Jun 262017
 
 June 26, 2017  Posted by at 11:49 am Finance Tagged with: , , , , , , , , , ,  12 Responses »
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Paul Klee Ghost of a Genius 1922

 

The Automatic Earth has written many articles on the topic of EROEI (Energy Return on Energy Invested) through the years, there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole assembled recently, which contains 17 different articles.

Still, since EROEI is the most important energy issue there is at present, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium, it can’t hurt to repeat it once again, in someone else’s words and from someone else’s angle. This one comes from Brian Davey on his site CredoEconomics, part of his book “Credo”.

It can’t hurt to repeat it because not nearly enough people understand that in the end everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, about what we get in return when we drill and pump and build infrastructure, what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line.

Anno 2017, our overall ‘net energy’ is nowhere near where it was for the first 100 years or so after we started using oil. And there’s no energy source that comes close to -conventional- oil (and gas) when it comes to what we are left with once our efforts are discounted, in calories or Joules.

The upshot of this is that even if we can ‘gain’ 10 times more than we put in, in energy terms, that won’t save our complex societies. To achieve that, we would need at least a 15:1 ratio, a number straight from our friend Charlie Hall, which is probably still quite optimistic. And we simply don’t have it. Not anymore.

Also, not nearly enough people understand that it has absolutely nothing to do with money. That you can’t go out and buy more or better energy sources. Which is why we use EROEI instead of EROI (Energy Return on Investment), because the latter leaves some sort of financial interpretation open that doesn’t actually exist, it suggests that a financial price of energy plays a role.

First, here’s Nicole from the Automatic Earth Primer Guide 2017. Below that, Brian Davey’s article.

 

 

Nicole Foss: Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing.

We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.

 

 

Using Energy to Extract Energy – The Dynamics of Depletion

 

Brian Davey: The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.

The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, refined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transaction system for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.

Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into difficulty because of rising energy costs then so too will the financial system – which can then have a knock-on consequence for the money system. The two hub interdependencies could break down together.

“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.

 

The “Limits to Growth” study of 1972 – and its 40 year after evaluation

It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)

This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.

It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:

The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)

So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).

Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.

With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.

Diminishing per capita supply of services and food cause a rise in the death rate from about 2020 (and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run (figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century.(Turner, 2012, p. 121)

 

Energy Return on Energy Invested

A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)

eroei

The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.

However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.

Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.

We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.

So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.

The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…

Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.

Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:

the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.(Skrebowski, 2011)

This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.

More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.

But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.

The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.

 

Renewable Energy systems to the rescue?

Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.

eroei-renewables

Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.

Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.

Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)

Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.

hall

Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.

Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.

Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.

mining-australia

As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.

Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.

At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going. The main criticism of the limits to growth study was the claim that problems would be anticipated in forward markets and would then be made the subject of high tech innovation. In the next chapter, the destructive effects of these innovations are examined in more depth.

 

 

Jun 222017
 
 June 22, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Paul Klee Analysis of Various Perversities 1922

 

The Little Putsch That Could Beget a Great Big Coup (Stockman)
US Should Mind Its Own Business; It Shouldn’t Be In Syria (Ron Paul)
US Is A “Second Tier” Country (ZH)
America Grows Older And More Ethnically Diverse (BBG)
The Wheels Come Off Uber (Yves Smith)
Oil Prices ‘Like A Falling Knife’ (CNBC)
The Rise of a Prince Ends Doubts Over Saudi Arabia’s Direction (BBG)
Canada’s Housing Bubble Will Burst (BBG)
Rehousing Of Grenfell Tower Families In Luxury Block Gets Mixed Response (G.)
China NPL Prices Up 30% as New Gold Rush Gets Under Way (BBG)
Strong Interest, Low Price For NPLs of Greece’s Eurobank (K.)
Greeks Skeptical About Benefits, Prospects of EU (K.)
Greek Tourism Minister Says Arrivals Will Top 30 Million This Year (K.)

 

 

Davis is getting upset. He’s offering a free copy of his Trump book to every American at the link.

The Little Putsch That Could Beget a Great Big Coup (Stockman)

Let’s start with two obvious points about the whole Russia fiasco… Namely, there is no “there, there.” First off, the president has the power to declassify secret documents at will. But in this instance he could also do that without compromising intelligence community (IC) “sources and methods” in the slightest. That’s because after Edward Snowden’s revelations in 2013, the whole world was put on notice — and most especially Washington’s adversaries — that it collects every single electronic digit that passes through the worldwide web and related communications grids. Washington essentially has universal and omniscient SIGINT (signals intelligence). Acknowledging that fact by publishing the Russia-Trump intercepts would provide new knowledge to exactly no one. Nor would it jeopardize the lives of any American spy or agent (HUMINT).

It would just document the unconstitutional interference in the election process that had been committed by the U.S. intelligence agencies and political operatives in the Obama White House. That pales compared to whatever noise comes out of Langley (CIA) and Ft. Meade (NSA). And I do mean noise. Yes, I can hear the boxes on the CNN screen harrumphing that declassifying the “evidence” would amount to obstruction of justice! That is, since Trump’s “crime” is a given (i.e. his occupancy of the Oval Office), anything that gets in the way of his conviction and removal therefrom amounts to “obstruction.” Given that he is up against a Deep State/Democratic/Neoconservative/mainstream media prosecution, the Donald has no chance of survival short of an aggressive offensive of the type I just described. But that’s not happening because the man is clueless about what he is doing in the White House.

And he’s being advised by a cacophonous coterie of amateurs and nincompoops. So he has no action plan except to impulsively reach for his Twitter account. That became more than evident — and more than pathetic, too — when he tweeted out an attack on his own Deputy Attorney General, Rod Rosenstein. At least Nixon fired Elliot Richardson (his Attorney General) and Bill Ruckelshaus (Deputy AG): “I am being investigated for firing the FBI Director by the man who told me to fire the FBI Director! Witch Hunt.” Alone with his Twitter account, clueless advisors and pulsating rage, the Donald is instead laying the groundwork for his own demise. Were this not the White House, this would normally be the point at which they send in the men in white coats with a straight jacket.

[..] Even Senator John Thune, an ostensible Swamp-hating conservative, had nothing but praise for Special Counsel Robert Mueller, that he would fairly and thoroughly get to the bottom of the matter. No he won’t! Mueller is a card-carrying member of the Deep State who was there at the founding of today’s surveillance monster as FBI Director following 9/11. Since the whole $75 billion apparatus that eventually emerged was based on an exaggerated threat of global Islamic terrorism, Russia had to be demonized into order to keep the game going — a transition that Mueller fully subscribed to.

Read more …

“One thing that I am concerned about – because I’ve seen it happen so often over the years, are false flags.”

US Should Mind Its Own Business; It Shouldn’t Be In Syria (Ron Paul)

RT: Australia halted its cooperation. How significant is this development? Why did they do it? Ron Paul: I think that is good. Maybe wise enough, I wish we could do the same thing – just come home. It just makes no sense; there’s a mess over there. So many people are involved, the neighborhood ought to take care of it, and we have gone too far away from our home. It has been going on for too long, and it all started when Obama in 2011 said: “Assad has to go.” And now as the conditions deteriorate …it looks like Assad and his allies are winning, and the US don’t want them to take Raqqa. This just goes on and on. I think it is really still the same thing that Obama set up – “Get rid of Assad” and there is a lot of frustration because Assad is still around and now it is getting very dangerous, it is dangerous on both sides.

One thing that I am concerned about – because I’ve seen it happen so often over the years, are false flags. Some accidents happen. Even if it is an honest accident or it is deliberate by one side or the other to blame somebody. And before they stop and think about it, then there is more escalation. When our planes are flying over there and into airspace where we shouldn’t be, and we are setting up boundaries and say “don’t cross these lines or you will be crossing our territory.” We have no right to do this. We should mind our own business; we shouldn’t be over there, when we go over there and decide that we are going to take over, it is an act of aggression, and I am positively opposed to that. And I think most Americans are too if they get all the information they need.

Read more …

“..the US received its lowest marks in the categories of “tolerance and inclusion” and “health and wellness.“

US Is A “Second Tier” Country (ZH)

Most Americans’ idea of happiness involves lounging by the water or on a beach somewhere. But it turns out, human happiness can flourish even in freezing climates far from the equator. To wit, the Social Progress Imperative, a US-based nonprofit, released the results of its annual Social Progress Index report, which purports to rank countries based on the overall wellbeing of their citizens. Four Scandinavian countries – Denmark, Finland, Iceland and Norway claimed the top spots, while the US placed 18th out of 128, leaving it in what the SPI defines as the “second-tier” of countries based on citizens’ wellbeing, according to Bloomberg. Luckily, being “second-tier” doesn’t seem that bad, according to a definition found in the report. “Second-tier countries demonstrate “high social progress” on core issues, such as nutrition, water, and sanitation.

However, they lag the first-tier, “very high social progress” nations when it comes to social unity and civic issues. That more or less reflects the U.S. performance. (There are six tiers in the study.)” “We want to measure a country’s health and wellness achieved, not how much effort is expended, nor how much the country spends on healthcare,” the report states. In a nod to the controversy surrounding President Donald Trump’s anti-immigrant rhetoric, as well as his efforts to repeal and replace Obamacare, the report noted that the US received its lowest marks in the categories of “tolerance and inclusion” and “health and wellness.” America’s “tolerance” score has been sliding since 2014, around the time that several high-profile shootings of unarmed black men ignited the “Black Lives Matter” movement, sparking a national conversation about the prevalence of racism in US society.

Read more …

Just very slowly.

America Grows Older And More Ethnically Diverse (BBG)

The United States is growing older and more ethnically diverse, a trend that could put strains on government programs from Medicare to education, the Census Bureau reported Thursday. Every ethnic and racial group grew between 2015 and 2016, but the number of whites increased at the slowest rate — less than one hundredth of 1% or 5,000 people, the Census estimate shows. That’s a fraction of the rates of growth for non-white Hispanics, Asians and people who said they are multi-racial, according to the government’s annual estimates of population. President Donald Trump’s core support in the racially divisive 2016 election came from white voters, and polls showed that it was especially strong among those who said they felt left behind in an increasingly racially diverse country.

In fact, the Census Bureau projects whites will remain in the majority in the U.S. until after 2040. “Even then, (whites) will still represent the nation’s largest plurality of people, and even then they will still inherit the structural advantages and legacies that benefit people on the basis of having white skin,” said Justin Gest, author of “The New Minority,” a book about the 2016 election. The Census Bureau reported that the median age of Americans — the age at which half are older and half are younger — rose nationally from just over 35 years to nearly 38 years in the years between 2000 and 2016, driven by the aging of the “baby boom” generation. The number of residents age 65 and older grew from 35 million to 49.2 million during those 16 years, jumping from 12% of the total population to 15%.

That’s a costly leap for taxpayers as those residents move to Medicare, government health care for seniors and younger people with disabilities, which accounted for $1 out of every $7 in federal spending last year, according to the Kaiser Family Foundation. By 2027, it will cost $1 out of every $6 of federal money spent. Net Medicare spending is expected to nearly double over the next decade, from $592 billion to $1.2 trillion, the KFF reported.

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Excellent take-down from Yves.

The Wheels Come Off Uber (Yves Smith)

Not surprisingly, the financial press has been all ago about the drama of Travis Kalanick’s forced departure from Uber’s CEO position yesterday, and has focused on getting salacious insider details of his ouster. That means journalists largely ignored what ought to be the real story, which is whether Uber has any future. I anticipate that Hubert Horan will offer a longer-form treatment of this topic. Hubert had already documented, in considerable detail in his ten-part series, how Uber has no conceivable path to profitability. Its business model has been based on a massive internal contradiction: using a ginormous war chest to try to achieve a near-monopoly position in a low-margin, mature business that is fragmented geographically and locally.

Monopolies and oligopolies are sustainable only when certain factors are operative: the ability to attain a superior cost position through scale economies, which include network effects, or barriers to entry, such as regulations, very high skill levels, or high minimum investment requirements. Neither of these apply in the local car ride business. Even if Uber were able to drive literally every competing cab operator in the world out of business due to its ability to continue its predatory pricing, once Uber raised prices to a level where it achieved profits, new entrants (or revived old entrants) would come in. Uber will thus never be able to charge the premium prices (in excess of the level for a traditional taxi operator to be profitable) for the very long period necessary for Uber to merely be able to recoup the billions of dollars it has burned, mainly in subsidizing the cost of rides, let alone to achieve an adequate return on capital.

And that’s before you get to the fact that systematically much higher prices would mean fewer fares. The developments of the last few months mean Uber’s decay path is sure to accelerate. I’ve been following the business press for over 30 years. I can’t think of a single case where even an established, profitable business with an established franchise has had so many top level positions vacant, and for such bad reasons. As reader vidimi quipped, “With no CEO, CFO, COO, and CIO, uber is coming very close to becoming a self-driving company.” And that’s not even a full list. World-class communications expert Rachel Whetstone, who is recognized as a key force in rebuilding the Tories’ brand in the UK, quit in April.

The heads of engineering departed for failing to disclose a previous sexual investigation; the head of product and growth was forced out over a sexual impropriety at a company function. And in a scandal that will have a much longer tail, Uber’s former head of its Waymo driverless car unit, Anthony Levandowski, has had his case involving alleged theft of intellectual property from Google referred to the Department of Justice. Kalanick was deeply involved in Levandowski sudden exodus. It seems implausible that Kalanick didn’t know Levandowski was making off with Google files. If the case does lead to a criminal prosecution, it is hard to see how Kalanick could escape scrutiny as a potential criminal co-conspirator.

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Just in case you were wondering why King Salman named a new crown prince…

Oil Prices ‘Like A Falling Knife’ (CNBC)

Oil prices could be poised to fall below $40 a barrel before too long, according to an analyst at Energy Aspects, as the commodity appeared set to post its largest price slide in the first half of the year for the past two decades. “This is like a falling knife right now, I genuinely haven’t seen sentiment this bad ever,” Amrita Sen, the co-founder and chief oil analyst at Energy Aspects, told CNBC on Wednesday. “We have had clients emailing saying they have been trading this for 20 or 30 years and they have never seen something like this,” she added. Oil prices have tumbled more than 20% his year, marking its worst performance for the first six months of the year since 1997 and putting the commodity in bear market territory.

The ongoing decline in prices appears to have stemmed from investors discounting evidence of robust compliance by OPEC and non-OPEC producers with a deal to curtail a global supply overhang. Prices took a fresh leg lower in the previous session – dipping 2% – as new signs of rising output from Nigeria and Libya, the two OPEC members exempt from a deal to cut production. Output from the 14-member exporter group ticked higher in May due to rising production in Nigeria, Libya and Iraq, raising concerns about OPEC’s effort to shrink global stockpiles of crude oil. OPEC and other producers have committed to keeping 1.8 million barrels a day off the market through March. Libya’s oil production rose more than 50,000 barrels per day to 885,000 bpd. Meanwhile, exports of Nigeria’s benchmark Bonny Light crude oil are set to rise by 62,000 barrels per day in August.

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Absolutely. He’s the War Prince.

The Rise of a Prince Ends Doubts Over Saudi Arabia’s Direction (BBG)

With the anointment of Prince Mohammed bin Salman as heir to the Saudi throne, any doubts over the continuation of policies that have shaken up the Middle East have gone. Western diplomats already referred to the 31-year-old as “Mr. Everything,” because of his control over most aspects of domestic, foreign and defense affairs. His elevation ends a behind-the-scenes struggle for power and answers the question of what would happen to his plans for Saudi Arabia when King Salman, now 81, dies or steps aside. The most ambitious of these, Vision 2030, seeks to recalibrate the economy to end the country’s near-total dependence on oil revenue. But internationally, there are also ramifications. Last month, the prince again raised the stakes in the regional rivalry with Iran, saying that dialog was “impossible” as they fight a proxy war in Yemen.

He also led a multi-nation effort to isolate neighboring Qatar, causing a rift among fellow members of the Gulf Cooperation Council. That also looks set to turn into another long and potentially fruitless test of wills as Iran and Turkey come to Qatar’s aid. “The switch offers him the legitimacy and consensus of becoming the next king and that will validate his vision, his plans and his policies,” said Sami Nader, head of the Beirut-based Levant Institute for Strategic Affairs. “There were a lot of question marks about the future of Saudi Arabia and the transition. Now this debate has ended.” Widely known as MBS, he was made crown prince just after dawn in Riyadh, displacing his older cousin, Mohammed bin Nayef, who was also stripped of his post as interior minister in charge of domestic security forces and counter-terrorism policy.

The move was neither a shock nor a coup, and it means he could be running the kingdom for decades to come. What’s more, his tough approach to the intractable problems of the Middle East would appear to mesh well with U.S. President Donald Trump, who visited Saudi Arabia last month. Trump called the new crown prince Wednesday to offer congratulations on his elevation, the White House said in a statement. Trump and the prince “committed to close cooperation to advance our shared goals of security, stability, and prosperity across the Middle East and beyond,” according to the statement. The problem is what comes next. On Tuesday, the U.S. Department of State questioned Saudi Arabia’s justification at striking out at Qatar by cutting it off from diplomatic and transport links.

The bombing campaign in Yemen aimed at destroying the rebel Houthi forces that Saudi Arabia sees as proxies for Iran, meanwhile, appears to have no end in sight. Two years later, it has become bogged down, bloody and increasingly unpopular. “On the foreign policy side he’s also embroiled Saudi Arabia in Yemen and Qatar without an exit strategy,” said James Dorsey at Singapore’s Nanyang Technological University. These aren’t changes of direction for Saudi Arabia, but “what he has done is to stretch up a notch and put some very sharp edges on it, and at this point those are backfiring.”

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Any Canadian with a substantial mortgage who’s not actively trying to sell right now…..

Canada’s Housing Bubble Will Burst (BBG)

Canadian home sales fell the most in five years last month. That didn’t stop an increase in prices, which were up 18% nationwide from a year earlier. When you consider that most houses are leveraged assets, this represents huge gains for homeowners. While leverage can help boost performance on the way up, it becomes very dangerous on the way down. Leverage can turn even the best investments into poor ones when things go wrong, as losses are amplified. Equity can get wiped out pretty quickly on an overleveraged asset. Canadian real estate has been on fire for years. The housing price data there has made the U.S. real estate market during the boom of the mid-2000s look mild. The Federal Reserve Bank of Dallas puts out a global housing price index for more than 20 countries every quarter. Using this data, I looked at the real house price index data for Canada and compared it with the same data in the U.S. going back to 1975. Here’s this relationship from 1975 through the end of 2005:

Although there were some divergences in the early and late 1980s, both housing markets essentially ended up in the same place after 30 years. Now let’s add in the most recent data to see how things have unfolded since:

An enormous divergence occurred in 2006, when U.S. housing prices really began to soften, while Canadian price barely skipped a beat. This makes any differences in the past look like blips. The rise in Canadian real estate prices has been relentless. The U.S. housing market peaked in late 2006. Since then, based on this index, U.S. housing prices are still down almost 13% from their peak through the end of 2016. In that same time frame, Canadian housing prices are up 56%. From the 2006 peak, it took until late 2012 for real estate in the U.S. to bottom. We’ve since witnessed a 19% recovery from what was a 27% decline nationwide, on average. While the U.S. real estate downturn lasted almost six years, Canada’s housing market experienced just a 7% drawdown that lasted less than a year. And house prices in Canada reclaimed those losses in about a year and a half. Canadian housing has also outpaced its neighbors to the south since the 2012 bottom in U.S. real estate, with a 30% gain in that time.

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You can’t even blame these people. It’s the whole crazy idea of cities and governments blowing housing bubbles on purpose, that’s what’s wrong here.

Rehousing Of Grenfell Tower Families In Luxury Block Gets Mixed Response (G.)

Two miles south of the charred skeleton of Grenfell Tower is a large complex of sleek new apartments that some of those displaced by last week’s inferno will soon be able to call home. Kensington Row’s manicured lawns, clipped trees and burbling fountains are a haven from the rumbling traffic of two busy London thoroughfares, and its spacious, air-conditioned foyers a relief from June’s oppressive heatwave. Four unfinished blocks house the 68 flats purchased by the Corporation of London for families who lost their homes in Grenfell Tower. Workmen had been instructed not to talk to the media, but one said there was now a rush to complete the building work. “It’s a brilliant idea,” he said of the resettlement plan. Among those exercising dogs and small children, the views were more mixed. “It’s so unfair,” said Maria, who was reading the news in the Evening Standard with two neighbours.

She bought her flat two years ago for a sum she was unwilling to disclose. “We paid a lot of money to live here, and we worked hard for it. Now these people are going to come along, and they won’t even be paying the service charge.” Nick, who pays £2,500 a month rent for a one-bedroom flat in the complex, also expressed doubts about the plan. “Who are the real tenants of Grenfell Tower?” he asked. “It seems as though a lot of flats there were sublet. Now the people whose names are on the tenancies will get rehoused here, and then they’ll rent the flats out on the private market. And the people who were actually living unofficially in the tower at the time of the fire won’t get rehoused. “I’m very sad that people have lost their homes, but there are a lot of people here who have bought flats and will now see the values drop. It will degrade things. And it opens up a can of worms in the housing market.”

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When your bad debt is in a bubble, I guess you got it made?! Or should that be: you should be afraid?

China NPL Prices Up 30% as New Gold Rush Gets Under Way (BBG)

Bad loans are rapidly becoming the latest hot commodity in China as more domestic and foreign investors rush into the market and bid up prices. Non-performing loan prices have risen more than 30% this year, according to distressed investor Belos Capital Asia. The average selling price of NPLs has climbed to around 50 cents on the dollar in the past two years, from 30 cents, said Victor Jong, a partner in the deals and business recovery services unit of PricewaterhouseCoopers in Shanghai. Such a high level is “very rare” in international markets, Jong said. “There are just too many buyers grabbing a limited supply of NPLs,” said Hanson Wong, CEO of Belos Capital in Hong Kong. “At these prices, it’s pretty hard for these NPLs to be profitable.” Distressed investors are increasing as Chinese authorities encourage market-oriented ways to resolve lenders’ mounting piles of non-performing debt amid slowing economic growth.

A jump in valuations of real estate, which often act as underlying assets for secured loans, has boosted the debt’s recovery prospects. Combined with a surge in money supply, this has lifted bad-loan prices even in some less-developed regions of China, according to domestic distressed debt investor Bald Eagle Asset Management. Foreign investors including Oaktree Capital, Lone Star, Goldman Sachs and PAG have bought China NPLs in the current cycle that began in 2014, according to a March report from PwC. Non-performing loans at the country’s lenders jumped 61% in the past two years to 1.58 trillion yuan ($231 billion) at the end of March. In the previous NPL cleanup in China, between 2001 and 2008, secured debt was typically sold at 20 cents on the dollar, and unsecured creditors got back only 5 cents, said Wang Yingyi, a partner at Bald Eagle in Beijing.

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Looks like Greece should try China’s bad debt recipe.

Strong Interest, Low Price For NPLs of Greece’s Eurobank (K.)

The loans portfolio put up for sale by Eurobank is attracting strong investment interest but low offers as the lender begins the process for the transfer of nonperforming loans. This is a portfolio valued at €2.8 billion which has attracted the interest of about 20 investment funds in the data room, illustrating the strong leverage the NPL market commands, partly due to the banks’ commitment to reducing their bad loans by 40% by the end of 2019. The portfolio that Eurobank is selling includes debt from consumer loans and credit cards that have gone unpaid for years, most for at least a decade – i.e. since before the financial crisis broke.

Eurobank has made all the necessary moves for the collection of part of the €2.8 billion, without getting a great response. Therefore the prices in the market are expected to be particularly low for the portfolio, with estimates speaking of just 5% of the original value. Market professionals note that Eurobank’s effort to recover part of the dues just before the opening of the portfolio’s sale, offering debtors a haircut of up to 95% without any significant results, means that the price will likely drop below 5% too.

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Greeks are still stuck in the mindset of being proud to be deemed worthy of being a full member of the EU. So much so that they can’t see they’re not.

Greeks Skeptical About Benefits, Prospects of EU (K.)

As the European Union’s cohesion faces being sorely test by the upcoming Brexit negotiations and other challenges, Greeks appear increasingly skeptical about the benefits and prospects of the EU, according to a new study by London-based international policy institute Chatham House and research company Kantar. 74% of Greeks are worried about the outlook for the EU, according to the survey which was carried out on a sample of 1,000 people in 10 European countries: Britain, Belgium, Germany, Greece, Spain, France, Italy, Austria, Hungary and Poland.

The Greek figure was almost double the research average of 38%. Greeks were also significantly more downbeat than their counterparts, with 60% declaring themselves to be pessimistic compared to a research average of 40%. An even larger proportion of Greeks, 80%, said they believed more members of the bloc would follow Britain’s lead and decide to break away from the Union in the next 10 years. Predictably, following seven years of belt-tightening imposed by foreign creditors, a significant proportion of Greeks (67%) said that austerity was the EU’s biggest failure. 73% of Greeks believe that the decision of Britain to leave the EU will weaken the Union.

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A debt colony AND a tourist colony. With most of the best assets sold off to foreigners.

BTW, both Greeks and tourists would be much better off if Greece had its own currency and could lower daily prices.

Greek Tourism Minister Says Arrivals Will Top 30 Million This Year (K.)

The tourism sector is showing genuine signs of growth this year that suggest it will be the main driver of the Greek recovery, as it will help state revenues, the private economy, the country’s current accounts and employment. The government is for the first time speaking of 30 million arrivals in 2017. Bank of Greece data show that in the first four months of the year travel receipts increased by 2.4% or 23 million euros year-on-year, reaching 997 million euros. This increase was thanks to the 3.2% rise in arrivals and not average spending per trip, which posted a 0.8% decline. This means the 4.8% drop in travel receipts during the first quarter was offset in April, when arrivals rose 12% and receipts 11.3% annually. This positive picture is expected to have continued in May.

Retail sector representatives are looking forward to cashing in on the increase in arrivals, to offset the losses resulting from Greek households’ ever shrinking disposable incomes. Based on the bookings picture, turnover in retail commerce could rise by up to 5% this year. Addressing a conference organized by the Panhellenic Exporters Federation, Tourism Minister Elena Kountoura said that the data of the first five months point to an increase in arrivals, revenues, nights stayed and occupancy rates. They also show an increase in bookings for the summer ranging between 15 and 70%, depending on area, which led to her conclusion that Greece will have more then 30 million tourists this year after welcoming 28 million in 2016 and 26 million in 2015. The growth in tourism is also reflected in employment and commerce. The number of unemployed registered last month dropped by 56,820 people from April to 913,518, mainly thanks to the rise in seasonal employment in tourism and commerce.

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May 082017
 
 May 8, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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RCA TV test pattern 1939

 

Macron Banks On De Gaulle’s ‘Majority Amplifier’ To Govern (R.)
In France, The Run Of Macron’s Life Starts Monday (Pol.)
Euro Gives Up Gains As Investors Look To Post-Election France (G.)
US Economy Can’t Even Match the “Sclerotic Statism” of France (CEPR)
Expect Dramatically Lower Stock Market Returns Over Next Decade (CNBC)
UK Consumer Spending Weakens With Sharp Slowdown in April (BBG)
Brexit Boom Gives Britain More Billionaires, Inequality Than Ever (G.)
China Tycoons Are Setting Up Shop In The US (BBG)
Hedge Funds Bail Just Before OPEC-Driven Oil Rally Vanishes (BBG)
Warning For Boomers: Your Gen X Kids Are Coming Back Home – For Good (MW)
Australia To Hold New Inquiry Into ‘Big Four’ Banks (R.)
How Zombie Companies Stop Productivity Growth (BBG)
German Army To Search All Barracks After Nazi Memorabilia Found (R.)
Greek PM Tsipras Rushes To Get Bailout Deal To Parliament With Eye On QE (K.)
1 Million Child Refugees Flee South Sudan’s Civil War (BBG)
Growing Numbers of Refugees In Northern Syria in Urgent Need of Aid (Kom)

 

 

Anyone would have won against Le Pen.

Macron Banks On De Gaulle’s ‘Majority Amplifier’ To Govern (R.)

Unknown just three years ago, and with a party only 12 months old, Emmanuel Macron has seized the presidency against all the odds. His challenge now is to govern. To do that he must build a parliamentary majority that supports his election pledges in June legislative elections, when France’s two established parties will put their huge machines to work. Macron has at least one thing in his favor: the “majority amplifier” effect of an electoral system designed by post-war leader Charles de Gaulle specifically to maximize presidential independence from parliament. Last week, the first opinion survey for the legislative elections showed Macron’s new movement “En Marche!” could win between 249 and 286 mainland France seats in the lower house. Even a figure at the bottom of that range would be a good outcome for him.

He only needs 289 for an absolute majority, and the poll excluded 42 seats in Corsica and overseas. It foresaw centrist and conservative parties winning around 200-210 mainland seats, the far-right National Front 15-25 and the Socialists 28-43. “In the lowest-case scenario, En Marche would still be the largest political grouping, which would be enough to try to constitute a majority. The question would then be how and with whom,” said OpinionWay’s Bruno Jeanbart, who directed the poll. En Marche is only a year old and has never fielded candidates before. Only 14 have been named so far, and at first glance a majority looks unlikely. But that reckons without de Gaulle’s amplifier – known as the “fait majoritaire” by French political scientists. [..] The last legislative vote in 2012 also showed the “fait majoritaire” in action.

Socialist Francois Hollande garnered less than 30% in the first rounds of both the presidentials and the legislatives, yet came away with over 40% of the second-round legislative vote and, with help from 17 Green party MPs, governed with a comfortable majority. “Macron can totally have an extremely solid majority of at least 350 MPs,” said Xavier Chinaud, an electoral expert. He added that to reach that number, the president would have to employ tactics like poaching popular MPs from other parties. The old parties will put up a fight, especially the conservative Republicans [..] Now led by Francois Baroin, they hope for enough seats to force Macron into France’s fourth “cohabitation” since 1958. Cohabitation does not have to mean paralysis, but rather that the prime minister and his camp in parliament have the upper hand over the president.

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“En Marche doesn’t have the money to finance a full-blown parliamentary run. It must ask its candidates to invest not only their time but also their money in the upcoming blitz campaign.”

In France, The Run Of Macron’s Life Starts Monday (Pol.)

Winning the presidency now looks like the easy bit. If Emmanuel Macron makes his way to the Élysée Palace, as expected, in the second round of France’s presidential election Sunday, another bruising political battle is looming. To be able to govern and not be sidelined by a hostile parliament, Macron’s nascent political movement En Marche will have to cobble together a majority in the National Assembly in an election beginning on June 11. And unlike in the second round of the presidential ballot — in which parties from across the political spectrum have urged their supporters to vote for him over his far-right opponent Marine Le Pen — Macron’s rivals will be devoting all their energies to defeating him.

The 39-year-old former economy minister will be counting on his army of 250,000 En Marche volunteers, and a crew made up mostly of political novices. And while Macron hopes that a victory in the presidential election will draw others to his banner, for a movement that was launched a little over a year ago, winning control of parliament looks like a tall order. The stakes are high. If Macron can’t clinch a majority, he won’t be able to appoint a prime minister of his liking. He’ll spend his term largely as a figurehead, his dreams of reforming France all but sunk. Macron needs 289 deputies to be ensured of an absolute majority in the lower house of parliament. So far, En Marche, the movement he still refuses to call a party, has endorsed 14.

