is free internet access for all Italians. Which can then be used to let people vote on any issue that can be voted on. Not elections once every four years or so, but votes on any topic anytime people demand to vote on it. Because we can.

Since we had our chat in that garden in Genua, Beppe Grillo and M5S have moved on to bigger pastures: they are now set to be a major force in the general elections that will establish a new parliament. Polls differ, but they can hope to gain 15-20% of the vote (Grillo thinks it could be even much more). The leader in the polls is the Socialist Party, and then, depending on which poll you choose to believe, M5S comes in either second or third (behind Berlusconi). What seems certain is that the movement will be a formidable force, carrying 100 seats or more, in the new parliament, and that they could have a lot of say in the formation of any new coalition government.

In the run-up the elections, Beppe has now traded his home for a campaign bus, going from town to town and from one jam-packed campaign event to the next on what he has labeled the Tsunami Tour, in which he, in his own words, brings class action to the people.

As was the case in the local elections, Beppe Grillo says he wants “normal” people (“a mother of three, a 23-year-old college graduate, an engineer [..] those are the people I want to see in parliament”) to be elected, not career politicians who enrich themselves off their status and influence, and who he labels “the walking dead”, and though he acknowledges his candidates have no political experience, he says: “I’d rather take a shot in the dark with these guys than commit assisted suicide with those others.” In the same vein, another one of his lines is:“The average age of our politicians is 70. They’re planning a future they’re never going to see”.

On his immensely popular website beppegrillo.it, which has quite a bit of English language content, Grillo has some nice stats and tools. There is a list of Italian parlimentarians and Italian members of the EU Parliament who have been convicted of crimes. At this moment there are 24; their number has come down, but still. There is also a great little thing named “Map of Power of the Italian Stock Exchange” that graphically shows the links various politicians have with various corporations. I remember when Grillo proudly showed it to us, that after clicking just 2-3 politicians and 2-3 businesses, the screen was so full of lines depicting connections it had become an unreadable blur.

In between all the other activities, Beppe was instrumental 10 years ago in exposing the stunning $10 billion accounting fraud at dairy and food giant Parmalat before it went bankrupt, as well as the recent scandal at the world’s oldest bank, Monte Dei Paschi Di Siena, which will cost a reported $23 billion. Corruption is everywhere in Italy, which has a large political class that is all too eager to share in the spoils. Mr. Grillo was trained as an accountant, and he understands what he’s talking about when it comes to dodgy numbers. What he needs is the power to act.

 

 

Apart from the strong stance that Grillo and M5S take against corruption and for direct representation, critics say they have few clear policy objectives, that they don’t even know what they want. Being a movement instead of a party doesn’t help. But then, these critics think inside the very old system that M5S wants to replace with one that is far more transparent and direct. It’s more than obvious that existing powers have no interest in incorporating the possibilities for improvement offered by new technologies, but it should also be obvious that people, wherever they live, could potentially benefit from a better functioning political system.

There will be many who say that no such thing can be achieved, but perhaps it not only can, but is inevitable. All it could take is for an example to show that it can work. One might argue that the only reason our current systems continue to exist in all their opaqueness is that those who stand to profit from them are the ones who get to vote on any changes that could be applied. What Beppe Grillo envisions is a system in which every one can vote directly on all relevant issues, including changes to the system itself. It’s about class action, about taking back power from corrupt existing politics. Italy looks like a good testing ground for that, since its systemic rot is so obvious for all to see. But in other western countries, just like in Italy, it could return the power where it belongs: in the hands of the people.

Radical ideas? Not really, because when you think about it, perhaps it’s the technology itself that’s radical, not the use of it. And maybe it’s the fact that we’re so stuck in our existing systems that keeps us from using our new technologies to their full potential. Just like it keeps us from restructuring our financial systems and our energy systems for that matter. We continue to have systems and institutions guide our lives long after they’ve ceased to be useful for our present day lives, as long as we’re snug and warm and well-fed. And we do so until a real bad crisis of some sort comes along and makes it absolutely untenable, often with a lot of misery and blood thrown into the equation.

Beppe Grillo wants to break that chain. And he’s got a recipe to do it. It may not be perfect or foolproof, but who cares when it’s replacing something that no longer functions at all, that just drags us down and threatens our children’s lives? Who cares? Well, the Monti’s and Berlusconi’s and Merkel’s and Obama’s and Exxon’s and BP’s and Monsanto’s of the world do, because it is the old system that gave them what they have, and they don’t want a new one that might take it away. Our so-called democracies exist to please our leaders and elites, not ourselves. And we’re unlikely to figure that one out until it’s way too late.

Unless the Italians do our work for us and vote for the Cinque Stelle in huge numbers.

 

 

Dec 162016
 
 December 16, 2016  Posted by at 5:44 pm Finance Tagged with: , , , , , , , , , ,  10 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Parisians duck down to evade German sniper fire following Nazi surrender of Paris, 1945

 

If you ever wondered what the odds are of mankind surviving, let alone ‘defeating’, climate change, look no further than the essay the Guardian published this week, written by Michael Bloomberg and Mark Carney. It proves beyond a moonlight shadow of a doubt that the odds are infinitesimally close to absolute zero (Kelvin, no Hobbes).

Yes, Bloomberg is the media tycoon and former mayor of New York (which he famously turned into a 100% clean and recyclable city). And since central bankers are as we all know without exception experts on climate change, as much as they are on full-contact crochet, it makes perfect sense that Bank of England governor Carney adds his two -trillion- cents.

Conveniently, you don’t even have to read the piece, the headline tells you all you need and then some: “How To Make A Profit From Defeating Climate Change” really nails it. The entire mindset on display in just a few words. If that’s what they went for, kudo’s are due.

These fine gents probably actually believe that this is perfectly in line with our knowledge of, say, human history, of evolution, of the laws of physics, and of -mass- psychology. All of which undoubtedly indicate to them that we can and will defeat the problems we have created -and still are-, literally with the same tools and ideas -money and profit- that we use to create them with. Nothing ever made more sense.

That these problems originated in the same relentless quest for profit that they now claim will help us get rid of them, is likely a step too far for them; must have been a class they missed. “We destroyed it for profit” apparently does not in their eyes contradict “we’ll fix it for profit too”. Not one bit. It does, though. It’s indeed the very core of what is going wrong.

Profit, or money in general, is all these people live for, it’s their altar. That’s why they are successful in this world. It’s also why the world is doomed. Is there any chance I could persuade you to dwell on that for a few seconds? That, say, Bloomberg and Carney, and all they represent, are the problem dressed up as the solution? That our definition of success is what dooms us?

Philosophers, religious people, or you and me, may struggle with the question “what’s the purpose of life?”. These guys do not. The purpose of life is to make a profit. The earth and all the life it harbors exist to kill, drill, excavate and burn down, if that means you can make a profit. And after that you repair it all for a profit. In their view, the earth doesn’t turn of its own accord after all, it’s money that makes it go round.

 

The worrisome thing is that Mark and Michael will be listened to, that they are allowed a seat at the table in the first place, whereas you and I are not. A table that will be filled with plenty more of their ilk, as the announcement of Bill Gates’ billionaire philantropist energy fund says loud and clear:

Microsoft co-founder Bill Gates and a group of high-profile executives are investing $1 billion in a fund to spur clean energy technology and address global climate change a year after the Paris climate agreement. Gates launched the Breakthrough Energy Ventures fund on Monday along with billionaire entrepreneurs such as Facebook head Mark Zuckerberg, Alibaba Chairman Jack Ma and Amazon.com chief Jeff Bezos. The fund seeks to increase financing of emerging energy research and reduce global greenhouse gas emissions to help meet goals set in Paris, according to a statement by the investor group known as the Breakthrough Energy Coalition.

Yes, many of the same folk and/or their minions were sitting at the table with Trump on Dec 14. To see if there are any profits to be made. When a profit is involved they have no trouble sitting down with the same guy they insulted and warned against day after grueling day mere weeks ago. They have no trouble doing it because they insulted him for a potential profit too. It’s business, it’s not personal.

Billionaires will save us from ourselves, and make us -and themselves- rich while doing it. What is not to like? Well, for one thing, has anybody lately checked the energy footprint of Messrs. Bloomberg, Gates, Ma, Zuckerberg, Bezos et al? Is it possible that perhaps they’re trying to pull our collective wool over our eyes by pretending to care about those footprints? That maybe these ‘clean energy’ initiatives are merely a veil behind which they intend to extend -and expand- said footprints?

The ones in that sphere who wind up being most successful are those who are most convincing in making us believe that all we need to do to avert a climate disaster is to use some different form of energy. That all the talk about zero emissions and clean energy is indeed reflecting our one and only possible reality.

That all we need to do is to switch to solar and wind and electric cars to save ourselves (and they’ll build them for a subsidy). That that will end the threat and we can keep on doing what we always did, and keep on growing it all and as the cherry on the cake, make a profit off the endeavor.

 

None of it flies even a little. First of all, as I said last week in Mass Extinction and Mass Insanity, there are many more problems with our present lifestyles than ‘only’ climate change, or the use of carbon. Like the extinction of two-thirds of all vertebrate life in just 50 years leading up to 2020. There’s -close to- nothing wind and solar will do to alleviate that.

Because it’s not oil itself, or carbon in general, that kills; our use of it does. And the rush to build an entire new global infrastructure that is needed to use new energy forms, which will depend on using huge amounts of carbon, is more likely to kill off that globe than to save it. “Carbon got us in this, let’s use lots more of it to get us out”.

The trillions in -public- investment that are would be needed will make us all dirt poor too, except for the gentlemen mentioned above and a handful of others who invent stuff that they manage to make us believe will save us. Still convinced?

 

The lifestyles of the last 10 generations of us, especially westerners, are characterized more than anything else by the huge increase in the use of energy, of calories and joules. As we went from wood to peat to coal to oil and gas, the energy return on energy investment kept going higher. But that stopped with oil and gas. And from now on in it will keep going down.

“Free carbon excess” was a one-off ‘gift’ from nature. It will not continue and it will not return. Different forms of carbon have offered us a one-time source of free energy that we will not have again. The idea that we can replace it with ‘clean energy’ is ludicrous. The energy return on energy investment doesn’t even come close. And you can’t run a society with our present levels of complexity on a much lower ‘net energy’. We must dress down. No profit in that, sorry.

We built what we have now with oil at an EROEI of 100:1. There are no forms of energy left that come remotely close, including new, unconventional, forms of oil itself. Peak oil has been a much maligned and misunderstood concept, but its essence stands: when it takes more energy to ‘produce’ energy than it delivers, there will be no production.

This graph is a few years old, and wind and solar may have gained a few percentage points in yield, but it’s still largely correct. And it will continue to be.

 

 

We have done with all that free energy what all other life forms do when ‘gifted’ with an excess of available energy: spend it as fast as possible, proliferate to speed up the process (we went from less than 1 billion people to 7 billion in under 200 years, 2 billion to 7 billion in 100 years) and, most of all, waste it.

Ever wonder why everybody drives a car that is ten times heavier then her/himself and has a 10% efficiency rate in its energy use? Why there’s an infrastructure everywhere that necessitates for every individual to use 1000 times more energy than it would take herself to get from A to B on foot? Sounds a lot like deliberately wasteful behavior, doesn’t it?

The essence here is that while we were building this entire wasteful world of us, we engaged in the denying and lying behavior that typifies us as a species more than anything: we disregarded externalities. And there is no reason to believe we would not continue to do just that when we make the illusionary switch to ‘clean’ energy.

To begin with, the 2nd law of thermodynamics says there’s no such thing as clean energy. So stop using the term. Second, that we call wind and solar ‘clean energy’ means we’re already ignoring externalities again. We pretend that producing windmills and solar panels does not produce pollution (or we wouldn’t call it ‘clean’). While enormous amounts of carbon are used in the production process, and it involves pollution, loss of land, loss of life, loss of resources (once you burn it it’s gone).

 

An example: If we want to ‘save’ the earth, we would do good to start by overthrowing the way we produce food. It presently easily takes more than 10 calories of energy -mostly carbon- for every calorie of food we make. Then we wrap it all in (oil-based) plastic and transport it sometimes 1000s of miles before it’s on our plates. And at the end of this process, we will have thrown away half of it. It’s hard to think of a more wasteful process.

It’s a process obviously devised and executed by idiots. But it’s profitable. There is a profit to be made in wasting precious resources. And there is a key lesson in that. There is no profit in producing food in a more efficient way. At least not for the industries that produce it. And perhaps not even for you, if you produce most of your food – it takes ‘precious’ time.

It would still be hugely beneficial, though. And there’s the key. There is no direct link between what is good for us, and the planet, on the one side, and profit, money, on the other. What follows from that is that it’s not the people whose entire lives are centered around money who are the most obvious choices to ‘save the planet’. If anything, they are the least obvious.

But in an economic and political system that is itself as focused on money as ours is, they are still the ones who are allowed to assume this role. It’s a circle jerk around, and then into, a drain.

 

Mankind’s only chance to not destroy its planet lies in diverging from all other species in that not all energy available to it, is used up as fast as possible. But that’s a big challenge. It would, speaking from a purely philosophical angle, truly separate us from nature for the first time ever, and we must wonder if that’s desirable.

We would need to gain much more knowledge of who we are and what makes us do what we do, and why. But that is not going to happen if we focus on making a profit. Using less energy means less waste means less profit.

Yes, there may be energy sources that produce a bit less waste, a bit less pollution, than those that are carbon based. But first, our whole infrastructure has been built by carbon, and second, even if another energy source would become available, we would push to grow its use ever more, and end up initially in the same mess, and then a worse one.

 

 

I stumbled upon an excellent example of the effects of all this today:

The Shattering Effect Of Roads On Nature

Rampant road building has shattered the Earth’s land into 600,000 fragments, most of which are too tiny to support significant wildlife, a new study has revealed. The researchers warn roadless areas are disappearing and that urgent action is needed to protect these last wildernesses, which help provide vital natural services to humanity such as clean water and air. The impact of roads extends far beyond the roads themselves, the scientists said, by enabling forest destruction, pollution, the splintering of animal populations and the introduction of deadly pests.

An international team of researchers analysed open-access maps of 36m km of road and found that over half of the 600,000 fragments of land in between roads are very small – less than 1km2. A mere 7% are bigger than 100km2, equivalent to a square area just 10km by 10km (6mi by 6 mi). Furthermore, only a third of the roadless areas were truly wild, with the rest affected by farming or people.

The last remaining large roadless areas are rainforests in the Amazon and Indonesia and the tundra and forests in the north of Russia and Canada. Virtually all of western Europe, the eastern US and Japan have no areas at all that are unaffected by roads.

 

 

It’s a good example because it raises the question: how much of this particular issue do you think will be solved by the promotion of electric cars, or windmills? How much of it do you think can be solved for a profit? Because if there’s no profit in it, it will not happen.

One more for the philosophy class: I know many people will be inclined to suggest options like nuclear fusion. Or zero point energy. And I would suggest that not only do these things exist in theory only, which is always a bad thing if you have an immediate problem. But more than that: imagine providing the human race with a source of endless energy, and then look at what it’s done with the free energy available to it over the past 10 generations.

Give man more energy and he’ll just destroy his world faster. It’s not about carbon, it’s about energy and about what you yourself do with it. And no, money and profit will not reverse climate change, or any other detrimental effects they have on our lives. They will only make them worse.

Feb 012016
 
 February 1, 2016  Posted by at 8:21 pm Finance Tagged with: , , , , , , , ,  2 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Konstantinos Polychronopoulos 2016

Time does indeed fly; I’ve already been back in Athens for a week, but I still haven’t told you about it -a nasty flu now in its 4th day is a partial excuse-, and also haven’t even written the story of my last trip in Nov-Dec. Don’t think it’s Zika, though that’s a weird story; from what I gather someone was testing a GMO fly back in the Caribbean that caused this mutation and now someone wants to fight it with another GMO fly?! Ain’t we smart.

Anyway, the stunning generosity of the Automatic Earth readers left me no choice but to visit the city again so soon, really. Which is I think a really good thing.

I wrote an article on December 22 2015, An Urgent Christmas Call To The Finance Blogosphere. There has been close to no reaction from rest of that blogosphere, to my -just a tad disgruntled- surprise, but a lot from our own readers.

In the article, I made an appeal for help for the work of my new best friend Kostas (Konstantinos Polychronopoulos), who has devoted his entire life to helping the poor and homeless of Athens (an ever faster ever growing group of people), starting with providing at least a decent meal. I first talked about Kostas’ work in July just after I first met him in AE for Athens Fund 2nd Donation: The Man Who Cooks In The Street.

In that follow-up, An Urgent Christmas Call To The Finance Blogosphere, I said:

I was saying before how ‘The Other Human’ [O Allas Anthropos] social kitchen had grown at least 5-fold. That is a bit of an understatement. There are now 5 different ‘kitchen teams’ running (vs 1-2 before), and they hand out over 3000 meals a day today instead of the 300 earlier in the year. There simply is that much need. The Greeks themselves are getting poorer, fast, and refugees have become a major ‘target’ group as well. Kostas began running operations on Lesbos over the summer, and has a team in place there now as well as on Salimani island and 3 different locations in the Athens area. And there’s no doubt he would like to do more.

