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
 
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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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Mar 092017
 
 March 9, 2017  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , ,  4 Responses »
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Marjory Collins “Crowds at Pennsylvania Station, New York” 1942

 


WikiLeaks Says Just 1% Of #Vault7 Covert Documents Released So Far (RT)
US Private Sector Adds 298,000 Jobs In February – ADP (R.)
Trump Begins to Map Out $1 Trillion Infrastructure Plan (WSJ)
US Oil Price Plunges Toward $50 As A Perfect Storm Brews (CNBC)
Professor Steve Keen On The Problem With Europe (DR)
Varoufakis Back In Brussels In Push For ECB Transparency (EUO)
Germans Really, Really Love the Euro (BBG)
The Meltdown in Politics (Martin Armstrong)
Macron Faces A Really Big Problem If He Becomes French President (Con.)
French Insurgents Thrust Establishment Aside in Crucial Election (BBG)
Iceland First Country In The World To Make Firms Prove Equal Pay (Ind.)
Fukushima Clean-Up Falters 6 Years After Tsunami (G.)
Eurostat: Greece Is The Only EU Country Still In Recession (NE)
Greek Farmers Clash With Riot Police In Athens Over Austerity (G.)
It Takes 10 Workers In Greece To Pay One Pension (K.)

 

 

How is this going to affect Apple and Microsoft sales in China?

WikiLeaks Says Just 1% Of #Vault7 Covert Documents Released So Far (RT)

WikiLeaks’ data dump on Tuesday accounted for less than 1% of ‘Vault 7’, a collection of leaked CIA documents which revealed the extent of its hacking capabilities, the whistleblowing organization has claimed on Twitter. ‘Year Zero’, comprising 8,761 documents and files, was released unexpectedly by WikiLeaks. The organization had initially announced that it was part of a larger series, known as ‘Vault 7.’ However, it did not give further information on when more leaks would occur or on how many series would comprise ‘Vault 7’. The leaks have revealed the CIA’s covert hacking targets, with smart TVs infiltrated for the purpose of collecting audio, even when the device is powered off. The Google Android Operating System, used in 85% of the world’s smartphones, was also exposed as having severe vulnerabilities, allowing the CIA to “weaponize” the devices.

The CIA would not confirm the authenticity of the leak. “We do not comment on the authenticity or content of purported intelligence documents.” Jonathan Liu, a spokesman for the CIA, is cited as saying in The Washington Post. WikiLeaks claims the leak originated from within the CIA before being “lost” and circulated amongst “former U.S. government hackers and contractors.” From there the classified information was passed to WikiLeaks. End-to-end encryption used by applications such as WhatsApp was revealed to be futile against the CIA’s hacking techniques, dubbed ‘zero days’, which were capable of accessing messages before encryption was applied. The leak also revealed the CIA’s ability to hide its own hacking fingerprint and attribute it to others, including Russia. An archive of fingerprints – digital traces which give a clue about the hacker’s identity – was collected by the CIA and left behind to make others appear responsible.

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The Trump bull is alive for now.

US Private Sector Adds 298,000 Jobs In February – ADP (R.)

U.S. private employers added 298,000 jobs in February, well above economists’ expectations, a report by a payrolls processor showed on Wednesday. Economists surveyed by Reuters had forecast the ADP National Employment Report would show a gain of 190,000 jobs, with estimates ranging from 150,000 to 247,000. Private payroll gains in the month earlier were revised up to 261,000 from an originally reported 246,000 increase. The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment. Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 193,000 jobs in February, down from 237,000 the month before. Total non-farm employment is expected to have changed by 190,000. The unemployment rate is forecast to tick down to 4.7% from the 4.8% recorded a month earlier.

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How much of it will be put to good use, and how much merely siphoned off?

Trump Begins to Map Out $1 Trillion Infrastructure Plan (WSJ)

President Donald Trump pushed his White House team on Wednesday to craft a plan for $1 trillion in infrastructure spending that would pressure states to streamline local permitting, favor renovation of existing roads and highways over new construction and prioritize projects that can quickly begin construction. “We’re not going to give the money to states unless they can prove that they can be ready, willing and able to start the project,” Mr. Trump said at a private meeting with aides and executives that The WSJ was invited to. “We don’t want to give them money if they’re all tied up for seven years with state bureaucracy.” Mr. Trump said he would was inclined to give states 90 days to start projects, and asked Scott Pruitt, the new head of the EPA, to provide a recommendation.

He expressed interest in building new high-speed railroads, inquired about the possibility of auctioning the broadcast spectrum to wireless carriers, and asked for more details about the Hyperloop, a project envisioned by Tesla founder Elon Musk that would rapidly transport passengers in pods through low-pressure tubes. “America has always been a nation of great promise, because we dream big,” Mr. Trump said. “We’re going to really dream big now.” The president called for a $1 trillion infrastructure plan last month in his address to a joint session of Congress and added that the projects would be financed through public and private capital. The White House was considering a repatriation tax holiday to generate about $200 billion in funding, but other sources also were being considered, a senior administration aide said.

In the meeting, the president said he aimed to win approval for an infrastructure plan once Congress finishes deliberations on health care and a reform of tax laws. Mr. Trump suggested that an infrastructure plan may be part of the tax-reform debate. “We’ll see what happens,” he said. Vice President Mike Pence, who sat across from the president during the meeting, said that Congress is “committed to the president’s vision.” “There’s a great of interest in Congress in doing this,” Mr. Pence said. “But there’s also just as much interest in listening to leaders in the private sector to identify the capital and identify the needs to be able to finance this in a way that really captures the energy of the American economy.”

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Time to acknowledge demand isn’t coming back?

US Oil Price Plunges Toward $50 As A Perfect Storm Brews (CNBC)

Oil is on track to break through the key psychological level of $50 a barrel after a ninth straight rise in U.S. crude stockpiles came at exactly the wrong moment, analysts said Wednesday. The amount of crude oil in U.S. storage rose to another record high on Wednesday, jumping 8.2 million barrels from the previous week, the Energy Information Administration reported. The increase was more than four times what analysts expected. Weekly figures also showed U.S. oil production continuing to tick up toward 9.1 million barrels a day, the highest level in more than a year. That provided further evidence that rising American output is confounding efforts by OPEC, Russia and 10 other exporters to reduce global oil inventories by curbing their own output. The data sent U.S. benchmark West Texas Intermediate crude prices plunging more than 5% to a nearly three-month low.

The plunge through a number of lows on Wednesday puts oil on a path to test the December low of $49.95 a barrel, said John Kilduff at energy hedge fund Again Capital. “From there you could accelerate,” he told CNBC, adding that $50 “was the fail-safe.” Kilduff’s downside target, once oil breaks below $50 a barrel, is $42. For the last three months, oil has traded in a range between $49.61 and $55.24. According to Kilduff, all the elements are in place for oil to break below its three-month range: lack of cohesion among OPEC members, bearish statements from oil ministers at CERAWeek conference by IHS Markit and subdued refinery activity as operators perform seasonal maintenance in the United States. On Tuesday, Saudi Oil Minister Khalid al-Falih warned at CERAWeek that the kingdom would only support OPEC’s intervention in markets for a “restricted period of time” and would not “underwrite the investments of others at our own expense and long-term interests.”

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Snippets from an interview. The euro was doomed from the start because of conditions put on it.

Professor Steve Keen On The Problem With Europe (DR)

But the trouble is, you see, they didn’t have to have a single currency combined with the 60% limit on government debt and the 3% limit on government deficits. If they simply had a currency and made no rules whatsoever about that, then it would have been feasible, potentially, to say okay, well it’s not working as well as we would like it to, but not imposing austerity on economies in a downturn, which is what they ended up doing courtesy of those rules. Maybe we need a treasury to make it work better, but it wasn’t just the fact that it was only the central bank, it was also the rules on government spending.

[..] another part of it, which is quite intriguing, I heard in Berlin just recently, is that also, one of the other rules they agreed to, or one of the other objectives they agreed to, not a rule, was to target a 2% rate of inflation. Now what you actually had happen was that Germany hit about 1%, France actually hit about 2%, Italy hit about 3%, the three major trading partners of course on the block. Well, that means, as a result, over every year, German manufacturers were gaining a 2% cost advantage over Italian manufacturers. Which ultimately means of course that people don’t buy Lamborghinis and Fiats anymore, they buy Mercedes, because for the same features they’re cheaper.

It’s not about labour productivity alone, it’s about the rate of inflation, which comes down to the rate of wage change, because the Germans suppressed the rate of wage change, the rate of inflation was lower, and that was 1% below the level they agreed to. Now, if they’d agreed to 2%, and France did 2%, and Italy maybe suppressed its wage change and they hit 2%, you wouldn’t have these imbalances. But they’ve built up over 15 – going on close to 20 years now – and those level of imbalances mean that, fundamentally, Italian industry can’t compete with German industry, not because of productivity differences so much but wage costs combined with that.

[..] That’s why Trump’s complaining about Germany having an undervalued currency, and he’s bloody right on that front. If you can run a 9% of GDP trade surplus, which is the level Germany’s now hit, a lot of that is with the rest of the world, the EU itself overall is balanced, so there’s a huge imbalance – Germany’s got a huge trade surplus with the rest of Europe, but it’s also got it with the rest of the world, and on that scale I think Germany’s trade balance now is the same scale as China’s. Now that’s ludicrous.

