Oct 062017
 
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Jean Renoir Les Grands Boulevards 1875

 

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)
A Volatility Trap Is Inflating Market Bubbles (BBG)
China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)
Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)
HSBC Traders Used Code Words to Trigger Front-Running (BBG)
US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)
Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)
Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)
Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)
Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)
Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)
Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)
Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

 

 

From China’s government.

China’s Economic Boom Is About To Be Cut Short By Peak Oil (Ahmed)

A new scientific study led by the China University of Petroleum in Beijing, funded by the Chinese government, concludes that China is about to experience a peak in its total oil production as early as next year. Without finding an alternative source of ‘new abundant energy resources’ , the study warns, the 2018 peak in China’s combined conventional and unconventional oil will undermine continuing economic growth and ‘challenge the sustainable development of Chinese society’. This also has major implications for the prospect of a 2018 oil squeeze – as China scales its domestic oil peak, rising demand will impact world oil markets in a way most forecasters aren’t anticipating, contributing to a potential supply squeeze. That could happen in 2018 proper, or in the early years that follow.

There are various scenarios that follow from here – China could: shift to reducing its massive demand for energy, a tall order in itself given population growth projections and rising consumption; accelerate a renewable energy transition; or militarise the South China Sea for more deepwater oil and gas. Right now, China appears to be incoherently pursuing all three strategies, with varying rates of success. But one thing is clear – China’s decisions on how it addresses its coming post-peak future will impact regional and global political and energy security for the foreseeable future. The study was published on 19 September by Springer’s peer-reviewed Petroleum Science journal, which is supported by China’s three major oil corporations, the China National Petroleum Corporation (CNPC), China Petroleum Corporation (Sinopec), and China National Offshore Oil Corporation (CNOOC).

Since 1978, China has experienced an average annual economic growth rate of 9.8%, and is now the world’s second largest economy after the United States. The new study points out, however, that this economic growth has been enabled by “high energy consumption.” In the same period of meteoric economic growth, China’s total energy consumption has grown on average by 5.8% annually, mostly from fossil fuels. In 2014, oil, gas and coal accounted for fully 90% of China’s total energy consumption, with the remainder supplied from renewable energy sources. After 2018, however, China’s oil production is predicted to begin declining, and the widening supply-demand gap could endanger both China’s energy security and continued economic growth.

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“Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.”

A Volatility Trap Is Inflating Market Bubbles (BBG)

A number of markets show not only elevated valuations, but also irrational behavior on the part of investors, including a suspension of traditional valuation models, an increase in trading volumes or “flipping” in the hopes of quick gains, and financial engineering. Potential bubbles can be found in emerging-market debt, technology stocks, U.S. high yield bonds, some sovereign debt, cryptocurrencies, properties — even art and collectibles. It is becoming clearer to economists and central bankers that even though we may be experiencing a long phase of growth, stretching the cycle with monetary stimulus inspired by crisis-era toolkits may be bringing several collateral effects. These include not only asset bubbles, but also a worsening of wealth inequality and a misallocation of resources.

Persistent low interest rates in the past have helped to roll forward an increasing amount of private and public debt to future generations, but this is no longer working. Economic fundamentals are different from the post-war period. Technology is deflationary. Demographics are no longer a tailwind, as there are fewer young people able to carry a higher debt burden in the future. The generation of so-called millennials is the first that will likely be poorer than their parents in the post-war period. Productivity is low as the economy suffers from hysteresis: a financial boom-bust cycle that can leave large swathes of the workforce out of the job market. The longer the debt cycle, the longer companies and workers develop business and skills in leverage-heavy sectors (e.g. finance, real estate, energy), the deeper the scars when the bust comes.

Often the misallocation is so large that low rates are necessary to keep people in their jobs: Zombie companies that would otherwise fail continue to be in business, refinancing at near-zero interest rates in bond markets.

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Xi will need drastic measures to tackle the debt disaster. But it may well be too late already.

China Is In ‘Lock-down’ Ahead Of Its Most Important Meeting In Years (CNBC)

Although the Chinese will head back to work and school on Monday, their country is expected to remain in a holding pattern ahead of a pivotal Communist Party Congress set to start later this month. “Commentators and markets rightly assume that the authorities are consumed by this transition and that all other policy matters are on the back-burner or in lock-down until after the Congress,” Freya Beamish, Pantheon Macroeconomics’ chief Asia economist, wrote in a recent note. The once-in-five-years meeting will usher in leadership changes that are likely to see incumbent President Xi Jinping extend his term and consolidate power. The coming years of Xi rule will be critical for the world’s second-largest economy as it grapples with the fallout from three decades of unbridled growth.

As Xi — the most powerful Chinese leader in decades — embarks on a new era, the meeting will review “faulty” outcomes from the economic reforms and review if China needs a new direction, said independent economist, Andy Xie. China undertook a series of market reforms in the last three decades that propelled the Communist country to the spot of the world’s second largest economy. Market watchers, however, are concerned about the nation’s debt-fueled growth, industrial overcapacity and capital outflows that may potentially spur a global economic crisis. The Communist Party has been working to steer outbound merger and acquisition activities over the last year, but major initiatives have slowed ahead of the Congress. That push is likely to pick up again in the fourth quarter, said Chunshek Chan, Dealogic’s global M&A research head.

No matter the macroeconomic concerns, the only thing on Beijing’s mind at this time is consolidating power in the country, Xie said: “It’s much more important now to strengthen the control of the Communist Party than anything else.” “The key is to have the Communist Party as a coherent organization to control everything in the society — that seems to be the case. The people at the top worry about the stability. Stability is always number one in China,” added Xie.

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“What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?”

Bitcoin’s Rise Happened in Shadows of Finance. Now Banks Want In (BBG)

At first, bitcoin was a way to make payments without banks. Now, with more than $100 billion stashed in digital currencies, banks are debating whether and how to get in on the action. Goldman Sachs CEO Lloyd Blankfein tweeted Tuesday that his firm is examining the cryptocurrency. Other global investment banks are looking into facilitating trades of bitcoin and other cryptocurrencies, according to industry consultants. Bitcoin has surged more than 300 percent this year, drawing the attention of hedge funds and wealthy individuals. “They’re clearly receiving interest from their clients, both from retail investors and on the institutional side,” said Axel Pierron, managing director of bank consultant Opimas. “It’s highly volatile, it’s highly illiquid when you need to trade large volumes, so they see the opportunity for a new asset class which would require the capability of a broker-dealer.”

But bitcoin presents Wall Street with a conundrum: How do banks that are required by law to prevent money-laundering handle a currency that’s not issued by a government and that keeps its users anonymous? The debate has played out in the open recently, with JPMorgan CEO Jamie Dimon and BlackRock CEO Larry Fink saying that bitcoin was mostly used by criminals, while Morgan Stanley chief James Gorman took a more measured stance, saying it was “more than just a fad.” On Wednesday, UBS Chairman Axel Weber, a former president of Germany’s central bank, said he was skeptical about bitcoin’s future because “it’s not secured by underlying assets.” There’s even tension within some banks. On the same day Dimon trashed bitcoin, calling it a “fraud,” his firm’s private bank hosted a panel stocked with cryptocurrency investors.

Handling bitcoin would invite scrutiny from every major U.S. regulator, according to Joshua Satten, director of emerging technologies at Sapient Consulting. “From the perspective of the U.S. Treasury, do you classify it as an asset class or a currency?” Satten said. “If banks are starting to manage and hold bitcoin for their clients, you would have the OCC and the FDIC looking at how they classify the assets on their balance sheet and how they state the assets for the portfolio of a client.” And banks need to avoid antagonizing governments that are increasingly concerned about this area. For instance, China is cracking down by shutting cryptocurrency exchanges. Then there’s the risk that stems from its high volatility and lack of correlation to other major assets. “What are they going to do if bitcoin drops for a given client and they’ve given that client a ton of leverage on margin, and that client only has assets in bitcoin?” Satten said.

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Greed.

HSBC Traders Used Code Words to Trigger Front-Running (BBG)

A group of HSBC currency traders in London and New York feverishly jumped ahead of a $3.5 billion client order after they were tipped off using the code words “my watch is off,” a U.S. prosecutor told a federal judge. The buying frenzy was launched after Mark Johnson, HSBC’s former global head of foreign exchange who the bank chose to lead the transaction, alerted the traders via phone call that was recorded, the prosecutor said Thursday in Brooklyn, New York. Johnson is on trial for fraud. After the trial recessed for the day, prosecutor Carol Sipperly told U.S. District Judge Nicholas Garaufis that the government wants the jury to hear the recordings on Friday, in which Johnson can be heard tipping off a trader in Hong Kong, a signal that she said eventually reached others on both sides of the Atlantic.

Prosecutors say Johnson and Stuart Scott, the bank’s former head of currency trading in Europe, along with these other traders, bought pounds before the transaction, collectively making the bank $8 million in illicit profit. Sipperly said the call involved Johnson, who was in New York that day, speaking to Scott who was in London, just before the Dec. 7, 2011, transaction for its client, Cairn Energy. “We actually have Mark Johnson telling Stuart Scott ‘Tell Ed my watch will be off,’” she said. “We have communications where the word ‘watch’ is used, and then within seconds, 20 seconds of ‘my watch is off,’ we have all that trading that’s been described. The word is instrumental in getting the information to the traders when it comes to their early front-running trades.”

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Things are getting messy.

US Rounds On Britain Over Food Quotas As Post-Brexit Trade Woes Deepen (Pol.)