True to form, Macron exudes a sense of confidence that the momentum of his election will carry over to the parliamentary polls, allowing him to clinch a majority just six weeks later. This may not be out of reach. A survey conducted this week by OpinionWay, although preliminary, indicated that En Marche could well obtain more than half the seats in the National Assembly. By weaving in electoral results from past elections with a recent poll, OpinionWay estimates that the next Parliament would be dominated by En Marche and the conservative Républicains party. The ruling Socialist Party would be decimated, and Le Pen’s National Front would obtain 25 MPs at most – due to France’s electoral system.

Sill, obstacles abound. En Marche will be facing an energized right. Both the mainstream center-right Républicains party and Le Pen’s National Front will emerge from the presidential election feeling that Macron has robbed them of a victory they at some point considered theirs. François Fillon’s failed campaign has left deep wounds in the Républicains, but one way to try to heal them could be to make Macron their common target in June. [..] En Marche doesn’t have the money to finance a full-blown parliamentary run. It must ask its candidates to invest not only their time but also their money in the upcoming blitz campaign. Political parties in France are provided with public funding according to their performance in previous elections. En Marche, founded a little over a year ago, has never put up a candidate for office before.

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Not THAT much trust perhaps.

Euro Gives Up Gains As Investors Look To Post-Election France (G.)

The euro rose to a six-month high in the wake of Emmanuel Macron’s convincing victory in the French election but the upside for the single currency could be short-lived, analysts warned. In Asian trading on Monday, the euro rose as high as $1.1024 , its highest since 9 November, and also jumped to a one-year high of 124.58 yen against its Japanese counterpart. But it had slipped almost 0.3% to $1.096 against the dollar by 5.30am GMT and lost a similar amount to the yen with traders remarking that gains had already been largely priced in thanks to Macron’s strong showing in the first round of voting two weeks ago. “The market already priced in the victory of Macron,” said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo.

“We saw some additional rise of the euro this morning, but considering the difficulty for Macron’s party to get a majority in the national assembly election, he may not bring higher growth.” Looking at positioning in the euro, he said, “the market has squared its short positions, but there are no fresh reasons to take long positions, as there will likely be no new positive developments, and limited scope for upside for the euro”. The muted analysis was partly based on an acknowledgment of the problems facing Macron, a 39-year-old former banker who has never held elected office. He was economy minister under outgoing president François Hollande but failed to turn around the fortunes of the beleaguered government. He has pledged to reform the country’s rigid labour laws – long seen by pro-market economists as a hindrance to growth – but such change was beyond the Hollande administration, despite a lengthy struggle.

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Reality check.

US Economy Can’t Even Match the “Sclerotic Statism” of France (CEPR)

The Washington Post has long pushed the view that a dollar (or euro) that is in the pocket of a middle class person is a dollar that should be in the pockets of the rich. (They are okay with crumbs for the poor.) In keeping with this position, in its lead editorial today the Post complained about the “sclerotic statism” of the French economy. It then called for increasing employment, “through reforms of the labor code, not by protectionism or restriction of immigration.” It is worth bringing a little bit of data to the fact free zone of the Washington Post opinion pages. France actually has consistently had a higher employment rate for its prime age workers (ages 25 to 54) than the United States.

As can be seen, the employment rate for prime age workers in France was roughly 2 percentage points higher in 2003. The gap expanded to almost 7 percentage points following the downturn, but it has in more recent years narrowed again to just under 2 percentage points. France does have much lower employment rates among younger and older workers than the United States, but this is due to policy choices. College is largely free in France and students get stipends from the government. Therefore many fewer young people work. France also makes it much easier for people to retire in their early sixties than in the United States, with largely free health care and earlier pensions. The merits of these policies can be debated, but they are not evidence of a sclerotic economy.

It is also not clear that the Washington Post’s desire to weaken protections for workers (euphemistically described as “reforms of the labor code”) will have a significant effect in reducing unemployment or raising employment. Extensive research has shown there is little relationship between worker protections and employment. It is also worth noting that the Post denounced protectionism in this editorial, but it is fine with protectionism in the form of ever longer and stronger copyright and patent protection, which benefit people it likes.

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Expect losses.

Expect Dramatically Lower Stock Market Returns Over Next Decade (CNBC)

Enjoy the stock indexes riding at record highs for now, but get ready for much stingier markets in the years to come. That’s the message consistently conveyed these days by investment counselors and finance scholars, who argue that with today’s starting equity valuations and low interest rates, the coming decade should produce dramatically lower returns than the historical average. The leaders of Vanguard Group, overseers of some $4 trillion in client assets, have been advising investors to expect a typical 60% stocks/40% bonds portfolio to deliver two- to- three percentage points less in nominal annual returns than its long-term norm. (Since 1926, such an asset mix has returned better than 8.5% annualized.)

Other forecasts are even less generous. Research Affiliates, a quantitative and “smart beta” fund manager, projects that U.S. stocks might only offer one% a year for the next decade, after inflation. This is based largely on the so-called Shiller P/E, a ratio of the S&P 500 index to its trailing ten-year average earnings, which is now above 29 and higher than any period aside from the run-up to the 1929 and 2000 market peaks. Jeremy Grantham of institutional value manager GMO has, by his admission, been wrong for years in assuming that corporate profit margins and equity valuations would revert to their pre-1990s trend levels. Yet even accounting for some more permanent upward shift in these gauges, he sees real (after inflation) returns of 2-3% a year looking out two decades.

And a simple plot of the market’s forward P/E ratio against subsequent market returns shows that, since 1978, when starting at today’s multiple of around 17.5 forecast earnings, ensuing seven- and 15-year nominal returns (before inflation) have been clustered in the mid- to low-single digits. These forward-return calculations vary in their approach and assumptions, but all are anchored on today’s stock valuations, long-term norms in corporate-profit growth and current interest rates. Stocks, even during the depths of the last bear market, never got dramatically cheap compared to prior cycles and certainly didn’t stay inexpensive for very long. And with risk-free 10-year government debt yielding a skimpy 2.3% in the U.S. and far less elsewhere, all other financial assets have repriced for skimpier future returns as well.

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The consumer is toast.

UK Consumer Spending Weakens With Sharp Slowdown in April (BBG)

U.K. consumer-spending growth slowed in April and is forecast to remain weak in the coming months, according to a report from Visa. Its index showed spending rose an annual 0.5% in April, down from 1% in March and marking one of the slowest rates of growth in the past three years. Weaker household demand is also taking a toll on retailers. A separate report from the Institute for Chartered Accountants in England and Wales showed while there was a jump in business confidence this quarter, retailing was the laggard among nine sectors covered. “The trend of relatively modest expenditure growth is likely to extend in to the coming months, as consumers are squeezed by both rising living costs and relatively lackluster wage growth,” said Annabel Fiddes, an economist at IHS Markit, which compiles the consumer index.

Inflation was at 2.3% last month and is forecast to keep accelerating through this year, outpacing wage increases and leaving workers facing a drop in real incomes. The Bank of England may raise its forecast for consumer-price growth this week, which could indicate an even bigger squeeze on households. The overall business sentiment gauge by the ICAEW jumped the highest in almost a year this quarter. Yet despite firms being more confident, the report showed they are still reluctant to make long-term commitments. While Brexit is dominating the agenda in the buildup to the U.K. election on June 8, the institute said all parties must spell out how they will “address the problem of business investment head-on.”

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No wonder consumer spending’s down.

Brexit Boom Gives Britain More Billionaires, Inequality Than Ever (G.)

Britain has more billionaires than ever in what equality campaigners said was a clear sign the UK economy is only working for the few at the top. There are now 134 billionaires based in the UK according to this year’s Sunday Times Rich List, 14 more than the previous highest total, as the super-rich reap the benefits of a “Brexit boom”. Fifteen years ago, there were 21. The annual rich list showed that the wealthiest 1,000 individuals and families in Britain have combined wealth of £658bn, up from £575bn last year, despite fears that the Brexit vote last June would plunge the economy into a fresh turmoil. The Equality Trust said the £83bn increase in wealth among the richest 1,000 people over the past year could pay the energy bills of all UK households for two and a half years and would be enough for the grocery bills for all food bank users for 56 years.

Wanda Wyporska, the executive director of the trust, said that an elite was sitting on mountains of wealth in the fifth largest economy of the world. “The super-rich continue to streak away from the rest of us, while the poorest see their wealth shrink. This is an economy working for the few, not the many,” she said. “Record numbers of people visited food banks last year, millions are locked out of a decent home and two-thirds of children in poverty are in working households. “We know that inequality damages our economy and society, and makes it harder for ordinary people and their children to get on. With the general election fast approaching, our politicians need to decide the sort of country they want to build. One where we can all prosper or one where we’re picking crumbs from the super-rich’s table.”

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China Shadow Banking Assets Estimated at 64.5t Yuan or 87% of GDP: Moody’s.

China Tycoons Are Setting Up Shop In The US (BBG)

When a new hedge fund opened in Mountainside, New Jersey, a leafy suburb that still holds an annual little-league parade, few would have guessed where much of its funding came from: Chinese billionaire Cai Kui. The credit hedge fund, Westfield Investment, was founded by former Goldman Sachs Managing Director Renyuan Gao and managed $139 million as of January. It’s part of a new crop of asset management firms that are expanding China’s reach on Wall Street as money has poured into the U.S. from the world’s second-biggest economy. China’s marquee names are among those setting up shop in the U.S. Chen Feng, who controls the HNA Group airline and hotel conglomerate, has opened a U.S. money management firm. China Vanke, the mainland’s second-largest residential developer, has indirectly taken a major stake in a manager.

All told, about 324 firms with financial ties to the mainland and Hong Kong had registered with regulators by last year, more than double the number in 2012, filings show. They are riding the wave of capital that left China on concerns about bank debt, a real estate bubble and the yuan, which plummeted about 11% against the dollar in the last two years. The currency flight was reflected in balance of payments data where capital outflows tripled to $220 billion last year from $70 billion in 2014, according to Derek Scissors, a China economist at the American Enterprise Institute. “There is so much Chinese money floating around the U.S. now,” Scissors said. “If you’re a Chinese money manager, why wouldn’t you come here?” The migration comes amid a Chinese shopping spree for an array of U.S. companies, including financial firms like New York’s Cowen Group and the Chicago Stock Exchange.

Chongqing Casin Enterprise led the purchase of the exchange, which was founded in 1882. The deal was reviewed by a U.S. panel on national security grounds and eventually cleared in December. In another deal with political overtones, a subsidiary of Chen’s HNA Group agreed in January to buy a stake in Anthony Scaramucci’s SkyBridge Capital, a New York fund of hedge funds firm. The announcement came after reports that Scaramucci had been tapped for a top job in the White House, stirring speculation that HNA’s motives were partly political. The registration of the China-linked firms with the SEC hasn’t drawn such scrutiny. The SEC began requiring hedge funds and buyout firms to sign up with the agency in 2012 as a result of the Dodd-Frank Act. About 30% of the Chinese firms that registered by 2016 are full-fledged money managers. The rest filed as exempt advisers that operate in the U.S. on a more limited basis.

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OPEC is fast losing what remained of its credibility.

Hedge Funds Bail Just Before OPEC-Driven Oil Rally Vanishes (BBG)

Hedge funds jumped out of the oil market just in time. Before West Texas Intermediate crude nosedived on Thursday, wiping out the rally driven by OPEC’s deal, money managers slashed bets on rising prices by 20%, according to U.S. Commodity Futures Trading Commission data. Now they may soon be well poised to start betting on the next rally. “We are moving toward a positioning where these money managers are no longer over-invested,” Tim Evans at Citi Futures Perspective in New York, said. “This opens up the potential for them to start buying again.” Oil collapsed Thursday amid concerns that OPEC has failed to ease a supply glut as U.S. shale drillers ramp up output. Shares of U.S.-based producers got crushed as investors worry they might be repeating the same pattern that led to the market crash in 2014.

Earlier this year, billionaire wildcatter Harold Hamm urged colleagues to take a “measured” approach to lifting production, or risk a new glut. In a gamble that things could get worse, about $7 million worth of options changed hands Friday that will pay off if WTI falls beneath $39 a barrel by mid-July, according to data compiled by Bloomberg. Hedge funds decreased their net-long position, or the difference between bets on a price increase and wagers on a drop, to 203,104 futures and options in the week ended May 2, the CFTC data show. Longs fell about 7%, while shorts surged 37%, following a 26% jump a week earlier. [..] Oil’s tumble to a five-month low was driven purely by technical trading and supply is still getting tighter, according to Citigroup and Goldman Sachs. The current price plunge began when WTI broke through its 200-day moving average. Once that gave way, another key technical indicator called a Fibonacci retracement was breached, paving the way to the low of the year and then $45 a barrel.

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Multigenerational households are the model of the past and the future. Come look in Greece.

Warning For Boomers: Your Gen X Kids Are Coming Back Home – For Good (MW)

Remove the door knockers. Pull down the shutters. Pretend no one’s home. Your adult children are coming back – for good. One-in-nine baby boomer parents said their adult children returned home within the last year, according to a new report from financial services firm Fidelity Investments and Stanford Center on Longevity, which surveyed 9,000 employees.The adult children save money on rent and household goods, but their parents are the ones who appear to be suffering: 68% said they were more stressed, 53% said they were less happy and another 53% said they had less leisure time after the return of their “boomerang kids.” More than three-quarters (76%) said they took on higher expenses, too. Even people who are now in their 40s and 50s are considering mom and dad an option.

Older millennials are 2.7 times more likely to live in their parents’ home than people under 55 years old than in 1999, while Generation-Xers, who are now in their mid-30s to early 50s, were 2.2 times as likely to live with their parents, according to separate data released last week by real estate site Trulia. “No parent is going to want to say no to a child who needs help, but certainly being realistic about the financial situation is important,” said Katie Taylor at Fidelity. More American adults are living with their parents and grandparents than ever before — 19% of the U.S. population (or nearly 61 million people) lived in a multigenerational household, up from 17% (42 million) in 2009 and 12% (27.5 million) in 1980, according to the Pew Research Center, nonprofit think tank based in Washington, D.C.

But not all millennials are as “lazy” or “entitled,” as they are often accused of being. About one in four 25- to 34-year-olds who live at home and are not working or going to school do so because of a health-related reason or because they are acting as caregivers to their family members. And more than a third of Americans, including millennials, expect to financially help their parents within the next few years, another survey found. Some are even making efforts to help their parents save for retirement.

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Wow, great timing! We’re coming to you live from the barn, and there’s not a horse in sight.

Australia To Hold New Inquiry Into ‘Big Four’ Banks (R.)

Australia will hold an inquiry into competition in the country’s financial system, following a series of scandals in the banking sector and public allegations against the “Big Four” banks of abuse of market power. The latest inquiry is part of a number of government measures since last year aimed at alleviating public concerns about the power of the big banks, after revelations of misconduct in the industry. Australia’s four major lenders – Commonwealth Bank of Australia, Westpac, ANZ and National Australia Bank – have come under fire recently following several scams involving misleading financial advice, insurance fraud and interest-rate rigging, as well as for refusing to pass on official interest rate cuts in full. The four together control 80% of Australia’s lending market and have posted record profits for years.

Westpac, NAB and ANZ all reported a rise in half-yearly cash profits this month, taking their total to about A$8.5 billion. CBA will report limited third-quarter figures on Tuesday. “The high concentration and degree of vertical integration in some parts of the Australian financial system has the potential to limit the benefits of competition…and should be proactively monitored over time,” Treasurer Scott Morrison said in a statement on Monday. “The Government is committed to ensuring that Australia’s financial system is competitive and innovative. That is why I have tasked the Productivity Commission to hold an inquiry into competition in Australia’s financial system.” The inquiry will consider the degree of concentration in key segments of the financial system, examine barriers to innovation in the system and look into competition in personal deposits and mortgages for households and small businesses.

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The benefits of ZIRP.

How Zombie Companies Stop Productivity Growth (BBG)

The global economy is picking up steam, but that’s deceptive. The foundations of expansion are soft, marked by weak productivity growth and inequality. The two are related. The productivity problem confronting the world’s advanced economies predates the financial crisis more than a decade ago. When we look beyond the headline statistics, patterns emerge. Advanced economies have become less dynamic and are at risk of becoming sclerotic unless the ambition for reform is revived. It’s essential that we understand three sources of the current productivity slump in particular, and identify the key reforms necessary to address them. First, the productivity slowdown masks a widening performance gap between more productive and less productive firms, as the chart below shows (the picture for service sector firms is even worse).

This divergence is not just driven by firms at the frontiers of their industry, pushing the technological boundaries, but also by stagnating productivity growth at what can be called laggard companies that have failed to adopt the leaders’ best practices. This is also bad news for inclusiveness, since rising wage inequality can be largely traced to the growing differentials in average wages paid across companies, with high-productivity ones paying high wages and low-productivity businesses paying low wages. Second, in well-functioning markets we would expect strong incentives for productive companies to aggressively expand and drive out less productive ones. The opposite has happened. The propensity for high-productivity companies to expand and low-productivity companies to downsize or exit the market has declined over time.

This pattern is evident in the U. S. and is particularly stark in southern Europe, where scarce capital has been increasingly misallocated to low-productivity firms. Third, across the 35 countries in the OECD, we are seeing a drop in the dynamism of the business sector. Not only has the share of recent entrants into the market declined, but marginal companies, which would typically exit or be restructured in a competitive market, are more likely to remain. At the same time, the average productivity of these marginal businesses has fallen. In other words, it has become easier for weak companies that do not adopt the latest technologies to survive. The survival of weak companies drags down average productivity, but the consequences for growth are even worse. Since such firms take up scarce resources, their prolonged survival (or their delayed restructuring) inflates wages relative to productivity, depresses market prices and undermines investment – all of which deters the expansion of productive companies, particularly startups, and amplifies the mismatch of skills.

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They’ve known about this for decades.

German Army To Search All Barracks After Nazi Memorabilia Found (R.)

The head of Germany’s armed forces has called for an inspection of all army barracks after investigators discovered Nazi-era military memorabilia in a garrison, broadening a scandal about right-wing extremism among soldiers. The discovery at a barracks in Donaueschingen, in southwest Germany, was made in an investigation that began after similar Nazi-era items were found in the garrison of an army officer arrested on suspicion of planning a racially motivated attack. As a result, General Inspector Volker Wieker ordered a wider search of barracks. “The General Inspector has instructed that all properties be inspected to see whether rules on dealing with heritage with regard to the Wehrmacht and National Socialism are being observed,” a Defence Ministry spokesman said. Defence Minister Ursula von der Leyen said the military must root out right-wing extremism.

“We must now investigate with all due rigor and with all candor in the armed forces,” the minister told broadcaster ARD on Sunday evening. “The process is starting now, and more is sure to come out. We are not through the worst of it yet.” Displaying Nazi items such as swastikas is punishable under German law, although possession of regular Wehrmacht items is not. Von der Leyen said last week, however, she would not tolerate the veneration of the Wehrmacht in today’s army, the Bundeswehr. Von der Leyen said the arrested officer – who had falsely registered as a Syrian refugee – had likely worked with others to squirrel away 1,000 rounds of ammunition, but the chief federal prosecutor was still investigating the matter. The suspect’s goal, she said, had likely been to carry out an attack and then pin the blame on migrants.

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Don’t hold your breath.

Greek PM Tsipras Rushes To Get Bailout Deal To Parliament With Eye On QE (K.)

After rallying his ministers, Prime Minister Alexis Tsipras must now get coalition MPs behind him for a new multi-bill of austerity measures that is set to go to Parliament this coming week. Although some lawmakers have expressed reservations about the deal, which foresees further cuts to pensions and more tax increases, along with changes to the energy and labor markets, it is widely expected that Tsipras will get the support he needs to push the bill into law. A raft of so-called countermeasures – social welfare interventions that will come into effect in 2019 if the government meets budget targets – will be voted on separately and is sure to get the support of coalition MPs. The government has also appealed to the main political opposition New Democracy to back the offsetting measures but ND has refused to oblige.

According to government sources, Tsipras is already looking beyond the vote, expected on May 15 or 16, and beyond a scheduled Eurogroup summit on May 22 where the agreement between Greece and its creditors is expected to be rubber-stumped. Aides to the prime minister said he is considering a cabinet reshuffle to give his government a lift and inspire investors as talks on lightening Greece’s debt and the inclusion of Greek bonds in the ECB’s QE program are next on the agenda. It remains unclear whether Tsipras is considering a “cosmetic” shake-up or a radical overhaul, or whether key cabinet members such as Finance Minister Euclid Tsakalotos would keep their posts. But it appears that the government is keen to send out a message that it is turning a page following the completion of a tough bailout review that dragged on for months.

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Our times, and our very selves, are defined by refugees and famine more than anything else. But we don’t like to look at what defines us.

1 Million Child Refugees Flee South Sudan’s Civil War (BBG)

More than 1 million children have fled South Sudan’s civil war, two United Nations agencies said Monday, part of the world’s fastest growing refugee crisis. Another 1 million South Sudanese children are displaced within the country, having fled their homes due to the civil war, said the U.N.’s child and refugee agencies in a statement Monday. “The future of a generation is truly on the brink,” said Leila Pakkala, UNICEF’s Regional Director for Eastern and Southern Africa. “The horrifying fact that nearly one in five children in South Sudan has been forced to flee their home illustrates how devastating this conflict has been for the country’s most vulnerable.”

Roughly 62% of refugees from South Sudan are children, according to the U.N. statement, and more than 75,000 children are alone or without their families. Roughly 1.8 million people have fled South Sudan in total. “No refugee crisis today worries me more than South Sudan,” said Valentin Tapsoba, UNHCR’s Africa Bureau Director. “That refugee children are becoming the defining face of this emergency is incredibly troubling.” For children still living in South Sudan, the situation is still grim. Nearly three quarters of children are out of school, according to the U.N. statement, which is the highest out-of-school population in the world. An official famine was declared in two counties of South Sudan in February, and hundreds of thousands of children are at risk of starvation in the absence of food aid, according to the U.N.

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Why Russia’s safety zones make sense.

Growing Numbers of Refugees In Northern Syria in Urgent Need of Aid (Kom)

The co-chair of the Syrian Democratic Council (SDC), Ilham Ehmed, said that the operations to push out the Islamic State (IS) has resulted in refugee flows into the northern parts of Syria controlled by the Kurdish-led Syrian Democratic Forces (SDF) and that the displaced people are in urgent need of aid. “We have gathered the refugees that came recently in two camps,” Ehmed said to ANF. “In one of the camps, 50 thousand refugees are living. A number of aid organisations are present but there are no serious aid efforts. Many of the organisations receive funding from Europe but they still don’t help,” she said. “One can’t help wondering if they want Syrians to die, if there is a plan to kill them first with war and then with hunger. And if that fails from the heat and the cold. That’s the sad conclusion one draws from the situation.”

The SDC co-chair said they had discussed the urgent needs of food, housing and health with the US-led coalition without any results. “This is not acceptable, they should at least provide support for the refugee camps,” she said, stressing that preparations must be made as the operation to evict IS from Raqqa will give rise to many more refugees. “38 refugees coming from Raqqa have already died, some were children. It’s a tragedy. The European countries and the coalition must take their responsability.” Ehmad stressed the need of mediaction, clinics and doctors in the camps. “This is really urgent. Some will be able to return after the area has been liberated but those who lost their homes will stay, so we must make preparations.”

Ehmad also criticized Europe for giving in to what she called Turkey’s “blackmailing.” “There is an approach to the issue which goes something like this: ‘Let’s give them [Turkey] money so that no refugees will come here’. But everyone knows that the refugees are remaining in our region [Syria] at the moment.” Last year, the United Nations estimated that more than 6 million were internally displaced within Syria, and over 4,8 million were refugees outside of the country.

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May 052017
 
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Fred Stein Under the El New York 1949

 

Senate GOP to Snub House Obamacare Repeal Bill and Write Its Own (BBG)
Cost Of Interest On US Government Debt Tops Half A Trillion Dollars (ZH)
Oil Extends Slump Below $45 (BBG)
Emerging-Market Companies Binge On Dollar-Denominated Debt (BBG)
Chemchina Clinches Landmark $43 Billion Takeover of Syngenta (R.)
Brexit Talks Could Become ‘Impossible’: EU Council President Tusk (Ind.)
Italy’s Bankrupt National Airline Is Being Put Up For Sale (Ind.)
Italy’s Rescue Of Its Airline Comes At Great Cost To The Economy (BBG)
Baumol’s Cost Disease Explains A Lot About Our Economies (Vox)
Russia Set to Police Syria Safe Zones Backed by Iran, Turkey (BBG)
Syria Safe Zones To Be Shut For US, Coalition Planes (R.)
EU Wants China’s Help To Stop Boats Being Used By Migrants (R.)
EU Seeks to Ward Off New Refugee Crisis (Spiegel)
Tensions Boiling Over On Greece’s Chios Amid Absence Of Migrant Facility (K.)
Greece Paying Asylum Seekers To Reject Appeals (EUO)
Greece Says Has Done Its Bit, Now Wants Debt Relief (R.)
Greek Pensioners’ Network Lists 23 Cuts Inflicted On Benefits (K.)

 

 

This could take a while. And that’s a good thing.

Senate GOP to Snub House Obamacare Repeal Bill and Write Its Own (BBG)

Several key Senate Republicans said they will set aside the narrowly passed House health-care bill and write their own version instead, a sign of how difficult it will be to deliver on seven years of promises to repeal Obamacare. Lamar Alexander of Tennessee, who chairs the Senate health committee, and Roy Blunt of Missouri, a member of GOP leadership, both described the plan, even as the House was celebrating passing its repeal after weeks of back and forth. The decision will likely delay even further the prospect of any repeal bill reaching President Donald Trump’s desk. Hospital stocks dipped on the House vote, but quickly bounced back on the news the Senate would start over with its own version, with the BI North America Hospitals Index up 0.9% at 2:39 p.m. Hospitals fear the winding-down of Obamacare’s Medicaid expansion will leave them with more customers who can’t afford to pay.

Trump celebrated the House vote with a news conference at the White House, standing alongside dozens of Republican lawmakers. “This has really brought the Republican Party together,” he said. But in the wake of the House’s razor-thin 217-213 vote, the Senate made clear it was going in a different direction. Alaska’s Lisa Murkowski, who has been very critical of the House bill, said Thursday she hopes they start with “a clean slate” in the Senate. To get some kind of bill through his chamber, Majority Leader Mitch McConnell will need to unite moderate and conservative wings of the party that want to pull the measure in entirely different directions. The GOP controls the chamber 52-48, meaning he can lose no more than two Republicans and still pass it, given the united Democratic opposition.

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At ZIRP.

Cost Of Interest On US Government Debt Tops Half A Trillion Dollars (ZH)

With debt ceilings, spending plans, and tax reforms focusing all eyes on Washington, we thought it notable that for the first time in US history, the cost of interest on US government debt has risen above half a trillion dollars… One wonders, given the grandiose spending plans, if we will ever get back below half a trillion dollars?

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We’ve been saying all along OPEC cuts were fantasy. US shale is a minor factor. Lack of demand is a major one.

Oil Extends Slump Below $45 (BBG)

Oil slid below $45 a barrel for the first time since OPEC agreed to cut output in November as U.S. shale confounds the producer group’s attempts to prop up prices. Futures have collapsed 11% this week, slumping to the lowest since Nov. 15 – two weeks before OPEC agreed to production curbs to boost prices and ease a global glut. The decline is being driven by expanding U.S. output that’s countering the group’s curbs. Energy companies in Asia slumped on Friday, after their American counterparts were hammered in the previous session. While news of OPEC’s cuts drove prices in early January to the highest since July 2015, that increase encouraged U.S. drillers to pump more.

The result has been 11 straight weeks of expansion in American production in the longest run of gains since 2012. Prices are still more than 50% below their peak in 2014, when surging shale output triggered crude’s biggest collapse in a generation and left rival producers such as Saudi Arabia scrambling to protect market share. “There’s disappointment that the production cuts we’ve seen from OPEC and others has not had any impact at this stage on global inventory levels,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market seems to be much further away from a balanced situation than some had previously forecast. There is a possibility that oil could be headed to the low $40s range from here.”

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Expecting the dollar to fall. Doesn’t look all that wise.

Emerging-Market Companies Binge On Dollar-Denominated Debt (BBG)

Emerging-market companies are showing up to the U.S. debt market at the fastest pace ever, and finding plenty of appetite for their bonds. Sales of dollar-denominated notes have climbed to about $160 billion this year, more than double offerings at this point in 2016 and the fastest annual start on record, according to data compiled by Bloomberg going back to 1999. Emerging-market assets tanked after Donald Trump’s surprise election in November, but they’ve quickly recovered, with bonds returning 4% this year and outperforming U.S. investment-grade and high-yield debt. The deluge of issuance began when companies anticipating a surge in borrowing costs amid economic stimulus from Trump rushed to sell notes before his inauguration Jan. 20.

But the expected jump never materialized, extending the window for companies like Petroleo Brasileiro SA and Petroleos Mexicanos to pursue multi-billion-dollar deals. They found plenty of demand from investors keen to buy shorter-dated debt that’s better insulated against rising U.S. interest rates. Jean-Dominique Butikofer, the head of emerging markets for fixed income at Voya Investment Management in Atlanta, said he’s seen new interest in emerging markets from investors who already own U.S. high-yield bonds or emerging market sovereign debt that’s more vulnerable to rising interest rates. “You want to be less sensitive to U.S. rates, but you still want to diversify and you still want to play the EM catch-up growth story,” said Butikofer, whose firm manages $217 billion. “You’re going to gradually add emerging-market corporates.”

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There should never be something like a pesticides and seeds group. Break them up.

Chemchina Clinches Landmark $43 Billion Takeover of Syngenta (R.)

ChemChina has won more than enough support from Syngenta shareholders to clinch its $43 billion takeover of the Swiss pesticides and seeds group, the two companies said on Friday. The deal, announced in February 2016, was prompted by China’s desire to use Syngenta’s portfolio of top-tier chemicals and patent-protected seeds to improve domestic agricultural output. It is China’s biggest foreign takeover to date. It is one of several deals that are remaking the international market for agricultural chemicals, seeds and fertilisers. The other deals in the sector are a $130 billion proposed merger of Dow Chemical and DuPont, and Bayer’s plan to merge with Monsanto. The trend toward market consolidation has triggered fears among farmers that the pipeline for new herbicides and pesticides might slow.

Regulators have required some divestments as a condition for approving the Syngenta deal. Based on preliminary numbers, around 80.7% of Syngenta shares have been tendered, above the minimum threshold of 67% support, the partners said in a joint statement. [..] The transaction is set to close on May 18 after the start of an additional acceptance period for shareholders and payment of a special 5-franc dividend to holders of Swiss-listed shares on May 16. Holders of U.S.-listed depositor receipts will get the special dividend in July. Syngenta shares will be delisted from the Swiss bourse and its depository receipts from the New York Stock Exchange. Chief Executive Erik Fyrwald played down the transition from publicly listed group to becoming part of a Chinese state enterprise, stressing that Syngenta would remain a Swiss-based global company while under Chinese ownership.

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May has nothing, election or not. “..the 30-minute slot that we are going to devote to Brexit per week, for this week it’s up.”

Brexit Talks Could Become ‘Impossible’: EU Council President Tusk (Ind.)