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Perhaps the biggest problem with Europe is that transparency and the EU don’t mix. In this case it’s clear why: the ECB was used as a -very blunt- tool for political pressure. Their defense is basically: if we become transparent, we’re no longer independent. And people buy that?!

Varoufakis Back In Brussels In Push For ECB Transparency (EUO)

Former Greek finance minister Yanis Varoufakis has joined forces with the German left-wing MEP Fabio De Masi in a bid to clarify whether the ECB had a legal right to limit the liquidity of Greece’s banks in 2015. The duo told journalists in Brussels on Wednesday (8 March) that they were collecting signatures for a petition to ECB president Mario Draghi, asking him to disclose two legal opinions commissioned by the bank. The first study was ordered in February, before the ECB decided to limit the access of Greek banks to ECB funding and opted instead to open access to the emergency liquidity assistance (ELA) – a fund with more restrictive access conditions. The decision was taken a few days after the radical left-wing Syriza party came to power, with Varoufakis as finance minister.

The second study, in June 2015, was about the ECB’s decision to freeze the amount of money available through the ELA after the Greek government’s decision to hold a referendum on the bailout conditions required by the country’s creditors. The measure was taken over concerns that Greek banks would become insolvent because of the deadlock in bailout talks. It also put more pressure on the Greek government to accept the lenders’ conditions. To avoid a bank run, where large numbers of people withdraw money from their deposit accounts at the same time, the government introduced capital controls. This meant that Greek people were only able to withdraw a maximum of €60 per day. The measure prevented a capital run, but also put pressure on Athens to agree to creditors’ terms for a third bailout.

Varoufakis, who was finance minister at the time, said this was a breach of the independence of the bank. “The ECB has the capacity to close down all the banks of a member state. At the same time, it has a charter which grants it – supposedly – complete independence from politics. And yet, there is no central bank, at least in the West, which has less independence of the political process,” Varoufakis said. He said Draghi was “completely reliant” on the decisions of an “informal group of finance ministers”, referring to the fact that the Eurogroup, which gathers the finance ministers of the 19 eurozone countries, isn’t enshrined in EU treaties. “It is apparent that Draghi didn’t feel that the was on solid legal ground when proceeding with the closing of Greek banks,” Varoufakis said.

[..] In September 2015, Fabio De Masi already asked Draghi for the opinions. But the ECB chief, in a letter made public by the MEP, said the bank does not plan to publish the legal opinions because this would “undermine the ECB’s ability to obtain uncensored, objective and comprehensive legal advice, which is essential for well-informed and comprehensive deliberations of its decision-making bodies”. “Legal opinions provided by external lawyers and related legal advice are protected by legal professional privilege (the so-called ‘attorney-client privilege’) in accordance with European Union case law,” Draghi said. “Those opinions were drafted in full independence, on the understanding that they can only be disclosed by the addressee and only shared with people who need to know in order to take reasoned decisions on the issues at stake,” he added.

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No cashless society there.

Germans Really, Really Love the Euro (BBG)

As worries over the future of the euro zone heat up, the union’s biggest member is doubling down on the single currency in an underappreciated way. Germany’s central bank is by far the biggest issuer of cash in the bloc, with the Bundesbank the source of more euro banknotes in circulation than all of its peers combined. The size of the imbalance is underscored by new data from the ECB, showing nations’ contributions towards the Eurosystem’s consolidated financial statement. Each national central bank, or NCB, has a notional banknote allocation that’s tied to its share of Eurosystem capital. At the end of last year, there were €1.1 trillion euros ($1.25 trillion) in circulation, breaking down like this:

That accounts for how euro cash would be distributed in theory. In order to find out how much cash is actually issued you have to make adjustments that take into account variations in demand, which push the number higher in some countries and lower in others. The adjustments look like this:

The Bundesbank has, since the introduction of the euro in 2002, put a net €327 billion into circulation above its on-paper allocation. By combining the figures in the two charts, we arrive at a true picture of the origin of banknotes in the European economy:

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“The mainstream media are not honorable independent people. They are big business not much different from the banks.”

The Meltdown in Politics (Martin Armstrong)

The bias of the press is getting so bad, they are undermining everything they were supposed to stand for. This is a critical aspect in the decline and fall of an empire, nation, or city state. Once the news is compromised, confidence not just in the press, but in everything crumbles. The mainstream media are not honorable independent people. They are big business not much different from the banks. They lobby for their special deals and the support the status quo. The New York Times at least admitted their coverage of the election was biased. They apologized, but nothing has really changed. “As we reflect on the momentous result, and the months of reporting and polling that preceded it, we aim to rededicate ourselves to the fundamental mission of Times journalism. That is to report America and the world honestly, without fear or favor, striving always to understand and reflect all political perspectives and life experiences in the stories that we bring to you. It is also to hold power to account, impartially and unflinchingly.”

Even if Trump met with Putin, exactly what does that infer? Did it alter the election? No. Even Obama admitted that no hack altered the vote count. So what is the issue? The press aids the Democrats in trying to blame Putin for Hillary’s loss. But there is not a single shred of evidence that ANY of the leaked emails from the Democrats was ever altered or was fake. The Democrats simply got caught with their hand in the cookie jar and blame Putin. So what is all this Russia thing about? It seems to be just a diversion to discredit Trump and stop the agenda of any reform. A simple technical analysis of Democrat v Republican shows that the former is in a major decline and their agenda has been dying. In fact, look out for 2018-2019. Sheer chaos is coming.

In Europe, political forces are also in a state of denial. The EU is collapsing and the politicians refuse to surrender their goals. Instead, they lash out at what they are calling “populism” as with the election of Trump, BREXIT, and the developments in France. The will of the people is not worth anything when it goes against their dreams. So in both cases, we are witnessing the demise of the West. All of this political fighting is setting the stage for the shift from the West to the East of financial power. The wheel of fortune spins. We lost. What is accomplished by overthrowing Trump? What is accomplished by forcing Europe to remain in the EU with unelected people controlling everything from Brussels? If the press succeeds in overturning Trump, what is accomplished? Do they really think everything can go back to the way it was before?

[..] the media in the USA has degenerated to fake news, but in Europe the very same trend has emerged. This is a serious nail in our coffin and mainstream media has indeed become the sword of our own destruction. Can we prevent this outcome? No. All we can do is hopefully learn from our mistakes and this time try to create a system that prevents such an oligarchy from rising. All Republics historically collapse into oligarchies. As we head into 2018, this is going to get really bad. This is going to be a turning point of great importance in the political world.

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A president without a party. Or a program. Doesn’t seem to add up.

Macron Faces A Really Big Problem If He Becomes French President (Con.)

Currently riding high in the polls, Emmanuel Macron, the self-styled “beyond left and right” candidate for the French election, has been tipped to become the next president in May. But if he does, will he actually run the country? This question might sound odd but the nuances of the French political system put Macron in a spot of bother. The president derives their power from the support of a majority in the lower house of parliament, the National Assembly. Macron was a minister for the Socialist Party government but quit in 2016 to form his own political movement. Now he doesn’t even have a party, let alone a majority. Although the constitution of the French Fifth Republic, created by Charles De Gaulle in 1958, extended presidential powers, it did not enable the president to run the country.

There are only a few presidential powers that do not need the prime minister’s authorisation. The president can appoint a prime minister, dissolve the National Assembly, authorise a referendum and become a “temporary dictator” in exceptional circumstances imperilling the nation. They can also appoint three judges to the Constitutional Council and refer any law to this body. While all important tasks, this does not, by any stretch of the imagination, amount to running a country. The president can’t suggest laws, pass them through parliament and then implement them without the prime minister. The role of a president is best defined as a “referee”. Presidential powers give the ability to oversee operations and act when the smooth running of institutions is impeded.

So a president is able to step in if a grave situation arises or to unlock a standoff between the prime minister and parliament, such as by announcing a referendum on a disputed issue or by dismissing the National Assembly. So, why does everyone see the president as the key figure? In a nutshell, it’s because the constitution has never been truly applied. There lies the devilish beauty of French politics. A country known since the 1789 revolution for its inability to foster strong majorities in parliament has succeeded, from 1962, in providing solid majorities.

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This is what happens everywhere, in varying ways. In France, both establishment blocks look to be cast aside.

French Insurgents Thrust Establishment Aside in Crucial Election (BBG)

The old order is fading in France. Every election since Charles de Gaulle founded the Fifth Republic more than half a century ago has seen at least one of the major parties in the presidential runoff and most have featured both. With Republicans and Socialists consumed by infighting and voters thoroughly fed up, polls suggest that neither will make it this year. For the past month, survey after survey has projected a decider between Emmanuel Macron, a 39-year-old rookie who doesn’t even have a party behind him, and Marine Le Pen, who’s been ostracized throughout her career because of her party’s history of racism. “We’ve gone as far as we can go with a certain way of doing politics,” said Brice Teinturier, head of the Ipsos polling company and author of a book on voters’ disillusionment. “Everyone feels the system is blocked.”

