Feb 232018
 
 February 23, 2018  Posted by at 10:55 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso Rooster 1938

 

Art Cashin: Once the 10-Year Yield Hits 3% ‘All Hell’ Could Break Loose (CNBC)
China Regulators Take Control Of Insurance Giant Anbang (AFP)
Xi’s Debt Crackdown Goes Into Hyperdrive (BBG)
BIS Suggests Beijing Is Behind China Shadow Banking Sector (F.)
China Is Letting The Yuan Crush The Dollar To Appease Trump (CNBC)
Bond Villain in the World Economy: Latvia’s Offshore Banking Sector (CP)
Reserve Bank Of Australia Accused Of Causing Ponzi Mortgage Market (AFR)
US Shale Investors Still Waiting On Payoff From Oil Boom (R.)
EU Leaders Go to Battle Over Post-Brexit Budget Gap (BBG)
Irish President Criticises EU Treatment Of Greece (IT)
Greek MPs Vote To Investigate Top Politicians In Novartis Bribery Claims (G.)
Greece Is The European Champion In Corporate Taxes (K.)
The Gun-Control Debate Could Break America (French)
50,000 Die In UK ‘Cold Homes Public Health Crisis’ (Ind.)

 

 

The cavalry.

Art Cashin: Once the 10-Year Yield Hits 3% ‘All Hell’ Could Break Loose (CNBC)

It could be a bad day for the markets once the yield on the benchmark 10-year Treasury hits 3%, closely followed trader Art Cashin told CNBC on Thursday. “That 3% level is both a target and a kind of resistance. Everybody knows it’s like touching the third rail,” said Cashin, UBS director of floor operations at the New York Stock Exchange. “The assumption is once they do it, all hell will break loose. So we’ll wait and see.” As of early Thursday, the 10-year yield was slightly lower, around 2.91%, down from Wednesday’s four-year high of 2.95%. Wall Street fears returned Wednesday afternoon after minutes from the Federal Reserve’s latest meeting sent bond yields rising and stocks into a tailspin. The last time the 10-year yield traded above 3% was in January 2014.

“Initially, yields moved down, stocks rallied like crazy,” Cashin recalled about Wednesday, moments after the Fed minutes were released. “Then about eight minutes into that move, stocks looked back and noticed bonds had changed their mind.” The sharp moves seen Wednesday were probably due to “our friends, the long-lost ‘bond vigilantes,'” Cashin told “Squawk on the Street.” The term “bond vigilantes” was coined by market historian Ed Yardeni during the 1980s, referring to traders who sell their holdings in an effort to enforce what they consider fiscal discipline. Selling bonds sends yields higher due to the inverse relationship between bond prices and bond yields. “We’re going to need a couple weeks to see if the bond vigilantes really are back or not,” Cashin said. “Or whether it was simply a fluke. But remembering what bond vigilantes look like, it certainly had fingerprints on them.”

Read more …

Before it burns down the entire financial sector.

China Regulators Take Control Of Insurance Giant Anbang (AFP)

China took over Anbang Insurance for a year on Friday and said its former chairman faces prosecution for “economic crimes”, in the government’s most drastic move yet to rein in politically connected companies whose splashy overseas investments have fuelled fears of a financial collapse. The highly unusual commandeering of Anbang signalled deep official concern over the Beijing-based company’s financial situation and comes as the government looks to address spiralling debt in the world’s second-largest economy. The China Insurance Regulatory Commission said Anbang, which has made a series of high-profile foreign acquisitions in recent years, had violated insurance regulations and operated in a way that may “severely” affect its solvency. The announcement also clarified the fate of Anbang’s chairman Wu Xiaohui, who was reported by Chinese media to have been detained last June.

The insurance regulator confirmed Wu was being “prosecuted for economic crimes”, a startling fall from grace for a man who reportedly married a granddaughter of late Chinese leader Deng Xiaoping. A statement by government prosecutors in Shanghai said Wu was suspected of fraudulent fundraising and “infringement of duties”. Acquisitive private companies such as Anbang, HNA, Fosun and Wanda have increasingly loomed in the government’s cross-hairs as it conducts a sweeping crackdown on potential financial risks. The four firms were in the vanguard of an officially-encouraged surge in multi-billion-dollar overseas deals by Chinese firms to snatch up everything from European football clubs to hotel chains and movie studios, and were until recently considered untouchable because of their political connections.

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China needs to keep its reserves at home.

Xi’s Debt Crackdown Goes Into Hyperdrive (BBG)

If you needed confirmation about China’s determination to rein in surging corporate debt, the dramatic government takeover of Anbang Insurance is pretty much it. The unprecedented seizure of a private insurer underscores President Xi Jinping’s policy drive to cut back on the debt-fueled excesses that have accompanied China’s growth miracle. It’s a direct hit to corporate binge spending that authorities want to stem; it energizes a long running anti-corruption campaign; and it demonstrates that short-term economic pain will be tolerated for the longer-term goal of a more sustainable expansion. For the rest of the world, the intervention offers up a useful reminder: When you do business with China, you do business with the Communist Party.

“It’s a new example of the seriousness of Xi Jinping’s government to insert the party and the state at all levels of business,” said Fraser Howie, co-author of the book “Red Capitalism” who has two decades of experience in China’s financial markets. “They have no qualms about coming in over the top and saying ‘we are going to take this over.’” He likened the takeover to the U.S. Federal Reserve, the Financial Industry Regulatory Authority and the Securities and Exchange Commission coming together to restructure a company. [..] The backdrop to the pincer move on Anbang and its founder Wu Xiaohui, who is to be prosecuted for alleged fraud, is a robust economy that’s giving officials the running room to crack down on debt excesses without depressing growth.

Overseas investment by Chinese companies has been strictly curtailed since last year as part of the broader ambition to shift the economy onto a more sustainable footing after years of debt-fueled expansion. Because China is self financed and credit is steered by state-owned lenders to state-controlled or linked companies, authorities have the luxury of intervening at their whim to shuffle money from one section of the economy to another. That’s one of the key reasons why regulators are able to tackle Anbang and other high profile conglomerates without lawyers, shareholder activists or opposition politicians getting in the way.

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I don’t believe this is the whole story. Shadow banking in China is so lucrative there’s no way foreigners are not heavily involved.

BIS Suggests Beijing Is Behind China Shadow Banking Sector (F.)

Concerns about the scale of shadow banking in China have now risen alongside concerns about the ever-rising debt load across the economy. The IMF, for example, has been consistently warning about this issue, along with Western credit ratings agencies. But the biggest hawk on China’s credit risks has for some time been the Bank for International Settlements (BIS), known as the central banker’s bank. The BIS produced a comprehensive assessment of the “shadow banking” sector last week. The report itself is not very surprising, but it does suggest much coverage of the issue adopts a misplaced tone. The most important insight the report generates is simply that the shadow banking sector in China is almost entirely driven by the traditional, state-dominated banks ; the SOE banks, the Joint Stock banks and the City commercial banks, all of which have significant levels of state involvement.

Indeed it was estimated in 2014 that the Chinese banking system was capitalized by only about 12% private capital, the rest linking back to the Chinese state, either centrally or regionally. In other words, although the phrase “shadow banking” is used in China, in Western economies this usually refers to activity that is quite distinct from the state, where private investors knowingly operate outside of the many regulatory safeguards offered by traditional banking. Whereas in China the state is either the key mediator or even the guarantor of the unregulated activity. In other words, the state in China is freely engaging in unregulated activity, precisely in order to avoid the burdens of their own regulations. This is perhaps why “shadow banking” in China is often–and more accurately–referred to as “banking in the shadows” as it is a substitute for traditional banking, but it takes place out of sight.

This may be well understood by banking professionals, but it is an example of the kind of difference of emphasis that leads to misunderstanding in the markets and the press. The impression that China is somehow slowly getting to grips with a poorly regulated sector, or at least announcing its intention to do so, is quite simply at variance with what is actually going on, which is that the state itself is the source of the problem. The “shadow banking” sector in China has expanded enormously, not in spite of the state but because of it. It both applies the regulations in the formal banking sector, and avoids them in the “shadow banking” sector. None of this changes the fact that the overarching problem is China’s rapidly rising overall debt pile, but we shouldn’t be under any illusions over what exactly is hiding in the shadows. More to the point, if the activities of the Chinese state are hiding in the shadows, it is worth considering what exactly they are hiding from?

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Short term gains. Halt outflows. But a strong yuan wreaks hovoc on exports.

China Is Letting The Yuan Crush The Dollar To Appease Trump (CNBC)

The Chinese yuan has appreciated 10% against the dollar since the start of 2017, quelling some criticism that the export giant has been deliberately suppressing its currency to gain economic advantage over its trading partners. This is all going according to China’s plan, experts said. Although the strength of the yuan against the dollar is in part due to the greenback’s weakness, experts said the world’s second-largest economy is also propping up its currency to appease President Donald Trump. China has “reversed the rise” of the dollar against the yuan, and there’s now “meaningful” strength against the greenback, Bilal Hafeez, global head of G-10 foreign-exchange strategy at Nomura, wrote in a recent note. “Part of this was likely a response to the election of President Trump and the need to avoid being labelled a currency manipulator,” Hafeez added.

On the 2016 campaign trail, Trump repeatedly said he would name China a currency manipulator from his first day in office. That has not happened. [..] China will probably continue to manage its currency in the background even if it keeps its value against the dollar relatively high, analysts said. Morgan Stanley analysts said in a note this week that the trade-weighted yuan should remain “largely stable” around current levels as Beijing’s capital control efforts have worked. “If [the yuan] continues to appreciate rapidly, policy-makers may seek to stem the rise in order to maintain stability in the trade-weighted [yuan], which would likely be achieved by verbal communication and a relaxation of some outbound capital restrictions,” Morgan Stanley added.

Beijing is walking a tricky tightrope as the Communist regime seeks to balance political concerns with economic reforms and the demands that come with a market-based system. In the second half of 2015, the Chinese government shocked markets by devaluing the yuan. That spurred capital flight due to concerns over the health of the world’s second-largest economy — which further depressed the Chinese currency. Beijing has been trying to reverse that damage. “I think they ultimately want a weaker currency, they just don’t know how to achieve it. They tried in 2015, it didn’t work, turned into a vicious cycle and they’re kind of stuck right now with always trying to control everything but not knowing how to get a weaker currency through a structural slowdown in a way that does not cause a lot of disturbances to domestic financial markets for instance,” said Jason Daw at Societe Generale.

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The Russians did it.

Bond Villain in the World Economy: Latvia’s Offshore Banking Sector (CP)

If the world economy were a Bond movie, Latvia’s offshore banking economy would be its Bond villain. Presently, this plucky state of 1.8 million people on Russia’s border is leading the world’s financial press with two major scandals. First, there is their long-standing Central Bank Governor, Mr. Ilmars Rimsevics. While Latvia’s population (disproportionally aged, as many of the young have left to find work abroad) only rivals that of Hamburg, but with a much smaller economy, Mr. Rimsevics nonetheless commands a salary bigger than Central Bank heads of most similar sized countries and in 2016 saw the largest%age salary increase of any EU Central bank head. Regardless of his super-sized income, Mr. Rimsevics has been accused of using his post as a sinecure to increase his pay by several multiples. His ‘victims’ being the banks in Latvia that he oversees, of which one, Norvik, the provenance of a Russian oligarch in London, protested.

[..] The other scandal, more serious, but lacking a face and bereft of central casting’s villainous imagery (e.g., oligarchs at the hunting lodge), is that of ABLV. ABLV is the largest Latvian owned bank. Latvia is a small country with lots of ‘banks.’ ABLV is largely a correspondent bank, or a bank holding deposits of foreigners along with providing them with ‘services’ that conceal the identity of their owners. Correspondent banking, euphemistically in the ‘industry’ called “wealth management” and “tax optimization.” [..] Just as Mr. Rimsevics has seemingly been caught with Russian oligarchs, ABLV has been linked to handling money for North Korea’s weapons program. This crossed the line for the United States, which in the main has vacillated between support and tolerance of offshore banking, but who since 9/11 has become wary of its ‘downsides,’ such as terrorists and ‘axis of evil’ states availing themselves of their helpful services.

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“Yes RBA, you did inflate housing bubble…”

Reserve Bank Of Australia Accused Of Causing Ponzi Mortgage Market (AFR)

For years the Reserve Bank of Australia dismissed our warnings that excessively stimulatory interest rate cuts – which bequeathed borrowers with never-before-seen 3.4% mortgage rates that fuelled double-digit house price inflation – had blown a bubble that presented genuine financial stability risks. This manifested via record increases in speculative investor activity, interest-only loans and, more broadly, Australia’s household debt-to-income and house price-to-income ratios, which leapt into unchartered territory (notably above pre-global financial crisis peaks). The RBA narrative was very different. “Our concern was not that developments in household balance sheets posed a risk to the stability of the banking system,” governor Philip Lowe recently explained.

“Rather, it was more that…the day might come, when faced with bad economic news, households feel they have borrowed too much and respond by cutting their spending sharply, damaging the overall economy.” Nothing to see here when it comes to financial stability, if you believe the weasel words. It turns out Lowe was privately “packing his dacks” after unleashing the mother-of-all-booms powered by the cheapest credit in history. After the sudden deceleration in national house price growth – as documented here – from an 11.5% annualised rate in May 2017 to just 1.9% today, the governor revealed to parliamentarians that he’s now “much more comfortable…than I have been in recent years when I have been appearing before this committee, when I was quite worried”. That’s central speak for petrified.

Lowe conceded that “housing prices were rising very, very quickly – much faster than people’s income – and the level of debt was rising much faster than people’s income”. Yet according to the RBA’s interpretation, the 50% explosion in house prices between 2012 and 2018 was propelled not by the 11 interest rate cuts it bestowed on borrowers over the same period, but by a lack of new housing supply. You have to ignore the record building boom to believe this BS.

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Pay me Ponzi!

US Shale Investors Still Waiting On Payoff From Oil Boom (R.)

U.S. oil production has topped 10 million barrels per day, approaching a record set in 1970, but many investors in the companies driving the shale oil revolution are still waiting for their payday. Shale producers have raised and spent billions of dollars to produce more oil and gas, ending decades of declining output and redrawing the global energy trade map. But most U.S. shale producers have failed for years to turn a profit with the increased output, frustrating their financial backers. Wall Street’s patience ran out late last year as investors called for producers to shift more cash to dividends and share buybacks. “‘Give me some cash, please.’ That’s what investors have said,” said Anoop Poddar, a partner at private equity firm Energy Ventures.

And yet such calls for payouts remain a debate in the industry as oil prices have recently creeped up to four-year highs. Investors demanding immediate returns could risk forcing firms to curb expansion that could have a higher long-term payoff if oil prices continue to rise. For now, share prices of shale producers have yet to fully recover from the 2014 oil price collapse, when many investors took losses as hundreds of firms went bankrupt and those that survived struggled. The energy sector has lagged the rally that took the broader stock market to record highs. The S&P 500 Energy Index remains nearly a third off its peak in mid-2014, when oil prices topped $100 a barrel. The broader S&P 500 index is up 39% during the same period.

This year, five of the 15 largest U.S. independent shale firms have started paying or raised quarterly dividends, the documents show. But six of the firms have never offered a dividend or have not restored cuts implemented since the 2014 oil price collapse. Anadarko Petroleum earlier this month added $500 million to an existing buyback program and raised its dividend by 20%, sending its shares up 4.5% the next trading day. Buybacks reduce the number of shares outstanding, boosting the value of stock that remains.

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This could turn ugly. Very ugly.

EU Leaders Go to Battle Over Post-Brexit Budget Gap (BBG)

Hashing out the European Union’s multiannual budget is a political slugfest at the best of times. Throw in Brexit and the contest looks even more bruising. The U.K.’s scheduled withdrawal from the EU next year will leave a 10 billion-euro ($12.3 billion) annual hole in the bloc’s spending program, the main topic when leaders meet on Friday to map out Europe’s 2021-2027 budget. A Bloomberg survey of government positions reveals splits over how to cover the gap, with at least three net contributors – Sweden, the Netherlands and Austria – saying they won’t pay more. While amounting to only 1 percent of EU economic output, the European budget of 140 billion euros a year provides key funds for farmers, poorer regions and researchers in everything from energy to space technologies.

It’s also a barometer of the political mood in European capitals, signaling the risk of fissures as the EU seeks to maintain unity in the Brexit talks, confront new security challenges and curb democratic backsliding in countries such as Poland. “I expect it to be quite a fight,” said Guntram Wolff, director of the Bruegel think tank in Brussels. “The EU budget hole is quite substantial. You actually have a double challenge: you have to cut some spending and increase money for new priority areas.” [..] Britain’s absence from the next multiannual European spending program is conspicuous because the country is the No. 2 net contributor. Germany, which is the largest, and Italy, the fourth biggest, both say they are open to increasing their payments into the financial framework, the survey shows. Portugal and Estonia, both net recipients of funds, are prepared to raise their contributions, while France and Belgium are still undecided.

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So what’s he going to do about it?

Irish President Criticises EU Treatment Of Greece (IT)

Those responsible for mistaken economic policies that have had such a negative effect on the Greek people need to take responsibility for their actions, President Michael D Higgins has said, on the first day of his state visit. “It is a moral test of all actions that the person who initiates an action must take responsibility for its consequences,” Mr Higgins told his Greek counterpart, Prokopis Pavlopoulos. “It is little less than outrageous that the social consequences of decisions that are taken are not in fact understood and offered to people as choices,” Mr Higgins said, in remarks at a bilateral meeting at the presidential mansion.

Referring to the speech made by Emmanuel Macron on his recent state visit to Athens, Mr Higgins said he had to “say something much stronger” than the French president, who, he noted had acknowledged “that great mistakes, with great effect on the Greek people, have been made and that these were mistakes of the European Union”. “Cohesion, social cohesion, social Europe, must be placed on the top of the agenda that we all now share on the future of the union.” This meant that “we cannot continue adjusting out populations to economics models that not only have failed but have not submitted themselves to empirical tests in relation to their social consequences. “If parliaments and the mediating institutions continue to leach influence because they no longer have any power, because influences are coming from those who have no accountability, then we have a crisis.”

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Note: the whole thing is based on an FBI report, with probes of Novartis going back to at least 2014.

“..bribery scandal [..] the worst since the creation of the modern Greek state almost 200 years ago..”

Greek MPs Vote To Investigate Top Politicians In Novartis Bribery Claims (G.)