The President of the EU’s ruling Council has intervened to calm Brexit tensions 24 hours after Theresa May launched a vicious attack on “Brussels bureaucrats” on the steps of No 10. Donald Tusk warned that talks would become “impossible” if emotions got out of hand between the UK and EU and called for “mutual respect” between the negotiating parties. The call for calm comes after Theresa May accused the EU’s bureaucracy of trying to influence the result of Britian’s general election by maliciously leaking the content of discussions to the media. In an aggressive speech on Wenesday she tore into officials, warning that her government would not let “the bureaucrats of Brussels run over us”.

The European Commission this morning reacted indignantly to Ms May’s conspiracy theory, with a spokesperson telling reporters that the organisation was “rather busy” and preoccupied with more important matters than trying to fix the poll. But Mr Tusk, a Polish national who represents the EU states’ heads of government in Brussels, said on Thursday afternoon: “Brexit talks [are] difficult enough. If emotions get out of hand, they’ll become impossible. Discretion, moderation and mutual respect needed. “At stake are the daily lives and interests of millions of people on both sides of the Channel.”

The call for calm contrasts with that of a Commission spokesperson earlier today, who said: “We are not naive, we know that there is an election taking place in the United Kingdom. People get excited whenever we have elections. “This election in the United Kingdom is mainly about Brexit. But we here in Brussels, we are very busy, rather busy, with our policy work. “We have too much to do on our plate. So, in a nutshell, we are very busy. And we will not Brexitise our work. “To put it in the words of an EU diplomat, the 30-minute slot that we are going to devote to Brexit per week, for this week it’s up.”

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10 years too late? 20?

Italy’s Bankrupt National Airline Is Being Put Up For Sale (Ind.)

Alitalia will be put up for sale in two weeks having earlier this week fallen into administration. In a radio interview cited by the Financial Times, Carlo Calenda, the country’s economic development minister, said that the priority is for the whole company to get bought. “Within 15 days the commissioners will be open to expressions of interest,” he said. On Tuesday, Alitalia started bankruptcy proceedings for the second time in a decade after employees rejected job cuts and concessions linked to a €2bn recapitalisation plan. Shareholders voted unanimously to file for special administration. According to the Financial Times, the government of Prime Minister Paolo Gentiloni has extended a bridge loan of €600m to keep Alitalia afloat for the next six months, but has ruled out nationalisation.

This loan should give the commissioners appointed by the government time to come up with a strategy that will ensure the airline’s fleet is not grounded. Speaking to the broadcaster, Mr Calenda said the €600m loan would be the “maximum” of state aid on offer. Speaking about possible buyers, Mr Calenda said “any idea is welcome”. He stressed, however, that “Alitalia needs an alliance with a big European group”. Alitalia, whose major shareholders are Abu-Dhabi based Etihad Airways and Italian banks, has about 12,500 employees. It has been struggling ever since a previous bankruptcy in 2008.

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Somone will buy it for pennies on the buck. China?

Italy’s Rescue Of Its Airline Comes At Great Cost To The Economy (BBG)

Given its rich history, Italy is rightly attached to its relics. Unfortunately, this affection for the past does not stop at the Colosseum: It applies to failing companies too. Take Alitalia, Italy’s loss-making flag carrier, which has survived for years thanks to a string of public and private rescues. On Tuesday, the airline went into administration, prompting the government to provide a fresh loan worth €600 million ($655 million) to guarantee another six months of operation. Surely the time has come for Italy to stop losses. Unless Alitalia can find a buyer, the government should allow it to go bust. Politically, that is a tall order, of course. Politicians want to protect workers, who stand to lose their jobs if a company shuts down. But every euro used in a bailout is one that can’t be spent elsewhere; what economists call “opportunity cost.” How many more jobs could have been created had the government invested €600 million into upgrading Italy’s digital infrastructure?

Keeping Alitalia alive is also a burden on productivity, since it takes resources that might be deployed by more efficient competitors. Last year, a study for the European Commission found that the misallocation of workers and capital in Italy has steadily worsened since 1995, accounting for a large fraction of Italy’s productivity slowdown. If the government is serious about Italy returning to sustainable growth, it should stop helping losers get in the way of productive companies. There are also questions of financial stability. Between 1974 and 2014, Italian taxpayers have spent €7.4 billion propping up Alitalia, according to Mediobanca. Italy’s addiction to helping companies in trouble has contributed to its huge government debt, which now stands at nearly 133% of GDP, exposing Rome to the risk of a financial crisis.

The same problem also applies to banks. From UniCredit to Intesa Sanpaolo, many of Italy’s big lenders have granted hundreds of millions in credit lines to Alitalia, only to see their loans go up in smoke. The list also includes Monte Dei Paschi di Siena, the troubled bank which in December had to apply for a multi-billion euro government bailout. The reason? It was struggling under the weight of non-performing loans, like those it provided to Alitalia. While European rules on state aid will make it difficult for Rome to help Alitalia beyond the initial six months, one should never underestimate the ability of the Italian government to find a way to stitch together another flawed rescue. But if Italy is to finally start focusing on future growth, it will have to stop dwelling on the ruins of the past.

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A great economist died.

Baumol’s Cost Disease Explains A Lot About Our Economies (Vox)

William Baumol — an economist who just died at the age of 95 — had a famous idea, commonly known as Baumol’s cost disease, that explains a lot about our modern world. It explains why barbers make more in San Francisco than in Cleveland and why services such as health care and education keep getting more expensive. And it provides a possible explanation for why rich countries like America are devoting more and more of their workforces to low-productivity services, dragging down the economy-wide rate of productivity growth. In the 1960s, Baumol was trying to understand the economics of the arts, and he noticed something surprising: Musicians weren’t getting any more productive — playing a piece written for a string quartet took four musicians the same amount of time in 1965 as it did in 1865 — yet musicians in 1965 made a lot more money than musicians in 1865.

The explanation wasn’t too hard to figure out. Rising worker productivity in other sectors of the economy, like manufacturing, was pushing up wages. An arts institution that insisted on paying musicians 1860s wages in a 1960s economy would find their musicians were constantly quitting to take other jobs. So arts institutions — at least those that could afford it — had to raise their wages in order to attract and retain the best musicians. The consequence is that rising productivity in the manufacturing sector of the economy inevitably pushes up the cost of labor-intensive services like live musical performances. Rising productivity allows factories to cut prices and raise wages at the same time. But when wages rise, music venues have no alternative but to raise ticket prices to cover the higher costs.

This became known as Baumol’s cost disease, and Baumol realized that it had implications far beyond the arts. It implies that in a world of rapid technological progress, we should expect the cost of manufactured goods — cars, smartphones, T-shirts, bananas, and so forth — to fall, while the cost of labor-intensive services — schooling, health care, child care, haircuts, fitness coaching, legal services, and so forth — to rise. And this is exactly what the data shows. Decade after decade, health care and education have gotten more expensive while the price of clothing, cars, furniture, toys, and other manufactured goods has gone down relative to the overall inflation rate — exactly the pattern Baumol predicted a half-century ago.

Baumol’s cost disease is a powerful tool for understanding the modern economic world. It suggests, for example, that the continually rising costs of education and health care isn’t necessarily a sign that anything has gone wrong with those sectors of the economy. At least until we invent robotic professors, teachers, doctors, and nurses, we should expect these low-productivity sectors of the economy to get more expensive. While some argue that prices keep rising because the government subsidizes health care through programs like Medicare and college educations through student loans and grants, you see the same basic pattern with services like summer camps, veterinary services, and Broadway shows that aren’t hamstrung by government regulations and subsidies.

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Putin keeps his enemies close.

Russia Set to Police Syria Safe Zones Backed by Iran, Turkey (BBG)

Russia said it’s ready to send peacekeepers to Syria as it won backing from Turkey and Iran for a plan to establish safe zones inside the war-torn country in an effort to shore up a shaky cease-fire brokered by the three powers. The three countries signed a memorandum on the creation of so-called de-escalation areas on Thursday after two days of talks in Kazakhstan that also included representatives of the Syrian government and rebel groups. Opposition leaders distanced themselves from the plan, saying they can’t accept Iran as a guarantor of the truce and that they want “clear and tangible” guarantees the deal will be enforced. The U.S. also expressed doubts. “Russia is ready to send its observers” to help enforce the safe zones, President Vladimir Putin’s envoy to Syria, Alexander Lavrentiev, told reporters in the Kazakh capital, Astana. “We believe the Syrian crisis can only be resolved through political methods.”

Putin said on Wednesday that he’d secured the backing of U.S. President Donald Trump for the proposal, which could include a ban on bombing raids. But State Department spokeswoman Heather Nauert said Thursday that the U.S. has “concerns” about the accord, “including the involvement of Iran as a so-called “guarantor,”’ and said Russia should do more to stop violence. [..] The latest initiative would establish four zones patrolled by foreign forces – possibly including Russian ones – in the northwestern Idlib province, Homs province in the west, the East Ghouta suburb of the capital Damascus and southern Syria. It will take a month to finalize the maps of the proposed safe zones, Iranian Deputy Foreign Minister Hossein Jaberi Ansari said. The United Nations’ Special Envoy for Syria, Staffan de Mistura, who also attended the Astana talks, described the agreement as a “step in the right direction.”

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That’ll go down well with Wolfowitz et al.

Syria Safe Zones To Be Shut For US, Coalition Planes (R.)

The safe zones which are being created in Syria will be closed for warplanes of the United States and those of the U.S.-led coalition, Russian news agencies quoted Russian envoy at Syria peace talks Alexander Lavrentyev as saying on Friday. Turkey and Iran agreed on Thursday to Russia’s proposal for “de-escalation zones” in Syria, a move welcomed by the United Nations but met with scepticism from the United States.

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Stop selling rubber boats, problem solved!

EU Wants China’s Help To Stop Boats Being Used By Migrants (R.)

The European Union wants China to help prevent migrants and refugees using Chinese-made inflatable boats to get into the bloc by stopping the boats reaching them, the European Commissioner for Migration said on Thursday. Dimitris Avramopoulos, speaking to reporters in Beijing after meeting Chinese Minister for Public Security Guo Shengkun, said the rubber boats used by people smugglers were made in China. “The rubber boats used by the smuggler networks in the Mediterranean are fabricated somewhere in China, they are exported to the countries in Asia and they are used by them,” Avramopoulos said.

“So I requested the support and cooperation from the Chinese authorities in order to track down this business and dismantle it, because what they produce is not serving the common good of the country. It is a very dangerous tool in the hands of ruthless smugglers.” He gave no further details, but said he and Guo had not discussed the possibility of China taking any of the refugees or migrants. More than a million people sought asylum in Europe’s rich north in 2015, mostly in Germany but also in large numbers in Sweden, straining the capacity of countries to cope. A contentious deal with Turkey to stop Syrian refugees from reaching Greece and the overland route to Germany, in return for EU funds, has reduced flows to a trickle, though thousands of migrants still try to reach Europe from Libya via sea routes.

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Who cares about the law? “..a more restrictive interpretation of asylum rights..”

EU Seeks to Ward Off New Refugee Crisis (Spiegel)

Merkel has promised that the refugee crisis seen two years ago will not be repeated: Never again will Europe see an uncontrolled inflow of millions of people. The refugee deal with Turkey is working, we are repeatedly told, and the crisis is over. That, though, could turn out to be wrong. With German voters set to go to the polls on Sept. 24, Merkel’s re-election campaign hinges on there not being a repeat of the refugee crisis, even if it’s not as substantial as the 2015 influx. But west of the closed Balkan route, a new migrant stream has been growing since the beginning of the year. From Jan. 1 to April 23, 36,851 migrants have followed the central Mediterranean route from North Africa to Italy. That represents a 45% increase over the same period last year, when a record 181,000 people crossed the Mediterranean on the route.

Even more concerning is the fact that summer hasn’t even begun. Experience has shown that most migrants only climb into the boats once the Mediterranean grows calmer. Italian authorities estimate that a quarter million people will arrive on its shores this year. “There are challenges ahead,” says a senior German security official. Berlin is particularly concerned because it’s not just Africans who are taking the Mediterranean route to Italy. An increasing number of South Asians are as well, which could mean that the route across the sea to Italy is now seen as a viable alternative to the defunct Balkan route. People from Bangladesh now represent the second largest group of migrants that have crossed over from Libya this year. From January to March 2016, by contrast, exactly one Bangladeshi was picked up on the route. Pakistanis have also chosen the Mediterranean route more often in recent months.

[..] The EU is currently working on an emergency plan in case a “serious crisis situation” develops. The discussions are focusing on a scenario under which more than 200,000 refugees would have to be redistributed each year. An unpublished report by Malta, which currently holds the rotating European Council presidency, calls for a more restrictive interpretation of asylum rights in such a case. In other words, should too many migrants begin arriving, the EU will increase efforts at deterrence. Controversial proposals for reception camps to be established in North Africa also remain under discussion. Most of those currently fleeing from countries like Nigeria, Guinea and the Ivory Coast are doing so to escape grinding poverty and in the hopes of finding better opportunities in Europe. Very few of them have much chance of being granted asylum. That reality has made redistribution within the EU even more difficult. According to current law, those with no chance at asylum are supposed to be sent back home as quickly as possible and not sent to other European countries.

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Now add a huge rise in arrival numbers.

Tensions Boiling Over On Greece’s Chios Amid Absence Of Migrant Facility (K.)

Tensions are rising on the eastern Aegean island of Chios, which is currently favored by human smugglers ferrying migrants over from neighboring Turkey, with an increasing number of brawls at overcrowded state reception centers and local residents’ tolerance wearing thin. Clashes between migrants of different ethnicities are an almost daily occurrence, residents said following a violent confrontation on Tuesday night between Afghan and Algerian nationals at the Vial reception facility. That incident started as a fight between two small groups throwing stones at each other and escalated into a full-blown brawl involving around 60 people. Riot police stationed nearby were eventually obliged to enter the facility and break up the fight.

According to sources at the Citizens’ Protection Ministry, migrants have been arriving in greater numbers on Chios as it still lacks a so-called pre-departure camp due to protests by local residents against the creation of new facilities on the island. As a result, migrants landing on Chios and deemed ineligible for asylum are not being deported to Turkey as foreseen in an agreement signed between Turkey and the EU in March last year. Around 200 migrants have arrived on Chios this week, according to government figures, compared to virtually none on other islands in the eastern Aegean. And, according to a top-ranking police official, the problem is unlikely to be resolved until a center is set up. “The message being sent to those deciding to make the journey is that if you get to Chios they won’t send you back,” he said.

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NGOs to be thrown off the islands this summer, Greek army and the Greek Red Cross to take over.

Greece Paying Asylum Seekers To Reject Appeals (EUO)

The Greek government is giving cash incentives for rejected asylum seekers on the islands to forgo their legal rights to appeal their cases. Some €1,000 and free plane tickets home are now part of a largely EU-financed package to send them packing as quickly as possible. “This is quite complicated and quite immoral,” a Greek lawyer working for Save the Children, an international NGO, told EUobserver on Tuesday (2 May). The move is part of a larger effort to return people to Turkey and free up administrative bottlenecks, but the plan has generated criticism from human rights defenders who say asylum seekers are being pushed into taking the money. People have five days to decide whether to take the cash, with reports emerging that even that short delay was not being respected by authorities. Previously, people were entitled to the assistance even if they appealed.

The scheme only applies to those in so-called eu hotspots on the Chios, Kos, Leros, Lesvos, and Samos islands, where arrivals are screened, given that Turkey does not accept people back from mainland Greece. Greek minister of migration Ioannis Mouzalas has said the financial bait was needed to prevent bogus claimants from abusing the asylum system. The new rules on excluding people who appeal their cases, imposed last month, also come after the European Commission pressured Athens into shortening its appeal process and removing administrative barriers to send more people home. The EU-Turkey deal last year was supposed to ensure that new asylum arrivals whose applications have been declared unfounded would be returned to the country. But only around 1,500 have been sent back since its launch, with the Greek appeals system consistently ruling in favour of initially rejected asylum seekers over broader concerns that Turkey was not safe.

[..] The whole appears to be part of bigger plan to squeeze asylum-seeker rights on the islands and get them out of Greece as fast as possible. It also comes on the heels of a new plan that aims to boot NGOs from the islands. “Many NGOs will longer be on the islands after July, it means there is going to be a lot less scrutiny and a lot less visibility on what is going on as well,” said Claire Whelan from the Norwegian Refugee Council, an independent humanitarian organisation. NGOs working in the medical field in the Vial hotspot in Chios island have already been replaced by the Greek army and the Greek Red Cross. All were informed earlier this year that DG ECHO, the EU Commission’s humanitarian branch, would no longer fund them. Instead, the money will be coming from the Commission’s interior and security department, DG Home. “One of the biggest gaps we see, that remains, is access to legal assistance and legal counseling. And I don’t know if that will be funded under DG Home and the government,” the Norwegian Refugee Council’s Whelan said.

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Europe doesn’t care what Greece wants.

Greece Says Has Done Its Bit, Now Wants Debt Relief (R.)

Prime Minister Alexis Tsipras called on Greece’s international lenders on Thursday to reach an agreement on easing its debt burden by May 22, when eurozone finance ministers meet in Brussels to discuss the country’s bailout progress. Athens and its creditors reached a long-awaited deal at staff-level this week on a series of bailout reforms Greece needs to unlock loans from its €86 billion rescue package, the country’s third since 2010. The EU and the IMF, which has yet to announce if it will participate in the bailout, have now started negotiations over Greece’s post-bailout fiscal targets, a key element for granting it further debt relief. Greece is being firm that it has done what was asked of it and now wants to see movement from the other side. “Medium-term debt relief measures must be clearly defined by the May 22 Eurogroup meeting,” Tsipras told his cabinet on Thursday.

“Greece has done its part and all parties must now fulfill their commitments.” The creditors have been not been quite as upbeat and there is no guarantee that the May 22 meeting will actually sign off on the new tranche of loans, let alone draft up debt relief. But Luxembourg Finance Minister Pierre Gramenga did cite progress when speaking to reporters on the sidelines of a conference in Luxembourg. “We’re one step closer. They [Greece] over-performed last year, they are on track this year, we have now an agreement looming that we will hopefully agree on in Eurogroup,” he said. “Those who have been pessimistic all the time have been proved wrong. I’m very pleased about that. The worst case is not always the scenario that plays out.” Greece’s economy and budget have improved markedly recently, although major problems of poverty and unemployment persist.

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Additional 18% cuts to come.

Greek Pensioners’ Network Lists 23 Cuts Inflicted On Benefits (K.)

At least 23 cuts have been inflicted on pensioners since 2010, with losses adding up to more than €50 billion. For some, their benefits have fallen by as much as 50%. The United Pensioners network has just added a 23rd cut to its list – the reduction of up to 18% of main and supplementary pensions agreed by the government this week. Network chief Nikos Hatzopoulos says the cuts have impoverished pensioners. The other 22 cuts on the list are as follows:

– In 2010, Christmas, Easter and holiday bonuses ended.

– In 2011, all pensioners under the age of 60 took a 6-10% cut.

– In the same year, pensioners were also slapped with a solidarity levy ranging from 3 to 13% for monthly pensions over €1,400. Also cuts to supplementary pensions started, from 3 to 10%.

– Main pensions to under-60s were slashed in 2011 and supplementary pensions of more than 150 euros a month fell by 15-30%.

– From January 2012, there were fresh cuts to any “high” pensions not affected until then.

– In 2012, monthly pensions over 1,000 euros were hit with a new cut.

– Summer 2014 saw a 5.2% cut to all supplementary pensions.

– In 2015, minimum pensions fell.

– In the same year, all early retirements incurred a 10% cut.

– From last May, all new pensioners were informed they would get up to 30% less.

– Some 250,000 supplementary pensions fell by up to 40%.

– The EKAS benefit to 160,000 low-income pensioners was ended.

– Civil servants’ share fund dividends were slashed 45%.

– High pensions took a retroactive cut from late 2016 to end-2018.

– Widows’ benefits fell and stricter criteria were introduced.

– The pensions of people with employment were slashed 60%.

– Early retirees took big cuts.

– Retirement lump sums shrank 15-20%.

– New disability pensions were slashed last May.

– The healthcare levy on main pensions rose.

– A similar 6% levy was imposed on supplementary pensions.

– Since January, 650,000 farmers have had to pay a 14% income levy.

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Apr 252017
 
 April 25, 2017  Posted by at 7:59 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Pablo Picasso Self portrait 1972

 

Trump Slaps 20% Duty on Canada Lumber, Intensifying Trade Fight (BBG)
Trump Summons Entire Senate To White House Briefing On North Korea (G.)
Trump Advisers To Lay Out Tax Plan For Top Republicans Tuesday (BBG)
The Oil Market Has One Big Problem: People Aren’t Buying Enough Gas (CNBC)
Canadians’ Confidence In Housing Hits Record High (HPoC)
Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak (CHSmith)
Bubble, Bubble, Toil And Trouble: Ultra-Low Mortgage Rates Are Dangerous (G.)
Rising Defaults In China Reveal Hidden Debt (BBG)
China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds (BBG)
Naked Selfies Used As Collateral For Chinese Loans (AFP)
Italy Is the Euro-Area’s Swaps Loser Facing $9 Billion Bill (BBG)
Ontario To Pay Guaranteed Incomes To The Poor (AFP)
Kim Dotcom Wants FBI Director Comey Questioned By New Zealand Police (IBT)
At Least 16 Refugees Drown as Boat Sinks off Greece’s Lesbos (R.)

 

 

They’ve been doing this forever: “..the fight is the “longest-running battle since the Trojan War.”

Trump Slaps 20% Duty on Canada Lumber, Intensifying Trade Fight (BBG)

U.S. President Donald Trump intensified a trade dispute with Canada, slapping tariffs of up to 24% on imported softwood lumber in a move that drew swift criticism from the Canadian government, which vowed to sue if needed. Trump announced the new tariff at a White House gathering of conservative journalists, shortly before the Commerce Department said it would impose countervailing duties ranging from 3% to 24.1% on Canadian lumber producers including West Fraser Timber. “We’re going to be putting a 20% tax on softwood lumber coming in – tariff on softwood coming into the United States from Canada,” Trump said Monday, according to a tweet by Charlie Spiering at Breitbart News. A White House official confirmed the comment.

The step escalates an economic battle among neighboring countries that normally have one of the friendliest international relationships in the world. U.S. Commerce Secretary Wilbur Ross amplified Trump’s remarks in a statement afterward that also referenced a fight over a new Canadian milk policy that U.S. producers say violates Nafta. “It has been a bad week for U.S.-Canada trade relations,” Ross said, adding “it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States.” He said the Commerce Department “determined a need” because of unfair Canadian subsidies to the lumber industry to impose “countervailing duties of roughly one billion dollars.” In a dig at NAFTA, which Trump has said he wants to renegotiate, Ross added, “This is not our idea of a properly functioning Free Trade Agreement.”

[..] The so-called countervailing duties, which counter what the U.S. considers Canadian subsidies, came in below some analyst expectations. CIBC analyst Hamir Patel forecast the initial combined countervailing and anti-dumping duties could reach 45 to 55%, he said in an April 23 note. The U.S. may also apply anti-dumping duties if it determines Canadian firms are selling for below costs. That decision is expected in June. “It definitely could’ve been a heck of a lot worse,” Kevin Mason at ERA Forest Products Research said by phone. “I think a lot of people were bracing for a higher duty.”

[..] Most of the softwood in Canada is owned by provincial governments, which set prices to cut trees on their land, while in the U.S. it’s generally harvested from private property. The fees charged by Canadian governments are below market rates, creating an unfair advantage, U.S. producers say. Canada disputes that. Robert Lighthizer, Trump’s nominee to be the next U.S. Trade Representative, said at his confirmation hearing last month that he views the lumber dispute as the top trade issue between the U.S. and Canada. Oregon Democratic Senator Ron Wyden told Lighthizer the fight is the “longest-running battle since the Trojan War.”

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Huffin’-and-a-puffin’.

Trump Summons Entire Senate To White House Briefing On North Korea (G.)

The entire US Senate will go to the White House on Wednesday to be briefed by senior administration officials about the brewing confrontation with North Korea. The unusual briefing underlines the urgency with which the Trump administration is treating the threat posed by Pyongyang’s continuing development of nuclear weapons and missile technology. It follows a lunch meeting Trump held with ambassadors from UN member states on the security council on Monday where he emphasised US resolve to stop North Korea’s progress. “The status quo in North Korea is unacceptable and the council must be prepared to impose additional and stronger sanctions on North Korean nuclear and ballistic missile programs,” Trump said at the meeting. “North Korea is a big world problem, and it’s a problem we have to finally solve.”

On Friday the US secretary of state, Rex Tillerson, is due to chair a security council foreign ministers’ meeting on the issue in New York, at which the state department said he would call once more for the full implementation of existing UN sanctions or new measures in the event of further nuclear or missile tests. “This meeting will give the security council the opportunity to discuss ways to maximise the impact of existing security council measures and to show their resolve to response further provocations with appropriate new measures,” said Mark Toner, state department spokesman. Senators are to be briefed by the defence secretary, James Mattis, and Tillerson on Wednesday. Such briefings for the entire senate are not unprecedented but it is very rare for them to take place in the White House, which does not have large secure facilities for such classified sessions as Congress.

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Not going to be easy. Trump’s too desperate to get a deal done.

Trump Advisers To Lay Out Tax Plan For Top Republicans Tuesday (BBG)

President Donald Trump will call for cutting taxes for individuals and lowering the corporate rate to 15% to fulfill a promise he made during his campaign, according to a White House official. The president on Wednesday plans to make public the broad outlines of what he wants to change in the tax code, though the details likely will be left until later negotiations among congressional leaders and officials from Treasury. Trump’s top economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin will brief House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the leaders of congressional tax-writing committees – House Ways and Means Committee Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch.

While Trump and Ryan broadly agree on sharply cutting individual income and corporate taxes, there are areas of disagreement between the two. On the campaign, Trump called for a corporate tax rate of 15%; Ryan wants 20%, and he has warned that cutting it an additional 5 percentage points could prevent the ultimate tax plan from being revenue neutral. Without Democratic support, a plan would have to be revenue neutral to meet the criteria set by lawmakers to make tax changes permanent. “I’m not sure he’s going to be able to get away with that,” Hatch told reporters Monday. “You can’t very well balance the budget that way.”

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Demand goes down because people have less money to spend. All the rest is humbug.

The Oil Market Has One Big Problem: People Aren’t Buying Enough Gas (CNBC)

Lackluster gasoline demand is once again raising concerns that the oil market won’t be able to escape the doldrums. Demand for U.S. gasoline has recovered since January, but remained below 2016 levels throughout much of this year. Now, analysts are worried weak consumption will cause gasoline stockpiles to keep building and eventually result in weaker crude oil demand and pricing. U.S. gasoline futures were down more than 1% on Monday, reflecting demand concerns as refiners emerge from the winter maintenance season and prepare to turn out more fuel. Meanwhile, U.S. crude settled 39 cents lower at $49.23, extending last week’s deep losses. “As gas prices drop, that creates an undertow for the entire crude oil market,” said Tom Kloza, global head of energy analysis at Oil Price Information Service.

Part of the problem is a tough comparison with extraordinarily low gasoline prices last year. The national average gasoline price on Monday was nearly 28 cents above last year’s level, according to GasBuddy.com. “I’m in the camp that says last year was a little bit of the anomaly,” Kloza said. “Gas was so cheap that we drove a little bit more almost capriciously. This year, I just don’t think it’s going to happen.” In a troubling sign, the nation’s gasoline station operators have reported at industry conferences that their sales are down 1.5 to 2% this year, according to Andy Lipow, president of Lipow Oil Associates. “When you hear retailers telling you that their demand is down you’ve got to be a believer,” he told CNBC. Lipow said he fears that trend will carry through for the balance of 2017. Demand is certain to rise as the summer driving season ramps up, but Lipow sees stockpiles remaining relatively high.

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Stark raving madness. A housing market that is rising at ‘only’ 9.5% per year is labeled ‘rational’.

Canadians’ Confidence In Housing Hits Record High (HPoC)

The experts are getting louder in their warnings that a housing bubble has formed in some parts of Canada, but Canadians don’t seem worried. In fact, confidence in the housing market hit a record high in the latest weekly Bloomberg-Nanos index — even as respondents turned negative on their own personal finances. The survey found 48.5% of Canadians expect house prices to rise in the next six months, the highest level recorded in the survey since 2008. Fewer than 11% expect to see house prices decrease. “Bullish sentiment on real estate in Canada continues to drive consumer confidence,” pollster Nik Nanos said in a statement. “Household expectations have improved by roughly 10% since the start of the year as the effects of the oil price shock have stabilized and the focus has moved toward rising property values,” Bloomberg economist Robert Lawrie said.

“In recent weeks, however, consumer sentiment regarding personal finances began drifting lower, with extended household balance sheets perhaps the next focus of concern for policymakers.” High debt levels are precisely why many market observers are growing concerned about Canada’s priciest housing markets, namely the Toronto and Vancouver regions. House prices in Toronto jumped 33% in March from a year earlier, to an average of $916,567. While Vancouver’s house prices have moderated over the past six months, they remain elevated, with the benchmark price at $919,300 in March.

National Bank of Canada, which co-publishes the Teranet house price index, warned recently that “irrational exuberance” may be setting into some Canadian housing markets, noting that more than half of Canada’s regional markets are seeing price growth above 10% annually. With mortgages ballooning, Canadian household debt has repeatedly hit record highs in recent years, and now stands at $1.67 of debt for every dollar of disposable income. Those elevated debt levels are the main reason one why the Bank for International Settlements (BIS), a Geneva-based “central bank of central banks,” warned recently that Canada has the second-highest risk of a financial crisis, behind only China.

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Essential and repeated here a 1000 times: “Bubbles have a habit of overshooting on the downside when they finally burst.”

Housing’s Echo Bubble Now Exceeds the 2006-07 Bubble Peak (CHSmith)

A funny thing often occurs after a mania-fueled asset bubble pops: an echo-bubble inflates a few years later, as monetary authorities and all the institutions that depend on rising asset valuations go all-in to reflate the crushed asset class. Take a quick look at the Case-Shiller Home Price Index charts for San Francisco, Seattle and Portland, OR. Each now exceeds its previous Housing Bubble #1 peak:

It seems housing bubbles take about 5 to 6 years to reach their bubble peaks, and about half that time to retrace much or all of the gains. Bubbles have a habit of overshooting on the downside when they finally burst. The Federal Reserve acted quickly in 2009-10 to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities. When bubbles are followed by echo-bubbles, the bursting of the second bubble tends to signal the end of the speculative cycle in that asset class. There is no fundamental reason why housing could not round-trip to levels below the 2011 post-bubble #1 trough.

Consider the fundamentals of China’s remarkable housing bubble. The consensus view is: sure, China’s housing prices could fall modestly, but since Chinese households buy homes with cash or large down payments, this decline won’t trigger a banking crisis like America’s housing bubble did in 2008. The problem isn’t a banking crisis; it’s a loss of household wealth, the reversal of the wealth effect and the decimation of local government budgets and the construction sector. China is uniquely dependent on housing and real estate development. This makes it uniquely vulnerable to any slowdown in construction and sales of new housing. About 15% of China’s GDP is housing-related. This is extraordinarily high. In the 2003-08 housing bubble, housing’s share of U.S. GDP barely cracked 5%. Of even greater concern, local governments in China depend on land development sales for roughly 2/3 of their revenues.

If you need some evidence that the echo-bubble in housing is global, take a look at this chart of Sweden’s housing bubble. Oops, did I say bubble? I meant “normal market in action.”

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“..we may be in the latter stages of a bubble. As prices rise further and further out of reach, lenders need to find more and more ingenious tricks to keep rich people pumping their cash into an overheated market. The punch bowl has to keep going round, or the party stops.”