Before, costs would be covered by food donations and sympathizers giving €5 or €10 a month from what little they have. Between pensions cuts, pay cuts and capital controls, the number of Greeks who have next to nothing rises fast. It’s no exception for former supporters to now come to rely on Kostas for their own food. Nor is it exceptional for grandmothers to still insist on giving $5 from the €400 that’s all that’s left of their pension. Greeks do solidarity well.

But the numbers are getting out of hand, so many people need help, and it promises to get much worse in 2016, looking at the new austerity measures the troika is forcing upon the country, and the expected numbers of refugees arriving. The donations that used to run ‘The Other Human’ are simply not enough to cover operations any longer, let alone expand them where most needed.

And while the €1000 I donated earlier this year went a -relatively- long way, the second €1000, though at least as much appreciated, won’t go nearly as far. When I was told ‘The Other Human’ have been forced to cancel some cooking events now -for the cold and hungry homeless, for crying out loud, who are increasingly people that used to have jobs and homes and all until recently-, simply because they can’t afford to feed the poor, that actually hurt, and stung. That felt personal.

Turns out, since then, more has been added (‘the need is so great’). As per a quite hilarious email from Kostas 10 days ago, when I hadn’t arrived in Greece yet:

My friend Raul; By Wednesday I am here and the kitchen of lesbian, hope to see a third or fourth. Tells other people that the social kitchen has grown, we speak has seven and prepared in other two cities in Greece.

Yeah, that made me laugh. Still don’t know if he intended that ‘lesbian kitchen’ thing. He did seem to find it awfully funny when I remarked on it, though, in person the other day. On a more serious note, what he’s saying is that in the past month, he went from 5 to 7 social kitchens, and is adding 2 more. Or trying to.

‘That Wednesday’ was 5 days ago. We had a meeting then with a few people to coordinate how we’re going to make the entire situation as clear and transparent as we can to you, Automatic Earth readers, who’ve already donated over another $8000 (!) -it’s truly stunning- since December 22 (on top of the first AE for Athens fund I started in spring 2015, for which $12,000 came in and which has $7000 left in it).

Allow me to repeat: I never had the slightest idea, I thought I’d get a few hundred bucks when I first brought this up, in spring 2015, even before I met Kostas, and that’d be it. It’s more humbling than I can put into words to have you trust me with so much. There’s not an inch of me that isn’t constantly aware of that.

Those kind of amounts take it from being something nice, to being a serious responsibility, in my view. And Kostas agrees completely. So this Wednesday we’re going to have a big gathering with lots of the people who work for ‘The Social Kitchen’, in the various locations the organization operates in, have a big get-together, take lots of pictures, hopefully have a party -which all the volunteers truly deserve-, and exchange more detailed information.

Moreover, we’re going to -try to- spell out exactly -up to a point- what your money is being spent on. And, of course, talk about what we can do to increase the funding, and -especially- how to make it more structural -once every week, month or year-. I realize full well that there is a limit to what the Automatic Earth and its readers can do, but I guess we’re simply going to keep pushing with what we have, and see where it ends.

I don’t know enough about crowdfunding and crowdsourcing and the like to get that up and going with enough confidence in either the outcome or the process itself -but I’m very open to suggestions-, and I apparently don’t know enough about how to get the rest of the finance blogosphere going either. What a shame, there’s so much money on the one side, and so much need on the other. But that doesn’t mean I intend to stop pushing.

More on Kostas and O Allas Anthropos later this week. There are a few other things I would like to share with you. First, something I noticed last month in supermarkets here -the ones I see in the center are not all that big-, that flashed a big red sign and made me think of Eastern European stores I’ve seen.

Troika-imposed austerity and taxes have had a double whammy impact. People have much less to spend on basic needs, and what is still available has become expensive, even in western European terms. So what you get is a lot of empty shelves:

I’ve seen stores where I swear I saw half the employees being busy making those shelves look less empty by spreading what is still for sale, across the empty spaces. At least these people still have a job, though I must wonder what they pay.

Those are pictures I took in December, of something I don’t remember seeing in June/July on my first trip here. I was in a large Carrefour -major French chain- supermarket where I didn’t take pictures, and it was even more evident there. Empty shelves. Near to the center of a large city in the western world.

Then, there’s another organization that I need to tell you about, since I donated $1000 of your money to it, from the AE fund for Athens that I started with last spring.

I was introduced by a friend to Myrto Lemos, a woman who started doing field work in New York City in the late 1970s (she must be in her 70s now). Upon her return to Athens in the 1980s, she began working with -‘socially excluded’- street children in central Athens’ poorest areas, specifically those from Greek muslim and Roma backgrounds. In 1997, she established the Support Center for Children and Families for them. It is run -as so many things are in Greece these days- entirely by volunteers.

Here’s Myrto with Kostas, I didn’t know they knew each other, and neither did the people who introduced me to her, but turned out they did:

The children Myrto has devoted her whole life to -I have so much admiration for people with that dedication- would typically sell flowers, balloons and trinkets on the street all day every day (for generations, basically), there was never a culture of going to school or anything like that. Myrto decided it was time to change that.

And she did. The best example, I found, was a young girl who now works as a social worker at the Support Center, but who had never even been to school before the age of 12, who couldn’t read or write, nothing. And now there she is on the left answering the phone, a fully educated social worker (imagine how proud Myrto is):

The Center provides food (a big thing) and education for the children, makes sure they go to school, and gives -badly needed- social and legal help to their families (where no-one can read or write). I’ve got to say, to me, this was an entirely unexpected corner of society, and the needs existing within it.

But Athens, and Greece in general, have of course been on a crossroads of cultures and societies for thousands of years, so it should be no surprise to find parts of them anchored -left behind?!- inside the city, albeit largely forgotten.

Greece is known as one of the best educated countries on the planet – though that can’t possible have improved over the past 5-10 austerity years-, and then you still find entire cultures that never went to school. Ironically, it’s the austerity policies that force more of these kids back out into the streets peddling their trinkets and not attending school, just so their families can eat. A major issue and worry for Myrto, who wants them at school.

Here’s the pretty much nondescript building the Center is housed in at the corner of Aristonos 6-8 & Pierias, Kolonos:

Plus, the lovely grand map of the world that covers an entire wall in one of the homework rooms, with divers and dolphins and kangaroos and elephants and turtles and whales and hidden treasures, what a great way to learn about the world you live in, when no-one ever told you:

And the inevitable lovely adorable far too cute and far too smart little girl doing her homework, who, lest we forget, if not for Myrto would probably have been peddling balloons on the streets -or worse- without ever having learned to read or write, for the rest of her life. Now, she has a shot at being a person, a woman in her own right.

It’s an honor and a privilege to be able to meet these people, and be able to do something very useful for them, thanks to you, Automatic Earth readers.

I see so much passing by each and every day in the financial press about allegedly successful people, and what makes them successful, and it’s always about the amount of money they make or have made.

But for me, success is defined by what a person does for others, it’s about helping people, not helping yourself. And I, through a twist of fate I had never planned or even imagined, get to meet these people here in a pretty much derelict society, where not much runs any longer as it once did, and where worse is on the horizon.

And that’s where you get to see who people really are, where you find people who say: ‘it’s not about me’. In the world of finance, it’s always only about ‘me’, and about money, and the seemingly unbreakable umbilical cord between the two.

Do you think the markets are going to rise? Here’s how to make money. Do you think they will fall? Here’s how to make money off of that. It’s all only about me and my money, but it’s a life that’s barely even breathing, and barely moving at that, a bunch of automatons thinking they prove their smarts if they pick the ‘right’ swing of a one-dimensional pendulum.

If that’s all people are about, and what you and I are about, why bother? Just so maybe one day we can sit our asses down at a pool in the Caribbean and say ‘we got it made’, while millions of others elsewhere in the world grovel in the dirt and wind up burying the children they love, in that same dirt?

It’s the quintessential difference between what you have and what you are. And about who has sufficient faith in what they are, and doesn’t feel the need to hide behind what they have. Who doesn’t think that if the whip comes down and the whole debt circus tent gets blown away in a wicked storm, they’ll still be fine if only they bought enough gold or bitcoin or whatever in advance.

But that’s a hard nut to crack in today’s world. So we’ll instead let it seep in drop by drop. Same difference. Though that’ll still be denied too.

If in the meantime, sorry but my cold won’t let me do much of anything right now, you want to contribute to the Social Kitchen project, the way to do it is still through the Automatic Earth‘s Paypal widget, top left hand corner of every page. Amounts ending in $0.99 or $0.37 go towards the Social Kitchen, others towards supporting the Automatic Earth (which is also highly needed, and without which we couldn’t do the whole thing, regardless.)

Now if you’ll excuse me, I’m going to find myself a hole to reside in until my cold is over. And I’ll be back with more on this later in the week.

Dec 182015
 
 December 18, 2015  Posted by at 6:15 pm Finance Tagged with: , , , , , ,  9 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


DPC Times Square seen from Broadway 1908

I was reading something yesterday by my highly esteemed fellow writer Charles Hugh Smith that had me first puzzled and then thinking ‘I don’t think so’, in the same vein as Mark Twain’s recently over-quoted quote:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

I was thinking that was the case with Charles’ article. I was sure it just ain’t so. As for Twain, I’m more partial to another quote of his these days (though it has absolutely nothing to do with the topic:

“Eat a live frog first thing in the morning, and nothing worse will happen to you the rest of the day.”

Told you it had nothing to do with anything.

Charles’ article deals with money supply and the velocity of money. Familiar terms for Automatic Earth readers, though we use them in a slightly different context, that of deflation. In our definition, the interaction between the two (with credit added to money supply) is what defines inflation and deflation, which are mostly -erroneously- defined as rising or falling prices.

I don’t want to get into the myriad different definitions of ‘money supply’, and for the subject at hand there is no need. The first FRED graph below uses TMS-2 (True Money Supply 2 consists of currency in circulation + checking accounts + sweeps of checking accounts + savings accounts). The second one uses M2 money stock. Not the same thing, but good enough for the sake of the argument.

In his piece, Charles seems to portray the two, money supply and velocity of money, as somehow being two sides of the same coin, but in a whole different way than we do. He thinks that the money supply can drive velocity up or down. And that’s where I think that just ain’t so. I also think he defeats his own thesis as he goes along.

Before going into details, two things: One, he doesn’t mention the term deflation even once, though he shows money velocity has been going off a cliff like a mountain range and a half full of lemmings. I find that curious.

Two, he doesn’t mention consumers in the context. That can’t be right either. 70% of US GDP is consumers. You can’t ignore that. You can’t just look at financial markets, at investors, even though they use up most of the stimulus, and think they are the main factor determining money velocity. Not when they’re less than a third of GDP.

Moreover, and this I think is crucial, the velocity of money talks to you about consumers in a way that the money supply never could.

There may be ‘positive’ reports coming out of the BLS on jobs numbers, but with 94+ million Americans not in the labor force, with the quality of jobs diminishing so fast and so profoundly that the middle class is all but disappearing, and with 40+ million US citizens on foodstamps, the impact of the deteriorating spending power of ‘consumers’ on money velocity had to be so enormous you can’t ignore them.

Simply because if and when people have a lot less to spend, velocity comes down. That there is even the very heart of deflation. Here’s Charles with my comments:

Money Velocity Is Crashing – Here’s Why

The inescapable conclusion is that Fed policies have effectively crashed the velocity of money.

I’ll get back to that, but no, it is not true.

That the velocity of money has been crashing while the money supply has been exploding doesn’t seem to bother the mainstream pundits. There is always a fancy-footwork explanation of why whatever is crashing no longer matters. Take a look at these two charts and tell me money velocity doesn’t matter.

No argument about that from me.

First, here’s money supply: notice how money supply leaped from 2001 to 2008 as the Federal Reserve pumped liquidity and credit into the economy, and then how it exploded higher as the Fed went all in after the Global Financial Meltdown.

Now look at a brief history of the velocity of money. There are various measures of money supply and various interpretations of velocity, but let’s set those quibbles aside and compare money velocity in the “golden era” of the 1950s/1960s and the stagflationary 1970s to the present era from 2008 to 2015-the era of “growth”:

Notice how the velocity of money remained in a mild uptrend during both good times and not so good times. The inflationary peak of 1979-1982 (Treasury yields were 16% and mortgages were 18%) generated a spike, but velocity soon returned to its uptrending channel. The speculative excesses of the dot-com era pushed velocity to unprecedented heights.

Given the extremes in velocity, it is unsurprising that it quickly fell in the dot-com bust. The Federal Reserve launched an unprecedented expansion of money, credit and liquidity that again pushed velocity up in the speculative frenzy of the housing bubble. But note that despite the vast expansion of money supply, the peak in the velocity of money was considerably lower than the dot-com peak.

OK, that’s the core of why I started thinking I was sure it just ain’t so. What Charles asserts here is that an expansion of the money supply lifts the velocity of money. In other words, that the velocity of both the pre-existing supply AND the additional supply increases as more supply is added. Even BECAUSE it is added. The more money, the faster it moves. The bigger you get, the faster you run.

And I don’t see that. To me, it’s counterintuitive. This implied correlation does not exist. The velocity of money doesn’t rise when you pump more of it into an economy, it rises because people feel more confident about spending it. For whatever reason that may be.

What’s happening today, and what Charles neglects to mention, is that huge amounts of Americans simply no longer have money to spend. And no matter how much extra is pumped in through QE, it fails to reach them. Moreover, they’re all maxed out on debt. So even if they would get some extra, it would go towards debt repayment. And it does.

That’s what the money velocity graph tells us. Velocity began to tank around 1997, and apart from the housing bubble borrowing boom, has kept tanking until now. Beware of the differences between the graphs: the first one, money supply, runs from 1986 to 2015, while the second one, velocity, covers 1960 to 2015. So you can focus on the second part of graph no.2 to get them to line up.

And the first growth spurt in the velocity graph doesn’t correspond with a similar spurt in supply. In fact, the correlation looks pretty much inverse: the more supply, the less velocity. Apart from the housing casino boom blip perhaps. Which Charles attempts to address next:

Since the collapse of that speculative bubble, the Fed’s all-in expansion of money, credit and liquidity has failed to stem the absolutely unprecedented collapse of money velocity. Clearly, expanding money, credit and liquidity no longer generates any velocity.

That’s because it never has. Expanding money, credit and liquidity has never generated any velocity. It’s always been only about confidence – and private debt levels.

Rather, the inescapable conclusion is that Fed policies have effectively crashed the velocity of money.

No, that conclusion is not just not inescapable, it’s flat out wrong. Unless perhaps you would mean that the policies have greatly impoverished the consumer, but that’s not what Charles is saying. He doesn’t mention consumers. His point seems to be that in earlier days, increases in supply did indeed lead to increases in velocity, ostensibly in the financial world.

To the extent that policies, Fed or otherwise, have tempted Americans to enter the ‘investment casino’, one might claim that down the road, such policies have crashed velocity. But the money supply was not rising all that much when the dot.com bubble was happening, and when the real big supply kahuna came, velocity crashed.

Not because of Fed policies, but because of debt, and of people being maxed out. And one could, if one were inclined to do so, blame that as much on the repeal of Glass-Steagall as on the Fed.

How is this possible? Longtime correspondent Eric A. proposed an insightful explanation. Here is Eric’s commentary:

“You know how you say that the economy is locked up in fiefdoms, and they’re picking winners and losers, as part of colluding the prices? Well this adjustment of prices locks out certain people, like say, the young from housing. So houses don’t sell, they stagnate. But what are we really looking at? Velocity.

Velocity is an indicator that buyers and sellers agree on a price, that the price is “right” and not an outlier. That’s why you see a stock move on high volume “confirming” the move, because it means the price wasn’t “right” at the previous level, while more people agree the new price is fair.

If prices are allowed to go where they need to without pressure and manipulation, you will always have velocity, as the most buyers and sellers will always agree at some price. Because this is true, low velocity cannot happen in a free market.

That is half right, but only half. because it suggests that there’s always a price at which people will buy. There isn’t if people have no money to buy with. That’s why the housing market crashed the way it did, and would be much worse to this day without ZIRP tempting people once more into foolish purchases (foolish because ZIRP distorts markets, but can’t do that forever).

Which means the only reason for low velocity (in this or the previous Depressions) is that someone has somehow managed to get an edge that prevents them from selling, from liquidating, at the true price, i.e. the one the buyers will agree to.

This has another corollary, that the measure of velocity on the Fed’s own chart is the measure of the level of unnatural price manipulation on the market. We can watch this aggregate indicator of their failure in real time, by the Fed’s own hand, and we can know the manipulation is ending when it rises.

Sort of right, but… You can’t even begin to understand the velocity of money without including what consumers have to spend. That’s essentially what the velocity of money measures. What they have to spend plus how confident they are of having it to spend (again) tomorrow.

And you can throw in price manipulation, but that’s not the core, though it can’t be said to have zero influence. What’s certain is that the connection to Fed policies is very weak, if not tenuous. The Fed didn’t blow the housing bubble (money supply remained just about flat from 2005-2008), politics did.

