Oct 212018
 


Pablo Picasso Harlequin and woman with necklace 1917

 

The Global Dollar Shortage is Here – And It’s Becoming A Big Problem (Palisade)
The Party’s Far From Over For The US Economy, As GDP Will Show (MW)
Trump, Europeans Call Saudi Account Of Khashoggi Death Inadequate (R.)
Trump Says US Will Pull Out Of Nuclear Arms Deal With Russia (AFP)
Social Security Does Not Add To The Federal Deficit (F.)
PM Tsipras Says EU Approved Greek Budget Without Pension Cuts (R.)
700,000 March To Demand A Final Say On Brexit (Ind.)
Series Of Small Earthquakes Detected Near UK Fracking Site (G.)
Facebook Shareholders Call For Zuckerberg To Be Kicked Out As Chairman (Ind.)
What Has Google Ever Done for Us? (Varoufakis)

 

 

More dollars borrowed globally than the Fed ever issued. And now it issues fewer.

The Global Dollar Shortage is Here – And It’s Becoming A Big Problem (Palisade)

The credit market – in my opinion – is indicating an inevitable ‘crunch’ coming up. And even worse – we’re seeing the global dollar shortage deepening. [..] Personally – I think this may be the trigger that kicks off a brutal, worldwide, financial crisis. . . For instance – just look at what’s happened with Emerging Markets because of a tightening Federal Reserve, a stronger dollar, and drying liquidity. Don’t forget – a dollar shortage is synonymous with disappearing liquidity. Which means we can expect more violent and sudden market crashes to occur – just like we saw over the last two weeks.

Stock markets (and bond markets) around the world took big losses. The only thing that really outperformed was gold. The fear of rising ‘real’ U.S. interest rates and slowing economic growth (especially from China) is making investors rethink their positions. Not to mention the cost of borrowing short-term dollars via LIBOR (aka London Interbank Offered Rate) is indicating aggressive financial tightening. Take a look at the 3-month U.S. dollar LIBOR rate – it just had its biggest one day jump since late May. And even more startling – it’s now at its highest level since 2008.

So what does this mean? Well – it’s indicating that the short-term borrowing of dollar denominated debt’s getting very expensive. And investors – especially overseas – are finding it harder and costlier to get their hands-on U.S. dollars. This isn’t a big surprise – but what’s making me worried is just how costly and scarce these dollars are becoming. . . Corporations worldwide borrowing dollars for business operations. And even ordinary citizens with mortgages and credit cards (which are mostly driven by LIBOR) will face higher interest payments.

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Ahead of the tariffs kicking in, imports and exports rose. There’s a time lag here.

The Party’s Far From Over For The US Economy, As GDP Will Show (MW)

The official scorecard for the economy, known as gross domestic product, will be released Friday. While economists polled by MarketWatch predict a 3% increase in third-quarter GDP, some estimates such as the Atlanta Federal Reserve’s “Nowcast” are closer to 4%. A few big wild cards are in play. The U.S. trade deficit shrank in the second quarter, for instance, but it looks set to expand in the third quarter. How come? Many American companies in the spring hastened to export soybeans and other goods to China and elsewhere before U.S. and retaliatory foreign tariffs kicked in. Exports have since declined.

At the same time, imports have risen to a record high. Americans are better off than they’ve been in years and they can afford to buy more imported goods. The strong dollar also makes foreign products cheaper. Businesses, for their part, ramped up production in the summer and restocked warehouse shelves. An increase in inventories boosts GDP, but it’s a herky-jerky statistic that’s always hard to predict. “Trade will be a significant drag [on GDP], but inventories will add to growth,” said Richard Moody, chief economist at Regions Financial.

More importantly, though, Americans kept spending. They almost certainly didn’t spend as much as they did in the spring, but they still spent a lot. Consumer spending accounts for some 70% of U.S. economic activity. If GDP generates the biggest headlines, the real story of where the economy is headed can be seen through the monthly tally on new orders for long-lasting products. These “durable” goods include new cars, appliances, computers, furniture and such. In any case, the economy cannot grow rapidly in the long run and generate a higher standard of living absent strong investment.

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Trump takes a viewpoint. Then takes a step back, and then another one. Negotiating. It all looks completely different when you’re trying to figure out what’s going on than when your opinion is already made up.

Now people are saying Trump’s in Saudi pockets. The same people who said he’s in Putin’s pockets. So which is it? Both? And does everyone involved know this?

Trump’s been hammered on entirely false topics -Russiagate- for far too long for the hammerers to pull back now and move to the real ones. Dangerous.

Trump, Europeans Call Saudi Account Of Khashoggi Death Inadequate (R.)

U.S. President Donald Trump joined European leaders on Saturday in pushing Saudi Arabia for more answers about Jamal Khashoggi after Riyadh changed its story and acknowledged that the journalist died more than two weeks ago at its consulate in Istanbul. Saudi Arabia said early on Saturday that Khashoggi, a critic of the country’s de facto ruler Crown Prince Mohammed bin Salman, had died in a fight inside the building. Germany called that explanation “inadequate” and questioned whether countries should sell arms to Saudi Arabia, while France and the European Union urged an in-depth investigation to find out what happened to the Washington Post columnist after he entered the consulate on Oct. 2 for documents for his marriage.

Turkish officials suspect Khashoggi, a Saudi national and U.S. resident, was killed inside the consulate by a team of Saudi agents and his body cut up. The Khashoggi case has caused international outrage and frayed political and business ties between Western powers and U.S. ally Saudi Arabia, the world’s No.1 oil exporter. Asked during a trip to Nevada if he was satisfied that Saudi officials had been fired over Khashoggi’s death, Trump said: “No, I am not satisfied until we find the answer. But it was a big first step, it was a good first step. But I want to get to the answer.” In an interview with the Washington Post, Trump said that “obviously there’s been deception, and there’s been lies.”

Trump’s comments about the Khashoggi incident in recent days have ranged from threatening Saudi Arabia with “very severe” consequences and warning of economic sanctions, to more conciliatory remarks in which he has played up the country’s role as a U.S. ally against Iran and Islamist militants, as well as a major purchaser of U.S. arms.

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Bolton. Time for Trump and Putin to meet again.

Trump Says US Will Pull Out Of Nuclear Arms Deal With Russia (AFP)

President Donald Trump confirmed Saturday that the United States plans to leave a Cold War-era nuclear weapons treaty with Russia, which criticized the move as Washington’s latest effort to be the sole global superpower. Trump claims Russia has long violated the three-decade-old Intermediate-Range Nuclear Forces Treaty, known as the INF, was signed in 1987 by president Ronald Reagan and Mikhail Gorbachev. But a foreign ministry source told the RIA Novosti state news agency that Washington’s “main motive is a dream of a unipolar world,” one that won’t be realized.

“We’re the ones who have stayed in the agreement and we’ve honored the agreement, but Russia has not unfortunately honored the agreement, so we’re going to terminate the agreement and we’re going to pull out,” Trump told reporters in Elko, Nevada. “Russia has violated the agreement. They’ve been violating it for many years. I don’t know why president (Barack) Obama didn’t negotiate or pull out. And we’re not going to let them violate a nuclear agreement and go out and do weapons (while) we’re not allowed to.”

Trump spoke as his National Security Advisor John Bolton was set to meet next week with Russia’s Foreign Minister Sergei Lavrov, ahead of what is expected to be a second summit between Trump and Russian leader Vladimir Putin this year. Bolton was also set to meet with Security Council Secretary Nikolai Patrushev and Putin aide Yuri Ushakov. Kremlin spokesman Dmitry Peskov said a “possible meeting” was being prepared between Putin and Bolton. The Trump administration has complained of Moscow’s deployment of 9M729 missiles, which Washington says can travel more than 310 miles (500 kilometers), and thus violate the INF treaty.

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So there. But in 15 years it’ll be broke.

Social Security Does Not Add To The Federal Deficit (F.)

This is not a political column, it’s a push back on the political distortion of legal and math facts about Social Security. Recently political leaders, such as the Senate leader Mitch McConnell, as Michael Hiltzik writes in the LA Times, are gunning to cut Social Security benefits to reduce the federal deficit. But Social Security can’t, by law, add to the federal deficit. Medicare and Medicaid can, but not Social Security. Social Security is self-funded. It is correct to say that Congress added to the deficit, not Social Security . The deficit rose substantially because of the 2017 tax cut, which reduced total revenue by 5% and revenue from corporate taxes by 35%.

And because it must balance its books Social Security is prudently funded. It collects revenue and saves for expected costs. Currently, Social Security has a $2.8 trillion trust fund built up by the boomer generation paying more in taxes than needed to pay current benefits. The trust fund is a vital way workers save for retirement. With tax revenues and earnings and principal from the trust fund Social Security is estimated to be solvent until 2034. After that, if it doesn’t get more revenue Social Security will only pay 77% of promised benefits. Social Security can’t add to the deficit because it pays for itself. If revenue falls short, benefits are cut.

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Why am I thinking someone will say not a chance?! Or is it ‘give the dog a bone’?

PM Tsipras Says EU Approved Greek Budget Without Pension Cuts (R.)

The European Union’s executive has approved Greece’s first post-bailout budget without requiring the implementation of legislated pension cuts, the country’s prime minister said on Saturday. “The European Commission approved the Greek budget without pension cuts after eight years of austerity,” Alexis Tsipras said, calling the development a “success”. The country’s third international bailout program ended in Augusts. The government aims to outperform on primary surplus targets for a fifth straight year to be in a position to avoid implementing painful austerity measures agreed with creditors.

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You’ll need more people, and do it every week, and then every day.

700,000 March To Demand A Final Say On Brexit (Ind.)

The crowds stretched so far back that plenty of people never even made it to the rally. Masses overflowed through the streets of London for more than a mile, from Hyde Park Corner to Parliament Square, as an estimated 670,000 protesters took their demand for a fresh Brexit referendum right to Theresa May’s doorstep. They came from every corner of the UK, in what is believed to be the largest demonstration since the Iraq War march in 2003, when more than a million people turned out in the capital to oppose the conflict.

Amid the swathes of EU flags and banners, there was also a growing sense that campaigners, MPs and activists were realising, perhaps for the first time, that this was a battle that could be won. “We were the few, and now we are the many,” Tory MP Anna Soubry told the crowds crammed into Parliament Square. “We are winning the argument and we are winning the argument most importantly against those who voted Leave.” She said: “We will not walk away. We will take responsibility and sort out this mess with a people’s vote.”

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After two days?! Promising!

Series Of Small Earthquakes Detected Near UK Fracking Site (G.)

A series of small earthquakes have been detected in Lancashire close to the site where fracking operations began this week. The British Geological Survey (BGS), which provides impartial advice on environmental processes, recorded four tremors in the vicinity of the energy firm Cuadrilla’s site on Preston New Road near Blackpool on Friday. Fracking was stopped in 2011 after two earthquakes, one reaching 2.3 on the Richter scale, were triggered in close proximity to the site of shale gas test drilling. A subsequent report found that it was highly probable that the fracking operation caused the tremors. On Monday Cuadrilla began drilling again after campaigners lost a high court legal challenge.