The Greek parliament is to investigate 10 of the country’s top politicians over in return for patronage that resulted in huge losses for Greece. After a raucous 20-hour debate, MPs voted early on Thursday to form a parliamentary committee tasked solely with investigating two former prime ministers and eight other ministers in connection with the allegations. The governor of the Bank of Greece, Yannis Stournaras; Europe’s migration commissioner, Dimitris Avramopoulos and the country’s former prime minister Antonis Samaras are among those accused of giving Novartis preferential market treatment. “We will not cover up,” Samaras’s successor, Alexis Tsipras, told parliament. “The Greek people must learn who turned pain and illness into a means of enrichment.”

Officials in Tsipras’ leftist-led administration have described the alleged bribery scandal as the worst since the creation of the modern Greek state almost 200 years ago. It has raised fears of political instability at a time when many had hoped the country was finally returning to normality after years of tumult. All 10 of those implicated vehemently rebutted the charges in often angry and emotional speeches during the debate. Stournaras, a former finance minister who helped steer Greece through some of its darkest days of the debt crisis after the country’s near-economic collapse, described the allegations as “disgusting fabrications”. Panagiotis Pikrammenos, who headed a one-month caretaker administration at the height of the crisis in 2012, came close to tears as he described the allegations against him “as lies and unacceptable slander”.

The cross-party committee, made up of 21 MPs, is expected to be established imminently. It will have the power to decide whether accusations of bribery, breach of duty and money-laundering apply, under a strict statute of limitation, to each of the accused. Under Greek law, parliament must investigate politicians for alleged infractions before they can face judicial prosecution. Few question that wrongdoing was committed. A confidential report by prosecutors originally tipped off by US authorities alleged that bribes of as much as €50m (£44m) were paid to politicians between 2006 to 2015 to promote Novartis’s products. More than 4,500 doctors are accused of malpractice as well. [..] With losses of around €4 billion for the country’s health system, the scandal will have played a significant role in Greece’s financial meltdown.

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How to make sure an economy won’t recover.

Greece Is The European Champion In Corporate Taxes (K.)

Corporate taxation in Greece is burdensome and anti-competitive, the Hellenic Federation of Enterprises (SEV) says in a report published on Thursday, stressing that Greek taxes also fail to draw revenues above the average rate of other European countries that as a rule have lower corporate taxation. According to SEV, the real tax load on corporations has increased considerably, with income tax reverting to the 2006 level plus the income on revenues from dividends: Today income tax comes to 29%, the tax on dividends to 15%, the solidarity levy to 10% and social security contributions for board members to 26.7%. This amounts to 81% of profit distribution, SEV said.

The federation’s analysts argue that profit taxation is above the European Union average and definitely higher than neighboring states that are Greece’s direct rivals within the bloc. If one adds board members’ social security contributions, then Greece has the highest corporate taxes by far, being the only country to have increased its tax sum since 2000, at a time when other states have been reducing the burden. SEV goes on to note that the tax rates are the just tip of the iceberg. The report focuses on the overall framework of corporate taxation that does not allow enterprises to grow and improve their competitiveness in international markets.

The federation highlights six specific problems in the corporate tax framework:
– The option of offsetting losses against future profits in Greece is for just five years, against at least 10 years in most EU states;
– Other countries have special incentives through tax exemption on expenditure, which in Greece are particularly limited;
– There is no framework for favorable regulations and incentives for mergers and acquisitions, which would encourage the streamlining and expansion of companies and reduce bad loans;
– There are no incentives such as accelerated amortization for new investments on equipment, which SEV calculates would have been fiscally neutral;
– Greek amortization rates are noncompetitive, particularly concerning investments in machinery and other equipment, forcing Greek firms to amortize their equipment slowly;
– Finally, Greece retains anachronistic levies such as stamp duty.

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Ignores the role of social media-induced echo chambers.

The Gun-Control Debate Could Break America (French)

Last night, the nation witnessed what looked a lot like an extended version of the famous “two minutes hate” from George Orwell’s novel 1984. During a CNN town hall on gun control, a furious crowd of Americans jeered at two conservatives, Marco Rubio and Dana Loesch, who stood in defense of the Second Amendment. They mocked the notion that rape victims might want to arm themselves for protection. There were calls of “murderer.” Rubio was compared to a mass killer. There were wild cheers for the idea of banning every single semiautomatic rifle in America. The discourse was vicious. It was also slanderous. There were millions of Americans who watched all or part of the town hall and came away with a clear message: These people aren’t just angry at what happened in their town, to their friends and family members; they hate me.

They really believe I’m the kind of person who doesn’t care if kids die, and they want to deprive me of the ability to defend myself. The CNN town hall might in other circumstances have been easy to write off as an outlier, a result of the still-raw grief and pain left in the wake of the Parkland shooting. But it was no less vitriolic than the “discourse” online, where progressives who hadn’t lost anyone in the attack were using many of the same words as the angry crowd that confronted Rubio and Loesch. The NRA has blood on its hands, they said. It’s a terrorist organization. Gun-rights supporters — especially those who oppose an assault-weapons ban — are lunatics at best, evil at worst. This progressive rage isn’t fake. It comes from a place of fierce conviction and sincere belief. Unfortunately, so does the angry response from too many conservatives.

[..] Unlike the stupid hysterics over net neutrality, tax policy, or regulatory reform, the gun debate really is — at its heart — about life and death. It’s about different ways of life, different ways of perceiving your role in a nation and a community. Given these immense stakes, extra degrees of charity and empathy are necessary in public discussion and debate. At the moment, what we have instead are extra degrees of anger and contempt. The stakes are high. Emotions are high. Ignorance abounds. Why bother to learn anything new when you know the other side is evil?

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Major cold spell on the doorstep.

50,000 Die In UK ‘Cold Homes Public Health Crisis’ (Ind.)

Thousands of people are “needlessly” dying each year because they cannot afford to properly heat their homes, new research has revealed. The UK has the second-worst rate of excess winter deaths in Europe, a study by National Energy Action and climate-change charity E3G found. The organisations called for urgent action to end to the devastating but “entirely preventable” tragedy that they say amounts to a “cold homes public health crisis”. The death toll looks set to rise next week as the UK braces for an imminent “polar vortex” predicted to bring harsh frost, snow showers and freezing temperatures. Almost 17,000 people in the UK are estimated to have died in the last five years as a direct result of fuel poverty and a further 36,000 deaths are attributable to conditions relating to living in a cold home, the research found.

The number dying each year is similar to the amount who die from prostate cancer or breast cancer. A total of 168,000 excess winter deaths from all causes have been recorded in the UK over the latest five-year period. Of 30 countries studied, only Ireland has a higher proportion of people dying due to cold weather. The research was published to coincide with Fuel Poverty Awareness Day on Friday which aims to highlight the problems faced by those struggling to keep warm in their homes. It comes just 24 hours after Centrica, which owns British Gas, announced plans to cut 4,000 jobs after a “weak” year in which it made £1.25bn profit. The company’s chief executive, Ian Conn, said the Government’s energy price cap – designed to prevent loyal and vulnerable customers being ripped off – was partly to blame for the layoffs. Pedro Guertler, of E3G, who co-authored the research, said the winter death figures were not only a tragedy but a “national embarrassment”.

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Nov 072017
 
 November 7, 2017  Posted by at 10:07 am Finance Tagged with: , , , , , , , , , ,  


Edward S. Curtis Zuni Girl with Jar c. 1903

 

Saudi Arabia’s Government Purge — And How Washington Corruption Enabled It (IC)
Saudi Arabia Accuses Lebanon Of ‘Declaring War,’ Egypt Calls For Calm (CNBC)
Oil Prices Surge On Saudi Purge (CNBC)
The Black Swan In Plain Sight – Debt Out The Wazoo (Stockman)
What Could Go Wrong? (Jim Kunstler)
Growing Homeless Camps Contrast With West Coast Tech Wealth (AP)
Profiting from Puerto Rico’s Pain (New Yorker)
Sacked Catalan President Condemns ‘Brutal Judicial Offensive’ (G.)
Bernie Sanders Warns Of ‘International Oligarchy’ – Paradise Papers (G.)
End These Offshore Games Or Our Democracy Will Die (G.)
Four False Viral Claims Spread by Journalists on Twitter in One Week (GG)
Growing Number of Greeks Unable To Pay Taxes (K.)
Greek Notaries Refuse To Carry Out Foreclosures (K.)
Hawking: AI Could Be ‘Worst Event In The History Of Our Civilization’ (CNBC)
The Charter of the Forest (Standing)

 

 

Reading a lot on Saudi. This is good by Ryan Grim. ” And make no mistake, MBS is a project of the UAE — an odd turn of events given the relative sizes of the two countries.”

Saudi Arabia’s Government Purge — And How Washington Corruption Enabled It (IC)

Whatever the official explanation, it is being read around the world as a power grab by the kingdom’s rising crown prince. “The sweeping campaign of arrests appears to be the latest move to consolidate the power of Crown Prince Mohammed bin Salman, the favorite son and top adviser of King Salman,” as the New York Times put it. “The king had decreed the creation of a powerful new anti-corruption committee, headed by the crown prince, only hours before the committee ordered the arrests. The men are being held in the Ritz-Carlton Riyadh. “There is no jail for royals,” a Saudi source noted. The move marks a moment of reckoning for Washington’s foreign policy establishment, which struck a bargain of sorts with Mohammed bin Salman, known as MBS, and Yousef Al Otaiba, the United Arab Emirates ambassador to the U.S. who has been MBS’s leading advocate in Washington.

The unspoken arrangement was clear: The UAE and Saudi Arabia would pump millions into Washington’s political ecosystem while mouthing a belief in “reform,” and Washington would pretend to believe that they meant it. MBS has won praise for some policies, like an openness to reconsidering Saudi Arabia’s ban on women drivers. Meanwhile, however, the 32-year-old MBS has been pursuing a dangerously impulsive and aggressive regional policy, which has included a heightening of tensions with Iran, a catastrophic war on Yemen, and a blockade of ostensible ally Qatar. Those regional policies have been disasters for the millions who have suffered the consequences, including the starving people of Yemen, as well as for Saudi Arabia, but MBS has dug in harder and harder. And his supporters in Washington have not blinked.

The platitudes about reform were also challenged by recent mass arrests of religious figures and repression of anything that has remotely approached less than full support of MBS. The latest purge comes just days after White House adviser Jared Kushner, a close ally of Otaiba, visited Riyadh, and just hours after a bizarre-even-for-Trump tweet. Whatever legitimate debate there was about MBS ended Saturday — his drive to consolidate power is now too obvious to ignore. And that puts denizens of Washington’s think tank world in a difficult spot, as they have come to rely heavily on the Saudi and UAE end of the bargain. As The Intercept reported earlier, one think tank alone, the Middle East Institute, got a massive $20 million commitment from the UAE. And make no mistake, MBS is a project of the UAE — an odd turn of events given the relative sizes of the two countries.

“Our relationship with them is based on strategic depth, shared interests, and most importantly the hope that we could influence them. Not the other way around,” Otaiba has said privately. For the past two years, Otaiba has introduced MBS around Washington and offered assurances of his commitment to modernizing and reforming Saudi Arabia, according to people who’ve spoken with him, confirmed by emails leaked by the group, Global Leaks. When confronted with damning headlines, Otaiba tends to acknowledge the reform project is a work in progress, but insists that it is progress nonetheless, and in MBS resides the best chance of the region.

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“The region cannot support more turmoil..”

Saudi Arabia Accuses Lebanon Of ‘Declaring War,’ Egypt Calls For Calm (CNBC)

Egyptian President Abdel Fattah al-Sisi called on Middle Eastern nations to maintain stability just as tensions were suddenly spiking between Lebanon and Saudi Arabia. “The stability of the region is very important and we all have to protect it … I am talking to all the parties in the region to preserve it,” Al-Sisi said in an interview with CNBC over the weekend that aired Tuesday morning. On Saturday, Lebanese Prime Minister Saad al-Hariri shocked the political establishment in Beirut by announcing his resignation. The leader said he was stepping down amid concerns of a potential assassination plot against him. Speaking from Riyadh, Hariri criticized Iran, and its Lebanese ally Hezbollah, for igniting conflict in the region.

Following the CNBC interview, Reuters reported that Saudi Arabia sharply escalated rhetoric in the region by declaring that Lebanon had — figuratively at least — declared “war” against it because of aggression from Hezbollah. Saudi Gulf Affairs Minister Thamer al-Sabhan said the government of Lebanon “would be dealt with as a government declaring war on Saudi Arabia,” Reuters reported. When asked whether the time had come for Egypt to consider its own measures against Hezbollah, Al-Sisi replied, “The subject is not about taking on or not taking on, the subject is about the status of the fragile stability in the region in light of the unrest facing the region.” “The region cannot support more turmoil,” he said.

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What OPEC couldn’t do.

Oil Prices Surge On Saudi Purge (CNBC)

Oil prices surged to their highest levels since the summer of 2015 on Monday as a major political shakeup in Saudi Arabia underpinned a rally fueled by geopolitical risk, analysts said. Crude futures hit the new highs overnight after the powerful Saudi Crown Prince Mohammad bin Salman coordinated the arrest of several princes and ministers, ostensibly as part of crackdown on corruption. Prices pulled back in morning trade as the market digested a wealth of analysis on the Saudi purge, but futures suddenly shot higher at midday. International benchmark Brent crude oil topped $64 a barrel for the first time since June 2015. Meanwhile U.S. West Texas Intermediate crude broke above $57, a level the market has not seen since July 2015.

WTI finished Monday’s session $1.71 or 3.1 percent, higher at $57.35. Brent was trading up $2.04, or 3.3 percent, at $64.11 by 2:27 p.m. ET. Analysts cautioned against pinning the surge on any one headline, or even the Saudi arrests alone. Instead, they said a growing cloud of geopolitical uncertainty was unleashing animal spirits in an already bullish market. “You can grab all sorts of different headlines when you have a runaway market, and this is a runaway market right now,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. In this kind of environment, “people throw caution to the wind, and this is like the grand finale of fireworks,” he said.

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More debt, fast.

The Black Swan In Plain Sight – Debt Out The Wazoo (Stockman)

The black swan in plain sight does emit the Donald’s orangish glow, but at the end of the day its true color is actually red. That is, monumental towers of rapidly rising debt loom everywhere on the planet. For the moment, the artificial cash flow from this unsustainable borrowing spree is keeping a simulacrum of growth and prosperity alive. Yet this whole outbreak of debt madness – represented by $225 trillion outstanding on a global basis – is careening toward a financial and economic dead end that will soon crush today’s fiscally profligate politicians and heedless financial punters, alike, in a devastating reset of bond yields. For our first case in point, the always excellent Wolf Richter published a great chart over the weekend on the exploding US public debt.

To say the least, it constitutes a clanging wake-up call amidst the absolute fantasy world that prevails on both ends of the Acela Corridor. That’s because during the mere 8 weeks since the public debt ceiling was suspended by the Donald’s end-run with Nancy and Chuckles in September, the national debt has spiked by $640 billion. That’s about $16 billion per Federal business day, and they are not done yet. The US Treasury will continue to borrow heavily until the current debt ceiling “suspension” expires on December 8 – at which time it will repair to the old game of divesting trusting funds and employing other gimmicks which circumvent the ceiling, while waiting for Congress to blink and raise the ceiling or authorize a new “temporary” suspension.

As Wolf pointed out, this pattern played out during the debt showdowns of 2013 and 2015, as well, when the resulting “temporary” suspension resulted in borrowing spikes of $464 billion and $650 billion, respectively. Accordingly, Washington has suspended it way into a $5.7 trillion increase in the public debt in just six years since October 2011. That is, during a period which supposedly constitutes the third longest business expansion in US history.

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“The “narrative” is firmest before its falseness is proved by the turn of events, and there are an awful lot of events out there waiting to present, like debutantes dressing for a winter ball.”

What Could Go Wrong? (Jim Kunstler)

The economy isn’t growing and can’t grow. The economy is a revenant of something that used to exist, an industrial economy that has rolled over and died and come back as a moldy ghoul feeding on the ghostly memories of itself. Stocks go up because the unprecedented low interest rates established by the Fed allow company CEOs to “lever-up” issuing bonds (i.e. borrow “money” from, cough cough, “investors”) and then use the borrowed “money” to buy back their own stock to raise the share value, so they can justify their companies’ boards-of-directors jacking up their salaries and bonuses — based on the ghost of the idea that higher stock prices represent the creation of more actual things of value (front-end-loaders, pepperoni sticks, oil drilling rigs).

The economy is actually contracting because we can’t afford the energy it takes to run the things we do — mostly just driving around — and unemployment is not historically low, it’s simply mis-represented by not including the tens of millions of people who have dropped out of the work force. And an epic wickedness combined with cowardice drives the old legacy news business to look the other way and concoct its good times “narrative.” If any of the reporters at The New York Times and The Wall Street Journal really understand the legerdemain at work in these “mysteries” of finance, they’re afraid to say. The companies they work for are dying, like so many other enterprises in the non-financial realm of the used-to-be economy, and they don’t want to be out of paycheck until the lights finally go out.

The “narrative” is firmest before its falseness is proved by the turn of events, and there are an awful lot of events out there waiting to present, like debutantes dressing for a winter ball. The debt ceiling… North Korea… Mueller… Hillarygate….the state pension funds….That so many agree the USA has entered a permanent plateau of exquisite prosperity is a sure sign of its imminent implosion. What could go wrong?

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All bubbles disrupt.

Growing Homeless Camps Contrast With West Coast Tech Wealth (AP)

SEATTLE — Housing prices are soaring here thanks to the tech industry, but the boom comes with a consequence: A surge in homelessness marked by 400 unauthorized tent camps in parks, under bridges, on freeway medians and along busy sidewalks. The liberal city is trying to figure out what to do. “I’ve got economically zero unemployment in my city, and I’ve got thousands of homeless people that actually are working and just can’t afford housing,” said Seattle City Councilman Mike O’Brien. “There’s nowhere for these folks to move to.” That struggle is not Seattle’s alone. A homeless crisis is rocking the entire West Coast, pushing abject poverty into the open like never before. Public health is at risk, several cities have declared states of emergency, and cities and counties are spending millions – in some cases billions – in a search for solutions.

San Diego now scrubs its sidewalks with bleach to counter a deadly hepatitis A outbreak. In Anaheim, 400 people sleep along a bike path in the shadow of Angel Stadium. Organizers in Portland lit incense at an outdoor food festival to cover up the stench of urine in a parking lot where vendors set up shop. Homelessness is not new on the West Coast. But interviews with local officials and those who serve the homeless in California, Oregon and Washington — coupled with an Associated Press review of preliminary homeless data — confirm it’s getting worse. People who were once able to get by, even if they suffered a setback, are now pushed to the streets because housing has become so expensive. All it takes is a prolonged illness, a lost job, a broken limb, a family crisis. What was once a blip in fortunes now seems a life sentence.