So yes, the Fed, the governments, the insiders can manipulate to their heart’s content, as they’ve been doing, but that unnatural pressure goes somewhere. And the pressure diverts into velocity. As we saw in the Great Depression, or the Roman Empire, velocity can stagnate for 10, 20, or 1,000 years until the manipulation ends, property rights are restored, and we have a free market. History has shown that may be a bargain they’re willing to make, but it won’t do the rest of us a lot of good.”

Sounds about right, but ignores the role of millions of Americans with nothing left to spend. To repeat: 94+ million Americans not in the labor force, the quality of jobs diminishing so fast and so profoundly that the middle class is all but disappearing, and 40+ million US citizens on foodstamps.

There’s what’s the velocity of money graph reflects. And that part of that is due to manipulation, sure. But without including debt, the whole argument rings kind of hollow.

Thank you, Eric, for an explanation that intuitively rings true. Manipulating the PR optics (i.e. perception management) as a substitute for an open market doesn’t make you omnipotent, it makes you a hubris-soaked fool.

No argument on the last sentence, but that is not the core of what ‘just ain’t so’ here. You essentially can’t tell anything from the US velocity of money without looking at the American people.

Velocity of money does not rise because -or when- the money supply does, it rises when consumer spending does. And that happens when people feel confident. No additional supply is needed for that, just for money to move faster. And money doesn’t move faster just because -or when- there’s more of it.

Aug 152015
 
 August 15, 2015  Posted by at 1:54 pm Finance Tagged with: , , , , , , ,  13 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Gustave Doré Dante and the Angel of the Church before the Door of Purgatory 1868

We’re going to try something a little different. Nicole wrote another very long article and I suggested publishing it in chapters; this time she said yes. So in the next five days we will post five different chapters of the article, one on each day, and then on day six the whole thing. That way, you will have some time left over to spend with your families… 😉

Just so there’s no confusion: the article, all five chapters of it, was written by Nicole Foss. Not by Ilargi.


Intro

A great deal of intelligence is invested in ignorance when the need for illusion is deep.
Saul Bellow, 1976

More and more people (although not nearly enough) are coming to recognise that humanity cannot continue on its current trajectory, as the limits we face become ever more obvious, and their implications starker. There is a growing realisation that the future must be different, and much thought is therefore being applied to devising supposed solutions for that future. These are generally attempts to reconcile our need to make changes with our desire to continue something very much resembling our current industrial-world lifestyle, with a view to making a seamless transition between the now and a comfortably familiar future. The presumption is that it is possible, but this rests on foundational assumptions which vary between the improbable and the outright impossible. It is a presumption grounded in a comprehensive failure to understand the nature and extent of our predicament.

We are facing limits in many ways simultaneously – not surprising since exponential growth curves for so many parameters have gone critical in recent decades, and of course even more so in recent years. Some of these limits lie in human systems, while others are ecological or geophysical. They will all interact with each other, over different timeframes, in extremely complex ways as our state of overshoot resolves itself (to our dissatisfaction, to put it mildly) over many decades, if not centuries. Some of these limits are completely non-negotiable, while others can be at least partially mutable, and it is vital that we know the difference if we are to be able to mitigate our situation at all. Otherwise we are attempting to bargain with the future without understanding our negotiating position.

The vast majority has no conception of the extent to which our modernity is an artifact of our discovery and pervasive exploitation of fossil fuels as an energy source. No species in history has had easy, long term access to a comparable energy source. This unprecedented circumstance has facilitated the creation of turbo-charged civilization.

Huge energy throughput, in line with the Maximum Power Principle, has led to tremendous complexity, far greater extractive capacity (with huge ‘environmental externalities’ as a result), far greater potential to concentrate enormous power in the hands of the few with destructive political consequences), a far higher population, far greater burden on global carrying capacity, and the ability to borrow from the future to satisfy the insatiable greed of the present. The fact that we are now approaching so many limits has very significant implications for our ability to continue with any of these aspects of modern life. Therefore, any expectation that a future in the era of limits is likely to resemble the present (with a green gloss) are ill-founded and highly implausible.

The majority of the Big Ideas with which we propose to bargain with our future of limits to growth rests on the notion that we can retain our modern comforts and conveniences, but that somehow we will do so with far less resource use, and with a fraction of the energy we currently employ. The most mainstream discussions revolve around ‘green growth’, where it is suggested that eternal economic growth can occur on a finite planet, and that we will magically decouple of that growth from the physical basis upon which it rests. Proponents argue that we have already accomplished this to an extent, as the apparent energy intensity of developed state economies has fallen.

In actuality, all that has happened is that the energy deployed to provide developed world comforts has been used in the emerging markets where goods destined for our markets are manufactured, so that the consumption falls within someone else’s energy budget. In reality there has been no decoupling at all. Economic growth requires energy, and there is an exceptionally high correlation between the two. Even the phantom growth of the bubble era, based on the expansion of virtual wealth, requires energy in order to maintain the complexity of the system that generates it.

It is crucial that we understand the boundaries of solution-space, in order to be able to focus our finite resources (in every sense of the word) on that which is inherently workable, at least in theory. ‘Workable In theory’ implies that, while there is no guarantee of success given a large number of unpredictable factors, there is also no obvious prima facie barrier to success. If, however, we throw our resources at ideas that are subject to such barriers, and therefore lie beyond solution space, we guarantee that those initiatives will fail and that the resources so committed will have been wasted. It is important to note that ‘success’ does not mean being able to maintain anything remotely resembling business as usual. It refers to being able to achieve the best possible outcome under the circumstances.

Sculptors work by carving away excess material in order to reveal the figure within the block they are working with. Similarly, we can carve away from the featureless monolith of conceivable approaches those that we can see in advance are doomed to fail, leaving us with a figuratively coherent group of potentially workable ideas. In order to carve away the waste material and get closer to a much smaller set of viable possibilities, we need to understand some of the non-negotiable factors we will be facing, each of which has implications restrictive of viable solution space. Many of these issues are the fundamental substance of the message we have been propagating at the Automatic Earth since its inception and will therefore constitute a review for our regular readership. For more detail on these topics, check out our primers section.


Global Financial Crisis – Liquidity Crunch and Economic Depression

As we have maintained since the Automatic Earth’s launch in early 2008, we have lived through a gigantic monetary expansion over the last 30 years or so –  the largest financial departure from reality in human history. In doing so we have created a crisis of under-collateralization. This period was highly inflationary, as we saw a vast increase in the supply of money and credit versus available goods and services. Both currency printing and credit hyper-expansion constitute inflation, but the outcome, and therefore prescription, for each is very different. While currency printing cuts the real wealth pie into many more pieces, each of which will be very small, credit expansions such as this one create multiple and mutually exclusive claims to the same pieces of pie, hence we have generated a vast quantity of excess claims to underlying real wealth.

In other words, we have created a bubble of virtual wealth, with no substance to back up the pile of promises to repay that it rests upon. As we have said before, this amounts to playing a giant game of musical chairs where there is perhaps one chair for every hundred people playing the game. When the music stops, those best positioned to understand the rules of the game will grab a chair as quickly as possible. Everyone else will be out of the game. The endgame of credit expansion is always a credit implosion, where the excess claims are rapidly and messily extinguished. This is, of course, deflation by definition – a contraction in the supply of money and credit relative to available goods and services – through the collapse of the credit supply, where credit is of the order of 99% of the effective money supply.

A credit implosion crashes both the money supply and the velocity of money – the rate at which money circulates in the economy. Together these factors determine how much economic activity can be sustained. With both the money supply and the velocity of money very low, a state of liquidity crunch exists, where there is insufficient liquidity in the economy to connect buyers and sellers, or producers and consumers. Nothing moves, so there is little or no economic activity. Note that demand is not what one wants, but what one can pay for, so with little purchasing power available, demand will be very low under such circumstances.

During the expansion, both the money supply and the velocity of money increased dramatically, and the resulting artificial stimulation of demand led to an increase in supply, with the ability to sustain a much larger than normal amount of economic activity. But once the limit is reached, where all the income streams of the productive economy can no longer service the debt created, and there are no more willing borrowers or lenders, the demand stimulation disappears, leaving a great deal of supply without a market. The demand that had been effectively borrowed from the future, must be ‘repaid’ once the bubble bursts, leading to a prolonged period of low demand. The supply that had arisen to service it no longer has a reason to exist and cannot be maintained.

The economy moves into a period of seizure under such cIrcumstances. We have frequently compared attempting to run an economy with too small a money supply in circulation to trying to run an automobile with the oil warning light on, indicating too little lubricant. Engines seize up when run with too little lubricant, a role played by money in the case of the engine of the economy. The situation created can also be compared to a computer operating system crash, where nothing functions until the system has been rebooted. During the Great Depression of the 1930s, people noted that they had plenty of everything except money. Liquidity crunch creates a condition of artificial scarcity, where even being surrounded by resources is of little use for a period of time once the operating system has crashed and has yet to be ‘rebooted’.

We will be looking at a period of acute liquidity crunch followed by a long period of chronic financial instability. The initial contraction will be driven by fear and that fear will persist for a long time. This will result in little credit being made available, and only at high cost. In other words, interest rates, which are a risk premium, will be very high as we move beyond the initial phase of contraction and fear is in the drivers seat. Deflation and economic depression are mutually reinforcing, hence once that downward spiral, or vicious circle, dynamic has taken hold, we will remain in its grip for many years.

Given that the cost of capital will be very high, and there will be little purchasing power, proposed solutions which are capital-intensive will lie outside solution space.

Tune back in tomorrow for The Psychological Driver of Deflation and the Collapse of the Trust Horizon .

Mar 312015
 
 March 31, 2015  Posted by at 8:30 pm Finance Tagged with: , , , ,  19 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Gottscho-Schleisner Plaza buildings from Central Park, NY 1933

Who knew that the revolution would start with those radical Icelanders? It does, though. One Frosti Sigurjonsson, a lawmaker from the ruling Progress Party, issued a report today that suggests taking the power to create money away from commercial banks, and hand it to the central bank and, ultimately, Parliament.

Can’t see commercial banks in the western world be too happy with this. They must be contemplating wiping the island nation off the map. If accepted in the Iceland parliament , the plan would change the game in a very radical way. It would be successful too, because there is no bigger scourge on our economies than commercial banks creating money and then securitizing and selling off the loans they just created the money (credit) with.

Everyone, with the possible exception of Paul Krugman, understands why this is a very sound idea. Agence France Presse reports:

Iceland Looks At Ending Boom And Bust With Radical Money Plan

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

According to a study by four central bankers, the country has had “over 20 instances of financial crises of different types” since 1875, with “six serious multiple financial crisis episodes occurring every 15 years on average”. Mr Sigurjonsson said the problem each time arose from ballooning credit during a strong economic cycle.

He argued the central bank was unable to contain the credit boom, allowing inflation to rise and sparking exaggerated risk-taking and speculation, the threat of bank collapse and costly state interventions. In Iceland, as in other modern market economies, the central bank controls the creation of banknotes and coins but not the creation of all money, which occurs as soon as a commercial bank offers a line of credit. The central bank can only try to influence the money supply with its monetary policy tools.

Under the so-called Sovereign Money proposal, the country’s central bank would become the only creator of money. “Crucially, the power to create money is kept separate from the power to decide how that new money is used,” Mr Sigurjonsson wrote in the proposal. “As with the state budget, the parliament will debate the government’s proposal for allocation of new money,” he wrote.

Banks would continue to manage accounts and payments, and would serve as intermediaries between savers and lenders. Mr Sigurjonsson, a businessman and economist, was one of the masterminds behind Iceland’s household debt relief programme launched in May 2014 and aimed at helping the many Icelanders whose finances were strangled by inflation-indexed mortgages signed before the 2008 financial crisis.

Jan 112015
 
 January 11, 2015  Posted by at 9:22 pm Finance Tagged with: , , , , , ,  6 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Ann Rosener Reconditioning spark plugs, Melrose Park Buick plant, Chicago 1942

We need to do a lot more thinking, and take a far more critical look at ourselves, than we do at present. We’re not even playing it safe, we’re only playing it easy. And that’s just not enough. The marches in Paris and numerous other cities today were attended by people who mean well, but who should ask themselves if they want to be part of what was predictably turned into a propaganda event by ‘world leaders’. One thing is for sure; the murdered Charlie Hebdo staff would not have approved of it.

The leaders hark back to usual suspect slogans like we defend ‘Liberty’, ‘Freedom of Expression’ and ‘Our Values’. But we can’t turn our backs on the fact that ‘our values’ these days include torture and other fine ‘tactics’ that make people in other parts of the world turn their backs on us. We might want – need – to march to express our feelings about torture executed in our name, as much as to express our horror at cartoonists we never heard of being the target of automatic weapons.

There are major armed conflicts going on in 6 different Arab countries, and ‘we’ play a part in all of them. We get up in the morning and prepare to march against violence in our own streets, but we should perhaps – also – protest the violence committed in our name on other people’s streets just as much. We may feel innocent as we’re marching, but that’s simply because we refuse to look at ourselves in the mirror. And we must be able to do better than that. Both to be the best we can be (which is still a valid goal), and to prevent future attacks.

And that’s not nearly the entire story. Our governments play ‘divide and rule’ both domestically and abroad. They play nations against each other in far away parts of the globe, and poor vs rich and generation vs generation at home. If you want a better world, don’t look at your leaders to make that happen. They like the world the way it is; it got them where they are. Moreover, they’re all beholden to numerous supra-national organizations that are the real power behind the throne across the globe; NATO, IMF, EU, World Bank et al.

If you want a better world, and one in which the risk of attacks like the one this week goes down, you’ll have to look at yourself first, and take it from there. Marching in a mostly self-righteous parade in which the wrong people form the first line is not going to do it. You’re not going to solve this sitting on your couch. Our world is not just financially bankrupt, and in deep debt to boot, it’s also about as morally broke as can be.

We therefore have to rethink our world just about from scratch. Or else. We’ve lived chasing the recovery carrot for years now, but the economy won’t recover; it can’t. There hasn’t been any real growth since at least the 1980s, the only thing there’s been is increasing debt levels that we mistook for growth.

A great first example of how to do this rethinking was provided late last year, and I referred to it before, by UofM Amherst economics professor James K. Boyce:

Protecting Money or People?

Imagine that without major new investments in adaptation, climate change will cause world incomes to fall in the next two decades by 25% across the board, with everyone’s income going down, from the poorest farmworker in Bangladesh to the wealthiest real estate baron in Manhattan. Adaptation can cushion some but not all of these losses. What should be our priority: reduce losses for the farmworker or the baron? For the farmworker, and a billion others in the world who live on about $1 a day, this 25% income loss will be a disaster, perhaps the difference between life and death.

Yet in dollars, the loss is just 25 cents a day. For the land baron and other “one-percenters” in the U.S. with average incomes of about $2,000 a day, the 25% income loss would be a matter of regret, not survival. He’ll find a way to get by on $1,500 a day. In human terms, the baron’s loss pales compared with that of the farmworker. But in dollar terms, it’s 2,000 times larger. Conventional economic models would prescribe spending more to protect the barons than the farmworkers of the world.

It’s how we think. Boyce describes it perfectly. We chase money, no questions asked, and even call it no. 1. And unless we change the way we think, one Manhattan land baron will be saved, and 1000 Bangla Deshi farmers and their entire families will either drown or be forced higher inland, where there are already too many people just like them. A dollar or a person. Our present economic models know which one to choose. But we should have more than mere economic models guide us.

Michael Lewis – yes, him – provides another wonderful example in the New Republic. I tried to make the quote as short as I could, but, hey, Lewis is .. Lewis. The original title was ‘Extreme Wealth Is Bad for Everyone – Especially the Wealthy’ (Getting rich won’t make you happy. But it will make you more selfish and dishonest). The Week turned in into this:

What Wealth Does To Your Soul

When I was 14, I met a man with a talent for restoring a sense of fairness to a society with vast and growing inequalities in wealth. His name was Jack Kenney, and he’d created a tennis camp, called Tamarack, in the mountains of northern New Hampshire. The kids who went to the Tamarack Tennis Camp mostly came from well-to-do East Coast families, but the camp itself didn’t feel like a rich person’s place: It wasn’t unusual for the local health inspectors to warn the camp about its conditions, or for the mother of some Boston Brahmin dropping her child off, and seeing where he would sleep and eat for the next month, to burst into tears.

Kenney himself had enjoyed a brief, exotic career as a professional tennis player — he’d even played a doubles match on ice with Fred Perry – but he was pushing 60 and had long since abandoned whatever interest he’d had in fame and fortune. He ran his tennis camp less as a factory for future champions than as an antidote to American materialism – and also to the idea that a person could be at once successful and selfish.

Jack Kenney’s assault on teenaged American inequality began at breakfast the first morning. The bell clanged early, and the kids all rolled out of their old stained bunk beds, scratched their fresh mosquito bites, and crawled to the dining hall. On each table were small boxes of cereal, enough for each kid to have one box, but not enough that everyone could have the brand of cereal he wanted. There were Froot Loops and Cheerios, but also more than a few boxes of the deadly dark bran stuff consumed willingly only by old people suffering from constipation.