Claude Bartolone, the Socialist president of the National Assembly, said in an interview with Le Monde Tuesday he may back Macron because he doesn’t “identify” with the more extreme platform put forward by his party’s candidate Benoit Hamon. De Gaulle’s latest standard-bearer Francois Fillon has spent the past week facing down rebellions in his party triggered by a criminal probe of his finances. Former Prime Minister Manuel Valls hasn’t campaigned for Hamon since losing to him in the primary and Socialist President Francois Hollande hasn’t even endorsed his party’s candidate either. Instead, senior figures from the Socialist camp are endorsing Macron, with former Paris Mayor Bertrand Delanoe the latest to offer his backing on Wednesday. “There’s a breakdown of parties in France,” Francois Bayrou, a two-time centrist candidate who is now backing Macron, said Tuesday on RMC Radio. “There are hostile battles between factions within each party, which has ruined the parties and ruined the image of politics.”

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Crazy that such differences still persist.

Iceland First Country In The World To Make Firms Prove Equal Pay (Ind.)

On International Women’s Day, Iceland became the first country in the world to force companies to prove they pay all employees the same regardless of gender, ethnicity, sexuality or nationality, The country’s government announced a new law that will require every company with 25 or more staff to gain a certificate demonstrating pay equality. Iceland is not the first country to introduce a scheme like this – Switzerland has one, as does the US state of Minnesota – but Iceland is thought to be the first to make it a mandatory requirement. Equality and Social Affairs Minister Thorsteinn Viglundsson said that “the time is right to do something radical about this issue.” “Equal rights are human rights. We need to make sure that men and women enjoy equal opportunity in the workplace. It is our responsibility to take every measure to achieve that,” he said.

The move comes as part of a drive by the Nordic nation to eradicate the gender pay gap by 2022. In October, thousands of female employees across Iceland walked out of workplaces at 2.38pm to protest against earning less than men. After this time in a typical eight-hour day, women are essentially working without pay, according to unions and women’s organisations. Iceland has been at the forefront of establishing pay equality, having already introduced a minimum 40% quota for women on boards of companies with more than 50 employees. The country has been ranked the best in the world for gender equality by the World Economic Forum for eight years running, but despite this, Icelandic women still earn 14 to 18% less than men, on average.

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“Cleaning up the plant [..] is expected to take 30 to 40 years, at a cost Japan’s trade and industry ministry recently estimated at 21.5tr yen ($189bn).” Uh, no, it will cost far more than $189 billion, and it’s to NOT clean up the plant. They have no idea how to do it. It’s all just fantasy.

Fukushima Clean-Up Falters 6 Years After Tsunami (G.)

Barely a fifth of the way into their mission, the engineers monitoring the Scorpion’s progress conceded defeat. With a remote-controlled snip of its cable, the latest robot sent into the bowels of one of Fukushima Daiichi’s damaged reactors was cut loose, its progress stalled by lumps of fuel that overheated when the nuclear plant suffered a triple meltdown six years ago this week. As the 60cm-long Toshiba robot, equipped with a pair of cameras and sensors to gauge radiation levels was left to its fate last month, the plant’s operator, Tokyo Electric Power (Tepco), attempted to play down the failure of yet another reconnaissance mission to determine the exact location and condition of the melted fuel. Even though its mission had been aborted, the utility said, “valuable information was obtained which will help us determine the methods to eventually remove fuel debris”.

The Scorpion mishap, two hours into an exploration that was supposed to last 10 hours, underlined the scale and difficulty of decommissioning Fukushima Daiichi – an unprecedented undertaking one expert has described as “almost beyond comprehension”. Cleaning up the plant, scene of the world’s worst nuclear disaster since Chernobyl after it was struck by a magnitude-9 earthquake and tsunami on the afternoon of 11 March 2011, is expected to take 30 to 40 years, at a cost Japan’s trade and industry ministry recently estimated at 21.5tr yen ($189bn). The figure, which includes compensating tens of thousands of evacuees, is nearly double an estimate released three years ago. The tsunami killed almost 19,000 people, most of them in areas north of Fukushima, and forced 160,000 people living near the plant to flee their homes. Six years on, only a small number have returned to areas deemed safe by the authorities.

[..] Shaun Burnie, a senior nuclear specialist at Greenpeace Germany who is based in Japan, describes the challenge confronting the utility as “unprecedented and almost beyond comprehension”, adding that the decommissioning schedule was “never realistic or credible”. The latest aborted exploration of reactor No 2 “only reinforces that reality”, Burnie says. “Without a technical solution for dealing with unit one or three, unit two was seen as less challenging. So much of what is communicated to the public and media is speculation and wishful thinking on the part of industry and government. “The current schedule for the removal of hundreds of tons of molten nuclear fuel, the location and condition of which they still have no real understanding, was based on the timetable of prime minister [Shinzo] Abe in Tokyo and the nuclear industry – not the reality on the ground and based on sound engineering and science.”

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And it will remain in recession for a long time.

Eurostat: Greece Is The Only EU Country Still In Recession (NE)

Household consumption and a rebound in investment drove economic growth in the euro zone in the last three months of last year, the latest data from EU statistics office Eurostat shows. Eurostat confirmed its earlier estimate that the economy of the 19 countries sharing the euro grew 0.4% quarter-on-quarter and 1.7% year-on-year. It said household consumption added 0.2 % points to the final quarterly growth number and capital investment added another 0.1 points, rebounding from a 0.1 point negative contribution in the third quarter. Growing inventories added another 0.1 points and government spending another 0.1 points while net trade subtracted 0.1 points.

Greece was the only country that was in negative territory, with GDP declining by 1.1% compared with the last quarter of 2015 and by 1.2% compared to the third quarter of 2016. Combined, the eurozone continued steady recovery, with the economy growing by 1.7% year on year and 0.4% on a quarterly basis. Messages were positive in the eurozone core. Germany grew by 1.8% and France by 1.2%, while the third largest economy of the euro, Italy, increasing by 1%. Impressive was the growth of Spain as it reached 3%. Social protection spending in Greece represented 20.5 % of the country’s GDP in 2015.

This is slightly higher than both the Eurozone average ratio (20.1% of GDP) and the EU28 average ratio (19.2% of GDP). Social protection expenditure in EU member-states ranged from 9.6% of GDP in Ireland to 25.6% of GDP in Finland in that year. Eight member-states (Finland, France, Denmark, Austria, Italy, Sweden, Greece and Belgium) spent more than 20% of GDP on social protection while Ireland, the Baltic states, Romania, Cyprus, Malta and the Czech Republic spend less than 13%.

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“Tax rates are expected to reach 26%, while pensions are being cut by as much as 22% by 2022.”

Greek Farmers Clash With Riot Police In Athens Over Austerity (G.)

Farmers who travelled to Athens from Crete have clashed with riot police in the latest unrest on the streets of the Greek capital, prompted by the government’s austerity policies. The confrontation occurred outside the agriculture ministry, where farmers wielding staffs engaged with police firing teargas to prevent them from entering the building. More than 1,100 stockbreeders and farmers arrived on overnight ferries in the early hours of Wednesday, to protest against increases in tax and social security contributions demanded by the creditors keeping Greece afloat. Footage showed the farmers, many wearing black bandanas, smashing the windows of riot vans with shepherds’ staffs, setting fire to rubbish bins and hurling rocks and stones.

When the agriculture minister, Evangelos Apostolou, initially refused to meet a 45-member delegation representing protesters, anger peaked. “Dialogue is one thing, thuggery quite another,” the minister said, before attempts at further talks also foundered. Greek farmers, long perceived to be the privileged recipients of generous EU funds, have historically been exempt from taxation. However, the barrage of cuts and increases in the price of everything from fuel to fertilisers will hit them hard. Tax rates are expected to reach 26%, while pensions are being cut by as much as 22% by 2022. Prof George Pagoulatos, who teaches European politics and economy at the University of Athens, said: “Farmers, in many ways, are a classic example of one of Greece’s protected groups. “In certain rural constituencies, like Crete, they are also electorally very influential.”

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Wages have become too low to pay for pensions. 23% unemployment. Almost half of Greeks depend on pensions to stay alive. More cuts are inevitable. The only way is down.

It Takes 10 Workers In Greece To Pay One Pension (K.)

The constant decline in salaries and the rise of flexible forms of employment are undermining the sustainability of the country’s social security system despite the numerous interventions in terms of pensions. According to social security experts, the slide in the average salary means that it now takes the contributions of 10 workers to pay one pension; before the crisis it required the contributions of four workers. The deterioration of that ratio highlights the system’s viability problem. The main feature of that problem is that the contributions of today’s workers go in their entirety toward covering the pensions of today’s pensioners.

According to data from the new Single Social Security Entity (EFKA), the analysis of employers’ declarations from May 2016 showed that the average salary of 1.4 million workers with full employment amounted to €1,176 per month. The average monthly gross earnings of the 588,000 part-time workers amounted to just €394; their number increased by about 11% from a year earlier. The same data show that bigger enterprises pay higher salaries: Businesses with fewer than 10 employees have an average full-employment salary that amounts to just 58.9% of that paid to employees of companies with more than 10 workers.

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Feb 282017
 
 February 28, 2017  Posted by at 2:33 pm Finance Tagged with: , , , , , , , ,  19 Responses »
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Willem de Kooning Gotham News 1955

 

You could perhaps say that this is part 4 in a series on -America’s- peak wealth, even if it was never intended to be such a series; it just happened. First, in a February 18 essay about declining economic growth, “Not Nearly Enough Growth To Keep Growing”, I said “..the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s”.