The U.S. and other international trade heavyweights have dashed Prime Minister Theresa May’s hopes of a smooth Brexit by rejecting one of her core plans for reintegrating into global trade networks. Washington’s slap-down of Britain is the second big trade reality check for May in less than a fortnight. Only last week, the U.K.’s increasingly fragile position in trade disputes was exposed by the country’s inability to prevent new, ultra-high tariffs from the U.S. that could hit thousands of jobs in a plane factory in Northern Ireland. In a fast-developing second trade spat, Washington has teamed up with Brazil, Argentina, Canada, New Zealand, Uruguay and Thailand to reject Britain’s proposed import arrangements for crucial agricultural goods such as meat, sugar and grains after Brexit.

The fact that the U.K.’s opponents include the U.S., Canada and New Zealand is a significant setback because Britain is trying to style its former colonies as natural strategic and commercial allies after it has quit the EU. Since August, Britain and the EU have repeatedly insisted that they had reached an agreement on the terms under which Britain would buy in food from around the world after Brexit. Brussels currently negotiates all these quotas and tariffs on behalf of Britain and the 27 other EU countries jointly, but London will need to take independent control of these policies from March 2019. That creates a dilemma over how to divide up the EU’s current quota arrangements with other countries — agreed at the World Trade Organization — between the U.K. and the remaining 27. These tariff-rate quotas allow countries outside the EU to export certain goods into the bloc with reduced duties, but only up to a maximum limit.

The argument from Britain and the EU is that the rest of the world will be “no worse off” after Brexit — a key legal defense in trade disputes — if the EU’s quotas are simply reduced, and Britain takes a share of them. British Trade Minister Liam Fox told POLITICO in an interview that Britain had agreed to take a portion of the EU’s quotas based on the U.K.’s average consumption over the last three years. America and the six other big food exporters, however, wrote an unusually sharply worded letter of complaint dated September 26 to the U.K. and EU representatives at the World Trade Organization over the terms of such an arrangement. “We cannot accept such an agreement,” reads the letter, seen by POLITICO. The seven countries dispute the legal defense that the proposed post-Brexit arrangement would leave them “no worse off.”

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Transporting oil across thousands of miles just so you can sell it to Europe. Insane.

Few Tears Are Being Shed In Quebec Over The Energy East Pipeline’s Demise (BBG)

TransCanada had applied to build Energy East three years ago, seeking to open access for Western Canadian oil producers to the Atlantic Ocean for exports to Europe. It faced intense opposition in Quebec, where Premier Philippe Couillard said the C$15.7 billion ($12.5 billion) line posed a significant risk to its freshwater resources. Quebec has long required that TransCanada meet seven conditions before allowing construction of the pipeline. Among other demands, Quebec insisted that the project be subject to an environmental assessment and that TransCanada must guarantee an emergency plan in case of a spill, consult with communities including aboriginal groups along the route and ensure the project doesn’t reduce the province’s gas supply. Last month, TransCanada asked Canadian regulators for a 30-day suspension on its applications for the Energy East and Eastern Mainline projects, adding to doubt about the future of two major pipelines that the nation’s energy producers had hoped for.

The latest delay meant the writing was on the wall, Quebec Energy and Natural Resources Minister Pierre Arcand said Thursday. “We’re not the promoters of the project. The promoter made a commercial decision,” Arcand told reporters at the provincial legislature. “When they decided to suspend the project about one month ago, I thought we were inevitably going to go toward this decision.” Energy East “was supposed to cross more than 700 bodies of water,” Quebec Environment Minister David Heurtel said separately in Quebec City. “This is a project that raised a lot of questions. We were still in the process of getting answers to our questions” from the company, he said. TransCanada’s decision “is great news,” Jean-Francois Lisée, head of the separatist Parti Quebecois, the official opposition in the provincial legislature, said in Quebec City. “Quebec’s territorial integrity is no longer threatened.”

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Feels like the Middle Ages.

Onshore Fracking To Begin In UK ‘Within Weeks’ (Ind.)

Fracking for shale gas will begin in the UK within weeks, the company undertaking it for the first time has announced. Third Energy said it plans to complete five fracks in North Yorkshire before the end of 2017. The controversial technique involves injecting liquid into underground rock at high pressures in order to create cracks that release trapped gas. This is then collected and used to generate electricity. Fracking has been vocally opposed by environmental campaigners but permits to use the technique have been approved by government ministers. Alan Linn, Third Energy’s technical director, said the final sign-off needed for fracking to begin was ‘imminent’.

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Vote count to be published today?!

Catalan Separatists Squeezed Further as Spain Tightens Its Grip (BBG)

Spanish Prime Minister Mariano Rajoy convenes his cabinet on Friday as the financial and political squeeze on the separatist government in Catalonia tightens. After a week of political drama that rocked financial markets, Rajoy will meet with his ministers in Madrid as events 600 kilometers (370 miles) to the northeast in the Catalan capital Barcelona threaten to spiral still further out of control. The region’s president, Carles Puigdemont, risks economic damage and European isolation if he pushes ahead with plans to declare Catalan independence based on a referendum that breached Spain’s constitution. CaixaBank, the symbol of the region’s financial strength, may follow Banc Sabadell in abandoning Catalonia when its board meets Friday.

For his part, Rajoy and his minority government will be loathe to risk a repeat of Sunday’s scenes of police beating peaceful voters that drew international condemnation and inflamed the separatist cause. With options to quell an increasingly bitter constitutional dispute fast running out, events may come to a head on Monday. That’s when Puigdemont had sought to evaluate the result of the independence vote at a session of the regional parliament – until it was suspended by the Spanish Constitutional Court. That means Rajoy may again have to send in the police to enforce a court ruling, and Puigdemont must decide if he’s ready to again defy the law. “There will be some formula for the Catalan Parliament to convene and hold its meeting as planned,” Jordi Sanchez, who heads the most powerful group among the separatists, known as the Catalan National Assembly, said in an interview in Barcelona. “There will be a plenary session.”

As anti-independence organizers plan rallies for this weekend in Madrid and in Barcelona, Catalan separatist are seeking to avoid an immediate declaration of independence. There’s a divide in the movement’s leadership, with most leaders keen to delay that leap into the unknown to create more time for a negotiated settlement, according to two people familiar with their plans. Puigdemont’s mainstream separatist group is concerned that a move toward independence would send the economy into a tailspin, the people said. But following Sunday’s illegal referendum on secession – which the regional government said won the support of 90%t of 2.3 million voters – hardliners from the anarchist party CUP are demanding a quick break with Spain.

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What a surprise. Apple is an Uber investor.

Apple Gave Uber ‘Unprecedented’ Access To Secret iPhone Backdoor (BI)

Uber’s iPhone app has a secret backdoor to powerful Apple features, allowing the ride-hailing service to potentially record a user’s screen and access other personal information without their knowledge. The existence of Uber’s access to special iPhone functions is not disclosed in any consumer-facing information included with Uber’s app, despite giving the company direct access to features so powerful that Apple almost always keeps them off limits to outside companies. Although there is no evidence that Uber used this access to take advantage of the iPhone features, the revelation of the app’s access to privileged Apple code raises important questions for a company already under investigation for a variety of controversial business practices.

Uber told Business Insider the code was not currently being used and was essentially a vestige from an earlier version of its Apple Watch app, but it set off alarm bells among experts. “Granting such a sensitive entitlement to a third-party is unprecedented as far as I can tell, no other app developers have been able to convince Apple to grant them entitlements they’ve needed to let their apps utilize certain privileged system functionality,” Will Strafach, a security researcher who discovered the situation, told Business Insider. [..] Apple became an Uber investor through its investment in Chinese ride-hailing company Didi Chuxing. In 2016, Didi merged with Uber’s Chinese subsidiary.

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It ain’t over.

Tropical Storm Nate Kills 22 In Central America, Heads For US (R.)

Tropical Storm Nate has killed at least 22 people in Central America as it battered the region with heavy rain while heading toward Mexico’s Caribbean resorts and the US Gulf Coast where it could strike as a hurricane this weekend. Several offshore oil rigs in the Gulf of Mexico were evacuated and others had shut production ahead of the storm. In Nicaragua, at least 11 people died, seven others were reported missing and thousands had to evacuate homes because of flooding, according to the country’s vice president, Rosario Murillo. Emergency officials in Costa Rica reported that at least eight people were had been killed, including two children. Another 17 people were missing, while more than 7,000 had to take refuge from Nate in shelters.

Two youths also drowned in Honduras due to the sudden swell in a river, while a man was killed in a mud slide in El Salvador and another person was missing, emergency services said. “Sometimes we think we think we can cross a river and the hardest thing to understand is that we must wait,” Nicaragua’s Murillo told state radio, warning people to avoid dangerous waters. “It’s better to be late than not to get there at all.“ Costa Rica’s government declared a state of emergency, closing schools and all other non-essential services. Highways in the country were closed due to mud slides and power outages were also reported in parts of country, where more than 3,500 police were deployed. The National Hurricane Centre said Nate could produce as much as 51 cm (20 inches) in some areas of Nicaragua, where schools were also closed. Nate is predicted to strengthen into a Category 1 hurricane by the time it hits the US Gulf Coast on Sunday, NHC spokesman Dennis Feltgen said.

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Slow motion mass suicide.

Pesticides That Pose Threat To Humans And Bees Found In Honey (Ind.)

Three-quarters of the honey produced around the world contains nerve agent pesticides that can harm bees and pose a potential health hazard to humans, a study has shown. Scientists who tested 198 honey samples from every continent except Antarctica discovered that 75% were laced with at least one of the neonicotinoid chemicals. More than two-fifths contained two or more varieties of the pesticides and 10% held residues from four or five. Environmental campaigners responded by demanding a “complete and permanent” ban preventing any further use of neonicotinoids on farm crops in Europe. Experts called the findings “alarming”, “sobering” and a “serious environmental concern” while stressing that the pesticide residue levels found in honey generally fell well below the safe limits for human consumption.