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“There is no European Union standing ready to bail out Puerto Rico.”

Profiting from Puerto Rico’s Pain (New Yorker)

In 2012, Cate Long was working at the news service Reuters, where she wrote a daily column on the municipal-bond market. Municipal bonds are typically a sleepy corner of investing. They are forms of debt issued by states, counties, or cities, usually to fund infrastructure projects, such as airports and highways, and they are generally considered a safe investment, paying relatively low levels of interest. Finding a compelling story about the municipal-bond market is not an easy task, so when Long came across a document related to an $800 million bond sale that Puerto Rico would be undertaking that spring, she decided to look at the numbers more closely. What she found was startling. “I sat down and read it for a couple of hours, and I said, ‘These people are going to default,’ ” she told me recently. “It was pretty obvious.”

In the column she wrote about her analysis, titled “Puerto Rico Is America’s Greece,” Long expressed concern about the island’s economic health, calling it “America’s own Third World country.” At the time, Puerto Rico’s per-capita income was just $15,203 (less than half that of Mississippi, the poorest of the fifty states), and 45% of its residents were living below the poverty line. Puerto Rico also had a “massive” amount of debt, and was issuing even more bonds, which mutual funds and individuals were eagerly buying up, in spite of the warning signs. In her article, Long seemed to charge almost everyone involved, borrowers and creditors alike, with disingenuousness, incompetence, or both. “As happened with Greece, bond investors continue to buy the debt assuming at some point the government will be bailed out by somebody, somewhere,” she wrote.

“Caution, bond investors: There is no European Union standing ready to bail out Puerto Rico.” The article sent shock waves through the investment community. Moody’s Investors Service, which provides credit ratings, asked Long to come to its offices and defend her findings. (Her defense was, essentially, “I’m looking at the numbers.”) Nevertheless, the island continued its unsustainable borrowing for years—and Wall Street investors kept lending it money. By 2017, five years after Long’s warning, Puerto Rico’s bond debt had soared to $74 billion, almost a third of which was held by hedge funds. Meanwhile, the government was struggling to provide basic services to residents.

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Guess: he won’t be back in Catalonia in time for the Dec 21 elections.

Sacked Catalan President Condemns ‘Brutal Judicial Offensive’ (G.)

The deposed Catalan president, Carles Puigdemont, has accused the Spanish authorities of conducting a “brutal judicial offensive” against members of his ousted government and said he was afraid they would not receive an unbiased hearing in Spanish courts. Writing in the Guardian, Puigdemont said it was a “colossal outrage” that he and 13 colleagues were being investigated over possible charges including sedition and rebellion in relation to their roles in last month’s declaration of independence. “Today, the leaders of this democratic project stand accused of rebellion and face the severest punishment possible under the Spanish penal code; the same as for cases of terrorism and murder: 30 years in prison,” he said.

Puigdemont said he doubted that he and his colleagues would get a “fair and independent hearing” and called for “scrutiny from abroad” to help bring the Catalan crisis to a political, rather than judicial, conclusion. He added: “The Spanish state must honour what was said so many times in the years of terrorism: end violence and we can talk about everything. We, the supporters of Catalan independence, have never opted for violence, on the contrary. But now we find it was all a lie that everything is up for discussion.” The former Catalan leader fled to Brussels with a handful of cabinet colleagues last week, hours before Spain’s attorney general announced he would be seeking to bring charges of rebellion, sedition and misuse of public funds against them.

On Thursday, a national court judge ordered the jailing of the eight Catalan politicians and, a day later, issued a European arrest warrant for Puigdemont and four of his allies. Late on Sunday, a Belgian judge granted the five conditional release. They will make their first appearance in court on 17 November when a judge will decide on whether to execute the arrest warrant. The conditions of release include a ban on them leaving Belgium until their appearance in the court of first instance in Brussels later this month. With the extradition process likely to take months rather than weeks, there is growing scope for Puigdemont’s presence in Belgium to cause the country’s coalition government serious difficulties.

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No kidding.

Bernie Sanders Warns Of ‘International Oligarchy’ – Paradise Papers (G.)

Bernie Sanders has warned that the world is rapidly becoming an “international oligarchy” controlled by a tiny number of billionaires, highlighted by the revelations in the Paradise Papers. In a statement to the Guardian in the wake of the massive leak of documents exposing the secrets of offshore investors, Sanders said that the enrichment of wealthy individuals and companies in tax havens was “the major issue of our time”. He said the Paradise Papers opened the door on a “major problem not just for the US but for governments throughout the world”. “The major issue of our time is the rapid movement toward international oligarchy in which a handful of billionaires own and control a significant part of the global economy. The Paradise Papers shows how these billionaires and multinational corporations get richer by hiding their wealth and profits and avoid paying their fair share of taxes,” the US senator from Vermont said.

Sanders, who came in a close second to Hillary Clinton in the race for the Democratic presidential nomination last year, pointed the finger of blame for the flourishing of offshore holdings on both Congress and the Trump administration. He told the Guardian that Republicans in Congress were responsible for providing “even more tax breaks to profitable corporations like Apple and Nike”. The same tax breaks, he said, were being seized upon by super-wealthy members of Trump’s cabinet “who avoid billions in US taxes by shifting American jobs and profits to offshore tax havens. We need to close these loopholes and demand a fair and progressive tax system.”

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“We must accept that Big Finance and runaway inequality are incompatible with either a functioning democracy or a sustainable economy.”

End These Offshore Games Or Our Democracy Will Die (G.)

Tax avoidance is now so systemic that the Queen’s own wealth managers apparently see nothing wrong with her receiving £82m a year from taxpayers while shunting £10m into the Caymans and elsewhere. Shuttling between tax havens is so commonplace that economist Gabriel Zucman describes it as an “elite sport” – a sport in which the loser each time is the rest of society, which sees its taxbase shrink. These papers are aptly named: they outline a model that is paradise for the super-rich and purgatory for the rest of us. The second myth of British politics is that austerity was the only correct response to the high-living of the New Labour boom. That was always opposed by some of us – now it is exploded with each new tax investigation.

Drawing in part on data from last year’s Panama Papers and the HSBC files leaked in 2015, Zucman recently co-published a study that found wealthy Britons have stashed about £300bn – equivalent to 15% of our GDP – in offshore tax havens. Three hundred billion quid would more than cover our entire education budget for the rest of this decade and into the 2020s. Or, if you prefer, it is the equivalent of £350m being paid into the NHS every week for the next 16 years. Instead, it is funnelled offshore and used to buy yachts and mansions and other baubles – tax efficiently, of course. The economics of David Cameron and George Osborne can be summed up simply: punish the poor, but reward the rich for fear they will flee offshore. To that end, they scrapped the 50p tax rate for millionaires, they drove down corporation tax to a record low, and cut sweetheart deals with companies such as Google who couldn’t be bothered to pay even that much.

The result is that London has more super-rich residents than any other city – yet however soft the kid gloves with which they are treated, our wealthiest 0.01% stick 30-40% of their wealth offshore. In high-tax Sweden, by contrast, the rich do not use havens half as much. The logic that has underpinned our tax system over this entire decade is rubbish. [..] Add the City of London to Britain’s crown dependencies such as Jersey and the Isle of Man, and overseas territories such as the Caymans, and Britain’s tax havens account for nearly a quarter of the entire offshore financial industry. According to Deutsche Bank, London itself receives about £1bn a month in what it calls “hidden capital flows”, much of it Russian. It ends up in Stucco-fronted houses and fine art.

Much of this could be changed, and quickly. Britain has previously ordered the Caymans and other overseas territories to decriminalise homosexuality and abolish the death penalty. It could do the same with tax transparency, in an Order of Council that, a Mayfair tax lawyer recently told me, need be no longer than two sides of A4. We could change the rules on Lords and Commons’ members’ interests so that all offshore holdings would have to be registered. These are the fixes, but a real solution is ultimately political. We must accept that Big Finance and runaway inequality are incompatible with either a functioning democracy or a sustainable economy. Britain either shrinks the City of London, or the City of London will swallow Britain.

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Lots of talk about this, with widely differing views.

Four False Viral Claims Spread by Journalists on Twitter in One Week (GG)

There is ample talk, particularly of late, about the threats posed by social media to democracy and political discourse. Yet one of the primary ways that democracy is degraded by platforms such as Facebook and Twitter is, for obvious reasons, typically ignored in such discussions: the way they are used by American journalists to endorse factually false claims that quickly spread and become viral, entrenched into narratives, and thus can never be adequately corrected. The design of Twitter, where many political journalists spend their time, is in large part responsible for this damage. Its space constraints mean that tweeted headlines or tiny summaries of reporting are often assumed to be true with no critical analysis of their accuracy, and are easily spread.

Claims from journalists that people want to believe are shared like wildfire, while less popular, subsequent corrections or nuanced debunking are easily ignored. Whatever one’s views are on the actual impact of Twitter Russian bots, surely the propensity of journalistic falsehoods to spread far and wide is at least as significant. Just in the last week alone, there have been four major factually false claims that have gone viral because journalists on Twitter endorsed and spread them: three about the controversy involving Donna Brazile and the DNC, and one about documents and emails published by WikiLeaks during the 2016 campaign. It’s well worth examining them, both to document what the actual truth is as well as to understand how often and easily this online journalistic misleading occurs:

Viral Falsehood #1: The Clinton/DNC agreement cited by Brazile only applied to the General Election, not the primary.

Viral Falsehood #2: Sanders signed the same agreement with the DNC that Clinton did.

Viral Falsehood #3: Brazile stupidly thought she could unilaterally remove Clinton as the nominee.

Viral Falsehood #4: Evidence has emerged proving that the content of WikiLeaks documents and emails was doctored.

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Deep deep deeper and down.

Growing Number of Greeks Unable To Pay Taxes (K.)

Almost half a million taxpayers were added to the long list of debtors to the state in the month of September, according to the latest data from the Independent Authority for Public Revenue. The authority’s figures are a reflection of citizens’ increasing inability to pay their taxes, with 410,000 not paying their second income tax installment and the ENFIA property tax in September. More specifically, 4,267,408 taxpayers owed money to the Greek state in September, up from 3,857,086 in August. Moreover, by the end of September, the amount of unpaid taxes since the beginning of the year came to 9.25 billion euros. What concerns the government is whether the 410,000 that couldn’t pay their taxes in September will join the Finance Ministry’s 12-month installment program, as the hole in tax revenues will only grow if they don’t.

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What good will kicking people out do?

Greek Notaries Refuse To Carry Out Foreclosures (K.)

The outlook for property foreclosures in Greece is unclear after notaries announced a boycott on auctions until the end of the year, citing abuse by protesters, though foreign creditors expect the first online auctions to take place this month. According to sources, Greece’s lenders have suggested that the responsibility for foreclosures be shifted from notaries to Greek courts or possibly to Justice Ministry officials. The latter model, which has been tried and tested in Germany and Spain, was first mooted last month during a visit to Athens by bailout monitors. The auditors made it clear that the resumption of foreclosures on the homes of overindebted Greeks, which have dragged during the crisis years due to strikes by lawyers and notaries and more recently due to anti-austerity protesters, is a prerequisite for the successful conclusion of Greece’s current bailout review.

In comments at Monday’s summit of eurozone finance ministers in Brussels, ECB President Mario Draghi indicated that the resumption of property auctions would help banks by reducing the large proportion of bad loans that they hold. Commenting, Greek Finance Ministry sources said Athens was committed to “not taking our foot off the gas in the implementation of reforms for the review.” One of the many conditions of the latest review is that Greece launch electronic foreclosures. The first is supposed to take place on November 29. However, it is unclear how that procedure will be carried out in view of the protracted walkout by Greek notaries.

In a joint statement on Monday, the associations representing notaries in Athens, Piraeus and the islands of the Aegean and the Dodecanese said they will not be conducting any property auctions through December 31. The decision was reached during a meeting on Saturday with a vote of 134 in favor and 132 against. The associations said the decision was aimed at initiating talks with the Justice Ministry in order to provide protection to notaries who have come under attack – often violent – by anti-establishment groups and protesters opposed to foreclosures. Notaries also want the Justice Ministry to be made responsible for electronic auctions, as well as to address any disputes that may arise from them.

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I don’t share his optimism.

Hawking: AI Could Be ‘Worst Event In The History Of Our Civilization’ (CNBC)

The emergence of artificial intelligence (AI) could be the “worst event in the history of our civilization” unless society finds a way to control its development, high-profile physicist Stephen Hawking said Monday. He made the comments during a talk at the Web Summit technology conference in Lisbon, Portugal, in which he said, “computers can, in theory, emulate human intelligence, and exceed it.” Hawking talked up the potential of AI to help undo damage done to the natural world, or eradicate poverty and disease, with every aspect of society being “transformed.” But he admitted the future was uncertain. “Success in creating effective AI, could be the biggest event in the history of our civilization. Or the worst. We just don’t know. So we cannot know if we will be infinitely helped by AI, or ignored by it and side-lined, or conceivably destroyed by it,” Hawking said during the speech.

“Unless we learn how to prepare for, and avoid, the potential risks, AI could be the worst event in the history of our civilization. It brings dangers, like powerful autonomous weapons, or new ways for the few to oppress the many. It could bring great disruption to our economy.” Hawking explained that to avoid this potential reality, creators of AI need to “employ best practice and effective management.” The scientist highlighted some of the legislative work being carried out in Europe, particularly proposals put forward by lawmakers earlier this year to establish new rules around AI and robotics. Members of the European Parliament said European Union-wide rules were needed on the matter. Such developments are giving Hawking hope.

“I am an optimist and I believe that we can create AI for the good of the world. That it can work in harmony with us. We simply need to be aware of the dangers, identify them, employ the best possible practice and management, and prepare for its consequences well in advance,” Hawking said.

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We want one!

The Charter of the Forest (Standing)

Eight hundred years ago this month, after the death of a detested king and the defeat of a French invasion in the Battle of Lincoln, one of the foundation stones of the British constitution was laid down. It was the Charter of the Forest, sealed in St Paul’s on November 6, 1217, alongside a shortened Charter of Liberties from 2 years earlier (which became the Magna Carta). The Charter of the Forest was the first environmental charter forced on any government. It was the first to assert the rights of the property-less, of the commoners, and of the commons. It also made a modest advance for feminism, as it coincided with recognition of the rights of widows to have access to means of subsistence and to refuse to be remarried. The Charter has the distinction of having been on the statute books for longer than any other piece of legislation.

It was repealed 754 years later, in 1971, by a Tory government. In 2015, while spending lavishly on celebrating the Magna Carta anniversary, the government was asked in a written question in the House of Lords whether it would be celebrating the Charter this year. A Minister of Justice, Lord Faulks, airily dismissed the idea, stating that it was unimportant, without international significance. Yet earlier this year the American Bar Association suggested the Charter of the Forest had been a foundation of the American Constitution and that it was more important now than ever before. They were right. It is scarcely surprising that the political Right want to ignore the Charter. It is about the economic rights of the property-less, limiting private property rights and rolling back the enclosure of land, returning vast expanses to the commons.

It was remarkably subversive Sadly, whereas every school child is taught about the Magna Carta, few hear of the Charter. Yet for hundreds of years the Charter led the Magna Carta. It had to be read out in every church in England four times a year. It inspired struggles against enclosure and the plunder of the commons by the monarchy, aristocracy and emerging capitalist class, famously influencing the Diggers and Levellers in the 17th century, and protests against enclosure in the 18th and 19th. At the heart of the Charter, which is hard to understand unless words that have faded from use are interpreted, is the concept of the commons and the need to protect them and to compensate commoners for their loss. It is scarcely surprising that a government that is privatising and commercialising the remaining commons should wish to ignore it.

In 1066, William the Conqueror not only distributed parts of the commons to his bandits but also turned large tracts of them into ‘royal forests’ – ie, his own hunting grounds. By the time of the Domesday Book in 1086, there were 25 such forests. William’s successors expanded and turned them into revenue-raising zones to help pay for their wars. By 1217, there were 143 royal forests. The Charter achieved a reversal, and forced the monarchy to recognise the right of free men and women to pursue their livelihoods in forests. The notion of forest was much broader than it is today, and included villages and areas with few trees, such as Dartmoor and Exmoor. The forest was where commoners lived and worked collaboratively.

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Apr 132016
 
 April 13, 2016  Posted by at 9:47 am Finance Tagged with: , , , , , , , , , , ,  


Lewis Wickes Hine Child labor at Gorenflo Canning Co., Biloxi, Mississippi 1911

What in the World’s Going on with Banks this Week? (WS)
The “Independent” Fed Is About to Become Partisan (JR)
IMF Cuts World Growth Forecast, Warns Over Brexit (AFP)
Don’t Trust Ben Bernanke On Helicopter Money (Steve Keen)
Bundesbank’s Weidmann Rebukes Draghi Critics In Berlin (FT)
China Rail Freight Volume Plunges 10.5%, and The Economy Still Grows 6.9%? (WS)
Peabody, World’s Top Private Coal Miner, Files For Bankruptcy (Reuters)
IMF Says Greek Debt ‘Highly Unsustainable’, Debt Relief ‘Essential’ (R.)
Pro-EU Leaflets Spark ‘Return To Sender’ Revolt In Britain (AFP)
Why Younger People Can’t Afford A House: Money Became Too Cheap (G.)
Iceland Shocked By Elite’s Love Of Offshore Holdings (AFP)
Swiss Banker Whistleblower: CIA Behind Panama Papers (CNBC)
Australia Issues The Most Hideous Banknote In History (SMH)
Canadian First Nation Suicide Epidemic Has Been Generations In The Making (G.)
Brussels Gives Greece Two Weeks To Tighten Borders (Kath.)
Refugees Become Smugglers Following EU-Turkey Deal (MEE)
Greek Coast Guard Rescues 120 Refugees Off Lesvos, Samos (Kath.)

Obama meets with Biden and Yellen. Hadn’t happened since Truman?!