Bubble, Bubble, Toil And Trouble: Ultra-Low Mortgage Rates Are Dangerous (G.)

Between autumn 1977 and Christmas 1979, interest rates rose from 5% to 17%. If you were a young boomer whose biggest cost was a variable rate mortgage, that would have hurt. In 2009, by contrast, interest rates were cut to a record low of 0.5%, and stayed there for the better part of a decade. When eventually they did move again, it was down. You don’t know you’re born. Except, of course, you do – because, if you’re reading this and you’re under 40, there’s a pretty good chance you’re still stuck paying rent. Yes, interest rates are low; no, this is not particularly helpful. Even if you do have a mortgage, it’s probably a fixed rate one because, let’s be honest, those rates are going up again one day. But not, it seems, today. The Yorkshire Building Society has just launched a new mortgage that charges an interest rate of just 0.89%. “We are very pleased to offer borrowers the lowest mortgage rate ever available,” said a spokesman.

“The cost of funding has fallen in recent weeks and, as a financially strong building society with no external shareholders to satisfy, we have the ability to pass this on to borrowers.” (“We used to dream of mortgages at under 1%,” say the boomers.) So does that means that owning a home is now cheaper than it’s ever been? Well, no, of course not. For one thing, this isn’t a fixed rate deal. It’s actually a (bear with me on this) two-year-long discount of 3.85% to the standard variable rate (SVR) of 4.74%. That means it’s very, very unfixed indeed: a normal tracker mortgage moves in response to Bank of England rates; an SVR one moves in response to the lender’s whims. Accepting this mortgage means placing a bet that the Yorkshire Building Society will be nice to you. It also comes with an unusually high arrangement fee of £1,495, but this shouldn’t bother you, because you probably can’t get that rate anyway. To even be considered, you need a deposit worth 35% of the value of your home.

[..] But there’s another, more sinister, reading of the recent rash of ultra-low mortgage rates: it suggests we may be in the latter stages of a bubble. As prices rise further and further out of reach, lenders need to find more and more ingenious tricks to keep rich people pumping their cash into an overheated market. The punch bowl has to keep going round, or the party stops. But bubbles tend to burst. Prices can’t rise forever: one day, interest rates must surely rise. When the inevitable happens, there is a danger that those who took advantage of this deal may find their equity wiped out – and the rate they’re paying will shoot through the roof.

That would obviously be very sad for those who are affected; for those shut out of home ownership, though, it may be no bad thing. That’s because nine years of record-low interest rates have probably contributed to the fact that house prices have soared out of reach; and higher prices have meant increasingly unattainable deposits. A rise in interest rates could, paradoxically, make housing more affordable.

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Companies guaranteeing each other’s crappy debt. What could go wrong? Problem is, Beijing had let them do it for years.

Rising Defaults In China Reveal Hidden Debt (BBG)

Rising defaults in China are unearthing hidden debt at companies across the country. Small firms that can’t get loans by themselves have been winning banks over by getting other companies to guarantee their borrowings. The companies making those pledges exclude them from their balance sheets, leaving creditors in the dark. Borrowers often extend the guarantees for each other, raising the risk that failures could ricochet, at a time when increasing borrowing costs have already added to strains. China’s banking regulator has ordered checks of such cross-guaranteed loans, Caixin reported Friday. Scrutiny is mounting after a corn oil producer in the eastern province of Shandong said last month it had guaranteed debt of a neighboring aluminum product manufacturer which is now stuck in a cash crunch.

Just days before that, a local government financing vehicle in China’s southwest had to repay an auto parts maker’s loans it had guaranteed after the latter defaulted. “Disclosure of such guarantees isn’t timely,” said Qiu Xinhong at Shenzhen-based First State Cinda. “Sometimes, it’s like a buried mine and you don’t know when the risks will explode.” This debt minefield could be big. The amount of loan guarantees at privately held firms in China is equivalent to 11% of their equity, and at LGFVs is 18%, according to Citic Securities. The load is even heavier at weaker borrowers. About 44% of issuers rated lower than AA- have a ratio of more than 30%, according to Everbright Securities. The phenomenon is less common in the U.S. because banks don’t require such guarantees to offer loans, according to Fitch Ratings.

“If companies in the same region offer a huge amount of guarantees for each other’s debt, it would form a guarantee web and deepen interconnections among the companies,” said Gang Meng, director of rating at Golden Credit Rating International Co. in Beijing. “If one company has to repay debt for its guaranteed company, risks would quickly ripple to other companies in the web, which will result in a butterfly effect.” [..] Guarantors don’t mark the pledges on their balance sheets and often disclose them only on an annual basis. Such shadow debts pose rising risks after central bank tightening pushed up onshore corporate bond yields to two-year highs and defaults on local notes surged to a record.

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The distinction between state banks and shadows has become very murky.

China Markets Reel as $1.7 Trillion in Shadow Funds Unwinds (BBG)

A $1.7 trillion source of inflows into Chinese markets has suddenly switched into reverse, roiling the nation’s money management industry and sending local bonds and stocks to their biggest losses of the year. The turbulence has centered on so-called entrusted investments – funds that Chinese banks farm out to external asset managers. After years of funneling money into such investments, banks are now pulling back in response to a series of regulatory guidelines over the past three weeks that put a spotlight on the risks. Critics have blamed entrusted managers for adding leverage to China’s financial system and reducing transparency.

The banks’ withdrawals helped erase $315 billion of stock market value over the past six days and sent bond yields to the highest level in nearly two years, highlighting the challenge for Chinese authorities as they try to rein in shadow banking activity without destabilizing financial markets. While the government has plenty of firepower to prop up asset prices if it wants to, forecasters at Australia & New Zealand Banking predict the selloff will deepen this year. “We are seeing an exodus of funds,” said He Qian at HFT Investment Management, which oversaw about 189 billion yuan ($27.5 billion) as of last year. He was one of about half-a-dozen asset managers and analysts who said banks have started scaling back their entrusted investments.

The arrangements have become an important part of China’s shadow finance system. When banks sell wealth-management products – the ubiquitous savings vehicles that offer higher yields than deposits – the firms sometimes farm out client money to entrusted managers such as hedge funds and mutual funds. The managers invest the cash in bonds, stocks and other securities, hoping to generate enough income to cover the banks’ promised returns to WMP clients – plus some extra for themselves.

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You better look good than feel good.

Naked Selfies Used As Collateral For Chinese Loans (AFP)

Hundreds of photos and videos of naked women used as collateral for loans on a Chinese online lending service have leaked onto the web, highlighting regulatory problems in the fast-growing peer-to-peer marketplace. A 10-gigabyte file posted on the internet exposed the personal details of more than 160 young women who were asked to provide the explicit material to secure money through online lending platform Jiedaibao. Launched by JD Capital in 2015, Jiedaibao allows lenders to operate anonymously but requires borrowers to reveal their real names when making transactions. Loan amounts and interest rates can be customised to meet the needs of users – often people who have a hard time accessing loans through more traditional financial institutions, like banks.

Interest on the “nude loans” reached an astonishing 30% a week, according to the Global Times newspaper. Lenders told female borrowers that if they failed to repay the loans, their nude photos would be sent to their families and friends, whose information was also required for some transactions, the article said. Material in the file put on the web last Wednesday showed some borrowers also promised to repay loans with sexual favours, according to screen captures posted on social media websites. In a statement on its official Twitter-like Weibo account, Jiedaibao said it had tracked down the accounts of several borrowers through photos and ID information circulated online and had frozen the suspected lenders’ accounts. “The ‘nude loans’ deals were mainly initiated and completed offline, and Jiedaibao only played the role of a money transfer platform in the deals,” the statement said.

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Derivatives used this way are instruments of massive wealth destruction. Why use different rates for each side of the deal? “..the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate..”

Italy Is the Euro-Area’s Swaps Loser Facing $9 Billion Bill (BBG)

Derivatives burdened Italy’s public debt again last year for a record amount of €8.3 billion ($9 billion), making the country the biggest swaps loser in the euro region. Losses related to swaps held by the nation added €4.25 billion to the country’s debt while net liabilities’ burden totaled €4.07 billion, based on data released Monday by EU statistics office Eurostat. In the 2012-2016 period, the burden totaled €29.6 billion, also a euro-area record. Italy’s derivative-related losses and net liabilities were higher than those for the whole euro region combined both in 2016 and in the five-year period as some countries actually saw the swaps helping to alleviate their debts. Governments across the euro region have used derivatives to manage their debt-financing costs and to hedge against sudden changes in rates and excessive exchange-rate volatility.

Those deals have sometimes backfired with the effect of pushing nations’ debts even higher. In the existing interest-rate swaps the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate,” the government said earlier this month in an annex to its annual Economic and Financial Document. Since starting from November 2015, the Euribor stayed negative and the impact on the flow indexed to that rate was that the Treasury had to pay money to its counterparts, instead of being paid by them, the document also said. Italy’s public debt rose last year to €2.2 trillion, or 132.6% of the country’s GDP, Eurostat said in a separate report on Monday.

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it’s important to get it right.

Ontario To Pay Guaranteed Incomes To The Poor (AFP)

Ontario has launched a pilot program to provide a guaranteed basic income to a few thousand people to test its effects on recipients and public finances, the Canadian province announced on Monday. Provincial premier Kathleen Wynne said the program would provide a “basic income” for three years to 4,000 people living under the poverty line. “We want to find out whether a basic income makes a positive impact in people’s lives,” Ms Wynne said, adding that “everyone should benefit from Ontario’s economic growth.” Income support payments will be as high as Can$16,989 (£9,800) a year for an individual, or Can$24,027 for a couple, plus an additional Can$6,000 for the disabled.

The figures will be reduced for those holding part-time jobs – they will receive 50 cents less for each dollar earned. As a concrete example, a single person with a yearly salary of Can$10,000 will receive an additional payment of Can$11,989. The 4,000 participants, aged 18 to 65, have been chosen at random in three cities: Hamilton and Lindsay in the Toronto suburbs and Thunder Bay in the province’s west. The province estimates the cost of the program at Can$50 million a year. Ontario is the most heavily populated Canadian province, with 38% of the country’s 36.5 million inhabitants. 13% of Ontario residents live below the poverty line, according to Statistics Canada.

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What the FBI did has already been declared illegal in New Zealand courts.

Kim Dotcom Wants FBI Director Comey Questioned By New Zealand Police (IBT)

FBI Director James Comey is currently in New Zealand and if Kim Dotcom has his way, Comey could find himself being questioned by the New Zealand police. The internet entrepreneur, who is wanted by the United States on multiple charges including fraud and copyright infringement, filed a complaint with the police Tuesday against the FBI director for what Dotcom called theft of his data by the agency. The alleged theft happened when the police raided Dotcom’s home Jan. 20, 2012, as part of investigations instigated by the U.S. The charges against him are based on the now-defunct website Megaupload that he operated, where users could share content with each other.

Some of that content was illegal to share, but according to New Zealand laws, internet service providers are not held responsible for the actions of their users. In his complaint Tuesday, Dotcom’s lawyer urged the police to urgently question Comey, who is in New Zealand for a conference. The grounds for the complaint are that the FBI received copies of data that was taken from Dotcom’s home during the 2012 raid, an act which courts in the country have held to be illegal, according to the complaint.

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The value you put on someone else’s life inevitably becomes the value of your own life.

At Least 16 Refugees Drown as Boat Sinks off Greece’s Lesbos (R.)

At least 16 people, including two children, drowned after an inflatable boat carrying refugees and migrants sank off Greece’s Lesbos island, authorities said on Monday. They are believed to be the first confirmed deaths in Greek waters this year of migrants or refugees making the short but dangerous crossing from Turkey on overcrowded rubber dinghies. Nine bodies were recovered in Greek territory and another seven in Turkish waters, Greek and Turkish coastguard officials said. Two survivors have been rescued. The two women, one of whom is pregnant, told the United Nations refugee agency UNHCR that 20 to 25 people were on board when the dinghy capsized around 1900 GMT on Sunday. The women are from Cameroon and the Democratic Republic of Congo.

Though fewer than 10 nautical miles separate Lesbos from Turkish shores, hundreds of people have drowned trying to make the crossing since Europe’s refugee crisis began in 2015. In that year, Lesbos was the main gateway into the European Union for nearly a million Syrians, Iraqis and Afghans. But a deal in March 2016 between the EU and Ankara has largely closed that route. Just over 4,800 people have crossed to Greece from Turkey this year, according to UNHCR data. An average of 20 arrive on Greek islands each day. “The number of people crossing the Aegean to Greece has dropped drastically over the past year, but this tragic incident shows that the dangers and the risk of losing one’s life remains very real,” said Philippe Leclerc, UNHCR Greece representative.

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Apr 162017
 
 April 16, 2017  Posted by at 8:54 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Fred Stein Snow White 1946

 

Who Will Buy Baby Boomers’ Homes? (CityLab)
Canada Completely Lost Its Mind Over Real Estate (McL)
The Bank of Canada Should ‘Cease and Desist’ (Mises)
Will Trump Accept Responsibility When This Shitshow Implodes? (Quinn)
Can We Avoid Another Financial Crisis? (ET)
China Finally Halts Outflows. Now What? (Balding)
Russia Could Soon Take Over A Chunk Of US Oil Infrastructure (Vice)
Britain Set To Lose EU ‘Crown Jewels’ Of Banking And Medicine Agencies (G.)
The Dream Is Officially Over For Iron Ore (SMH)
Brazil’s Odebrecht Paid $3.3 Billion In Bribes Over A Decade (R.)
Zimbabwe Cash Crisis: ‘Coins May Also Disappear’ (AllA)
Marine Le Pen Faces Wipe Out In French Election After Computer Blunder (E.)
The Refugee King of Greece (NYT)
EU ‘Leaving Migrants To Drown’ Say Rescuers (Ind.)

 

 

These people are so stuck in their narrow field and views. Build more! is not an answer to any of this. Homes are grossly overpriced, and they will be ‘re-priced’.

Who Will Buy Baby Boomers’ Homes? (CityLab)

Frequent sales put pressure on the market to produce homes catering to changing tastes among buyers. Nelson notes that the home building industry is now producing less than half the number of new houses it did in the mid-2000s. Though demand now outpaces supply, homeowners are hanging on to properties significantly longer—nine to ten years—because they owe more on their houses than they can get for them, their houses are worth less than before the recession, or they can’t find a home that meets their needs due to insufficient supply. “It’s not that Boomers are going to ‘age in place,’” says Nelson. “They’re going to be stuck in place, and they’re going to make the best of it.” Those who can afford it will remodel. Regardless of when it occurs, the great senior sell-off won’t affect every Boomer equally.

A large chunk of Millennials—Nelson posits around two-thirds—will want to buy suburban homes because they like the lifestyle, or because they will be priced out of cities like Washington, D.C. or Los Angeles, where housing costs are exorbitant. Most of the other third, he says, will want to live in central cities and the oldest, closest suburbs—though not necessarily downtown. The small percentage who prefer downtown living but cannot afford certain cities may move to more affordable ones, such as Philadelphia or Minneapolis. Nelson predicts that the fringe areas surrounding cities will bring the biggest headaches for Boomers looking to unload their houses. Because Millennials will be looking for small homes when they finally start to buy in larger numbers, the sprawling McMansions of the exurbs won’t be desirable to many of them.

“The Boomers in the exurbs are going to be in a real pickle,” says Nelson. “Even in a dynamic market like Washington, D.C. or other booming cities, the market for those homes is going to be soft.” Though Jennifer Molinsky, a senior research associate at Harvard’s Joint Center for Housing Studies, agrees that exurbs and rural areas will likely be vulnerable to the Boomer/Millennial housing mismatch, she’s not as pessimistic about the sell-off as a whole. “The Baby Boomers are a large generation,” she says. “Nothing they do is going to happen en masse.” She also believes that the Boomers who don’t age in place will demand an increasing array of housing options that will help spread out sales over time, decreasing the likelihood of a sudden glut of housing.

But many analysts do agree on one thing: More housing will need to be built for Millennials—and it needs to be scaled to their desires, not their parents’s. “Millennials are likely to prioritize different features in their homes, such as greener materials or in-law suites,” says Molinsky. And according to the Harvard Joint Center’s projections, nearly 90% of those looking for homes in 2035 will be under 35 or 70 and over—and both groups tend to buy less square footage. The challenge for local governments and developers, says Nelson, “is to anticipate these future needs and build different and smaller homes now—before getting trapped with too many larger homes later.”

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“In British Columbia, real estate and related fields such as construction and finance make up an astounding 40% of GDP..”

Canada Completely Lost Its Mind Over Real Estate (McL)

The average selling price for all homes in the Greater Toronto Area, including houses and condos, surged to $916,567 in March, a 33% rise from the year before, according to the Toronto Real Estate Board. Since January alone, prices are up 19%. A lowly semi-detached house in the city is now worth more than $1 million. Prices are growing even faster in the surrounding suburbs. More first-time homebuyers and investors are looking to Barrie, Ont., a city about 100 km north of Toronto, where the average selling price jumped 33% compared to the year before.

[..] Canada is a country deeply reliant on real estate. The industry accounts for roughly 12% of its GDP. In British Columbia, real estate and related fields such as construction and finance make up an astounding 40% of GDP. Vancouver is seeing prices rise again after numerous efforts to cool the market. And in Alberta, not even a recession and a 9% unemployment rate did much damage to house prices in Calgary and Edmonton. “It’s surprising how well it has held up, given the severity of two years of contraction,” says Todd Hirsch, chief economist at ATB Financial.

[..] “Tight supply starts to become a justification for all outcomes,” says Beata Caranci, chief economist at TD Bank Group. If buyers are convinced supply is low, then the big price increases will seem logical, exacerbating their fear of missing out and pushing them to act irrationally. Toronto’s price surge did indeed coincide with a significant drop in listings, but that could be a result of psychology on the seller’s part. Some homeowners could be holding on to their properties in anticipation of prices rising even further. Families that would otherwise sell their homes to upsize could also be staying put simply because prices are so high, and competition is so fierce, that the hassle isn’t worth it. An influx of deep-pocketed foreign investors could also be taking properties off the market, especially since Vancouver implemented a 15% tax last year for foreign nationals. “I do believe that at least some investors went directly from Vancouver to Toronto,” Porter says. “That has played a role in launching Toronto, and some surrounding cities, into the stratosphere.”

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Way too late: “…the Bank of Canada needs to pay more attention to the housing issue because it is a huge threat to the entire economy.”

The Bank of Canada Should ‘Cease and Desist’ (Mises)


“Beneath the symbol
We’ll all assemble
Oh how we’ll fly
Oh how we’ll tremble”

– Captain Beefheart, “Ice Cream for Crow”

If interest rates are the symbol beneath which we all assemble, then there are some bad times ahead. But Canada’s “leading economists,” say interest rates are “too blunt a tool” to cool the housing market.This week, Governor Stephen Poloz as expected did not raise rates, but continues to face tough questions about the connection between low rates and the “hot” housing market. Of course, he deserves every hard question thrown at him. And it’s nice that journalists are actually starting to question the obvious connection between low-interest rates and the housing bubble. With Canadians across the country locked out of their local housing markets, and with foreign buyers using Canadian property to protect their wealth from destructive communist dictatorships, frustration needs an outlet and it looks as if Poloz and the BoC are, finally, in the crosshairs.

But that doesn’t mean Poloz will listen. After all, the central bank is supposed to remain “independent” from democratic government and popular opinion. Poloz is making his decisions based on his misunderstanding of the economy, not the will of the mob. As Avery Shenfeld, CIBC Capital Markets’ chief economist, told BNN in an email, “The Bank of Canada will likely stick to its view that house prices are best dealt with through macro-prudential policies particular to that market, with the interest rate setting used to steer the economy overall.” Meaning, let the banks and federal government deal with the issue. The BoC will do what it can, but it will not include raising rates. Raising interest rates will certainly “cool” the housing market, but it will also lead to some unintended consequences that would “hurt” the overall economy.

Remember, the BoC is stacked with Keynesians, who regard the “hangover theory” as implausible as the irrefutable Say’s Law. So if the Bank can’t or won’t raise rates, and leaving the price of interest to the free market isn’t even on the table, then what about a rate cut? Doug Porter, chief economist at BMO Capital Markets, also told BNN, “The BoC should cease and desist with talk of possible further rate cuts, which simply fuel the sense that rates are never going higher, and instead start warning that rates will someday rise.” That would be smart, we’ll have to see what tomorrow brings. So far, Bank of Canada governor Stephen Poloz has left real estate to the experts, meaning, not him. Capital Economics Senior Canada Economist David Madani told BNN that the “Bank of Canada needs to pay more attention to the housing issue because it is a huge threat to the entire economy.” But Poloz, like his predecessor before him, prefers “moral suasion.” Madani thinks the Bank should be using “much stronger language.”

Oh, how we’ll fly, oh how we’ll tremble.

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“67% of the US economy is dependent upon Americans spending money they don’t have on shit they don’t need.”

Will Trump Accept Responsibility When This Shitshow Implodes? (Quinn)

Donald J. Trump has taken credit for making America’s economy great again. He’s been crowing about all the jobs being created, the soaring consumer confidence and record highs in the stock market. It’s all because the Donald has inspired Americans about our glorious future. But, a funny thing has been happening in the real world. The economy has gone into the shitter and GDP will be lucky to reach 1% in the first quarter of his presidency.

The bullshit consumer confidence surveys mean absolutely nothing. Feelings don’t mean shit.

What consumers do is what matters.

 

67% of the US economy is dependent upon Americans spending money they don’t have on shit they don’t need.

And they’ve dramatically reduced that spending. If consumers are so confident, why are a record number of major retailers going bankrupt and closing 3,500 stores in 2017? Mom and pop retailers have been shuttering for years.

If the narrative about a dramatically improving housing market was true, why would furniture store sales and building material store sales be falling?

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That’s a NO. Steve’s new book is out and available on Amazon. Valentin Schmid feels the need to insert his own opinion and veers way out of his depth by questioning Minsky’s instability theory.

Can We Avoid Another Financial Crisis? (ET)

Keen answers the $1 trillion dollar question with a resounding “no.” This is because too many countries rode a wave of private debt explosion during the last boom, and are now in the equivalent of economic purgatory. Keen identifies China as the biggest threat. “They face the junkie’s dilemma, a choice between going ‘Cold Turkey’ now, or continue to shoot up (on credit) and experience a bigger bust later. China is undoubtedly the biggest country facing the debt junkie’s dilemma now. But it doesn’t lack for company,” he writes. Other countries with a high level of private debt and a reliance on debt to fuel economic demand -Keen calls them “debt zombies”- are Australia, Belgium, Canada, South Korea, Norway, and Sweden.

In total, the influence of China and these smaller economies is simply too great for the world to avoid a financial crisis. According to Keen, the solution within this layer of economic theory is more government regulation of the banking system and government deficits to counter a fall in private demand – which is essentially the policy response to the 2008 financial crisis. More aggressive options are quantitative easing in the form of ‘helicopter money’, where the central bank monetizes government debt, and the government then writes a check to households to either pay down debt or spend it in case there isn’t any debt to pay down. There could also be a more official debt jubilee where debt is simply forgiven.

“On its own, a Modern Debt Jubilee would not be enough: all it would do is reset the clock to allow another speculative debt bubble to take off. Currently, private money creation is a by product of the activities of a casino (Keynes, 1936, p. 159), rather than what it primarily should be: the consequence of the funding of corporate investment and entrepreneurial activity,” writes Keen. The ultimate objective would be for the government to counter excessive private debt bonanzas. Being an agnostic thinker, Keen also entertains concepts of government issued money and cryptocurrencies, although he doesn’t think they can eventually replace the banking system, partly because of scale, partly because of political resistance. “As long as that model holds sway over politicians and the general public, sensible reforms will face an uphill battle—even without the resistance of the finance sector to the proposals, which of course will be enormous.”

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China strangles itself to save its economy.

China Finally Halts Outflows. Now What? (Balding)

Is China finally making headway in its battle against currency outflows? On the surface, yes: People’s Bank of China foreign exchange reserves are effectively unchanged since December at $3 trillion, and data for February released by the State Administration of Foreign Exchange showed a significant narrowing of net outflows of capital based on international bank settlements and sales. That’s a major accomplishment, given that yuan had been leaving the country at an average rate of almost $60 billion per month in the middle of last year. But how this turnaround was achieved raises some serious long-term questions for China. For one thing, it wasn’t driven by economic strength. Officially recorded payments and receipts are both down significantly across all categories.

Total foreign bank inflows are flat, while payments abroad were down by 15% through the first two months of the year. With total outflow payments from banks of $3.1 trillion in 2016, a 15% drop represents a large decline in absolute terms. In other words, balance wasn’t achieved by increasing exports or investment into China, but rather by preventing Chinese from buying from and investing in the rest of the world. Some of the government’s restrictions on currency-exchange transactions – such as cracking down on fake trade data and overpayments for imports – were justified and sensible. But others were more dubious and have led to significant distortions. Most banks, for instance, now can only pay for international transactions if they’ve balanced their books with a corresponding level of inflows.

Beijing-based banks are under particular pressure, required to bring in 100 yuan for every 80 they use to pay for overseas transactions. Unsurprisingly, given these regulations, official bank payments and receipts are now almost perfectly balanced. But accomplishing this has required major declines in foreign investment as well as triple-checking what used to be routine transactions of virtually any size. Foreign firms don’t have it much easier. Although China still officially permits foreign companies to move capital for standard operating transactions, such as dividend payments, more than a few firms have complained about not getting permission to do even that.

The risk is that foreign investment in China, which has declined, will fall even further if investors worry about not being able to bring profits back home. Similarly, stepped-up capital controls on Chinese looking to move cash abroad has increased the attractiveness of gray-market money changers in Hong Kong, who have little difficulty finding firms in China hoping to move large sums. Although their volumes have dropped somewhat, the money changers still do a thriving business selling U.S. dollars at a typical discount of 2% to 5% from the official rate.

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Where’s John McCain when you need him?

Russia Could Soon Take Over A Chunk Of US Oil Infrastructure (Vice)

Russia may soon take control of American oil and gasoline infrastructure in a deal U.S. lawmakers warn represents a threat to energy security. Rosneft, Russia’s state-controlled oil company, could end up with a majority stake in Texas-based Citgo after the entity that owns Citgo, Venezuela’s state-owned oil and natural gas company PDVSA, used almost half of Citgo’s shares as collateral for a loan from Rosneft. In the midst of Venezuela’s ongoing economic crisis, PDVSA is reportedly in danger of defaulting on that loan. That means Rosneft, a company specifically named in U.S. sanctions levied against Russia after its 2014 annexation of Crimea, is poised to become one of the biggest foreign owners of American oil refining capacity. Rosneft is headed by Igor Sechin, a powerful crony of Russian President Vladimir Putin, and is often seen as a proxy for the Kremlin’s energy policies.

PDVSA put up as collateral about 49.9% of Citgo shares in exchange for a $1.5 billion loan from Rosneft in December. It had used the other half of Citgo as collateral for a bond deal two months before that. Should PDVSA default on its Russian loan, the Russians could relatively easily end up with a majority stake in Citgo by acquiring more PDVSA bonds on the open market. While the exact details and time-frame of the Rosneft loan remain murky, PDVSA successfully made $2.2 billion in payments on notes that matured April 12, sending ripples of relief through financial markets. Still, the possibility of default has set off alarm bells in Congress, where Republican and Democratic members of the House and Senate told Treasury Secretary Steven Mnuchin they see Russia’s potential acquisition of Citgo as a threat to the country.

“We are extremely concerned that Rosneft’s control of a major U.S. energy supplier could pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical U.S. infrastructure to security threats,” six senators wrote in a letter to Mnuchin dated April 10. Those senators include Democrat Robert Menendez of New Jersey and Republicans Marco Rubio of Florida and Ted Cruz of Texas. [..] Citgo owns three large U.S. oil refineries in Louisiana, Illinois, and Texas with a combined capacity of almost 749,000 barrels a day, or a bit more than 4% of the total U.S. refining capacity of 18.6 million barrels a day. Citgo-branded fuel is available at more than 5,000 locally owned retail gas stations in 29 states. The company also controls pipeline networks and 48 oil product terminals.

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What Britain need is an election.

Britain Set To Lose EU ‘Crown Jewels’ Of Banking And Medicine Agencies (G.)

The EU is set to inflict a double humiliation on Theresa May, stripping Britain of its European agencies within weeks, while formally rejecting the prime minister’s calls for early trade talks. The Observer has learned that EU diplomats agreed their uncompromising position at a crunch meeting on Tuesday, held to set out the union’s strategy in the talks due to start next month. A beauty contest between member states who want the European banking and medicine agencies, currently located in London, will begin within two weeks, with selection criteria to be unveiled by the president of the European council, Donald Tusk. The European Banking Authority and the European Medicines Agency employ about 1,000 people, many of them British, and provide a hub for businesses in the UK.

It is understood that the EU’s chief negotiator hopes the agencies will know their new locations by June, although the process may take longer. Cities such as Frankfurt, Milan, Amsterdam and Paris are competing to take the agencies, which are regarded as among the EU’s crown jewels. Meanwhile, it has emerged that Britain failed to secure the backing of any of the 27 countries for its case that trade talks should start early in the two years of negotiations allowed by article 50 of the Lisbon treaty. The position will be announced at a Brussels summit on 29 April. Despite a recent whistlestop tour of EU capitals by the Brexit secretary, David Davis, diplomats concluded unanimously that the European commission was right to block any talks about a future comprehensive trade deal until the UK agrees to settle its divorce bill – which some estimate could be as high as €60bn – and comes to a settlement on the rights of EU citizens.

[..] The European commission said earlier this month that talks about a potential trade deal would occur only once “sufficient progress” had been made on Britain’s €60bn divorce bill and the position of EU citizens in the UK and British citizens on the continent. It is understood diplomats representing the EU27 did discuss a definition of “sufficient progress”, but ultimately left it to the leaders to decide. An EU source said it was hoped that “scoping” talks on a deal, and a transitional arrangement on access to the single market, could start in the autumn. The EU’s negotiating position detailed in the European council’s so-called draft guidelines will also be redrafted to include mention of the European parliament’s role, in a sign that MEPs are angling to play a greater part in shaping the talks. Tusk’s team will “fine-tune” the guidelines ahead of a final meeting of diplomats on 24 April, an EU source said. A one-day summit of leaders will take place on 29 April in Brussels to sign off on the document.

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Not to worry though. Australia already has a new bubble going to replace it.

The Dream Is Officially Over For Iron Ore (SMH)

Nev Power, the man who runs Andrew Forrest’s third force in iron ore, Fortescue, is something of an optimist. As the company’s share price was in freefall on Thursday he fronted up to media and investors putting a relatively positive spin on the outlook for prices of the commodity most pivotal to the health of the Australian economy. In previous periods Power has underestimated price falls and price gains and he now thinks it will settle at about $US60 ($79) to $US65 per tonne. Having ridden price rises in iron ore for more than a year, the big producers like Fortescue now need to reassure investors they are match fit to cope with the wild downward gyration in price. For the sake of the broader economy – and Fortescue shareholders – let’s hope he is right and we don’t reach the $US45 that the previous federal treasurer, Joe Hockey, predicted less than two years ago.