However, one leading British scientist warned that it was impossible to predict what the long term effects of consuming honey containing tiny amounts of the chemicals might be. Dave Goulson, Professor of Biology at the University of Sussex, said: “Beyond doubt … anyone regularly eating honey is likely to be getting a small dose of mixed neurotoxins. “In terms of acute toxicity, this certainly won’t kill them and is unlikely to do measurable harm. What we don’t know is whether there are long-term, chronic effects from life-time exposure to a cocktail of these and other pesticides in our honey and most other foods.”

[..] The new research published in the journal Science could not have come at a more sensitive time in Europe. EC policymakers are right now discussing whether to make the ban permanent and more wide ranging. A total ban would have a huge impact on cereal growers in the UK. For the study, an international team of European researchers tested almost 200 honey samples from around the world for residues left by five different neonicotinoids. [..] While in most cases the levels were well below the EU safety limits for human consumption, there were exceptions. Honey from both Germany and Poland exceeded maximum residue levels (MRLs) for combined neonicotinoids while samples from Japan reached 45% of the limits.

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“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future..”

“..the palm-dotted island’s name in the local language means “Behold, the Coconut”..

Tiny Pacific Island Nation Of Niue Creates Huge Marine Sanctuary (AFP)

The tiny Pacific island nation of Niue on Friday announced the creation of a huge marine sanctuary, saying it wanted to stop overfishing and preserve the environment for future generations. While Niue’s landmass is only 260 square kilometres (100 square miles), its remote location about 2,400 kilometres northeast of New Zealand means it lays claim to vast tracts of ocean. The government said that 40% of its exclusive economic zone, about 127,000 square kilometres representing an area roughly the size of Greece, would be set aside for the marine sanctuary. Premier Toke Talagi said his government wanted to stop the depletion of fish stocks and give the ocean space to heal to protect the environment for the next generation.

“This commitment is not a sacrifice, it is an investment in the certainty and stability of our children’s future,” he said. “We simply cannot be the generation of leaders who have taken more than they have given to this planet and left behind a debt that our children cannot pay.” Known locally as “The Rock”, Niue was settled by Polynesian seafarers more than 1,000 years ago and the palm-dotted island’s name in the local language means “behold, the coconut”. The British explorer captain James Cook tried to land there three times in 1774 but was deterred by fearsome warriors, eventually giving up to set sail for more welcoming shores and naming Niue “Savage Island”.

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Sep 262017
 
 September 26, 2017  Posted by at 8:33 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Paul Cézanne Curtains 1885

 

Lenders Loosen Mortgage Standards as Demand Falls (WS)
Levered Loan Volumes Soar Past 2007 Levels As “Cov-Lite” Deals Surge (ZH)
China’s Crackdown Brings Developers Crashing Back to Earth (BBG)
The Next Crisis Will Start in Silicon Valley (BBG)
King Cash May Reign For Weeks In Storm-Ravaged Puerto Rico (BBG)
The White House as Donald Trump’s New Casino (Nomi Prins)
Large Parts Of America Are Being Left Behind (ZH)
‘A Lot Of People Feel Left Behind’ – Why Far Right Won In Germany (G.)
Macron Presses Ahead With His Vision for Europe As Merkel Calls For Calm (BBG)
EU Presidency Calls For Massive Internet Filtering (EDRi)
EU Officially Ends Excessive Deficit Procedure Against Greece (R.)
ECB May Frontload 2018 Bank Stress Tests With View To Greece – Draghi (R.)
French Government Declares War On Pesticides (AFP)
Our Food Crops Face Mass Extinction Too (G.)
Sixth Mass Extinction Of Wildlife Also Threatens Global Food Supplies (G.)

 

 

The last step before the fall.

Lenders Loosen Mortgage Standards as Demand Falls (WS)

The toxic combination of “competition from other lenders” and slowing mortgage demand is cited by senior executives of mortgage lenders as the source of all kinds of headaches for the mortgage lending industry. Primarily due to this competition amid declining of demand for mortgages, the profit margin outlook has deteriorated for the fourth quarter in a row, according to Fannie Mae’s Q3 Mortgage Lender Sentiment Survey. And the share of lenders that blamed this competition as the key reason for deteriorating profits “rose to a new survey high.” Demand is down for all three types or mortgages: • Mortgages eligible for guarantees by Government Sponsored Enterprises, such as Fannie Mae and Freddie Mac (“GSE Eligible”), indirectly backed by taxpayers. • Mortgages not eligible for GSE guarantees (“Non-GSE Eligible”), not backed by taxpayers. • Mortgages guaranteed by Government agencies, such as Ginnie Mae, directly backed by taxpayers.

And how are lenders combating this lack of demand and the deteriorating profit margins that are being pressured by competition? They’re loosening lending standards. Fannie Mae’s report: Lenders further eased home mortgage credit standards during the third quarter, continuing a trend that started in late 2016. In particular, both the net share of lenders reporting easing on GSE-eligible loans for the prior three months and the share expecting to ease standards on those loans over the next three months increased to survey highs. Lenders’ comments suggest that competitive pressure and more favorable guidelines for GSE loans have helped to bring about more easing of underwriting standards for those loans. This chart shows the net share of lenders reporting loosening their lending standards for each type of loan (= the share of lenders reporting loosening credit standards minus those reporting tightening standards):

In many urban markets home prices have soared far beyond their peaks during the prior crazy housing bubble. That bubble ended with such spectacular results, in part because lending standards had been loosened so that more people could be stuffed into more homes, and more expensive homes that they couldn’t afford, and whose prices then plunged when the scheme fell apart. This time around, home prices, according to the national Case-Shiller Home Price Index, are now about 5% above the prior crazy bubble peak that imploded with such fanfare:

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Everything’s a casino now.

Levered Loan Volumes Soar Past 2007 Levels As “Cov-Lite” Deals Surge (ZH)

If a surge in covenant-lite levered loans is any indication that debt and equity markets are nearing the final stages of their bubbly ascent, then perhaps now is a good time for investors to take their profits and run. As the Wall Street Journal points out this morning, levered loans volumes in the U.S. are once again surging, eclipsing even 2007 levels, despite the complete implosion of bricks-and-mortar retailers and continued warnings that “the market is getting frothy.” Volume for these leveraged loans is up 53% this year in the U.S., putting it on pace to surpass the 2007 record of $534 billion, according to S&P Global Market Intelligence’s LCD unit. n Europe, recent loans offer fewer investor safeguards than in the past. This year, 70% of the region’s new leveraged loans are known as covenant-lite, according to LCD, more than triple the number four years ago.

Covenants are the terms in a loan’s contract that offer investor protections, such as provisions on borrowers’ ability to take on more debt or invest in projects. “If feels like the market is getting frothy,” said Henrik Johnsson at Deutsche Bank. “We’re overdue a correction.” Meanwhile, volumes are surging even as traditional lender protections have become basically nonexistent. As S&P LCD points out, over 70% of levered loans issued so far in 2017 are considered “covenant-lite” versus only 30% of those issued in 2007. Before the financial crisis, the boom in leveraged loans was one of the signs of markets overheating. As the crisis intensified in 2008, investors in U.S. leveraged loans lost nearly 30%, according to the S&P/LSTA Leveraged Loan Index.

Regulators are taking note. In its last quarterly report, the Bank for International Settlements noted the growth of covenant-lite loans and pointed out that U.S. companies are more leveraged than at any time since the beginning of the millennium. That could harm the economy in the event of a downturn or a rise in interest rates, said the BIS consortium of central banks.

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Not quite yet. But they will.

China’s Crackdown Brings Developers Crashing Back to Earth (BBG)

The world’s most extreme stock rally is getting a reality check. After share price gains at Chinese property developers accelerated at a breathtaking pace in the past month, led by an 87% surge in Sunac, the momentum has started to turn as authorities have taken a harder line on reining in financial risks. Six of the 10 best performers on the MSCI All-Country World Index in the one month through Sept. 21 were Chinese real estate firms. Chinese developers had their biggest slump in six years on Monday, before some rebounded on Tuesday. Record home sales and buoyant earnings helped spur an unprecedented rally this year for Chinese developers, especially large firms positioned to wrest market share through debt-fueled acquisitions.

Top of that list are the nation’s two most indebted developers – China Evergrande Group and Sunac – whose shares swelled 459% and 391% respectively. Some investors were starting to question how long the astonishing share gains could last, even before a raft of housing curbs over the weekend. “The drop of property stocks today brings a reality check,” Andy Wong at Pictet Asset Management said in a briefing Monday. “In the past few months investors have been focusing purely on growth. But it’s never wise to totally ignore the risk of leverage.” Sunac shares have plunged almost 16% from a Sept. 19 high, amid the general pall over the sector and news that a financial firm is scrutinizing its loans to Sunac, China’s most leveraged developer.

Evergrande shares have tumbled more than 12% in the past three trading sessions, matching the decline in a Bloomberg index of 22 mainland developers. Even with the recent selloff, Chinese developers remain among the world’s best-performing stocks this year. Evergrande and Sunac two top stocks in the MSCI All-Country World Index this year. Part of that rally was stoked by a housing market boom that buoyed developers’ earnings in the first half, sending sales soaring and boosting profit margins to the highest levels in three years, according to calculations based on earnings reports.

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It’s where the excess cash has gone.