The BGS said: “Since hydraulic fracturing operations started at Preston New Road, near Blackpool, we have detected some small earthquakes close to the area of operations. “This is not unexpected since hydraulic fracturing is generally accompanied by micro-seismicity. The Oil and Gas Authority (OGA) has strict controls in place to ensure that operators manage the risk of induced seismicity. “All of the earthquakes detected at Preston New Road so far are below the threshold required to cease hydraulic fracturing.” One of Friday’s tremors measured 0.3, the level beyond which the BSG says hydraulic fracking should proceed with caution. Tremors above 0.5 would force operations to cease.

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Facebook has much bigger issues than who gets to play chairman.s

Facebook Shareholders Call For Zuckerberg To Be Kicked Out As Chairman (Ind.)

Mark Zuckerberg’s strong control over Facebook has come under question after several high-profile investors called for him to step down as chairman of the company. The shareholder proposal follows a series of controversies and scandals at the technology firm, including large-scale data breaches and accusations that the social network has become a platform for misinformation campaigns and political propaganda. State and city treasurers from Illinois, Rhode Island and Pennsylvania joined the New York City Pension Funds and Trillium Asset Management in requesting the Facebook board of directors to make the role of chairman an independent position. “Doing so is best governance practice that will be in the interest of shareholders, employees, users, and our democracy,” the filing states.

The proposal cites Facebook’s “mishandling” of “severe controversies,” including how the social network was used to manipulate the 2016 US presidential elections through Russian troll farms, and the sharing of data with Chinese device manufacturers like Huawei. According to the shareholders, Facebook’s governance structure puts investors at risk and should fall in line with other major tech firms like Google, Microsoft and Apple in having separate CEO and chairperson roles. “Facebook plays an outsized role in our society and our economy. They have a social and financial responsibility to be transparent – that’s why we’re demanding independence and accountability in the company’s boardroom,” said New York City Comnptroller Scott Stringer.

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A fresh take on something Varoufakis first mentioned a few years ago in the first -Greek- version of his book Talking to my Daughter About the Economy: make Big Tech partly public companies.

What Has Google Ever Done for Us? (Varoufakis)

When James Watt built one of his famed steam engines, it was his creation, his product. A buyer who put the engine to work in, say, a textile factory could think of his profit stream as a just reward for having taken the risk of purchasing the machine and for the innovation of coupling it to a spinning jenny or a mechanical loom. By contrast, Google cannot credibly argue that the capital generating its profit stream was produced entirely privately. Every time you use Google’s search engine to look up a phrase, concept, or product, or visit a place via Google Maps, you enrich Google’s capital. While the servers and software design, for example, have been produced capitalistically, a large part of Google’s capital is produced by almost everyone.

Every user, in principle, has a legitimate claim to being a de facto shareholder. Of course, while a substantial part of Big Tech’s capital is produced by the public, there is no sensible way to compute personal contributions, which makes it impossible to calculate what our individual shares ought to be. But this impossibility can be turned into a virtue, by creating a public trust fund to which companies like Google transfer a percentage – say, 10% – of their shares. Suddenly, every child has a trust fund, with the accumulating dividends providing a universal basic income (UBI) that grows in proportion to automation and in a manner that limits inequality and stabilizes the macro-economy.

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Sep 152018
 
 September 15, 2018  Posted by at 8:26 am Finance Tagged with: , , , , , , , , , ,  


Leonard Misonne Waterloo Place 1899

 

Central Banks Have Gone Rogue, Putting Us All at Risk (Ellen Brown)
Shiller Sees ‘Bad Times In The Stock Market’ Ahead (CNBC)
Yellen: Fed Should Commit To Future ‘Booms’ To Make Up For Major Busts (R.)
Russia Central Bank Raises Key Rate To 7.5%, Extends Pause In FX Buying (R.)
Turkey Raises Key Interest Rate To 24% In Bid To Curb Inflation (G.)
Lamentation (Jim Kunstler)
Days After 9/11 Tulsi Gabbard Slams Betrayal Of American People Over Syria (ZH)
Acrimony As EU Denies False Report On Greek Pension Cuts Relief (K.)
Dalai Lama Says ‘Europe Belongs To Europeans’ (AFP)
Florence Plows Inland, Leaving Five Dead, States Flooded (R.)

 

 

Tons of 10-year Lehman stories. haven’t seen that many truly impressive ones.

Central Banks Have Gone Rogue, Putting Us All at Risk (Ellen Brown)

The U.S. Federal Reserve, which bailed out General Motors in a rescue operation in 2009, was prohibited from lending to individual companies under the Dodd-Frank Act of 2010, and it is legally barred from owning equities. It parks its reserves instead in bonds and other government-backed securities. But other countries have different rules, and central banks are now buying individual stocks as investments, with a preference for big tech companies like Amazon, Apple, Facebook and Microsoft. Those are the stocks that dominate the market, and central banks are aggressively driving up their value. Markets, including the U.S. stock market, are thus literally being rigged by foreign central banks.

The result, as noted in a January 2017 article at Zero Hedge, is that central bankers, “who create fiat money out of thin air and for whom ‘acquisition cost’ is a meaningless term, are increasingly nationalizing the equity capital markets.” Or at least they would be nationalizing equities, if they were actually “national” central banks. But the Swiss National Bank, the biggest single player in this game, is 48 percent privately owned, and most central banks have declared their independence from their governments. They march to the drums not of government but of private industry.

Marking the 10th anniversary of the 2008 collapse, former Fed Chairman Ben Bernanke and former Treasury Secretaries Timothy Geithner and Henry Paulson wrote in a Sept. 7 New York Times op-ed that the Fed’s tools needed to be broadened to allow it to fight the next anticipated economic crisis, including allowing it to prop up the stock market by buying individual stocks. To investors, propping up the stock market may seem like a good thing, but what happens when the central banks decide to sell? The Fed’s massive $4 trillion economic support is now being taken away, and other central banks are expected to follow. Their U.S. and global holdings are so large that their withdrawal from the market could trigger another global recession. That means when and how the economy will collapse is now in the hands of central bankers.

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We all do.

Shiller Sees ‘Bad Times In The Stock Market’ Ahead (CNBC)

Nobel laureate Robert Shiller thinks investors ought to ignore the recent burst in corporate profits and focus on longer-term valuation, which he says carries foreboding news for the stock market. At a time when earnings are rising 25 percent a quarter, Shilller said that’s not indicative of what longer-term results in the market will be. History has shown that in previous times, particularly around World War I, the late 1920s approaching the time of the Depression, and in the high-inflation 1980s, profits could be strong but equity results not as much. In the present case, the recent surge in profits has been due to last year’s tax cuts, backed by President Donald Trump, that took the corporate rate from 35 percent to 21 percent.

“My own way of thinking is it looks like an overreaction,” Shiller said Friday at a conference in New York presented by the Wharton School. “We’re launching a trade war. Aren’t people thinking about that? Is that a good thing? I don’t know, but I’m thinking it’s likely to be bad times in the stock market.” Shiller cautioned that he is not predicting major calamity for the market but rather a much lower level of returns, in the 2.6 percent annual range, than investors have come to expect during the 9-year-old bull market. The longest rally in history has the S&P 500 up more than 335 percent since the March 2009 bottom. “It’s not like I’m predicting a crash,” he said. “This is a 10-year forward return. This is not going to be great, because we’re just too high at the present value.”

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Really, these people think they saved the economy. By creating fake booms.

Yellen: Fed Should Commit To Future ‘Booms’ To Make Up For Major Busts (R.)

The U.S. Federal Reserve should commit to letting economic booms run on enough to fully offset collapses like the 2007 to 2009 Great Recession, former Fed chair Janet Yellen said on Friday, urging the central bank to make “lower-for-longer” its official motto for interest rates following serious downturns. Yellen’s approach, which comes in the wake of complaints by the Trump administration about Fed interest rate hikes, could imply a looser monetary policy stance amid Fed officials’ concerns about tight labor markets and greater financial stability risks after a decade of low rates. Those concerns should not be shunted aside, Yellen said, in her most extensive remarks about monetary policy since leaving the Fed early in the year.

Elaborating on how the central bank should think about what to do if rates have to be cut to zero again in the future and can’t go any lower, she said the Fed should promise now that it will keep rates low enough to let a hot economy make up for lost time. “By keeping interest rates unusually low after the zero lower bound no longer binds, the lower-for-longer approach promises, in effect, to allow the economy to boom,” Yellen said in remarks delivered at a Brookings Institution conference. “The (Federal Open Market Committee) needs to make a credible statement endorsing such an approach, ideally before the next downturn.”

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The trade wars affect Russia only slightly.

Russia Central Bank Raises Key Rate To 7.5%, Extends Pause In FX Buying (R.)

The Russian central bank raised its key interest rate to 7.50 percent on Friday and said it would not make any foreign currency purchases until the end of the year, citing the risk of higher inflation and rouble volatility. It was the first time the central bank had raised the key rate since late 2014 when it had to step in to help stabilise the tanking rouble. The rouble firmed after the decision, trading at 67.88 versus the dollar compared with 68.41 shortly before. “The increase of the key rate will help maintain real interest rates on deposits in positive territory, which will support the attractiveness of savings and balanced growth in consumption,” the central bank said in a statement.

Analysts polled by Reuters had mostly expected the central bank to hold the rate at 7.25 percent, as it had done at three previous board meetings, but had not ruled out the possibility of a rate hike either. The bank’s decision to extend a pause in daily FX buying until the end of 2018 from the end of September will help curtail exchange rate volatility and its influence on inflation over the next few quarters, the central bank said. Explaining its thinking, the central bank said “changes in external conditions observed since the previous meeting of the Board of Directors have significantly increased pro-inflationary risks.”

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7.5% in Russia, 24% in Turkey. Why? Because Turks borrowed so much in dollars.

Turkey Raises Key Interest Rate To 24% In Bid To Curb Inflation (G.)

Turkey‘s central bank has raised its key interest rate to 24% in a dramatic bid to control rocketing inflation and prevent a currency crisis. Ignoring calls for restraint from President Erdogan, the bank raised its main short-term rate from 17.5% following weeks of pressure from international investors. Financial markets have grown increasingly concerned that Turkey is in danger of adding its name to the list of countries seeking a rescue loan from the IMF. Argentina agreed a loan earlier in the summer with the IMF and only last month called on the Washington-based lender to release the funds earlier to to ease concerns that the country would not be able to meet its debt obligations over the next year.

South Africa, Indonesia and Mexico are also among a group of emerging market economies that have seen their currencies tumble as investors desert countries that have grown quickly using large amounts of borrowed funds. The Turkish lira began to recover shortly after the rate hike, strengthening by 3% to 6.16 against the dollar. Inflation also soared this month to a 15-year high of almost 18%. The currency has plunged in recent months and even after Thursday’s rise was down almost 39% against the dollar this year.

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Third world America.

Lamentation (Jim Kunstler)

The lamentation for the northern part of “flyover” America is an old story now. Nobody is surprised anymore by the desolation of de-industrialized places like Youngstown, Ohio, or Gary, Indiana, where American wealth was once minted the hard way by men toiling around blast furnaces. But the southeast states enjoyed a strange interlude of artificial dynamism since the 1950s, which is about three generations, and there is little cultural memory for what the region was like before: an agricultural backwater with few cities of consequence and widespread Third Worldish poverty, barefoot children with hookworm, and scrawny field laborers in ragged straw hats leaning on their hoes in the stifling heat.