That prompted a reply from long-time Automatic Earth reader Ken Latta, which he turned into an article a few days later which I published on February 23 as “When Was America’s Peak Wealth?” Ken reasoned that America’s peak wealth was sometime in the late ’50s to early 60’s.

Then yesterday, I posted “Peak American Wealth – Revisited”, which contains Ken’s responses to what various readers had written in the Comments section of the second piece. I remarked that many of the commenters seemed, like Ken, to be in their 70s. All this led to an even livelier and more personal Comments section for that article, including quite a few by younger readers.

Not that I ever had the impression that the Automatic Earth had become an old folks home, I just figured ‘older’ people are more likely to be triggered by talking about the 1960s, a period the younger only know from second-hand accounts. Still, it’s good to see, also in private emails, that there are quite few in their 20s and 30s who’ve been reading us for many years, and who do understand quite a bit about the crisis we’re in.

One of the mails I received was from long time acquaintance (for lack of a better word, I don’t think we ever met) Charles A. Hall. I’ve been familiar with Charlie’s work as systems ecologist on energy -in a very broad sense- for a long time, and have always held him in high esteem. That he reads the Automatic Earth on a regular basis is of course a privilege for us. That what he sees as my mistakes urge him to write an article is an even greater honor.

I’ll let Charlie do his own PR line: “Dr. Hall is Emeritus Professor at State University of New York College of Environmental Science and Forestry, Syracuse. Author of 13 books and nearly 300 scientific papers on these topics including Energy and the wealth of Nature (with Kent Klitgaard) and his new Energy Return on Investment: a Unifying Principle for Biology, Economics and Sustainabiity (both from Springer Press).”

And I do agree with the honorable professor that discussing peak US wealth without giving energy a prominent position in that discussion is far from ideal. At the same time, economic systems can fall apart of their own accord and/or through human hubris. Even with equal or growing energy availability, no everlasting growth is guaranteed -or even possible.

Interesting detail is that Dr. Hall puts the ‘peak wealth time’ in the late 70s to early 80s. That’s quite a bit later than either Ken Latta or I did, and than most of our commenters seem to do. But point taken: absent energy no wealth can be created. Here’s Charlie:

 

 

Charles A. Hall: I keep being amazed at the inability of economists, commentators and most regular citizens to fail to understand the importance of resources in general and petroleum (oil and gas) in particular to the material well being of society. This is exemplified by the recent posts of Latta and Meijer. I provide a few simple graphs to make my point, and then below add some excerpts lifted and slightly modified from our book (Hall and Klitgaard, Energy and the Wealth of Nations, Springer).

John Hickenlooper, when he was Mayor of Denver, understood the importance of oil and its restrictions. He said: “This land was originally settled by the Sioux. Everything that the Sioux depended upon, their food, clothing, shelter, implements and so on, came from the bison. They had many ceremonies giving thanks and appreciation to the Bison. We today are as dependent upon oil as the Sioux were on the bison, but not only do we not acknowledge or celebrate that, but most people do not have a clue”. Since 2010 global oil production is no longer increasing and may indeed be decreasing. Almost certainly it will decrease substantially in the future as we enter, in the words of geologist Colin Campbell, “the second half of the age of oil”.

The American dream was the product of industrious and clever people working hard within a relatively benign political system that encouraged business in various ways, but that all of these things also required a large resource base relative to the number of people using it. A key issue was the abundance of oil and gas in the United States, which was the world’s largest producer in 1970. But in 1970 (and 1973 for there was a clear peak in US oil production, and while the continued increase in oil production worldwide buffered the United States (and other countries) from the local peak it seems clear by 2017 that global oil production has reached its own peak while demand from around the world continues to grow.

This mismatch between supply and demand resulted in a sharp increase in the price of oil and many economic problems that we believe it caused, at least in part, including the stock market decline of 2008, the sub-prime real estate bust, the failure of many financial corporations, the fact that some 40 odd of 50 states are officially broke and that there is a substantial decrease in discretionary income for many average Americans. As developed later …. all of these economic problems are a direct consequence of the beginning of real shortages of petroleum in a petroleum-dependent society.

 

 

The historical ability to achieve wealth in the United States is in large part a consequence of the incredible resource base once found on the North American continent. These include initial endowments of huge forests, immense energy and other geological resources, fish, grass and, perhaps of greatest importance, rich deep soils where rain falls during the growing season.

While many other regions of the world also have, or had, a similarly huge resource base the United States has several other somewhat unique important attributes. The fact that these resources have been exploited intensely for only a few hundred years (vs. many thousand as in Europe or Asia), the presence of large oceans separate us from others who might want our resources; results in resources per capita that is relatively large, an extremely low human population density in the past and even now, so that the resources per capita is still relatively high.

A critical component of these patterns was the large increase in labor productivity during the first two thirds of the 20th century. This allowed both industry owners and labor, especially of the largest corporations, to do better and better. What was less emphasized but enormously clear in retrospect was that to allow the economy to expand it was possible to massively increase the production from oil, gas and coal fields, some new, and some old but barely tapped previously, so that once the economic engine was started there was a great deal of high quality energy available. The United States began using many times as much energy per person as had been the case relatively few decades before or was the case in Europe.

But in 1973 the United States experienced the first of several “oil shocks” that seemed, for the first time, to inject a harsh note of vulnerability into the united chorus of the American Dream for all. Before the 1970s nearly all segments of American society – including labor, capital, government, and civil rights groups – were united behind the agenda of continuous economic growth. The idea that growth could be limited by resource or environmental constraints, or, more specifically, that we could run short of energy-providing fossil fuels was simply not part of the understanding or dialog of most of this country’s citizens. But this was to change in the 1970s.

 

 

In retrospect, we can now say that the pillars of post-war prosperity began to erode in the 1970s and early 1980s, and that changes in the social sphere also began to complicate and add to the biophysical changes derived from the decline in the availability of cheap oil. Even though the oil market had stabilized and cheap energy returned to the United States in the late 1980’s, the changes in the structure of the economy were long lasting. The economy ceased growing exponentially, although it continued to grow linearly but at a decreasing rate, from 4.4 percent per year in the 1960s to 3.3, 3.0, 3.2 to 2.4 percent to close to one percent in the following decades.

Many formerly “American” companies became international and moved production facilities overseas where labor was cheaper and oil, no longer cheaper in the US compared to elsewhere, was the same price, although cheap enough to pay for the additional transport required. The decrease in labor costs when production facilities were moved to other countries outweighed the costs and the process of globalization accelerated. Productivity growth (formerly strongly linked to increasing energy used per worker hour) in manufacturing industries began to slow, falling from 3.3% per year in the 1966-1973 period to 1.5% from 1973-1979 to essentially zero in the early 1980s.

 

 

Mainstream economists seemed at a loss to explain this phenomenon. Their statistical models, which relied on the amount of equipment per worker, education levels and workforce experience left more factors unexplained than explained. Even the profession’s productivity guru, Edward Denison, had to admit that the seventeen best models explained only a fraction of the problem, leaving half of the increase in wealth unexplained. But Denison’s model did not include energy, but only capital and labor. When Reiner Kummel and his colleagues included energy in the same model they found that the unexplained residual disappeared and that energy was even more important than either Capital or Labor.

My point, and this could be emphasized with many more citations and analyses, is that humans for some peculiar reason are unable or unwilling to give natural resources, the biophysical basis of real economies, their proper due. The days of abundant, cheap, exponentially growing availability and use of many resources, including especially high quality fossil fuels, is forever behind us. Fracked oil is expensive and already declining, we still import about half our oil, and consequently our economy cannot physically grow as readily as in the past. While there are many reasons beyond resources (such as concentration of wealth) for the failure of our economy to grow, we must first start with biophysical reality.

 

See also my new book “Energy Return on Investment: A unifying principle for Biology, Economics and Sustainability (Springer)

 

 

Jan 262017
 
 January 26, 2017  Posted by at 10:32 am Finance Tagged with: , , , , , , , , , ,  14 Responses »
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Arthur Siegel Zoot suit, business district, Detroit, Michigan 1942


Trump Loves Debt, But It Won’t Love Him Back (BBG)
US Tax Reforms Could ‘Transform’ Global Oil Market (R.)
Trump Prepares Orders Aiming at Global Funding and Treaties, UN (NYT)
Trump Starts A ‘Sanctuary City’ War With Liberal America (BBC)
Kyle Bass Calls Trump ‘Gasoline’ on Smoldering Fire in China (BBG)
China Keeps 3% Budget Deficit Goal For 2017 As Debt Risks Grow (R.)
China Is Becoming ‘Increasingly Risky’ Because Of Its Economy (CNBC)
Dutch Respond To Trump’s ‘Gag Rule’ With International Safe Abortion Fund (G.)
Why the Corrupt, Worker-Hating New Democrats Must Be Purged (Bill Black)
Pippa Malmgren: The Social Contract In The West Is Broken (SLD)
Seymour Hersh Blasts Media For Promoting Russian Hacking Story (IC)
Austerity Economics Has Just Been Smashed. By The IMF. (GDB)
The Super Rich Are Preparing For The End Of The World (CNBC)
Rome Mayor Raggi Says She Received Summons From Prosecutors (BBG)
Deal On Greek Bailout’s Second Review Possible At February Eurogroup (R.)
“INAUGURATION DAY” (Bad Lip Reading)

 

 

Catch 20-something.