The Next Crisis Will Start in Silicon Valley (BBG)

Since 2007, a tremendous wave of innovation has swept across the financial sector, affecting almost every aspect of finance. New robo-adviser startups like Betterment and Wealthfront have begun dispensing financial advice based on algorithmic calculations, with little to no human input. Crowdfunding firms like Kickstarter and Lending Club have created new ways for companies and individuals to raise money from dispersed networks of individuals. New virtual currencies such as Bitcoin and Ethereum have radically changed our understanding of how money can and should work. These financial technology (or “fintech”) markets are populated by small startup companies, the exact opposite of the large, concentrated Wall Street banks that have for so long dominated finance.

And they have brought great benefits for investors and consumers. By automating decision-making and reducing the costs of transactions, fintech has greased the wheels of finance, making it faster and more efficient. It has also broadened access to capital to new and underserved groups, making finance more democratic than it has ever been. But revolutions often end in destruction. And the fintech revolution has created an environment ripe for instability and disruption. It does so in three ways. First, fintech companies are more vulnerable to rapid, adverse shocks than typical Wall Street banks. Because they’re small and undiversified, they can easily go under when they hit a blip in the market. Consider the case of Tokyo-based Mt. Gox, which was the world’s biggest bitcoin exchange until an apparent security breach took it down in 2014, precipitating losses that would be worth more than $3.5 billion in today’s prices.

Second, fintech companies are more difficult to monitor than conventional financial firms. Because they rely on complex computer algorithms for many of their essential functions, it’s hard for outsiders to get a clear picture of the risks and rewards. And because many of their technologies are so new and innovative, they may fall outside the reach of old and outdated regulatory structures. The recent proliferation of “initial coin offerings,” for example, has left regulators around the world scrambling to figure out how to respond. Third, fintech has not developed the set of unwritten norms and expectations that guide more traditional financial institutions.

In 2008, when Lehman Brothers was teetering on the brink of bankruptcy, the heads of the largest Wall Street investment banks gathered in New York to coordinate their actions and prevent further panic. It’s hard to imagine something like that happening in the fintech world. The industry is so new, and the players so diverse, that companies have little incentive to cooperate for the greater good. Instead, they prioritize aggressive growth and reckless behavior.

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If this is not a wake-up call for you…

King Cash May Reign For Weeks In Storm-Ravaged Puerto Rico (BBG)

In post-hurricane San Juan on Monday, commerce picked up ever so slightly. With a little effort, you could get the basics and sometimes more: diapers, medicine, or even a gourmet hamburger smothered in fried onions and Gorgonzola cheese. But almost impossible to find was a place that accepted credit cards. “Cash only,” said Abraham Lebron, the store manager standing guard at Supermax, a supermarket in San Juan’s Plaza de las Armas. He was in a well-policed area, but admitted feeling like a sitting duck with so many bills on hand. “The system is down, so we can’t process the cards. It’s tough, but one finds a way to make it work.” The cash economy has reigned in Puerto Rico since Hurricane Maria decimated much of the U.S. commonwealth last week, leveling the power grid and wireless towers and transporting the island to a time before plastic existed.

The state of affairs could carry on for weeks or longer in some remote parts of the commonwealth, and that means it could be impossible to trace revenue and enforce tax rules. The situation further frustrates one of the many challenges already facing a government that has sought a form of bankruptcy protection after its debts swelled past $70 billion: boosting revenue by collecting money that slips through the cracks. In fact, the power blackout only exacerbates a situation that has always been, to a degree, a fact of life in Puerto Rico. Outside the island’s tourist hubs, many small businesses simply never took credit cards, with some openly expressing contempt for tax collectors and others claiming it was just a question of not wanting to deal with the technology.

But those were generally vendors of bootleg DVDs, fruit stands, barbers — not major supermarkets. Now, the better part of the economy is in the same boat. Cash was in short supply. Many Puerto Ricans were still living off what money they thought to withdraw ahead of the storm. Most ATMs on the island still weren’t working because of the power outage or because no one had refilled them. In Fajardo, a hard-hit coastal area, the paper printouts taped to sheet metal storm shutters read: “Cash only, thank you.”

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Washington has been a casino for decades.

The White House as Donald Trump’s New Casino (Nomi Prins)

During the 2016 election campaign, Donald Trump repeatedly emphasized that our country was run terribly and needed a businessman at its helm. Upon winning the White House, he insisted that the problem had been solved, adding, “In theory, I could run my business perfectly and then run the country perfectly. There’s never been a case like this.” Sure enough, while Hillary Clinton spent her time excoriating her opponent for not releasing his tax returns, Americans ultimately embraced the candidate who had proudly and openly dodged their exposure. And why not? It’s in the American ethos to disdain “the man” – especially the taxman. In an election turned reality TV show, who could resist watching a larger-than-life conman who had taken money from the government?

Now, give him credit. As president, The Donald has done just what he promised the American people he would do: run the country like he ran his businesses. At one point, he even displayed confusion about distinguishing between them when he said of the United States: “We’re a very powerful company – country.” Of course, as Hillary Clinton rarely bothered to point out, he ran many of them using excess debt, deception, and distraction, while a number of the ones he guided personally (as opposed to just licensing them the use of his name) – including his five Atlantic City casinos, his airline, and a mortgage company – he ran into the ground and then ditched. He escaped relatively unscathed financially, while his investors and countless workers and small businesses to whom he owed money were left holding the bag.

We may never fully know what lurks deep within those tax returns of his, but we already know that they were “creative” in nature. As he likes to put it, not paying taxes “makes me smart.” To complete the analogy Trump made during the election campaign, he’s running the country on the very same instincts he used with those businesses and undoubtedly with just the same sense of self-protectiveness. Take the corporate tax policy he advocates that’s being promoted by his bank-raider turned Treasury secretary, Steve Mnuchin. It’s focused on lowering the tax rate for multinational corporations from 35% to 15%, further aiding the profitability of companies that already routinely squirrel away profits and hide losses in the crevices of tax havens far removed from public disclosure.

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People are being left behind everywhere.

Large Parts Of America Are Being Left Behind (ZH)

Economic prosperity is concentrated in America’s elite zip codes, but in an interesting report on Distressed Communities, from The Economic Innovation Group, it is increasingly clear that economic stability outside of those communities is rapidly deteriorating. As Axios noted, this isn’t a Republican or Democratic problem. At every level of government, both parties represent distressed areas. But the economic fortunes of the haves and have-nots have only helped to widen the political chasm between them, and it has yet to be addressed by substantial policy proposals on either side of the aisle.

Economic Prosperity Quintiles

As MishTalk.com’s Mike Shedlock writes below, the study notes: “America’s elite zip codes are home to a spectacular degree of growth and prosperity. However, millions of Americans are stuck in places where what little economic stability exists is quickly eroding beneath their feet.” Distress is based on an evaluation of seven metrics.
• No high school diploma
• Housing vacancy rate
• Adults not working
• Poverty rate
• Median income ratio
• Change in employment
• Change in business establishments

Change in Distress Quintiles

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Merkel acts like an empress.

‘A Lot Of People Feel Left Behind’ – Why Far Right Won In Germany (G.)

Despite gains made by the far-right Alternative für Deutschland (AfD), the breaking up of the ‘grand coalition’ could mark a positive step for Germany, according to voters who responded to our online callout. Here voters in Germany tell us why they think the AfD made gains, and what hopes they have for the future of the country’s politics.

‘A lot of people feel left behind’ – Sarah, 37, teacher, Bonn My second vote was a tactical one. I gave it to the Linke. I knew that we’ll need a very strong voice against the AfD. I am pleased though, that the SPD decided to go into opposition to redefine themselves. A lot of people feel left behind. They are looking for scapegoats. It is the easy way to deal with problems. The AFD makes use of this feeling. With the grand coalition, there was no real debating culture left. The CDU went too much into the middle, leaving the right out. Just like the SPD under Schröder left the left-wing out.

The impact of the newly arrived is big. Some people are scared. Some that have been living in Germany for a long time feel disadvantaged. We can live together and be united in our diversity. I see this in school every day. If we treat each other with respect, then we do not need to fear. It is a long and strenuous way. But it is also very rewarding and fun to walk down that lane. At dinner I really had to get hold of myself to not cry in front of my children. I physically felt sick. A Nazi party being the third biggest party in Germany! I am still devastated.

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More Europe is dead.

Macron Presses Ahead With His Vision for Europe As Merkel Calls For Calm (BBG)

German Chancellor Angela Merkel already faces complex coalition negotiations with at least three other parties. Now French President Emmanuel Macron wants in on the act. In a speech at the Sorbonne in Paris on Tuesday, Macron will make proposals for re-shaping Europe that he acknowledges will require Merkel’s support to push through. While he isn’t seeking to interfere in German domestic politics, it makes sense to air the ideas before a coalition is formed rather than after, an official in his office told reporters. Macron needs Germany’s backing for planned overhauls of areas ranging from defense and immigration to the economy. Yet with Merkel weakened in Germany’s vote and her potential Free Democratic coalition partner even more hostile to aspects of euro-area integration than her own party, the prospect of radical change in Europe looks to have diminished.

“There was this expectation that the election would strengthen the German-French alliance, all kinds of reforms would be tackled and then we’re on the road to fiscal union,” Oliver Adler, head of economic research at Credit Suisse in Zurich, said in an interview. “This now seems politically very unlikely.” Macron will press ahead with his vision of remaking European institutions anyway, seeking to set the direction of debate. While a key element of his reform package is intended to reinforce the euro against future shocks, his speech won’t be all about the single currency area. Macron will propose as many as 10 projects in his speech, including a European agency for innovation and a system to improve start-up funding, a larger Erasmus student-exchange project, increased anti-terrorism cooperation, and a “digital plan” that includes a joint effort to push the EU Commission for a plan to tax Internet giants such as Apple and Google.