The demographic shifts of recent decades turned a lot of it into an endless theme park of All-You-Can-Eat buffets, drive-in beer emporia, hamburger palaces, gated retirement subdivisions, evangelical churches built like giant muffler shops, vast wastelands of free parking, and all the other trappings of the greatest misallocation of resources in the history of the world. Like many of history’s prankish proceedings, it seemed like a good idea at the time. As survivors slosh around in the plastic debris in the weeks ahead, and the news media spins out its heartwarming vignettes of rescue and heroism, will there be any awareness of what has actually happened: the very sudden end of a whole regional economy that was a tragic blunder from the get-go?

It is probably hard to imagine Dixieland struggling into whatever its next economy might be. In some places, it’s not even possible to return to a prior economy based on agriculture. A lot of the landscape was farmed so ruinously for two hundred years that the soil has turned into a kind of natural cement, called hardpan or caliche. The climate prospects for the region are not favorable either, not to mention the certain cessation of universal air-conditioning and “happy motoring” that made the unwise mega-developments of recent decades possible.

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I remember her meeting with Trump. She must feel deceived. Just not clear by whom.

Days After 9/11 Tulsi Gabbard Slams Betrayal Of American People (ZH)

In a rare and unprecedented speech delivered on the House floor just two days after the nation memorialized 9/11, Democratic Hawaiian Congresswoman Tulsi Gabbard on Thursday slammed Washington’s longtime support to anti-Assad jihadists in Syria, while also sounding the alarm over the current build-up of tensions between the US and Russia over the Syria crisis. She called on Congress to condemn what she called the Trump Administration’s protection of al-Qaeda in Idlib and slammed Washington’s policies in Syria as “a betrayal of the American people” — especially the victims and families that perished on 9/11.

Considering that Congresswoman Gabbard herself is an Iraq war veteran and current Army reserve officer who served in the aftermath of 9/11, it’s all the more power and rare that a sitting Congress member would make such forceful comments exposing the hypocrisy and contradictions of US policy. She called out President Trump and Vice President Mike Pence by name on the House floor in her speech: “Two days ago, President Trump and Vice President Pence delivered solemn speeches about the attacks on 9/11, talking about how much they care about the victims of al-Qaeda’s attack on our country. But, they are now standing up to protect the 20,000 to 40,000 al-Qaeda and other jihadist forces in Syria, and threatening Russia, Syria, and Iran, with military force if they dare attack these terrorists.”

[..] Trump and Gabbard had even once met to discuss Syria policy at a private meeting at Trump Tower in November of 2016 just ahead of then president-elect Trump being sworn into office. At the time the two appeared to be in complete agreement over Syria policy, after which Gabbard said of the meeting, “I felt it important to take the opportunity to meet with the President-elect now before the drumbeats of war that neocons have been beating drag us into an escalation of the war to overthrow the Syrian government—a war which has already cost hundreds of thousands of lives and forced millions of refugees to flee their homes in search of safety for themselves and their families.”

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Pacta sunt servanda.

Acrimony As EU Denies False Report On Greek Pension Cuts Relief (K.)

The European Commission on Friday denied a report in the state-run Athens-Macedonian News Agency (ANA-MPA) that claimed Greece’s lenders had agreed to the non-implementation of pension cuts slated for January as they believe the country’s social security system has become viable. The agency, whose report was initially backed by government spokesman Dimitris Tzanakopoulos, also claimed that the institutions had informed opposition parties about their decision. But a government source told Kathimerini that the report was not true.

The EC was quick to refute the report with a statement urging Greece to deliver on the promises it has made to its international lenders under the bailout program. “Our position is crystal-clear: Pacta sunt servanda. This is the only position you need to look at,” Commission spokesman Alexander Winterstein told a news briefing, using a Latin proverb which means “agreements must be kept.” For their part, the institutions said they made the visit to Athens – the first since Greece’s exit from the bailout program in August – not to engage in negotiations but to monitor whether the government is sticking to agreed reforms.

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Not a popular thing to say. But is it wrong? What he means is stop the wars and invasions first.

Dalai Lama Says ‘Europe Belongs To Europeans’ (AFP)

The Tibetan spiritual leader, the Dalai Lama, said Wednesday that “Europe belongs to the Europeans” and that refugees should return to their native countries to rebuild them. Speaking at a conference in Sweden’s third-largest city of Malmo, home to a large immigrant population, the Dalai Lama – who won the Nobel Peace Prize in 1989 – said Europe was “morally responsible” for helping “a refugee really facing danger against their life”. “Receive them, help them, educate them… but ultimately they should develop their own country,” said the 83-year-old Tibetan who fled the capital Lhasa in fear of his life after China poured troops into the region to crush an uprising. “I think Europe belongs to the Europeans,” he said, adding they should make clear to refugees that “they ultimately should rebuild their own country”. .

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Where’s all the water going to go?

Florence Plows Inland, Leaving Five Dead, States Flooded (R.)

Florence had been a Category 3 hurricane on the five-step Saffir-Simpson scale with 120-mph winds as of Thursday, but dropped to a Category 1 hurricane before coming ashore near Wrightsville Beach close to Wilmington. The National Hurricane Center downgraded it to a tropical storm on Friday afternoon, but warned it would dump as much as 30 to 40 inches of rain on the southeastern coast of North Carolina and into the northeastern coast of South Carolina in spots. “This rainfall will produce catastrophic flash flooding and prolonged significant river flooding,” the hurricane center said. Atlantic Beach on North Carolina’s Outer Banks islands had already received 30 inches (76 cm) of rain, the U.S. Geological Survey said.

By Friday night the center of the storm had moved to eastern South Carolina, about 15 miles northeast of Myrtle Beach, with maximum sustained winds of 70 mph. North Carolina utilities have estimated that as many as 2.5 million state residents could be left without power, the state’s Department of Public Safety said. More than 22,600 people were housed in 150 shelters statewide, including schools, churches and Wake Forest University’s basketball arena. Officials in New Bern, which dates to the early 18th century, said over 100 people were rescued from floods and the downtown was under water by Friday afternoon. Calls for help multiplied as the wind picked up and the tide rolled in.

“These are folks who decided to stay and ride out the storm for whatever reason, despite having a mandatory evacuation,” city public information officer Colleen Roberts said. “These are folks who are maybe in one-story buildings and they’re seeing the floodwaters rise.”

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May 212018
 


Margaret Bourke-White Great Ohio River Flood, Louisville, Kentucky 1937

 

The Soaring Dollar Will Lead To An “Explosive” Market Repricing (ZH)
Draghi Calls for Consolidation of Debts? (Martin Armstrong)
Italy’s Organic Crisis (Thomas Fazi)
Italy Has A New Government As Populist Parties Agree On New Premier (ZH)
Argentina: From The “Confidence Fairy” To The -Still Devilish- IMF (CF)
US-China Trade War ‘On Hold’ As America Backs Off On Tariffs (Ind.)
Bill Aimed At Saving Community Banks Is Already Killing Them (Dayen)
EU Blocking Cities’ Efforts To Curb Airbnb (G.)
End Of Greek Bailout Means Fresh Cuts To Salaries, Pensions (K.)
Why Boomtown New Zealand Has A Homelessness Crisis
Hundreds Of Homeless People Fined And Imprisoned In UK (G.)
Scientists Revise Their Understanding of Novichok (Slane)

 

 

Dollar shortage grows as interest rates grow.

The Soaring Dollar Will Lead To An “Explosive” Market Repricing (ZH)

Something curious took place one month ago when the PBOC announced on April 17 that it would cut the reserve requirement ratio (RRR) by 1% to ease financial conditions: it broke what until then had been a rangebound market for both the US Dollar and the US 10Y Treasury, sending both the dollar index and 10Y yields soaring…

… which led to an immediate tightening in financial conditions both domestically and around the globe, and which has – at least initially – manifested itself in a sharp repricing of emerging market risk, resulting in a plunge EM currencies, bonds and stocks.

Adding to the market response, this violent move took place at the same time as geopolitical fears about Iran oil exports amid concerns about a new war in the middle east and Trump’s nuclear deal pullout, sent oil soaring – with Brent rising above $80 this week for the first time since 2014 – a move which is counterintuitive in the context of the sharply stronger dollar, and which has resulted in even tighter financial conditions across the globe, but especially for emerging market importers of oil.

Meanwhile, all this is playing out in the context of a world where the Fed continues to shrink its balance sheet – a public sector “Quantitative Tightening (QT)” – further tightening monetary conditions (i.e., shrinking the global dollar supply amid growing demand), even as high grade US corporate bond issuance has dropped off a cliff for cash-rich companies which now opt to repatriate cash instead of issuing domestic bonds, with the resulting private sector deleveraging, or “private sector QT”, further exacerbating tighter monetary conditions and the growing dollar shortage (resulting in an even higher dollar).

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Europe has no bond market left. Japan has no bond market left. All they have is central banks.

Draghi Calls for Consolidation of Debts? (Martin Armstrong)

COMMENT: You were here in Brussels a few weeks ago. Suddenly, the ECB is talking about the need to merge the debts to prevent a crisis. So your lobbying here seems to work. – RGV, Brussels. REPLY: I do not lobby. It is rather common knowledge I have made those proposals since the EU commission attended our World Economic Conference held back in 1998 in London. I focused on the reason the Euro would fail if the debts were not consolidated. So it is not a fair statement to say I meet in Brussels to lobby for anything. I meet with people who call me in because of a crisis brewing.

So everyone else understands what this is about, the ECB President Mario Draghi has come out and proposed interlocking the euro countries to create a “stronger” and “new vehicle” as a “crisis instrument” to save Europe. He is arguing that this should prevent countries from drifting apart in the event of severe economic shocks. Draghi has said it provides “an extra layer of stabilization” which is a code phrase for the coming bond crash. He has conceded that the legal structure is difficult because what he is really talking about is the consolidation of national debts into a single Eurobond market. There is no bond market that is viable in Europe after the end of Quantitative Easing. There will be NO BID.

There is no viable bond market left in Europe. The worst debt is below US rates only because the ECB is the buyer. Stop the buying and the ceiling comes crashing down. This is why what he is saying is just using a different label. He is not calling it debt consolidation, just an extra layer of stabilization to bind the members closer together. It will be a hard sell and it may take the crisis before anyone looks at this. You have “bail-in” policies because of the same problem. If the banks in Italy need a bailout from Brussels, then other members will look at it as a subsidization for Italy which is unfair. There is no real EU unity behind the curtain which is when the debt was NEVER consolidated from day one. They wanted a single currency, but not a single responsibility for the debt.

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“..20% of Italy’s industrial capacity has been destroyed, and 30% of the country’s firms have defaulted..”

Italy’s Organic Crisis (Thomas Fazi)

The Italian Marxist Antonio Gramsci coined the term “organic crisis” to describe a crisis that differs from ”ordinary” financial, economic, or political crises. An organic crisis is a “comprehensive crisis,” encompassing the totality of a system or order that, for whatever reason, is no longer able to generate societal consensus (in material or ideological terms). [..] Gramsci was talking about Italy in the 1910s. A century later, the country is facing another organic crisis. More specifically, it is a crisis of the post-Maastricht model of Italian capitalism, inaugurated in the early 1990s.