Trump Loves Debt, But It Won’t Love Him Back (BBG)

President Donald Trump, the self-proclaimed king of debt, may end up with a revolt on his hands.He wants to spend billions of dollars to rebuild American highways and bridges to double economic growth to about 4% a year. He wants to preserve medical benefits for the poor and elderly. And he’s selected someone to oversee the national budget who’s fundamentally opposed to huge piles of debt and pledges to reduce the nation’s deficit.This recipe doesn’t add up, either in theory or practice. Even if Trump finances his promised infrastructure plans entirely by cutting other government services, the nation’s debt load is forecast to surge by trillions of dollars over the next decade.

Trump faces two big problems when grappling with the U.S. debt load: an aging population that’s becoming sicker and inauspicious bond math. If Trump succeeds in fostering substantially higher growth rates, as he’s promised, then interest rates will most likely rise much more than forecast. That’ll make it materially more expensive for the nation to service its debt.Even without much more growth, the U.S. deficit will likely increase as interest rates rise. That’s according to the Congressional Budget Office, a nonpartisan group that analyzes the U.S. economy, which just released its forecast for the nation’s deficit and debt load over the next decade.

Its baseline scenario calls for gradually rising benchmark borrowing costs, with 10-year Treasury yields leveling out at about 3.6% by 2022 from about 2.5% today. Even with that relatively modest projection, CBO analysts wrote that “the government’s interest payments on that debt rise sharply over the next 10 years — nearly tripling in nominal terms and almost doubling relative to GDP.”Interest expense will rise to $768 billion in 2027 from $270 billion in 2017 under the CBO’s base-case scenario.But let’s say Trump succeeds in his attempt to foster more economic growth. That’ll mean that inflation will rise, prompting investors to demand higher U.S. Treasury yields to offset steadily rising consumer prices. Jeffrey Gundlach, the bond guru who runs DoubleLine Capital, said after the election that U.S. 10-year government bond yields could reach 6% in five years. In that case, the interest expense would balloon much more than expected, substantially eating into the nation’s budget.

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“We expect WTI could move to a $10 per barrel premium to Brent from a $3 discount – a $13 (+25%) relative move immediately.”

US Tax Reforms Could ‘Transform’ Global Oil Market (R.)

The push by Republicans in the U.S. House of Representatives for a shift to border-adjusted corporate tax (BTA) could push U.S. crude prices higher than the global benchmark Brent, triggering large-scale domestic production, according to analysts at Goldman Sachs on Tuesday. The measure, known as border adjustment, intends to boost U.S. manufacturing by taxing imports while exempting U.S. business export revenues from corporate taxation. Goldman said it anticipates a 25% jump in the prices of U.S. crude futures, also known as West Texas Intermediate (WTI), and refined products in comparison to the global prices if the switch is implemented.

The investment bank, however, said that uncertainty on whether such a policy will go ahead is high due to concerns about WTO-non compliance and transition issues and oil futures currently only imply a 9% probability for such a shift. “If implemented, the impacts on the oil market would be significant,” Goldman said. “We expect WTI could move to a $10 per barrel premium to Brent from a $3 discount – a $13 (+25%) relative move immediately.” Brent crude futures were trading on Tuesday at a $2.40 per barrel premium to WTI. The appreciation in prices could be an incentive for producers to sharply increase activity, the bank said warning, that the ramp up in U.S. production in a market only starting to rebalance would create a renewed large oil surplus in 2018, which could lead to an immediate sharp decline in global oil prices.

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The UN is dysfunctional, but this risks cutting the few parts that do actually work.

Trump Prepares Orders Aiming at Global Funding and Treaties, UN (NYT)

The Trump administration is preparing executive orders that would clear the way to drastically reduce the United States’ role in the United Nations and other international organizations, as well as begin a process to review and potentially abrogate certain forms of multilateral treaties. The first of the two draft orders, titled “Auditing and Reducing U.S. Funding of International Organizations” and obtained by The New York Times, calls for terminating funding for any United Nations agency or other international body that meets any one of several criteria. Those criteria include organizations that give full membership to the Palestinian Authority or Palestine Liberation Organization, or support programs that fund abortion or any activity that circumvents sanctions against Iran or North Korea.

The draft order also calls for terminating funding for any organization that “is controlled or substantially influenced by any state that sponsors terrorism” or is blamed for the persecution of marginalized groups or any other systematic violation of human rights. The order calls for then enacting “at least a 40% overall decrease” in remaining United States funding toward international organizations. The order establishes a committee to recommend where those funding cuts should be made. It asks the committee to look specifically at United States funding for peacekeeping operations; the International Criminal Court; development aid to countries that “oppose important United States policies”; and the United Nations Population Fund, which oversees maternal and reproductive health programs.

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Interesting power fight. But there are laws.

Trump Starts A ‘Sanctuary City’ War With Liberal America (BBC)

Mr Trump’s border wall announcement will make most of the headlines today, given that it was a central focus of his presidential campaign and has increased diplomatic tension with the Mexican government. His plan to target US “sanctuary cities”, however, likely sets the stage for a much tougher, uglier domestic political fight. More than 400 jurisdictions across the country, including New York, Los Angeles, Boston and Seattle – major cities in left-leaning states that did not vote for Mr Trump – have enacted policies protecting undocumented immigrants within their boundaries. Officials in these designated areas, including local law enforcement, are not allowed to enquire as to an individual’s immigration status in the course of their duties.

Candidate Trump pledged to end this practice, and on Wednesday he put some teeth into his promise – authorising the federal government to withhold funds from cities that do not co-operate with immigration officials or comply with federal law. His executive order frames the issue as one of national security. “Sanctuary jurisdictions across the United States wilfully violate Federal law in an attempt to shield aliens from removal from the United States,” it reads. “These jurisdictions have caused immeasurable harm to the American people and to the very fabric of our republic.”

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Speeding up decline. Or exposing it, rather.

Kyle Bass Calls Trump ‘Gasoline’ on Smoldering Fire in China (BBG)

Hedge fund manager Kyle Bass likened President Donald Trump’s trade and tax policies to gasoline — hastening an economic restructuring in China while stimulating capital investment and growth in the U.S. China has “recklessly built a system that’s going to need to restructure and that just so happens to be metastasizing right when Trump becomes elected,” Bass told Bloomberg TV. “This is a fire that’s been smoldering and it’s now starting to burn, and Trump is just more gasoline.” Imposing tariffs on Chinese imports could have “profound consequences” for the nation’s economy, where credit over the last 18 months has grown by $6.5 trillion while deposits expanded just $3 trillion, said Bass, founder of Hayman Capital Management.

Early last year, Bass called for a 30% devaluation in the yuan against the dollar, and he’s since opened two Asia-focused funds to wager on the imbalances in the region, which he said could extend to Hong Kong and Taiwan. “The idea that China is now the driving economic power in the world, I think, is illusory or somewhat of a fallacy,” he said. “It’s safe to say that the Asian theater is where we’ve been focused.” In the U.S., Bass said, border tax adjustments will help finance a lower corporate tax rate that Trump has proposed, which in combination with the repatriation of capital offshore will be “extremely stimulative.” He said Trump’s accelerated policies would lead to real capital investment, competitiveness and an improvement in productivity.

The impact will be “positive for the United States and slightly negative for the rest of the world,” he said. “But it’s not the globalist nightmare, in my opinion.” Inflation, set to increase in the U.S., will also spike in Germany, which will prompt a tapering of the ECB’s bond-buying program and possibly an increase in interest rates, he said. The move to do so will be sped up by Trump, he said.

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“Total fixed-asset investment rose 8.1% in 2016, the slowest pace since 1999, despite an 18.7% increase in investment by state entities..”

China Keeps 3% Budget Deficit Goal For 2017 As Debt Risks Grow (R.)

China’s policymakers plan to keep their budget deficit target for 2017 at the same level as last year to underscore a focus on debt reduction and reform, though they have wiggle room to increase fiscal stimulus if the economy needs support again. A budget deficit target of 3% of GDP, unchanged from 2016, was endorsed by top leaders at the Central Economic Work Conference in December, according to sources with knowledge of the meeting’s outcome. After government investment propped up activity for much of 2016, policymakers are looking for a recovery in private investment through public-private partnership (PPP) infrastructure projects to drive growth this year. “Fiscal policy is clear. It’s necessary to maintain last year’s 3% deficit ratio, although there is room to increase it slightly,” said one of the sources, a policy adviser.

Preliminary finance ministry data this week implied an actual deficit of 3.8% of GDP in 2016. However, China’s budget accounting allows it to use unspent money from previous years and funds from a Central Budget Stabilization Fund so it can report a final deficit in line with the target. The world’s second-largest economy grew 6.7% last year, supported by higher government spending and record bank lending, though it was still the slowest growth in 26 years. Reuters reported last week that sources said the 2017 economic growth target would be around 6.5%, down from last year’s 6.5-7%. “If this year’s growth goal is not that high, there will be less pressure on the strength of policy support,” said a second policy source. [..] Total fixed-asset investment rose 8.1% in 2016, the slowest pace since 1999, despite an 18.7% increase in investment by state entities, as private investment grew just 3.2%, the weakest on record.