The trouble is that the myriad professional analysts and forecasters that follow this market have a significantly less rosy view of where the price will bottom out – more like $US50 a tonne. As prices have spiralled down over the past few weeks and the decline momentum has moved into full swing this week, the I-told-you-so cries have been louder than ever. As the price of iron ore irrationally moved up to more than US$94 in February – it was these bearish experts that were red faced. Today their predictions have been, at least in part, vindicated. It is now below $US70 and falling – a whopping 28% drop in a matter of weeks. To be fair the big producers including BHP Billiton and Rio Tinto have not been in denial about the iron ore price bubble – warning investors for more than a month that the recent prices have been something of a mirage.

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Is there anyone left in government who is not on the take?

Brazil’s Odebrecht Paid $3.3 Billion In Bribes Over A Decade (R.)

Odebrecht, the Brazilian engineering company at the center of a historic corruption scandal, paid out a total of about $3.3 billion in bribes in the nine years through 2014, according to testimony cited by local media on Saturday. Through a department specifically established to pay politicians and other recipients for public works contracts, Odebrecht paid as much as $730 million annually in both 2012 and 2013, the years when bribe payments peaked, according to a spreadsheet that a former executive reportedly gave investigators as part of a plea deal. The $3.3 billion figure, and related annual tallies as laid out in the spreadsheet, were reported on Saturday by the G1 news site of the Globo media group and the Estado de S. Paulo, a leading newspaper.

A trove of plea deal testimony unsealed this week by a Supreme Court justice is shedding light on the extent and manner in which Odebrecht, once Latin America’s most successful engineering firm, routinely paid officials in Brazil and other countries in exchange for winning contracts. The testimony was unsealed as the justice, Edson Fachin, authorized investigations of eight government ministers, 12 governors and dozens of federal lawmakers implicated in the scandal, uncovered three years ago because of a kickback investigation at the state-run oil company Petrobras. Odebrecht, whose former chief executive has been jailed since 2015 because of the probe, negotiated a far-reaching plea agreement with Brazilian investigators last year, leading to testimony by about 80 company executives and employees.

Along with an affiliate, Odebrecht also agreed last year to pay at least $3.5 billion to U.S. and Swiss investigators for international charges related to the scandal. Earlier on Saturday, Estado de S. Paulo also reported that Brazilian authorities were investigating if any of the foreign kickbacks the company has already admitted to violated Brazilian law. The company made those payments in countries including Mexico, Ecuador, Peru and Angola.

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A whole new form of cashless society…

Zimbabwe Cash Crisis: ‘Coins May Also Disappear’ (AllA)

Coins used to be for the piggy banks used by kids to save money given by their parents for break-time snacks at school. The adults normally kept a few of them when they got them from the grocery store as change. One normally didn’t have to keep lots of these because they broke pockets in the case of men, or made the handbag heavy for women. When the piggy bank became full, a way was always sought to turn the coins into “real cash” – crispy bank notes the parents would use to buy items of choice for the saving kids. Banks did not normally accept large amounts of coins, and these coins were often changed for notes in grocery shops or other retailers who had use for them for change.

In crisis-torn Zimbabwe, things have changed; coins are no longer for children’s piggy banks, they are now treasure items for adults who are failing to get cash from banks due to a worsening liquidity crunch in the economy. Banks are now dispensing large amounts of coins to depositors because they have run out of notes to honour their obligations to the banking public. At a bank in the capital last week, depositors waited in long queues to withdraw US$50 apiece in coins. “I’m at least relieved,” one depositor said, holding a plastic full of coins after a long wait in a bank queue. Bank notes have become a scarce commodity and coins have taken their place as a medium of exchange in the country. The $0,25 and $0,50 bond coins, which were introduced to ease a change problem that had been brought by use of hard currencies in 2009, have become choice monetary instruments in a liquidity-challenged economy.

[..] Economist, Christopher Mugaga, who is also the chief executive officer of the Zimbabwe National Chamber of Commerce, said the situation in the country was increasingly getting desperate. He warned that even the coins could soon become scarce on the market. He blamed the crisis on an erosion of confidence in the banking sector, which has resulted in people avoiding depositing their money with banks because of failure to withdraw it on demand. “When the bond notes were introduced, pressure was on the notes. People are also not banking hence for a every dollar, only $0,05 goes back into the banking system. So when you go back to the bank, you will not find the notes,” Mugaga said. “If the problem persists, coins may also disappear,” he warned.

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A very convenient blunder.

Marine Le Pen Faces Wipe Out In French Election After Computer Blunder (E.)

A monumental computer blunder could cost Marine Le Pen the French general election as 500,000 citizens living outside of France have the chance to vote twice. Half a million people received duplicate polling cards in the post, which would allow them to cast two votes at the first round of the election, held on April 23. French authorities confirmed they would not be investigating the potential electoral fraud until AFTER the election, when retrospective prosecution may take place. This could crush Ms Le Pen’s dreams of surging to power, as most French nationals living outside of their country are not right wing – demonstrated by the fact many feel they depend on the EU to guarantee their stay in foreign countries.

Voting twice is a crime, but police will only find out if they run a check on the individual through their computer systems. The punishment can be up to two years in prison and a fine of about £13,500. France’s Interior Ministry has said it will not be invalidating the election because of the duplicate voting glitch, but with Bloomberg’s latest poll currently showing Mr Macron and Ms Le Pen polling at 22.8%, and far left Mr Melenchon at 18.3%, it is possible an extra 500,000 votes either way could swing the balance of power.

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The New York Times is way late and doesn’t even care to ask where all the money went.

The Refugee King of Greece (NYT)

According to aid experts, more has been spent on the humanitarian response in Greece than on any refugee crisis in history. “Every year, Greece hosts 25 million tourists,” a frustrated aid worker told me, “and to date we have been given 800 million euros in funding for this crisis — but we can’t find proper accommodation for 50,000 people?” The crisis is, instead, the result of deliberate political choices. According to Louise Roland-Gosselin, the advocacy manager of Doctors Without Borders, “Europe has said: ‘We have had enough of this. It’s no longer our problem.’ There are too many elections in too many countries. Politicians are pandering to the right and saving their skins at the price of the refugees.”

As part of the deal with Turkey, the European Union agreed to relocate the refugees who were already stuck in Greece. But only 10% have been settled elsewhere, and member states are trying to weasel out of taking more. A family reunification program is supposed to be more effective, but the number of people being resettled under that program is shrinking, too. [..] The family, like thousands of others, arrived traumatized by war. Now they are being traumatized again, this time by European politics. Europe is doing this on purpose. It wants to dissuade other refugees from making the journey. But desperate people will keep coming, and will simply take greater risks than ever before. [..] By refusing to resettle refugees, Europe is whittling away at its commitment to human rights.

But Europe promised to protect those rights in the 1948 Universal Declaration of Human Rights, as well as in other treaties, charters and national laws. “These states are undermining their obligations — and these are the same states that created the human rights laws and ratified conventions,” says Sari Nissi, who heads up the International Committee of the Red Cross mission in Greece.

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The EU has lost its legitimacy. “Efforts by the European Union and its border agency FRONTEX to prevent loss of life at sea [..] have only resulted in more people drowning..”

EU ‘Leaving Migrants To Drown’ Say Rescuers (Ind.)

More than 2,000 migrants trying to reach Europe were rescued from the Mediterranean on Friday, while at least one person was found dead, the Italian coastguard confirmed. A spokesperson for the service said 19 rescue operations by coastguards or non-governmental organisations had saved a total of 2,074 migrants on 16 rubber dinghies and three small wooden boats. The coastguard also confirmed that one person had died when the boats sank, but gave no details. The rescues come just days after a boat sank off the coast of Libya on Thursday. Ninety-seven refugees are missing, presumed drowned. According to the International Organisation for Migration (IOM), nearly 32,000 migrants have arrived in Europe by sea so far this year. More than 650 have died or are missing.

The number of migrants increased to a high of 5,079 for 2016, according the the IOM – despite a huge decline in numbers of migrant arrivals since 2014. Médecins Sans Frontières (MSF), a medical charity which has carried out hundreds of rescue operations in the Mediterranean since the beginning of the migrant crisis, has criticised Frontex, the European Border and Coast Guard agency, who operate official EU patrols on migration routes. MSF said in a series of tweets that NGOs were being forced to fill gaps in service provision left by the EU coastguard. “Frontex Director says it’s a paradox that a third of rescues are done by NGOs. We agree. Where are Frontex boats in a day like this?” MSF tweeted. “Many more people could have died in a day like this if we arrived a few hours later. We are where we’re needed, what’s the EU doing meanwhile?”

Friday’s rescue operations were performed entirely by NGOs. Mary Jo Frawley, a nurse who was involved in MSF’s patrols this week, said: “Efforts by the European Union and its border agency FRONTEX to prevent loss of life at sea through strengthened border control, increasing militarisation and a focus on disrupting smuggling networks has only resulted in more people drowning not fewer and has had little impact on the flows of arrivals. “This, combined with the lack of adequate EU search and rescue operations has meant that MSF and other humanitarian organisations have – in an unprecedented move – been forced to step in to avoid further loss of life.

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Mar 302017
 
 March 30, 2017  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Carole Lombard 1926

 

Fed’s Williams Says Bank Lending Slowdown Doesn’t Worry Him Yet (YF)
Retailing in America: Game Theory in Reverse (DiMartinoBooth)
‘Deep Subprime’ Auto Loans Are Surging (BBG)
Margin Debt Hit All-Time High in February (WSJ)
US Oil Export Surge Steals More OPEC Share (CNBC)
Australia World’s Worst Money Laundering Property Market (TI)
Sydney, Melbourne House Price Gains Accelerate (AFR)
Auckland Housing Market Losing All Capital Gains Of The Last 12 Months (INZ)
House Panel Passes Bill To Audit The Fed (MW)
Hawaii Judge Places Indefinite Hold On Trump Travel Ban (BBC)
Paul Ryan Opposes Trump Working With Democrats On Healthcare (R.)
Democrats Against Single Payer (Jacobin)
American Empire Crumbling (Quinn)
The EU Cannot Survive If It Sticks To Business As Usual (Varoufakis)
Capitalism Inevitably Creates A ‘Sad’ Unfair World – Physicist (Ind.)
‘That Was Some Weird Shit’ (NYMag)
146 Feared Dead In Mediterranean, Boy The Sole Survivor (R.)

 

 

Today’s main theme just has to be W’s ‘That Was Some Weird Shit’. Here’s the graph to go with it.

Fed’s Williams Says Bank Lending Slowdown Doesn’t Worry Him Yet (YF)

A recent slowdown in bank lending has some observers concerned that the post-election pops in optimism are sending a false signal about the strength of the U.S. economy. To San Francisco Fed president John Williams, however, this decline is out of step with everything else credit markets are saying about the economy. “The big picture is: I don’t see any signs of a slowing either on the demand side or on the credit supply side,” Williams told Yahoo Finance on Wednesday. “Overall, the other indicators, everything we see, [says] economic conditions are good,” Williams added. “Confidence is good, and we’re not seeing any signs of bank lending standards changing fundamentally. So it’s hard to see anything, from my viewpoint, that [says] credit is less available.”

In recent months, the growth rate of commercial and industrial loans, as tracked by the Federal Reserve’s weekly H.8 report on assets and liability of U.S. banks, has been on the decline. This is viewed by many as a negative development in an economy where lending and borrowing activity serve as proxies for the economy’s overall health. But Williams also cautioned that lending data can reveal economic developments on a lag. For example, he noted to Yahoo Finance that in 2008 bank lending increased, which contradicted the notion that the financial markets were seizing up. Indeed, companies were unable to borrow by tapping the bond markets. However, the lending did increase because companies drew from existing lines of credit.

Right now, Williams noted that one story behind the drop in C&I loan growth going around is that oil and gas companies last year drew on lines of credit, boosting loan growth at the time. And thus the current decline in lending, which appears out of step with broader economic conditions, is occurring largely because of difficult year-over-year comparisons.

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Retail demise exposes banks.

Retailing in America: Game Theory in Reverse (DiMartinoBooth)

On March 21st, Sears Holding Corporation submitted a filing with its regulators that it has “substantial doubt” it can continue as a “going concern.” Don’t recall companies being charged with making their own death throes’ announcements from your Accounting coursework? You are correct. Meet the new and improved U.S. accounting rules that have just come into effect for public companies reporting annual periods that ended after December 15, 2016, Sears included. The change shifted the onus to disclose from a given company’s auditors to its management. It was telling that the Sears news fell on the very same day discount retailer Payless announced it could soon file for bankruptcy protection. That same day, the less ubiquitous Bebe female fashion chain said it too was ‘exploring strategic options,’ typically code for that same ill-fated Chapter in the court system.

[..] At the opposite end of the denial spectrum sits Boston Fed President Eric Rosengren, who is and has been publicly worried about an entirely different sort of challenge facing the real estate market. It’s no secret that apartment prices are soaring. Over the past year, prices have risen 11%, leading the broad market. While that increase may seem benign in and of itself, consider how the sector has fared over the course of the recovery: prices have recouped an eye-watering 240% of their peak-to-trough losses. In sharp contrast, retail has performed the worst; it’s only recovered 96% of its losses. Rosengren is rightly worried that the “sharp” increase in apartment prices could catalyze financial instability. He went on to say that, “Because real estate holdings are widespread, and the monetary and macro-prudential tools for handling valuation concerns are somewhat limited, I believe we must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn.”

If you would indulge a translation: The bubble in commercial real estate (CRE) could trigger systemic risk, which of course, no central bank can contain. The ‘macro-prudential’ tools to which Rosengren refers include rules and caps on banks’ exposure to CRE. Odds are, however, that the horse has already fled the barn. Over the past five years, CRE lending has been running at roughly double economic growth, a dangerous dynamic. The result: banks’ exposure to CRE has reached record levels. Last year alone, bank holdings of CRE and multifamily mortgages rose nine and 12%, respectively. More worrisome yet is that the most concentrated cohort – those with more than 300% of their risk-based capital at risk – is banks with less than $50 billion in assets; most have assets south of $10 billion. How exactly will small banks confront a systemic risk conflagration? That pesky potential presumably is what’s robbing Rosengren of sleep at night. He might just remember that small German lenders called Landesbanks were where subprime bombs detonated unexpectedly way back when.

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Anyone who can fog a mirror is back

‘Deep Subprime’ Auto Loans Are Surging (BBG)

About a third of the risky car loans that are bundled into bonds are considered “deep subprime,” a level that has surged since 2010 and is translating to higher delinquencies on the loans, according to Morgan Stanley. Consumers are falling behind on most subprime car loans, but deep subprime borrowers have deteriorated fastest, the analysts said. Sixty-day delinquencies for bonds backed by these loans have risen 3 percentage points since 2012, compared with just 0.89 percentage points on all other subprime auto securities, Morgan Stanley’s Vishwanath Tirupattur, James Egan and Jeen Ng said in a report dated March 24. “The securitization market has become more heavily weighted towards issuers that we would consider deep subprime,” the strategists wrote. “Auto loan fundamental performance, especially within ABS pools, continues to deteriorate.”

The percentage of subprime auto-loan securitizations considered deep subprime has risen to 32.5% from 5.1% since 2010, Morgan Stanley said. The researchers define deep subprime as lenders with consumer credit grades known as FICO scores below 550. The scale from Fair Isaac Corp. ranges from 300 to 850 and while there’s no firm definition of subprime, borrower scores below 600 are in general considered high credit risks. As Wall Street banks have found it tougher to profit under new regulatory regimes born out of the last subprime crisis, they’ve become more willing to underwrite riskier auto-loan asset-backed security sales. Investors, starved for returns with about $8 trillion of debt globally carrying negative yields, have in turn proven to be insatiable, further facilitating higher levels of risk in the market for the securities.

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The casino’s open for business.

Margin Debt Hit All-Time High in February (WSJ)

Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets. The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, according to the most recent data available from the New York Stock Exchange, released Wednesday. That is up 2.9% from $513.3 billion in January, which had been the first margin debt record in nearly two years. With margin debt, investors pledge securities, typically stocks or bonds, to obtain a loan from their brokerage firms. The money doesn’t have to be used to buy more investments, though it often is. The gauge tends to climb—and pull back—along with broader stock market gauges, which have been rising to fresh records in the wake of November’s presidential election.

Rising levels of margin debt are generally considered to be a measure of investor confidence. Investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. But experts say a steep rise can indicate that investors are losing sight of market risks and betting that stocks can only go up. Margin debt has a history of peaking right before financial collapses like the ones in 2000 and 2008. When stocks move lower, investors who are buying with borrowed money often must pull out of the market, exacerbating the decline. Before January, the previous record high for margin debt was $505 billion in the spring of 2015. Margin debt then started falling, months ahead of a summer swoon that sent major indexes down more than 10%.

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As demand falls.

US Oil Export Surge Steals More OPEC Share (CNBC)

As OPEC tries to keep oil off the world market, U.S. oil producers are pouring more onto it. The U.S. last week sent more than 1 million barrels a day of crude out of the country, the third biggest export week ever, and double the average amount exported in 2016. It is also the third time this year that U.S. exports exceeded a million barrels a day, an industry record. “It should be somewhat supportive of [U.S. oil prices] in the short run, particularly if the exports keep up. But it obviously is a challenge for the global market and a renewed threat to OPEC and their designs of keeping prices up,” said John Kilduff of Again Capital While the U.S. exported oil, it also exported fuel last week — a steadily growing business. The U.S. sold 1.1 million barrels of diesel fuel, in line with the recent average, but 608,000 barrels a day of gasoline, up from less than 400,000 barrels a day a year ago.

Analyst say the jump in exports means U.S. producers are grabbing more share at the expense of OPEC and its partners, at a time when the cartel and other producers are considering whether to extend their deal to hold 1.8 million barrels of oil off the market. But the U.S. may also be seeing the early signs of a potential rebalancing of its own supply picture, and that could ultimately help clear a logjam of domestic oil barrels. “What we’re now seeing in the U.S. is refinery utilization increasing, as the maintenance season draws to a close. At the same time, there’s good demand for gasoline and diesel which is helping get inventories under control. Those product inventories are less than they were this time last year,” said Andrew Lipow, president of Lipow Oil Associates. U.S. refineries supplied 9.5 million barrels a day of gasoline last week, up from 9.2 million the week earlier. Refinery runs increased by 425,000 barrels a day.

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Transparency International reports.

Australia World’s Worst Money Laundering Property Market (TI)

The real estate market has long provided a way for individuals to secretly launder or invest stolen money and other illicitly gained funds… According to the Financial Action Task Force (FATF), real estate accounted for up to 30% of criminal assets confiscated worldwide between 2011 and 2013… In many such cases, property is purchased through anonymous shell companies or trusts without undergoing proper due diligence by the professionals involved in the deal. The ease with which such anonymous companies or trusts can acquire property and launder money is directly related to the insufficient rules and enforcement practices in attractive markets… This assessment identifies the following 10 main problems that have enabled corrupt individuals and other criminals to easily purchase luxurious properties anonymously and hide their stolen money in Australia, Canada, the UK and the US:

• Inadequate coverage of anti-money laundering provision
• Identification of the beneficial owners of legal entities, trusts and other legal arrangements is still not the norm
• Foreign companies have access to the real estate market with few requirements or checks
• Over-reliance on due diligence checks by financial institutions leads to cash transactions going unnoticed
• Insufficient rules on suspicious transaction reports and weak implementation
• Weak or no checks on politically exposed persons and their associates
• Limited control over professionals who can engage in real estate transactions: no “fit and proper” test
• Limited understanding of and action on money laundering risks in the sector
• Inconsistent supervision
• Lack of sanctions

Australia has severe deficiencies under all 10 areas identified in the research and is therefore not in line with any of the commitments to tackle corruption and money laundering in real estate made in international forums. In Australia, real estate agents are not subject to the provisions of the Anti-Money Laundering and CounterTerrorism Financing Act 2006. Other professionals such as lawyers and accountants who may also play a role in the sector are not covered either. This means that properties can be bought and sold without any due diligence on the parties. Currently there are no requirements for real estate agents or any professional involved in real estate deals to submit STRs, even if they suspect illegal activity is taking place, and there are no requirements or rules for verifying whether customers are PEPs or their close associates…

In Australia, Canada and the US, the current anti-money laundering framework shows a tendency to rely on financial institutions to conduct the necessary background checks on real estate transactions… there are no checks on cash transactions. In Australia, 70% of Chinese buyers pay in cash and they represent the largest proportion of foreign purchases in the country.

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How this does not scare very single person out of their socks, I can’t imagine.

Sydney, Melbourne House Price Gains Accelerate (AFR)

House price growth accelerated further in March, with gains in Sydney and Melbourne pushing higher than previous cyclical peaks, preliminary CoreLogic figures show. Data for the first 28 days of the month shows Sydney prices have risen 19% over the past year while Melbourne has posted a 16% gain, the company said on Thursday. The combined capital city average of 1.4% – the same pace of growth as February – suggests that the strengthening in the two largest cities offsets further weakness in other markets. “The early results come after a strong rebound in housing market conditions through the latter half of 2016 and into 2017,” CoreLogic head of research Asia Pacific Tim Lawless said. “The strong capital gain results are further evidenced by a continuation in low stock levels, high auction clearance rates and strong investment demand.”

In other data that will underpin property prices, official figures released on Thursday show Sydney’s population hit five million, and Melbourne is the country’s fastest-growing capital. Some caution is needed. A methodology change by CoreLogic last year exaggerated price growth in Sydney and Melbourne while also exacerbating the declines in the falling Perth market. CoreLogic has not yet revised the figures to account for the methodology and distortions will only drop out of the year-on-year comparison in June. It’s clear the market is buoyant, however. Even with lenders tightening loan conditions to investor borrowers, they are increasing discounts to owner owner occupiers to protect market share, Deloitte’s annual Australian mortgage report said on Thursday.

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Nice bubble you got there. Wouldn’t want anything to happen to it, would you?

Auckland Housing Market Losing All Capital Gains Of The Last 12 Months (INZ)

The Auckland housing market is on the verge of having all of the capital gains it made in the last 12 months wiped out. Prices of Auckland properties have fallen so much in the last few months that median prices are within a hair’s breadth of going into negative territory on an annual basis. They may already be there. In February the average price of Auckland homes sold by Harcourts, the country’s largest real estate agency, was $934,428, down 1.1% compared to where it was in February last year. While Harcourts’ average prices can be a bit choppy on a month by month basis, the figures do not appear to be an aberration. According to the Real Estate Institute of New Zealand, Auckland’s median selling price peaked at $868,000 in October last year and has declined every month since. In February it hit $800,000, down 7.8% from October’s peak.

But just as significantly, Auckland’s median price in March last year was $820,000. So even if the median price for March this year doesn’t fall any further from where it was in February, or if it increases by anything less than $20,000, Auckland’s median price will have declined to the point where it will be below where it was 12 months previously. Then it’s goodbye capital gains. The interesting thing about those numbers is that the downward trend they show is occurring at a time when Auckland’s migration-driven population growth is increasing at record levels and construction of new housing continues to fall miserably below the numbers that are required, exacerbating the region’s growing housing shortage. How can this be? As you might expect, the market is being influenced by forces converging from several different directions.

One of the biggest changes to affect the Auckland market over the last few months has been the relative absence of local ethnic Chinese buyers. It would be hard to underestimate the impact they were having on Auckland’s residential property market up until about the end of the third quarter of last year. They dominated some of what are often called the “big room” auctions where several dozen properties could be auctioned in a single day, and it wasn’t uncommon for them to account for around 70% of sales. Often they were competing amongst themselves for properties and their bidding could be fierce. Sometimes it seemed as if the prices they were prepared to pay knew no limits. Then late last year, just as the market geared up for the summer selling season, the Chinese tide went out.

Auckland now has a significant population of Chinese people, so there will always be some who are actively buying or selling properties. But the numbers are well down on where they were a year ago. Auctions that were packed with Chinese buyers this time last year are now much quieter and Chinese faces are often more notable by their absence rather than their presence. When they are buying, they are more likely to be buying a home for themselves or perhaps their children than a pure investment property, and their bidding has been far more cautious than it was just a few months ago. Often they will bid on a property only to let it be passed in, figuring that they may not face much competition from other buyers in post-auction negotiations. With the odd exception, the days of the bidding frenzy are over.

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All for it.

House Panel Passes Bill To Audit The Fed (MW)

A House panel on Tuesday approved legislation that would let a government watchdog audit the Federal Reserve’s monetary policy decisions, a move bitterly opposed by the central bank. The House Committee on oversight and government reform passed the measure by voice vote after roughly 30 minutes of debate. The bill was the brainchild of Ron Paul, the former House Republican and libertarian presidential candidate and sharp critic of the U.S. monetary policy. Versions of the bill have twice passed the House by wide margins but then stalled due to lack of support from Democrats in the Senate and the Obama administration. Analysts said the measure has a better chance to become law now that Republicans control both houses of Congress and the White House. Paul’s son, Rand, the Republican senator from Kentucky, has introduced a similar measure in the Senate.

Democrats in the committee were firmly against the bill. “This bill would open the floodgates to political interference in monetary-policy making,” said Del. Eleanor Holmes Norton, a Democrat from the District of Columbia. Rep. Carolyn Maloney, a Democrat from New York, said the measure would lead to higher interest rates because it would undermine the market’s confidence in the independence of the central bank. Republicans said the measure was needed to rein in the Fed. “It is ironic that the arsonists that caused the financial collapse are now being given credit…for putting out the fire. Almost every macroeconomist concedes in retrospect that [the Fed’s] extended period of easy money led to the financial crisis,” said Rep. Thomas Massie, a Republican from Kentucky.

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What good could it do to go to the Ninth Circuit Court at this point?

Hawaii Judge Places Indefinite Hold On Trump Travel Ban (BBC)

A US federal judge in Hawaii has indefinitely extended the suspension of President Trump’s new travel ban. Judge Derrick Watson’s ruling means Mr Trump will be barred from enforcing the ban on six mostly Muslim nations while it is contested in court. In a lawsuit, the US state says the ban would harm tourism and the ability to recruit foreign students and workers. President Trump says his revised travel ban seeks to prevent terrorists from entering the United States. Judge Watson made the ruling late on Wednesday after hearing arguments from attorneys for the state of Hawaii and the US Department of Justice. The judge turned his earlier temporary restraining order into a preliminary injunction that would have a more lasting effect.

President Trump’s executive order on 6 March would have placed a 90-day ban on people from Iran, Libya, Somalia, Sudan and Yemen and a 120-day ban on refugees. An earlier version of the order, issued in late January, sparked confusion and protests, and was blocked by a judge in Seattle. Other courts across the US have issued different rulings on Mr Trump’s revised ban, with a judge in Maryland halting a part of the ban earlier this month. Mr Trump has complained of “unprecedented judicial overreach”, pledging to take the case “as far as it needs to go”. An appeal against the Hawaii decision would be expected to go next to the Ninth Circuit Court of Appeals – the same court which in February said it would not block a ruling by a Seattle court to halt the original travel ban.

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Because working together is so last century?!

Paul Ryan Opposes Trump Working With Democrats On Healthcare (R.)

U.S. House of Representatives Speaker Paul Ryan, the top Republican in Congress, said he does not want President Donald Trump to work with Democrats on new legislation for revamping the country’s health insurance system, commonly called Obamacare. In an interview with “CBS This Morning” that will air on Thursday, Ryan said he fears the Republican Party, which failed last week to come together and agree on a healthcare overhaul, is pushing the president to the other side of the aisle so he can make good on campaign promises to redo Obamacare. “I don’t want that to happen,” Ryan said, referring to Trump’s offer to work with Democrats. Carrying out those reforms with Democrats is “hardly a conservative thing,” Ryan said, according to interview excerpts released on Wednesday.

“I don’t want government running health care. The government shouldn’t tell you what you must do with your life, with your healthcare,” he said. On Tuesday, Trump told senators attending a White House reception that he expected lawmakers to reach a deal “very quickly” on healthcare, but he did not offer specifics. “I think it’s going to happen because we’ve all been promising – Democrat, Republican – we’ve all been promising that to the American people,” he said. Trump said after the failure of the Republican plan last week that Democrats, none of whom supported the bill, would be willing to negotiate new healthcare legislation because Obamacare is destined to “explode.”

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Who’s left to represent actual Americans?

Democrats Against Single Payer (Jacobin)

Virginia Democratic senator Chuck Robb, one of the DLC’s founders, warned in 1989 that “policies forged in the economic crisis of the 1930s and the social and cultural schisms of the 1960s” were irrelevant to most Americans. Two years later, Bill Clinton’s issue director Bruce Reed, who doubled as policy director for the DLC, made sure to distance Clinton from single payer. The issue flared up again during the 2008 Democratic primary fight, where both Obama and Hillary Clinton tried hedging their bets. Clinton put forward a plan that was basically Obamacare while insisting that “Medicare for All” could still be on the cards under the right circumstances. Meanwhile Obama repeatedly flip-flopped, at one point telling an audience that “the Canadian model won’t work in the United States” and that “we’ve got to develop a uniquely American approach,” and nine days later hinting to a different audience that over time single payer may be on the table.

DLC leaders felt reassured however, telling the New York Times they were “pleased that none of the Democratic candidates supports a single-payer health-care system.” So Democrats’ attempts to quell their base’s clamoring for a comprehensive, public health-care system isn’t new. What is new is the open, public disparagement of such a goal — not just by Democratic leaders, but by leading liberal commentators, too. Ironically, this appears largely to have been due to the Sanders campaign — or rather, the challenge it posed to Hillary Clinton’s previously wide-open road to the White House. Needing to differentiate herself from Sanders’s unabashed progressivism, and to dampen popular enthusiasm for his message, Clinton began attacking his policies, despite her historic sympathy toward single payer.

Sanders’s proposals were “ideas that sound good on paper but will never make it in real life,” she told crowds; for good measure, she insisted that single-payer health care “will never, ever come to pass.” Two years earlier, she explained her opposition to the policy on the basis that “we don’t have a one size fits all; our country is quite diverse.” In January 2016, she warned breathlessly that Sanders’s plan would “end all the kinds of health care we know” and claimed it would “send health insurance to the states,” while her daughter warned that it would “dismantle Obamacare” and “strip millions and millions and millions of people off their health insurance.”

As late as October, Clinton’s team was still trying to distance herself from Trump’s accusation that she — heaven forbid! — “wants to go to a single-payer plan,” with her spokesman directing Politifact to an earlier fact-check confirming her lack of support for the policy. (Lest we mistake this for mere expediency, we can rest assured that at least some of the Clinton camp really felt this way: campaign manager John Podesta declared in an email to ThinkProgress editor-in-chief Judd Legum that Sanders’s “actual proposal sucks, but we live in a leftie alternative universe.”)

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Jim Quinn’s series on the similarities between Isaac Asimov’s Foundation Trilogy and Strauss & Howe’s Fourth Turning.

American Empire Crumbling (Quinn)

You can hear the creaking as the winds of this Fourth Turning winter howl through the branches of this dying empire. Trump may have forced the Deep State Second Foundation to reveal itself as they seek to destroy him, but the relentless decline of the American Empire continues unabated. Tinkering around the edges of a healthcare system designed to benefit mega-corporations and the Deep State will do nothing to reverse or even delay the decline. Slowing the growth of government when the national debt is already $20 trillion and headed to $30 trillion within the next decade won’t cure the rot in our tree trunk. Completely ignoring the $200 trillion of unfunded welfare state liabilities helps accelerate the inevitable collapse of this empire. Cutting taxes while expanding the war making machine known as the military industrial complex does nothing to reverse what is already in motion.