[..] The downfall of the political establishment—and the rise of the “populist” parties—can only be understood against the backdrop of the “the longest and deepest recession in Italy’s history,” as the governor of the Italian central bank, Ignazio Visco, described it. Since the financial crisis of 2007–9, Italy’s GDP has shrunk by a massive 10%, regressing to levels last seen over a decade ago. In terms of per capita GDP, the situation is even more shocking: according to this measure, Italy has regressed back to levels of twenty years ago, before the country became a founding member of the single currency. Italy and Greece are the only industrialized countries that have yet to see economic activity surpass pre–financial crisis levels.

As a result, around 20% of Italy’s industrial capacity has been destroyed, and 30% of the country’s firms have defaulted. Such wealth destruction has, in turn, sent shockwaves throughout the country’s banking system, which was (and still is) heavily exposed to small and medium-sized enterprises (SMEs). Italy’s unemployment crisis continues to be one of the worst in all of Europe. Italy has an official unemployment rate of 11% (12% in southern Italy) and a youth unemployment rate of 35% (with peaks of 60% in some southern regions). And this is not even considering underemployed and discouraged workers (people who have given up looking for a job and therefore don’t even figure in official statistics).

If we take these categories into consideration, we arrive at a staggering effective unemployment rate of 30%, which is the highest in all of Europe. Poverty has also risen dramatically in recent years, with 23% of the population, about one in four Italians, now at risk of poverty—the highest level since 1989.

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Europe gets nervous.

Italy Has A New Government As Populist Parties Agree On New Premier (ZH)

Taking the biggest step toward forming Italy’s next government, the head of the anti-immigration League party Matteo Salvini said he’s reached a deal with Five Star leader Luidi Di Maio on forming a populist government, and picked a premier. According to a report in Corriere, Florence University law professor Giuseppe Conte was chosen as prime minister, while Matteo Salvini would be proposed as interior minister, and Five Star head Luigi and Di Maio would be labor minister. On Saturday, Il Messaggero reported that Salvatore Rossi, the Bank of Italy’s director general, could be picked as finance minister.

Today, Ansa added that according to Di Maio, Five Star will head joint ministry of economic development and labor; separately Giancarlo Giorgetti, Matteo Salvini’s right-hand man, will be proposed as economy minister, while Nicola Molteni would become minister of the infrastructure and transport and Gian Marco Centinaio would head the department of Agriculture and Tourism. ANSA added that Salvini will present the proposal to President Sergio Mattarella on Monday. As Bloomberg adds, the endgame follows a week of turmoil in Italian bonds and stocks triggered by reports about the coalition’s spending plans and rejection of European Union budget rules.

Italy’s 10-year yield spread over German bonds shot up to 165 bps on Friday, the most since October, prompting a warning from Paris. French Finance Minister Bruno Le Maire said in a Sunday interview with Europe 1 radio that “if the new government took the risk of not respecting its commitments on debt, the deficit and the cleanup of banks, the financial stability of the entire euro zone will be threatened.” Salvini fired back on Twitter, suggesting the warning was “unacceptable” interference. “Italians first!” he said, clearly referencing Donald Trump.

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No crisis until now because so much was borrowed. Crisis now because so much was borrowed. It’s like a blue print for the entire world.

Argentina: From The “Confidence Fairy” To The -Still Devilish- IMF (CF)

[..] looking at the external front, one may even be forgiven for asking: why did this crisis take so long to burst? Argentina was haemorrhaging dollars for many years, and with no sign of reversal: since 2016 the domestic non-financial sector acquired an accumulated amount of USD 41 billion in external assets. During the same period, the current account deficit totalled another USD 30 billion, in the form of trade deficit, tourism deficit, profit remittances by foreign companies and increasing interest payments. The well-known factor that allowed all these trends to last until now is the foreign borrowing spree that involved the government, provinces, firms, and the central bank, including the inflow from short-term investors for carry trade operations.

In the case of debt issuance, since 2016 the central government, provinces and private companies, have issued a whopping USD 88 billion of new foreign debt (13% of GDP). In the case of carry trade operations, since 2016 the economy recorded USD 14 billon of short-term capital inflows (2% of GDP). The favourite peso-denominated asset for this operations were the debt liabilities of the central bank called LEBAC (Letters of the Central Bank). Because of this, the outstanding stock of this instrument has now become the centre of all attention. It is important to understand the LEBACs. They were originally conceived as an inter-bank and central bank liquidity management instrument.

Since the lifting of foreign exchange and capital controls and the adoption of inflation targeting, the stock of LEBACs grew by USD 18 billion. Moreover, the composition of holders has changed significantly since 2015: At that time, domestic banks held 71% of the stock, and other investors held 29%. In 2018 that proportion has reverted to 38% banks/62% to other non-financial institution holders, which includes other non-financial public institutions (such as the social security administration) (17%), domestic mutual investment funds (16%), firms (14%), individuals (9%), and foreign investors (5%). That means that a large part of all the new issuance of LEBAC is held by investors outside the regulatory scope of the central bank, especially individuals and foreign investors. [..] these holdings could easily be converted into foreign currency, causing a large FX depreciation.

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They’re talking.

US-China Trade War ‘On Hold’ As America Backs Off On Tariffs (Ind.)

The US will hold off on imposing steep tariffs on China that ignited fears of a trade war as both sides pursue a broader deal, a top economic official said. “We’re putting the trade war on hold,” Treasury secretary Steve Mnuchin said during an appearance on Fox News Sunday. “We have agreed to put the tariffs on hold”. The announcement of a detente in the escalating trade dispute came after Chinese officials visited Washington last week, leading the White House to release an optimistic statement about both sides agreeing to take “measures to substantially reduce the United States trade deficit in goods with China” and to work on expanding trade and protecting intellectual property.

Donald Trump has railed against trade imbalances, particularly with China, as he seeks to renegotiate America’s economic relationship with other nations he accuses of exploiting the US. Breaking with some of his top economic advisers, Mr Trump announced earlier this year that he would levy tariffs on steel and aluminium. He also signed a memorandum seeking tariffs on $60bn worth of Chinese goods. [..] Mr Mnuchin signalled that America was using the leverage from tariff threats to pivot to negotiation, saying talks with Chinese officials had produced “very meaningful progress” – including a “Very productive” oval office meeting between Mr Trump and a top Chinese official.

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Unintended?

Bill Aimed At Saving Community Banks Is Already Killing Them (Dayen)

After initial reluctance, House Republicans have finally reached an agreement to move forward on a bipartisan bank deregulation bill that the Senate passed in March. Its stated aim — to help rural community banks thrive against growing Wall Street power — appears to have been enough to power it across the finish line. But banking industry analysts say the bill is already having the opposite effect, and its loosening of regulations on medium-sized banks is encouraging a rush of consolidation — all of which ends with an increasing number of community banks being swallowed up and closed down. “We absolutely expect bank consolidation to accelerate,” Wells Fargo’s Mike Mayo told CNBC the day after the Senate passed the deregulation bill in March.

The reason? Banks no longer face the prospect of stricter and more costly regulatory scrutiny as they grow. And regional banks in Virginia, Ohio, Mississippi, and Wisconsin have already taken note before the bill has even passed into law, announcing buyouts of smaller rivals. The expected consolidation simply furthers an existing trend. Community banks have been struggling for decades against an epidemic of consolidation; the number of banks in America has fallen by nearly two-thirds in the past 30 years. Ironically, the one state that has seemingly figured out how to arrest this systemic abandonment of smaller communities is North Dakota, the home state of the bill’s co-author, Democratic Sen. Heidi Heitkamp. That’s because North Dakota has a public bank.

Using idle state tax revenue as its deposit base, the Bank of North Dakota partners with community lenders on infrastructure, agriculture, and small business loans. It has thrived, earning record profits for 14 straight years, which have funneled back into state coffers. And while Heitkamp has complained that the Dodd-Frank Act has been disastrous for community banks, in North Dakota they appear to be doing well. According to a Institute for Local Self-Reliance analysis of Federal Deposit Insurance Corp. data, North Dakota has more banks per capita than any other state, and lends to small businesses at a rate that is four times the national average.

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The wonders of lobbying.

EU Blocking Cities’ Efforts To Curb Airbnb (G.)

The explosive rise of short-stay Airbnb holiday rentals may be shutting locals out of housing and changing neighbourhoods across Europe, but cities’ efforts to halt it are being stymied by EU policies to promote the “sharing economy”, campaigners say. “It’s pretty clear,” said Kenneth Haar, author of UnfairBnB, a study published this month by the Brussels-based campaign group Corporate Europe Observatory. “Airbnb is under a lot of pressure locally across Europe, and they’re trying to use the top-down power of the EU institutions to fight back.” While it might have started as a “community” of amateur hosts offering spare rooms or temporarily vacant homes to travellers, Airbnb had seen three-digit growth in several European cities since 2014 and was now a big, powerful corporation with the lobbying clout to match, Haar said.

The platform lists around 20,500 addresses in in Berlin, 18,500 in Barcelona, 61,000 in Paris and nearly 19,000 in Amsterdam. Data scraped by the campaign group InsideAirbnb suggests that in these and other tourist hotspots, more than half – sometimes as many as 85% – of listings are whole apartments. Many of the properties are also rented out year-round, removing tens of thousands of homes from the residential rental market. Even in cities where short-term lets are now restricted, about 30% of Airbnb listings are available for three or more months a year, the data indicates. In those where they are not, such as Rome and Venice, the figure exceeds 90%.

[..] local attempts to protect residents’ access to affordable housing and preserve the face of city-centre neighbourhoods are being undermined, campaigners say, by the EU’s determination to see the “collaborative economy” as a key future driver of innovation and job creation across the bloc. “The commission seems almost hypnotised by the prospect of a strong sharing economy, and not really interested in its negative consequences,” said Haar. “Commissioners talk about ‘opportunities, not threats’. The parliament, too, recently condemned cities’ attempts to restrict lettings on online platforms.”

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The torture never stops. Death by a thousand cuts.

End Of Greek Bailout Means Fresh Cuts To Salaries, Pensions (K.)

Millions of salaried workers and pensioners stand to lose at least one monthly payment within two years, in 2019 and 2020. For Greece to boast of a successful – as the government desires – exit from the third bailout program without facing any obstacles by August, the Finance Ministry has ruled out the option of avoiding a reduction to pensions from 2019 and will also be proceeding with demands to reduce the minimum tax threshold as of 2020. [..] January 2019 is when the barrage of cuts to pensions is due to start, lasting at least until 2022, with reductions to main as well as auxiliary pensions and also the abolition of family benefits. The bulk of cuts will affect some 1.1 million retirees, who will see their main pension slashed as of this December (when the January 2019 pensions are paid out) by up to 18%.

In total, in the private and public sector, the reduction of pension expenditure from this particular measure in 2019 is estimated at 2.13 billion euros. Reductions will start at 5 euros a month and may reach up to 350 euros a month. There will even be cuts to pensions where there is no personal difference, owing to the abolition of family benefits currently being paid out with the pensions in the public and private sectors. This is expected to concern around 1 million pensioners. Some 200,000 pensioners will also be affected by the cut of the personal difference from auxiliary pensions. According to the midterm fiscal plan, the reduction in 2019 will amount to savings of 232 million euros for state coffers, which is the amount pensioners will also be deprived of.