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A risk to the west, that is.

China Is Becoming ‘Increasingly Risky’ Because Of Its Economy (CNBC)

A major risk to U.S. markets is looming, and it’s bigger than headlines and President Donald Trump’s tweets, Goldman Sachs’ Sharmin Mossavar-Rahmani told CNBC on Wednesday. The threat is the Chinese economy, the Goldman Sachs Private Wealth Management chief investment officer told “Squawk on the Street.” “We use the term that China could ‘submerge’ under the burden of its own debt,” Mossavar-Rahmani said. “If you look at any of the debt measures in China, they’re tremendously high.” Mossavar-Rahmani focused on the credit-to-GDP number from the BIS as a key measure of China’s accumulating debt. As of the second quarter of 2016, China’s ratio was 28.8%.

“China is about 30, the U.S. was at 12.4% just before the crisis. And if the U.S. didn’t avoid a financial crisis with all its strength, how can we assume that China will?” the wealth manager asked. China is still awaiting its 19th gathering of the National Congress of the Communist Party in the fall, which Mossavar-Rahmani said would weigh on the country’s economic position in 2018. The meeting will determine 370 of China’s Central Committee members for the next five years. “Then we have to see, in 2018, will they put structural reforms on the front burner or does it stay on the back burner?” Mossavar-Rahmani asked.

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The US has a large block of religious zealots. The rest of the west, not so much.

Dutch Respond To Trump’s ‘Gag Rule’ With International Safe Abortion Fund (G.)

Up to 20 countries have indicated support for the Netherlands’ plan to set up an international safe abortion fund to plug a $600m funding gap caused by Donald Trump’s reinstatement of the “global gag rule”, the Dutch international development minister, Lilianne Ploumen, said on Wednesday. Ploumen took soundings from a number of her colleagues around the world on Tuesday evening after the Netherlands said it would act to mitigate the impact on hundreds of charities around the world. The “global gag rule”, also known as the Mexico City policy, was reimposed by Trump on Monday, and bans US federal funding for NGOs in foreign countries that provide abortion services or abortion advocacy. ‘We’re in talks with 15 to 20 countries and we’ve also spoken to foundations,” Ploumen told the Guardian.

“As well as contacting a number of European countries that we work with on these issues, we’re also in touch with countries in South America and Africa, as well as the foundations. It’s important to have the broadest possible support for the fund.” Ploumen did not identify which countries had been approached or how much money the Dutch government might commit to the scheme. She said the aim would be to continue support for existing programmes being run by organisations such as the United Nations Population Fund (UNPFA), the International Planned Parenting Federation and Marie Stopes International. “These are successful and effective programmes: direct support, distributing condoms, making sure women are accompanied at the birth, and making sure abortion is safe if they have no other choice,” she said.

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Damning. DO read.

Why the Corrupt, Worker-Hating New Democrats Must Be Purged (Bill Black)

This article explains three critical reasons why the Democratic Party’s leaders are far more insane than all but a few Democrats understand. It focuses on the leaders of the Democratic National Committee (DNC) and the New Democrats. The DNC leadership is composed of New Democrats. Debbie Wasserman Schultz had to resign in disgrace when the leaks proved that she was putting the DNC’s thumbs on the scale to favor Hillary Clinton (a New Democrat) in the presidential nomination contest against Bernie Sanders. Wasserman Schultz also took large contributions from big finance and, until she faced the prospect of a serious primary challenger, she supported efforts by predatory lenders to use Congress to bar the regulators from stopping their abuses.

Donna Brazile, a New Democrat, now runs the DNC. In this article, I show that Brazile denounced Democrats who refused to cheer President Bush’s invasion of Iraq (and his “Mission Accomplished” declaration) as so disloyal that when their country needed them they went “AWOL.” Not satisfied with that libel, she added the homophobic smear that voters would view Democrats who failed to cheer Bush’s lies and invasion as “effete.” Best of all, she said that Democrats should take as their role models Paul Wolfowitz, Richard Perle, and Frank Gaffney – Bush’s “chicken hawks” that devised the campaign of lies that led to the disastrous invasion of Iraq. Gaffney is now spreading hate of Muslims – and advising President Trump.

The DNC is also in the news because it has just accepted a $20 million “donation” funded by Third Way, a Wall Street front group, to study why the white working class “abandoned” Hillary Clinton. Clinton is a leader of the New Democrats. Wall Street has long been the largest single funder of the New Democrats various institutions. The New Democrats, at the behest of Wall Street, have waged the “long war” against the working class since their formation in 1984. The New Democrats did not simply abandon the working class – they targeted it for scorn and assaulted it with policies that harmed many Americans, but caused the greatest harm to the working class.

Particularly in light of the Trump’s election, the logical reaction of the DNC would have been to refuse to take the Wall Street buyout and announce that the New Democrats would never again do Wall Street’s bidding. They would return to the Democratic Party’s historic role as the party that championed the rights of workers. Brazile, of course, ensured that the DNC eagerly took the $20 million Wall Street buyout. The New Democrats not only continue to be for sale (or rent) by Wall Street – they continue to show that they continue to for sale for chump change. The DNC does not need $20 million to figure out why the white working class “abandoned” the New Democrats. They can check out from their local library Tom Frank’s books warning that this would happen and explaining in detail why the New Democrats’ long war against the working class was making it happen.

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When growth could not be delivered. “There is always a deal between citizens and their governments. But now governments are defaulting on their citizens because of the debt problem. They can’t deliver retirement at 65.”

Pippa Malmgren: The Social Contract In The West Is Broken (SLD)

Question: The inability of continental Europe to grow has been a clear part of the concern in Britain about Europe. What role has this played?

Malmgren: The British received more Foreign Direct Investment than any other locartion in the EU before Brexit. It was assumed this flow would fall after Brexit. But, I hear from my clients that they are even more interested in the UK now. That’s because money is like water. It flows to wherever it faces the least resistance – the lowest tax rates and least regulatory burden. I would challenge the British to end up with more regulation and higher taxes that the EU after Brexit. Frankly, that would take a huge effort! But the problems on the Continent are deeper than this; The real issue is that the social contract between citizens and governments in the West are being broken. There is always a deal between citizens and their governments. But now governments are defaulting on their citizens because of the debt problem. They can’t deliver retirement at 65. Now everybody has to work longer.

They can’t deliver the healthcare that had been expected. Frankly they can’t deliver police, fire departments or roads without potholes. The social contract in the EU is under even greater stress because growth has been so very poor. The night of the victory of Brexit, the markets attacked Italian banks, not British banks. What did the state in Italy do? They said they’d find 5b Euros to bail out the oldest bank which had lost 98% of its shareholder value. Meanwhile, they can’t find 5 cents for the young who are experiencing over 30% unemployment rates. This breaks the social contract and helps explain the new anti-EU sentiment. The Europeans are also increasingly uneasy about immigration issues. It was not part of the original deal in the European contract to have completely open borders. In my view, the British are not xenophobic, but want more process around immigration. They want a more secure movement of people within Europe.

The media talks all the time about the proposed Wall by Trump in the US with Mexico, but the reality is there a wall-building spree going on in Europe. Look at the new walls being constructed between Hungry and Serbia, between Germany and the Czech Republic, as well as new walls in Estonia, Poland and Lithuania are constructing one around Kaliningrad with watchtowers, etc. Frankly new walls will increasingly be digital. Processing of people will begin well before you get anywhere near what you think the border is. We will pass through borders without realizing we’ve already been assessed. We are in a period of history where the Europeans are fundamentally rethinking what they want Europe to stand for, the European Union to do, and how to generate economic growth again. As everywhere else, the public are questioning the establishment because they have failed to deliver on their promises.

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“I don’t think the notion of democracy is ever going to be as tested as it’s going to be now.”

The ‘media’ have lost so much credibility, and permamently. That is dangerous.

Seymour Hersh Blasts Media For Promoting Russian Hacking Story (IC)

Pulitzer prize-winning journalist Seymour Hersh said in an interview that he does not believe the U.S. intelligence community proved its case that President Vladimir Putin directed a hacking campaign aimed at securing the election of Donald Trump. He blasted news organizations for lazily broadcasting the assertions of U.S. intelligence officials as established facts. Hersh denounced news organizations as “crazy town” for their uncritical promotion of the pronouncements of the director of national intelligence and the CIA, given their track records of lying and misleading the public. “The way they behaved on the Russia stuff was outrageous,” Hersh said when I sat down with him at his home in Washington, D.C., two days after Trump was inaugurated.

“They were just so willing to believe stuff. And when the heads of intelligence give them that summary of the allegations, instead of attacking the CIA for doing that, which is what I would have done,” they reported it as fact. Hersh said most news organizations missed an important component of the story: “the extent to which the White House was going and permitting the agency to go public with the assessment.” Hersh said many media outlets failed to provide context when reporting on the intelligence assessment made public in the waning days of the Obama administration that was purported to put to rest any doubt that Russian President Vladimir Putin ordered the hacking of the DNC and Clinton campaign manager John Podesta’s emails.