On the second morning, when the breakfast bell clanged, a mad footrace ensued. Kids sprung from their bunks and shot from cabins in the New Hampshire woods to the dining hall. The winners got the Froot Loops, the losers a laxative. By the third morning, it was clear that, in the race to the Froot Loops, some kids had a natural advantage. They were bigger and faster; or their cabins were closer to the dining hall; or they just had that special knack some people have for getting whatever they want. Some kids would always get the Froot Loops, and others would always get the laxative. Life was now officially unfair.

After that third breakfast, Kenney called an assembly on a hill overlooking a tennis court. He was unkempt and a bit odd; wisps of gray hair crossed his forehead, and he looked as if he hadn’t bathed in a week. He was also kind and gentle and funny, and kids instantly sensed that he was worth listening to and wanted to hear what he had to say.

“You all live in important places surrounded by important people,” he’d begin. “When I’m in the big city, I never understand the faces of the people, especially the people who want to be successful. They look so worried! So unsatisfied!” Here his eyes closed shut and his hands became lobster claws, pinching and grasping the air in front of him. “In the city you see people grasping, grasping, grasping. Taking, taking, taking. And it must be so hard! To be always grasping-grasping, and taking-taking. But no matter how much they have, they never have enough. They’re still worried. About what they don’t have. They’re always empty.”

“You have a choice. You don’t realize it, but you have a choice. You can be a giver or you can be a taker. You can get filled up or empty. You make that choice every day. You make that choice at breakfast when you rush to grab the cereal you want so others can’t have what they want.”

On the fourth morning, no one ate the Froot Loops. Kids were thrusting the colorful boxes at each other and leaping on the constipation cereal like war heroes jumping on hand grenades. In a stroke, the texture of life in this tennis camp had changed, from a chapter out of Lord of the Flies to the feeling between the lines of Walden. Even the most fantastically selfish kids did what they could to contribute to the general welfare of the place, and there was not a shred of doubt that everyone felt happier for it. The distinction between haves and have-nots, winners and losers, wasn’t entirely gone, of course. But it became less important than this other distinction, between the givers and the takers.

So far for the Jack Kenney story. Michael Lewis continues:

What is clear about rich people and their money — and becoming ever clearer — is how it changes them. A body of quirky but persuasive research has sought to understand the effects of wealth and privilege on human behavior — and any future book about the nature of billionaires would do well to consult it.

One especially fertile source is the University of California at Berkeley psychology department lab overseen by a professor named Dacher Keltner. In one study, Keltner and his colleague Paul Piff installed note takers and cameras at city street intersections with four-way Stop signs. The people driving expensive cars were four times more likely to cut in front of other drivers than drivers of cheap cars.

The researchers then followed the drivers to the city’s crosswalks and positioned themselves as pedestrians, waiting to cross the street. The drivers in the cheap cars all respected the pedestrians’ right of way. The drivers in the expensive cars ignored the pedestrians 46.2% of the time – a finding that was replicated in spirit by another team of researchers in Manhattan, who found drivers of expensive cars were far more likely to double-park.

In yet another study, the Berkeley researchers invited a cross section of the population into their lab and marched them through a series of tasks. Upon leaving the laboratory testing room, the subjects passed a big jar of candy. The richer the person, the more likely he was to reach in and take candy from the jar — and ignore the big sign on the jar that said the candy was for the children who passed through the department.

Maybe my favorite study done by the Berkeley team rigged a game with cash prizes in favor of one of the players, and then showed how that person, as he grows richer, becomes more likely to cheat. In his forthcoming book on power, Keltner contemplates his findings:

If I have $100,000 in my bank account, winning $50 alters my personal wealth in trivial fashion. It just isn’t that big of a deal. If I have $84 in my bank account, winning $50 not only changes my personal wealth significantly, it matters in terms of the quality of my life — the extra $50 changes what bill I might be able to pay, what I might put in my refrigerator at the end of the month, the kind of date I would go out on, or whether or not I could buy a beer for a friend. The value of winning $50 is greater for the poor, and, by implication, the incentive for lying in our study greater. Yet it was our wealthy participants who were far more likely to lie for the chance of winning fifty bucks.

There is plenty more like this to be found, if you look for it. A team of researchers at the New York State Psychiatric Institute surveyed 43,000 Americans and found that, by some wide margin, the rich were more likely to shoplift than the poor. Another study, by a coalition of nonprofits called the Independent Sector, revealed that people with incomes below 25 grand give away, on average, 4.2% of their income, while those earning more than 150 grand a year give away only 2.7%. A UCLA neuroscientist named Keely Muscatell has published an interesting paper showing that wealth quiets the nerves in the brain associated with empathy.

If you show rich people and poor people pictures of kids with cancer, the poor people’s brains exhibit a great deal more activity than the rich people’s. “As you move up the class ladder,” says Keltner, “you are more likely to violate the rules of the road, to lie, to cheat, to take candy from kids, to shoplift, and to be tightfisted in giving to others. Straightforward economic analyses have trouble making sense of this pattern of results.”

But that wouldn’t work, you think? Not for you, not in today’s world, and certainly not for the political class? Well, we happen to have the example of a real life president of a nation who questions all we tend to think is ‘normal’. Back in October, HuffPo had this portrait of Uruguayan President José Mujica. And please see this against the backdrop of US presidential candidates raising hundreds of millions of dollars even just for their preliminary campaigns.

Mujica says what I often have, that money should be kept out of a political system, because if it isn’t it will end up buying and eating that system whole. Too late for the US and Europe, but perhaps not for Uruguay.

‘World’s Poorest President’ Explains Why We Should Kick Rich People Out Of Politics

People who like money too much ought to be kicked out of politics, Uruguayan President José Mujica told CNN en Español [..] “We invented this thing called representative democracy, where we say the majority is who decides,” Mujica said in the interview. “So it seems to me that we [heads of state] should live like the majority and not like the minority.” Dubbed the “World’s Poorest President” in a widely circulated BBC piece from 2012, Mujica reportedly donates 90% of his salary to charity.

Mujica’s example offers a strong contrast to the United States, where in politics the median member of Congress is worth more than $1 million and corporations have many of the same rights as individuals when it comes to donating to political campaigns. “The red carpet, people who play – those things,” Mujica said, mimicking a person playing a cornet. “All those things are feudal leftovers. And the staff that surrounds the president are like the old court.”

“I’m not against people who have money, who like money, who go crazy for money,” Mujica said. “But in politics we have to separate them. We have to run people who love money too much out of politics, they’re a danger in politics… People who love money should dedicate themselves to industry, to commerce, to multiply wealth. But politics is the struggle for the happiness of all.”

Asked why rich people make bad representatives of poor people, Mujica said: “They tend to view the world through their perspective, which is the perspective of money. Even when operating with good intentions, the perspective they have of the world, of life, of their decisions, is informed by wealth. If we live in a world where the majority is supposed to govern, we have to try to root our perspective in that of the majority, not the minority.”

“I’m an enemy of consumerism. Because of this hyperconsumerism, we’re forgetting about fundamental things and wasting human strength on frivolities that have little to do with human happiness.”

He lives on a small farm on the outskirts of the capital of Montevideo with his wife, Uruguayan Sen. Lucia Topolansky and their three-legged dog Manuela. He says he rejects materialism because it would rob him of the time he uses to enjoy his passions, like tending to his flower farm and working outside. “I don’t have the hands of a president,” Mujica told CNN. “They’re kind of mangled.”

Mujica is the kind of man, make that human being, who should be in charge of all countries. Money and politics don’t mix, or at least not in a democracy. And I don’t see any exceptions to that rule. Mujica is right: if and when the majority of people in a country are poor, which is true just about everywhere, and certainly in the Anglo world and most EU countries, then their president should be poor too.

And inevitably, if you would follow the example of your president, so should his people. Not dirt poor, not starving, just being content with basic necessities for you and your family. And then tend to your flower farm, or your vegetable farm, your kids.

Sounds stupid. I know. But we haven’t had any real growth in decades, and the wizard’s curtain is being lifted on the fake growth we did have since too. So maybe the economy’s not all that cyclical after all, or maybe the cycles are longer than we would like, Kondratieff 70 year like. Or even longer.

Ask anyone if they would like to have $1000, or $10,000 or $1 million or more, and you know that the answer would be. But Michael Lewis shows that none of it would make you any happier, if you already have – or make – enough to survive on. Still, it’s generally accepted that more is always good.

And then you have the president of Uruguay, admittedly a small country and in South America to boot, who says that only poor people can truly represent poor people, who will always be in the majority in whichever country you may live in, and that that is the core of democracy.

Here’s thinking we are absolutely clueless when it comes to the value of wealth, and that we keep chasing more of it because we’re not smart enough to recognize that value. And that that’s why we have torture and wars and all the other things that make us so ugly. We have absolutely no clue what the value of wealth is. And as long as we don’t, we shouldn’t have any.

Dec 282014
 
 December 28, 2014  Posted by at 11:15 pm Finance Tagged with: , , , , , , ,  14 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Unknown GMC truck Associated Oil fuel tanker, San Francisco 1935

America has managed to construct an entirely one-dimensional political system. There’s no discernible difference left between left and right, other than in spin language pre-cooked for the sole purpose of faking the concept of elections. There’s very right and ultra right. America is living proof that once money is allowed into politics, the accumulation of it, and of the power it can buy, will and eventually must fully control a democratic system, which in the process, of necessity, suffocates and dies a painful death.

What once was a proud American democracy has been turned into a circus that rolls into town every four years, filled with clowns that pretend to fight each other with over the top grotesque contraptions, but sleep in the same bed once the show is over and the audience has gone home.

In Europe that process has not yet been completed, but with the inception of the EU it is well on its way. It is a predictable process, in that the concentration of power, and of money, is irreversible as long as it’s allowed to continue its course, and the system succeeds in making people believe they still have a say in their own lives. As long as that belief is in place, it’s just an ongoing – relatively – slow corrosion that sets in and then takes its time, but never stops.

Control of the media is an obvious key element of this process, and surprisingly easy to obtain; you’d be inclined to think people would fight harder for their access to real life information. They don’t. As I said two days ago in 2014: The Year Propaganda Came Of Age, that’s what the Ukraine situation has taught me. It’s shown me how far ahead we are, not just stateside, but all over Europe as well, in living up to George Orwell’s visions. As far as I’m concerned, if Eric Blair had named his book 2014, he’d have been dead on. 2014 was the year, much more than 1984. But I don’t blame him: how was he supposed to oversee that in 1948?

Ukraine was the epitomy: no questions asked, just neverending tons of innuendo written and spoken, and a case for which to date no proof has been provided has been firmly decided in the public mind. No due process, no innocent until proven guilty, not proper defense. Everybody has the right to a lawyer, but not in international politics. Or, apparently, in the eyes of western media and citizens.

Only today, Angela Merkel once again said something to the extent that Putin must get the Donbass ‘rebels’ to stop the fighting, while she knows full well they can’t and won’t, because they risk being ethnically cleansed if they would. 4500 of them were already killed by what was supposed to be their own government.

But the German people, like all other European peoples, swallow this nonsense whole. The only counterweight comes from German businesses that lose too much money in the sanctions that make no proper sense. And if the pressure from that side gets strong enough she’ll cave in, slowly, provided she can avoid losing face. That might be the biggest risk to US regime change plans in the new year.

And those plans deserve and need to be thwarted. As do the Troika schemes to throw Europe’s Mediterrenean region ever deeper into misery, austerity and ultimately debt slavery. The EU is a one dimensional one way street into a deep dark night, construction of which is overseen by people who work for their own personal interests, not that of their people. A nice idea gone terribly astray. Let’s make sure we finish it off in 2015, and give the Greeks and Italians back their honor and their dignity. And let’s keep our own dignity in the process.

As for the US, I got to tell you, I don’t know. Obama has been a miserable failure, perhaps because he was just trying to save his skin all along, or because he was like this all along, but he sure never brought much change. Or belief. Waiting in the wings we got Hillary Clinton and Jeb Bush, but they’re the exact same person. They’ll sell their grandmas for cheap if they think it’ll help them along.

America needs people who believe in something other than money or power, but anyone who’d try would be swept off the Christmas table with the other food scraps in no time, and be devoured by the dogs. I got some flack for saying on my Facebook page that the Ron Paul Institute published the propaganda article I mentioned before, but girl, Ron Paul is all you have left, like him or not.

Dr. Paul is the only one I know in America who has raised his voice against the US involvement in Ukraine, the only one in the entire west even, other than those of us in the blogosphere, or the alternative media if you will. And that’s insane. That’s utterly insane. We should not allow for our voices to be silenced the way they are, not just like Ron Paul, but worse than him. We don’t deserve to be marginalized anymore than Dr. Paul does; we’re smarter than the lot of them.

I guess that is what I think those of us who haven’t died yet should set out to do in 2015. Do what we’ve been doing, and do more of it. As Andy Warhol said: the only thing that counts is work. Big dreams or goals go only so far. They mean little if you don’t put in the work. And for this ‘alternative press’ we have going, from Zero Hedge all the way down to the Automatic Earth, with all the great people in between and around it, what matters is the work. No letting up; we have the same responsibility the illegal press had in Amsterdam and Paris in the 1940s – even if we can’t stand in the shadows of their courage -: to make sure people get information that does not stem from the matrix.

An article in the Guardian today said that 2014 was The Year The Internet Came Of Age. I think I’ll stick with my 2014: The Year Propaganda Came Of Age, but the combination of the two leads to interesting questions. Like: what role has the internet played in the rise of the propaganda that led to almost none of our so-called higher-educated people asking any questions about what really happened in Ukraine, or about so many other situations the ever more concentrated powers that rule us are involved in.

First of all, obviously, the financial world. Hardly anybody may understand what that is doing to us, to the world we live in, to the people we love and those who don’t know but we should still be holding out for (those underground press guys in WWII were risking their lives for people they didn’t know). Between us, we do understand a whole lot of what’s happening. We have no choice – or at least I don’t – but to keep going at it every single day and get it out there, and hope that a few more people every day will pick up on it. Not to make money for themselves – that’s the very disease that got us where we are -, but to be more human, and to try and lead a way forward. For now the internet allows us to do that. Let’s make the best of it while we can.

Sep 262014
 
 September 26, 2014  Posted by at 9:17 pm Finance Tagged with: , , , ,  21 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Harris & Ewing Staircase in the Capitol, Albany, New York 1905

So PIMCO was going to fire Bill Gross over the weekend, and he chose to leave on his own accord and work for Janus. So what? Gross is 70 years old and still joins another firm geared towards making money, and nothing else at all. As if making money, and nothing else, is a valid goal in a human life.

As if someone who’s done nothing else his entire life, and who’s richer than Croesus, should have nothing else to do with the times that remains him, and is somehow right and justified about not being able to find anything more worthwhile.

As if that singular focus does not make his life a useless one, or the man an empty shell. And yeah, I’m sure he gives away some cash from time to time to make himself feel even better. Though I doubt he ever feels truly fine. Perhaps the disappointment of being a billionaire and still feel like he’s wasted his life is what drives him on. Or maybe his wife beats him. And he enjoys it.

And it’s not just Bill Gross, it’s just as much the way the mainstream press covers the ‘event’ of Gross’ departure, the fact that they bother to cover it in the first place, and the details they focus on, that shine a chillingly clear cold and revealing light on what we have become, as individuals and as societies.

The hollow single-minded worshipping of money, which Gross can be said to embody, is the single biggest scourge on each and every one of us, on all the bonds we form between each other, on the communities and nations we live in, and the planet they’re located on. The bible is full of allusions to this, and the world is full of people who call themselves Christians, but the twain are like ships passing in the night.

if you would want to prevent a war, or you want to stop the destruction of rivers and seas through pollution, or for the earth’s climate from entering a cycle that neither we nor the climate itself can control, would you think first of people like Bill Gross when you’re looking for support? If you do, that would not be wise. Nevertheless, at every single climate conference it’s people just like him, such as Bill Clinton and Bill Gates, who made sure they’re in the spotlight.

People who’ve never done anything in their lives that was not directed at self-gratification. People who cause, not prevent, the mayhem. Even the big demonstrations last week were shrouded in a veil of corporatism, not unlike the one Greenpeace has been enveloped in for many years.

And of course you can argue that it serves a purpose, because it’s the only way to get people pout on to the street. But still, if millions of dollars have to be spent to make a few hundred thousand people in New York leave their homes, what exactly are we doing?

Where does that money come from? Does anyone want to deny that in general the richer people in the world are the ones responsible for the destruction? That we ourselves cause more damage than the average Bangla Deshi or Senegalese, and that the richest and most powerful people in our own societies do more harm than the poorset?

If you don’t want to deny that, why do you walk in a heavily sponsored protest march? Or does anyone think those marches are spontaneous eruptions of people’s true feelings anymore? Why then do they feel scripted, in a way the anti-globalization ones (Seattle) absolutely did not?