According to the government’s plans, the sum of cuts that will become evident as of this December will mean that new pensions will eventually be 30 percent below the original level before the law introduced in May 2016 by then labor minister Giorgos Katrougalos. Therefore, the vast majority of monthly pensions will hover in the 700-euro range, even for retirees who used to bring in an average of 1,300 euros.

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“They’re a long way down a hole that was created by somebody else..”

Why Boomtown New Zealand Has A Homelessness Crisis

New Zealand’s dairy-fuelled economy has for several years been the envy of the rich world, yet despite the rise in prosperity tens of thousands of residents are sleeping in cars, shop entrances and alleyways. The emerging crisis has created a milestone that New Zealanders won’t be proud of: the highest homelessness rate among the 35 high-income OECD countries. It’s a curious problem afflicting boom towns where some residents get pushed onto the streets as they can no longer afford the rocketing rents in a flourishing economy – let alone purchase a house as the price of property has soared. “I have no assets at the moment,” said 64-year-old Victor Young, who spoke to Reuters at a soup kitchen in New Zealand’s capital, Wellington.

“It’s not a kind country, it’s not an easy country. I slept in my car 20 days last year. I worked 30 hours a week.” That sentiment is something the country’s popular Prime Minister Jacinda Ardern would like to reverse. Last Thursday, across town from the Sisters of Compassion Soup Kitchen, her Labour-led government unveiled its first budget with an ambitious plan to build social infrastructure. The government has allocated NZ$3.8 billion ($2.62 billion) of new capital spending over a five-year period. This includes an extra NZ$634 million for housing, on top of the NZ$2.1 billion previously announced to fund Kiwibuild, a government building program to increase affordable housing supply.

[..] But experts say the government’s first budget underwhelms on the radical reforms the wider public wanted. “They’re a long way down a hole that was created by somebody else and they haven’t really got a great or easy solution,” said John Tookey, professor of construction management at Auckland University of Technology. He said the government’s much-vaunted Kiwibuild could come unstuck because there weren’t enough skilled workers to deliver on its ambitious target to build 100,000 homes in the next decade.

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Where does this originate? WIth Theresa May of course.

Hundreds Of Homeless People Fined And Imprisoned In UK (G.)

Growing numbers of vulnerable homeless people are being fined, given criminal convictions and even imprisoned for begging and rough sleeping. Despite updated Home Office guidance at the start of the year, which instructs councils not to target people for being homeless and sleeping rough, the Guardian has found over 50 local authorities with public space protection orders (PSPOs) in place Homeless people are banned from town centres, routinely fined hundreds of pounds and sent to prison if caught repeatedly asking for money in some cases. Local authorities in England and Wales have issued hundreds of fixed-penalty notices and pursued criminal convictions for “begging”, “persistent and aggressive begging” and “loitering” since they were given strengthened powers to combat antisocial behaviour in 2014 by then home secretary, Theresa May.

Cases include a man jailed for four months for breaching a criminal behaviour order (CBO) in Gloucester for begging – about which the judge admitted “I will be sending a man to prison for asking for food when he was hungry” – and a man fined £105 after a child dropped £2 in his sleeping bag. Data obtained by the Guardian through freedom of information found that at least 51 people have been convicted of breaching a PSPO for begging or loitering and failing to pay the fine since 2014, receiving CBOs in some cases and fines up to £1,100. Hundreds of fixed-penalty notices have been issued. Lawyers, charities and campaigners described the findings as “grotesque inhumanity”, saying disadvantaged groups were fined for being poor.

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“..one of its primary effects is to generate in its victims a strong desire to go out for a beer followed by a pizza.”

Scientists Revise Their Understanding of Novichok (Slane)

Warning: This article is likely to contain traces of satire. In the aftermath of the poisoning of Sergei and Yulia Skripal in Salisbury on 4th March, scientists are currently re-evaluating their understanding of A-234 – or Novichok as it is more commonly known. Prior to the poisoning, it had been thought that the substance was around 5-8 times more toxic than VX nerve agent, and therefore that just a tiny drop would be likely to kill a person within minutes or possibly even seconds of them coming into contact with it. In the unlikely event of a person surviving, it was believed that their central nervous system would be completely destroyed, and that they would suffer numerous chronic health issues, including cirrhosis, toxic hepatitis, and epilepsy before dying a premature and miserable death, probably within a year or so.

However, according to an anonymous source at the Porton Down laboratory, which is located just a few miles down the road from Salisbury, scientists now believe they may have completely misunderstood the properties and effects of the chemical: “All the available information we had about Novichok before March this year suggested that it was by far the most lethal nerve agent ever produced, and we had assumed that even the tiniest drop would kill a person within minutes. However, after studying the movements of the Skripals after being poisoned, we have now revised our understanding, and we now believe that one of its primary effects is to generate in its victims a strong desire to go out for a beer followed by a pizza.”

Yet it’s not only the effects of the substance that have led to this reappraisal, but also its mysterious ability to move about from location to location, seemingly at will. According to the source: “At first, differing reports of the location of the poisoning baffled us. First it was the restaurant, then it was the pub, followed by the bench, the car, the cemetery, the flowers, the luggage, the porridge, and then finally the door handle three weeks after the incident. However, we now believe we have an explanation for this phenomena. When Novichok was developed, we think it may have been given the ability to appear in one place, only to then disappear and turn up in an entirely different place.

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Jun 182015
 
 June 18, 2015  Posted by at 10:08 am Finance Tagged with: , , , , , , ,  


Wynand Stanley Cadillac touring car at Yosemite in snow 1919

Greece Is Solvent But Illiquid. What Should The ECB Do? (Paul De Grauwe)
Greek Central Bank Is Playing With Political Fire (AEP)
Tsipras Says ‘Blind Insistence’ On Pension Cuts Would Worsen Crisis (Reuters)
Merkel Tries to Get Greek Talks Back on Track (Bloomberg)
Greek Journalists Allegedly ‘Trained’ by IMF to Present it Favorably (G.R.)
Greece Set For Eurozone Talks After Night Of Protests In Athens (Guardian)
House Speaker And SYRIZA In Attack On Bank Of Greece Governor (Kathimerini)
For Two Rivals in Greek Crisis, It’s Personal (Bloomberg)
If Greece Can Wreck It, How Strong Was The Euro In The First Place? (McRae)
Greek Diaspora: Our Country Is Being Used As A Scapegoat (Guardian)
The Seeds Of The Greek Problem Were Sown In 1980s (Kathimerini)
‘Making Us Poorer Won’t Save Greece’ (Guardian)
Podemos Insurgency Drives Spain’s Renewal as Rajoy Warns of Risk (Bloomberg)
How Rising Debt Causes Inequality And Crisis (Steve Keen)
Today Financial Journalism Suffered An Epic Failure (Zero Hedge)
Texas City Repeals Historic Fracking Ban Under Duress (Guardian)
Small US Frackers Face Extinction Amid Drilling Drought (Reuters)
The Curse Of Being A Safe Haven Currency (CNBC)
Why I Won’t Lower Rates ‘Fast’: Russian Central Bank Governor (CNBC)
Russian State Assets In Belgium ‘To Be Seized As Yukos Compensation’ (RT)
The World Hasn’t Had So Many Refugees Since 1945 (Bloomberg)
1 In Every 122 People Is Displaced By War, Violence And Persecution (Guardian)

Why loans for Greece can diffuse the entire situation. But even then the debt must be restructured. Lenders must pay for bad decisions at least as much as borrowers.

Greece Is Solvent But Illiquid. What Should The ECB Do? (Paul De Grauwe)

One feature of the Greek sovereign debt crisis, which is widely misunderstood, is the following. Since the start of the crisis the Greek sovereign debt has been subjected to several restructuring efforts. First, there was an explicit restructuring in 2012 forcing private holders of the debt to accept deep haircuts. This explicit restructuring had the effect of lowering the headline Greek sovereign debt by approximately 30% of GDP. Second, there were a series of implicit restructurings involving both a lengthening of the maturities and a lowering of the effective interest rate burden on the Greek sovereign debt. As a result of these implicit restructurings, the average maturity of the Greek sovereign debt is now approximately 16 years, which is considerably longer than the maturities of the government bonds of the other Eurozone countries.

These implicit restructurings have also reduced the interest burden on the Greek debt. The effective interest burden of the Greek government has been estimated by Darvas of Bruegel to be a mere 2.6% of GDP. This is significantly lower than the interest burden of countries such as Belgium, Ireland, Italy, Spain and Portugal. As a result of these implicit restructurings the headline debt burden of 175% of GDP in 2015 vastly overstates the effective debt burden. The latter can be defined as the net present value of the expected future interest disbursements and debt repayments by the Greek government, taking these implicit restructurings into account. Various estimates suggest that this effective debt burden of the Greek government is less than half of the headline debt burden of 175%.

From the preceding it follows that the effective debt burden of the Greek government is lower than the debt burden faced by not only the other periphery countries of the Eurozone but also by countries like Belgium and France. This leads to the conclusion that the Greek government debt is most probably sustainable provided Greece can start growing again (so that the denominator in the debt to GDP ratio can start increasing instead of shrinking as is the case today). Put differently, provided Greece can grow, its government is solvent. The logic of the previous conclusion is that Greece is solvent but illiquid. Today Greece has no access to the capital markets except if it is willing to pay prohibitive interest rates that would call into question its solvency. As a result, it cannot rollover its debt despite the fact that the debt is sustainable.

There is something circular here. If Greece is unable to find the liquidity to roll over its debt it will be forced to default. The expectation that this may happen leads to very high interest rates on the outstanding Greek government bonds reflecting the risk of holding these bonds. As a result, the Greek government cannot rollover its debt except at prohibitive interest rates. The expectation that the Greek government will be faced with a liquidity problem is self-fulfilling. The Greek government cannot find the liquidity because markets believe it cannot find liquidity. The Greek government is trapped in a bad equilibrium.

What is the role of the ECB in all this? More particularly, should the OMT-program be used in the case of Greece? The ECB has announced sensibly that OMT-support will only be provided to countries that are solvent but illiquid. But, as I have argued, that is the case today for Greece. So what prevents the ECB from providing liquidity? There is a second condition: OMT support is only granted to countries that have access to capital markets. This second condition does not make sense at all, because it maintains the circularity mentioned earlier. Greece has no access to capital markets (except at prohibitively high interest rates) because the markets expect Greece to experience liquidity problems and thus not to be able to rollover its debt.

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“They will eat dirt for the rest of their lives. They will freeze in rags. They will moan and wail, forever.”

Greek Central Bank Is Playing With Political Fire (AEP)

Greece’s central bank has issued a last plaintive scream before the axe falls, as if delivering an Aeschylean curse. The plagues of the earth will descend upon the Greek people if the radical-Left Syriza government of Alexis Tsipras persists in defying Europe’s creditor powers and opts for default. They will eat dirt for the rest of their lives. They will freeze in rags. They will moan and wail, forever. “Failure to reach an agreement would mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union,” it asserted. “A manageable debt crisis would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. The ensuing acute exchange rate crisis would send inflation soaring.”

The central bank did not present these as potential dangers in a worst case scenario – something we might all accept – it asserted that they would occur unless Mr Tsipras agrees to terms imposed by Brussels before the Greek treasury runs out of money. “All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership. From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.” Never before has such a “monetary policy” report been published by the central bank of a developed country, or indeed any country. It is a political assault on its own elected government.