The goal is to have a roadmap in place by the summer of 2018 that will equip the EU for its next decade, according to the French official. Macron intends to discuss his plans with fellow EU leaders at a summit in the Estonian capital Tallinn at the end of this week. He may struggle to engage Merkel after Martin Schulz, her Social Democratic election challenger, upset her own plans by announcing his intention not to renew their respective parties’ coalition of the past four years.

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Politicians don’t understand technology.

EU Presidency Calls For Massive Internet Filtering (EDRi)

A Council of the European Union document leaked by Statewatch on 30 August reveals that during the summer months, that Estonia (current EU Presidency) has been pushing the other Member States to strengthen indiscriminate internet surveillance, and to follow in the footsteps of China regarding online censorship. Standing firmly behind its belief that filtering the uploads is the way to go, the Presidency has worked hard in order to make the proposal for the new copyright Directive even more harmful than the Commission’s original proposal, and pushing it further into the realms of illegality. According to the leaked document, the text suggests two options for each of the two most controversial proposals: the so-called “link tax” or ancillary copyright and the upload filter. Regarding the upload filter, the text offers two alternatives:

Option A maintains the Commission’s original proposal of having in place an upload filter which will be under the control of platforms and other companies that are hosting online content. Although it removes mentions to “content recognition technologies”, in reality, there is no way to “prevent the availability” (another expression which remains in the text) of certain content without scanning all the content first. Option B is, at best, a more extreme version of Option A. In fact, it seems so extreme that it almost makes the first option look like a reasonable compromise. This may, of course, be the “diplomatic” strategy. In this extreme option, the text attacks again the liability regime of the e-commerce Directive – which, bizarrely, would not be repealed, leaving us with two contradictory pieces of EU law but adds a “clarification” of what constitutes a “communication to the public”.

This clarification establishes that platforms (and its users) would be liable for the copyright infringing content uploaded by its users. The proposals in this leak highlight a very dangerous roadmap for the EU Member States, if they were to follow the Presidency’s lead. The consequences of these flawed proposals can only be prevented if civil society and EU citizens firmly raise their voices against having a censorship machine in the EU. We will be turning on our call tool at savethememe.net before each of the key votes in the European Parliament. Make use of the tool, and call your representatives to stop the #censorshipmachine!

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Oh, get real: “a recognition of the tremendous efforts and sacrifices the Greek people have made to restore stability to their country’s public finances.”

EU Officially Ends Excessive Deficit Procedure Against Greece (R.)

European Union states decided on Monday to close disciplinary procedures against Greece over its excessive deficit after improvements in Greece’s fiscal position, confirming the country’s recovery is on the right track. The move, although largely symbolic, sends a new signal that Greece’s public finances are again under control, facilitating the country’s plans to tap markets after a successful issue of bonds in July which ended a three-year exile. EU fiscal rules oblige member states to keep their budget deficits below 3% of their economic output or face sanctions that could entail hefty fines, although so far no country has received a financial penalty.

Greece had a 0.7% budget surplus in 2016, and is projected to maintain its fiscal position within EU rules’ limits this year. “In the light of this, the Council (of EU states) found that Greece fulfils the conditions for closing the excessive deficit procedure,” the EU said in a note. “After many years of severe difficulties, Greece’s finances are in much better shape. Today’s decision is therefore welcome”, Estonia’s finance minister Toomas Toniste said. The EU states’ decision confirmed a proposal by the EU executive commission in July to end the disciplinary procedure for Greece. The economics commissioner Pierre Moscovici said the decision was “a recognition of the tremendous efforts and sacrifices the Greek people have made to restore stability to their country’s public finances.”

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Good cop bad cop. Rinse and repeat.

ECB May Frontload 2018 Bank Stress Tests With View To Greece – Draghi (R.)

The ECB may ‘frontload’ its bank stress test next year, ECB President Mario Draghi said on Monday, when asked if supervisors plan any early checks on the health of Greek lenders. The IMF has been pushing for a fresh asset quality review at Greek banks, possibly as part of an bailout review that is slated to start soon. The ECB has rejected the call, saying that the next check is the regular 2018 stress test, but Draghi’s words suggest that ECB may be somewhat flexible with its timeline. “The SSM (Single Supervisory Mechanism) will take its decision with full independence,” Draghi told members of the European Parliament. “And what the SSM plans to do next year is to have a stress test, possibly frontloading the stress test, and basically the SSM sent a letter to the IMF concerning exactly this expected line of action,” Draghi said.

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Maybe Macron can do some good too.

French Government Declares War On Pesticides (AFP)

France is planning to cut back on use of all pesticides, the government said Monday, though it rowed back on an announcement of an outright ban on controversial chemical glyphosate. Government spokesman Christophe Castaner had said earlier Monday that France – Europe’s biggest food producer a- intended to phase out glyphosate completely by 2022 over fears that it may cause cancer. But he later reversed his comments, saying that by the end of President Emmanuel Macron’s five-year term “the government is committed to seeing significant progress on all pesticides”. Glyphosate is the active ingredient in one of the world’s most widely used weedkillers, Roundup, produced by the US agro-chemicals giant Monsanto. The European Commission has proposed extending the licence for the use of the chemical for 10 years, which France has said it will vote against and try to block.

France’s biggest farming union, the FNSEA, said Monday that it was “out of the question” for the country to go it alone, worrying that a French ban could put them at a disadvantage against European competitors. “A sudden ban, no — a path for reducing it and finding solutions, if the solutions are good economically and technically, we can see it happening,” said FNSEA chief Christiane Lambert. Europe limited use of glyphosate last year pending further research. The EU’s chemical agency said glyphosate should be not be classified as cancer-causing. But this is challenged by scientists and environmentalists who point to a finding by the International Agency for Research on Cancer that glyphosate is “probably carcinogenic”. Some 1.3 million people have signed an online petition calling for a ban on the chemical.

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Can mankind rid the earth of its presence? Stay tuned.

Our Food Crops Face Mass Extinction Too (G.)

A “sixth mass extinction” is already under way, scientists are now warning us. Species such as the Bengal tiger and blue whale are vanishing at an alarming rate, and mournful eulogies are being written on how those born in 20 years’ time may never see an African elephant. But who is writing the eulogy for our food? Huge proportions of the plant and animal species that form the foundation of our food supply -known as agrobiodiversity- are just as endangered and are getting almost no attention. Take some consumer favourites: chips, chocolate and coffee. Up to 22% of wild potato species are predicted to become extinct by 2055 due to climate change. In Ghana and Ivory Coast, where the raw ingredient for 70% of our chocolate is grown, cacao trees will not be able to survive as temperatures rise by two degrees over the next 40 years. Coffee yields in Tanzania have dropped 50% since 1960.

These crops are the tip of the iceberg. Across the world, 940 cultivated species are threatened. Agrobiodiversity is a precious resource that we are losing, and yet it can also help solve or mitigate many challenges the world is facing. It has a critical yet overlooked role in helping us improve global nutrition, reduce our impact on the environment and adapt to climate change. According to the World Health Organisation, poor diet is the biggest cause of early death and disability. Globally, 2 billion people are undernourished, while 2 billion are obese and at risk of contracting diabetes, heart disease and cancer. Focusing on large-scale intensive production of starchy crops for calories rather than nutritious diets has led to serious levels of obesity around the world, from the US to Kenya. Our agrobiodiversity base can be a source of affordable, nutritious food – provided we don’t let it disappear.

[..] About 33% of the world’s farmland is estimated to be degraded, lacking the nutrients essential for growing crops. Agrobiodiversity once again has a solution. Planting cold-tolerant legumes and forages throughout winter has helped farmers in France naturally reduce weed infestation as well as increasing soil’s nutrient content and capacity to hold water. Natural remedies such as this can enhance the sustainability of farms worldwide, reducing the sector’s impact on the environment.

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“Three-quarters of the world’s food today comes from just 12 crops and five animal species”. In India, there used to be 100,000 varieties of rice. Today, there’s a big struggle going on to preserve a few dozen. There are many different banana species, but we all eat just one, the Cavendish. Which is under severe threat from a global fungus and could be gone in 5-10 years.

Sixth Mass Extinction Of Wildlife Also Threatens Global Food Supplies (G.)

The sixth mass extinction of global wildlife already under way is seriously threatening the world’s food supplies, according to experts. “Huge proportions of the plant and animal species that form the foundation of our food supply are just as endangered [as wildlife] and are getting almost no attention,” said Ann Tutwiler, director general of Bioversity International, a research group that published a new report on Tuesday. “If there is one thing we cannot allow to become extinct, it is the species that provide the food that sustains each and every one of the seven billion people on our planet,” she said in an article for the Guardian. “This ‘agrobiodiversity’ is a precious resource that we are losing, and yet it can also help solve or mitigate many challenges the world is facing. It has a critical yet overlooked role in helping us improve global nutrition, reduce our impact on the environment and adapt to climate change.”

Three-quarters of the world’s food today comes from just 12 crops and five animal species and this leaves supplies very vulnerable to disease and pests that can sweep through large areas of monocultures, as happened in the Irish potato famine when a million people starved to death. Reliance on only a few strains also means the world’s fast changing climate will cut yields just as the demand from a growing global population is rising. There are tens of thousands of wild or rarely cultivated species that could provide a richly varied range of nutritious foods, resistant to disease and tolerant of the changing environment. But the destruction of wild areas, pollution and overhunting has started a mass extinction of species on Earth.