The declassified version of the report, which was released January 7 and dominated the news for days, charged that Putin “ordered an influence campaign in 2016 aimed at the U.S. presidential election” and “aspired to help President-elect Trump’s election chances when possible by discrediting Secretary Clinton and publicly contrasting her unfavorably to him.” According to the report, the NSA was said to have had a lower confidence level than James Clapper and the CIA about the conclusion that Russia intended to influence the election. Hersh characterized the report as full of assertions and thin on evidence.

“It’s high camp stuff,” Hersh told The Intercept. “What does an assessment mean? It’s not a national intelligence estimate. If you had a real estimate, you would have five or six dissents. One time they said 17 agencies all agreed. Oh really? The Coast Guard and the Air Force — they all agreed on it? And it was outrageous and nobody did that story. An assessment is simply an opinion. If they had a fact, they’d give it to you. An assessment is just that. It’s a belief. And they’ve done it many times.”

[..] While expressing fears about Trump’s agenda, Hersh also called Trump a potential “circuit breaker” of the two-party political system in the U.S. “The idea of somebody breaking things away, and raising grave doubts about the viability of the party system, particularly the Democratic Party, is not a bad idea,” Hersh said. “That’s something we could build on in the future. But we have to figure out what to do in the next few years.” He added: “I don’t think the notion of democracy is ever going to be as tested as it’s going to be now.”

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But it will just continue. Wanna bet?

Austerity Economics Has Just Been Smashed. By The IMF. (GDB)

A powerful new report finally kills off any remaining intellectual veil for a broken economics that is breaking society. Sometimes an ideology is so brilliantly propagated that observers might not even notice it’s an ideology. In the corridors of power and in mainstream discussion, it ceases to be questioned. Then it goes catastrophically wrong. And it begins to seen again for the ideology it is. It becomes questioned again. And, if they are smart, leaders hear this and start to self-correct. This is where we’ve got to with neoliberalism, austerity, and rising inequality. Except for the self-correct part. Right now, instead of self-correction, we’re seeing many mainstream politicians unable to shift away from dead economics, and what seems in too many countries like the start of social breakdown.

Change is well overdue. Who can prompt leaders to drop the old economic nostrums are causing so much harm? Enter the IMF with a sledgehammer. Progressives duck in case in the sledgehammer is meant for them. But then the IMF demolishes the case for neoliberalism and austerity. It sounds extraordinary, and it is. Today the IMF will launch a new report, “Macro-Structural Policies and Income Inequality in Low-Income Developing Countries”, the latest in series that mark the intellectual journey the IMF research department has been travelling in recent years. Packed with detailed quantitative analysis it demonstrates that much of what elites have been advancing as unquestioned economics is demonstrably harmful both to economic growth and to public wellbeing.

Of course what makes this surprising, and what may make some progressives unenthusiastic about welcoming this, is also what makes it so powerful: an institution that has been, for far too long, a defender of the free market story and the Washington Consensus – the idea that liberalizing trade, privatizing everything possible and cutting down public spending was a one-size-fits-all solution to any government in trouble – has now refuted it. This paper is not the first by the IMF to take a stand on inequality, but it is notable because it claims in no uncertain terms that public spending – i.e. the opposite of the budget cuts that it once advocated for – decreases income inequality. They even have a formula – a 1% increase in public spending, they report, leads to a 2.3% decrease in inequality after 5 years. The paper also takes a strong stand against prioritizing indirect taxes, such as VAT, showing that they increase inequality.

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Bit sensationalist, perhaps?

The Super Rich Are Preparing For The End Of The World (CNBC)

The Dow has hit 20,000 for the first time ever, but rather than celebrating, some of the richest of the rich are building bunkers to prepare for a potential apocalypse. These “preppers” are making other investments too. They’re buying houses in New Zealand, which has become a popular spot in case of calamity. Billionaire Peter Thiel just secured property and citizenship there. And they’re getting elective surgery. Steve Huffman, the 33-year-old co-founder and CEO of the online community Reddit, got Lasik so that he’d be able to be more independent in case of emergency. “If the world ends — and not even if the world ends, but if we have trouble — getting contacts or glasses is going to be a huge pain in the ass,” the San Francisco resident tells Evan Osnos as part of The New Yorker’s chronicle of the elite’s end-of-the-world preparations. “Without them, I’m f—ed.”

In addition to the eye surgery, Huffman has accumulated guns, ammunition and motorcycles so that he won’t get caught in traffic jams during an evacuation. The notion of “doomsday prepping” was popularized in the mainstream by the National Geographic channel’s show by the same name. The show’s website offers a quiz titled “How prepped are you?” so you can test your own likelihood of surviving an apocalypse. Former Facebook product manager Antonio García Martínez bought wooded land in the Pacific Northwest that he has stocked with generators, solar panels and ammo, The New Yorker reports. “You just need so many things to actually ride out the apocalypse,” García Martínez says. “I think people who are particularly attuned to the levers by which society actually works understand that we are skating on really thin cultural ice right now.”

In particular, the political climate has made many coastal elites anxious about the future. “I think, to some degree, we all collectively take it on faith that our country works, that our currency is valuable, the peaceful transfer of power — that all of these things that we hold dear work because we believe they work,” says Huffman. “While I do believe they’re quite resilient, and we’ve been through a lot, certainly we’re going to go through a lot more.”

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The war on Grillo will intensify.

Rome Mayor Raggi Says She Received Summons From Prosecutors (BBG)

Rome Mayor Virginia Raggi, a member of the anti-establishment Five Star Movement, said she has received a summons from city prosecutors over a staff appointment. Raggi, a lawyer who was elected mayor last year, wrote in a post on Facebook that the summons concerns her nomination of Renato Marra as head of the tourism department, which she has revoked. She said she had informed Five Star co-founder Beppe Grillo and the city council of the summons. “I am very serene; I have full confidence in the judiciary, as ever,” Raggi wrote. “We are ready to give every clarification.” Raggi’s city hall administration has been plagued by resignations. Five Star, which wants a referendum on Italy’s membership in the euro area, has remained neck and neck with the Democratic Party of Prime Minister Paolo Gentiloni and his predecessor Matteo Renzi in national opinion polls.

Five Star has made denunciations of political corruption one of its main themes, often calling for elected officials to resign if they are placed under investigation, long before a case comes to court. But under new rules posted on Grillo’s blog earlier this month, Five Star officials do not have to resign automatically if they are investigated. Italian newswire Ansa said Raggi was under investigation for alleged abuse of office in the personnel matter. [..] Alessandro Di Battista, a senior Five Star lawmaker, told La 7 television that Raggi had a duty to explain why she had made the appointment. “This isn’t about public money, or decisions which affect a right of citizens,” Di Battista said. “This would involve mistaken signatures, a mistaken nomination which was immediately revoked.”

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If not in February, forget 2017.

Deal On Greek Bailout’s Second Review Possible At February Eurogroup (R.)

Euro zone creditors could approve the completion of the second set of Greek bailout reforms at the next meeting of finance ministers in February, an euro zone official said on Wednesday. The approval of the outstanding reforms, mainly concerning Greek fiscal targets, the labor market and liberalization of the energy sector, would pave the way for further euro zone loans to Athens, which faces large repayments in the third quarter. Finance ministers of the 19 countries of the euro zone will meet on Thursday in Brussels but there hasn’t been sufficient progress in Greek reforms yet for them to sign off on a deal now, the senior official said, confirming what the EU economics commissioner Pierre Moscovici said on Tuesday.

Still, the ministers are likely to produce an agreement to continue talks with a view to concluding them at the next Eurogroup meeting on Feb. 20, according to the official. “There is a good chance” that an agreement will be reached on Thursday to send euro zone negotiators back to Athens so that a deal can be reached in February, the official said. “February is the last month in which there is no politically significant election in relevant member states,” the official said, and this meant “February is not formally but realistically the time when we need to reach a political agreement”. The Netherlands go to the polls in March, and the French will vote in presidential elections in April and likely also in May. Germany, the biggest economy in the euro zone, will hold a general election in September. A comprehensive deal for Greece will also have to involve the IMF, the official said.

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Pretty brilliant.

“INAUGURATION DAY” (Bad Lip Reading)

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Jan 212017
 
 January 21, 2017  Posted by at 4:59 pm Finance Tagged with: , , , , , , , ,  17 Responses »
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Workmen next to the screws of the RMS Titanic at Belfast shipyard, 1911

 

The people at Conflicts Forum, which is directed by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, sent me an unpublished article by Alastair and asked if the Automatic Earth would publish it. Since I like his work and I (re-)published two of his articles last year already, ‘End of Growth’ Sparks Wide Discontent in October 2016 and Obstacles to Trump’s ‘Growth’ Plans in November 2016, I’m happy to.

His arguments here are very close to much of what the Automatic Earth has been advocating for years, both when it comes to our financial crisis and to our energy crisis. Our Primers section is full of articles on these issues written through the years. It’s a good thing other people pick up too on topics like EROEI, and understand you can’t run our modern, complex society on ‘net energy’ as low as what we get from any of our ‘new’ energy sources. It’s just not going to happen.