What in the World’s Going on with Banks this Week? (WS)

Just about every major banker and finance minister in the world is meeting in Washington, D.C., this week, following two rushed, secretive meetings of the Federal Reserve and another instantaneous and rare meeting between the Fed Chair and the president of the United States. These and other emergency bank meetings around the world cause one to wonder what is going down. Let’s start with a bullet list of the week’s big-bank events:
• The Federal Reserve Board of Governors just held an “expedited special meeting” on Monday in closed-door session.
• The White House made an immediate announcement that the president was going to meet with Fed Chair Janet Yellen right after Monday’s special meeting and that Vice President Biden would be joining them.
• The Federal Reserve very shortly posted an announcement of another expedited closed-door meeting for Tuesday for the specific purpose of “bank supervision.”
• A G-20 meeting of finance ministers and central-bank heads starts in Washington, D.C., on Tuesday, too, and continues through Wednesday.
• Then on Thursday the World Bank and the International Monetary Fund meet in Washington.
• The Federal Reserve Bank of Atlanta just revised US GDP growth for the first quarter to the precipice of recession at 0.1%.
• US banks are expected this coming week to report their worst quarter financially since the start of the Great Recession.
• The press stated that the German government will sue the European Central Bank if it launches a more aggressive and populist form of quantitative easing, often called “helicopter money.”
• The European Union’s new “bail-in” procedures for failing banks were employed for the first time with Austrian bank Heta Asset Resolution AG.
• Italy’s minister of finance called an emergency meeting of Italian bankers to engage “last resort” measures for dealing with €360 billion of bad loans in banks that have only €50 billion in capital.

It is rare for presidents to meet with the chair of the Federal Reserve. The last time President Obama met with Janet Yellen was in November of 2014, a year and a half ago. It is even more rare for the vice president of the United States to join them. In fact, I’ve heard but haven’t verified that it has never happened in a suddenly called meeting with the Fed before. For security reasons, the president and vice president don’t regularly attend the same events. There are, of course, many planning sessions or emergency meetings where they do get together, but not with the head of the Federal Reserve. Emergency meetings where the VP is included in the planning session would include situations related to dire national security in case the VP winds up having to take over.

In fact the meeting with the prez and vice prez is so rare that the White House is bending over backwards to assure the entire nation that the president is not meeting with Yellen to try to influence the Fed, which is required to act independently of politics (so they say). According to the White House, President Obama is meeting with the Fed chair and Biden to discuss the nation’s “longer-term economic outlook,” even though Yellen just told the entire nation that the economy was strong and had arrived nearly back at “full health.” The president says they will be “comparing notes.” Do their notes about the nation’s outlook disagree?

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Clinton and Cameron: monsters under the bed.

The “Independent” Fed Is About to Become Partisan (JR)

Late last night it was revealed that President Obama has summoned Janet Yellen to the White House today. There’s nothing unusual in itself about the president meeting with the Chair of the Federal Reserve over lunch to discuss policy. Bush 43, for example, frequently met with Alan Greenspan to discuss the economy. But this meeting is different… This isn’t a casual lunch. It’s a high-profile, last-minute meeting Obama orchestrated. The last time something like this happened was in 1951, when Harry Truman summoned the entire Federal Reserve Board of Governors to the White House. Since this is something that hasn’t happened in almost 70 years, today’s meeting is a fairly extraordinary event. Why did Obama order the meeting? There are a few factors to consider… Number one, Obama does not want the Fed to raise rates.

If the Fed remains on its path of interest rate hikes this year, it would give the Republicans the strongest chance at the White House in this fall’s election. That’s because rate hikes would likely lead to recession, and that would bode poorly for the Democrats. Obama is deeply concerned about his legacy, which the Republicans would like to reverse. So the best chance the Democrats have in the upcoming presidential election is if rates stay low. Janet Yellen herself is a Democrat, with a background as a labor economist and a career at U.C. Berkeley. She’s not necessarily hostile to Obama’s message. By bringing her to the White House, Obama is sending Yellen a highly visible public message. Don’t raise rates. You can consider this meeting more like an implied threat. There are two openings on the Fed’s Board of Governors. Obama could nominate two of Yellen’s biggest policy opponents if he wanted to play hardball with her.

Those two opponents could fight Yellen at every turn and threaten her control. Or, Obama could no nothing if she confirms and let her maintain control of the board. He’s very cleverly held the vacancies open, which he can use as leverage to influence Yellen’s course of action. He can nominate her worst opponents if she doesn’t follow his wishes. There’s also another factor at play: The Democrats are as afraid of Bernie Sanders as Republicans are of Donald Trump. Sanders has won seven straight primaries and caucuses. One of his biggest weapons is his bashing of the big banks, Wall Street and his criticism of Hillary Clinton for being in their pocket. Sanders has demanded that Hillary release the transcripts of her three speeches to Goldman Sachs, for which she received $675,000. She has refused to release those transcripts. That’s the Achilles heel of the Clinton campaign, and Sanders is making the most of it.

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No credibility.

IMF Cuts World Growth Forecast, Warns Over Brexit (AFP)

The IMF said Tuesday that the global economy faces wide-ranging threats from weak growth and rising protectionism, warning of possible “severe” damage should Britain quit the EU. The Fund cut its global forecast for the third straight quarter, saying economic activity has been “too slow for too long,” and stressed the need for immediate action by the world’s economic powers to shore up growth. It said intensifying financial and political risks around the world, from volatile financial markets to the Syria conflict to global warming, had left the economy “increasingly fragile” and vulnerable to recession. The IMF raised concerns over “fraying” unity in the European Union under pressure from the migration crisis and the “Brexit” possibility.

And it pointed to the contractions in large emerging market economies, most notably Brazil, where the economic downturn has been accompanied by deep political crisis that has President Dilma Rousseff facing impeachment. Seeing a broad fall in trade and investment, the IMF cut its forecast for world growth this year to a sluggish 3.2%, 0.2 percentage points down from its January outlook and down from the 3.8% pace expected last July. That reflects a glummer view of growth in both developed and emerging economies, with the forecasts for Japan and oil-dependent Russia and Nigeria all sharply lowered. Growth expectations for most leading economies were pared back by 0.2 percentage points. The outlook for the United States – hit by the impact of the strong dollar – was trimmed to 2.4% this year, from 2.6% in January.

Only the pictures in China and developing eastern Europe were better. But at a slightly upgraded pace of 6.5% growth, China was still on track for a significant slowdown from last year. The growth downgrade was expected but the tone of the IMF message was more dire than in recent months. It came as an increasing number of countries are approaching the IMF and World Bank for financial support. Last week Angola, its finances devastated by the crash in oil prices, asked the IMF for a three-year bailout program. And the World Bank said requests for loan support had reached levels seen only during financial crises. IMF chief economist Maurice Obstfeld said there was a risk of a full stall in global growth without efforts to boost investment and demand. “The weaker is growth, the greater the chance that the preceding risks, if some materialize, pull the world economy below stalling speed,” he said.

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It’s too late for helicopter money. It would evaporate before touching the ground.

Don’t Trust Ben Bernanke On Helicopter Money (Steve Keen)

Ben Bernanke earned the sobriquet “Helicopter Ben” for his observations in a 2002 speech that “the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost”, that the existence of this technology means that “sufficient injections of money will ultimately always reverse a deflation”, and that using this technology to finance a tax cut is “essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.” But just because he’s called “Helicopter Ben” doesn’t mean that he knows how “Helicopter Money” would actually work.

His column “What tools does the Fed have left? Part 3: Helicopter money” discusses both the nuts and bolts of actually implementing a “Helicopter Drop” (or as he more accurately describes it, “an expansionary fiscal policy—an increase in public spending or a tax cut—financed by a permanent increase in the money stock”) and also discusses how such a policy might affect the real economy. While his discussion of the nuts and bolts is realistic, his discussion of how it would work is fantasy. The nuts and bolts are straightforward (and Bernanke has a good practical suggestion for how to implement it too, which I’ll discuss at the end of this post). “Helicopter money” (or as he excitingly renames it, “a Money-Financed Fiscal Program, or MFFP”) is a direct injection of money from the government into people’s bank accounts, which is financed by a loan from the Federal Reserve to the Treasury. This differs from the standard way that Government spending is financed, which is by issuing Treasury Bonds that are then bought by the public.

The standard method doesn’t put additional money into circulation in the economy, because the increase in some private sector bank accounts caused by the government spending—a tax rebate, for example—is completely offset by the fall in other private sector bank accounts as they buy the Treasury Bonds that financed the tax rebate. But with “MFFP”, the tax rebate is financed by new money created by the Federal Reserve “at essentially no cost”. It thus directly increases the money supply, and this is where Friedman’s “Helicopter” analogy comes from. In the private sector economy, the money supply is increased when private banks lend to the public. Money created by private bank lending also goes by the nickname of “inside money”, since it is created by institutions that are “inside” the private sector—private banks.

Government-created money, which is what a tax rebate financed by a direct loan from the Federal Reserve to the Treasury would be, is “outside money”, because it comes from outside the private sector. Friedman’s analogy likened it to a helicopter flying over an economy and dropping new dollar bills from the sky. So how does “Helicopter Money” differ in impact from the standard way of financing government spending? Here’s where Bernanke passes from the practical nuts and bolts to the fantasy world of mainstream economics. According to Ben, the Helicopter flies, so to speak, because it causes “a temporary increase in expected inflation,” and because it “does not increase future tax burdens.”

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Best friends?!

Bundesbank’s Weidmann Rebukes Draghi Critics In Berlin (FT)

Bundesbank president Jens Weidmann has rebuked German politicians for attempting to pressure European Central Bank chief Mario Draghi over his easy money policies, suggesting their criticism was interfering with the bank’s independence. “It’s not unusual for politicians to have opinions on monetary policy, but we are independent,” Mr Weidmann told the Financial Times last Thursday. “The ECB has to deliver on its price stability mandate and thus an expansionary monetary policy stance is appropriate at this juncture regardless of different views about specific measures.” The head of Germany’s central bank and his counterpart at the ECB have often been at odds over how to respond to the threat of falling prices, with Mr Weidmann frequently raising objections to measures tabled by Mr Draghi.

But they have emerged as unlikely allies at a time when monetary policymakers around the world are facing mounting criticism over record-low interest rates, including the decision by some central banks – among them the ECB – to cut rates below zero and into negative territory to counter the threat of a vicious bout of deflation. The policy has been deeply unpopular in Germany, prompting criticism from senior politicians, led by finance minister Wolfgang Schäuble, that the central bank’s low interest rates are expropriating savings from the German public and fuelling the rise of rightwing populism.

While the ECB targets inflation of just below 2%, the latest reading was minus 0.1%. Mr Weidmann also said the German debate on the ECB is focused too narrowly on the consequences of low interest rates for savers. “The debate does not focus enough on the broader macroeconomic consequences of monetary policy. People are not just savers: they’re also employees, taxpayers, and debtors, as such benefiting from the low level of interest rates,” he explained. The Bundesbank built its reputation on its independence from politics, frequently falling out with German lawmakers in the 1970s and 1980s over the central bank’s use of high interest rates to tackle inflation. But Mr Weidmann faces a more sensitive challenge: defending an EU institution from criticism from within Germany at a time of acute unease fuelled by the refugee crisis.

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Riddle me this.

China Rail Freight Volume Plunges 10.5%, and The Economy Still Grows 6.9%? (WS)

Rail freight volumes are an indicator of China’s goods-producing and goods-consuming economy, not just manufacturing, construction, agriculture, and the like, but also consumer goods. Thus they’re also an indication of consumer spending on goods. Alas, rail freight volume is collapsing: the first quarter this year puts volume for the whole year on track to revisit levels not seen since 2007. While China’s economy was strong, rail freight volumes were soaring. For example, in 2010, when China was pump-priming its economy, rail freight volume jumped 10.8% from a year earlier. In 2011, it rose 6.9%. It had soared 44% from 2005 to 2011! But 2011 was the peak. In 2012, volume in trillion ton-kilometers declined one notch and in 2013 stagnated. But in 2014, volume skidded 5.8%.

And in 2015, volume plunged 10.5% to 3.4 billion tons, according to Caixin, citing figures from the National Railway Administration. It was the largest annual decline ever booked in China. It was a year that the People’s Daily, the official paper of the Communist Party, described in this elegant manner: “Dragged by a housing slowdown, softening domestic demand, and unsteady exports, China’s economy expanded 6.9% year on year in 2015, the weakest reading in around a quarter of a century.” Which is precisely where things stop making sense: rail freight volume plunges 10.5% in 2015, and the economy still increases 6.9%? I mean, come on. At the time, Caixin said that China’s central planners aimed to increase rail freight volumes to 4.2 billion tons by 2020. This would assume an average annual growth rate of 4.3%.

So these declines are not part of the planned transition to a consumption-based economy. They’re totally against that plan or any other plan. They’re very inconvenient for the rosy scenario! Then came the first quarter of 2016. Rail freight volume plunged 9.4% year-over-year to 788 million tons, according to data from China Railway Corporation, cited today by the People’s Daily. At this rate, rail freight volume for 2016 will be down 20% from 2014, which had already been a down year! At this rate, volume in 2016 will end up where it had been in 2007! China — hobbled by soggy domestic demand, perhaps even soggier demand overseas, rampant factory overcapacity, cooling investment, an insurmountable mountain of bad debt, and a million other domestic problems — may be trying to transition from a manufacturing-based economy to an economy based on consumption.

But even consumer goods must be transported, even those purchased online! Only services don’t require much transportation. But we doubt that service sales have jumped in two years to the extent that they would even halfway make up for the crashing demand for goods transported by rail. The World Bank just figured that China’s economy would grow 6.7% in 2016, the IMF pegs it at 6.5%, both kowtowing to the GDP declarations issued by the Chinese government. Whose Kool-Aid have they been drinking? This would make 2016 another year when rail freight plunges by a dismal 10% or so while economic growth soars nearly 7% – which would make China one of the fastest growing economies in the world. So something in this convoluted, government-imposed math doesn’t add up here.

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Demand destruction and debt deflation.

Peabody, World’s Top Private Coal Miner, Files For Bankruptcy (Reuters)

Peabody Energy, the world’s largest privately owned coal producer, filed for U.S. bankruptcy protection on Wednesday in the wake of a sharp fall in coal prices that left it unable to service a recent debt-fueled expansion into Australia. The company listed both assets and liabilities in the range of $10 billion to $50 billion. Falling global coal demand, stricter environmental controls and a glut of natural gas have pushed big miners, including the second largest U.S. coal producer, Arch Coal, into bankruptcy protection over the past year.

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It’s cruel game that EU and IMF enjoy far too much.

IMF Says Greek Debt ‘Highly Unsustainable’, Debt Relief ‘Essential’ (R.)

The IMF wants Greece’s European partners to grant Athens substantial relief on its debt which it sees remaining “highly unsustainable”, according to a draft IMF memorandum seen by Reuters. Earlier on Tuesday, Greece and inspectors from its EU/IMF lenders adjourned talks on a crucial bailout review, mainly due to a rift among the lenders over a projected fiscal gap by 2018 and over Athens’ resistance to unpopular reforms. They will resume the review after this week’s IMF spring meetings in Washington, where the lenders are also expected to discuss Greek reforms and debt., Greek Finance Minister Euclid Tsakalotos and German Finance Minister Wolfgang Schaeuble, who told Reuters on Tuesday that he saw no need for debt restructuring, will also be there.

“Despite generous concessional official financing and further reform plans … debt dynamics are projected to remain highly unsustainable,” the IMF draft said. “To restore debt sustainability, in addition to our reform efforts, decisive action by our European partners to grant further official debt relief will be essential.” EU institutions expect Greece to have a fiscal shorfall equivalent to 3% of economic output in 2018, while the IMF projects a 4.5% shortfall. The EU institutions also believe Athens can reach a primary surplus – the budget balance before debt-servicing costs – of 3.5% of GDP by 2018, as targeted in its latest financial bailout.

But the IMF’s draft Memorandum of Financial and Economic Policies (MFEP), which is compiled during the review, projected a primary deficit of 0.5% this year, a surplus of 0.25% in 2017 and a primary surplus of just 1.5% in 2018. It said these figures reflected reform fatigue after five years of adjustments and social pressures in Greece due to high unemployment, which rose to 24.4% in January. The draft projected an average rate of economic growth of 1.25% for the long term, which is lower than its previous forecast. The targets, which it called “ambitious, yet realistic”, could be underpinned by implementing measures that would save the equivalent of 2.5% of GDP by 2018, including reforms to its pension system, income tax, value-added tax and the public sector wage bill.

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If Cameron stays on, Brexit is here.

Pro-EU Leaflets Spark ‘Return To Sender’ Revolt In Britain (AFP)

Britons who want to leave the EU in June’s referendum are sending the government’s pro-Europe leaflets back to Downing Street in a furious protest against a campaign critics have slammed as scaremongering. The “Post It Back” campaign on Facebook and Twitter has attracted support from hundreds of people who do not appreciate the taxpayer-funded, pro-European Union leaflets being delivered to their homes this week. Kirsty Stubbs posted a picture of her leaflet on Facebook defaced with slogans including “What scaremongering rubbish” and “Vote Leave!” before sending it back. Alex Armstrong sent his leaflet back to a freepost address for Prime Minister David Cameron’s Conservatives with an added special package in the hope of lumbering the party with a large bill for postage.

“Just sent back the propaganda leaflet to the freepost address with a suitably heavy attachment – a lump of concrete,” he wrote on Facebook. Others burnt their leaflets or said they would use them as toilet paper, coffee mats or cat litter. Eurosceptic MPs are also angry that Cameron’s government has spent over £9 million on the leaflets, which will eventually go to every home in Britain. They forced a debate on the issue in the House of Commons on Monday. “It is bad enough getting junk mail, but to have Juncker mail sent to us with our own taxes is the final straw,” said Liam Fox, a senior Conservative, punning on the name of European Commission head Jean-Claude Juncker. Another Conservative, Nigel Evans, spoke of his work as an election monitor and compared ministers’ campaign tactics to those in Zimbabwe.

“If in any of the countries I visit I witnessed the sort of spiv (racketeer) Robert Mugabe antics that I have seen carried out by this government, I would condemn the conduct of that election as not fair,” he said. More than 200,000 people have signed a petition on parliament’s website opposing the use of taxpayers’ money to pay for the “biased” leaflet, forcing MPs to schedule another debate on the issue for May 9. The glossy, 16-page leaflet makes a series of claims including that leaving the EU would “create years of uncertainty and potential disruption” and that EU membership “makes it easier to keep criminals and terrorists out of the UK”. The main pro and anti-EU campaigns will each be entitled to send a publicly-funded leaflet to all households or electors, worth up to £15 million each, in the run-up to the June 23 vote. But opponents say that by spending £9 million on this extra leaflet before the formal campaign period begins on Friday, the government is getting an unfair advantage.

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Housing bubbles save governments.

Why Younger People Can’t Afford A House: Money Became Too Cheap (G.)