The focus to date has been on wild animals – half of which have been lost in the last 40 years – but the new report reveals that the same pressures are endangering humanity’s food supply, with at least 1,000 cultivated species already endangered. Tutwiler said saving the world’s agrobiodiversity is also vital in tackling the number one cause of human death and disability in the world – poor diet, which includes both too much and too little food. “We are not winning the battle against obesity and undernutrition,” she said. “Poor diets are in large part because we have very unified diets based on a narrow set of commodities and we are not consuming enough diversity.”

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May 262015
 
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Walker Evans Vicksburg, Mississippi. “Vicksburg Negroes and shop front.” 1936

We Must Protect Our Children From Austerity (Guardian)
Greek Hospitals Out Of Painkillers, Scissors And Sheets Due To Austerity (RT)
The Key To A Greek Economic Revival Has To Be An End To Austerity (Münchau)
Austerity Is the Only Deal-Breaker (Yanis Varoufakis)
Greece Is All But Bankrupt (NY Times)
The World Is Drowning In Debt, Warns Goldman Sachs (Telegraph)
Investors Are Playing A ‘Greater Fool’ Game (George Magnus)
Weak Productivity Turns Into A Problem Of Global Proportions (FT)
Greece, the EU and the IMF Are Dancing With Death (Coppola)
Greek PM Convenes Emergency Meeting Of His Bailout Team (Guardian)
Greece’s Governing Left Divided Over Debt Terms (WSJ)
IMF’s Blanchard Says Greek Budget Proposals Will Not Provide (Reuters)
Germany And France Agree Closer Eurozone Ties Without Treaty Change (Guardian)
UK’s Cameron Tells EC President That Europe Must Change (Reuters)
Banks as Felons, or Criminality Lite (NY Times)
China Warned Over ‘Insane’ Plans For New Nuclear Power Plants (Guardian)
Yesterday’s Tomorrowland (Jim Kunstler)
Flawed Science Triggers U-Turn On Cholesterol Fears (Daily Mail)
EU Dropped Pesticide Laws Due To US Pressure Over TTIP (Guardian)

I think it’s more that we need to protect them from our own greed.

We Must Protect Our Children From Austerity (Guardian)

The definition of a decadent society is one that destroys its own future, knowing full well the terrible consequences. On that basis, Britain is truly degenerate. Just look at how it trashes its children and teenagers. Our young are the very people on whom the rest of us will one day come to depend – to care for us, and to earn the country’s income. Rather than mere lifestyle accessories, to be slotted in alongside handbags and cars, they represent our best hope. This human truth has sustained societies around the world and down the ages. Yet in austerity Britain, children have been chucked to the bottom of the pile. They have been robbed of their rightful benefits. And the support they could once draw upon – everything from Sure Start centres to youth clubs to mental-health workers – has been hacked back.

Hyperbole? I really wish it were. Instead, I am merely repeating what professionals in field after field, from social care to mental health, are saying – and what the expert analysis shows. The landmark study of the social effects of David Cameron’s austerity was produced at the start of this year by a team of academics led by Professor John Hills at the London School of Economics. They found that the biggest victims of the spending cuts made since 2010 were children, and their parents: “Tax-benefit reforms hit families with children under five harder than any other household type. Those with a baby were especially affected.” None of this was accidental. Treasury officials stick each prospective change in tax and benefits under a Whitehall microscope – which is why so few budgets are an omnishambles.

When making their cuts, Cameron and George Osborne would have known that children and babies would suffer most – and proceeded regardless. Remember that next time you catch some commentator talking with great gravitas but little policy detail about the new compassionate Conservatism. Two things stand out in Cameron’s assault on children: it is precisely the opposite of what he promised, and exactly the reverse of what he himself knows any prime minister should be doing. Before coming to office, the Conservative leader unveiled a poster of a handsome tot: “Dad’s nose, mum’s eyes, Gordon Brown’s debt.” The whole point of cuts was “because we believe children like this deserve better”. One parliament later, the Trussell Trust reports that more than a third of the one million food parcels it gave out last year were for children.

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Due to our own lack of morals?!

Greek Hospitals Out Of Painkillers, Scissors And Sheets Due To Austerity (RT)

Hospitals across Greece are lacking the most essential supplies, including painkillers, scissors and sheets, as years of economic meltdown have left the country’s healthcare system in a desperate state. The number of uninsured Greeks has reached 2.5 million compared to 500,000 in the pre-crisis year of 2008, the Times reported. Healthcare spending has dropped by 25% since 2009, leading to shortages of medical equipment and a lack of funds to pay nurses’ salaries. The country spends around €11 billion annually on its public healthcare system, which is one of the lowest rates in the EU.

According to media reports, some Greek patients have had to undergo painful medical procedures without anesthetics. People have also been turned away from hospitals, as they didn’t even have the equipment to measure their blood pressure, the newspaper learned. On one occasion, a patient was even asked to bring his own sheets to the infirmary from home. A trainee surgeon at KAT state hospital in Athens described the situation at his hospital as being at the “breaking point”. “There is no money to repair medical equipment, no money for ambulances to use for petrol, no money to hire nurses and no money to buy modern surgical supplies,” he told the Times.

In April, the new Syriza government vowed to battle the “barbaric conditions” in public hospitals, as well as corruption in the healthcare sector. Despite money shortages, Greek authorities abolished the €5 fee to visit state hospitals and have pledged to hire an additional 4,500 healthcare workers. “We want to turn the health sector from a victim of the bailouts, a victim of austerity, into a fundamental right for every resident of this country and we commit to do so at any cost,” Alexis Tsipras, the Greek Prime Minister, said. “We will not tolerate the exploitation of human pain,” Tsipras stressed.

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“..the creditors are responsible for the current mess by insisting on an economically illiterate adjustment programme.”

The Key To A Greek Economic Revival Has To Be An End To Austerity (Münchau)

It is all up to Alexis Tsipras now. The Greek prime minister will decide soon whether or not he wants a deal with his creditors that would allow Athens to service its debt. If he says “no”, Greece will default. At that point, it is possible the country will have to leave the eurozone. What should he do? He will know his own political constraints. I will focus on the economics. The short answer is: if the deal is reasonable, he should accept. So where is the line between reasonable and unreasonable? The rough answer is whatever it takes to end the uncertainty. No investor is going to put their money into Greece so long as there is a threat of Grexit – a Greek exit from the eurozone. For an agreement to be viable, it would need to reduce the probability of Grexit to zero.

The same applies to the policies needed if Mr Tsipras says “no”. On that day he would need a brilliant economic plan. So what economic criteria should he apply to evaluate any offer? The single most important part of the agreement concerns the fiscal adjustment that Greece’s creditors are asking Athens to undertake. The variable to look out for is the primary surplus – the fiscal balance before payment of interest on debt: essentially the money a country has for debt servicing. There is no such thing as an objectively right or wrong number. But experience shows that large primary surpluses are politically unsustainable. It was the unsustainability of the previous agreement between Greece, its European creditors and the IMF that brought Syriza to power.

I heard a respected expert on this issue recently proclaim that a primary surplus of 2.5% of gross domestic product would probably work. The Greeks have demanded 1.5%, which is a reasonable opening bid. One of the so-called “non-papers” – the documents officials leak without leaving fingerprints – that are circulating among the negotiators had mentioned a figure of 3.5%, which strikes me as too high. A primary surplus of 4.5%, as was demanded from 2016 onwards by the previous loan agreement, is plainly ludicrous.

Greek economic mismanagement brought about the crisis in 2010, but the creditors are responsible for the current mess by insisting on an economically illiterate adjustment programme. They had not taken into account the fact that Greece is a relatively closed economy. This means that most of its GDP is produced and consumed at home. If you force such an economy into extreme austerity during a recession, it stays trapped. The key to a Greek economic revival has to be an end to austerity. This is why Grexit is not necessarily a solution, either, since it might bring even more fiscal consolidation. Greece would be cut off from international capital markets and unable to run a deficit.

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” Relative to the rest of the countries on the eurozone periphery, Greece was subjected to at least twice the austerity. There is nothing more to it than that.”

Austerity Is the Only Deal-Breaker (Yanis Varoufakis)

A common fallacy pervades coverage in the world’s media of the negotiations between the Greek government and its creditors. The fallacy, exemplified in a recent commentary by Philip Stephens of the Financial Times, is that, “Athens is unable or unwilling – or both – to implement an economic reform program.” Once this fallacy is presented as fact, it is only natural that coverage highlights how our government is, in Stephens’s words, “squandering the trust and goodwill of its eurozone partners.” But the reality of the talks is very different. Our government is keen to implement an agenda that includes all of the economic reforms emphasized by European economic think tanks.

Moreover, we are uniquely able to maintain the Greek public’s support for a sound economic program. Consider what that means: an independent tax agency; reasonable primary fiscal surpluses forever; a sensible and ambitious privatization program, combined with a development agency that harnesses public assets to create investment flows; genuine pension reform that ensures the social-security system’s long-term sustainability; liberalization of markets for goods and services, etc. So, if our government is willing to embrace the reforms that our partners expect, why have the negotiations not produced an agreement? Where is the sticking point?

The problem is simple: Greece’s creditors insist on even greater austerity for this year and beyond – an approach that would impede recovery, obstruct growth, worsen the debt-deflationary cycle, and, in the end, erode Greeks’ willingness and ability to see through the reform agenda that the country so desperately needs. Our government cannot – and will not – accept a cure that has proven itself over five long years to be worse than the disease. Our creditors’ insistence on greater austerity is subtle yet steadfast. It can be found in their demand that Greece maintain unsustainably high primary surpluses (more than 2% of GDP in 2016 and exceeding 2.5%, or even 3%, for every year thereafter).