In addition to the absolutely quantifiable reasons why the American Empire will collapse, there are demographic, cultural, and societal trends which will contribute dramatically to the fall. The rapidly aging populace, with 10,000 Americans per day turning 65 years old, is the driving force towards national bankruptcy, as this inexorable demographic tsunami sweeps over the fraying fabric of welfare state promises. The onslaught of illegal immigrants and purposeful execution of a plan by the effete liberal elite to weaken our common American culture through the insertion of Muslim refugees into our communities, is undermining the shared values which built the country. The immigrants who built this country assimilated, learned the language, worked hard, and adopted our common culture. The hordes invading America at this time hate our values and refuse to assimilate. This Soros funded effort to create diversity havoc throughout the world is part of the globalization one world order plan.

As Europe disintegrates under the unrelenting wave of violent refugees creating upheaval, chaos, and spreading religious zealotry through viciousness, the next target is the mighty American Empire. Fighting in the streets between the normal law abiding Trump supporters and the Soros funded, draped in black, flag burning, social justice warrior criminals has begun. Widespread societal strife is just around the corner. When the next financial crisis, created by the Deep State to further their plans, destroys the remaining wealth of the barely surviving middle class, all hell will break loose in the streets. The 86% of the country occupied by red state, gun owning, Trump supporters will openly go to war against the condescending, left wing, violence provoking blue state liberals. Blood will be spilled in copious amounts. It always does during Fourth Turnings.

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It cannot survive, period.

The EU Cannot Survive If It Sticks To Business As Usual (Varoufakis)

Angela Merkel, the German Chancellor, had for years opposed the idea of a Europe that proceeds at different speeds – allowing some countries to be less integrated than others, due to their domestic political situation. But now – after the colossal economic mismanagement of the euro crisis has weakened the EU’s legitimacy, given Eurosceptics a major impetus, and caused the EU to shift to an advanced stage of disintegration – Mrs Merkel and her fellow EU leaders seem to think that a multi-speed Europe is essential to keeping the bloc together. At the weekend, as EU leaders gathered to celebrate the 60th anniversary of the Treaty of Rome, leaders of the remaining 27 member states signed the Rome Declaration, which says that they will “act together, at different paces and intensity where necessary, while moving in the same direction, as we have done in the past.”

The failure to keep the EU together along a single path toward common values, a common market and a common currency will come to be embraced and rebranded as a new start, leading to a Europe in which a coalition of the willing will proceed with the original ambition while the rest form outer circles, connected to the inner core by unspecified bonds. In principle, such a manifold EU will allow for the East’s self-proclaimed illiberal democracies to remain in the single market, refusing to relocate a single refugee or to adhere to standards of press freedom and judicial independence that other European countries consider essential. Countries like Austria will be able to put up electrified fences around their borders. It could even leave the door open for the UK to return as part of one of Europe’s outer circles. Whether one approves of this vision or not, the fact is that its chances depend on a major prerequisite: a consolidated, stable eurozone.

One only needs to state this to recognize the second paradox of our post-Brexit reality: In its current state, the eurozone cannot provide the stability that the EU – and Europe more broadly – needs to survive. The refusal to deal rationally with the bankruptcy of the Greek state is a useful litmus test for the European establishment’s capacity to stabilize the eurozone. As it stands, the prospects for a stabilized eurozone do not look good. Business as usual – the establishment’s favored option – could soon produce a major Italian crisis that the eurozone cannot survive. The only alternative under discussion is a eurozone federation-light, with a tiny common budget that Berlin will agree to in exchange for direct control of French, Italian and Spanish national budgets. Even if this were to happen, which is doubtful given the political climate, it will be too little, too late to stabilize the eurozone.

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“Professor Jeremy Baumberg, director of the NanoPhotonic Centres at Cambridge University, was distinctly unimpressed. “It seems to me an extremely poorly written paper, conflating many ideas in a rather unrigorous mishmash,” he said.”

Capitalism Inevitably Creates A ‘Sad’ Unfair World – Physicist (Ind.)

Capitalism is inherently unfair and will produce a world full of ‘sad’ and disgusting inequalities, but Communism is also “doomed to fail”, a leading scientist claims to have proved using the laws of physics. Professor Adrian Bejan told The Independent he was so excited by the “huge” implications of his theory that he kept having to pinch himself. A former member of the Romanian national basketball team, he is now an expert in thermodynamics and fluid mechanics at Duke University in the US, having written 30 books and more than 600 scientific papers. He now claims to have shown that physics can essentially explain economics. Inequality has been seen as a factor in the election of Donald Trump as US President and in the UK referendum vote in favour of Brexit.According to Oxfam, the richest eight men own the same wealth as the poorest 50% of the world’s population.

Professor Bejan said it was possible to explain how such inequality can develop by demonstrating that wealth moves around in a society like water in a river basin using the laws of physics. In a natural environment, water flows from small tributaries into larger and larger streams. And, according to Professor Bejan’s theory, the same is true of money. So, in a free market system, wealth will naturally flow from the poorest in the small tributaries to the richest in the wide rivers. Using this analogy, Communism is comparable to an attempt to restrict the flow of water to a network of equally sized concrete channels, which Professor Bejan said would inevitably be overcome by the forces of nature. But, just as humans do sometimes harness rivers to produce energy or divert them around cities, it is possible to alter the flow of money in society, he added.

And this is exactly what is being done by liberal democracies around the world with measures such as free education and healthcare, anti-trust regulations designed to prevent large corporations abusing their power, and the rule of law. “I want to see less inequality in the distribution of wealth. I get not just sad, but disgusted by it,” Professor Bejan said.

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Getting more popular by the day.

‘That Was Some Weird Shit’ (NYMag)

The inauguration of Donald Trump was a surreal experience for pretty much everyone who witnessed it, whether or not they were at the event and regardless of who they supported in the election. On the dais, the stoic presence of Hillary Clinton – whom candidate Trump had said he would send to prison if he took office – underlined the strangeness of the moment. George W. Bush, also savaged by Trump during the campaign, was there too. He gave the same reason for attending that Bill and Hillary Clinton did: to honor the peaceful transfer of power. Bush’s endearing struggle with his poncho at the event quickly became a meme, prompting many Democrats on social media to admit that they already pined for the relative normalcy of his administration. Following Trump’s short and dire speech, Bush departed the scene and never offered public comment on the ceremony. But, according to three people who were present, Bush gave a brief assessment of Trump’s inaugural after leaving the dais: “That was some weird shit.” All three heard him say it.

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On and on and on.

146 Feared Dead In Mediterranean, Boy The Sole Survivor (R.)

Dozens of people are feared to have drowned after a rubber boat carrying migrants and refugees from Libya sank in the Mediterranean. The sole survivor – a 16-year-old Gambian boy – told rescuers that 146 other people were on board when the boat sank. A Spanish frigate, the Canarias, found the boy hanging on to a piece of debris in the sea on Tuesday. He was transferred to an Italian Coast Guard ship and brought to the Sicilian island of Lampedusa early on Wednesday. “He was very tired when they found him. He’s resting now, so we’ll have more details later,” said the International Organisation for Migration (IOM) spokesman Flavio Di Giacomo in Rome, after speaking to staff in Lampedusa.

“The boy said they left Sabratha, Libya, a couple of days ago on a rubber boat with 147 sub-Saharan Africans on board, including five children and some pregnant women,” Di Giacomo said. In the past two days, rescuers have picked up more than 1,100 migrants at sea and recovered one body, Italy’s Coast Guard said. The Coast Guard did not comment on the latest shipwreck. So far this year nearly 600 migrants have died trying to reach Italy from North Africa, IOM estimates, after 4,600 deaths last year. Migrant arrivals to Italy are up more than 50% this year on the same period of last year. Early on Wednesday the Golfo Azzurro, a humanitarian vessel, rescued about 400 migrants – mainly from Morocco, Algeria, Libya, Gambia and Bangladesh – including 16 women and two children.

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Mar 282017
 
 March 28, 2017  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle March 28 2017
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Dorothea Lange Abandoned cafe in Carey, Texas 1937

 

A Nation of Landowners – But For How Long? (M.)
Middle-Class, Even Wealthy Americans Sliding Inexorably Into The Red (MW)
Italy’s Monte Paschi Bailout Has Some ECB Supervisors Grumbling
NY Fed: “Oil Prices Fell Due To Weakening Demand” (ZH)
Why Did Preet Bharara Refuse to Drain the Wall Street Swamp? (Bill Black)
A Detailed “Roadmap” For Meeting The Paris Climate Goals (Vox)
In UK Access To Justice Is No Longer A Right, But A Luxury (G.)
The Curse of the Thinking Class (Jim Kunstler)
Tensions Flare As Greece Tells Turkey It Is Ready To Answer Any Provocation (G.)
Erdogan Races Against the Dollar in Campaign for Unrivaled Power (BBG)
Tillerson Will Not Meet Turkey Opposition In Ankara Visit This Week (R.)
Troika Pushes Greece To Sell Up To 40% Of State-Controlled Power Utility (R.)
Fraport Greece Signs Funding Deal With 5 Lenders (K.)
Contraction Of Credit Continues Unabated In Greece (K.)
Mikis Theodorakis: ‘In Tough Times, Greeks Become Heroes or Slaves’ (GR)
Nearly 1,200 Migrants Picked Up Off Libya, Heading To Italy (R.)
Italy Calls For Investigation Of NGO Supported Migrant Fleet (Dm.)

 

 

“To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

A Nation of Landowners – But For How Long? (M.)

Land occupies a unique position in the economy because it is essential for any activity and, given its fixed supply, an increase in demand for it can only increase its price. Meanwhile finance, which facilitates that demand, has been available in ever-greater abundance since the deregulation of mortgage lending in the 1970s and 1980s. The interaction between the inelastic supply of land and the highly elastic supply of mortgage lending lies at the heart of the house price boom over the past few decades. But while the finance part of the story is relatively new (before the 1970s mortgages were harder to get and lending restricted by the conservative practices of the building societies), the land question has been around for centuries.

Ever since Henry VIII seized the monastery lands in the early 16th century a market has been evolving in land as a privately-owned tradable commodity. What is crucial to the contemporary housing debate, and what this book illustrates brilliantly, is how the control of land is, or has at least been allowed to become, fundamental to economic and political power relations. Because land is permanent and immovable, those who own the exclusive rights to its use are able to siphon off the value of any economic output that is dependent on it. The value of a piece of land therefore reflects the level of activity conducted on or around it, as well as any speculation arising from expectations about its potential future use. This price does not reflect the efforts or ingenuity of its owner, and so it does not reward productive activity but rather penalises it in the form of rent.

This ability of landowners to extract economic rent from productive activity, or the unearned increment, was once at the centre of political discourse. It was an issue that troubled classical economists ranging from Adam Smith to Karl Marx. As the industrial revolution advanced in the 18th and 19th centuries, productivity levels improved, and so the owners of land began to enjoy the fruits of the community’s labour. A land reform movement gathered momentum towards the late 19th century and the writings of the American economist Henry George advocating a land value tax attracted a following. In 1909, a young Winston Churchill (then 35, and a Liberal) decried the land monopolist’s free ride in what remains one of the best descriptions of the dilemma:

“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced.”

Churchill was careful to stress that it was the system he was attacking not the landowner himself (‘We do not want to punish the landlord. We want to alter the law’). But the law was as it was because landowners controlled parliament and indeed the Liberals’ plan for a land value tax in the People’s Budget, in support of which Churchill had been speaking, was thrown out by the House of Lords.

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How to kill a city part 832.

Middle-Class, Even Wealthy Americans Sliding Inexorably Into The Red (MW)

Not even a high six-figure salary is enough to keep New York City families out of the red. But spare a thought for the average American family, whose costs easily outpace the average income. A recent analysis from Sam Dogen at his personal finance website Financial Samurai showed how difficult it is for high earners to escape the rat race in New York City, one of the priciest places to live in the world. He analyzed a mock budget for an imaginary family of four in which the two 35-year-old breadwinners each make $250,000 a year. After factoring in taxes, 401(k)contributions, home and child care costs, the family was left with just $7,300 for the year — as if they were living “paycheck to paycheck.”

Perhaps nobody is crying for lawyers making $500,000 a year or even $250,000, but the analysis shows just how easy it is for spending habits to take a high salary and turn it into table scraps. Dogen said pressure from peers to spend more is a big contributing factor, adding “everywhere I go, and I’ve been all over the world, high income earners are secretly feeling the same squeeze.” “They are unhappy, getting divorces, and always comparing themselves to wealthier and wealthier people,” he said. “Heck, even a friend who is worth over $200 million after founding and taking public a company feels like he needs to continue working because he has to ‘keep up with the Zuckerbergs.’”

So how would the average American family fare by the same lifestyle? MarketWatch crunched the numbers and found they would be racking up approximately $27,000 in debt a year if they spent the average of what Americans spend on the same activities. This vast difference in economic stability comes even after adjusting for cheaper housing costs and lowering the number of vacations to one a year — the average in the U.S.

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Beware of any central bank announcements made the day after Christmas.

Italy’s Monte Paschi Bailout Has Some ECB Supervisors Grumbling

When the European Central Bank declared Banca Monte dei Paschi di Siena solvent last December, the first step toward a state-funded rescue, some members of the 19-nation Supervisory Board weren’t fully on board. Confronted with what they saw as a political agreement to bail out the world’s oldest lender, dissenters went along with the consensus despite their concerns about the bank’s health…[..] To make sense of the Monte Paschi debate, you have to start with a 2014 law known as the Bank Recovery and Resolution Directive, which sets out the EU’s bank-failure rules. The law assumes that if a firm needs “extraordinary public financial support,” this indicates that it’s failing and should be wound down. In that process, investors including senior bondholders can be forced to take losses.

An exception, known as a precautionary recapitalization, is allowed for solvent banks if a long list of conditions is met. As the name suggests, this tool isn’t intended to clear up a bank’s existing problems, such as Monte Paschi’s mountain of soured loans. This temporary aid is allowed to address a capital shortfall identified in a stress test. Daniele Nouy, head of the ECB Supervisory Board, reiterated in an interview on Monday that Monte Paschi and other Italian banks in line for a bailout are “not insolvent, otherwise we would not be talking about precautionary recapitalization.” Not everyone is convinced the bank, whose woes date back many years, qualifies for this special treatment.

“It is unclear if Monte Paschi meets the BRRD’s exemption criteria, and their use has the appearance of promoting national political concerns over a stricter reading of the newly established European rules,” said Simon Ainsworth at Moody’s. “The plan could risk damaging the credibility of the resolution framework, especially given that it would mark its first major test case.” The ECB’s decision on Monte Paschi’s solvency and capital gap was announced by the lender the day after Christmas. The ECB published an explanation of the precautionary recapitalization process a day later, but said little else publicly. On Dec. 29, the Bank of Italy issued a statement that broke down the €8.8 billion rescue into its parts. Solvency in the case of a precautionary recapitalization is determined based on two criteria, the ECB said: the bank meets its legal minimum capital requirements, and it has no shortfall in the baseline scenario of the relevant stress test.

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I’ve been talking about falling oil demand for so long that when other bring it up now it seems all new again.

NY Fed: “Oil Prices Fell Due To Weakening Demand” (ZH)

[..] one aspect of price formation that is rarely mentioned is demand, which is generally assumed to be unwavering and trending higher with barely a hiccup. The reason for this somewhat myopic take is that while OPEC has control over supply, demand is a function of global economic growth and trade (or lack thereof) over which oil producers have little, if any control. And yet, according to the latest oil price dynamics report issued by the Fed, it was declining global demand that pushed prices lower in the most recent, volatile period. As the New York Fed report in its March 27 report, “Oil prices fell owing to weakening demand” and explains as follows: “A decline in demand expectations together with a decreasing residual drove oil prices down over the past week.”

While there was some good news, namely that “in 2016:Q4, oil prices increased on net as a consequence of steadily contracting supply and strengthening, albeit volatile, global demand” offsetting the “modest decline in oil prices during 2016:Q3 caused by weakening global demand expectations and loosening supply conditions,” the Fed’s troubling finding is that the big move lower since 2014 has been a function of rising supply as well as declining demand: Overall, since the end of 2014:Q2, both lower global demand expectations and looser supply have held oil prices down. And while this trend appeared to have reversed in 2016:Q2 and 2016:Q4, recent indications suggest that demand may once again be slowing, which in turn has pressured oil prices back to levels last seen shortly after OPEC’s Vienna deal.

It is curious that according to the NY Fed, at a time when OPEC vows it is cutting production, the Fed has instead found “loose” supply to be among the biggest contributors to the latest decline in oil prices. But what may be concering to oil bulls is that as the decomposition chart below shows, while oil demand was solidly in the green ever since Trump’s election victory, in recent weeks it appears to have also tapered off along with the supply contribution to declining oil prices. This seems to suggest that along with most other “animal spirits” that were ignited following the Trump victory, only to gradually fade, oil demand, and thus price, may be the next to take another leg lower unless of course Trump manages to reignite the Trumpflation trade which, however, over the past month appears to have completely faded.

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“Indeed, Bharara never mustered the courtesy to respond to Bowen’s offers to aid his office.”

Why Did Preet Bharara Refuse to Drain the Wall Street Swamp? (Bill Black)

The New York Times’ editorial board published an editorial on March 12, 2017, praising Preet Bharara as the “Prosecutor Who Knew How to Drain a Swamp.” I agree with the title. At all times when he was the U.S. Attorney for the Southern District of New York (which includes Wall Street) Bharara knew how to drain the swamp. Further, he had the authority, the jurisdiction, the resources, and the testimony from whistleblowers like Richard Bowen (a co-founder of Bank Whistleblowers United (BWU)) to drain the Wall Street swamp. Bowen personally contacted Bharara beginning in 2005.

“You were quoted in The Nation magazine as saying that if a whistleblower comes forward with evidence of wrongdoing, then you would be the first to prosecute [elite bankers]. I am writing this email to inform you that there is a body of evidence concerning wrongdoing, which the Department of Justice has refused to act on in order to determine whether criminal charges should be pursued.” Bowen explained that he was a whistleblower about Citigroup’s senior managers and that he was (again) coming forward to aid Bharara to prosecute. Bowen tried repeatedly to interest Bharara in draining the Citigroup swamp. Bharara refused to respond to Bowen’s blowing of the whistle on the massive frauds led by Citigroup’s senior officers.

Bharara knew how to drain the Wall Street swamp and was positioned to do so because he had federal prosecutorial jurisdiction over Wall Street crimes. Whistleblowers like Bowen, who lacked any meaningful power, sacrificed their careers and repeatedly demonstrated courage to ensure that Bharara would have the testimony and documents essential to prosecute successfully some of Wall Street’s most elite felons. Bharara never mustered the courage to prosecute those elites. Indeed, Bharara never mustered the courtesy to respond to Bowen’s offers to aid his office. [..] Bharara knew how to drain the Wall Street swamp. He had the facts, the staff, and the jurisdiction to drain the Wall Street swamp. Bharara refused to do so.

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We all realize that this is never ever going to happen, right?!

A Detailed “Roadmap” For Meeting The Paris Climate Goals (Vox)

To hit the Paris climate goals without geoengineering, the world has to do three broad (and incredibly ambitious) things: 1) Global CO2 emissions from energy and industry have to fall in half each decade. That is, in the 2020s, the world cuts emissions in half. Then we do it again in the 2030s. Then we do it again in the 2040s. They dub this a “carbon law.” Lead author Johan Rockström told me they were thinking of an analogy to Moore’s law for transistors; we’ll see why. 2) Net emissions from land use — i.e., from agriculture and deforestation – have to fall steadily to zero by 2050. This would need to happen even as the world population grows and we’re feeding ever more people. 3) Technologies to suck carbon dioxide out of the atmosphere have to start scaling up massively, until we’re artificially pulling 5 gigatons of CO2 per year out of the atmosphere by 2050 — nearly double what all the world’s trees and soils already do.

“It’s way more than adding solar or wind,” says Rockström. “It’s rapid decarbonization, plus a revolution in food production, plus a sustainability revolution, plus a massive engineering scale-up [for carbon removal].” So, uh, how do we cut CO2 emissions in half, then half again, then half again? Here, the authors lay out a sample “roadmap” of what specific actions the world would have to take each decade, based on current research. This isn’t the only path for making big CO2 cuts, but it gives a sense of the sheer scale and speed required:

2017-2020: All countries would prepare for the herculean task ahead by laying vital policy groundwork. Like: scrapping the $500 billion per year in global fossil fuel subsidies. Zeroing out investments in any new coal plants, even in countries like India and Indonesia. All major nations commit to going carbon-neutral by 2050 and put in place policies — like carbon pricing or clean electricity standards — that point down that path. “By 2020,” the paper adds, “all cities and major corporations in the industrialized world should have decarbonization strategies in place.”

2020-2030: Now the hard stuff begins! In this decade, carbon pricing would expand to cover most aspects of the global economy, averaging around $50 per ton (far higher than seen almost anywhere today) and rising. Aggressive energy efficiency programs ramp up. Coal power is phased out in rich countries by the end of the decade and is declining sharply elsewhere. Leading cities like Copenhagen are going totally fossil fuel free. Wealthy countries no longer sell new combustion engine cars by 2030, and transportation gets widely electrified, with many short-haul flights replaced by rail.

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Brexit hardly seems Britain’s biggest problem. It’s the gutting of an entire society that is.

In UK Access To Justice Is No Longer A Right, But A Luxury (G.)

Laws that cost too much to enforce are phoney laws. A civil right that people can’t afford to use is no right at all. And a society that turns justice into a luxury good is one no longer ruled by law, but by money and power. This week the highest court in the land will decide whether Britain will become such a society. There are plenty of signs that we have already gone too far. Listen to the country’s top judge, Lord Thomas of Cwmgiedd, who admits that “our justice system has become unaffordable to most”. Look at our legal-aid system, slashed so heavily by David Cameron and Theresa May that the poor must act as their own trial lawyers, ready to be skittled by barristers in the pay of their moneyed opponents. The latest case will be heard by seven supreme court judges and will pit the government against the trade union Unison. It will be the climax of a four-year legal battle over one of the most fundamental rights of all: the right of workers to stand up against their bosses.

In 2013, Cameron stripped workers of the right to access the employment tribunal system. Whether a pregnant woman forced out of her job, a Bangladeshi-origin guy battling racism at work, or a young graduate with disabilities getting aggro from a boss, all would now have to pay £1,200 for a chance of redress. The number of cases taken to tribunal promptly fell off a cliff – down by 70% within a year. Citizens Advice, employment lawyers and academics practically queued up to warn that workers – especially poor workers – were getting priced out of justice. But for Conservative ministers, all was fine. Loyal flacks such as Matthew Hancock (then employment minister) claimed those deterred by the fees were merely “unscrupulous” try-ons, intent on “bullying bosses”. Follow Hancock’s logic, and with all those time-wasters weeded out, you’d expect the number of successful tribunal claims to jump. They’ve actually dropped.

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“Do they covet our Chick-fil-A chains and Waffle Houses? Our tattoo artists? Would they like to induce the Kardashians to live in Moscow? Is it Nascar they’re really after?”

The Curse of the Thinking Class (Jim Kunstler)

Let’s suppose there really is such a thing as The Thinking Class in this country, if it’s not too politically incorrect to say so — since it implies that there is another class, perhaps larger, that operates only on some limbic lizard-brain level of impulse and emotion. Personally, I believe there is such a Thinking Class, or at least I have dim memories of something like it. The farfetched phenomenon of Trumpism has sent that bunch on a journey to a strange land of the intellect, a place like the lost island of Kong, where one monster after another rises out of the swampy murk to threaten the frail human adventurers. No one back home would believe the things they’re tangling with: giant spiders, reptiles the size of front-end loaders, malevolent aborigines! Will any of the delicate humans survive or make it back home?

This is the feeling I get listening to arguments in the public arena these days, but especially from the quarters formerly identified as left-of-center, especially the faction organized around the Democratic Party, which I aligned with long ago (alas, no more). The main question seems to be: who is responsible for all the unrest in this land. Their answer since halfway back in 2016: the Russians. I’m not comfortable with this hypothesis. Russia has a GDP smaller than Texas. If they are able to project so much influence over what happens in the USA, they must have some supernatural mojo-of-the-mind — and perhaps they do — but it raises the question of motive. What might Russia realistically get from the USA if Vladimir Putin was the master hypnotist that Democrats make him out to be?

Do we suppose Putin wants more living space for Russia’s people? Hmmmm. Russia’s population these days, around 145 million, is less than half the USA’s and it’s rattling around in the geographically largest nation in the world. Do they want our oil? Maybe, but Russia being the world’s top oil producer suggests they’ve already got their hands full with their own operations? Do they want Hollywood? The video game industry? The US porn empire? Do they covet our Chick-fil-A chains and Waffle Houses? Our tattoo artists? Would they like to induce the Kardashians to live in Moscow? Is it Nascar they’re really after?

My hypothesis is that Russia would most of all like to be left alone. Watching NATO move tanks and German troops into Lithuania in January probably makes the Russians nervous, and no doubt that is the very objective of the NATO move — but let’s not forget that most of all NATO is an arm of American foreign policy. If there are any remnants of the American Thinking Class left at the State Department, they might recall that Russia lost 20 million people in the dust-up known as the Second World War against whom…? Oh, Germany.

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“The Turkish nationalist opposition leader, Devlet Bahçeli, has gone even further, claiming that several Greek islands are under occupation and reacting furiously when Kammenos visited the far-flung isle of Oinousses. “Someone must explain to this spoiled brat not to try our patience,” he railed. “If they [the Greeks] want to fall into the sea again, if they want to be hunted down, they are welcome, the Turkish army is ready. Someone must explain to the Greek government what happened in 1922. If there is no one to explain it to them, we can come like a bullet across the Aegean and teach them history all over again.”

Tensions Flare As Greece Tells Turkey It Is Ready To Answer Any Provocation (G.)

Fears of tensions mounting in the Aegean and eastern Mediterranean Seas reignited after the Turkish president raised the prospect of a referendum on accession talks with the EU and the Greek defence minister said the country was ready for any provocation. Relations between Ankara and European capitals have worsened before the highly charged vote on 16 April on expanding the powers of the Turkish president, Recep Tayyip Erdogan. Western allies have argued that a vote endorsing the proposed constitutional change would invest him with unparalleled authority and limit checks and balances at a time when they fear the Turkish leader is exhibiting worrying signs of authoritarianism. Erdogan has been enraged by recent bans on visiting Turkish officials rallying “yes” supporters in Germany and the Netherlands.

Highlighting growing friction between Ankara and the bloc, he raised the spectre of a public vote on EU membership at the weekend. “We have a referendum on 16 April. After that we may hold a Brexit-like referendum on the [EU] negotiations,” he told a Turkish-UK forum attended by the British foreign secretary, Boris Johnson. “No matter what our nation decides we will obey it. It should be known that our patience, tested in the face of attitudes displayed by some European countries, has limits.” The animus – reinforced last week when the leader said he would continue labelling European politicians “Nazis” if they continued calling him a dictator – has also animated tensions between Greece and Turkey, and Erdogan’s comments came hours after the Greek defence minister said armed forces were ready to respond in the event of the country’s sovereignty and territorial integrity being threatened.

“The Greek armed forces are ready to answer any provocation,” Panos Kammenos declared at a military parade marking the 196th anniversary of Greece’s war of liberation against Ottoman Turkish rule. “We are ready because that is how we defend peace.” Although Nato allies, the two neighbours clashed over Cyprus in 1974 and almost came to war over an uninhabited Aegean isle in 1996. Hostility has been rising in both areas, with the Greek Cypriot leader Nicos Anastasiades recently voicing fears of Turkey sparking a “hot incident” in the run-up to the referendum. “I fear the period from now until the referendum in Turkey, as well as the effort to create a climate of fanaticism within Turkish society,” he told CNN Greece. Turkey’s EU negotiations have long been hindered by Cyprus, and talks aimed at reuniting its estranged Greek and Turkish communities are at a critical juncture but have stalled and are unlikely to move until after the referendum.

But it is in the Aegean where tensions, matched by an increasingly ugly war of words, have been at their worst. After a tense standoff over eight military officers who escaped to Greece after the abortive coup against Erdogan last July – an impasse exacerbated when the Greek supreme court rejected a request for their extradition – hostility has been measured in almost daily dogfights between armed jets and naval incursions of Greek waters by Turkish research vessels. Both have prompted diplomats and defence experts to express fears of an accident at a time when experienced staff officers and pilots have been sidelined in the purges that have taken place since the attempted coup. The shaky migration deal signed between the EU and Turkey to thwart the flow of refugees into the continent has only added to the pressure.

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The falling dollar is setting up Turkey for dictatorship. The world will come to regret this.

Erdogan Races Against the Dollar in Campaign for Unrivaled Power (BBG)

Turkish President Recep Tayyip Erdogan has lambasted friend and foe alike in a campaign for vast new powers, but his political fate may hang on the one thing he’s stopped carping about: the price of money. With the April 16 vote on strengthening the presidency too close for pollsters to call, Erdogan is no longer berating the central bank and commercial lenders over borrowing costs they’ve pushed to a five-year high. He’s betting any measures taken to arrest the lira’s plunge will pay off at the ballot box. The lira’s value versus the dollar is more than just a pocketbook issue in Turkey, where millions of voters still remember the abrupt devaluations that ravaged their livelihoods in past decades and view the exchange rate as the most important indicator of the nation’s economic health.

Turkey’s trade deficit is the biggest of all top 50 economies relative to output and most of its imports and foreign debt are priced in dollars, so sharp declines in the lira can be ruinous for legions of entrepreneurs like Ramazan Saglam, who owns a print shop in a working-class neighborhood of Ankara. “I bitterly recall when the dollar jumped in 1994 and 2001 – my business collapsed both times,” Saglam said. “I’m supporting the new presidential system wholeheartedly because I don’t want to go bankrupt again.” Saglam nodded at the big red banner billowing from his second-story window to illustrate his point. The Chinese cloth and South Korean ink he used to make it were all bought with dollars, as was the American printer that produced Erdogan’s image and the slogan, “Yes. For my country and my future.”

Given the choice between paying more for credit to buy supplies and keeping the lira in check, he said he’d choose sound money every time. Supporters of the proposed constitutional changes say handing Erdogan sweeping new authority is the only way to achieve the stability that society craves and businesses need to thrive. But opponents say approving the referendum is an invitation to dictatorship, particularly since Erdogan, already the most dominant leader in eight decades, jailed or fired more than 100,000 perceived enemies after rogue army officers attempted a coup in July. “Everybody on the street tracks the exchange rate on a daily basis and Erdogan wins support as long as Turkey can keep the lira stable,” said Wolfango Piccoli, the London-based co-president of Teneo Intelligence, a political risk advisory firm. “But the challenge here is the external backdrop. They can’t really predict what’s coming.”

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The US must cease labeling the PKK a terrorist organization. Or stop backing the Kurds in Syria. Can’t have both.

Tillerson Will Not Meet Turkey Opposition In Ankara Visit This Week (R.)

U.S. Secretary of State Rex Tillerson will not meet members of Turkish opposition groups during a one-day visit to Ankara this week where talks with President Tayyip Erdogan will focus on the war in Syria, senior U.S. officials said on Monday. Thursday’s visit comes at a politically sensitive time in Turkey as the country prepares for a referendum on April 16 that proposes to change the constitution to give Erdogan new powers. A senior State Department official said Tillerson will meet with Erdogan and government ministers involved in the fight against Islamic State in Syria. “It is certainly something we are very acutely aware of and the secretary will be mindful of while he is there,” one State Department official told a conference call with reporters, referring to political sensitivities ahead of the referendum.