House prices have risen by 10% in the last year, the Halifax announced last week. Whoopeedoo. What that means is that the intergenerational wealth divide just rose by another 10% – and anyone born after 1985 is going to find it 10% harder to ever buy a home. There is perhaps no greater manifestation of the wealth gap in this country than who owns a house and who doesn’t, and yet it’s so unnecessary. Ignoring land prices for the moment, houses do not cost a lot of money to build – a quick search online shows you can buy the materials for a three-bed timber-framed house for less than £30,000; in China a 3D printer can build a basic home for less than £3,000 – and the building cost of the houses we already have has long since been paid. How can it be that, in the liberal, peaceful, educated society that is 21st-century Britain, a generation is priced out?

These are not times of war, nor are they, for the most part, periods of national emergency, so why should one couple be able to settle down and start a family and another not, by virtue of the fact that one was born 15 years earlier than the other? There has been a failure in both the media and government to properly diagnose the cause of high house prices. Until the causes – our systems of money and planning – are properly understood, we cannot hope to fix the problem. The standard solution is: “we need to build more”, but this is not a simple supply-and-demand issue. Between 1997 and 2007 the housing stock grew by 10%, but the population only grew by 5%. If house prices were a function of supply and demand, they should have fallen slightly over this period. They didn’t. They rose by more than 300%. The cause of house price rises is the unrestrained supply of something else: money.

Mortgage lending over the same period went up by 370%, thinktank Positive Money’s research shows. It was newly created debt that pushed up prices in a decade of extraordinarily loose lending, which gave birth to a national obsession. Houses were no longer places to live, but financial assets. Property owners became immensely wealthy without actually doing anything. And this great, unearned wealth saw the rise of a new rentier class: the buy-to-let landlord. When you have runaway inflation such as this, the Bank of England has a responsibility to quash it, usually by putting up interest rates. But – and here is the great sleight of hand – the Bank has seen fit not to include house prices in its measures of inflation. So, throughout the 90s and 00s, they could then “prove” inflation was low or moderate and interest rates meandered lower. Meanwhile, more and more mortgages were issued, and so more and more money was created, and it pushed up prices. The government didn’t mind.

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Hilarious.

Iceland Shocked By Elite’s Love Of Offshore Holdings (AFP)

Cabinet ministers, bankers and CEOs: the offshore companies at the heart of the leaked Panama Papers have drawn large numbers of Iceland’s elite into a scandal that has already brought down the country’s premier. The documents from the Panama-based law firm Mossack Fonseca, obtained by the International Consortium of Investigative Journalists (ICIJ), revealed just how many Icelanders had holdings hidden away in tax havens.That number is astounding: some 600 Icelanders are named in the documents, in a country of just 320,000. That’s the highest per capita number for any country, according to Johannes Kristjansson, an independent Icelandic journalist who worked with the Consortium. In the streets of Reykjavik, people are disgusted.

“It’s a small clique, and even after the 2008 (financial) crisis they wouldn’t let go. It just confirms that money made during the boom years didn’t disappear into thin air,” a 50-year-old resident, Kolbrun Elfa Sigurdardottir, told AFP. “Who are the people who benefited from this system? We all want to know,” asked Alli Thor Olafsson, 32. The offshore companies are part of the legacy from the euphoria that was rampant in Iceland’s financial sector in the early 2000s when the country’s banks borrowed beyond their means to fund aggressive investments abroad, ultimately causing the 2008 collapse of the three main banks. According to Sigrun Davidsdottir, a journalist at public television RUV who has been investigating offshore holdings since the 2008 crisis, Iceland’s financial advisors were quick to suggest to all and sundry that their money should be placed offshore.

“During the heady years up to 2008, a source said to me that you just weren’t anyone unless you owned an offshore company,” she wrote on her blog. By now, the best-known case is that of ousted prime minister Sigmundur David Gunnlaugsson. In 2007, his then-future wife, Anna Sigurlaug Palsdottir, placed her inheritance from her wealthy businessman father in an offshore tax haven, the British Virgin Islands, via the Credit Suisse bank. Gunnlaugsson owned 50% of the offshore company, named Wintris, a fact he neglected to disclose as required in April 2009 when he was elected to parliament. He resigned last week after massive public protests. Offshore accounts were so well-known in Iceland that the expression “Tortola company” – referring to the most populated island in the British Virgin Islands – had been widespread in Icelandic media, though not the extent to which they were used and by whom.

Gunnlaugsson was definitely not the only government official to own an offshore company. Finance Minister Bjarni Benediktsson owns a company in the Seychelles, while Interior Minister Olof Nordal has one in Panama. Both have so far managed to hold onto their cabinet posts despite the scandal. A former central bank governor and ex-industry minister, Finnur Ingolfsson, the head of pharmaceutical group Alvogen, Robert Wessman, as well as journalist Eggert Skulason of the daily DV are all known to be on the Panama Papers list of offshore account holders.

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All files should be transferred to a Wiki-style open source server.

Swiss Banker Whistleblower: CIA Behind Panama Papers (CNBC)

Bradley Birkenfeld is the most significant financial whistleblower of all time, so you might think he’d be cheering on the disclosures in the new Panama Papers leaks. But today, Birkenfeld is raising questions about the source of the information that is shaking political regimes around the world. Birkenfeld, an American citizen, was a banker working at UBS in Switzerland when he approached the U.S. government with information on massive amounts of tax evasion by Americans with secret accounts in Switzerland. By the end of his whistleblowing career, Birkenfeld had served more than two years in a U.S. federal prison, been awarded $104 million by the IRS for his information and shattered the foundations of more than a century of Swiss banking secrecy.

In an exclusive interview Tuesday from Munich, Birkenfeld said he doesn’t think the source of the 11 million documents stolen from a Panamanian law firm should automatically be considered a whistleblower like himself. Instead, he said, the hacking of the Panama City-based firm, called Mossack Fonseca, could have been done by a U.S. intelligence agency. “The CIA I’m sure is behind this, in my opinion,” Birkenfeld said. Birkenfeld pointed to the fact that the political uproar created by the disclosures have mainly impacted countries with tense relationships with the United States. “The very fact that we see all these names surface that are the direct quote-unquote enemies of the United States, Russia, China, Pakistan, Argentina and we don’t see one U.S. name. Why is that?” Birkenfeld said. “Quite frankly, my feeling is that this is certainly an intelligence agency operation.”

Asked why the U.S. would leak information that has also been damaging to U.K. Prime Minister David Cameron, a major American ally, Birkenfeld said the British leader was likely collateral damage in a larger intelligence operation. “If you’ve got NSA and CIA spying on foreign governments they can certainly get into a law firm like this,” Birkenfeld said. “But they selectively bring the information to the public domain that doesn’t hurt the U.S. in any shape or form. That’s wrong. And there’s something seriously sinister here behind this.” Birkenfeld also said that during his time as a Swiss banker, Mossack Fonseca was known as one piece of the vast offshore maze used by bankers and lawyers to hide money from tax authorities. But he also said that the firm that is at the center of the global scandal was also seen as a relatively small player in the overall offshore tax evasion business.

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Ha!

Australia Issues The Most Hideous Banknote In History (SMH)

The new $5 note continues Australia’s proud history of monetary innovation. When the British founded the convict colony of NSW in 1788, Governor Arthur Phillip embarked on a unique social experiment. He would establish a society without money, as having it around would only give the convicts something else to steal. Rum became the currency of choice, with the pound making way for the pint and the shilling swapped for the shot. In 1814, Governor Lachlan Macquarie decided he could not run a colony on a currency prone to spillage and evaporation. He bought 40,000 Spanish pieces of eight, the currency more pirates prefer, and cut the centre out of each piece, creating two coins, the holey dollar and the dump. In a moment of Scottish fiscal genius, Macquarie declared the two new coins would have a combined value of one-and-a-quarter pieces of eight, generating a tidy profit for his government.

Australia’s first banknote was printed by the Bank of NSW in 1817. The bank, established by convicted criminals, was commonly known as the Convict’s Bank and is now known as Westpac. In 1988, Australia celebrated its bicentenary by revolutionising banknote design, issuing the world’s first polymer note, the brainchild of Australia’s CSIRO. The organisation was so good at the science of making money that this is now the only science the Australian government will let it do. And now, with the new $5 note, Australia is again leading the world in banknote design. The Reserve Bank is proud to announce it has designed, possibly, the most hideous banknote in history. This is the start of a campaign to make our currency so nauseatingly unappealing that people will switch to electronic payments (saving the Australian government printing costs).

The new wattle motif, designed to look like anthrax spores, will stop old people sending money by mail (saving the Australian government postage costs). The government must have retained the designer of Australia’s 1984 Olympic uniforms to come up with a startling combination of off-pink and bilious yellow, before giving the Reserve Bank’s gibbon the keys to the inkjet. Blind people will love the new banknote for its revolutionary tactile features, but mainly because they won’t be able to see it. The worst thing about the new $5 note, however, is that it dispenses with one of the greatest Australians ever, Catherine Helen Spence – who was commemorated in 2001 for the note issued to celebrate the centenary of federation.

Spence was the first Australian woman novelist to write about Australian issues, the mother of the Australian foster care system, the leading campaigner for proportional representation in government, a hero of the women’s suffrage movement, and Australia’s first female political candidate. And those are but a few of her achievements. Spence has been forced to make way for a lump of neo-brutalist architecture – our Parliament House –topped by a giant Australian flag. A non-Australian, the Queen retains pride of place on the new note.

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Canada, US, Australia and more.

Canadian First Nation Suicide Epidemic Has Been Generations In The Making (G.)

The Attawapiskat First Nation, or the people of the parting rocks, as they are known in their indigenous Swampy Cree language, number roughly 2,000 souls. They live on a small Indian reserve 600 miles north of the Canadian capital of Ottawa, at the mouth of James Bay’s Attawapiskat River. This subarctic First Nation declared a state of emergency after 11 community members tried to take their own lives Saturday night. Since last September, more than 100 Attawapiskat people have attempted suicide in what local MP Charlie Angus has described as a “rolling nightmare” of a winter. The ghastly toll reveals a grim reality with which a nation in the midst of a process of truth and reconciliation now must reckon.

Suicide does not merely roll in like a hurricane to uproot homes and families, and drown out neighborhoods before receding from where it came. No, this has been an emergency generations in the making, tacitly supported by a Canada fully willing to mine natural resources, proselytize and brutalize generations of children in residential schools, and then leave with basic housing, education systems and healthcare in a state of disrepair. In 2011, Attawapiskat declared a state of emergency due to a “severe housing shortage”. In 2014, the community opened the first proper elementary school to serve Attawapiskat’s children in 14 years. At the same time, the De Beers mining company pulled $392m worth of diamonds out of their Victor Lake mine on lands taken from the Attawapiskat First Nation through an extension of Treaty 9 in 1930.

This is how First Nations live in the Bantustans of Canada’s north. Broke and broken people with little to no opportunities live in cold, run-down homes and suffer from generations of sexual, physical and psychological abuse. They look on as hundreds of millions of dollars worth of resources are mined from their ancestral homelands. This is not an emergency – a catastrophe for which Canada was unprepared and never saw coming. No, this is and always has been part of the design and devastation that colonization wrought. In order to take the land, Canadian settlers needed to eliminate First Nations and their prior and legitimate political claims to territories. In the late 19th and early 20th centuries, infectious diseases and state-supported starvation gave way to the institutional violence of Indian reserves and residential schools, where more than 150,000 First Nations children were taken from 1876 to 1996.

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No more Schengen.

Brussels Gives Greece Two Weeks To Tighten Borders (Kath.)

The European Commission on Tuesday gave Greece two weeks to determine how it plans to tighten control of its borders, noting that although progress has been made, the process of registering thousands of migrants streaming through the country remained inadequate. The Commission criticized an action plan submitted by Athens, noting that it lacked “detailed time frames” for fixing problems. It also demanded guarantees that EU funding for migration will be used properly. “The Commission requests that Greece provide the additional elements and clarifications by 26 April,” it said in a statement which acknowledged Athens had made “significant progress.” If Greece fails to take remedial action, Brussels could authorize other EU member-states to extend border controls in the Schengen passport-free area for up to two years instead of the normal six months. Such a scenario would effectively suspend Greece’s participation in the Schengen zone.

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Can’t stop this.

Refugees Become Smugglers Following EU-Turkey Deal (MEE)

Refugees and migrants in Greece have begun joining smuggling networks in growing numbers in a desperate bid to earn enough cash to pay for their own journeys north since an agreement between the EU and Turkey has made it more difficult for people to make it to places like Germany. In Idomeni, the northern border between Greece and Macedonia where more than 11,000 people have been stuck for weeks, the smugglers have been out in full force since the controversial deal officially – slated as a major blow to smuggling rings in Turkey and Europe – began to be implemented and the first migrants sent back. In contrast to the stated aim of cutting down on smuggling, smugglers can be seen in parking lots of hotels and abandoned gas stations, nor are the locals working alone.

In their bid to earn enough cash to make it north, some of the refugees and migrants stranded in Greece have started working as “fixers” for the smugglers, while smaller groups, mostly from Afghanistan, have started to self-organise and develop their own smuggling routes through parts of the Balkans. While the development is not altogether new, and some new arrivals have long stayed on with smugglers, the practice appears to be accelerating and is happening more in the open than ever before. [..] Despite the dangers, growing numbers of people feel they have no choice as border closures and barbed wire fences have made paying smugglers even more expensive. Karam, a Syrian refugee who paid smugglers to get to Germany last year and has now returned to Greece as a volunteer, says that prices have gone up and that he only paid $2,700 to make it all the way to Germany, significantly less than the journey would cost today.

“When I travelled to Germany, the smugglers did not see us as people but as commodities. We were often in risky situations during the trip and they didn’t care much. The only thing important to them was to transfer us as quickly as possible and return back for a new tour of people. I suppose they treat people even worse now,” said Karam. “I think that today, in this situation, I would apply to stay in Greece.”

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And the beat goes on and on.

Greek Coast Guard Rescues 120 Refugees Off Lesvos, Samos (Kath.)

Greek coast guard officers rescued 120 refugees and migrants in three separate incidents off Lesvos and Samos, authorities said on Wednesday morning. Officials said that between Tuesday and Wednesday morning there had been 101 arrivals on the Aegean islands. There are currently 3,644 people at the Lesvos hotspot, 1,827 in Chios and 516 on Samos, according to authorities.

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Apr 122016
 
 April 12, 2016  Posted by at 9:38 am Finance Tagged with: , , , , , , , , , ,  


Gottscho-Schleisner Fulton Market pier, view to Manhattan over East River, NY 1934

US Bank Stocks Are Having A Terrible 2016 (WSJ)
BofA Warns “Europe Looks Frightening” (ZH)
The Party’s Over (BBG)
Olivier Blanchard Eyes Ugly ‘End Game’ For Japan On Debt Spiral (AEP)
Smash The Mafia Elite, Treat Offshore Wealth As Terrorist Finance (Mason)
Aussie Hazards From Mortgages to Mines Lift Bond Risk (BBG)
Australia’s Housing Bubble And The Road To Private Serfdom (Soos)
Scientists Unveil New ‘Tree of Life’ (NY Times)
How Kim Kardashian Gets Elected President (Jim Kunstler)
Greece, Troika Adjourn Bailout Review Till After IMF Spring Meet (R.)
Ten Billion Risks in Greece’s Summer of Discontent (BBG)
‘Europe Has To Change Course’: Greece and Portugal Unite To Lambast EU (Tel.)
Tsipras Aiming For Debt Relief But Slams IMF (Kath.)
Greece Hopes To Move Refugees From Piraeus, But Tension At Elliniko (Kath.)
95,000 Unaccompanied Children Applied For Asylum In Europe In 2015 (EUO)
Italy Rescues 1,850 Migrants In Strait Of Sicily (AFP)

Luckily they’re TBTF. They don’t have to worry. We do.

US Bank Stocks Are Having A Terrible 2016 (WSJ)

Bank stocks are having a terrible 2016, as central-bank policies, which for years lifted asset prices, are hurting the financial sector. The impact of economic stimulus efforts on lenders will get a fresh airing this week, as big U.S. banks begin reporting their earnings for the first quarter. Trading revenue is expected to have taken a hit, but the more enduring problem will be visible in the lenders’ net interest margins, the basic measure of bank profitability that gets flattened by low interest rates. The broader U.S. stock market has shaken off a steep slump at the beginning of the year and is back in positive territory. But banks and other financial companies are lagging far behind. The divergence highlights the dilemma facing central banks. Easy-money policies have fueled a rally in risky assets.

They are also squeezing profits at financial companies, inflicting pain on a sector that is fundamental to the health of the economy. Earnings for S&P 500 financial companies during the quarter ended March are expected to be down 8.5% from the same period last year, according to FactSet. Analysts have cut their projections for almost three-quarters of the companies in the financial sector, including J.P. Morgan Chase and Bank of America, both of which are scheduled to release earnings this week. “At the end of the day, it’s just a more difficult earnings environment for financials,” said Jeremy Zirin at UBS Wealth Management Americas. Bank shares face an array of challenges. Low and in some cases negative interest rates globally have eroded banks earnings, while a steep decline in commodity prices at the start of the year raised concerns over lenders exposure to soured loans in the energy and mining sectors.

In Europe, the picture has been complicated further by concerns over nonperforming loans broadly, particularly in economically stressed Southern Europe. Financial companies are the worst performers in the S&P 500, down 7.6% in 2016 as the broader index has risen 0.2%. The KBW Nasdaq Bank Index of large U.S. commercial lenders has fallen 15% this year. Some big banks have done even worse. Morgan Stanley has fallen 25% this year, giving up roughly three years of stock-price gains in the process. Bank of America is in a similar position, with its shares down 23%. Citigroup shares have dropped 22%.

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Very scary graph.

BofA Warns “Europe Looks Frightening” (ZH)

"Europe looks concerning" warns BofAML's Stephen Suttmeier, pointing out, rather ominously that the broad European index – STOXX 600 – is trading like it did in 2001 & 2008.

 

 

The STOXX Europe 600 (SXXP) is trending below declining and bearishly positioned 26 and 40-week moving averages. ECB quantitative easing has not reversed this bearish trend. The 2016 set-up is similar to early 2001 and early 2008 with 350 important resistance and 300 important support. Both 2001 and 2008 saw rebounds into bearishly positioned and falling 26/40-week MAs that formed important lower tops in May.

We think this pattern could repeat or at least rhyme moving into May 2016. The breaks below 300 in September 2011 and June 2008 led to much deeper weakness and a similar break in 2016 could see the SXXP trend down toward 200.