To achieve this, we are supposed to increase the overall burden of value-added tax on the private sector, cut already diminished pensions across the board; and compensate for low privatization proceeds (owing to depressed asset prices) with “equivalent” fiscal consolidation measures. The view that Greece has not achieved sufficient fiscal consolidation is not just false; it is patently absurd. The accompanying figure not only illustrates this; it also succinctly addresses the question of why Greece has not done as well as, say, Spain, Portugal, Ireland, or Cyprus in the years since the 2008 financial crisis. Relative to the rest of the countries on the eurozone periphery, Greece was subjected to at least twice the austerity. There is nothing more to it than that.

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Heart rendering. “Maybe the crisis makes us better people — but these better people will die if the crisis continues.” “They can take their money,” he said, using an expletive. “I feel ashamed to be a European.”

Greece Is All But Bankrupt (NY Times)

Bulldozers lie abandoned on city streets. Exhausted surgeons operate through the night. And the wealthy bail out broke police departments. A nearly bankrupt Greece is taking desperate measures to preserve cash. Absent a last-minute deal with its creditors, the nation will run out of money early next month. Two weeks ago, Greece nearly defaulted on a debt payment of €750 million to the IMF. For the rest of this month, Greece should be able to cover daily cash deficits of around €100 million, government ministers say. Starting June 5, however, these shortfalls will rise sharply, to around €400 million as another I.M.F. obligation comes due. They will then double in size on June 8 and 9. “At that point it is all over,” said a senior Greek finance official.

On Sunday, the interior minister, Nikos Voutsis, said that there would not be enough money to pay the I.M.F. if there was no deal by June 5. In a society that has lived off the generosity of the government for decades, the cash crisis has already had a shattering impact. Universities, hospitals and municipalities are struggling to provide basic services, and the country’s underfunded security apparatus is losing its battle against an influx of illegal immigrants. In effect, analysts say, Greece is already operating as a bankrupt state. The government’s call to conserve funds has been far-reaching. All embassies and consulates — as well as municipalities throughout the country — have been told to forward surplus funds to Athens. Hospitals and schools face strict orders not to hire doctors and teachers.

And national security officials complain they are under intense pressure to keep air and sea missions to a minimum, at a time when migrants from Africa and the Middle East are rushing to Greece’s shores. Even the swelling ranks of investment bankers, lawyers and consultants advising the Finance Ministry have been told that, for now at least, their work is to be considered pro bono. Since its first bailout in 2010, Greece has been forced by its creditors to cut spending by €28 billion — quite a sum in a €179 billion economy. A proportional dose of austerity applied to the United States, for example, would come to $2.6 trillion.

=============

Sitting at his desk at the start of yet another 20-hour-plus workday, Theodoros Giannaros, the head of Elpis Hospital in Athens, chain-smoked cigarettes and signed off on a pile of spending requests that he said he knew would not be fulfilled. Since he started work at the hospital in 2010, Mr. Giannaros has seen his salary shrink to €1,200 a month, from €7,400. His annual budget, once €20 million, is now €6 million, and the number of practicing doctors has been reduced to 200 from 250. Like almost everyone in Greece, he is making do with less. The hospital recycles instruments; buys the cheapest surgical gloves on the market (they occasionally rip in the middle of operations, he says); and uses primarily generic drugs. “We have learned that we can live with a lot of money and survive with nothing,” he said.

“Maybe the crisis makes us better people — but these better people will die if the crisis continues.” Mr. Giannaros, who is 58, says he recently suffered a heart attack from the constant stress. But he says it is his surgeons he worries about most. In aging, depression-ridden Greece, treating the 150 or so patients that come to his hospital each day has put an extraordinary strain on his shrinking corps of doctors. The fact that many have begun to strike because they are not getting paid for overtime makes matters worse. Striding across the hospital grounds, Mr. Giannaros waved over his star surgeon, Dimitris Tsantzalos. How many operations did you do last year, he asked. “About 1,500,” said Dr. Tsantzalos, who, with his strapping build, seems younger than his 63 years. Recently he says he put in a month of consecutive 20-hour days and, not surprisingly, confesses to exhaustion. “I am burnt out,” he said. “It’s very dangerous for the patients.”

A week later, a tragedy struck Mr. Giannaros: His 26-year-old son, Patrick, committed suicide by jumping in front of an Athens subway train. “There was just an emptiness in front of him,” Mr. Giannaros said between wrenching sobs in a brief telephone conversation. “The emptiness of the future they have taken away from us.” His son had finished university studies and, unable to find work in a country where more than half the young are jobless, was helping Mr. Giannaros at the hospital. “He saw no future, no way to help his family,” Mr. Giannaros said. “Now God has found him a job — as an angel.” While Mr. Giannaros said he understood the importance of staying current with important creditors like the I.M.F., he said enough was enough. “They can take their money,” he said, using an expletive. “I feel ashamed to be a European.”

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Nothing new.

The World Is Drowning In Debt, Warns Goldman Sachs (Telegraph)

The world is sinking under too much debt and an ageing global population means countries’ debt piles are in danger of growing out of control, the European chief executive of Goldman Sachs Asset Management has warned. Andrew Wilson, head of Europe, Middle East and Africa (EMEA), said growing debt piles around the world posed one of the biggest threats to the global economy. “There is too much debt and this represents a risk to economies. Consequently, there is a clear need to generate growth to work that debt off but, as demographics change, new ways of thinking at a policy level are required to do this,” he said.

“The demographics in most major economies – including the US, in Europe and Japan – are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.” Mr Wilson used Japan, where gross government debt has climbed above 200pc of gross domestic product (GDP), as an example of where the ageing population could demographics were working against them. “[This] is evidently not sustainable over the long term,” he said.

The Organisation of Economic Co-operation and Development (OECD) has also sounded out a warning about Japan’s growing debt pile. The think-tank said gross government debt was on course to balloon to more than 400pc by 2040 if the government did not carry out reforms. Angel Gurria, the OECD’s secretary-general, said monetary stimulus and stronger growth alone would not be enough to haul the economy out of its two-decade malaise. “Japan’s future prospects depend on ensuring fiscal sustainability over the long term. With a budget deficit of around 8pc of GDP, the debt ratio is set to rise further into uncharted territory,” he said.

Others have warned privately that Japan’s debt mountain is unsustainable. “The crunch point is when it starts to run a current account deficit,” said one senior banker. “When they stop running a current account surplus and they need our money to survive, we’re not going to lend to them at 30 or 40 basis points.”

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Why insist on calling them investors?

Investors Are Playing A ‘Greater Fool’ Game (George Magnus)

Speculative euphoria, even when encouraged by central banks, is defined by the way it ends — not with a whimper but with a bang. In this context, the so-called Bund “tantrum” may be no more than a hiccup in the context of deeply anomalous financial market conditions. Investors are still chasing low or negative yields in bond markets, fairly or fully valued equity markets, and rising property markets. Yet, it seems increasingly that, long-term investors aside, they are playing a greater fool game. One of the biggest anomalies in global financial markets is the persistence of zero real, or inflation-adjusted, policy rates in most advanced economies and zero or negative real bond yields alongside a surge in the volume of public and private debt that shows no sign of subsiding.

The Bank for International Settlements has mapped a 50% rise in debt outstanding in the world’s 12 largest economies since 2007 to more than $125tn at the end of 2014. A recently published McKinsey report on debt, covering 47 countries, highlighted an increase over the same period of $57tn to about $200bn, or a rise of about 20% of GDP to just under 290% of GDP. While developed markets accounted for the lion’s share of the build-up in debt up to the financial crisis and still dominate the aggregate debt-to-GDP league table, it is in emerging countries, least affected by the financial crisis, that debt has erupted since 2008. The most significant shift has occurred in Asia ex Japan, especially China, where aggregate debt to GDP has quadrupled over the past decade and the limits to debt capacity are fast approaching.

While domestic credit rises at twice the rate of money GDP growth, the toxic combination of rising leverage and slowing growth will continue to erode the nation’s ability to sustain debt accumulation. Eventually the authorities will have to clamp down on credit expansion. Global bond and equity markets remain largely oblivious to the relentless rise in indebtedness. The commonly accepted but also questionable narrative is that the Fed is severely constrained when it comes to raising policy rates, the ECB and the Bank of Japan remain committed to quantitative easing, and China is accelerating the pace of monetary accommodation. Cheap money, therefore, is around for the foreseeable future, and asset price inflation, even with occasional wobbles, is a given.

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A problem only for the perpetual growth crowd. Why should productivity always grow? That just leads to tinkering with things like our food.

Weak Productivity Turns Into A Problem Of Global Proportions (FT)

Output per worker grew last year at its slowest rate since the millennium, with a slowdown evident in almost all regions, underscoring how the problem of lower productivity growth is now taking on global proportions. The Conference Board, a think-tank, said that based on official data on output and employment from most countries, only India and sub-Saharan Africa enjoyed faster labour productivity growth last year. Globally, the rate of growth decelerated to 2.1% in 2014, compared with an annual average of 2.6% between 1999 and 2006, it said.

Bart van Ark, the Conference Board’s chief economist, said total factor productivity, which takes account of skill levels and investment as well as the number of workers, fell 0.2% in 2014. “This is a global phenomenon and so we have to take it very seriously,” he said. Economists are increasingly identifying the problem of low global productivity as one of the greatest threats to improved living standards, in rich and poor countries alike. The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers around the world.

Janet Yellen cited weak US productivity as a cause of “the tepid pace of wage gains in recent years” on Friday. Also last week, George Osborne, UK chancellor, set higher productivity as the most important economic priority of the new government. “Our future prosperity depends on it,” he said. Raising productivity is seen as one of the only ways to improve living standards, at a time when advanced and some emerging economies are seeing ageing populations and a rapidly increasing retirement rate. Without stronger productivity growth, the world may have to get used to much lower rates of economic expansion.