American officials expect Erdogan and others to raise the case of U.S.-based cleric Fethullah Gulen, whom the government accuses of orchestrating a failed coup last July. The focus of the Ankara talks is the U.S.-led offensive to retake Raqqa from Islamic State and to stabilize areas in which militants have been forced out, allowing refugees to return home, officials said. A major sticking point between the United States and Turkey is U.S. backing for the Syrian Kurdish YPG militia, which Turkey considers part of the Kurdistan Workers’ Party that has been fighting an insurgency for three decades in Turkey. But the United States has long viewed Kurdish fighters as key to retaking Raqqa alongside Arab fighters in the U.S.-backed Syrian Democratic Forces (SDF). “We are very mindful of Turkey’s concerns and it is something that will continue to be a topic of conversation,” a second U.S. official said.

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Fire sale. The minister actually called these practices ‘cannibalistic’, and rightly so. And that’s not even the best of it. A Greek paper details how a Greek bank, Alpha Bank, lends the money to German investors to buy up Greece’s Public Power Corp. That is about as close to cannibalism as you can get. Economic warfare 101.

Troika Pushes Greece To Sell Up To 40% Of State-Controlled Power Utility (R.)

A Greek minister on Monday accused international lenders of reneging on a 2015 bailout deal by trying to force a fire-sale of its main electricity utility PPC to serve “domestic and foreign business interests.” Under terms of a 2015 bailout deal for Greece worth up to €86 billion, Public Power Corp. (PPC) is obliged to cut its dominance in the Greek market to below 50% by 2020. Although it is not clearly specified in the deal, lenders want Greece to sell some of PPC’s assets. PPC, which is 51% owned by the state, now controls about 90% of the country’s retail electricity market and 60% of its wholesale market. Greece last year launched power auctions to private operators as a temporary mechanism and has proposed that PPC team up with private companies to help achieve this target. But lenders doubt the effectiveness of the measure.

“What they want is that power production infrastructure of up to 40% – PPC’s coal-fired production- is sold. This is what they want right know, which is beyond the (2015) deal,” Interior Minister Panos Skourletis, a former energy minister, told Greek state television. Skourletis on Monday accused the lenders pressing the country to sell-off PPC units at a very low price to serve European and domestic competitors. “It is an assault which has set its sights on PPC’s assets to pass it on to specific European and domestic business interests at a humiliating price,” Skourletis said in an Op-Ed penned for the Efimerida Ton Syntakton daily.

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More warfare, more cannibalism. Airports also ‘privatized’, ‘reformed’. Alpha Bank is also the largest lender in this case. Nice partners too: “..the International Finance Corporation (€154.1 million), a member of the World Bank Group [..] is also the sole provider of euro interest rate hedging swaps..”

Fraport Greece Signs Funding Deal With 5 Lenders (K.)

Five leading financial institutions have signed a long-term financing agreement with German-Greek consortium Fraport Greece, which will soon be managing, operating, upgrading and maintaining 14 regional Greek airports under a 40-year concession contract. The agreement is for total financing of 968.4 million euros. The lenders are Alpha Bank (participating with €284.7 million), the Black Sea Trade & Development Bank (€62.5 million), the European Bank for Reconstruction & Development (€186.7 million), the European Investment Bank (€280.4 million), and the International Finance Corporation (€154.1 million), a member of the World Bank Group.

IFC is also the sole provider of euro interest rate hedging swaps to help Fraport Greece hedge potential fluctuations in interest rates through the term of the loan. Over two-thirds of the total amount (€688 million) will be used to cover the upfront payment (of €1.234 billion) due to state sell-off fund TAIPED upon the airports’ delivery, while €280.4 million will be used to finance upgrading work at the 14 airports. Meanwhile, Fraport Greece recently announced a capital increase raising the company’s total capital to €650 million, most of which will go toward the upfront payment.

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But domestic credit is still collapsing. And so is the economy, of course.

Contraction Of Credit Continues Unabated In Greece (K.)

Bank of Greece figures revealed on Monday a further contraction in the financing of the Greek economy last month, a result of the general uncertainty hanging over the economy and the drop deposits at the country’s banks. The total funding of the economy was down 2% YOY in February, from -1.5% in January, while the monthly net flow of total financing was negative by €801 million, against a negative flow of €1.261 billion in January. The main factor in that decline was the drop in funding to the state, as the annual rate concerning the general government sector posted a 3.7% contraction in February against a 0.1% increase in January. In the private sector it was negative by 1.6% as funding shrank by a net €101 million. The image was somewhat different for enterprises as there was an €82 million monthly increase in the net flow of funding last month, compared with a €643 million decline in January. However, the flow of credit to private clients and nonprofit organizations dipped by €153 million or 2.7% in February.

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Wise old genius. “As soon as three Greeks get together, they start talking of who’s going to be the leader..”

Mikis Theodorakis: ‘In Tough Times, Greeks Become Heroes or Slaves’ (GR)

“During tough times, a Greek can become a hero or a slave,” said legendary Greek composer Mikis Theodorakis in an interview published in Proto Thema Sunday newspaper. The 92-year-old musician, who is also an emblematic figure of the Greek Left, spoke about Greece’s current state, the leftist government, the main opposition party and the bailout agreements. Theodorakis said that he is not shocked about the current condition Greece is in because, historically, the country has been through turmoil several times. He said the Greek spirit, like a light, shines through at the end because Greeks have an inner harmony that prevails. However, Theodorakis said, this is a hard period for Greece and this time he is afraid for the future of the country: “When the Greek is with his back against the wall, he becomes a hero or a slave.”

When asked to compare the current state of the nation with the times of the German Occupation, Theodorakis said that what Greece is going through now is worse: “I don’t remember people going through the trash to find food. I don’t remember elderly people waiting in line to get a cabbage.” Theodorakis spoke in length about the time (2012) opposition leader Alexis Tsipras and leftist legend Manolis Glezos approached him and asked him to join SYRIZA and win the upcoming elections. He said he refused to join because the young candidate did not have a plan on how to get Greece going without supervision and financial aid from the EU and the IMF. He described Greece as a train rolling on tracks laid by the EU and the IMF.

“I told him ‘if you’re planning to come to power without having a plan to change the tracks and provide Greek people with what they need, then you are opportunists and you will only succeed in destroying the country and humiliating the Greek Left’,” the composer said about Tsipras. “With great sadness, I believe that the current plight of the country confirms exactly what I said to Alexis Tsipras, here in my house, in the meeting that I mentioned earlier,” Theodorakis said. The composer said that Greeks have a lust for power: “As soon as three Greeks get together, they start talking of who’s going to be the leader,” he said characteristically.

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A new issue has come to light: where are the NGOs picking up the refugees?

Nearly 1,200 Migrants Picked Up Off Libya, Heading To Italy (R.)

Humanitarian ships rescued almost 1,200 migrants who were crossing the Mediterranean Sea at the weekend on an array of small, tightly packed boats, Doctors Without Borders said on Sunday. A young woman was found unconscious on one of the vessels and later died, the group said. Some 412 people were crammed onto a single wooden boat, while the others were picked up from huge inflatable dinghies, which had set sail from the coast of Libya. The weekend rescues mean that about 22,000 mainly African migrants have been picked up heading to Italy so far this year, while around 520 have died trying to make the crossing.

An Italian prosecutor said last week that humanitarian ships operating off Libya were undermining the fight against people smugglers and opening a corridor that is ultimately leading to more migrant deaths. The chief prosecutor of the Sicilian port city of Catania, Carmelo Zuccaro, said he also suspected that there may be direct communication between Libya-based smugglers and members of charity-operated rescue vessels. NGOs deny any wrongdoing, saying they are simply looking to save lives, but they are facing criticism in Italy, which has taken in about half a million migrants since the start of 2014.

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Italy thinks George Soros is sponsoring this.

Italy Calls For Investigation Of NGO Supported Migrant Fleet (Dm.)

Italian authorities are calling for monitoring of the funding of an NGO fleet bussing migrants into the EU from the North African coast after a report released the European Border and Coast Guard Agency has determined that the members of the fleet are acting as accomplices to people smugglers and directly contributing to the risk of death migrants face when attempting to enter the EU. The report from regulatory agency Frontex suggests that NGOs sponsoring ships in the fleet are now acting as veritable accomplices to people smugglers due to their service which, in effect, provides a reliable shuttle service for migrants from North Africa to Italy. The fleet lowers smugglers’ costs, as it all but eliminates the need to procure seaworthy vessels capable making a full voyage across the Mediterranean to the European coastline.

Traffickers are also able to operate with much less risk of arrest by European law enforcement officers. Frontex specifically noted that traffickers have intentionally sought to alter their strategy, sending their vessels to ships run by the NGO fleet rather than the Italian and EU military. On March 25th, 2017, Italian news source Il Giornale carried remarks from Carmelo Zuccaro, the chief prosecutor of Catania (Sicily) calling for monitoring of the funding behind the NGO groups engaged in operating the migrant fleet. He stated that “the facilitation of illegal immigration is a punishable offense regardless of the intention.” While it is not a crime to enter the waters of a foreign country and pick them migrants, NGOs are supposed to land them at the nearest port of call, which would have been somewhere along the North African coast instead of in Italy.

The chief prosecutor also noted that Italy is investigating Islamic radicalization occurring in prisons and camps where immigrants are hired off the books. Italy has for some months been reeling under the pressure of massive numbers of migrants who have been moving from North Africa into the southern states of the European Union. In December 2016, The Express cited comments made by Virginia Raggi, the mayor of Vatican City, stating that Rome was on the verge of a “war” between migrants and poor Italians. The wave of migrants has also caused issues in southern Italy, where the Sicilian Cosa Nostra has declared a “war on migrants” last year amid reports that the Italian mafia had begun fighting with North African crime gangs who entered the EU among migrant populations.

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Mar 232017
 
 March 23, 2017  Posted by at 9:18 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Unknown GMC truck Associated Oil fuel tanker, San Francisco 1935

 

I Don’t Think The US Should Remain As One Political Entity – Casey (IM)
Trump Tantrum Looms On Wall Street If Healthcare Effort Stalls (R.)
The US Student Debt Bubble Is Even Bigger Than The Subprime Fiasco (Black)
US Auto-Loan Quality To Deteriorate Further, Forcing Tighter Underwriting (MW)
Oil Price Drops Below $50 For First Time Since OPEC Deal (Tel.)
China Shadow Banks Hit by Record Premium for One-Week Cash (ZH)
Zombie Companies are China’s Real Problem (BBG)
China Debt Risks Go Global Amid Record Junk Sales Abroad (BBG)
A Fake $3.6 Trillion Deal Is Easy to Sneak Past the SEC
Elite Economists: Often Wrong, Never In Doubt (720G)
Trump the Destroyer (Matt Taibbi)
Erdogan Warns Europeans ‘Will Not Walk Safely’ If Attitude Persists (R.)
Lavish EU Rome Treaty Summit Will Skirt Issues in Stumbling Italy (BBG)
Greek Consumption Slumps Further In 2017 (K.)
Nine Years Later, Greece Is Still In A Debt Crisis.. (Black)
In Greece, Europe’s New Rules Strip Refugees Of Right To Seek Protection (K.)

 

 

So there.

I Don’t Think The US Should Remain As One Political Entity – Casey (IM)

What’s going on in the US now is a culture clash. The people that live in the so-called “red counties” that voted for Trump—which is the vast majority of the geographical area of the US, flyover country—are aligned against the people that live in the blue counties, the coasts and big cities. They don’t just dislike each other and disagree on politics; they can no longer even have a conversation. They hate each other on a visceral gut level. They have totally different world views. It’s a culture clash. I’ve never seen anything like this in my lifetime.

There hasn’t been anything like this since the War Between the States, which shouldn’t be called “The Civil War,” because it wasn’t a civil war. A civil war is where two groups try to take over the same government. It was a war of secession, where one group simply tries to leave. We might have something like that again, hopefully nonviolent this time. I don’t think the US should any longer remain as one political entity. It should break up so that people with one cultural view can join that group and the others join other groups. National unity is an anachronism.

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Credibility.

Trump Tantrum Looms On Wall Street If Healthcare Effort Stalls (R.)

The Trump Trade could start looking more like a Trump Tantrum if the new U.S. administration’s healthcare bill stalls in Congress, prompting worries on Wall Street about tax cuts and other measures aimed at promoting economic growth. Investors are dialing back hopes that U.S. President Donald Trump will swiftly enact his agenda, with a Thursday vote on a healthcare bill a litmus test which could give stock investors another reason to sell. “If the vote doesn’t pass, or is postponed, it will cast a lot of doubt on the Trump trades,” said the influential bond investor Jeffrey Gundlach, chief executive at DoubleLine Capital. U.S. stocks rallied after the November presidential election, with the S&P 500 posting a string of record highs up to earlier this month, on bets that the pro-growth Trump agenda would be quickly pushed by a Republican Party with majorities in both chambers of Congress.

The S&P 500 ended slightly higher on Wednesday, the day before a floor vote on Trump’s healthcare proposal scheduled in the House of Representatives. On Tuesday, stocks had the biggest one-day drop since before Trump won the election, on concerns about opposition to the bill. Investors extrapolated that a stalling bill could mean uphill battles for other Trump proposals. Trump and Republican congressional leaders appeared to be losing the battle to get enough support to pass it. Any hint of further trouble for Trump’s agenda, especially his proposed tax cut, could precipitate a stock market correction, said Byron Wien, veteran investor and vice chairman of Blackstone Advisory Partners. “The fact that they are having trouble with (healthcare repeal) casts a shadow over the tax cut and the tax cut was supposed to be the principal fiscal stimulus for the improvement in real GDP,” Wien said. “Without that improvement in GDP, earnings aren’t going to be there and the market is vulnerable.”

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“This is particularly interesting because student loans essentially have no collateral.”

The US Student Debt Bubble Is Even Bigger Than The Subprime Fiasco (Black)

In 1988, a bank called Guardian Savings and Loan made financial history by issuing the first ever “subprime” mortgage bond. The idea was revolutionary. The bank essentially took all the mortgages they had loaned to borrowers with bad credit, and pooled everything together into a giant bond that they could then sell to other banks and investors. The idea caught on, and pretty soon, everyone was doing it. As Bethany McLean and Joe Nocera describe in their excellent history of the financial crisis (All the Devils are Here), the first subprime bubble hit in the 1990s. Early subprime lenders like First Alliance Mortgage Company (FAMCO) had spent years making aggressive loans to people with bad credit, and eventually the consequences caught up with them. FAMCO declared bankruptcy in 2000, and many of its competitors went bust as well.

Wall Street claimed that it had learned its lesson, and the government gave them all a slap on the wrist. But it didn’t take very long for the madness to start again. By 2002, banks were already loaning money to high-risk borrowers. And by 2005, all conservative lending standards had been abandoned. Borrowers with pitiful credit and no job could borrow vast sums of money to buy a house without putting down a single penny. It was madness. By 2007, the total value of these subprime loans hit a whopping $1.3 trillion. Remember that number. And of course, we know what happened the next year: the entire financial system came crashing down. Duh. It turned out that making $1.3 trillion worth of idiotic loans wasn’t such a good idea. By 2009, 50% of those subprime mortgages were “underwater”, meaning that borrowers owed more money on the mortgage than the home was worth.

In fact, delinquency rates for ALL mortgages across the country peaked at 11.5% in 2010, which only extended the crisis. But hey, at least that’s never going to happen again. Except… I was looking at some data the other day in a slightly different market: student loans. Over the last decade or so, there’s been an absolute explosion in student loans, growing from $260 billion in 2004 to $1.31 trillion last year. So, the total value of student loans in America today is LARGER than the total value of subprime loans at the peak of the financial bubble. And just like the subprime mortgages, many student loans are in default. According to the Fed’s most recent Household Debt and Credit Report, the student loan default rate is 11.2%, almost the same as the peak mortgage default rate in 2010. This is particularly interesting because student loans essentially have no collateral. Lenders make loans to students… but it’s not like the students have to pony up their iPhones as security.

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You have to wonder what exactly is keeping the US economy afloat.

US Auto-Loan Quality To Deteriorate Further, Forcing Tighter Underwriting (MW)

Auto loan and lease credit performance will continue to deteriorate in 2017, led by the vulnerable subprime sector, Fitch Ratings said in a report released Wednesday. “Subprime credit losses are accelerating faster than the prime segment, and this trend is likely to continue as a result of looser underwriting standards by lenders in recent years,” said Michael Taiano, a director at the credit-ratings agency. Banks are starting to lose market share to captive auto finance companies and credit unions as they begin to tighten underwriting standards in response to deteriorating asset quality, Fitch said. According to the Federal Reserve’s January 2017 senior loan officer survey, 11.6% of respondents (net of those who eased) reported tightening standards, compared with the five-year average of 6.1%.

“This trend is consistent with comments made by several banks on earnings conference calls over the past couple of quarters,” Fitch said in the report. Fitch considers continued tightening by auto lenders as a credit-positive but it’s also paying attention to market nuances. The tightening, to date, primarily relates to pricing and loan-to-value (how much is still owed on the car compared to its resale value), but average loan terms continue to extend into the 72- to 84-month category. “The tightening of underwriting standards is likely a response to expected deterioration in used vehicle prices and the weaker credit performance experienced in the subprime segment,” added Taiano. Used-car price declines have accelerated more recently, which will likely pressure recovery values on defaulted loans and lease residuals, the analysts said.

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Might as well call off the theater.

Oil Price Drops Below $50 For First Time Since OPEC Deal (Tel.)

The oil price has fallen back below the key $50 a barrel mark for the first time since November after surging US oil supplies dealt a blow to OPEC’s plan to erode the global oversupply of crude. The flagging oil price bounded above $50 a barrel late last year after a historic co-operation deal between OPEC and the world’s largest oil producers outside of the cartel to limit output for the first half of this year. The November deal was the first action taken by the group to limit supply for over eight years but since then the quicker than expected return of fracking rigs across the US has punctured the buoyant market sentiment of recent months. Brent crude prices peaked at $56 a barrel earlier this year and were still above $52 this week.

But by Wednesday the price fell to just above $50 a barrel and briefly broke below the important psychological level to $49.86 on Wednesday afternoon. Market analysts fear that a more sustained period below $50 could trigger a sell-off from hedge funds which would drive even greater losses in the market. The price plunge was sparked by the latest weekly US stockpile data which revealed a bigger than expected increase of 5 million barrels a day compared to a forecast rise of 1.8 million barrels. The flood of US shale emerged a day after Libya announced that would increase its output to take advantage of higher revenues from its oil exports. “The market is increasingly worried that the continued overhang of supply is not being brought down fast enough,” said Ole Hansen, a commodities analyst with SaxoBank.

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Beijing forced to save the shadows.

China Shadow Banks Hit by Record Premium for One-Week Cash (ZH)

During the so-called Chinese Banking Liquidity Crisis of 2013, the relative cost of funds for non-bank institutions spiked to 100bps. So, the fact that the ‘shadow banking’ liquidity premium has exploded to almost 250 points – by far a record – in the last few days should indicate just how stressed Chinese money markets are. While interbank borrowing rates have climbed across the board, the surge has been unusually steep for non-bank institutions, including securities companies and investment firms. They’re now paying what amounts to a record premium for short-term funds relative to large Chinese banks, according to data compiled by Bloomberg.

The premium is reflected in the gap between China’s seven-day repurchase rate fixing and the weighted average rate, which, by Bloomberg notes, widened to as much as 2.47 percentage points on Wednesday after some small lenders were said to miss payments in the interbank market. Non-bank borrowers tend to have a greater influence on the fixing, while large banks have more sway over the weighted average. “It’s more expensive and difficult for non-bank financial institutions to get funding in the market,” said Becky Liu at Standard Chartered. “Bigger lenders who have access to regulatory funding are not lending much of the money out.” Without access to deposits or central bank liquidity facilities, many of China’s non-bank institutions must rely on volatile money markets. As Bloomberg points out, The People’s Bank of China has been guiding those rates higher in recent months to encourage a reduction of leverage, while also stepping in at times to prevent a liquidity crunch.

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State owned zombies.

Zombie Companies are China’s Real Problem (BBG)

China needs to take on its state-owned “zombie companies,” which keep borrowing even though they aren’t earning enough to repay loans or interest, says Nicholas Lardy of the Peterson Institute for International Economics. “That’s where the real problem is,” Lardy said Thursday in a Bloomberg Television interview from the Boao Forum for Asia, an annual conference on the southern Chinese island of Hainan. “It’s a component of the run-up in debt that they really have to focus on.” While flagging this concern, Lardy, a senior fellow at Peterson in Washington and author of “Markets Over Mao: The Rise of Private Business in China,” said anxiety over China’s debt growth is overstated. Household deposits will continue to underpin the banking and financial system, which means the situation with zombie firms is unlikely to reach a critical point.

Household savings are “very sticky, they’re not going anywhere, and the central bank can come in to the rescue if there are problems,” he said. Chinese corporate profits will probably continue to recover this year and after-tax earnings needed to service the debt load is improving, Lardy said. Another positive sign is a slowdown in the buildup of debt outstanding to non-financial companies. The combination of that slackening and companies’ increasing earning power “is improving the overall situation,” he said. When it comes to U.S. President Donald Trump’s negative rhetoric on China, the country’s leaders deserve “very high marks so far” for their cool reaction. “They’ve been waiting to see what Mr. Trump is actually going to do as opposed to what he’s talked about, so they haven’t overreacted,” he said. “They’ve made very careful preparations for the worst case if Trump does move in a very strong protectionist direction.”

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Zombies and junk.

China Debt Risks Go Global Amid Record Junk Sales Abroad (BBG)

China’s riskiest corporate borrowers are raising an unprecedented amount of debt overseas, leaving global investors to shoulder more credit risks after onshore defaults quadrupled in 2016. Junk-rated firms, most of which are property developers, have sold $6.1 billion of dollar bonds since Dec. 31, a record quarter, data compiled by Bloomberg show. In contrast, such borrowers have slashed fundraising at home as the central bank pushes up borrowing costs and regulators curb real estate financing. Onshore yuan note offerings by companies with local ratings of AA, considered junk in China, fell this quarter to the least since 2011 at 31.3 billion yuan ($4.54 billion). Global investors desperate for yield have lapped up offerings from China. Rates on dollar junk notes from the nation have dropped 81 basis points this year to 6.11%, near a record low, according to a Bank of America Merrill Lynch index.

Some investors have warned of froth. Goldman Sachs Group Inc. said last month that it sees little value in the country’s high-yield property bonds. Hedge fund Double Haven Capital (Hong Kong) has said it is betting against Chinese junk securities. “Today’s market valuations are tight and investors are focusing on yields without taking into account credit risks,” said Raja Mukherji at PIMCO. “That’s where I see a lot of risk, where investors are not differentiating on credit quality on a risk-adjusted basis.” Lower-rated issuers turning to dollar debt after scrapping financing at home include Shandong Yuhuang Chemical on China’s east coast. The chemical firm canceled a 500 million yuan local bond sale in January citing “insufficient demand.” It then issued $300 million of three-year bonds at 6.625% this week. Some developers have grown desperate for cash as regulators tighten housing curbs and restrict their domestic fundraising. That’s raising concern among international investors in China’s real estate sector who have been burned before.

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Priceless humor: “Congress has already raised the alarm.” After three decades, that is.

A Fake $3.6 Trillion Deal Is Easy to Sneak Past the SEC

A few hours after the New York market close on Feb. 1, an obscure Chicago artist by the name of Antonio Lee told the world he had become the world’s richest man. The 32-year-old painter said Google’s parent, Alphabet Inc., had bought his art company in exchange for a chunk of stock that made him wealthier than Bill Gates, Warren Buffett and Jeff Bezos – combined. Of course, none of it was true. Yet, on that day, Lee managed to issue his fabricated report in the most authoritative of places: The U.S. Securities and Exchange Commission’s Edgar database – the foundation of hundreds of billions of dollars in financial transactions each day. For more than three decades, the SEC has accepted online submissions of regulatory filings – basically, no questions asked.

As many as 800,000 forms are filed each year, or about 3,000 per weekday. But, in a little known vulnerability at the heart of American capitalism, the government doesn’t vet them, and rarely even takes down those known to be shams. “The SEC can’t stop them,” said Lawrence West, a former SEC associate enforcement director. “They can only punish the filer afterward and remove the filing from the system. So, caveat lector – let the reader beware.” Congress has already raised the alarm. For its part, the SEC, which declined to comment, has said those who make filings are responsible for their truthfulness and that only a handful have been reported as bogus. Submitting false information exposes the culprit to SEC civil-fraud charges, or even federal criminal prosecution.

On May 14, 2015, Nedko Nedev, a dual citizen of the United States and Bulgaria, filed an SEC form indicating he was making a tender offer – an outright purchase – for Avon, the cosmetics company. Avon’s shares jumped 20% before trading was halted, and the company denied the news. (A federal grand jury later indicted Nedev on market manipulation and other charges.) After the fraudulent Avon filing, U.S. Senator Chuck Grassley, the Iowa Republican and former chairman of the Finance Committee, told the SEC it must review its posting standards. “This pattern of fraudulent conduct is troubling, especially in light of the relative ease in which a fake posting can be made,” Grassley wrote in a letter to the agency. In response, Mary Jo White, who then chaired the SEC, said it wouldn’t be feasible to check information. She noted that there were on average 125 first-time filers daily in 2014, and the agency was studying whether its authentication process could be strengthened without delaying disclosure of key information to investors.

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Only a major reset will do.

Elite Economists: Often Wrong, Never In Doubt (720G)

Since the U.S. economic recovery from the 2008 financial crisis, institutional economists began each subsequent year outlining their well-paid view of how things will transpire over the course of the coming 12-months. Like a broken record, they have continually over-estimated expectations for growth, inflation, consumer spending and capital expenditures. Their optimistic biases were based on the eventual success of the Federal Reserve’s (Fed) plan to restart the economy by encouraging the assumption of more debt by consumers and corporations alike. But in 2017, something important changed. For the first time since the financial crisis, there will be a new administration in power directing public policy, and the new regime could not be more different from the one that just departed. This is important because of the ubiquitous influence of politics.

The anxiety and uncertainties of those first few years following the worst recession since the Great Depression gradually gave way to an uncomfortable stability. The anxieties of losing jobs and homes subsided but yielded to the frustration of always remaining a step or two behind prosperity. While job prospects slowly improved, wages did not. Business did not boom as is normally the case within a few quarters of a recovery, and the cost of education and health care stole what little ground most Americans thought they were making. Politics was at work in ways with which many were pleased, but many more were not. If that were not the case, then Donald Trump probably would not be the 45th President of the United States. Within hours of Donald Trump’s victory, U.S. markets began to anticipate, for the first time since the financial crisis, an escape hatch out of financial repression and regulatory oppression.

As shown below, an element of economic and financial optimism that had been missing since at least 2008 began to re-emerge. What the Fed struggled to manufacture in eight years of extraordinary monetary policy actions, the election of Donald Trump accomplished quite literally overnight. Expectations for a dramatic change in public policy under a new administration radically improved sentiment. Whether or not these changes are durable will depend upon the economy’s ability to match expectations.

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I find the Trump bashing parade very tiresome, but Matt’s funny.

Trump the Destroyer (Matt Taibbi)

There is no other story in the world, no other show to watch. The first and most notable consequence of Trump’s administration is that his ability to generate celebrity has massively increased, his persona now turbocharged by the vast powers of the presidency. Trump has always been a reality star without peer, but now the most powerful man on Earth is prisoner to his talents as an attention-generation machine. Worse, he is leader of a society incapable of discouraging him. The numbers bear out that we are living through a severely amplified déjà vu of last year’s media-Trump codependent lunacies. TV-news viewership traditionally plummets after a presidential election, but under Trump, it’s soaring. Ratings since November for the major cable news networks are up an astonishing 50% in some cases, with CNN expecting to improve on its record 2016 to make a billion dollars – that’s billion with a “b” – in profits this year.

Even the long-suffering newspaper business is crawling off its deathbed, with The New York Times adding 132,000 subscribers in the first 18 days after the election. If Trump really hates the press, being the first person in decades to reverse the industry’s seemingly inexorable financial decline sure is a funny way of showing it. On the campaign trail, ballooning celebrity equaled victory. But as the country is finding out, fame and governance have nothing to do with one another. Trump! is bigger than ever. But the Trump presidency is fast withering on the vine in a bizarre, Dorian Gray-style inverse correlation. Which would be a problem for Trump, if he cared. But does he? During the election, Trump exploded every idea we ever had about how politics is supposed to work. The easiest marks in his con-artist conquest of the system were the people who kept trying to measure him according to conventional standards of candidate behavior.

You remember the Beltway priests who said no one could ever win the White House by insulting women, the disabled, veterans, Hispanics, “the blacks,” by using a Charlie Chan voice to talk about Asians, etc. Now he’s in office and we’re again facing the trap of conventional assumptions. Surely Trump wants to rule? It couldn’t be that the presidency is just a puppy Trump never intended to care for, could it? Toward the end of his CPAC speech, following a fusillade of anti-media tirades that will dominate the headlines for days, Trump, in an offhand voice, casually mentions what a chore the presidency can be. “I still don’t have my Cabinet approved,” he sighs. In truth, Trump does have much of his team approved. In the early days of his administration, while his Democratic opposition was still reeling from November’s defeat, Trump managed to stuff the top of his Cabinet with a jaw-dropping collection of perverts, tyrants and imbeciles, the likes of which Washington has never seen.

En route to taking this crucial first beachhead in his invasion of the capital, Trump did what he always does: stoked chaos, created hurricanes of misdirection, ignored rules and dared the system of checks and balances to stop him. By conventional standards, the system held up fairly well. But this is not a conventional president. He was a new kind of candidate and now is a new kind of leader: one who stumbles like a drunk up Capitol Hill, but manages even in defeat to continually pull the country in his direction, transforming not our laws but our consciousness, one shriveling brain cell at a time.

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Tourism is a very big source of income for Turkey. Erdogan’s killing it off with a vengeance.

Erdogan Warns Europeans ‘Will Not Walk Safely’ If Attitude Persists (R.)

President Tayyip Erdogan said on Wednesday that Europeans would not be able to walk safely on the streets if they kept up their current attitude toward Turkey, his latest salvo in a row over campaigning by Turkish politicians in Europe. Turkey has been embroiled in a dispute with Germany and the Netherlands over campaign appearances by Turkish officials seeking to drum up support for an April 16 referendum that could boost Erdogan’s powers. Ankara has accused its European allies of using “Nazi methods” by banning Turkish ministers from addressing rallies in Europe over security concerns. The comments have led to a sharp deterioration in ties with the European Union, which Turkey still aspires to join.

“Turkey is not a country you can pull and push around, not a country whose citizens you can drag on the ground,” Erdogan said at an event for Turkish journalists in Ankara, in comments broadcast live on national television. “If Europe continues this way, no European in any part of the world can walk safely on the streets. Europe will be damaged by this. We, as Turkey, call on Europe to respect human rights and democracy,” he said. Germany’s Frank-Walter Steinmeier used his first speech as president on Wednesday to warn Erdogan that he risked destroying everything his country had achieved in recent years, and that he risked damaging diplomatic ties. “The way we look (at Turkey) is characterized by worry, that everything that has been built up over years and decades is collapsing,” Steinmeier said in his inaugural speech in the largely ceremonial role. He called for an end to the “unspeakable Nazi comparisons.”