Source: BofAML

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“Some of the more exotic activities from major corporations of late make much more sense when considered against a landscape of deteriorating returns.”

The Party’s Over (BBG)

It’s when a party’s been going on too long that it’s most at risk of getting out of hand. The more interesting guests fade away, leaving the field dominated by a sketchier crowd. Behavior considered beyond the pale earlier in the evening is excused to inject more vigor into flagging spirits.Financial markets, which former Federal Reserve Chairman William McChesney Martin once likened to a drunken debauch, exhibit similar dynamics. Seven years into the current global economic recovery, the punch bowl is almost drained. The remaining revelers are starting to raid the cupboards for stronger stuff. For evidence that the balloons are bursting and the dance-floor lights are coming up, take a look at the return on equity of the S&P 500 Index.

The measure dropped below 12% on March 21 – the first time it’s crossed the line in that direction since June 2008. The occasions prior to that were May 2001 and April 1991, and all three instances coincided closely with U.S. recessions. You see a similar pattern in the FTSE 100 Index. Just 11 trading days during the 2009 nadir of global markets saw returns on equity slip below the current level of 5.5%. In Asia, the Hang Seng Index, Shanghai Composite and CSI 300 have all touched their lowest levels since 2009 this year, and remain just a sliver above their rock-bottom points.Among major equity indexes, only the Nikkei, which is not far below its highest levels since 2008, and Europe’s Stoxx 50, which has been bumping along at low levels since 2011, break the pattern.

Some of the more exotic activities from major corporations of late make much more sense when considered against a landscape of deteriorating returns. Take inversions, where U.S. companies carry out reverse takeovers of foreign businesses in order to benefit from low corporate tax rates overseas.Such deals, which activist investor Carl Icahn estimates have exceeded half a trillion dollars in recent years, don’t come cheap. Pfizer, the global pharmaceutical giant that dropped its $160 billion attempt to hop into bed with Allergan after the U.S. Treasury promised to claw back the lost revenue, will pay a $400 million break fee to its spurned partner, people familiar with the matter said last week. There’s also an estimated $120 million to $150 million Pfizer will have to shell out for the work its own bankers and lawyers have done.

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“The BoJ is soaking up the entire budget deficit under Governor Haruhiko Kuroda as he pursues QE a l’outrance.”

Olivier Blanchard Eyes Ugly ‘End Game’ For Japan On Debt Spiral (AEP)

Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned. Olivier Blanchard, former chief economist at the IMF, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory. “To our surprise, Japanese retirees have been willing to hold government debt at zero rates, but the marginal investor will soon not be a Japanese retiree,” he said. Prof Blanchard said the Japanese treasury will have to tap foreign funds to plug the gap and this will prove far more costly, threatening to bring the long-feared funding crisis to a head.

“If and when US hedge funds become the marginal Japanese debt, they are going to ask for a substantial spread,” he told the Telegraph, speaking at the Ambrosetti forum of world policy-makers on Lake Como. Analysts say this would transform the country’s debt dynamics and kill the illusion of solvency, possibly in a sudden, non-linear fashion. Prof Blanchard, now at the Peterson Institute in Washington, said the Bank of Japan will come under mounting political pressure to fund the budget directly, at which point the country risks lurching from deflation to an inflationary denouement. “One day the BoJ may well get a call from the finance ministry saying please think about us – it is a life or death question – and keep rates at zero for a bit longer,” he said.

“The risk of fiscal dominance, leading eventually to high inflation, is definitely present. I would not be surprised if this were to happen sometime in the next five to ten years.” Arguably, this is already starting to happen. The BoJ is soaking up the entire budget deficit under Governor Haruhiko Kuroda as he pursues quantitative easing a l’outrance. The central bank owned 34.5pc of the Japanese government bond market as of February, and this is expected to reach 50pc by 2017.

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But the mob owns the house..

Smash The Mafia Elite, Treat Offshore Wealth As Terrorist Finance (Mason)

Amid the cobbled passageways and tumbling tenements of the Italian city of Perugia, it’s possible to daydream you are in the middle ages. You are surrounded by medieval art and architecture. And then you think: hold on, what happened to the Renaissance? Sure, there are some imposing private palaces from the period 1300-1500, and sure Raphael left half a fresco in a tiny chapel. But it’s not Florence. The money was clearly here at some point but, some time after 1300, the artistic, cultural and scientific riches moved somewhere else. By 1500, the city was “smaller, poorer and politically narrower” than 200 years before, writes historian Sarah Rubin Blanshei. Why? Because the rich did not pay their taxes.

The Perugian elite became a closed stratum of mafiosi, earning their money from mercenary work abroad, jealously guarding their family inheritance, stifling social mobility. Sound familiar? As David Cameron’s fiasco over the Panama Papers collides with George Osborne’s over the budget, the danger is that we frame these merely as political scandals. In fact, the Panama Papers point to a deeper sickness. Globalised capitalism has become an organised and legalised form of corruption, in which the work of the manager, the inventor and the entrepreneur come second to that of people whose wealth “works for them” – preferably in a jurisdiction nobody can see. If you listen to Cameron’s defenders, their logic follows three contours: he did nothing illegal, nothing unparliamentary and nothing wrong.

I do not doubt his decision to invest in an offshore fund was legal. That he failed to register his shares in Blairmore on becoming an MP, and lobbied for the protection of offshore trusts while being an undeclared beneficiary of one, does merit investigation by Parliament. But it’s the insistence by the apopleptic right that he should not be criticised over tax avoidance – that “everybody does it” – that we should register as a kind of collective Marie Antoinette moment for the UK’s social elite.

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MO: “..the acquisition of defaulted debt at a discount..”

Aussie Hazards From Mortgages to Mines Lift Bond Risk (BBG)

Those Australians struggling with mortgage payments and the possibility of damage from the global commodity price slump are helping to inflate bond risk for Macquarie Group’s banking unit. The cost of insuring Macquarie Bank notes against non-payment climbed to as much as 172 basis points last month, the highest since June 2013, after the lender flagged a rise in overdue home loans. The Sydney-based bank’s credit-default swaps have increased 39 basis points in 2016, the second most in the benchmark Markit iTraxx Australia index, and were at 155 basis points April 8. While Macquarie Group is predicted to post a record full-year profit, there’s increasing speculation about how well Australia’s lenders will cope with a mining downturn that’s already causing some resource-related firms to default on loans.

Large gyrations in global markets in the first quarter helped drive out credit spreads for banks, and there’s concern that home-loan books will be hurt by a stuttering Australian housing market. “Macquarie’s CDS was caught up in the February selloff with the big four banks and whilst the latter have regained ground in March, Macquarie remains at wides,” said Simon Fletcherat National Australia Bank. “This is likely to be in part due to some market nerves” after Macquarie revealed an increase in overdue loans in one of its recent regulatory filings, he said. While Macquarie’s total impaired mortgages fell in the final three months of 2015 compared with the previous quarter, the lender on Feb. 19 flagged an increase in overdue loans over the same timeframe. The bank’s 90-days-plus overdue residential mortgages almost doubled to A$476 million ($360 million) in the quarter ended Dec. 31. The main “driver” of the increase was due to the acquisition of defaulted debt at a discount, the lender said in a statement on its website last month.

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Do let it sink in: “With total household sector liabilities at $2.2 trillion dollars as of 2015, Q4, Australians are so indebted that the majority of principal will never be repaid.”

Australia’s Housing Bubble And The Road To Private Serfdom (Soos)

Over the last 20 years, housing has developed a reputation as a risk-free and high-gain asset. Property remains a coveted asset and can now be purchased with a small deposit; the rest borrowed from banks. It certainly is an attractive investment: since 1996, housing prices, adjusted for inflation and quality, have soared by 141% through to 2015.

Many global housing markets corrected after the GFC, but Australia’s continued to boom, especially in Sydney and Melbourne. This resilience is attributable to the vested interests: the FIRE (finance, insurance and real estate) sector, numerous Federal and state government interventions, and leveraged home owners and investors, who believe housing price inflation benefits them.Almost every residential owner wants the gravy train to continue running to escape the drudgery of wage labour and achieve the coveted status of property baron.

Australia has one of the world’s most expensive housing markets, but unlike an Olympic gold medal, the nation should feel shame rather than pride in achieving this dubious feat. Residential property is so highly leveraged that even a small fall in its value would have adverse consequences, placing heavily-geared owners in the position of negative equity. Falling prices and credit defaults can reverberate throughout the economy, leading to a recession or worse. After all, a real estate slump drove other wealthy economies into a major downturn during the GFC, not the other way around.

The largest and most important purchase the average person will make is not even financed with their own money. Relative to GDP, the Australian household sector vies with Switzerland for accumulating the largest debt burden globally. As of 2015, Q4, this amounts to 124%, which is much higher than what many other nations peaked at before the bursting of their housing bubbles.

This massive indebtedness is ignored by both political parties, who endlessly claim we need to transition the Federal Government budget back to surplus as this represents “fiscal responsibility”. The reason is because nobody wants the value of their properties to sink and, instead, is supposed to repeat the hysteria about the “budget emergency”, “runaway public debt”, “record deficit” and so on. Public debt peaked in 1932 at 173% of GDP, when the economy was far less productive. Today, it is low compared to historical and global trends. With total household sector liabilities at $2.2 trillion dollars as of 2015, Q4, Australians are so indebted that the majority of principal will never be repaid. With nominal rent growth now turning negative and wage growth at record lows, it will become increasingly difficult to finance repayments, especially for first home buyers.

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“The “great Tree of Life,” he said, “fills with its dead and broken branches the crust of the earth, and covers the surface with its ever branching and beautiful ramifications.”

Scientists Unveil New ‘Tree of Life’ (NY Times)

A team of scientists unveiled a new tree of life on Monday, a diagram outlining the evolution of all living things. The researchers found that bacteria make up most of life’s branches. And they found that much of that diversity has been waiting in plain sight to be discovered, dwelling in river mud and meadow soils. “It is a momentous discovery – an entire continent of life-forms,” said Eugene V. Koonin of the National Center for Biotechnology Information, who was not involved in the study. The study was published in the journal Nature Microbiology. In his 1859 book “On the Origin of Species,” Charles Darwin envisioned evolution like a branching tree. The “great Tree of Life,” he said, “fills with its dead and broken branches the crust of the earth, and covers the surface with its ever branching and beautiful ramifications.”

Ever since, biologists have sought to draw the tree of life. The invention of DNA sequencing revolutionized that project, because scientists could find the relationship among species encoded in their genes. In the 1970s, Carl Woese of the University of Illinois and his colleagues published the first “universal tree of life” based on this approach. They presented the tree as three great trunks. Our own trunk, known as eukaryotes, includes animals, plants, fungi and protozoans. A second trunk included many familiar bacteria like Escherichia coli. The third trunk that Woese and his colleagues identified included little-known microbes that live in extreme places like hot springs and oxygen-free wetlands. Woese and his colleagues called this third trunk Archaea.

[..] The scientists needed a supercomputer to evaluate a vast number of possible trees. Eventually, they found one best supported by the evidence. It’s a humbling thing to behold. All the eukaryotes, from humans to flowers to amoebae, fit on a slender twig. The new study supported previous findings that eukaryotes and archaea are closely related. But overshadowing those lineages is a sprawling menagerie of bacteria. Remarkably, the scientists didn’t have to go to extreme places to find many of their new lineages. “Meadow soil is one of the most microbially complex environments on the planet,” Dr. Hug said.

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How crazy it can get is anybody’s guess.

How Kim Kardashian Gets Elected President (Jim Kunstler)

[..] It must be obvious that the next occupant of the White House will preside over the implosion of all these arrangements since, in the immortal words of economist Herb Stein, if something can’t go on forever, it will stop. So the only individuals left seeking the position are 1) An inarticulate reality TV buffoon; 2) a war-happy evangelical maniac; 3) a narcissistic monster of entitlement whose “turn” it is to hold the country’s highest office; and 4) a valiant but quixotic self-proclaimed socialist altacocker who might have walked off the set of Welcome Back Kotter, 40th Reunion Special. These are the ones left standing halfway to the conventions. Nobody else in his, her, it, xe, or they right mind wants to be handed this schwag-bag of doom.

On Saturday, the unstoppable Democratic shoo-in Hillary lost her 7th straight contest to the only theoretically electable Vermont Don Quixote, Bernie Sanders. This was a week after it was reported in The Huff-Po that her campaign crew literally bought-and-paid for the entire 50-state smorgasbord of super-delegates who will supposedly compensate for Hillary’s inability to otherwise win votes the old-fashioned way, by ballots cast. Wonder why that didn’t make nary a ripple in the media afterward? Because this is the land where anything goes and nothing matters, and that’s really all you need to know about how things work in the USA these days.

The Republican mandarins are apparently delirious over loose cannon Donald Trump’s flagging poll numbers in the remaining primary states. Should Trump fall on his face, do you think they’ll just hand Ted Cruz the Ronald Reagan Crown-and-Scepter set. (They’d rather lock Ted in the back of a Chevy cargo van with five Mexican narcos and a chain saw.) The GOP establishment insiders are already lighting cigars in preparation for the biggest smoke-filled room in US political history, Cleveland, July 20. But what poor shmo will they have to drag to the podium to get this odious thing done? Who wants to be the guy in the Oval Office when Janet Yellen comes in some muggy DC morning and says, “Uh, sir (ma’am)… that sucker you heard was gonna go down…? Well, uh, it just did.”

As for the Dems: they are about to anoint the most unpopular candidate of our lifetimes. The BLM mobs have promised to deliver mayhem to the streets of the party conventions and don’t think they will spare Hillary in Philary, no matter how many chitlins she scarfed down last month in Carolina. The action in Philly will unleash and reveal all the deadly power of President Obama’s NSA goon squads when the militarized police put down the riots, and Hillary will be tagged guilty by association. And that is how Kim Kardashian gets elected president.

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The Troika always only intended to hang Greece out to dry.

Greece, Troika Adjourn Bailout Review Till After IMF Spring Meet (R.)

Greece and its international lenders adjourned talks on a crucial bailout review early on Tuesday and will resume them immediately after this week’s IMF spring meeting, the Greek finance minister said. Lenders, who had been in Athens for just over a week, will return next Monday after the IMF spring meeting in Washington with a view to concluding an agreement by April 22, when eurozone finance ministers are scheduled to meet, Finance Minister Euclid Tsakalotos told reporters. “The Greek government and the four institutions agreed there was progress,” Tsakalotos said, referring to European institutions and the IMF.

Greece’s review of progress, under a bailout deal reached in July, has dragged on for months mainly because of differences among the lenders over its projected fiscal shortfall by 2018 – initially seen at 3% by the EU and 4.5% by the IMF – and resistance from Athens on unpopular measures. The differences among the lenders themselves remained. With Athens, divergences hinged on the depth of pension reform and regulating non-performing loans, particularly those involving primary home mortgages, sources close to the talks have said. “It would have been good to conclude on a deal today … we have made many concessions until now,” a Greek government official participating in the Athens-based talks said. A source close to the talks said ‘most issues’ remained open. A positive review will unlock up to €5 billion in aid. Athens needs the money to repay €3.5 billion to the IMF and the ECB in July, as well as unpaid domestic bills.

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June 23: UK referendum.

Ten Billion Risks in Greece’s Summer of Discontent (BBG)

Europe is gearing up for a summer of discontent. There’s the U.K. referendum on EU membership, a simmering refugee crisis and an increasingly desperate ECB. Taken together, this list gives reason enough to be fearful about the health of the European project in the coming months. But there is also Greece, which is caught in a spat between Germany and the IMF over debt relief as it seeks yet more bailout money. Greece – whose economic crisis already threatened to destroy the irrevocable nature of euro membership – still seems to be dragging its feet over state asset sales and pension reform. It is hemorrhaging cash from its banking system. Athens has to find more than €5 billion to meet its debts in June – and another €5 billion in July.

That’s €10 billion Greece doesn’t have; not, perhaps, a princely sum for a larger, healthier European state but that’s 20% of Greece’s annual tax income. Now, there’s an argument that with so much else going on in the European theatre, Brussels will be keen to fudge a solution just to get Greece off the agenda. IMF may not be so willing to oblige, however. If May comes and goes without a deal – be it because of German intransigence on debt relief, IMF stubbornness on budget targets, or Greek brinksmanship — Greece and its creditors may run out of time to avoid default. As Greece’s debt repayment deadlines approach, EU officials may be busy fighting fires kindled by Britain’s June 23 referendum on EU membership. The outcome of that vote is far from certain.

Bloomberg’s composite tracker of opinion polls puts votes to remain in the EU at 39 points, those wanting to leave at 38, with “don’t knows” holding the balance of power at 23. With Prime Minister David Cameron embroiled in a domestic row about his personal taxes in the wake of the so-called Panama Papers, government popularity is likely to take a hit. That can only help the anti-EU campaign; it won’t take many undecided voters to swing the outcome. The European Commission’s regular survey of attitudes to the EU, known as the eurobarometer, has already taken a turn for the worse, with the most recent poll showing rising discontent: The proportion of Europeans for whom the EU conjures up a negative image has risen to 23% (+4); before this, it had declined continuously in the four previous surveys.

Renewed concern about the European project is just starting to surface in the bond market. Investors are now charging Portugal 3.3 percentage points more for 10-year money than they demand from Germany, a spread that’s well above its six-month average of 2.2 points. Italy’s risk premium rose to 1.3 points last week, up from December’s low of 0.9 points, while Spain is at 1.4 points, up from 1.2 points a month ago. That’s not enough to ring alarm bells; but it’s odd at a time when the ECB is increasing its sovereign bond purchases.

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But Europe won’t. So what’s next?

‘Europe Has To Change Course’: Greece and Portugal Unite To Lambast EU (Tel.)

Europe must move away from “self-defeating” austerity and embrace “progressive” reform, the prime ministers of Greece and Portugal have declared. Europe is at “a critical crossroads” and needs to decide whether to embrace “closer political, fiscal and social integration” or pursue fragmentation and “narrow national interest”, Greek prime minister Alexis Tsipras and his Portuguese counterpart António Costa said in a joint statement. Both Portugal and Greece have received bail-outs from the European Union following the crash of 2008. Portugal exited its €78bn bail-out programme in May 2014, while Greece is struggling to close a crucial review of its third bail-out in five years.