Zoe Konstantopoulou, the speaker of the Greek parliament, rejected the document as “unacceptable”. Furious Syriza MPs called it an attempt to strike terror. Yannis Stournaras, the central bank’s governor, is not a neutral figure. He was finance minister in the previous conservative government. His action tells us much about the institutional rot at the heart of the Greek state, and why a real revolution is in fact needed. Where does one begin with the clutter of wild assertions in his report? It is not true that Greece would “most likely” be forced out of the EU following a return to the drachma. Such an escalation is extremely unlikely, despite a chorus of empty threats along these lines by Brussels.

The decision would be taken on political and geo-strategic grounds by the elected leaders of Germany, France, Britain, Italy, Poland, and their peers in the European Council, with Washington breathing down their necks. If they want to keep Greece in the EU, they will do so. European treaty law does not give categorical guidance on this issue. It is famously elastic in any case. The Swedes, Poles, and Czechs remain outside EMU, though “legally” supposed to join. The issue is finessed in perpetuity by a vague promise to join when the time is right. The same can be done for Greece, with a flick of the fingers.

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“Anyone who claims that German taxpayers are coming up for the wages and pensions for Greeks is lying..”

Tsipras Says ‘Blind Insistence’ On Pension Cuts Would Worsen Crisis (Reuters)

The “blind insistence” on cutting Greek pensions will only worsen the country’s already dire financial crisis, Greek Prime Minister Alexis Tsipras wrote in a German newspaper commentary on Thursday. In a guest column for Der Tagesspiegel newspaper in Berlin, Tsipras also rejected the “myth” that German taxpayers are paying Greek pensions and wages. He said Greeks, contrary to the widespread belief in Germany, work longer than Germans. “The blind insistence of cuts (in pensions) in a country with a 25% unemployment rate and where half of all the young people are unemployed will only cause a further worsening of the already dramatic social situation,” Tsipras wrote. He said that pensions are the only source of income for countless families in Greece.

In Athens on Wednesday he also rejected pension cuts that creditors are seeking to unlock aid. Tsipras also wrote that the state’s expenditures for pensions and social spending were cut by 50% between 2010 and 2014. “That makes further cutbacks in this sensitive area impossible.” Tsipras also challenged perceptions among Germans, a majority of whom now want Greece to leave the euro zone, about who is paying for Greek wages and pensions: “Anyone who claims that German taxpayers are coming up for the wages and pensions for Greeks is lying,” he wrote. “I’m not denying there are problems…But I’m speaking out here to show why the ‘cuts offensive’ of the past years has led nowhere.”

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Cute headline, but little substance on what she’s actually doing.

Merkel Tries to Get Greek Talks Back on Track (Bloomberg)

With Greece’s fate in balance, European finance ministers converge on Luxembourg with little hope for a deal as German Chancellor Angela Merkel seeks to restore calm to increasingly rancorous exchanges. Tensions are running high as Greek Prime Minister Alexis Tsipras turned to the classics to paint himself as a leader of stature ready to rebuff a bad deal come what may. He’s been on a tear, accusing creditors of nefarious intentions, and will meet with Russian President Vladimir Putin during a decisive week for the debt-ridden nation sliding towards insolvency. It may come down to Merkel, leading a country that is the largest contributor to Greece’s bailout fund, to steer the conversation back to common ground and realistic goals in a speech to German lawmakers.

Monitoring the state of play closely is Federal Reserve Chair Janet Yellen, who warned of an spillover effect in the U.S. if a resolution isn’t reached. Heading into Thursday’s meeting – billed as a last chance to seal an agreement on as much as €7.2 billion in bailout aid – optimism was in short supply. “I think we would be helped if there would be a bit more honesty in the debate on Greece,” European Commission Vice President Frans Timmermans said at news conference in Brussels. Officials from the Netherlands to Portugal are anticipating a breakdown in talks. The government of Ireland, itself once a recipient of aid, is just the latest euro member making contingency plans for a Greek default or ejection from the euro, a person with knowledge of the matter says.

Tsipras showed little inclination to change his tone with talks between Greece and its lenders hitting a wall. He penned an opinion piece in German daily Der Tagesspiegel railing against anyone who says German taxpayers are paying for Greek wages. On the eve of the euro-area gathering of finance chiefs, German Finance Minister Wolfgang Schaeuble -one of Greece’s sternest critics – told a parliamentary hearing that his government is bracing itself for the worst. That sentiment was broadly shared by others, too. That puts the onus on European Union leaders to disentangle the contentious issues such as sales-tax rates and pensions at a June 25-June 26 in Brussels, mere days before Greece’s bailout program expires. That will also be when Merkel and Tsipras will come face to face.

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Nice juicy detail.

Greek Journalists Allegedly ‘Trained’ by IMF to Present it Favorably (G.R.)

Greek journalists attended seminars funded by the IMF in order to present its positions favorably, said Greece’s former representative to the IMF Panagiotis Roumeliotis. Roumeliotis testified on Tuesday in front of the special parliamentary committee on the Greek debt. The former official said that several Greek journalists were “trained” in Washington D.C. in order to support the positions of the IMF and the European Commission in Greek media. Roumeliotis said that when he was in D.C. he accidentally met with Greek journalists who told him that they were invited to attend seminars on the function of the IMF. He further said that the committee can ask the organization’s Director of Communications Department, Gerry Rice, for a list of journalists’ names who attended the seminars.

Greek Parliament President Zoe Konstantopoulou, who heads the committee, adopted the proposal and appointed a committee member to draft a formal request to the IMF. “In Greece, certain individuals who work for the mass media were contracted to conceal the fact that the Greek debt was not sustainable.” Konstantopoulou went further and named television journalist Yiannis Pretenteris who, according to Konstantopoulou, has admitted in his book that he attended the IMF seminars. Roumeliotis claimed that many journalists were victims of misinformation and the omission of the fact that the debt was not sustainable was detrimental to the public interest. He further said that several economists and university professors attempted to convince the public that the debt was sustainable, adding that he puts them in the same category as the journalists.

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Maybe the protests should be bigger. A lot.

Greece Set For Eurozone Talks After Night Of Protests In Athens (Guardian)

Greek negotiators head into talks with eurozone finance ministers on Thursday to tackle the debt-stricken country’s deepening crisis after demonstrations against further EU-enforced austerity took place in Athens last night. Despite warnings that Greece was heading for a possible exit from the euro without an extension of its current bailout deal, the meeting on Thursday is expected to be short, with little likely to be decided. The gathering of finance ministers from the currency bloc’s 19 member states is due to discuss the gulf between Athens and its creditors, but is expected to delay any decisions to a summit of EU leaders next week, officials in Brussels said. With no fresh proposals on the table, the ministers have indicated that there is little point in a prolonged debate about a potential deal at the meeting.

The Greek government said it remained ready to join talks to secure an agreement, but could not accept the current proposals to cut pensions or achieve a 1% budget surplus in the middle of a recession. Financial markets are expected to greet the impasse between Greece and the troika of lenders with dismay, further depressing prices that have slumped in recent days. A war of words between the Greek prime minister, Alexis Tsipras, and the troika has become further inflamed after he accused the IMF of “criminal responsibility” for the situation and said lenders were seeking to “humiliate” his country. Jean-Claude Juncker, the president of the European commission, responded by saying he had “sympathy for the Greek people but not the Greek government”. Juncker was until recently rated as one of Tsipras’s only allies.

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Stournaras once again revealed as a tool.

House Speaker And SYRIZA In Attack On Bank Of Greece Governor (Kathimerini)

Bank of Greece Governor Yannis Stournaras came under attack on Wednesday from Parliament Speaker Zoe Constantopoulou and her SYRIZA colleagues after the central bank issued in one of its regular reports a warning regarding the consequences of the government failing to reach an agreement with its lenders. The report warned that Greece could tumble out of the euro area and even the European Union as a result of a default, which prompted SYRIZA to accuse Stournaras of “not only going beyond the boundaries of his institutional role but trying to contribute to the creation of a restrictive framework around the government’s negotiating possibilities.” Constantopoulou went as far as rejecting the report because it had been sent on a memory stick and not in printed format.

The document arrived ahead of Parliament’s debt audit committee – which is being presided over by Constantopoulou – delivering its preliminary findings. The parliamentary speaker claimed that the Bank of Greece’s report was an “undemocratic” attempt to “create a fait accompli and to prevent a challenge for debt relief.” The Debt Truth Committee’s initial report claimed that much of Greece’s debt should not be paid. “All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the troika’s arrangements is a direct infringement on the fundamental human rights of the residents of Greece,” said the authors’ report. “Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate and odious.”

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Dogma versus brains.

For Two Rivals in Greek Crisis, It’s Personal (Bloomberg)

Schäuble and Varoufakis may have shared the stage for only five months, but they’ve become archrivals in the battle of ideas that’s shaping the euro zone’s response to the worst crisis in its 16-year history. One man is a self-styled “erratic Marxist” who’s spent his career in the academy teaching economics and game theory. The other is a lawyer and stalwart of the conservative Christian Democratic Union who’s logged 40 years of lawmaking in the Bundestag, Germany’s parliament. Varoufakis has won praise from economists such as Joseph Stiglitz for his penetrating critiques of the euro area’s flaws. Schäuble helped form the 19-member monetary union.

Their contest is rooted in a question that was left unanswered when the single currency went live on Jan. 1, 1999: What’s the plan if and when one of its members is about to go bust? Greece seems to be nearing that fate at breakneck speed. Over the weekend, eleventh-hour talks between Athens and its creditors collapsed, with no indication the two sides could resolve their differences. At a Eurogroup meeting scheduled for Thursday afternoon in Luxembourg, Varoufakis, Schäuble, and other finance ministers would be scrambling to avert a calamity. Varoufakis argues that the troika has been making it up as they go along. He says selling the port of Piraeus to the Chinese or slashing state workers’ pensions won’t save his country or, for that matter, the euro area.

What’s needed, he says, is a redesign making it easier for rich nations such as Germany to channel “idle savings” into investments in poorer countries like Greece. “This is not a technical problem; it’s an architectural problem,” Varoufakis says. “And the current architecture can’t last.”

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It was always about to burn down.

If Greece Can Wreck It, How Strong Was The Euro In The First Place? (McRae)

The IMF has a lot of experience of sovereign bailouts. These vary depending on the situation of the country, but typically they have several elements. Some debt is written off, often as much as half of it. The country devalues its currency, usually by 20-25%. It brings in a reform programme, sorting out its internal finances. And it receives new loans to tide it over until the reforms take effect. In the case of Greece, the first two elements were not there. Some private debts were written down (the so-called “haircut” imposed on bond holders) but the much larger public debts were not touched. Nor was there a devaluation, for Greece was in the eurozone. So all the burden was placed on the reform programme, which imposed deep austerity on the people, in return for which the country got some short-term loans.

Thus the IMF’s tried and trusted economic solution could not be applied because of politics. Sovereign debt in Europe could not be written down because to do so would have undermined the eurozone system; and Greece could not devalue. The result was a fudge, which we at this newspaper, along with many others, said at the time could not work. As it turned out, the catastrophe that struck Greece was even worse than many of us feared: the economy shrank by a quarter. This is at the outer limits of what any developed economy has experienced since WWII, and akin only to the sort of declines that struck the Eastern European countries when they abandoned communism. The difference there is that Eastern Europe recovered quite swiftly and then leaped ahead, whereas there is no sight of recovery in Greece.