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Can’t let a little crisis get in the way of your champagne and caviar.

Lavish EU Rome Treaty Summit Will Skirt Issues in Stumbling Italy (BBG)

As leaders celebrate the European Union’s 60th birthday in Rome this weekend, the host nation may be hoping that a pomp-filled ceremony distracts from any probing questions. Overshadowed by the sting of Brexit and elections in the Netherlands, France and Germany, Italy’s lingering problems have left it as the weak link among Europe’s powerhouse economies. It’s stumbling through a stop-start slow recovery from a record-long recession, unemployment is twice that of Germany’s, and voters, weary of EU institutions, are flirting with the same kind of populism grabbing attention elsewhere. The gathering on Saturday on the city’s Capitol hill is to celebrate the Treaty of Rome, the bedrock agreement signed on March 25, 1957 for what is now the EU.

From its beginnings as the European Economic Community – with Italy among the six founding members – it has since grown to a union of 28 nations stretching 4,000 kilometers from Ireland in the northwest to Cyprus in the southeast. The U.K. is heading toward a lengthy exit from the EU known as Brexit, raising questions among the remaining 27 about the bloc’s long-term future. “Italy was until very recently at the forefront of the European integration process,” Luigi Zingales, professor of finance at University of Chicago Booth School of Business, said in an interview. “Today it’s undoubtedly Europe’s weakest link.” The economy grew just 0.9% last year, below the euro area’s 1.7%, and unemployment is at 11.9%. A recent EU poll put Italy as the monetary union’s second-most euro-skeptic state after Cyprus with only 41% saying the single currency is “a good thing.” The average in the 19-member euro area is 56%.

That widespread disenchantment may be felt at elections due in about one year. A poll published on Tuesday by Corriere della Sera put support for the Five Star Movement, which calls for a referendum to ditch the euro, at a record 32.3%, well ahead of the ruling Democratic Party. Summit host Prime Minister Paolo Gentiloni has only been in power since December, when Matteo Renzi resigned after losing a constitutional reform referendum. For Zingales, Italy has problems that European policy makers “would rather not talk about now as they don’t want to scare people.” That’s because across the bloc, politicians are still fighting voter resentment over the loss of wealth since the financial crisis, bitterness about bailouts and anger over a perceived increase in inequality. “Sixty years after the signing of the Treaties of Rome, the risk of political paralysis in Europe has never been greater,” Bank of Italy Governor Ignazio Visco told a conference in Rome this month.

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The EU can celebrate only because it’s murdering one of its members. Greece needs stimulus but gets the opposite.

Greek Consumption Slumps Further In 2017 (K.)

The year has started with some alarm bells regarding the course of consumer spending, generating concern not only about the impact on the supermarket sector and industry, but also on the economy in general. In the first week of March the year-on-year drop in supermarket turnover amounted to 15%, while in January the decline had come to 10%. Shrinking consumption is a sure sign that the economic contraction will be extended into another year, given its important role in the economy. The new indirect taxes on a number of commodities, the increased social security contributions, the persistently high unemployment and the ongoing uncertainty over the bailout review talks have hurt consumer confidence and eroded disposable incomes.

In this context, it will be exceptionally difficult to achieve the fiscal targets, especially if the uncertainty goes on or is ended with the imposition of additional austerity measures that would only see incomes shrink further. According to projections by IRI market researchers, supermarket sales in 2017 are expected to decline 3.6% from last year, with the worst-case scenario pointing to a 4.4% drop. Supermarket sales turnover dropped at the steepest rate seen in the crisis years in 2016, down 6.5%, after falling 2.1% in 2015, 1.4% in 2014, 3.5% in 2013 and 3.4% in 2012.

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“For a continent that has been at war with itself for 10 centuries and only managed to play nice for the last 30 or so years, it’s foolish to expect these bailouts to last forever.”

Nine Years Later, Greece Is Still In A Debt Crisis.. (Black)

Greece has had nine different governments since 2009. At least thirteen austerity measures. Multiple bailouts. Severe capital controls. And a full-out debt restructuring in which creditors accepted a 50% loss. Yet despite all these measures GREECE IS STILL IN A DEBT CRISIS. Right now, in fact, Greece is careening towards another major chapter in its never-ending debt drama. Just like the United States, the Greek government is set to run out of money (yet again) in a few months and is in need of a fresh bailout from the IMF and EU. (The EU is code for “Germany”…) Without another bailout, Greece will go bust in July– this is basic arithmetic, not some wild theory. And this matters. If Greece defaults, everyone dumb enough to have loaned them money will take a BIG hit. This includes a multitude of banks across Germany, Austria, France, and the rest of Europe.

Many of those banks already have extremely low levels of capital and simply cannot afford a major loss. (Last year, for example, the IMF specifically singled out Germany’s Deutsche Bank as being the top contributor to systemic risk in the global financial system.) So a Greek default poses as major risk to a number of those banks. More importantly, due to the interconnectedness of the financial system, a Greek default poses a major risk to anyone with exposure to those banks. Think about it like this: if Greece defaults and Bank A goes down, then Bank A will no longer be able to meet its obligations to Bank B. Bank B will suffer a loss as well. A single event can set off a chain reaction, what’s called ‘contagion’ in finance. And it’s possible that Greece could be that event. This is what European officials have been so desperate to prevent for the last nine years, and why they’ve always come to the rescue with a bailout.

It has nothing to do with community or generosity. They’re hopelessly trying to prevent another 2008-style meltdown of the financial system. But their measures have limits. How much longer do Greek citizens accept being vassals of Germany, suffering through debilitating capital controls and austerity measures? How much longer do German taxpayers continue forking over their hard-earned wages to bail out Greek retirees? After all, they’ve spent nine years trying to ‘fix’ Greece, and the situation has only become worse. For a continent that has been at war with itself for 10 centuries and only managed to play nice for the last 30 or so years, it’s foolish to expect these bailouts to last forever. And whether it’s this July or some date in the future, Greece could end up being the catalyst which sets off a chain reaction on both sides of the Atlantic.

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It’s time for lawyers to step in.

In Greece, Europe’s New Rules Strip Refugees Of Right To Seek Protection (K.)

EU leaders are celebrating a year since they carved out the agreement with Turkey that stemmed the flood of refugees seeking to escape war and strife on Europe’s doorstep. But the importance of the agreement goes far beyond the fact that it has contributed to deterring refugees from coming to Greece. At the Norwegian Refugee Council, we fear that the system Europe is putting in place in Greece is slowly stripping people of their right to seek international protection. Greece took the positive step to enshrine in law some key checks and balances to protect the vulnerable – a victim of torture, a disabled person, an unaccompanied child – so they could have their asylum case heard on the Greek mainland rather than remaining on the islands.

But a European Commission action plan is putting Greece under pressure to change safeguards enshrined in Greek law. NRC, along with other human rights and humanitarian organizations, wrote an open letter to the Greek Parliament this month urging lawmakers to keep that protection for those most in need. Importantly, this is just another quiet example of how what is happening in Greece is setting precedents that may irrevocably change the 1951 Refugee Convention. Europe is testing things out in Greece. [..] It was Europe and its postwar crisis that led to the 1951 convention that protects those displaced by war. Now that convention risks expiring on the doorstep of the same continent that gave birth to it – Europe is in danger of becoming, as NRC’s Secretary-General Jan Egeland has said, the convention’s “burial agent.”

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Mar 202017
 
 March 20, 2017  Posted by at 8:26 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Janine Niepce Paris ca. 1950

 

The Central Bank Shell Game (WS)
Using Superannuation For Deposit ‘Irresponsible’ – Keating (Nine)
Chinese Home Prices “Unexpectedly” Rebound (ZH)
The Fed’s Global Dollar Problem (BBG)
Oil Drops On Rising Us Drilling, Failing OPEC Cuts (R.)
Smile For The Auschwitz Selfie: Why Holocaust Memorials Have Failed (NS)
Spy Comments Proof Germany Supports Group Behind Attempted Coup: Erdogan (R.)
Erdogan Accused Merkel Of Using Nazi Methods (DW)
Dijsselbloem Calls For ESM To Be Turned Into A European IMF (R.)
Defeat in Victory (Jacobin)
Greece Edges Toward Another Bailout Crisis (BBG)
How Millions In Refugee Funds Were Wasted In Greece (K.)
Avoiding Risky Sea Journey, Syrian Refugees Head To Italy ‘Pronto’ (AFP)
3,000 Migrants Rescued Off Libya On Sunday (AFP)

 

 

Great example of why there is a housing bubble everywhere, from a guest writer at Wolfstreet. The second graph is priceless. “The very premise of Swedish society is under attack..”

The Central Bank Shell Game (WS)

Sweden’s welfare state supposedly allows for success while providing a safety net for those unable to keep up with the market. In principle, it is an ideal, utopian-like state. However, Sweden’s touted economic success has come at the expense of its currency, the Krone (SEK), and long-term sustainability. Riksbank, the Swedish Central Bank, like its European contemporaries, has undertaken experimental policy, driving real and nominal interest rates below zero. Since 2014, Swedish deposit rates have been negative. Not only has overall negative real interest rate policy affected housing, but it also drove Swedish consumers deeper into debt. Embarking on the dual mandate policy may have staved off recession, but it created greater problems for the future.

Although current deposit rates are at a record low of -1.25%, the latest GDP print came in at 2.3%, and the growth rate has been tapering since 2015. Sweden’s “hot” GDP growth – hot relative to the region – could be attributed, not to industrial growth, but rather increased government spending, funding social programs. Additionally, with no incentive to save, consumer debt has taken off, along with the housing prices, while disposable income lagged. Swedish household debt is now at a record high. Hence, the Swedish growth story is not organic but rather a borrow-and-spend one.

Swedes, like Norwegians, are victims of the “exchange rate versus housing price shell game.” The SEK received today for the sale of their inflated flats has fallen 30% against the US dollar (average USDSEK in 2014 was 6.86 vs. 8.95 on March 15, 2017). Stockholm housing rose 31% during the same period in SEK terms, negating the recent gains over the same period. The SEK fell 23% against gold in the same period. Hence, the “Swedish Model” is under attack. The egalitarian underpinnings, unwinding with the negative rates, are driving a wedge into Swedish society, creating extremes on both sides of the economic spectrum. The rampant consumerism, encouraged by artificially low rates, continues to widen the wealth gap. Coincidentally, the middle class deteriorated the most between 2014 and 2015: the same time that deposit rates took a dive. Furthermore, the negative savings rates are driving the average person to “gamble” on speculative investments instead of saving and building a future over the long term.

[..] instead of undertaking experimental rate policy, Riksbank and the Swedish government should be engineering a soft-landing or a “controlled crash”, adjusting taxes and policy to ensuring a smooth transition to sustainability for the general population. There is precedent from Iceland that already exists. It is clear that the negative rate experiment is neither sustainable nor helpful to economic growth. It only inflates bubbles while widening the wealth gap in Swedish society. A once prudent and financially conservative people are now getting drunk on debt, wrecking their future. The very premise of Swedish society is under attack.

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Everybody does it. When people start borrowing less from banks for housing, economies will collapse. Superannuation is sort of like Australia’s 401(K).

Using Superannuation For Deposit ‘Irresponsible’ – Keating (Nine)

Former prime minister Paul Keating has labelled as “scandalous” the Turnbull government’s suggestion it might allow young people to raid their superannuation for house deposits. Ahead of the May budget, Mr Keating argues the idea would rob younger Australians of a large block of savings at the end of their working lives. “As an economic idea, this is scandalous. But, of course, for the Liberal Party, this is an ideological proposal,” he writes in Fairfax Media today. Mr Keating, who spearheaded Australia’s superannuation sector in 1992, said if the government were to proceed with this “irresponsible” idea it would put at risk the financial future of generations.

“It would potentially destroy superannuation for those, in the main, under 40 years of age, while at the same time, driving up the cost of the housing they are seeking to purchase,” he said. The federal government earlier this month set up a taskforce to look at new ways to promote millions of dollars of investment in community housing that could benefit one in three Australians. The taskforce will be headed up by Stephen Knight, who has had extensive experience in debt capital markets as CEO of the Treasury Corporation in NSW and as a member of the Australian Office of Financial Management advisory board. The group will report back to the government by the middle of the year. Treasurer Scott Morrison said housing affordability issues were impacting on the 30% of Australians who live in rented homes, and those who relied on affordable and social housing.

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China is caught in the same bind as Sweden, Australia, and just about the entire western world. Without ever more mortgage lending, banking systems are gone.

Chinese Home Prices “Unexpectedly” Rebound (ZH)

“The government intends to pause the surging home prices, and let them walk steadily up later,” said Xia Dan, a Shanghai-based analyst at Bank of Communications Co., adding that if curbs on demand are lifted, prices will rise further. “The government doesn’t want the prices to run all the time and ferment bubbles.” As Bloomberg notes, China’s biggest cities have seen a round of home price surges in the past year. In Beijing, new home prices rose 24% in February from a year earlier, while Shanghai saw a 25% gain. Shenzhen prices increased 14% in the same period. “Beijing’s tightening will have a short-term effect to stabilize the market, but the power of policy has become increasingly weaker,” Zhang Hongwei at Tospur Real Estate Consulting, said Friday, adding more local tightening may follow.

Or maybe not, because one may ask: is the rebound really unexpected. Perhaps not: as the WSJ reported on Sunday, “this year it seemed China was finally going to make headway on an idea familiar to U.S. homeowners: a property tax. For many Chinese families, owning a home is one of few options to build wealth, driving buying frenzies as people rush to purchase before prices soar. Imposing costs on homeowners through a property tax is seen as a way to tame such speculation, while also helping fund local governments. Lu Kehua, China’s vice housing minister, last month said the government needed to “speed up” a property-tax law. Economists and academics have long recommended the move. Yet the annual National People’s Congress came and went this month with no discussion of the topic. An NPC spokeswoman said a property tax wouldn’t be on the legislative agenda for the rest of the year.

In short, China evaluted the risk of a potential housing bubble burst, and deciding that – at least for the time being – it is not worth the threat of losing a third of Chinese GDP in “wealth effect”, got cold feet. Expect the recent dip in home prices to promptly stabilize, with gains in the short-term more likely that not.

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Long predicted. Financial warfare.

The Fed’s Global Dollar Problem (BBG)

The Federal Reserve might be doing the right thing for the U.S. economy by moving to bring interest rates back up to normal. But for foreign companies and governments that have borrowed trillions of U.S. dollars, the adjustment could be painful. Thanks in large part to a prolonged period of extremely low U.S. interest rates, borrowers around the world have gone on a dollar binge over much of the past decade – making them more vulnerable to the Fed’s policy decisions than ever before. As of September, non-bank companies and governments outside the U.S. had some $10.5 trillion in dollar-denominated debt outstanding, according to the Bank for International Settlements. That’s more than triple the level of September 2004, the last time the Fed was about this far into a cycle of rate increases. Here’s a chart:

If the Fed sticks with its plan of raising rates more than a percentage point by the end of next year, the increased interest costs could stunt growth and weigh on borrowers’ finances in places as far flung as the U.K. and China. It could also mean losses for investors holding the debt, particularly given that the duration of dollar-denominated bonds – a measure of their price sensitivity to changes in interest rates – is close to its highest point in at least two decades. An increase of 1 percentage point, for example, would take $500 billion off the value of the bonds included in the Bank of America Merrill Lynch U.S. Dollar Global Corporate and High Yield Index. Here’s a chart showing how that number has changed over the years (thanks to a combination of increased dollar debt and increased duration):

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Next up: falling demand.

Oil Drops On Rising Us Drilling, Failing OPEC Cuts (R.)

Oil prices fell on Monday, with already-bloated markets pressured by rising U.S. drilling activity and steady supplies from OPEC countries despite touted production cuts. Prices for benchmark Brent crude futures were 35 cents, or 0.68%, below their last settlement at 0646 GMT, at $51.41 per barrel. U.S. West Texas Intermediate (WTI) crude futures were down 46 cents, or 0.94%, at $48.32 a barrel. Traders said that prices came under pressure from rising U.S. drilling and ongoing high supplies by OPEC despite its pledge to cut output by almost 1.8 million barrels per day (bpd) together with some other producers like Russia.

“There is good, strong momentum to the downside,” futures brokerage CMC Markets said in a note on Monday. U.S. drillers added 14 oil rigs in the week to March 17, bringing the total count up to 631, the most since September 2015, energy services firm Baker Hughes Inc said on Friday, extending a recovery that is expected to boost shale production by the most in six-months in April. Sukrit Vijayakar of energy consultancy Trifecta said the rising drilling activity was “reinforcing the expectation of higher U.S. production offsetting (OPEC’s) supply cuts”. U.S. oil output has risen to over 9.1 million bpd from below 8.5 million bpd in June last year.

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“..for the likes of Rudd, “Never forget” means “Don’t forget for two weeks” or, if politically expedient, “Don’t forget for three days”.

“The reason they can never answer the question, ‘How could it [the Holocaust] possibly happen?’ is that it’s the wrong question. Given what people are, the question is, ‘Why doesn’t it happen more often?’”

Smile For The Auschwitz Selfie: Why Holocaust Memorials Have Failed (NS)

It is time to say that attempts to memorialise the Holocaust have failed and may even be counterproductive. The dead are still dead; anti-Semitism still exists and sometimes thrives. Myths of Jewish power circulate, now with the added insult of “playing the Holocaust card (that you presumably picked up at a Holocaust memorial gift shop)”. A clutch of these memorials, all counselling kindness to the refugee, could not save Aylan Kurdi, a three-year-old Syrian boy, from drowning in the Mediterranean Sea in 2014. In January the Home Secretary, Amber Rudd, posted a picture of herself signing a Holocaust remembrance book on Twitter. “We must never forget,” she wrote. It reminded me of my favourite line from the 1986 Woody Allen film Hannah and Her Sisters: “The reason they can never answer the question, ‘How could it [the Holocaust] possibly happen?’ is that it’s the wrong question. Given what people are, the question is, ‘Why doesn’t it happen more often?’”

Two weeks later, Rudd announced that the “Dubs amendment” – which aimed to offer sanctuary to solitary child refugees and was sponsored by Lord Dubs, who came to the UK from Czechoslovakia on the Kindertransport in March 1939 – would be discontinued after resettling just 350 children. (Even the Cameron government, no friend to the vulnerable, suggested that it could take about 3,000.) I do not expect Rudd to know that, in response to the Évian Conference on Jewish refugees, held in France in 1938, Adolf Hitler offered German Jews to the world but the world did not want them. Britain took 10,000 children, sponsored privately, and left their parents to die. After 1945, Britain agreed to take another 1,000 Jewish children but it could not find 1,000 still alive. It took 732. I now see that, for the likes of Rudd, “Never forget” means “Don’t forget for two weeks” or, if politically expedient, “Don’t forget for three days”.

But if that’s what you think, you never knew anything to forget. Rudd couldn’t see the connection between the British government of 1938 leaving children to die in far-off lands and the British government of 2016 doing the same. Her signing of a Holocaust remembrance book was so meaningless that it was, at best, hand exercise and, at worst, a cynical PR gesture. This act of Holocaust memorialising was a failure. I hope that Rudd is prevented from approaching any Holocaust-related stationery in future. But that won’t happen. The orthodoxy in these circles is: let them all come to bear witness, no matter what they do with it. Some of them might learn something. This policy led to a friend hearing a young Polish boy, touring Auschwitz, describe a fellow visitor as “a rich Jewish bitch in all that jewellery”. The boy had learned nothing, but the man had. He punched him in the face, and that is the only cheerful anecdote in this article.

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Maybe Germany and the US should make this very clear: “..the head of the BND foreign intelligence agency, who said the Turkish government had failed to convince it that Muslim cleric Fethullah Gulen was responsible for the coup attempt.”

Spy Comments Proof Germany Supports Group Behind Attempted Coup: Erdogan (R.)

Doubts expressed by Germany’s spy agency regarding the role of a U.S.-based cleric in last year’s attempted coup in Turkey are proof that Berlin supports the organization behind the attempt, Turkish President Tayyip Erdogan’s spokesman said on Sunday. Ibrahim Kalin made the comment in a live interview with broadcaster CNN Turk. On Saturday, German news magazine Der Spiegel published an interview with the head of the BND foreign intelligence agency, who said the Turkish government had failed to convince it that Muslim cleric Fethullah Gulen was responsible for the coup attempt. “Turkey has tried to convince us of that at every level but so far it has not succeeded,” Bruno Kahl was quoted as saying. Kalin said those comments were proof that Berlin supported the coup. Germany and Turkey have been locked in a deepening diplomatic row after Berlin banned some Turkish ministers from speaking to rallies of expatriate Turks ahead of a referendum next month, citing public safety concerns.

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Erdogan needs an enemy to ‘protect’ his people from, or he won’t win the referendum.

Erdogan Accused Merkel Of Using Nazi Methods (DW)

Ankara launched a new wave of anti-German rhetoric on Sunday, with President Recep Tayyip Erdogan calling out the German chancellor in a televised speech. “When we call them Nazis, they (Europe) get uncomfortable. They rally together in solidarity. Especially Merkel,” Erdogan said. “But you are right now employing Nazi measures,” he said, addressing Merkel directly and using the unofficial, personal way of saying “you” in Turkish. Erdogan has previously accused both the Netherlands and Germany of acting like Nazis after the two countries prevented Turkish ministers from holding campaign rallies on their territory. In his Sunday speech, Erdogan accused Merkel personally of using Nazi methods against his “Turkish brother citizens in Germany and brother ministers.”

The row with Europe “showed that a new page had been opened in the ongoing fight against our country,” he added. Berlin was decidedly not amused, saying that the Turkish president had “gone too far.” Foreign Minister Sigmar Gabriel told the Passauer Neue Presse that he warned Ankara against continuing this “shocking” rhetoric. “We are tolerant but we’re not stupid,” Gabriel said. “That’s why I have let my Turkish counterpart know very clearly that a boundary has been crossed here.” Ankara also responded furiously to a Kurdish rally in Frankfurt yesterday, where participants carried flags and symbols of the outlawed Kurdistan Workers’ Party (PKK) and called for a ‘no’ on the upcoming referendum. The Turkish government said the rally showed Berlin’s hypocrisy after halting similar events for the ‘yes’ camp. They also summoned the German ambassador over the incident.

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Someone should shut up Dijsselbloem. When you lose as big as he did in last week’s elections, you need to pipe down, disappear.

Dijsselbloem Calls For ESM To Be Turned Into A European IMF (R.)

The European Stability Mechanism (ESM) – the euro zone’s bailout fund – should ultimately be turned into a European version of the International Monetary Fund, the head of euro zone finance ministers told a German newspaper. “I think it would make a lot of sense for the euro zone bailout fund ESM to be developed into a European IMF in the medium to long term,” Jeroen Dijsselbloem told Monday’s edition of Frankfurter Allgemeine Zeitung. He said that would also mean that Greece’s current “troika” of lenders – the European Commission, ECB and the IMF – would need to be broken up in the longer term. “The ECB feels increasingly uncomfortable in its troika role, and rightly so I think,” Dijsselbloem said, adding that the European Commission had other “important tasks” that it should concentrate on.He said the ESM should “build up the technical expertise that only the IMF has at the moment”.

German Finance Minister Wolfgang Schaeuble has also proposed turning the ESM into a European monetary fund to improve the management of crises in Europe. Dijsselbloem said the institutions should maintain their roles for Greece’s current bailout and said he still expected the IMF to decide on a new programme, adding that it would be “most welcome” if this happened by the summer. Germany, which holds elections in September, wants the IMF on board before new money is lent to Athens. But it disagrees with the IMF over debt relief and the fiscal targets that Greece should maintain after the bailout programme ends in 2018. Dijsselbloem said he did not expect the current review of Greece’s bailout programme to be concluded quickly, adding that he did not think the institutions will complete it before a Eurogroup meeting in Malta in April.

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From a Jacobin article on the Dutch elections. Yeah, as I said last week, they’re trying to find ways to allow Dijsselbloem to ‘finish the job’ of finishing off Greece.

Defeat in Victory (Jacobin)

Under the current government, the PvdA’s rightward shift took on a whole new meaning. The party gained significant ground during the 2012 elections by arguing that a vote for Labour was the only way to avoid a VVD-led austerity government. Immediately after the elections, the party turned around and started negotiating the formation of a coalition with those very opponents. This government launched a massive austerity program, entailing almost fifty billion euros in cutbacks. PvdA ministers prided themselves on taking some of the most difficult posts, including social affairs and employment (PvdA leader Lodewijk Asscher) and finance (Jeroen Dijsselbloem).

A PvdA minister of the interior loyally executed the VVD’s anti-refugee policies. And Dijsselbloem not only enthusiastically applied the European Union’s fiscal stringency to the Netherlands but, as chairman of the Eurogroup, became its main enforcer against the Syriza government. Nothing could more fully demonstrate the PvdA’s neoliberal drift than the fact that Alexander Pechtold, leader of the liberal-democratic party Democrats 66 (D66), repeatedly suggested Dijsselbloem could continue to represent the Netherlands in Brussels “so that he can finish the job.” [..] The same anger and anxieties that created violent shocks to the political system — of which the PvdA’s collapse is only the latest example — also continue to drive large numbers to vote for allegedly safe parties that they wrongly believe will at least not make things worse.

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Greece spends more on pensions because it is the only fallback the economy has, they play the role that in other countries is played by unemployment benefits. The Troika knows this very well. It’s hard not to conclude that the lenders are trying to create a civil war in Greece.

Greece Edges Toward Another Bailout Crisis (BBG)

Greece is set to miss yet another deadline for unlocking bailout funds this week, edging closer to a repeat of the 2015 drama that pushed Europe’s most indebted state to the edge of economic collapse. Euro-area finance ministers meeting in Brussels on Monday will reiterate that the government of Alexis Tsipras has yet to comply with the terms attached to the emergency loans that have kept the country afloat since 2010. While Tsipras had promised the long delayed review of the latest bailout would be completed by March 20, a European official said last week that reaching an agreement even in April is now considered a long shot. The two sides are still far apart on reforms demanded by creditors in the Greek energy market and the government in Athens is resisting calls for additional pension cuts. And while discussions continue on how to overhaul the labor market, a finance ministry official said in an email to reporters on Friday that the issue can’t be solved in talks with technocrats.

Stalled bailout reviews and acrimony between successive governments and auditors representing creditor institutions are all too familiar themes in the seven-year crisis that has reduced the Greek economy by a quarter. Failure to resolve the latest standoff before the summer could mean that Greece may not be able to meet debt payments due in mid-July. Even as Greek bonds have performed better than most of its euro-area peers this year on expectations that the government will capitulate, uncertainty has weighed on economic activity, raising the risk that an additional bailout may be needed. Unemployment rose in the last quarter of 2016, the economy unexpectedly contracted, and a bleeding of deposits from the nation’s battered lenders resumed.

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Daniel Howden is a senior editor at Refugees Deeply. Good piece, but very incomplete. I’ll get back to that.

How Millions In Refugee Funds Were Wasted In Greece (K.)

For a story of waste and suffering, it’s notable that some of the worst decisions in response to the refugee crisis in Greece were born of good intentions. An archipelago of some 50 small refugee camps was scattered over Greece in preference to concentrating asylum seekers in larger ghettos. As an idea it had merits. In practice it was disastrous. Authorities still struggle to say how many camps there are. The Ministry of Migration Policy lists 39 but the UN says there may be more than 50. Many of these sites, which are in various states of closure, were clearly unfit for human habitation in the first place. The choice to build so many of them multiplied infrastructure costs for things like sewage systems built on private property or remote sites that will serve no public purpose in the future. Meanwhile, the Public Power Corporation is building substations at sites that will likely face closure.

The European Commission and its humanitarian operations agency ECHO are expected to cease support for all but 10 of Greece’s mainland camps in the near future. As the main donor, this will be decisive. There is similar confusion over how many asylum seekers remain in Greece from the 1.03 million who entered in 2015-16. Again the ministry and the UN disagree, with the former saying 62,000 and the latter nearer 50,000. European officials say privately that both numbers are overestimates. This shroud of confusion has contributed to a mess that will be remembered as the most expensive humanitarian response in history. Some $803 million flowed into Greece from the beginning of 2015, according to an investigation by Refugees Deeply, an independent reporting platform. The bulk of these funds were meant to be spent on services for the 57,000 refugees and migrants stranded in Greece when the borders shut one year ago. That translates to a rough cost per beneficiary of $14,000.

Nobody believes this has been money well spent. One senior aid official admitted that as many as $70 out of every $100 spent had been wasted. As anyone who followed the response in Haiti or Kosovo would affirm, the aid industry is inherently wasteful but this was excessive. The scale of this became obvious from November onward when refugees were pictured in tents in the snow and it sparked a blame game. None of the actors emerge with much credit. The UN refugee agency played mute witness to failures in refugee protection for fear of offending its second largest donor, the EU. The European Commission was content to make grandiose statements that exaggerated the funding it had committed, while doing nothing to correct the mistakes it witnessed on the ground. It also made promises on asylum service assistance that were not kept. The bigger the mess in Greece, the greater the deterrent and the stronger the message to future asylum seekers not to come this way.

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Wonderful. There is still hope. There are still people, even in governments, who are still people.

Avoiding Risky Sea Journey, Syrian Refugees Head To Italy ‘Pronto’ (AFP)

Just before midnight in a sleepy district of Beirut, dozens of Syrian refugees huddle in small groups around bulging suitcases, clutching their pinging cellphones and one-way tickets to Italy. “Torino! Pronto! Cappuccino!” They practise random Italian words in a schoolyard in the Lebanese capital’s eastern Geitawi neighbourhood, waiting for the buses that will take them to the airport, and onwards to their new lives in Italy. Under an initiative introduced last year by the Italian government, nearly 700 Syrian refugees have been granted one-year humanitarian visas to begin their asylum process in Italy. The programme is the first of its kind in Europe: a speedy third way that both avoids the United Nations lengthy resettlement process and provides refugees with a safe alternative to crammed dinghies and perilous sea crossings.

[..] A country of just four million people, Lebanon hosts more than one million Syrian refugees. For members of Mediterranean Hope, the four-person team coordinating Italy’s resettlement efforts from Lebanon, “humanitarian corridors” are the future of resettlement. The group interviews refugees many times before recommending them to the Italian embassy, which issues humanitarian visas for a one-year stay during which they begin the asylum process for permanent resettlement. “It’s safe and legal. Safe for them, legal for us, says Mediterranean Hope officer Sara Manisera. “After people cross the Mediterranean on the journey of death, they are put into centres for months while they wait. But with this programme, there are no massive centres, it costs less, and refugees can keep their dignity,” she tells AFP.

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Beware better weather conditions.

3,000 Migrants Rescued Off Libya On Sunday (AFP)

Around 3,000 migrants were rescued off the coast of Libya on Sunday as they tried to cross the Mediterranean to Europe, the Italian coast guard told AFP. “After some calm days, migrants are arriving in large numbers, taking advantage of a window of favorable weather,” said a coast guard official. The rescue was undertaken in 22 separate operations coordinated by the Italian coast guard. One participant was the Aquarius, a humanitarian ship run by the NGO SOS Mediterranean and Doctors Without Borders (MSF), which said it saved 946 people, including 200 unaccompanied minors. An MSF video showed three young children smiling and dancing on the ship to the sound of drumming. The migrants rescued by the Aquarius had been found drifting on nine wooden and rubber boats. According to the Italian government, 16,206 people have been rescued in the sea by Friday — compared to 11,911 by the same time last year.

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