There is no doubt that there are well-meaning people involved, and a lot of grass-roots identity, but isn’t there something wrong the very moment money becomes a factor, if and when we can agree that the pursuit of money is the 8 million ton culprit in the room in the first place? Do we really feel like we can’t achieve anything without money anymore? And moreover, shouldn’t we, as soon as we feel that way, start doing something about it?

There’s a nice interview in Slate with Naomi Klein, who says capitalism is the bogey man. I find that a little easy; in the end man him/herself is the bogey man. Klein sits on the board of Bill McKibben’s 350.org, which I have no doubt is full of people full of best intentions, but which also sees money as way to achieve things:

Naomi Klein Says We Must Slay Capitalism to Fight Climate Change

Everybody that’s trying to get anything progressive done in this country knows that the biggest barrier is getting money out of politics. Climate can be a shot of adrenaline in the pre-existing movement to get money out of politics. So, it’s not a brand-new movement. [..] All these new reports say that the transition to that next economy will be cheap. So why isn’t it happening? Elites like to think of everything as a win-win, but it’s not true.* It’s the wealthiest corporations on the planet that will win; everyone else will lose. No number of reports is going to change that. You actually need a counter-power.

[..] we need to finance this transition somehow. I think it needs to be a polluter-pays principle. It’s not that we’re broke, it’s just that the money is in the wrong place. The divestment movement is a start at challenging the excesses of capitalism. It’s working to delegitimize fossil fuels, and showing that they’re just as unethical as profits from the tobacco industry. Even the heirs to the Rockefeller fortune are now recognizing this. The next step is, how do we harness these profits and use them to help us get off fossil fuels?

Exxon needs to pay—it’s the most profitable company on the planet. It’s also the descendent of Standard Oil. In the book, I talk a lot about Richard Branson’s pledge to donate all the profits from his airline to fight climate change. When he made that announcement, it was extraordinary. The problem is, no one held him accountable—well, besides me and my underpaid researcher. But at least Branson’s heart was in the right place. These profits are not legitimate in an era of climate change. We can’t leave this problem to benevolent billionaires.

‘Getting money out of politics’, but ‘we need to finance this transition somehow’. There’s a grand contradiction in there somewhere. Now, I’m a big admirer of Naomi, her Shock Doctrine is one of the greatest books in the past 25 years or so. But I have my questions here.

I don’t think you can argue that capitalism itself is the issue. This is about the erosion of checks and balances, laws and regulations, the erosion of a society’s ability to hold people responsible for what they do, whether they operate in the political field or in private business.

And those same issues are just as relevant in any communist or socialist society. Unless you’re very careful day after 24/7 day, all political systems tend towards ceding control to ever more psychopatic individuals. In the exact same way that bad money drives out good. In short, it’s not about ‘them’, it’s about us. It’s the psychos who want that power and that money more than anyone else, but it’s us who let them have it. While we’re watching some screen or another.

It’s about how we can keep the most money- and power hungry individuals amongst us from ruling over us. An obviously daunting task if you look at most countries, corporations and organizations today. I mentioned the three Bills already, Bill Gross, Bill Clinton and Bill Gates, and they epitomize as fittingly as any threesome where and how we go wrong, and how hard it is to keep ourselves from doing that.

If you want a better world, A) stop listening to the crazy clowns, and B) stop telling yourself you care and then just keep doing what you always did. Get real. Pursue truth, not money.

Bonds Worldwide Pull Out of Tailspin This Week on Growth Concern (Bloomberg)

Bonds worldwide pulled out of a tailspin this week as a surging dollar sparked warnings from Federal Reserve officials that the stronger currency may hamper the U.S. recovery. The Bloomberg Global Developed Sovereign Bond Index (BGSV) headed for its first weekly gain this month, buoyed by speculation weak economic growth in Europe and Japan will spur policy makers there to maintain stimulative monetary policy. The gauge advanced 0.2%, trimming September’s decline to 2.7%. Yields attracted investors after climbing last week when Fed policy makers increased their estimate for how far they’ll raise borrowing costs next year.

“The speed in the rise of interest rates in response to the Federal Reserve, and also gains in the U.S. dollar, have had an impact on demand for Treasuries,” said Tony Morriss, an interest-rate strategist at Bank of America Merrill Lynch in Sydney. While the stronger dollar may damp U.S. growth, unprecedented easing in Japan and Europe have also “served to reverse some of the sharp rise in yields that we saw earlier.” The company’s Merrill Lynch unit is one of the 22 primary dealers that trade directly with the Fed. The U.S. 10-year yield was little changed at 2.50% at 6:56 a.m. in London, according to Bloomberg Bond Trader data. The price of the 2.375% note due August 2024 was 98 29/32. The yield rose to 2.65% on Sept. 19, the highest since July 7. It has dropped eight basis points this week. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, rose to a four-year high yesterday.

Read more …

Oh, you real man.

Bank of England’s Carney: Rate Rise ‘Getting Close’ (Reuters)

The Bank of England is getting nearer to raising interest rates, but the exact date will depend on economic data, Governor Mark Carney said in a speech on Thursday. Carney stuck close to previous remarks on monetary policy in his address to actuaries, much of which focused on the BoE’s plans for further regulating insurers. Britain’s economic outlook was much improved, and a rate rise was only a matter of time, Carney said. “The point at which interest rates … begin to normalise is getting closer,” he said. “In recent months the judgement about precisely when to raise Bank Rate has become more balanced. While there is always uncertainty about the future, you can expect interest rates to begin to increase.”Most economists expect the Bank of England to raise rates early next year, though a minority see a chance of an increase in November. Two members of the BoE’s Monetary Policy Committee voted for a rate rise this month.

Britain’s economy looks set to grow by more than 3% this year – faster than any other big, advanced economy – and unemployment has fallen to its lowest level since 2008. But inflation of 1.5% is well below the BoE’s 2% target, and wages are growing even more slowly – something the BoE has cited as a reason to keep rates on hold. Carney said that when rate rises did come, he expected them to be gradual, and for rates to peak below pre-crisis levels. “Headwinds facing the economy are likely to take some time to die down,” he said. “Demand in our major export markets remains muted. Public balance sheet repair is ongoing. And a highly indebted private sector is likely to be particularly sensitive to changes in interest rates.”

Read more …

This is the reality of Europe (and the US, Japan): you can’t force people to borrow. Therefore, you will have deflation. If people don’t spend, it’s inevitable.

Draghi’s Trillion-Euro Pump Finds Blockage in Spain (Bloomberg)

Mario Draghi’s plan to channel as much as €1 trillion ($1.3 trillion) into the euro region’s economy is running into a blockage: some companies in the countries hardest hit by the debt crisis don’t want the money. “We’re getting calls from lenders every day,” said Miquel Fabre, 34, whose family-run beauty products firm Fama Fabre employs 43 people in Barcelona. “They can see that they’ll benefit from a loan because we’re doing good business and will return the money. Whether it’s in our interest as well is a different question.” Many small and medium-sized businesses are wary of the offers from banks as European Central Bank President Draghi prepares to pump more cash into the financial system to boost prices and spur growth. The reticence in Spain suggests demand for credit may be as much of a problem as the supply. The monthly flow of new loans of as much as €1 million for as much as a year – a type of credit typically used by small and medium-sized companies – is still down by two-thirds in Spain from a 2007 peak, according to Bank of Spain data.

The total stock of loans is almost 470 billion euros below the 2008 record of €1.87 trillion, the figures show. Spanish bonds rose for a third day yesterday, with 10-year yields dropping to 2.11%, after further evidence that Draghi may have to resort to buying government debt to get cash into the economy. The ECB’s latest attempt to funnel money through the financial system with a targeted-loans offer, known as TLTRO, was shunned by banks on Sept. 18. That’s not to say banks aren’t making an effort to attract borrowers. Banco Popular Espanol SA (POP), a Spanish lender that borrowed €2.85 billion from the TLTRO, started an advertising campaign this month using Spanish NBA basketball star Pau Gasol to target smaller companies. In the first six months, Popular boosted lending to that group by 6% and is aiming for a 10% increase for all of 2014. Across the economy, small business loans at 12.9 billion euros in July were the highest in more than two years, while still just a third of the peak volume.

Read more …

Make that ‘will’.

Draghi May Discover Weaker Euro Doesn’t Buy Enough Recovery (Bloomberg)

Mario Draghi may find a falling currency can’t buy much of an economic recovery. The euro has dropped toward a two-year low against the dollar since the European Central Bank president boosted stimulus earlier this month. Economics textbooks say that should lift Europe’s struggling growth rate by boosting exports and speed inflation by raising import prices. Such effects will be more welcome if falling commodities deal a disinflationary blow. It’s time for those textbooks to be revised, according to economists at Societe Generale SA led by Michala Marcussen, who reckon a devaluation of the euro will not be as stimulatory as it once was and perhaps as much as the ECB is hoping. For one thing, the single currency may not be that weak yet. While it has fallen 7.5% against the dollar this year, it has slipped just 4% on a trade-weighted basis.

A deep decline may be hard to achieve. While the euro should keep falling against the dollar and sterling as the Federal Reserve and Bank of England shift toward higher interest rates, those currencies account for only about a third of the trade-weighted index. The monetary policies of Japan and China are almost just as important, with the yen and yuan accounting for a quarter of the euro’s value, according to Marcussen. With their central banks also dovish, the euro may have less far to fall against those currencies, meaning a 10% decline on a trade-weighted basis would require the single currency to drop below $1.15 and 70 pence. It was at $1.28 and 0.78 pence today. Another brake on any descent is that the euro’s long-term rate may actually have risen since the global financial crisis to $1.35 from $1.31, Societe Generale calculates. That’s because in aggregate the euro area is running a current-account surplus and its budget deficit and debt are lower than in other major economies.

Read more …

But won’t.

Debt Forgiveness Could Ease Eurozone Woes (Guardian)

The eurozone debt crisis never went away. It merely acquired a misleading veneer of resolution, thanks to grand promises, political chest-thumping and frazzled financial markets that were desperate to believe in happily ever after. Today, there is an accentuated sense of deja vu (all over again, as Yogi Berra would concur). Europe faces the spectre of deflation. Some members, such as Italy, have toppled over the edge for the first time in more than half a century; Germany threatens recession; France is a basket case. Wages are in decline across club Med: real hourly wages in Greece, Spain and Ireland recently fell for the fourth year in succession. Meanwhile, bank lending is an aspiration and Banco Espirito Santo is an ugly reminder of the iceberg of bad debts lurking. Good Europeans are in decline while populism, nationalism and jingoism are les belles du jour.

Enter quantitative easing (QE) as the white knight, as envisaged by the European central bank. This is fast becoming a modern-day rain dance. QE is not a cure. It is a shot of morphine that sedates an ailing patient while doctors figure out what to do in the long term. Like most opiates, the patient is elated and euphoric. Leaving aside “niggles” like the Germans and the moral hazard of whose sovereign bonds to buy, there is no reason why financial markets should not rally if QE proceeds. Our limited sample over the past few years proves this. But asset-price inflation and falling bond yields are poor substitutes for long-run economic growth and, arguably, even antithetical, thanks to the punishing bubbles they risk creating.

Europe has a singular problem – it has far too much debt. And in a globalised world, much of this debt is bound in a complex web, particularly among the weaker economies – namely Portugal, Ireland, Italy, Greece and Spain – and their main creditors: France, Germany, the UK and the US. For example, more than half of Portugal’s foreign debt claims are held by Spain, while Italy owes French banks about $373bn – almost a seventh of France’s GDP. And, lest we forget, Italy also has the third-largest sovereign bond market in the world. This is a game of dominoes. Any solution that does not involve large-scale debt forgiveness is doomed to failure. In the 1920s, an ambitious scheme of credit easing – the Dawes plan – to tackle the intractable debts left by the first world war fuelled an enormous bubble that ended in the great depression, as the underlying reality of sovereign insolvency became clear. It also created a fertile political climate for the nationalism that ended so disastrously more than a decade later. Money is divisive when things turn sour.

Read more …

Hmmm.

“The Fed Gig Is Up” (Scotiabank)

In a switch from what are typically only one-sidedly dovish comments, NY Fed President Dudley was balanced this week, even citing reasons for why the Fed would want to hike rates. Dudley stated that “being at the zero-lower-bound is not a very comfortable place to be”, because it “limits” flexibility and has “consequences for the economy”. He said it “hurts savers”, and while acknowledging “what is happening” to financial markets, he avoided directly citing risks to financial stability. Anxiety-riddled conversations about financial instability are probably implicitly restricted to a ‘behind-closed-doors-only’ rule. FOMC members are slowly and carefully trying to change the conversation. Yellen completely diluted away any meaning behind “considerable period” to make it all but meaningless. Bullard said to that he still “sees the first tightening at the end of the first quarter”.

A March 18th hike seems reasonable to me, since US economic improvement appears to remain on track (at least for the moment) and since the FOMC seems more anxious to begin the normalization process. Actually though, by waiting even until March, it is possible that the FOMC risks missing its window of opportunity in terms of using US economic momentum as its cover (what irony). Financial markets are becoming agitated and disturbed by shifting government and central bank policies, mounting geo-political tensions, and rising nationalist fervor. QE has not yet ended and the Fed is likely still months away from hiking for the first time, but markets are using these factors to adjust portfolio exposures. These are hints that a larger market reaction is likely to unfold as the Fed’s policy transition approaches.

Macro signs are currently evident with steep commodity price declines, rising FX volatility, rallying global bond markets (long end), and sagging prices for low quality credits. Some investors are clearly getting out of the Fed-generated “herd” trades of recent years and saying that they are doing so because “the Fed’s balance sheet is set to stop expanding next month”. The strengthening dollar is one consequence and it has already had an impact on commodities and Emerging Markets. In turn, weakening currencies in EM countries are starting to trigger capital outflows. It may lead toward domestic central bank hikes (again) which weaken those economies and cause second-order effects.

Read more …

5 US Banks Each Have More Than $40 Trillion Exposure To Derivatives (Snyder)

When is the U.S. banking system going to crash? I can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five “too big to fail” banks in the United States that each have more than $40 trillion in exposure to derivatives. Today, the U.S. national debt is sitting at a grand total of about $17.7 trillion, so when we are talking about $40 trillion we are talking about an amount of money that is almost unimaginable. And unlike stocks and bonds, these derivatives do not represent “investments” in anything. They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future. The truth is that derivatives trading is not too different from betting on baseball or football games.

Trading in derivatives is basically just a form of legalized gambling, and the “too big to fail” banks have transformed Wall Street into the largest casino in the history of the planet. When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe. If derivatives trading is so risky, then why do our big banks do it? The answer to that question comes down to just one thing. Greed. The “too big to fail” banks run up enormous profits from their derivatives trading. According to the New York Times, U.S. banks “have nearly $280 trillion of derivatives on their books” even though the financial crisis of 2008 demonstrated how dangerous they could be…

Read more …

Problem, not solution.

Federal Reserve Policies Cause Booms and Busts (Mises.org)

Since the economic crisis of 2008-2009, the Federal Reserve — America’s central bank — has expanded the money supply in the banking system by over $4 trillion, and has manipulated key interest rates to keep them so artificially low that when adjusted for price inflation, several of them have been actually negative. We should not be surprised if this is setting the stage for another serious economic crisis down the road. Back on December 16, 2009, the Federal Reserve Open Market Committee announced that it was planning to maintain the Federal Funds rate — the rate of interest at which banks lend to each other for short periods of time — between zero and a quarter of a%age point.

The Committee said that it would keep interest rates “exceptionally low” for an “extended period of time,” which has continued up to the present. Beginning in late 2012, the then-Fed Chairman, Ben Bernanke, announced that the Federal Reserve would continue buying US government securities and mortgage-backed securities, but at the rate of an enlarged $85 billion per month, a policy that continued until early 2014. Since then, under the new Federal Reserve chair, Janet Yellen, the Federal Reserve has been “tapering” off its securities purchases until in July of 2014, it was reduced to a “mere” $35 billion a month.

In her recent statements, Yellen has insisted that she and the other members of the Federal Reserve Board of Governors, who serve as America’s monetary central planners, are watching carefully macro-economic indicators to know how to manage the money supply and interest rates to keep the slowing general economic recovery continuing without fear of price inflation. Some of the significant economic gyrations on the stock markets over the past couple of months have reflected concerns and uncertainties about whether the Fed’s flood of paper money and near zero or negative real interest rates might be coming to an end. In other words, borrowing money to undertake investment projects or to fund stock purchases might actually cost something, rather than seeming to be free.

Read more …

Pimco ETF Probe Spotlights $270 Billion Market Vexing Regulators (Bloomberg)

The U.S. regulatory probe into Bill Gross’s Pimco Total Return ETF is highlighting an industry that supervisors say may pose an increasing risk to the stability of the bond market. The assets held by bond exchange-traded funds have ballooned to more than $270 billion from about $57 billion at the end of 2008 as hedge funds to retirees sought quick and easy access to debt markets, according to data compiled by the Investment Company Institute. While the amount is still a pittance compared to the $38 trillion U.S. bond market, trading in ETFs is fueling price swings that may become more severe in a downturn — particularly for the most illiquid markets, like speculative-grade debt. Regulators are examining the danger it will be more difficult than investors expect to get out of the funds in a falling market.