Here’s Alastair:

 

 

Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls,is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked  before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

But what is it? What is the deeper economic root to this malaise? The general thrust of Davos was that it was prosperity spread too unfairly that is at the core of the problem. Of course, causality is seldom unitary, or so simple. And no one answer suffices. In earlier Commentaries, I have suggested that global growth is so maddeningly elusive for the elites because the debt-driven ‘growth’ model (if it deserves the name ‘growth’) simply is not working.  Not only is monetary expansion not working, it is actually aggravating the situation: Printing money simply has diluted down the stock of general purchasing power – through the creation of additional new, ‘empty’ money – with the latter being intermediated (i.e. whisked away) into the financial sector, to pump up asset values.

It is time to put away the Keynesian presumed ‘wealth effect’ of high asset prices. It belonged to an earlier era. In fact, high asset prices do trickle down. It is just that they trickle down into into higher cost of living expenditures (through return on capital dictates) for the majority of the population. A population which has seen no increase in their real incomes since 2005 – but which has witnessed higher rents, higher transport costs, higher education costs, higher medical costs; in short, higher prices for everything that has a capital overhead component. QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it. And zero, and negative interest rates, may be keeping the huge avalanche overhang of debt on ‘life support’, but it is eviscerating savings income, and will do the same to pensions, unless concluded sharpish.

But beyond the spent force of monetary policy, we have noted that developed economies face separate, but equally formidable ‘headwinds’, of a (non-policy and secular) nature, impeding growth – from aging populations in China and the OECD, the winding down of China’s industrial revolution,  and from technical innovation turning job-destructive, rather than job creative as a whole. Connected with this is shrinking world trade.

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

And, as that bounty tapered down around the year 2000, the system wobbled again, “and the viziers of the Fed ramped up their magical operations, led by the Grand Vizier (or “Maestro”) Alan Greenspan.”  Some other key things happened though, at this point: firstly the cost of crude, which had been remarkably stable, in real terms, over many years, suddenly started its inexorable real-terms ascent.  And from 2001, in the wake of the dot.com ‘bust’, government and other debt began to soar in a sharp trajectory upwards (now reaching $20 trillion). Also, around this time the US abandoned the gold standard, and the petro-dollar was born.

 


Source: Get It. Got It. Good, by Grant Williams

 

Well, the Hill’s Group, who are seasoned US oil industry engineers, led by B.W. Hill, tell us – following their last two years, or so, of research – that for purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel, by the oil industry (the IOCs) is rapidly trending to zero. Note that we are talking energy-cost of exploration, extraction and transport for the energy-return at final destination. We are not speaking of dollar costs, and we are speaking in aggregate. So why should this be important at all; and what has this to do with spiraling debt creation by the western Central Banks from around 2001?

The importance? Though we sometimes forget it, for we now are so habituated to it, is that energy is the economy.  All of modernity, from industrial output and transportation, to how we live, derives from energy – and oil remains a key element to it.  What we (the globalized industrial world) experienced in that golden era until the 70s, was economic growth fueled by an unprecedented 321% increase in net energy/head.  The peak of 18GJ/head in around 1973 was actually of the order of some 40GJ/head for those who actually has access to oil at the time, which is to say, the industrialised fraction of the global population. The Hill’s Group research  can be summarized visually as below (recall that these are costs expressed in energy, rather than dollars):

 


Source: http://cassandralegacy.blogspot.it/2016/07/some-reflections-on-twilight-of-oil-age.html 

 

But as Steve St Angelo in the SRSrocco Reports states, the important thing to understand from these energy return on energy cost ratios or EROI, is that a minimum ratio value for a modern society is 20:1 (i.e. the net energy surplus available for GDP growth should be twenty times its cost of extraction). For citizens of an advanced society to enjoy a prosperous living, the EROI of energy needs to be much higher, closer to the 30:1 ratio. Well, if we look at the chart below, the U.S. oil and gas industry EROI fell below 30:1 some 46 years ago (after 1970):

 


Source: https://srsroccoreport.com/the-coming-breakdown-of-u-s-global-markets-explained-what-most-analysts-missed/ 

 

“You will notice two important trends in the chart above. When the U.S. EROI ratio was higher than 30:1, prior to 1970, U.S. public debt did not increase all that much.  However, this changed after 1970, as the EROI continued to decline, public debt increased in an exponential fashion”. (St Angelo).

In short, the question begged by the Hill’s Group research is whether the reason for the explosion of government debt since 1970 is that central bankers (unconsciously), were trying to compensate for the lack of GDP stimulus deriving from the earlier net energy surplus.  In effect, they switched from flagging energy-driven growth, to the new debt-driven growth model.

From a peak net surplus of around 40 GJ  (in 1973), by 2012, the IOCs were beginning to consume more energy per barrel, in their own processes (from oil exploration to transport fuel deliveries at the petrol stations), than that which the barrel would deliver net to the globalized industrial world, in aggregate.  We are now down below 4GJ per head, and dropping fast. (The Hill’s Group)

Is this analysis by the Hill’s Group too reductionist in attributing so much of the era of earlier western material prosperity to the big discoveries of ‘cheap’ oil, and the subsequent elusiveness of growth to the decline in net energy per barrel available for GDP growth?  Are we in deep trouble now that the IOCs use more energy in their own processes, than they are able to deliver net to industrialised world? Maybe so. It is a controversial view, but we can see – in plain dollar terms – some tangible evidence fo rthe Hill’s Groups’ assertions:  

 


Source: https://srsroccoreport.com/wp-content/uploads/2016/08/Top-3-U.S.-Oil-Companies-Free-Cash-Flow-Minus-Dividends.png 

(The top three U.S. oil companies, ExxonMobil, Chevron andConocoPhillips: Cash from operations less Capex and dividends)

 

 
Briefly, what does this all mean? Well, the business model for the big three US IOCs does not look that great: Energy costs of course, are financial costs, too.  In 2016, according to Yahoo Finance, the U.S. Energy Sector paid 86% of their operating income just to service the interest on the debt (i.e. to pay for those extraction costs). We have not run out of oil. This is not what the Hill’s Group is saying. Quite the reverse. What they are saying is the surplus energy (at a ratio of now less than 10:1) that derives from the oil that we have been using (after the energy-costs expended in retrieving it) – is now at a point that it can barely support our energy-driven ‘modernity’.  Implicit in this analysis, is that our era of plenty was a one time, once off, event.

They are also saying that this implies that as modernity enters on a more severe energy ‘diet’, less surplus calories for their dollars – barely enough to keep the growth engine idling – then global demand for oil will decline, and the price will fall (quite the opposite of mainstream analysis which sees demand for oil growing. It is a vicious circle. If Hills are correct, a key balance has tipped. We may soon be spending more energy on getting the energy that is required to keep the cogs and wheels of modernity turning, than that same energy delivers in terms of calorie-equivalence.  There is not much that either Mr Trump or the Europeans can do about this – other than seize the entire Persian Gulf.  Transiting to renewables now, is perhaps too little, too late.

And America and Europe, no longer have the balance sheet ‘room’, for much further fiscal or monetary stimulus; and, in any event, the efficacy of such measures as drivers of ‘real economy’ growth, is open to question. It may mitigate the problem, but not solve it. No, the headwinds of net energy per barrel trending to zero, plus the other ‘secular’ dynamics mentioned above (demography, China slowing and technology turning job-destructive), form a formidable impediment – and therefore a huge political time bomb.

Back to Davos, and the question of ‘what to do’. Jamie Dimon, the CEO of  JPMorgan Chase, warned  that Europe needs to address disagreements spurring the rise of nationalist leaders. Dimon said he hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region, “the euro zone may not survive”. “The bottom line is the region must become more competitive, Dimon said, which in simple economic terms means accept even lower wages. It also means major political overhauls: “I say this out of respect for the European people, but they’re going to have to change,” he said. “They may be forced by politics, they may be forced by new leadership.”

A race to the bottom in pay levels?  Italy should undercut Romanian salaries?  Maybe Chinese pay scales, too? This is politically naïve, and the globalist Establishment has only itself to blame for their conviction that there are no real options – save to divert more of the diminished prosperity towards the middle classes (Christine Lagarde), and to impose further austerity (Dimon). As we have tried to show, the era of prosperity for all, began to waver in the 70s in America, and started its more serious stall from 2001 onwards. The Establishment approach to this faltering of growth has been to kick the can down the road: ‘extend and pretend’ – monetised debt, zero, or negative, interest rates and the unceasing refrain that ‘recovery’ is around the corner.

It is precisely their ‘kicking the can’ of inflated asset values, reaching into every corner of life, hiking the cost of living, that has contributed to making Europe the leveraged, ‘high cost’, uncompetitive environment, that it now is.  There is no practical way for Italians, for example, to compete with ‘low cost’ East Europe, or  Asia, through a devaluation of the internal Italian price level without provoking major political push-back.  This is the price of ‘extend and pretend’.

It has been claimed at Davos that the much derided ‘populists’ provide no real solutions. But, crucially, they do offer, firstly, the hope for ‘regime change’ – and, who knows, enough Europeans may be willing to take a punt on leaving the Euro, and accepting the consequences, whatever they may be. Would they be worse off? No one really knows. But at least the ‘populists’ can claim, secondly, that such a dramatic act would serve to escape from the suffocation of the status quo. ‘Davos man’ and woman disdain this particular appeal of ‘the populists’ at their peril.
 

 

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.