“We, as prime ministers of two countries with a similar policy experience in the context of their respective adjustment programmes, share the conviction that austerity-only policies are wrong and insufficient to overcome the existing challenges,” said Mr Tsipras and Mr Costa. They added: “Europe has to change course. Instead of merely adjusting to self-defeating competitiveness and austerity measures, our two countries take the decision to closely co-operate at all levels, bilateral and European, to put forward a progressive programme of democratic Eurozone Governance, economic revival, employment creation, centered on quality jobs, and socially just and environmentally responsible growth in Europe and in our countries.”

The prime ministers also criticised the response of some EU member states to the migrant crisis, with Mr Tsipras saying that the use of teargas and plastic bullets by Macedonian police during clashes with refugees at the Idomeni makeshift camp was a disgrace to European civilisation. The Portuguese prime minister is in Athens on an official visit. Speaking after his meeting with Mr Costa, the Greek prime minister slammed the role of the IMF in Greece’s bail-out talks. “In Greece wrong policies were applied and it is a paradox that those who recognized that there were wrong policies, admitting their mistake, insist on applying the mistake,” said Mr Tsipras.

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Does Tsipras still have meaning?

Tsipras Aiming For Debt Relief But Slams IMF (Kath.)

As negotiations between Greece and its quartet of lenders dragged on into Monday night, Prime Minister Alexis Tsipras again took aim at the International Monetary Fund for its “mistaken policies,” saying it was “time to get serious as the livelihoods of millions of people were at stake.” His remarks follow similar comments made by government officials last week to the effect that the IMF’s demands for more reforms were an obstacle to a deal. Tsipras said the Fund’s policies were damaging not only Greece but Europe as well. The stakes, he said, are too high for the third bailout program not to succeed, otherwise not just Greece but Europe will suffer as well – at a time when it is faced with three parallel crises – financial, security and refugees.

“And right before a crucial referendum [in Britain], I think what is most important is stability and recovery and the prospects of its [Europe’s] people.” But IMF chief Christine Lagarde was adamant on Monday that Greece must implement more reforms, even though she admitted that the Fund had made mistakes in its handling of the Greek crisis. “Greece cannot just continuously tag along and expect that things will be sorted out. The Greek leaders will need to take more ownership of re-establishing their country,” she said. The government is racing against time to complete the first review of its third bailout package by Easter so as to push for debt relief discussions at the IMF’s Spring Meeting in Washington this weekend.

According to the Greek government, last July’s bailout deal clearly stipulates that debt relief would be on the table for discussion once the first review was concluded. “[The deal] is absolutely clear: It says that after the successful conclusion of the first review, the discussion on the debt will begin without terms and preconditions,” Tsipras said during a joint press conference with his Portuguese counterpart Antonio Costa, who is on an official visit to Athens.

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Our friend Kostas and his Social Kitchen crew serve a lot of meals at Ellliniko, among other sites. The situation is fluent and volatile, but they keep trying every day.

Greece Hopes To Move Refugees From Piraeus, But Tension At Elliniko (Kath.)

Authorities are hoping to convince hundreds of refugees and migrants to leave the unofficial camps at Idomeni and Piraeus in the coming days, as tension builds up at other facilities. The government aims to transport around 1,500 people from the camp at the Piraeus passenger terminal by the end of the week and said that four buses full of migrants had left Idomeni in northern Greece on Monday. The refugees from Piraeus will be taken to Skaramagas, west of Athens, where the army has created another temporary facility to house the migrants who have found themselves trapped in Greece. Officials are hoping the fact that some refugees have already moved to the camp and found conditions to be good will help them persuade others to leave the overcrowded site at Piraeus, where more than 4,100 people are currently camped.

However, concerns mounted on Monday over the situation at a reception center for refugees and migrants at the site of the capital’s old airport in Elliniko, southern Athens, where thousands of desperate people are living in cramped and tense conditions. In a letter to the Interior, Immigration and Defense ministries, the head of the real estate company designated to oversee the management of the Elliniko plot described the situation at the site as “out of control and harboring serious risks.” In the letter, Soultana Spyropoulou noted that a three-month agreement to host migrants at the site expired at the end of March and had envisaged 700 people, not the approximately 6,000 currently residing there. Police officers who have been assigned to guard the site report daily brawls between groups of migrants as well as thefts and even cases of rape.

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Some 10% of whom are already lost. European values.

95,000 Unaccompanied Children Applied For Asylum In Europe In 2015 (EUO)

At least 95,000 unaccompanied children applied for asylum in Europe last year, four times the numbers for 2014. The huge increase was discovered by the Bureau of Investigative Journalism during an investigation into the level of migration among unaccompanied children, defined as those under 18 years old, in Europe and the stark inconsistencies in the way they are treated. From approaching 29 different governments for statistics, the investigators found that at least 95,070 applied for asylum in Europe in 2015, up from 23,572 in 2014. The figure is much higher than previous estimates, and provides the clearest picture yet of the actual scale of migration among unaccompanied minors during last year’s refugee crisis. Only 17 of the 29 countries provided data. Spain refused to cooperate, while France said publication of official data would be later this year.

Eurostat will also complete its own figures later this year. The children are treated very differently by national authorities, with some using controversial methods such as wrist bone X-rays to determine age. The numbers raise serious questions, not only for the ability of countries to cope with the influx, but also around the children’s welfare and their uncertain future. The UK-based Bureau of Investigative Journalism has been investigating the issues faced by unaccompanied minors for two years. The focus had been on the UK but was expanded to continental Europe late last year. It approached 27 EU member states for numbers, plus Norway and Switzerland. Almost all of the larger countries were among the 17 that provided details. Of those 17, Sweden registered the most asylum applications by lone children in 2015 – 35,369. This was followed by 14,439 in Germany, 9,331 in Austria and 8,804 in Hungary.

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The Big Shift.

Italy Rescues 1,850 Migrants In Strait Of Sicily (AFP)

The Italian coastguard Monday rescued 1,850 migrants in eight operations in the Strait of Sicily, as a wave of boats departing from the Libyan coast intensifies. Two small boats carrying a total of 740 people were intercepted by the coastguard ship Diciotti, while Italian Navy vessel Cigala Fulgosi came to the aid of two inflatable dinghies with 255 people on board, a coastguard statement said. A merchant ship was diverted to help another 117 people, while an EU naval force vessel picked up 738 migrants trying to cross on two barges and a small boat.

According to UN refugee agency data at the end of March, some 17,500 people have arrived in Italy since the start of the year. Two weeks ago nearly 1,600 migrants were rescued in the same area, adding to fears that calmer seas at the onset of spring are encouraging greater numbers of migrants to attempt the perilous crossing after a winter lull. There are also concerns that European efforts to shut down the migrant sea crossing from Turkey to Greece will encourage more people to attempt the more dangerous Mediterranean passage from Libya to Italy.

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 April 11, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , , , ,  


Dorothea Lange Butter bean vines across the porch, Negro quarter, Memphis, Tennessee 1938

US Banks’ Dismal First Quarter Spells Trouble For 2016 (Reuters)
US Faces ‘Disastrous’ $3.4 Trillion Pension Funding Hole (FT)
Abenomics Rebuked As BlackRock Joins $46 Billion Japan Pullout (BBG)
Beijing Risks ‘Sterling-Style’ Currency Crisis As Deflation Persists (AEP)
Chinese Buyers Double Their Aussie Property Investments, Again (BBG)
In BP’s Final $20 Billion Gulf Settlement, US Taxpayers Pay $15.3 Billion (F.)
British Banks’ ‘Misconduct Bill’ Has Reached Nearly $75 Billion (Reuters)
The 1% Hide Their Money Offshore – Then Use It To Corrupt Our Democracy (G.)
Hit By Panama Row, Cameron Announces New Tax Evasion Law In 2016 (Reuters)
Italy Pushes For ‘Last Resort’ Bank Rescue Fund (FT)
Austria Regulator Imposes 54% Haircut, Long Wait On Heta Bank Creditors (R.)
As Ukraine Collapses, Europeans Tire of Us Interventions (Ron Paul)
State Of Emergency Over Suicide Epidemic In Canada’s First Nations (G.)
Mass Coral Bleaching Now Affects Half Of Great Barrier Reef (G.)
Fewer Than 0.1% Of Syrians In Turkey In Line For Work Permits (G.)
Hundreds Hurt As Refugees Confront FYROM Border Police Tear Gas (AP)

When TBTF starts failing, watch your wallet.

US Banks’ Dismal First Quarter Spells Trouble For 2016 (Reuters)

It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks. Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week. Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth. Analysts forecast a 20% decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs, are expected to report the worst results in over ten years.

This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year. “What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.” Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan, the country’s largest bank. That will be followed by Bank of America and Wells Fargo on Thursday, Citigroup on Friday, and Morgan Stanley and Goldman Sachs on Monday and Tuesday, respectively, in the following week.

Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially. The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business. Bank executives have already warned investors to expect major declines across other areas as well. Citigroup CFO John Gerspach said to expect trading revenue more broadly to drop 15% versus the first quarter of last year. JPMorgan’s Daniel Pinto said to expect a 25% decline in investment banking. Several bank executives have warned about declining quality of energy sector loans.

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“California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20% of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40%.”

US Faces ‘Disastrous’ $3.4 Trillion Pension Funding Hole (FT)

The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies. According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger. Devin Nunes, a US Republican congressman, said: “It has been clear for years that many cities and states are critically underfunding their pension programmes and hiding the fiscal holes with accounting tricks.” Mr Nunes, who put forward a bill to the House of Representatives last month to overhaul how public pension plans report their figures, added: “When these pension funds go insolvent, they will create problems so disastrous that the fund officials assume the federal government will have to bail them out.”

Large pension shortfalls have already played a role in driving several US cities, including Detroit in Michigan and San Bernardino in California, to file for bankruptcy. The fear is other cities will soon become insolvent due to the size of their pension deficits. Joshua Rauh, a senior fellow at the Hoover Institution, a think-tank, and professor of finance at the Stanford Graduate School of Business, who carried out the study, said: “The pension problems are threatening to consume state and local budgets in the absence of some major changes. “It is quite likely that over a five to 10-year horizon we are going to see more bankruptcies of cities where the unfunded pension liabilities will play a large role.” The Stanford study found that the states of Illinois, Arizona, Ohio and Nevada, and the cities of Chicago, Dallas, Houston and El Paso have the largest pension holes compared with their own revenues.

In order to deal with the large funding shortfall, many cities and states will have to increase their contributions to their pension funds, either by raising taxes or cutting spending on vital services. Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, told FTfm last month that US public pension plans face “grave difficulties”. “I do believe that US cities and towns will continue to suffer, and there will be additional bankruptcies following the examples of Detroit,” she said. Currently, states and local governments contribute 7.3% of revenues to public pension plans, but this would need to increase to an average of 17.5% of revenues to stop any further rises in the funding gap, the research said. Several cities and states, including California, Illinois, New Jersey, Chicago and Austin, would need to put at least 20% of their revenues into their pension plans to prevent a rise in their deficits, while Nevada would have to contribute almost 40%.

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“A lot of people are starting to doubt Abenomics.” Very few have ever believed in it. But there was free money to be had.

Abenomics Rebuked As BlackRock Joins $46 Billion Japan Pullout (BBG)

For global equity investors and Shinzo Abe, it’s splitsville. Starting in the first days of 2016, foreign traders have been pulling out of Tokyo’s stock market for 13 straight weeks, the longest stretch since 1998. Overseas traders dumped $46 billion of shares as economic reports deteriorated, stimulus from the Bank of Japan backfired and the yen’s surge pressured exporters. The benchmark Topix index is down 17% in 2016, the world’s steepest declines behind Italy. Losing the faith of foreigners would be a blow to the Japanese prime minister – they’re the most active traders in a market Abe has held up as a litmus on his growth strategies. “Japan is back,” and “Buy my Abenomics!” he proclaimed during a visit to the New York Stock Exchange in September 2013, when shares were marching to an eight-year high.

Now about half of those gains are gone and BlackRock, the world’s largest money manager, is among firms ending bullish calls on Japan equities. “Japan has been disappointing,” said Nader Naeimi, Sydney-based head of dynamic markets at AMP Capital Investors, which oversees about $115 billion. He’s a long-time fan of Tokyo equities who says he’s now looking for opportunities to sell. “A lot of people are starting to doubt Abenomics.” While markets elsewhere are climbing back from a global selloff, investors in Japan see fewer reasons for optimism. Growing concern that Abenomics – the three-pronged strategy of fiscal and monetary stimulus and structural reform – is falling flat has spurred speculation the nation will slip into deflation, setting back efforts to end three decades of malaise.

Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui, fears a downward spiral. Foreigners are needed to boost the stock market, and if equities don’t rise the public will lose confidence and curb spending, as he sees it. That could send Japan back into deflation. “If foreigners don’t come back, the future of Abenomics could be jeopardized,” he said.

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“Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer..”

Beijing Risks ‘Sterling-Style’ Currency Crisis As Deflation Persists (AEP)

A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain’s traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis. Yu Hongding, a director of the Chinese Academy of Social Sciences, said China is caught in two concurrent “deflationary spirals” that are feeding on the other. A major devaluation and a blast of well-targeted fiscal stimulus will be needed to break out of the trap. “They must stop intervening on the exchange market. China needs to devalue by 15pc. They are creating conditions for speculators,” he told the Daily Telegraph, speaking at the Ambrosetti forum of global policymakers on Lake Como.

Prof Yu, a former rate-setter for the PBOC and currently a member of the national planning committee, said the government is making a serious mistake in trying to defend the yuan by burning through foreign exchange reserves, already down to $3.2 trillion from $4 trillion in mid-2014. He warned that the slowdown in capital outlows in March may prove fleeting. “Reserves will continue to fall until we devalue. Once we get towards $2 trillion the markets will start to panic. They won’t believe that the government can control it any longer,” he said. Prof Yu said Beijing had been caught off guard by the relentless slowdown over the last five years. “In 2011 we thought the economy would stabilize, and we thought the same thing in 2012, and again in 2013, and it continued to slide,” he said.

It is far from clear whether the world could handle a 15pc devaluation given the vast scale of Chinese overcapacity, or that the US Treasury and Congress would tolerate such a move. Fears of uncontrollable capital flight and a yuan devaluation were key reasons for the plunge in global equity markets earlier this year, and are clearly what prompted the US Federal Reserve to delay rate rises. The fate of China’s currency has become the most neuralgic issue in global finance. One worry is that a sharp drop in the yuan would set off a second round of ‘currency wars’ across East Asia, transmitting a deflationary shock through the international system as cheap Asian exports flooded into Western markets.

Prof Yu’s life is a remarkable story of achievement in Maoist China. He worked for ten years in a machine factory, wrestling with Marx’s Das Kapital at night before discovering western economics. He devoured Paul Samuelson’s classic text, ‘Foundations of Economic Analysis’, first in a Chinese translation and then in the original after teaching himself English, no easy feat in the Cultural Revolution. He went onto to earn a doctorate at Oxford University, and was still in England when sterling was blown out of the European Exchange Rate Mechanism in September 1992. He still recalls the exact details of the debacle, including the two desperate rate rises by the Bank of England in a single day. “The British experience is very interesting for us,” he said.

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Keeps the bubble alive until it doesn’t.

Chinese Buyers Double Their Aussie Property Investments, Again (BBG)

Chinese appetite for property in Australia shows no sign of waning after buyers doubled investment in the nation’s homes and offices for a second straight year. Spending on Australian residential and commercial real estate rose to A$24.3 billion ($18.4 billion) in the 12 months through June 2015, up from A$12.4 billion a year earlier and A$5.9 billion in 2013, according to the Foreign Investment Review Board’s annual report. All Chinese investors in a survey conducted by KPMG and the University of Sydney want to allocate more money to Australia, a separate report showed on Monday. Real estate is fueling inflows from the world’s second largest economy, which last year overtook the U.S. as Australia’s largest foreign investor.

“Overall we are seeing a strong story of Chinese investment into Australia’s broader economy which is in line with premium products, services and lifestyle-oriented themes,” Doug Ferguson, head of KPMG Australia’s Asia and International Markets and co-author of the report, said in a statement. Purchases by foreigners, many with a connection to China, helped drive an almost 55% jump in home prices across Australia’s capital cities in the past seven years as mortgage rates dropped to five-decade lows. The rising demand has triggered community concern that locals are being priced out of the property market, prompting the government to tighten scrutiny of foreign investment.

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Like so many other things these days, perfectly legal.

In BP’s Final $20 Billion Gulf Settlement, US Taxpayers Pay $15.3 Billion (F.)

Now that a judge has approved BP’s $20 billion settlement over the 2010 gulf oil spill, it is appropriate to look at the overall societal costs, as well as the bottom line to BP. And at tax time, people understandably think about their own taxes, too. The government struck a $20 billion settlement with BP, which is a big number. Yet BP should be able to deduct the vast majority, a whopping $15.3 billion, on its U.S. tax return. That means American taxpayers are contributing quite a lot to this settlement, whether they know it or not. BP can write off the natural resource damages payments, restoration, and reimbursement of government costs. Only $5.5 billion is labeled as a non-tax-deductible Clean Water Act penalty. One big critic of the deal is U.S. Public Interest Research Group, which often rails against tax deductions by corporate wrongdoers.

U.S. Public Interest Research Group has asked the Justice Department to deny tax deductions for BP and other corporate defendants. U.S. PIRG’s has a research report on settling for a lack of accountability that details the tax deductions corporations can claim for legal settlement. However, a change to the tax code may be the only way to get there. The proposed Truth in Settlements Act (S. 1898) would require agencies to report after-tax settlement values. Another bill, S. 1654, would restrict tax deductibility and require agencies to spell out the tax status of settlements. The present tax code allows businesses to deduct damages, even punitive damages. Restitution and other remedial payments are also fully deductible. Only certain fines or penalties are nondeductible. Even then, the rules are murky, and companies routinely deduct payments unless it is completely clear that they cannot.

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No bankers have been indicted, and no shareholder has taken them to court.

British Banks’ ‘Misconduct Bill’ Has Reached Nearly $75 Billion (Reuters)

Lawsuits and misconduct fines have cost Britain’s largest retail banks and customer-owned lenders almost 53 billion pounds ($74.86 billion) over the past 15 years, a new study has found. The scale of the payouts has hampered banks’ efforts to rebuild capital, restricted the amount they are able to lend and reduced dividends for investors. Britain’s banks have been hit by scandals ranging from the manipulation of foreign exchange and benchmark interest rates to the mis-selling of loan insurance and complex interest-rate hedging products. While lenders have struggled to return money to shareholders because of the charges, they have continued to pay billions of pounds in bonuses to staff, the study by the independent think-tank New City Agenda said.