“The ETF market will be the tail that wags the dog,” said Mark Pibl, head of research and fixed-income strategy at Canaccord Genuity in New York. As assets managed by ETFs of all types more than tripled since 2008 to $1.8 trillion, the fastest-growing product in the money-management industry is drawing scrutiny from regulators. While ETFs have shares that trade like stocks on exchanges, bonds often trade in transactions that are negotiated by telephone and through e-mails.

Read more …

How is this a question?

Is Big Business Too Influential? (CNBC)

People from emerging economies are much more comfortable in strong corporations having influence over government than in developed nations, a CNBC/Bursen-Marsteller poll survey has found. Most emerging markets’ respondents –whether from the public or executives – surveyed in the CNBC/Bursen-Marsteller poll on the Global Corporate Compass viewed strong and influential corporations as engines for innovation and economic growth. However, in the developed world, opinion was split. Indeed, in seven out of the 13 developed nations included in the survey, the public believe that strong and influential corporations “rig the system so that they do not have to act responsibly,” the survey reported. These include economic powerhouses such as the U.S., U.K., Germany and Hong Kong. Surprisingly, people in France and Italy sided with emerging markets in their belief that strong and influential businesses can boost the economy.

For Tamsin Cave, director of Spinwatch and author of “A quiet Word: Lobbying, Crony Capitalism and Broken Politics in Britain”, there’s now a “growing disquiet among the public (in the developed world) about this relationship between government and big business”. The public in the U.K., she added, feels that there is a disconnect between politicians and the public. “The public voice isn’t heard because of the enormity of what is a corporate lobbying industry – worth something like £2 billion ($3.2 billion) in the country,” she said. Even executives across the developed world were of two minds with C-suite respondents in Germany, Italy, Singapore and Australia describing strong and influential corporations as bad. “I have a saying”, said Gary Greenberg, head of emerging markets at Hermes. “The way you can tell the difference between emerging markets and developed markets is that in emerging markets the government controls the banks whereas in developed markets it is the opposite!”

Read more …

Chiecken and the egg.

Australia Kills Civil Liberties with Draconian New Anti-Terror Law (Krieger)

Understanding how the power structure thinks, and how it intentionally manipulates the emotions of the masses, is key to overcoming and rolling back totalitarian ambitions. I have spent the last few posts talking about how instilling fear throughout the general populace is one of their primary tactics. Indeed, to borrow a term from Glenn Greenwald, “fear-manufacturing” has been in overdrive across the Five Eyes nations over the past several weeks. In the UK, we saw it used to convince elderly Scots to overwhelming vote against independence, thus swaying the result decisively to the NO side. In the USA, we have seen it used to drum up support for another pointless war in the Middle East, which will benefit nobody except for the military/intelligence-industrial complex. While these examples are bad enough, nowhere is fear being used in a more clownish and absurd manner to strip the local citizenry of its civil liberties than in Australia. This should come as no surprise, considering that nation’s Prime Minister is a certified raging lunatic.

Read more …

“National home prices rose an annualized 16.8% in the three months to August”. Not a bubble, right? That doubles ± every 4.5 years.

Is Australian Housing Facing A Repeat Of 2003? (CNBC)

Australia’s property market is approaching the bubble extremes seen a decade ago, an analyst told CNBC, after the Reserve Bank of Australia (RBA) warned this week that the market looks ‘unbalanced’. “There was an intense bubble in the property market a decade ago. There were property ‘spruikers’ out there encouraging people to buy five properties at a time – everyone was buying property magazines and all the top rated shows on TV were property related,” Shane Oliver, head of investment strategy and chief economist at AMP Capital, told CNBC. “We haven’t quite returned to the extremes we had back then but we’re getting close and that’s why the RBA is getting concerned,” he said. “Danger signs are emerging.”

A low interest rate environment and strong price competition among lenders have led to a surge in investment property, raising the risk of a repricing, the RBA said in its Financial Stability Review on Wednesday. National home prices rose an annualized 16.8% in the three months to August after a cooler period in the first half of the year. Meanwhile, prices in Sydney and Melbourne rose 16 and 11%, respectively, over the past 12 months according to RP data. As a result, the RBA said it is considering measures to cool property investment that could include macro-prudential controls or credit restrictions designed to reinforce sound lending practices.

Read more …

Provocation.

Ukraine Pushes for NATO Membership as Gas Talks Commence (Bloomberg)

Ukraine kick-started the process to strengthen its ties with NATO and will strive to join the alliance in the “short term,” its government said, a day after its president declared the worst of its separatist war was over. The country of more than 40 million people is scheduled to hold talks today in Berlin to resolve a dispute over natural gas supply before the onset of winter. Russia stopped selling the fuel to Ukraine in June without pre-payment after raising the price 81%, which has prompted officials in Kiev to urge companies and households to cut consumption. Russian gas exporter OAO Gazprom (GAZP) says Ukraine owes it $5.3 billion.

Ukraine’s push to end its neutral status and join the North Atlantic Treaty Organization will probably exacerbate the worst standoff between Russia and its former Cold War foes since the fall of the Iron Curtain. Sporadic fighting between pro-Russian rebels and government troops in the eastern Donetsk region of the former Soviet Republic is threatening a shaky cease-fire reached three weeks ago. “The cabinet has submitted a draft law to parliament that envisages the cancellation of our non-aligned status and ensuring a European integration course to create grounds for Ukraine’s integration into the Euro-Atlantic security space,” the administration in Kiev said in an e-mailed statement today. “Ukraine’s government underlines that Ukraine’s aim is to receive special partner status with NATO now and membership in the short term.”

Read more …

Because it would force him to drive Kiev, which can’t survive without Moscow, into the ground, by cutting trade even more..

Putin Demands Reopening Of EU Trade Pact With Ukraine (FT)

)Vladimir Putin has demanded a reopening of the EU’s recently-ratified trade pact with Ukraine and has threatened “immediate and appropriate retaliatory measures” if Kiev moves to implement any parts of the deal. The demand, made in a letter to European Commission President José Manuel Barroso, reflects Russia’s determination to put a brake on Ukraine’s integration into Europe and other Euro-Atlantic organisations such as Nato, even after annexing Crimea and creating a pro-Russian separatist entity in the east of the country. It also comes amid a fresh crackdown on Russia’s oligarchs, exemplified by the recent house arrest of billionaire businessman Vladimir Yevtushenkov, which was extended by a court on Thursday.

The integration treaty was the spark that set off the 10-month Ukraine crisis after the country’s then-president, Viktor Yanukovich, backed out of the deal. Petro Poroshenko, the new Ukrainian president, has made integration with the EU a key objective of his presidency. But this is strongly opposed by Moscow, which is determined to keep Ukraine within its own economic sphere of influence. Mr Putin’s letter argues that a 15-month delay in implementing part of the deal – which Kiev and the EU agreed to earlier this month – should be used to “establish negotiating teams” to make wholesale changes to the deal.

Read more …

1+1=2.

Russia Mulls Draft Law To Allow Seizure Of Foreign Assets (Reuters)

Russian courts could get the green light to seize foreign assets on Russian territory under a draft law intended as a response to Western sanctions over the Ukraine crisis. The draft, which was submitted to parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for an individual whose property is seized in foreign jurisdictions. Italian authorities this week seized property worth about 30 million euros ($40 million) belonging to companies controlled by Arkady Rotenberg, an ally of President Vladimir Putin targeted by the U.S. and European Union sanctions. The draft law, published on a parliamentary database, would allow for compensation for Russian citizens who suffer because of an “unlawful court act” in a foreign jurisdiction and clear the way to foreign state assets in Russia being seized, even if they are subject to international immunity.

Read more …

Don’t think he’s far off.

Iran’s Rouhani Blames Intelligence Agencies For Rise In Extremism (RT)

The rise of violent extremism around the world is the fault of “certain states” and “intelligence agencies” that have helped to create it and are failing to withstand it, Iranian President Hassan Rouhani said in an address to the UN General Assembly. Speaking at the 69th session of the UN General Assembly on Thursday, Rouhani stressed that extremism is not a regional but a global issue, and called on states worldwide to unite against the extremists. “Certain states have helped to create it, and are now failing to withstand it. Currently our peoples are paying the price,” he said. “Certain intelligence agencies have put blades in the hand of the madmen, who now spare no one.” Rouhani also said the current anti-Western sentiment in certain parts of the world was “the offspring of yesterday’s colonialism. Today’s anti-Westernism is a reaction to yesterday’s racism.”

The Iranian president urged “all those who have played a role in founding and supporting these terror groups” to acknowledge their mistake. Rouhani also blamed “strategic blunders of the West in the Middle East, Central Asia and the Caucasus” for inciting violence in these regions and creating a “haven for terrorists and extremists.” “Military aggression against Afghanistan and Iraq and improper interference in the developments in Syria are clear examples of this erroneous strategic approach in the Middle East.” Warning that “if the right approach is not undertaken in dealing with the issue at hand” the Middle East risks turning into “a turbulent and tumultuous region with repercussions for the whole world.” “The right solution to this quandary comes from within the region and regionally provided solution with international support and not from the outside the region,” he said.

Read more …

Chasing money.

How Australia Became The Dirtiest Polluter In The Developed World (Slate)

Australians like to think of themselves as green. Their island country boasts some 3 million square miles of breathtaking landscape. They were an early global leader in solar power. They’ve had environmental regulations on the books since colonial times. And in 2007 they elected a party and a prime minister running on a “pro-climate” platform, with promises to sign the Kyoto Protocol and pass sweeping environmental reforms. All of which makes sense for a country that is already suffering the early effects of global warming. And yet, seven years later, Australia has thrown its environmentalism out the window—and into the landfill. The climate-conscious Labor Party is out, felled by infighting and a bloodthirsty, Rupert Murdoch–dominated press that sows conspiracy theories about climate science.

In its place, Australians elected the conservative Liberal Party, led by a prime minister who once declared that “the climate argument is absolute crap.” In the year since they took office, Prime Minister Tony Abbott and his Liberal-led coalition have already dismantled the country’s key environmental policies. Now they’ve begun systematically ransacking its natural resources. In the process, they’ve transformed Australia from an international innovator on environmental issues into quite possibly the dirtiest country in the developed world. And in a masterful whirl of the spin machine, they’ve managed to upend public debate by painting climate science as superstition and superstition as climate science. (We should note here that one of us grew up in Australia.)

The country’s landmark carbon tax has been repealed. The position of science minister has been eliminated. A man who warns of “global cooling” is now the country’s top business adviser. In November, Australia will host the G-20 economic summit; it plans to use its power as host to keep climate change off the official agenda. If the environment has become Australia’s enemy, fossil fuels are its best friend once again. Two months after it struck down the carbon tax, the government forged a deal with a fringe party led by a mining tycoon to repeal a tax on mining profits. It appointed a noted climate-change skeptic—yes, another one—to review its renewable energy targets.

Read more …

I wrote many years ago that is the only way. Not that communism or socialism is any better. Any system aimed at growth will do it.

Naomi Klein Says We Must Slay Capitalism to Fight Climate Change (Slate)

Q: On Sunday, more than 300,000 people were in the streets in New York. In stark contrast, Tuesday’s U.N. Climate Summit didn’t accomplish much. How do you feel about “progress” toward a climate treaty through official U.N. channels?

A: It’s been quite an amazing week. [Sunday’s march] was, I think, a real turning point. A lot of debates have sharpened up a bit. I’m excited. After the march, it was kind of jarring to go to the U.N. I definitely did not get the feeling that they were even managing to convince themselves. Some shit-disturber decided it would be a good idea to invite me into the private-sector portion of the U.N. summit Tuesday, which had unprecedented participation from CEOs. It was definitely the highest net-worth room I’ve ever been in. They were conducting what amounted to a telethon for the Earth. It was pretty unimpressive.

Q: I think U.N. countries officially pledged a little more than $1 billion to the fund designed to help low-income nations adapt.

A: Yes, and I think almost all of it was from France. At one point in that room, there was a debate over whether France’s pledge was in euros or dollars. Yeah. It was in dollars.

Q: So what’s the next step in terms of climate action? How do we get from 300,000 in the streets to 30 million?

A: Everybody that’s trying to get anything progressive done in this country knows that the biggest barrier is getting money out of politics. Climate can be a shot of adrenaline in the pre-existing movement to get money out of politics. So, it’s not a brand-new movement. What excited me about Sunday is the huge participation from labor. People in that movement clearly see that a climate-justice agenda would be a serious benefit to their members. The post-carbon economy we can build will have to be better designed.

Read more …

Jul 142014
 
 July 14, 2014  Posted by at 7:05 pm Finance Tagged with: , , , ,  7 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Jack Delano Shopton locomotive shops, Fort Madison, Iowa March 1943

The insanity doesn’t just continue, it intensifies. The overriding idea is still that the more companies and individuals borrow, the better the economy goes. But that is nowhere near true. It may have been at some point in the past, but not now, not with debt levels at historic highs. Today’s problem is not that there is not enough credit or money available, as central banks try to make you believe, but that people are not spending what they have. Individuals are either maxed out or scared to be left with nothing, and companies see no opportunities for investing in productive projects (besides, they may well be maxed out too).

Credit can play a functional and beneficial role in a society if an individual or company borrows at 5% and puts the money to work towards the production of something with an added value of 10%. That works, because the risk is real. At a 5% rate, you know you will need to do actual work to pay back your loan. And a 10% return means there are things to invest in that are productive. A 1% rate only papers over the fact that there are no productive investment opportunities left, and that they need to be created artificially to prevent the public from finding that out. The entire economy seems to take place on paper – or screens – only. But that’s of course an illusion. We need physical food and physical shelter.

Credit is neither beneficial not functional when companies borrow at 1% and only buy back their own shares or purchase/merge with competitors. Companies today don’t borrow because they feel optimistic about the economy, they don’t borrow because they see productive opportunities at the horizon. They do so only because, to paraphrase Obama, they can. And because financial trickery is the only way to make people think they are healthy.

In the present circumstances what this means is that because debt nevertheless increases at a rapid clip, the economy deteriorates just as fast. And you won’t like what you see when we come out at the other end. The economy is completely hollowed out from the inside, while we’re looking only at the facade. That’s why there no longer is a connection between economic performance and stock markets. In fact the stock markets have become the de facto economic performers. But nothing is being produced, or at least not nearly enough. And not nearly enough is being bought to keep the wheels spinning either.

Today it was announced that Eurozone industrial production fell 1.1%, but stocks just keep on rising. And much more of the same is in the pipeline:

Draghi Seen Delivering $1 Trillion Free Lunch to Banks

Mario Draghi’s newest stimulus tool will hand banks more than €700 billion ($950 billion) of cheap funding, economists say. The European Central Bank president’s targeted lending program for banks will boost credit for the real economy as planned, and at the same time help keep the financial system flush with cash, according to the Bloomberg Monthly Survey of 45 economists. Draghi may address the topic today when he testifies at the European Parliament in Strasbourg for the first time since elections in May. The ECB has identified lending to companies and households as a key weakness in the euro area’s fragile recovery.

The so-called TLTRO program, part of a wider package of measures announced in June, offers as much as four years of low-cost funding tied to bank lending that Draghi said this month could ultimately provide as much as €1 trillion. “The take-up should be large – the money is cheap and banks should feel no stigma about accepting a free lunch,” said Alan McQuaid, chief economist at Merrion Capital in Dublin, who predicts banks will take the maximum available. “With any luck, Draghi’s next problem will not come until 2018, when €1 trillion needs refinancing.”

The ECB is blind or borderline criminal. Blind, because lending is not the key weakness, spending is. Borderline criminal, because by treating lending the way it does, it pushes European economies ever further into their separate and shared quagmires. The net effect of its actions is that what it has labeled ‘systemic banks’ get to survive for another day, but with the trillions of debt hidden in these banks, that survival, if you want to call it that, can – of necessity – only be temporary. And that temporary extension of ‘life’ comes at a great price to the rest of the economy, where people such as you and I reside.

The reason the ECB and the Fed are involved in these highly dubious actions, and have been from 7 years running now, can only be this: they know – or at least strongly fear – that the debts in the banks are so enormous they could make the entire economic system wobble if not crumble, and the ‘leaders’ don’t want to touch that with a 10-lightyear pole. In doing what they do, however, they are throwing away a bit more of your children’s futures every day. For 7 years now.

China’s policies are much like those in the west, but the underlying reasoning in somewhat different. China has undertaken its $25+ trillion stimulus not just for its – state-owned – banks, but for its entire economic system. Catching the fall of an economy that grows, or used to grow, at double digit annual rates is not the same as propping up one that used to grow at 2-3%. The difference lies in the expansion. China’s meteoric expansion brought it a lot of seemingly positive things, but much of it was realized through a highly leveraged and increasingly shadow bank financed system (if you can call it a system).

When Lehman and Bear Stearns happened, Beijing decided to open the spigots, and it hasn’t looked back since. And why should it when Europe and the US didn’t either? There are tens of thousands of Xi’s and Li’s who have nightmares of having their heads chopped off by angry mobs when the latter find out that the whole expansion was nothing but a magic trick from the very start. Like Draghi and Yellen and Merkel and Obama, they’re hell bent on keeping up appearances as long as they can, or at least until they’re out of office.