Politics beat economics, but at terrible cost for the Greek people. So what happens next? There will be a huge political commotion, and huge pressure for Greece to carry on with yet deeper austerity. The conventional view is that it would be better for the country to submit to this pressure and that it would be a catastrophe were it to default and/or leave the eurozone. That is politics, and there are plenty of politicians, officials, central bankers, academics and commentators who will press this case. But to accept this is to accept that Greece will spend the next 42 years paying back an average of €10bn a year to its creditors. That cannot be right.

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Maybe the expats should return home and help the country rebuild.

Greek Diaspora: Our Country Is Being Used As A Scapegoat (Guardian)

The north London neighbourhood of Tufnell Park has an abundance of family-owned Greek businesses and cafes. Most of the shop owners are familiar with each other – the Greek diaspora is a closely knit community that comes together often to discuss issues, both public and private. Everyone is talkative, and everyone has one thing on their mind: the economic situation back home.

Pavlina Kostarakou: ‘Give Us A Break, Let Us Breathe’: “What’s happening in Greece is very upsetting. I got a phone call from my dad on Sunday and I thought oh crap, has something happened? Are we out of the eurozone? But it turned out he’d just called me by accident,” says Kostarakou, a 23-year-old bookseller at Hellenic Books, which specialises in Greek and Latin literature. “My main concern is the effect the crisis has on how Greek people are perceived by the world. The casual annoying jokes about the Greek owing money everywhere and not working are insulting.” For Kostarakou, Greece’s “useless” politicians are not the only cause of the current crisis. “It’s as if somebody wanted us to go down and take advantage of the situation,” she says.

Friends her age in Greece are frustrated but do not want to leave the country. “It’s the most remarkable thing. They insist on staying there. But most of my older friends around the age of 30 are moving abroad. Many have moved to London for work purposes. “I’m worried about people like my younger sister. She studies dentistry, which means she’ll need to study an MA and get experience abroad. Someone like her will be really hit by a Greek exit [from the euro]. She won’t be able to afford to go abroad because no one will be able to support her.” The election of Syriza was a hopeful thing for the younger generation, Kostarakou adds.

“Everyone was praising Greece about electing a leftist government, and then in one night the international atmosphere shifted into a negative and critical one. What justifies this shift? Economically, I can’t blame people for thinking the demands that Greece pay are fair. There is an economical balance to keep. We signed papers, so we do need to pay. But there is a feeling that the big powers like Germany should give us a break. Let us breathe. “They know exactly what kind of economy they need to deal with. Why are all these countries that are pro-welfare state and want us to collaborate with them pressuring us?”

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A long history of foreign interference.

The Seeds Of The Greek Problem Were Sown In 1980s (Kathimerini)

“There was a huge incapacity among the politicians to tell the truth and to collaborate with each other across party lines. The long-term interests of the country were repeatedly sacrificed at the alter of short-term political calculation.” This is how British historian Mark Mazower sums up Greece’s comparative disadvantage vis-a-vis the other eurozone countries that had to be bailed out. “Because, as a result, Greek governments were weak, they tended to go for the more superficial reforms, leaving the deeper pathologies untouched,” he says. Mazower, a professor at Columbia University, visited Greece recently to receive an honorary doctorate from the University of Athens. In his view, the economic policy that has been implemented since the crisis broke out here is “toxic.”

However, he points out, “the problem did not begin with the handling of the crisis. It began in the 1980s, with the massive expansion of a clientelist state, in which both parties of government participated with enormous gusto. We cannot blame the Germans, the IMF or the ECB for that,” he says. On top of mistaking the causes for the effects, Mazower says, the older generations also appear to want “to repeat the history of the Occupation and the Civil War” – this time hoping for a different outcome. “The most enlightening conversations I’ve had are with young people under the age of 30, who have not grown up with the mythification of EAM-ELAS and are looking for some completely new way of thinking about how to get out of the present predicament.”

Mazower does not go easy on the Europeans either. In March 2010, as Greece signed the first memorandum, he wrote an article in the Financial Times documenting the history of foreign interference in the domestic affairs of the newly founded Greek state – what the Greeks like to call “the foreign finger.” In a rather prophetic remark, he argued that the ability of George Papandreou’s government to convince Greek society about the need for radical reforms would depend on the extent to which “Europe stops looking like the latest great power trying to control Greece’s fate.” Five years on, his assessment is that the Europeans did not fare very well.

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“I’ve lost 30% of my income. And I’m one of the lucky ones. I’m in the top fifth; 80% of Greek pensioners are worse off than me.”

‘Making Us Poorer Won’t Save Greece’ (Guardian)

Five years ago, Sissy Vovou’s pension was €1,330 (£953) and landed in her back account 14 times a year: you used to get, she wistfully recalls, a full extra month at Christmas, plus a half each at Easter and for the summer. Now it is a monthly €1,050 – and there are only 12 months in the Greek pensioner’s year. “In all,” she said, “I’ve lost 30% of my income. And I’m one of the lucky ones. I’m in the top fifth; 80% of Greek pensioners are worse off than me.” Vovou, 65, who began work at 17 in the publishing industry and ended her career at the state broadcaster, ERT, is also lucky because her son, now 40, has a good job and a regular salary. She does not need to help him out. Eleni Theodorakis, on the other hand, retired in 2008 from her job as an administrative assistant in a regional planning service, aged 55.

“My pension is €942 euros a month – not too bad, really,” she said, almost shamefacedly, fishing the statement out of her handbag. “Fortunately my son is all right, just about, though sometimes he gets paid late. And once or twice, not at all. But my daughter’s husband has been unemployed for four years now. They have a baby … I give them what I can. It isn’t easy. Thankfully, my sister has a big garden. We grow things.” There are many like Theodorakis among Greece’s 2.65 million pensioners. According to a study last year by an employer’s association, pensions are now the main – and often only – source of income for just under 49% of Greek families, compared to 36% who rely mainly on salaries.

With a jobless rate of about 26% – youth unemployment is at 50% – and out-of-work benefits of €360 a month generally paid for no longer than a year, pensions have become “a vital part of the social security net for many, many people,” said Vovou. “Retired parents are having to help their adult children everywhere. And now they’re demanding we cut them even more? It’s just so very wrong.” Pensions have become arguably the biggest hurdle in the tortuous, on-off negotiations between the leftwing government of the prime minister, Alexis Tsipras, and Greece’s creditors.

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Ha ha ha! And Europe is holding Spain as an outperformer.

Podemos Insurgency Drives Spain’s Renewal as Rajoy Warns of Risk (Bloomberg)

Prime Minister Mariano Rajoy says the rise of new parties challenging the political establishment threatens Spain’s recovery. His own attempts to stay in office may actually do more damage to the country’s prospects. The prime minister is due to announce changes to his government team on Thursday to drive home the message that its his economic reforms rather than central-bank bond purchases that have spurred the fastest expansion in seven years. With almost a third of Spaniards at risk of poverty and the governing party beset by corruption allegations, some analysts are more concerned by Rajoy’s struggle to address the culture of cronyism that helped tip the country into economic crisis.

“Every analyst is saying privately, thank God there is the prospect of cleaning up the Spanish political system,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “There is no bull case for Spain under current conditions.” As he prepares to fight an election, Rajoy is pointing to Greece’s travails as a warning to voters that they risk derailing the recovery if they back insurgent parties like the anti-austerity group Podemos. In fact, even some ideological allies of the prime minister argue the emergence of new forces may help steer Spain toward more lasting growth by tackling graft and modernizing the machinery of government. “Corruption and crony capitalism are killers for any economic system,” Jorge Trias, a former People’s Party lawmaker, said in an interview. “So this is wholly positive.”

After 33 years in which either Rajoy’s People’s Party or its traditional rivals, the Socialists, have controlled the Spanish government, Rajoy has a fight on his hands to hang on to office as voters’ anger at corruption cases and the impact of austerity policies costs the party support. Following a cluster of regional and local elections last month, candidates backed by Podemos took power in Madrid, which the PP had ruled for 24 years, and Barcelona. Support from Ciudadanos, a pro-market party that emerged as a national force this year, allowed Socialist candidate Susana Diaz to become Andalusia’s regional president this month, and the party is in advance negotiations to support the PP in Madrid’s regional assembly.

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Steve’s talk in Paris recently.

How Rising Debt Causes Inequality And Crisis (Steve Keen)

In a (for me!) brief presentation with 7 slides, I explain why rising private debt necessarily causes increased inequality, and leads to an economic crisis when the rate of growth of debt exceeds the rate of decline of wages as a share of national income. Crucially, the actual breakdown is preceded by an apparent period of tranquility–a “Great Moderation”. This was a short talk to a public audience at ESCP Europe in Paris, which was presented in English and also translated into French by Gael Giraud, Chief Economist of the French Development Agency and the translator of Debunking Economics (so the soundtrack is in both English and French).

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Can’t capture Tyler’s entire post here; do read it. Banning WSJ reporters is criminally silly.

Today Financial Journalism Suffered An Epic Failure (Zero Hedge)

Earlier today we reported about a very sad development for the freedom of speech, or at least the illusion thereof, when one of, if not the best, critical Federal Reserve reporter in the mainstream media, WSJ’s Pedro da Costa founds he was no longer “invited” to the Fed’s quarterly press conference. His transgression: daring to ask Yellen some very uncomfortable questions during the March 2015 press conference[..] today we finally got a true glimpse of just what “access” financial journalism in the US has truly become: a petty clique in which everyone wants to be an “Andrew Ross Sorkin” access reporter, never daring to ask any important questions, always afraid to challenge either the subject or the status quo, and quite content with irrelevant fluff over actual matter.

For which we are grateful, because we now know why the Fed can and does keep getting away with its endless charade of repeating the same mistakes again and again. The reason is simple: the fourth estate no longer is a valid counterbalance to the stupidity of the self-anointed “infallible” central-planners of the western (and really with China now engaging in LTRO and Twist, eastern too) world whose only remaining craft is the last-ditch attempt to restore confidence in a world which, paradoxically, has seen ever greater central bank intervention with every passing year: a process which is so self-defeating we understand perfectly well why the career economists at the Fed are so blind to it.

Instead, said fourth estate is perfectly happy to produce worthless copy in some cubicle, happy to collect its pay, because it knows that just one complaint from the Fed would mean an immediate pink slip and a confrontation with the true state of the US economy, which contrary to Fed promises and erroneous mainstream media reporting, keep deteriorating further and further. Thanks to the Fed. Thank to Pedro’s “fellow Fed reporters”, none of whom had the balls to ask a simple question. Then again in retrospect, we can understand why. In a world in which the Fed perceives itself as omnipotent, and where anyone even daring to question its motives, its methods or its track record, is a threat to be eradicated or at least barred from all future opportunities for further humiliation and disclosure that the emperor has indeed been naked from day one, at even such token events as a press conference where questioners are generously afforded 60 seconds in which to expose said emperor.