“The profitability of UK retail banks has been imperilled by persistent misconduct,” said John McFall, a director of New City Agenda and former Treasury Committee chairman. “This has made every citizen poorer through our pension funds and our ownership of the bailed out banks.” The report said the mis-selling of payment protection insurance alone cost banks at least 37.3 billion pounds in Britain’s costliest consumer scandal. Lloyds had to set aside 14 billion pounds to cover misconduct between 2010 and 2014, almost twice the amount of any other British lender, the report said.

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Yup, that’s how it works.

The 1% Hide Their Money Offshore – Then Use It To Corrupt Our Democracy (G.)

Over the past 72 hours, you have seen our political establishment operating at a level of panic rarely equalled in postwar history. Britain’s prime minister has had yanked out of him some of his most intimate financial details. Complete strangers now know how much he’s inherited so far from his mum and dad, and the offshore investments from which he’s profited. Yesterday he even took the unprecedented step of revealing the taxes he’d paid over the past six years. Leaders of other parties have responded by summarily publishing their own HMRC returns. In contemporary Britain, where one’s extramarital affairs are more readily discussed in public than one’s tax affairs, this is jaw-dropping stuff. And it will not stop here.

Whatever the lazy shorthand being used by some commentators, David Cameron has not released his tax returns, but merely a summary certified by an accountants’ firm. That halfway house will hardly be enough. If Jeremy Corbyn, other senior politicians and the press keep up this level of attack, then within days more details of the prime minister’s finances will emerge. Nor will the flacks of Downing Street be able to maintain their lockdown on disclosing how many cabinet members have offshore interests: the ministers themselves will break ranks. Indeed, a few are already beginning to do so. But the risk is that all this will descend into a morass of semi-titillating detail: a string of revelations about who gave what to whom, and whether he or she then declared it to the Revenue.

The story will become about “handling” and “narrative” and individual culpability. That will be entertaining for those who like to point fingers, perplexing for those too busy to engage in the detail – and miss the wider truth revealed by the leak which forced all this into public discussion. Because at root, the Panama Papers are not about tax. They’re not even about money. What the Panama Papers really depict is the corruption of our democracy. Following on from LuxLeaks, the Panama Papers confirm that the super-rich have effectively exited the economic system the rest of us have to live in. Thirty years of runaway incomes for those at the top, and the full armoury of expensive financial sophistication, mean they no longer play by the same rules the rest of us have to follow. Tax havens are simply one reflection of that reality.

Discussion of offshore centres can get bogged down in technicalities, but the best definition I’ve found comes from expert Nicholas Shaxson who sums them up as: “You take your money elsewhere, to another country, in order to escape the rules and laws of the society in which you operate.” In so doing, you rob your own society of cash for hospitals, schools, roads… But those who exited our societies are now also exercising their voice to set the rules by which the rest of us live. The 1% are buying political influence as never before. Think of the billionaire Koch brothers, whose fortunes will shape this year’s US presidential elections. In Britain, remember the hedge fund and private equity barons, who in 2010 contributed half of all the Conservative party’s election funds – and so effectively bought the Tories their first taste of government in 18 years.

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He will have to reveal a lot more of his own finances, no matter what laws he has lying on the shelf.

Hit By Panama Row, Cameron Announces New Tax Evasion Law In 2016 (Reuters)

British Prime Minister David Cameron will say on Monday that new legislation making companies criminally liable if employees aid tax evasion will be introduced this year, as he seeks to repair the damage from a week of questions about his personal finances. Cameron published tax records on Sunday to try and defuse criticism over his handling of the fallout from the Panama Papers, in which his late father was mentioned for setting up an offshore fund. After four carefully worded statements in four days, Cameron bowed to pressure and admitted that he had benefited from selling his share in his father’s fund in 2010. He recognized on Saturday that he had mishandled the disclosure. Cameron is leading efforts to persuade British voters to stay in the EU in a June 23 referendum that the polls suggest will be tight, and the tax row has raised concerns among the “in” camp that their cause may have been damaged.

The prime minister will attempt to regain the upper hand when he appears in the House of Commons later on Monday. “This government has done more than any other to take action against corruption in all its forms, but we will go further,” Cameron will say, according to advance excerpts of his statement circulated by his Downing Street office. “That is why we will legislate this year to hold companies who fail to stop their employees facilitating tax evasion criminally liable,” he will say. The plan had already been announced by finance minister George Osborne in March 2015, but previously the commitment was to introduce the legislation by 2020, Downing Street said. The decision to speed up that particular measure is unlikely to satisfy Cameron’s many critics in opposition parties and in some campaign groups that say Britain already has the tools it needs to crack down on tax evasion but lacks the will.

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Debt restructuring is still a four letter word in Europe.

Italy Pushes For ‘Last Resort’ Bank Rescue Fund (FT)

Italy is rushing to cobble together an industry-led rescue to address mounting concerns over the solidity of a banking sector whose woes pose a risk to the wider eurozone economy. Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan. Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks, Monte dei Paschi di Siena, from contagion, according to people involved in the talks. Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. Lenders’ profitability has been hit by a crippling three-year recession.

The plan being worked on, which could be officially announced as soon as Monday evening, recalls the Sareb bad bank created in 2012 by the Spanish government to deal with financial crisis in its smaller cajas banks, say people involved. Although the details remain under discussion, it foresees the establishment of a private vehicle that will include upwards of €5bn in equity contributions – mostly from Italy’s banks, insurers and asset managers – and then a larger debt component. The fund will then mop up shares in distressed lenders. A second vehicle will seek to buy non-performing loans at market prices. “It is a backstop fund,” said one person involved in the talks. The Italian government can provide only limited financial backing because of EU state aid rules and because it is already struggling under a public debt load that amounts to 132.5% of GDP.

The bailout marks the latest and most wide-reaching attempt by Italy to shore up confidence having already sponsored the rescue of four small banks last year and passed a law intended to speed up the sale of bad loans. Both earlier measures failed to eradicate market concerns. [..] people involved in the talks question whether the plan would have the financial scope to provide a buffer of last resort for Monte dei Paschi di Siena. Italy’s third-largest bank was the worst performer in the 2014 European stress tests, with about €170bn in assets and about €50bn in bad loans. It is considered by many bankers to be the major risk to Italian financial stability and regarded as too big to fail. “Monte Paschi is the elephant in the room,” says one of Italy’s top bankers.

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Is this an attempt to let Carinthia go broke after all?

Austria Regulator Imposes 54% Haircut, Long Wait On Heta Bank Creditors (R.)

Austria’s financial markets regulator FMA on Sunday cut the nominal value of “bad bank” Heta Asset Resolution’s senior bonds by more than half, highlighting the long struggle creditors face for repayment if a settlement is not reached. The FMA, which is overseeing the wind-down of Heta, on Sunday announced measures including the bail-in, or haircut, of 54%, the extension of bonds’ maturities to 2023 and the cancellation of coupon payments as of March of last year.The announcement is the latest chapter in a standoff between the province of Carinthia and Heta’s creditors, many of which insist on repayment in full because their bonds were guaranteed by Carinthia, which could push the province into insolvency.

Carinthia guaranteed the bonds of local lender Hypo Alpe Adria before it collapsed and Heta was formed to wind it down. Carinthia says it cannot afford to fully honour the remaining guarantees, which the FMA put at €11.1 billion. Creditors are likely to sue Carinthia to recover the difference between what is paid out to them under Heta’s wind-down and their bonds’ full face value. The FMA put that difference at €6.4 billion, roughly three times the annual budget of Carinthia, a southern province of about 560,000 people that borders Italy and Slovenia and was long the stronghold of far-right politician Joerg Haider. The haircut’s size is based on the amount the FMA expects will be recovered from the sale of Heta’s assets by 2020.

It had said the estimate would be conservative to ensure that, if it is wide of the mark, there is extra revenue to be shared out. Only by the end of 2023 will it be possible to pay out all funds owed, the FMA said, partly in anticipation of many court cases, meaning creditors face a wait of seven years for their repayment of 46% of senior bonds’ face value. Carinthia offered to buy back the bonds it guaranteed, with loans from the Austrian government, for 75% of senior bonds’ face value, plus a last-minute sweetener by the Austrian government that brought the offer to around 82%. Too few creditors accepted the offer when it expired last month, and the question is now whether a compromise can be found or whether the dispute will be settled in court.

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Ron Paul doesn’t capture the entire picture, but from a US perspective he’s largely right.

As Ukraine Collapses, Europeans Tire of Us Interventions (Ron Paul)

On Sunday Ukrainian prime minister Yatsenyuk resigned, just four days after the Dutch voted against Ukraine joining the European Union. Taken together, these two events are clear signals that the US-backed coup in Ukraine has not given that country freedom and democracy. They also suggest a deeper dissatisfaction among Europeans over Washington’s addiction to interventionism. According to US and EU governments – and repeated without question by the mainstream media – the Ukrainian people stood up on their own in 2014 to throw off the chains of a corrupt government in the back pocket of Moscow and finally plant themselves in the pro-west camp. According to these people, US government personnel who handed out cookies and even took the stage in Kiev to urge the people to overthrow their government had nothing at all to do with the coup.

When Assistant Secretary of State Victoria Nuland was videotaped bragging about how the US government spent $5 billion to “promote democracy” in Ukraine, it had nothing to do with the overthrow of the Yanukovich government. When Nuland was recorded telling the US Ambassador in Kiev that Yatsenyuk is the US choice for prime minister, it was not US interference in the internal affairs of Ukraine. In fact, the neocons still consider it a “conspiracy theory” to suggest the US had anything to do with the overthrow. I have no doubt that the previous government was corrupt. Corruption is the stock-in-trade of governments. But according to Transparency International, corruption in the Ukrainian government is about the same after the US-backed coup as it was before.

So the intervention failed to improve anything, and now the US-installed government is falling apart. Is a Ukraine in chaos to be considered a Washington success story? This brings us back to the Dutch vote. The overwhelming rejection of the EU plan for Ukrainian membership demonstrates the deep level of frustration and anger in Europe over EU leadership following Washington’s interventionist foreign policy at the expense of European security and prosperity. The other EU member countries did not even dare hold popular referenda on the matter – their parliaments rubber-stamped the agreement.

Brussels backs US bombing in the Middle East and hundreds of thousands of refugees produced by the bombing overwhelm Europe. The people are told they must be taxed even more to pay for the victims of Washington’s foreign policy. Brussels backs US regime change plans for Ukraine and EU citizens are told they must bear the burden of bringing an economic basket case up to European standards. How much would it cost EU citizens to bring in Ukraine as a member? No one dares mention it. But Europeans are rightly angry with their leaders blindly following Washington and then leaving them holding the bag.

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This continues to make my half-Canadian heart bleed. It’s been going on for so long.

State Of Emergency Over Suicide Epidemic In Canada’s First Nations (G.)

A Canadian First Nation community of 2,000 people has declared a state of emergency after 11 of its members tried to take their own lives, national media reported. CTV News reported on Sunday that the remote northern community of the Attawapiskat First Nation in Ontario experienced an additional 28 suicide attempts last month. More than 100 people in the community have attempted suicide since last September, and one person died, according to CTV. The youngest was 11, the oldest 71. Charlie Angus, the local member of parliament, told the Canadian Press it was part of a “rolling nightmare” of more and more suicide attempts among young people throughout the winter. The Canadian Press said the regional First Nations government was sending a crisis response unit including social workers and mental health nurses to the community following the declaration.

The Health Canada federal agency said in a statement that it had sent two mental health counsellors as part of that unit. Attawapiskat resident Jackie Hookimaw told The Canadian Press that the epidemic started in the autumn when her 13-year-old niece Sheridan killed herself after being bullied at school. “There’s different layers of grief,” she said. “There’s normal grief, when somebody dies from illness or old age. And there’s complicated grief, where there’s severe trauma, like when somebody commits suicide.” Canadian prime minister Justin Trudeau said on Twitter: “The news from Attawapiskat is heartbreaking. We’ll continue to work to improve living conditions for all Indigenous peoples.” Another Canadian First Nation community in the western province of Manitoba appealed for federal aid last month, citing six suicides in two months and 140 suicide attempts in two weeks.

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“..three to four times worse than in 1998 or the second great bleaching in 2002.”

Mass Coral Bleaching Now Affects Half Of Great Barrier Reef (G.)

The mass coral bleaching event smashing the Great Barrier Reef has severely affected more than half its length and caused patches of bleaching in most areas, according to scientists conducting an extensive aerial survey of the damage. “The good news with my last flight is that I found 50 reefs that weren’t bleached, so that may be the southern boundary,” said Terry Hughes from James Cook University. Hughes is the head of the national coral bleaching task force, which has been conducting flights over the length of the reef, mapping bleached areas and recording the severity of the damage. Climate change and a strong El Niño have caused hundreds of kilometres of the reef to bleach, as the higher water temperatures stress the coral, and they expel their symbiotic algae.

If the bleaching is bad enough, or the temperatures remain high for long enough, the corals die, putting the future of reefs at risk. The mass bleaching on the Great Barrier Reef is part of what the US National Oceanographic and Atmospheric Administration has called the third global bleaching event – the first occurred in 1998. Initial reports suggested only the most northern and remote areas of the Great Barrier Reef were bleaching, but as aerial surveys have continued, scientists have struggled to find a southern boundary. The latest find of a stretch of unaffected reefs around Mackay was a small piece of good news, Hughes said. But he said its significane would be unclear until reefs further south were examined. “It may be a false southern boundary,” Hughes said.

The reefs around Mackay have unusually large tides, which might have pulled in cooler water and saved the coral there. [..] Two weeks ago, the Great Barrier Reef Marine Park Authority reported half the coral in the northern parts of the reef were dead. Hughes said that was consistent with reports from divers north of Port Douglas. Hughes said this was by far the worst bleaching event to have hit the Great Barrier Reef. He said it was three to four times worse than in 1998 or the second great bleaching in 2002. Last year, the Great Barrier Reef narrowly escaped being listed as “in danger” by Unesco, even though environmental groups said it clearly met the criteria. Hughes said the “outstanding universal value” of the reef was now “severely compromised”.

Ariane Wilkinson, a lawyer at Environmental Justice Australia, said the bleaching might cause Unesco to reconsider its decision. “[Unesco] weren’t scheduled to examine the reef this year but in light of the terrible bleaching it is entirely possible that they may decide to look at the reef,” she said. “If the World Heritage system is to have any value, it must address the most serious threats to the most iconic examples of world heritage,” she said. “If any site falls into this category, it is the … Great Barrier Reef.”

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Safe third country.

Fewer Than 0.1% Of Syrians In Turkey In Line For Work Permits (G.)

Fewer than 0.1% of Syrians in Turkey currently stand to gain the right to work under much-vaunted Turkish labour laws, undermining EU claims that the legislation excuses a recent decision to deport Syrian asylum-seekers back to Turkey. Turkish employers have allowed roughly 2,000 – or 0.074% – of Turkey’s 2.7 million Syrians to apply for work permits under new legislation enacted two months ago, according to government figures provided to aid workers at a meeting in late March. The number of permits granted has not yet been disclosed. More applications are expected in the coming months, but the statistic nevertheless highlights how the new law, enacted in January, does not offer blanket access to the labour market for all Syrians in Turkey.

Instead work permits can only be given to those who have the blessing of their employers, many of whom may still be unaware of the law, or unwilling to comply with it since it would require them to pay their employees the minimum wage. The figure was revealed in a speech to aid groups by the head of Turkey’s general directorate for migration management, who said he hoped the number would rise once more people became aware of the law. The news will complicate the new EU-Turkey deal to deport all asylum-seekers arriving to Greece back to Turkey, since the EU has justified the controversial agreement by claiming Turkey was a place that upheld internationally agreed obligations to refugees, including access to legal work. While Turkey is not a full signatory to the 1951 UN refugee convention, EU politicians have sometimes cited the January law as an example of how Turkey maintains the values of the convention by other means.

But in reality the law does not automatically offer most refugees a route out of the black market, several Syrians argued in interviews. Most problematically, the law requires an employer to give his employees a contract before they can apply for a permit. But this is an unattractive proposition for many employers, since they often employ Syrians precisely because they are easily exploited, said Hussam Orfahli, CEO of an Istanbul-based firm that helps Syrians apply for paperwork in Turkey. “If he wants you to have a work permit, then you can get it – but if he doesn’t, then you won’t,” said Orfahli, who has applied for permits on behalf of 60 wealthy clients, but has yet to hear whether any of them have been successful. “The minimum wage is 1,300 Turkish lira [£320] and most employers refuse to give contracts so that they can pay less, and don’t have to pay your health insurance.”

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Children injured by (8 hours of!) tear gas. Europe 2016.

Hundreds Hurt As Refugees Confront FYROM Border Police (AP)

Migrants waged running battles with Macedonian police Sunday after they were stopped from scaling the border fence with Greece near the border town of Idomeni, and aid agencies reported that hundreds of stranded travelers were injured. Macedonian police used tear gas, stun grenades, plastic bullets and a water cannon to repel the migrants, many of whom responded by throwing rocks over the fence at police. Greek police observed from their side of the frontier but did not intervene. More than 50,000 refugees and migrants have been stranded in Greece after Balkan countries closed their borders to the massive flow of refugees pouring into Europe. Around 11,000 remain camped out at the border with Macedonia, ignoring instructions from the government to move to organized shelters as they hold out hope to reach Western Europe.

Clashes continued in the afternoon as migrant groups twice tried to overwhelm Macedonian border security. The increasing use of tear gas reached families in their nearby tents in Idomeni’s makeshift camp. Many camp dwellers, chiefly women and children, fled into farm fields to escape the painful gas. Observers held out hope that evening rainfall, which began about seven hours into the clashes, would dampen hostilities. The aid agency Doctors Without Borders estimated that their medical volunteers on site treated about 300 people for various injuries. Achilleas Tzemos, deputy field coordinator of Doctors Without Borders, told the AP that the injured included about 200 experiencing breathing problems from the gas, 100 others with cuts, bruises and impact injuries from nonlethal plastic bullets.

He said six of the most seriously injured were hospitalized. The clashes began soon after an estimated 500 people gathered at the fence. Many said they were responding to Arabic language fliers distributed Saturday in the camp urging people to attempt to breach the fence Sunday morning and “go to Macedonia on foot.” A five-member migrant delegation approached Macedonian police to ask whether the border was about to open. When Macedonian police replied that this wasn’t happening, more than 100, including several children, tried to scale the fence. Greece criticized the Macedonian police response as excessive. Giorgos Kyritsis, a spokesman for the government’s special commission on refugees, said Macedonian forces had deployed an “indiscriminate use of chemicals, plastic bullets and stun grenades against vulnerable people.”

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