China exports the inflationary expansion of its money supply, and the Chinese use this virtual yuan to buy up real assets in the real economies of America, Europe and Africa. In the rich world, the idea is that this is alright, because it drives up general price levels, and therefore leaves the impression that economies are doing well. But in the meantime, your world, and the homes and companies around you, are being bought up with what amounts to little more than Monopoly money. Then again, that’s what your own money has become too.

Secret Path Revealed for Chinese Billions Overseas

For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including New York, Sydney and Vancouver despite their country’s currency restrictions. Now, one way they could be doing it is clearer. Last week, when China Central Television leveled money-laundering allegations against Bank of China Ltd., the state-run broadcaster’s report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas.

Offered by some banks in the southern province of Guangdong, across the border from Hong Kong, the trial program was introduced in 2011 for overseas property purchases and emigration and doesn’t constitute money laundering, Bank of China said in a July 9 statement. The transfers were allowed by regulators and reported to them, the bank said. “What it shows is the government has been trying to internationalize the renminbi for a lot longer than we thought,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Ltd., said by phone, using the official name for China’s currency and referring to policy makers’ long-stated goal of allowing the yuan to become freely convertible with other currencies. “I’m rather encouraged by this news because this is the way they need to go.”

Even the BIS, Bank for International Settlements, which should certainly not,at any time and in any way, be confused with the Salvation Army, starts waving bright red alarm banners about what goes on. And though I do know that they’re much closer to Draghi and Yellen then they are to you and me, it’s still interesting to see some of what they have to say, courtesy of Ambrose Evans-Pritchard:

BIS Chief Fears Fresh Lehman From Worldwide Debt Surge (AEP)

The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned. Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield. [..]

Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275% of GDP since then.

Companies are borrowing heavily to buy back their own shares. The BIS said 40% of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007 [..] The disturbing twist in this cycle is that China, Brazil, Turkey and other emerging economies have succumbed to private credit booms of their own, partly as a spill-over from quantitative easing in the West.

Their debt ratios have risen 20 percentage points as well, to 175%. Average borrowing rates for five-years is 1% in real terms. This is extremely low, and could reverse suddenly. “We are watching this closely. If we were concerned by excessive leverage in 2007, we cannot be more relaxed today,” he said.

Volatility has dropped to an historic low. European equities have risen 15% in a year despite near zero growth and a 3% fall in expected earnings. The cyclically-adjusted price earnings ratio of the S&P 500 index in the US reached 25 in May, six points above its half-century average.

Emerging markets have racked up $2 trillion in foreign currency debt since 2008. They are a much larger animal than they were during the East Asia crisis of the late 1990s, so any crisis would do more damage. “The ramifications would be particularly serious if China, home to an outsize financial boom, were to falter,” it said. BIS officials doubt privately whether China can avoid a ‘hard landing’, fearing that the extreme credit growth over the last five years must lead to a financial reckoning.

“Systemic financial crises do not become less frequent or intense, private and public debts continue to grow, the economy fails to climb onto a stronger sustainable path, and monetary and fiscal policies run out of ammunition. Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent,” it said.

Basel’s lonely call for discipline pits it against the Fed, the Bank of Japan, the Bank of England, and even Frankfurt these days. It prompted an unusually piquant riposte from London earlier this month. “Has monetary policy aided and abetted risk-taking? I hope so. That’s why we did it,” said the Bank of England’s chief economist Andy Haldane. “It is good to have the debate,” said Mr Caruana gamely. Yet he refuses to back down. “There is something strange about fighting debt by incentivizing more debt.”

Just as vulnerable to a financial crisis as in 2007, but with far higher debt ratios. In many ways more fragile than in the build-up to the Lehman crisis. 40% of syndicated loans are to sub-investment grade borrowers (i.e. a hair short of subprime). And indeed, “There is something strange about fighting debt by incentivizing more debt.” In fact, not so much strange as it is stupid, blind, or criminal.

It would be good if we all realize one thing: there is no economic growth; the only thing that grows is the debt (aka credit). If time is money, then we are borrowing money to borrow time. But time is not money: it doesn’t grow, you can’t get more of it, and when you waste it, you can’t get more of it; once spent, it’s gone.

In other words, we can’t really borrow time, that’s as much of a delusion – intentional or not – as debt being able to cure or economic ills today. And because we continue to borrow more, and then even more, anyway, our economies must necessarily deteriorate as fast as we borrow. Just not at the same rate for everyone: corporations can borrow at 1%, but you can’t.

So if present policies serve one purpose after all, it’s to increase inequality. Still, when it comes to inequality, you ain’t seen nothing yet; just wait and see what happens when interest rates start to rise and all the debt must be serviced. The too big to fail banks won’t be called upon to do that, it would make them fail; instead, you and yours will have the honor.

BIS Chief Fears Fresh Lehman From Worldwide Debt Surge (AEP)

The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned. Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield. “Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” he told The Telegraph. Mr Caruana said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20%age points to 275pc of GDP since then.

Credit spreads have fallen to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. The BIS said 40pc of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007, with ever fewer protection covenants for creditors. The disturbing twist in this cycle is that China, Brazil, Turkey and other emerging economies have succumbed to private credit booms of their own, partly as a spill-over from quantitative easing in the West. Their debt ratios have risen 20%age points as well, to 175pc. Average borrowing rates for five-years is 1pc in real terms. This is extemely low, and could reverse suddenly. “We are watching this closely. If we were concerned by excessive leverage in 2007, we cannot be more relaxed today,” he said. “It may be the case that the debt is better distributed because some highly-indebted countries have deleveraged, like the private sector in the US or Spain, and banks are better capitalized. But there is also now more sensitivity to interest rate movements.”

Read more …

Old Buddhist conundrum: if traders are broke, are they still traders?

Traders Flood US With $3.4 Trillion of Bond-Auction Demand (Bloomberg)

The intensifying debate over when the Federal Reserve raises interest rates is little more than a sideshow when it comes to the ability of the U.S. to borrow. For all the concern fixed-income assets will tumble once the central bank boosts rates, the Treasury Department still managed to get investors to submit $3.4 trillion of bids for the $1.12 trillion of notes and bonds sold this year, according to data compiled by Bloomberg. That represents a bid-to-cover ratio of 3.06, the second-highest on record and up from 2.88 in all of last year. Attracting investors is critical for the U.S. as it finances a debt load that has more than doubled to almost $18 trillion since before the financial crisis. The appeal of Treasuries was on display last week as benchmark 10-year notes rallied the most since March while investors sought a haven amid rising concern over the health of a Portuguese bank.

“There are still plenty of needy buyers,” William O’Donnell, head U.S. government bond strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a July 8 telephone interview. “We’ve seen it from all sources,” said O’Donnell, whose firm one of the 22 primary dealers of U.S. debt obligated to bid at Treasury auctions. Behind the demand is speculation the global economy isn’t growing fast enough to allow central banks to easily withdraw from loose monetary policies that have supported bond markets around the world. Barclays Plc, another primary dealer, cut its forecast for worldwide gross domestic product on July 11 to an increase of 3.1% at an annual rate this quarter from 3.4%. U.S. banks own more than $1.9 trillion of U.S. government and agency securities, up from $1.2 trillion in 2008, Fed data show. Foreign investors hold a record $5.96 trillion, more than double their stake of six years ago.

Read more …

Draghi Seen Delivering $1 Trillion Free Lunch to Banks (Bloomberg)

Mario Draghi’s newest stimulus tool will hand banks more than €700 billion ($950 billion) of cheap funding, economists say. The European Central Bank president’s targeted lending program for banks will boost credit for the real economy as planned, and at the same time help keep the financial system flush with cash, according to the Bloomberg Monthly Survey of 45 economists. Draghi may address the topic today when he testifies at the European Parliament in Strasbourg for the first time since elections in May. The ECB has identified lending to companies and households as a key weakness in the euro area’s fragile recovery. The so-called TLTRO program, part of a wider package of measures announced in June, offers as much as four years of low-cost funding tied to bank lending that Draghi said this month could ultimately provide as much as €1 trillion.

“The take-up should be large – the money is cheap and banks should feel no stigma about accepting a free lunch,” said Alan McQuaid, chief economist at Merrion Capital in Dublin, who predicts banks will take the maximum available. “With any luck, Draghi’s next problem will not come until 2018, when €1 trillion needs refinancing.” Lenders probably won’t take the full amount, the survey shows. They’ll borrow €305 billion in the first TLTRO rounds this year, compared with an ECB cap of about €400 billion, according to the median estimate of economists. That’ll rise to €710 billion after quarterly operations in 2015 and 2016 tied to new loans, the survey shows. Three-quarters of respondents said the measure will increase credit provision to companies and households in the euro-area periphery. The loans are charged just above the ECB’s benchmark interest rate, currently at a record-low 0.15%.

Read more …

Yada yada.

Europe Needs $795 Billion Problem Property Loan Solution (Bloomberg)

European banks and asset managers plan to sell or restructure €584 billion ($795 billion) of riskier real estate as they try to clean up their balance sheets, Cushman & Wakefield Inc. said. The region’s lenders, asset managers and bad banks, such as Spain’s Sareb, sold €40.9 billion of loans tied to property in the first six months, 611% more than a year earlier, the New York-based broker said in a report today. Transactions will reach a record €60 billion this year, Cushman & Wakefield estimates. Lenders such as Royal Bank of Scotland Plc are accelerating loan-portfolio sales as borrowing costs fall from a year ago and economic sentiment improves. Lone Star Funds and Cerberus Capital Management LP are among U.S. investors that are taking advantage as sellers opt to offer bigger groups of loans, making it more difficult for smaller firms to make purchases, Cushman & Wakefield said.

“U.S. investors have raised an enormous volume of capital targeting opportunistic real estate,” Frank Nickel, executive chairman of Cushman & Wakefield’s EMEA corporate finance group, said in a statement. “‘Mega-deals’ prove popular to these buyers since they offer a chance to gain large exposures to key assets and markets in one transaction, saving on both costs and time.” The average size of loan-sale transactions in the region increased to €621 million in the first half from €346 million a year earlier, according to the report.

Read more …

Done deal.

Gallup Slams Lid On Hopes For US Economy (WolfStreet)

Consumers are “straining against rising prices on daily essentials” and are cutting back on things they want to buy. “If there was any doubt that the US economy is still struggling to get back on its feet, the results of this poll reinforce that reality.” Consumers are “straining against rising prices on daily essentials to afford summer travel, dining out, and discretionary household purchases – the kinds of purchases that ordinarily keep an economy humming.” That’s what Gallup found when it used a new survey to dive deeper into consumer spending.

Its regular monthly survey has been mixed. The average dollar amount consumers spent in June swooned to $91 per day from $98 in May, after a crummy January-April period ranging from $78 to $88 per day. The May spurt seems to have been an outlier that had given rise to a lot of speculation consumers would finally hit “escape velocity,” now obviated by events. But from 2012 until late last year, the averages had been rising. So Gallup dove deeper into the issue with its new survey conducted in mid-June to sort through what consumers are spending more or less money on. And what it found was that they’re buying a little more – “just not the things they want.” They’re spending more on things they have to buy, and in many instances they’re spending more in these categories because prices have jumped. At the top of the list: groceries.

Groceries: 59% spent more, 10% spent less.
Gasoline: 58% spent more, 12% spent less
Utilities: 45% spent more, 10% spent less
Healthcare: 42% spent, 8% spent less
Toilet paper and other household goods: 32% spent more, 5% spent less
Rent, the biggie: 32% spent more, 9% spent less.

These categories are household essentials. They’re on top of the priority list. And in order to meet the requirements of these items, consumers are cutting back where they can. Gallup found that “the increasing cost of essential items is further constraining family budgets already hit hard by the Great Recession and still reeling from a stagnant economy.” Hence, the less essential the expense, the more it got cut. Here is the bottom of the list, which explains part of the recent retail woes:

Retirement savings: 18% spent more, 17% spent less.
Leisure activities: 28% spent more, 31% spent less
Clothing: 25% spent more, 30% spent less
Consumer electronics: 20% spent more, 31% spent less
Travel: 26% spent more, 38% spent less
Dining out: 26% spent more, 38% spent less

Read more …

That’s one way to put it.

Americans Are Living The Dream, But Not Loving It (CNBC)

A new survey shows most Americans feel they aren’t living the American dream, despite being wealthier and more educated than ever. The study, conducted by the marketing firm DDB, found that only 40% of American adults believed they were living the dream. However, 66% of Americans owned a home, 78% received a good education, and 74% said they’ve found a decent job—all widely believed to be part of the American dream. The disconnect may be because achieving and maintaining the American dream have become so difficult that people are not enjoying it, said Mosche Cohen, former professor at Columbia Business School. People are trying to “shoehorn themselves into this concept of the American dream, and they are losing the freedoms it’s supposed to provide,” he said in an interview with CNBC’s “Power Lunch.”

Americans may work hard in school, get a good job, marry, and buy a home, but fast-forward a few years and they may find themselves with children, living in a home that is now too small, clinging to a job they don’t love anymore, and living paycheck to paycheck. “They’re living the dream, but they’re not loving it anymore,” Cohen said. According to Diana Elliott from Pew Charitable Trusts, which conducts similar studies, achieving the American Dream comes down to financial security and wealth. “Americans are not feeling as [financially] secure as perhaps they were before the Great Recession,” she said. “The American dream is really about having a little bit extra at the end of the month and being able to springboard … your children into the future.”

Read more …

Sign of the end?!

Individuals Pile Into Stocks as Pros Say Bull Is Spent (Bloomberg)

Main Street and Wall Street are moving in opposite directions. Individual investors are plowing money back into the U.S. stock market just as professional strategists say gains for this year are over. About $100 billion has been added to equity mutual funds and exchange-traded funds in the past year, 10 times more than the previous 12 months, according to data compiled by Bloomberg and the Investment Company Institute. The growing optimism contrasts with forecasters from UBS AG to HSBC Holdings Plc, who say the stock market will be stagnant with valuations at a four-year high. While the strategists have a mixed record of being right, history shows the bull market has already lasted longer than average and individuals tend to pile in at the end of the rally.

“If Wall Street, after poring over all known data, comes up with a target and we’re already there, and you still see individual investors buying and they’re typically the ones that are late to the party, it would seem there is limited upside,” Terry Morris, a senior equity manager who helps oversee about $2.8 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., said in a July 8 phone interview. U.S. stocks slid from record highs last week, sending the Standard & Poor’s 500 Index to the biggest drop since April, amid concern over financial stress in Europe and the timing of higher U.S. interest rates. The Chicago Board Options Exchange Volatility Index jumped 17% from a seven-year low.

Read more …

But they’re broke.

Economy Needs Consumers To Chip In (MarketWatch)

The U.S. economy is revved up and ready to go by most measures except for, perhaps, the most critical one: The consumer. And that’s a problem. Consumer spending is the fuel that runs a modern economy. Oh sure, businesses have to invest and hire to get the party going, but consumer spending generates more than two-thirds of the nation’s economic activity. When they spend more, businesses hire and invest more. Yet since the recession ended in mid-2009, consumers have been unusually shy. Americans are only spending about two-thirds as much as they used to and that’s kept U.S. growth well below its historical norm. Meager wage gains, a devastated labor market and deep scars from the Great Recession clearly played a part in suppressing the urge or ability to spend.

As of May consumer spending is climbing at just a 2.9% annual pace, the slowest rate in five years. And a key bellwether of whether Americans are spending more, retail sales, hasn’t show much pop. “For the economy to really kick into the next gear, we need the consumer to do more of the heavy lifting,” said Ryan Sweet, senior economist at Moody’s Analytics. “For many consumers it still feels like a recession.” The retail sales report for June, released Tuesday, could offer further clues on whether consumers are starting to feel more optimistic. Economists predict sales will rise by a healthy 0.6%, but more important is whether other sectors aside from fast-growing auto and Internet retailers show renewed strength. Many of them have lagged behind in 2014.

Read more …

Very interesting.

How Capital Captured Politics (Guardian)

In May, an international trade agreement was signed that effectively serves as a kind of legal backbone for the restructuring of world markets. While the Trade in Services Agreement (Tisa) negotiations were not censored outright, they were barely mentioned in our media. This marginalisation and secrecy was in stark contrast to the global historical importance of what was agreed upon. In June, WikiLeaks made public the secret draft text of the agreement. It covers 50 countries and most of the world’s trade in services. It sets rules that would assist the expansion of financial multinationals into other nations by preventing regulatory barriers. It prohibits more regulation of financial services, despite the fact that the 2007-08 financial meltdown is generally perceived as resulting from a lack of regulation. Furthermore, the US is particularly keen on boosting cross-border data flow, including traffic of personal and financial data. Despite all this, we heard little about it. [..]