This is what Pedro found out the hard way today, a discovery which also allowed the rest of us to finally comprehend the farcial, hollow facade this country has passing off as its crack “financial journalists” asking “tough questions” all of whom ended up being nothing more than “access scribes”, terrified to open their mouths and lose their access, an outcome which incidentally just might force them to do some real reporting for once, instead of sending rhetorical letters to the middle class asking why it keeps being “stingy” instead of spending its hard-earned money, and making the beloved Fed’s life so difficult…

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Where the real power lies.

Texas City Repeals Historic Fracking Ban Under Duress (Guardian)

An underdog Texas city that tried to ban hydraulic fracturing bowed to heavy political and legal pressure Tuesday night and repealed its landmark ordinance after seven months. Denton made headlines last November when voters in the university city of 125,000 on the Barnett Shale near Dallas decided to prohibit fracking amid concerns about the impact of its 280 wells on health and the environment. It became the first city to ban fracking in the heavily Republican, oil-industry friendly state. Denton had already issued a moratorium on new gas drilling permits in May last year. But victory for fracking opponents was short-lived. A trade body, the Texas Oil and Gas Association (TXOGA), filed a lawsuit the next day alleging that the city had exceeded its powers.

A state agency, the Texas General Land Office, also took legal action against Denton. Then last month Texas governor Greg Abbott signed a bill known as HB 40 which establishes that state laws trump local laws on oil and gas activities – in effect, banning Denton’s ban. After waiting for a couple of weeks and considering its options as construction trucks rolled back in and fracking resumed, the city council voted 6-1 to repeal the ordinance on Tuesday in the hope of reducing legal costs, a day after the TXOGA and Land Office amended their lawsuits in the wake of HB 40’s passage. The city said in a statement: “As this ban has been rendered unenforceable by the State of Texas in HB 40, it is in the overall interest of the Denton taxpayers to strategically repeal the ordinance.”

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“Of the 550-odd employees on the payroll at the beginning of this year, only six remain.”

Small US Frackers Face Extinction Amid Drilling Drought (Reuters)

Oil field work was coming in fast when GoFrac doubled its workforce and equipment fleet at the beginning of last year, just one of hundreds of small oil service companies thriving on the revival of U.S. drilling. Founded in November 2011 with a loan of around $35 million, the Fort Worth, Texas-based company was by 2014 making nearly that much in monthly revenues, providing the crews and machinery needed by companies including ExxonMobil to frack oil and gas wells from North Dakota to Texas. Executives flew to meetings across the country in a Falcon 50 private jet, and entertained customers at their suite at the Texas Rangers baseball stadium in Arlington.

The firm would soon move into a 22,000-square-foot office on the 12th floor of Burnett Plaza, one of Fort Worth’s most prestigious office buildings. Eighteen months on, however, without work and unable to meet monthly loan payments, GoFrac has closed its doors, its ambitions gutted by a steep dive in oil prices. Of the 550-odd employees on the payroll at the beginning of this year, only six remain. At GoFrac’s only remaining outpost, a small warehouse and 40-acre gravel yard in Weatherford, 30 miles west of Fort Worth, its huge fleet of sand haulers, chemical blenders and pressure pumps that months before were being used to frack U.S. oil and gas wells, sit idle in long rows, waiting to be sold.

“We knew it was going to be rough, but nobody foresaw what was coming,” said GoFrac chief financial officer Kevin McGlinch, who was hired in November 2014 to see GoFrac through the slowdown. GoFrac’s end mirrored its beginning: steeper and faster than expected and driven by the unpredictable forces of international oil markets. U.S. oil prices dropped 60% from June to January due to oversupply from U.S. shale deposits, putting an end to the oil drilling boom and precipitating the sharpest industry downturn in a generation.

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The US will increasingly face this curse.as emerging markets implode.

The Curse Of Being A Safe Haven Currency (CNBC)

It’s tough being a low-yielding safe haven currency. In good times, nobody wants you and you are used for carry trades. In bad times, you’re highly sought after and your value seems completely decoupled from your economy. Such is the fate of the Swiss franc. The Swiss National Bank must feel like it’s Groundhog Day. Four years ago, as the Greek crisis heated up and everyone feared an imminent break-up of the euro zone, the SNB took radical action by pegging the Swiss franc against the euro. That worked beautifully for more than three years. Until the European Central Bank signaled it was going to embark on a massive round of bond-buying and the peg was no longer tenable.

You know the rest of the story: Shock de-peg by the SNB on January 15th. Year-to-date, the Swiss franc has gained some 15% against the euro and that has left a big dent in the country’s growth dynamics, exports and price levels. In the first quarter, the economy shrank 0.2% and exports suffered greatly. And now, the Greek crisis is back with a vengeance (not that it was ever fully contained) and the Swissie is seeing increased safe-haven flows again. So what choices does the SNB have to lower the attractiveness of its currency? Very few – according to analysts. Bank of America Merrill Lynch writes: “The SNB’s policy options are dwindling, given the size of its balance sheets, even if Q1 GDP and CPI may have raised the possibility of a response.”

Meanwhile, Credit Suisse analysts add: “With interest rates already negative, monetary policy is very limited” True, the SNB could lower its benchmark rate even further into negative territory (the three-month Libor target is currently -0.75%, a record low), or increase the number of banks required to pay negative interest rates on sights deposits, which it did in June. But both measures are expected to have marginal effectiveness.

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The smarter central bank governor.

Why I Won’t Lower Rates ‘Fast’: Russian Central Bank Governor (CNBC)

Those expecting further swingeing interest rate cuts from Russia as the country’s inflation slows, or a U.S. Federal Reserve-style bond-buying program, may be disappointed. The Central Bank of Russia is concerned about cutting rates “too fast”, after a series of big cuts this year, Elvira Nabiullina, governor of the Central Bank of Russia, told CNBC. Nabiullina told CNBC “Attempts to reduce the interest rates too fast or even acquire certain assets may simply lead to stronger inflation, to an outflow of capital or to dollarization of the economy, and that would slow down the economic growth, other than promote it.” She added that the bank is ready to provide “raw liquidities” to the country’s banking system if needed.

Russia’s economy has faltered and inflation rocketed in the last year thanks to the triple shocks of sanctions from the West over its actions in Ukraine, the oil price decline, and the ruble rout. In December 2014, the central bank shocked the market when it hiked interest rates from 10.5% to 17% as it tried to shore up the weakening ruble and combat inflation. As part of its efforts to combat the weakening currency, it also announced in November plans to allow a free float of the ruble, pump more money into its banks and relax banking rules to minimise losses to banks from the currency crisis. “The currency was under a huge stress, under a huge pressure,” Nabiullina recalled.

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Europe interfering in Russia’s legal system. Questionable.

Russian State Assets In Belgium ‘To Be Seized As Yukos Compensation’ (RT)

Belgian bailiffs have demanded that 47 organizations inside the country reveal if they own any Russian state assets, several reports claimed on Wednesday. The move allegedly paves the way for a seizure of Russian property over the $50 billion Yukos case. The bailiffs were reportedly acting at the behest of the Isle of Man-based Yukos Universal Limited, a subsidiary of the Russian energy giant, dismantled in 2007. They have given the target companies a fortnight to comply. The story was broken by Interfax news agency, and later confirmed by several other leading Moscow-based news media sources. RBC.ru has quoted Tim Osborne, the head of group of former Yukos shareholders that brought a case for compensation to The Hague, as confirming the intent to seize assets.

A letter accompanying the notice, reportedly drafted by the law firm Marc Sacré, Stefan Sacré & Piet De Smet, accused Moscow of a “systematic failure to voluntarily follow” international legal judgments. The addressees included not just local offices of Russian companies, but international banks, a local branch of the Russian Orthodox Church, and even Eurocontrol, the European air traffic agency headquartered in Brussels. Only diplomatic assets, such as embassies, were exempt. Yukos Universal Limited was awarded $1.8 billion in damages by the Permanent Court of Arbitration in The Hague in July 2014, as part of a total settlement for approximately $50 billion, owed to its former shareholders and management.

The court concluded that the corporation, once headed by Mikhail Khodorkovsky, who spent more than a decade in prison for embezzlement and tax evasion from 2003 to 2013, “was the object of a series of politically motivated attacks.” Russia has not accepted the ruling, saying it disregards widespread tax fraud committed by Yukos, and constitutes a form of indirect retribution for Russia’s standoff with the West over Ukraine. Earlier this month, the Russian ministry of justice said it would take “preventative measures” to avoid property confiscation, and challenge each decision in national courts.

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Thanks, America!

The World Hasn’t Had So Many Refugees Since 1945 (Bloomberg)

The world hasn’t had so many refugees or internally displaced people since 1945, and numbers are expected to increase, according to an Australian research center. About 1% of the global population, or about 73 million people, have been forced to leave their homes amid a spike in armed conflict over the past four years, the Institute for Economics and Peace, which compiles the Global Peace Index, said in a report published on Wednesday. “One in every 130 people on the planet is currently a refugee or displaced and most of that comes out of conflicts in the Middle East,” institute director Steve Killelea said by phone. The numbers in Syria, where as many as 13 million of its 22 million people are displaced, are “staggering,” he said.

The number of people killed in conflict rose to 180,000 in 2014 from 49,000 in 2010; of that number, deaths from terrorism increased by 9% to an estimated 20,000, according to the report. The impact of this violence on the global economy, including the cost of waging war, homicides, internal security services, and violent and sexual crimes, reached $14.3 trillion in the past year, it said. “To put into perspective, it’s 13.4% of global GDP, equivalent to the combined economies of Brazil, Canada, France, Germany, Spain and the U.K.,” Killelea said. “It’s also more than six times the total value of Greece’s bailout and loans from the IMF, ECB and other euro zone countries combined.” Iceland tops the index as the most peaceful country in the world, Syria as the least.

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Peace is not a profitable endeavor.

1 In Every 122 People Is Displaced By War, Violence And Persecution (Guardian)

War, violence and persecution left one in every 122 humans on the planet a refugee, internally displaced or seeking asylum at the end of last year, according to a stark UN report that warns the world is failing the victims of an “age of unprecedented mass displacement”. The annual global trends study by the UN’s refugee agency, UNHCR, finds that the level of worldwide displacement is higher than ever before, with a record 59.5 million people living exiled from their homes at the end of 2014. UNHCR estimates that an average of 42,500 men, women and children became refugees, asylum seekers or internally displaced people every day last year – a four-fold increase in just four years.

By the end of 2014, there were 19.5 million refugees – more than half of them children – 38.2 million internally displaced people and 1.8 million asylum-seekers. Were the 59.5 million to be counted as the population of a single country, it would be the 24th largest in the world and one with about the same number of people as Italy. The numbers are up 16% on 2013 – when the total stood at 51.2 million – and up 59% on a decade ago, when 37.5 million people were forced to flee their homes. UNHCR says the four-year war in Syria is the single largest driver of displacement: by the end of 2014, the conflict had forced 3.88 million Syrians to live as refugees in the Middle East and beyond, and left 7.6 million more internally displaced.

In blunter terms, one in every five displaced persons worldwide last year was Syrian. The UN high commissioner for refugees, António Guterres, said that although the world was experiencing “an unchecked slide” into an era of massive forced global displacement, it seemed unwilling to tackle the causes. “It is terrifying that on the one hand there is more and more impunity for those starting conflicts, and on the other there is [a] seeming utter inability of the international community to work together to stop wars and build and preserve peace,” he said.

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