The main culprits of the 2008 financial meltdown now impose themselves on us as experts leading us on the painful path to financial recovery. Their advice should trump parliamentary politics. Or, as Mario Monti put it: “Those who govern must not allow themselves to be completely bound by parliamentarians.” What, then, is the higher force whose authority can suspend the decisions of the democratically elected representatives of the people? As far back as 1998, the answer was provided by Hans Tietmeyer, the then governor of the Deutsche Bundesbank, who praised national governments for preferring “the permanent plebiscite of global markets” to the “plebiscite of the ballot box”. Note the democratic rhetoric of this obscene statement: global markets are more democratic than parliamentary elections, since the process of voting goes on in them permanently (and is permanently reflected in market fluctuations) and at a global level, not only within the limits of a nation state.

This, then, is where we stand with regard to democracy, and the Tisa agreement is a perfect example. The key decisions concerning our economy are negotiated and enforced in secret, and set the coordinates for the unencumbered rule of capital. In this way, the space for decision-making by the democratically elected politicians is severely limited, and the political process deals predominantly with issues towards which capital is indifferent (like culture wars). This is why the release of the Tisa draft marks a new stage in the WikiLeaks strategy: until now its activity has been focused on making public how our lives are monitored and regulated by the intelligence agencies – the standard liberal topic of individuals threatened by oppressive state apparatuses. Now another controlling force appears – capital – which threatens our freedom in a much more twisted way: by perverting our very sense of what the word means.

Read more …

Interesting.

‘Politics and Mafia Are Same Thing’ (Quijones)

Recent years have not exactly been kind to Luís Bárcenas Gutiérrez. For decades he served as treasurer of the governing People’s Party, a position which afforded him de facto control over the party’s accounts and money movements. In 2009, however, a money laundering investigation by Swiss authorities discovered more than €30 million spread across an assortment of Swiss bank accounts, all under his name. It soon came to light that for almost 20 years Bárcenas had “allegedly” been paying under-the-table bonuses to senior figures in the Popular Party (PP), including, allegedly, the former and current prime-ministers José Maria Aznar and Mariano Rajoy. During that time large construction companies gave the party millions of euros in undeclared donations, which were promptly redirected by Bárcenas into the deep pockets of senior party members and the bank accounts of the party’s regional offices.

Although these illegal practices appear to have been common knowledge to the party leadership since 1990, Bárcenas has been made the solitary fall guy in the affair. In January 2013 he was sentenced to jail without bail. As he awaits his sentence in the rather austere surroundings of Madrid’s El Soto prison, Bárcenas’s once-fine name, now synonymous with political corruption in Spain, is once again being dragged through the press-grinder. The reason? According to Spain’s finance website El Confidencial, a taped phone conversation between two members of the Neapolitan mafia, la Camorra. It reads like a scene out of a Scorcese movie: On March 25th Ciro Rovai, the leader of the “Rovai clan,” who was arrested by Spanish police this Tuesday, was caught on tape telling a fellow Camorra member that he had been in contact with the former PP treasurer about the possibilities of “investing” in Madrid’s now-doomed Eurovegas project. “He (Barcenas) told me that the mafia and politics are one and the same”, Ravai recounted.

Read more …

Secret Path Revealed for Chinese Billions Overseas (Bloomberg)

For years, wealthy Chinese have been transferring billions worth of their money overseas, snapping up pricey real estate in markets including New York, Sydney and Vancouver despite their country’s currency restrictions. Now, one way they could be doing it is clearer. Last week, when China Central Television leveled money-laundering allegations against Bank of China Ltd., the state-run broadcaster’s report prompted the revelation of a previously unannounced government program that enables individuals to transfer their yuan and convert it into dollars or other currencies overseas.

Offered by some banks in the southern province of Guangdong, across the border from Hong Kong, the trial program was introduced in 2011 for overseas property purchases and emigration and doesn’t constitute money laundering, Bank of China said in a July 9 statement. The transfers were allowed by regulators and reported to them, the bank said. “What it shows is the government has been trying to internationalize the renminbi for a lot longer than we thought,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Ltd., said by phone, using the official name for China’s currency and referring to policy makers’ long-stated goal of allowing the yuan to become freely convertible with other currencies. “I’m rather encouraged by this news because this is the way they need to go.”

Read more …

Abenomics

What Happened To Japan’s Yen-Driven Export Boom? (CNBC)

When Japan’s Prime Minister Shinzo Abe came to power in late 2012, he hoped a weaker yen would give exporters a much-needed boost as well as spur the inflation needed to revive the world’s third biggest economy. Eighteen months on and after an almost 30% decline in the yen’s value driven by massive monetary stimulus from the Bank of Japan, the currency has failed to lead to the export boom the government had hoped for. Japan’s annual exports declined in May for the first time in 15 months, latest data show. More disturbingly, say economists, is that the yen’s decline has failed to boost export volumes, which peaked in 2007 and fell for a third year running in 2013.

Read more …

Certain to screw up.

Fed Has Little Uncertainty, Despite Forecasting Misses (WSJ)

Federal Reserve policy makers have been consistently too optimistic about economic growth and too pessimistic about the falling unemployment rate. But ask them if they’re uncertain about their forecasts and this is their answer: no more than usual. In 2012, Fed officials said they were more uncertain than usual about their forecasts for growth, unemployment and inflation. But over the course of 2013 their uncertainty has declined, and now almost all Fed officials are confident in their forecasts, according to the Fed’s self-assessment of uncertainty which was released Wednesday as part of Fed’s June meeting minutes. Fed officials have recently been concerned that markets have grown too complacent. Yet even at the Fed, only three officials rank their uncertainty about growth as high, and only two are more certain than usual about their unemployment forecasts. (The minutes do not identify by name which Fed official makes which forecast.)

For the record, most Fed officials see growth of 2.1% to 2.3% this year and unemployment at the end of 2014 between 6% and 6.1%. Those forecasts were made in advance of their June 17-18 policy meeting, and already they’re beginning to look a little suspect. The economy contracted at an annualized rate of 2.9% in the first quarter of 2014, according to a Commerce Department report released the week after the Fed meeting. That’s going to make 2.3% growth over all of 2014 a difficult target to reach. (As we noted earlier, downward growth revisions at the Fed have been inexorable.) And the unemployment rate dropped to 6.1% in June from 6.3% in May according to the Labor Department‘s July 3 report. Another month or two with an unemployment rate decline and the Fed will have blown its unemployment forecast as well.

Read more …

Huh? I thought they make the curve?!

Are The Fed And The ECB Falling Behind The Curve? (CNBC)

If you believe some of the U.S. Federal Reserve (Fed) governors’ forecasts, the answer for the Fed’s case is a resounding “yes.”Speaking at the Sixth Annual Rocky Mountain Economic Summit in Jackson Hole, Wyoming, last Friday these Fed officers confidently predicted that the U.S. economy would be growing at a rate of more than 3% over (an unspecified number of) next quarters. At the same time, they announced that an increase in interest rates was likely to begin in late 2015 or sometime in 2016. Here is why these forecasts clearly imply that the Fed is already behind the curve. With an estimate of U.S. economic growth potential somewhere in the range of 2 to 2.25%, an actual growth rate of more than 3%, sustained over several quarters, would create labor and product market pressures that would lead to accelerating inflation. Obviously, if such a scenario were to pass, interest rates would begin rising much before the second half of 2015.

And, as always in similar situations, the prospect of an open-ended credit tightening would create serious problems in asset markets, without any guarantees of promptly reestablishing market stability and inflation control. That is what is meant by the monetary policy falling behind the curve. This also clarifies that the furious debate we are now witnessing about the policies conducted by the American and European monetary authorities must be based on thoughtful forecasts about the economic conditions likely to prevail over the next twelve months rather than on what we see at the moment. That is tough. And to make things even more difficult, this particular forecasting exercise has to contend with additional uncertainties, which are technically called “lags in the effect of monetary policy.” In other words, we don’t know exactly how long it takes for a change in monetary policy to affect demand, output, employment and inflation. That, too, has to be estimated.

Read more …

Update Befuzzle.

America’s Six Largest Banks Prepare To Update Investors (Guardian)

America’s biggest banks will update investors this week amid expectations that the financial services sector has been hit once more by lacklustre lending, poor trading and the soaring cost of legal expenses tied to a series of fines and investigations. The six largest US banks – Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo – are expected to show quarterly revenue declined by 5.6% from the previous year, according to the analyst estimates. Profits are expected to drop as banks face a tough comparison with a strong second quarter last year. The results come as regulators are negotiating settlements with some of the banks and continue to investigate others over a variety of issues. Citigroup, which reports on Friday, is believed to be close to a $7bn (£4.1bn) settlement over the sale of risky mortgages in the runup to the financial crisis. The justice department reached a similar agreement with JP Morgan, reporting Tuesday, last year.

The justice department is also in talks with Bank of America about alleged wrongdoing in its mortgage business ahead of the crisis. The talks with the bank, which reports on Wednesday, have apparently stalled. Reuters reported earlier this month that the attorney general, Eric Holder, had refused to meet Bank of America chief executive Brian Moynihan because the two sides remain too far apart. Alongside legal woes the banks are also experiencing continued problems on their trading desks, once the main driver of growth, now held back by new regulations aimed at tamping down excessive risk taking and lack of appetite among investors. Foreign exchange and fixed income trading revenues have fallen at the investment banks this year. Bond trading income declined by 11% at Goldman Sachs in the first quarter and investors will be watching closely for signs of improvement when the bank reports on Tuesday.

Read more …

Don’t count out Vlad.

US, EU Sanctions Aid Putin’s Master Plan (WolfStreet)

London is, according to Bloomberg, “the undisputed foreign hub for Russian business.” That’s where Russian companies hire law firms and investment bankers to handle takeovers. That’s where rich Russians like to live with their families or just hang out and have fun. That’s where they like to spend lots of money. But the sanction spiral has already – and very inadvertently – accomplished one of the big goals, not of President Barak Obama or Chancellor Angela Merkel, but of President Vladimir Putin: keep Russian money in Russia, and perhaps even bring back some of the money that has wandered astray over the years to seek greener pastures elsewhere. Capital flight, particularly from the vast underground economy, is one of Russia’s most pressing economic problems. And Putin’s angle of attack has been, well, brutal in its own way:

The spectacular collapse of the Cypriot banks last year took down much of the “black money” Russians and their mailbox companies – there were over 40,000 of these outfits in Cyprus – had on deposit there. Instead of bailing out the cesspool of corruption that these banks were, or even the nation with another emergency loan, as Russia had already done before, he just smiled and let it happen. And much of the money of his compatriots was allowed to evaporate. Perhaps he’d read Global Financial Integrity’s report – designed to advise the Russian government on these issues – that called Cyprus “a Money Laundering Machine for Russian criminals.” And so the sanction spiral against Russian oligarchs and their companies fits neatly into his overall long-term design. It includes the de-dollarization of world trade – an endeavor where he found new friends even in France, after French megabank BNP-Paribas agreed to pay a $8.9 billion penalty to the US Government.

China has been working furiously to elevate its own currency to a world-trade currency to rival the dollar and the euro, though it still has a long ways to go. Putin has been eager to switch the oil and gas trade with China away from the dollar, and progress is being made on a daily basis. And it includes getting Russian companies and rich individuals, by hook or crook, to leave at least some of their money in Russia and perhaps even repatriate some of the money now invested elsewhere so that it can do its magic for the economic development of Russia, and propel the country forward. Once in Russia, the money would presumably remain more accessible to the Russian government, which these very oligarchs have seen is not a great situation to be in, if they end up on the wrong site of Putin. Russia’s legal system can be a hazard to their health and wealth, and banks can be iffy. Hence the prevailing wisdom to send overseas every ruble, dollar, or euro that isn’t totally nailed down.

Read more …

An ancient Buddhist conundrum: if there is no recovery, how can it falter?

Eurozone Recovery Falters As Industrial Production Shrinks 1.1% (CAM)

Further evidence that the fragile Eurozone recovery could be beginning to splutter emerged today. Industrial production in the 18-member euro area fell sharply by 1.1% in May, the largest monthly drop since September 2012, according to figures released by the EU’s statistics agency Eurostat this morning. The data confirmed analyst fears that a significant shrink in industrial output had been coming, especially as the economic powerhouses of Germany, France and Italy had already reported some surprisingly large contractions in May. Economists had actually predicted a slightly bigger dip of 1.2%. May’s figures were up 0.5% from the same month last year. EU industrial production has been volatile in 2014 and analysts acknowledge that these figures can be erratic from month to month. April numbers had shown a 0.7% increase, rebounding from a 0.4 dip in March. However the marked fall in industrial output is stoking fears that the Eurozone recovery is stalling before it has even begun to really gain steam.

Read more …

Oh, bugger!

Draghi Faces Age-Old Problem in Trying to Spur Europe Inflation (Bloomberg)

Mario Draghi faces an age-old problem as he tries to revive euro-area inflation. A rapid rise in the importance of older workers in the currency bloc’s labor market over the next five years is set to prove a drag on inflation already about a quarter of the European Central Bank’s target of just below 2%, according to Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. Since 2008 the number of workers aged between 50 and 64 has gained in the main euro-area nations and now account for 26% to 31% of total employment, up from 20% to 25% previously. Employees aged more than 65 have also increased, yet the amount still lags the U.S. and U.K., suggesting to Alexandrovich that the “euro-area economics may only be at the start of what is a long-term structural shift toward increased importance of older workers.”

If so, then ECB President Draghi has another structural factor to worry about as he tries to prevent deflation with easy monetary policy. That’s because older workers tend to defer consumption and save for the future, while youngsters entering the labor market are more likely to consume today. While data are hard to find for the euro area, an Institute for Fiscal Studies analysis of the U.K. suggests that from 2000 and 2005, British workers aged 55 to 59 had an average annual saving rate of about 5.5%, while those less than 34 ran up no savings. “So a recovery where jobs are going predominantly to older workers, which is what is happening today, will look very different than that where younger workers are getting jobs for the first time,” said Alexandrovich in a report to clients. “All things being equal, it would imply weaker consumption and a softer profile for inflation.” The higher propensity to save also implies downward pressure on interest rates, which Draghi cut to record lows last month to encourage economic growth, Alexandrovich said.

Read more …

The US saved GM with many billions; can’t let it collapse now.

Prosecutors’ Case Against GM Focuses On Misleading Statements (Reuters)

Federal prosecutors are developing a criminal fraud case hinged on whether General Motors made misleading statements about a deadly ignition switch flaw, and are examining activity dating back a decade, before GM’s 2009 bankruptcy, according to multiple sources familiar with the investigation. At the same time, at least a dozen states are investigating the automaker. Two state officials said that effort is likely to focus on whether GM broke consumer protection laws. Both federal and state investigations into the switch, which is linked to at least 13 deaths and 54 crashes, are at early stages, and it is possible that cases may not be brought. Sources said federal criminal prosecutors are working on a set of mail and wire fraud charges, similar to the criminal case Toyota Motor Corp settled earlier this year over misleading statements it made to American consumers and regulators about two different problems that caused cars to accelerate even as drivers tried to slow down.

Delphi Automotive, the maker of the GM switch, is not a target of criminal charges, the people said, because it did not make substantial public statements about the safety of the vehicles or the part. That would make it difficult to build a case under the main federal fraud laws, the wire and mail fraud statutes. Greg Martin, a spokesman for GM, said his company continued to work with investigators, declining to comment further, and a spokeswoman for Delphi said the company had been told it was not a target of investigations and was working cooperatively with all government officials. A spokesman for Manhattan U.S. Attorney Preet Bharara, who is leading the criminal probe, declined to comment. Prosecutors are not limiting their inquiries to events that occurred after GM emerged from bankruptcy in 2009, sources said. Legal experts said bankruptcy does not release GM from criminal liability in a fraud case.

Read more …

It’s strange how strong the pressure is to deny even this most obvious fact.

Study of Organic Crops Finds Fewer Pesticides, More Antioxidants (NY Times)

Adding fuel to the debates over the merits of organic food, a comprehensive review of earlier studies found substantially higher levels of antioxidants and lower levels of pesticides in organic fruits, vegetables and grains compared with conventionally grown produce. “It shows very clearly how you grow your food has an impact,” said Carlo Leifert, a professor of ecological agriculture at Newcastle University in England, who led the research. “If you buy organic fruits and vegetables, you can be sure you have, on average, a higher amount of antioxidants at the same calorie level.” However, the full findings, to be published next week in the British Journal of Nutrition, stop short of claiming that eating organic produce will lead to better health. “We are not making health claims based on this study, because we can’t,” Dr. Leifert said.

The study, he said, is insufficient “to say organic food is definitely healthier for you, and it doesn’t tell you anything about how much of a health impact switching to organic food could have.” Still, the authors note that other studies have suggested some of the antioxidants have been linked to a lower risk of cancer and other diseases. The conclusions in the new report run counter to those of a similar analysis published two years ago by Stanford scientists, who found few differences in the nutritional content of organic and conventionally grown foods. Those scientists said the small differences that did exist were unlikely to influence the health of the people who chose to buy organic foods, which are usually more expensive. The Stanford study, like the new study, did find pesticide residues were several times higher on conventionally grown fruits and vegetables, but played down the significance, because even the higher levels were largely below safety limits.

Read more …