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“Two years later, debt restructuring was on the table. And there it remains.”

Greece, The EU And The IMF Are Dancing With Death (Coppola)

Over the last few months, the world has been watching with interest and growing concern the intricate moves in the deadly dance of Greece, the EU and the IMF. The latest move in the dance comes from Greece itself. The Interior Minister has announced that Greece cannot meet scheduled debt repayments to the IMF in June. This does not mean that Greece intends not to pay. Rather, it is warning that intransigence by the EU may force it into an IMF default. It is not the first time Greece has used the “IMF default” tactic. At the beginning of May, Greece said it couldn’t pay an IMF loan repayment. Then, in a surprising move, it drained its SDR reserve account at the IMF to make the payment.

This is effectively a short-term loan at a low interest rate from the IMF to Greece. And it is Ponzi finance – lending to a borrower so that he can service existing debts to the same lender. Using the SDR account solved Greece’s immediate cash shortfall, buying time for further negotiations. But it stores up further problems in the future. The SDR account will have to be topped up at some point. Interestingly, the IMF appears to have advised Greece to use the SDR account for the payment. And this makes me wonder what strategy the IMF is playing. It seems to have decided to cooperate with Greece. Superficially, the IMF’s aim is to recover the money it has already lent to Greece. But it has another, much larger concern. The Greek crisis is threatening the IMF’s own credibility.

The IMF’s involvement in the Greek bailout was controversial from the start. It broke its own rules in order to lend to Greece in 2010, arguing that systemic risks justified lending to a country whose debt was not by any stretch of the imagination sustainable over the medium-term. It was severely criticized by members of its own board of directors, notably by emerging-market representatives who were understandably miffed at what appeared to be special treatment accorded to Greece, or more accurately, to the Eurozone’s banks. The Brazilian representative, Paulo Nogueiro Batista, observed that the program: …may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debtholders, mainly European financial institutions.

And the Swiss representative tellingly asked why debt restructuring with losses for creditors was not on the table. Two years later, debt restructuring was on the table. And there it remains. The 2012 “private sector involvement” (PSI) restructuring wrote down up to 80% of the net present value of Greece’s private sector debts. But much of the debt had already been transferred to the public sector, not only as a result of the 2010 bailout but also through subsequent IMF and EU loans and ECB support of Greece’s banks. The PSI restructuring reduced Greece’s debt to just over 150% of its GDP. Everyone knew that this was inadequate. Everyone knew that the official sector would have to suffer a haircut as well, and the longer it was delayed, the more costly it would be.

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One every day.

Greek PM Convenes Emergency Meeting Of His Bailout Team (Guardian)

The high-stakes game of brinkmanship between Greece and its creditors intensified on Monday after the Greek prime minister convened an emergency meeting of his political negotiating team to avert a looming financial crisis. Amid mounting fears that Athens is close to running out of money, Alexis Tsipras said technical talks would resume to find a deal. To defuse tensions, he announced that Greece would honour its debts, though he failed to give details about how he would find the €1.6bn (£1.14bn) needed in two weeks’ time to repay an IMF loan. “We are very close to a deal,” the finance minister, Yanis Varoufakis, told reporters in Athens.

“There are many different Germans, just as there are many different Greeks,” Varoufakis added, responding to reports that Berlin would not be prepared to retreat in what has become an all-out tug of war between the two governments. Technical teams tasked with negotiating the framework of a cash-for-reform deal to keep the debt-stricken nation afloat, are now scrambling to break the deadlock of almost four months of fruitless talks. Both sides have signalled they will focus on VAT increases, expected to raise as much as €1bn for the Greek economy, when they reconvene in Brussels on Tuesday. Also on the table are pension reform, labour deregulation and the ever-incendiary topic of the primary surplus. Tsipras’s anti-austerity administration has argued vociferously that demands for a budget surplus higher than 1.5% will exacerbate the country’s economic death spiral.

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The ‘hard left’ already almost won the day. Tsipras’ room to move is shrinking.

Greece’s Governing Left Divided Over Debt Terms (WSJ)

As financial pressure mounts on Greece to sign a deal with its foreign lenders, Prime Minister Alexis Tsipras is facing what may be his biggest problem yet: the struggle within the ruling Syriza party over whether to swallow creditors’ tough terms or default. Dissent is spreading within left-wing Syriza against the economic policies Greece is likely to have to enact in return for fresh bailout funding from other eurozone governments and the IMF. The Syriza-led coalition government holds only a thin majority of 12 seats in Greece’s 300-seat Parliament, so a rebellion against a deal could easily cost Mr. Tsipras his governing majority.

Greece’s lenders are particularly worried about vocal threats by Syriza’s Left Platform, a hard-line leftist faction within the party, to reject any deal that crosses ideological “red lines” by cutting pensions or workers’ rights. Mr. Tsipras’s difficulty in selling a painful compromise to Syriza’s hard left, as well as to other parts of his ideologically diverse party, has become the largest obstacle to a deal. European officials and analysts -and privately even Greek government officials- say they don’t know whether the roughly 30 lawmakers who make up Left Platform will vote as defiantly as they talk if creditors’ terms are put before the Athens Parliament. Greece needs to agree on a list of economic policies with lenders in time to avoid defaulting on a series of loan repayments to the IMF in mid-June.

Although the government probably has enough cash to repay a €300 million loan due June 5, it almost certainly can’t meet three further payments totaling about €1.25 billion on June 12, 16 and 19, European officials say. Greece needs a deal as soon as possible so it can service its IMF debts, government spokesman Gabriel Sakellaridis told reporters on Monday. “To the extent that we are in a position to pay our obligations, we will pay our obligations,” he said, adding: “It’s the government’s responsibility to be in a position to pay its obligations.” The European Central Bank has told eurozone governments it would allow Greek banks to buy more short-term Greek government debt if an economic-overhaul agreement between Athens and creditors is imminent. That would allow Greece to survive until July, when further debts fall due and fresh bailout loans will be needed.

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That’s just lip service. We all know by now it’s about politics only.

IMF’s Blanchard Says Greek Budget Proposals Will Not Provide (Reuters)

Greece’s budget proposals are not enough to ensure a surplus this year, the IMF’s chief economist was quoted as saying on Monday. Greece was supposed to have a 3% budget surplus in 2015, but that looks unrealistic now, Olivier Blanchard told the French financial newspaper Les Echos in an interview. Lowering that surplus would lead to new financing needs, for which Greece would again need European help. That could work only if, in exchange, Greece presented a coherent programme, he said. “Considering that the most recent estimates mention a substantial budget deficit, we need credible measures to transform this into a surplus and maintain this surplus in the future,” Blanchard was quoted as saying. “This is far from being the case at the moment.”

Three weeks ago, the European Commission slashed Greek growth and surplus projections and said it expected Greece’s primary surplus – the budget balance before debt servicing costs – would be only 2.1% this year, rather than the 4.8% projected just three months earlier. It also expects the 2015 headline budget balance will deteriorate from a 1.1% surplus to a 2.1% deficit and expects the 1.6% surplus forecast for 2016 will turn into a 2.2% deficit unless policies change. “What is obvious is that the (Greek) pension system is often too generous and that there are still too many civil servants,” Blanchard told the newspaper at a central bankers’ meeting in Sintra, Portugal.

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“..French and German leaders do not have much in common with David Cameron”.

Germany And France Agree Closer Eurozone Ties Without Treaty Change (Guardian)

Germany and France have forged a pact to integrate the eurozone without reopening the EU’s treaties, in a blow to David Cameron’s referendum campaign. Sidestepping Britain’s demands to renegotiate the Lisbon treaty and Britain’s place in the EU, the German chancellor, Angela Merkel, and the French president, François Hollande, have sealed an agreement aimed at fashioning a tighter political union among the single-currency countries while operating within the confines of the existing treaty. The Franco-German proposals are to be put to an EU summit in Brussels next month, where Cameron is also to unveil his shopping list of changes needed if he is to win support for keeping Britain in the EU.

The Franco-German accord, disclosed by Le Monde newspaper, calls for eurozone reforms in four areas “developed in the framework of the current treaties in the years ahead”. Cameron has persistently called for a reopening of the treaties to enable the eurozone to integrate more closely while providing the British with a chance to reshape the UK’s relations with the EU and repatriate powers from Brussels. EU members and senior officials in Brussels have repeatedly voiced their reluctance to reopen the Lisbon treaty – the EU’s fundamental constitutional document. The Franco-German initiative, likely to be endorsed by the 25 June summit, would definitively close the door on treaty renegotiation.[..]

The Franco-German pact, agreed as the Greek debt crisis comes to a head, was finalised last week on the fringes of the EU summit in Latvia and sent to Juncker at the weekend, Le Monde reported. The summit in Riga last Friday was Cameron’s first opportunity since re-election to present his ideas to fellow EU leaders. But it appeared that Merkel and Hollande had bigger fish to fry. Juncker is preparing policy options for the June summit on how to integrate the eurozone fiscally and politically as it struggles to emerge from more than five years of crisis. The Franco-German proposals are likely to settle the direction of policy.

They talk of economic, fiscal and social convergence, combining German insistence on monetary stability with French demands for greater investment. “Additional steps are necessary to examine the political and institutional framework, common instruments and the legal basis” (of the eurozone) by the end of next year, said the document, according to Le Monde. The following year, 2017, Germany and France have general elections, narrowing the scope for negotiations with Britain. The Franco-German policy proposal, said Le Monde, “shows that French and German leaders do not have much in common with David Cameron”.

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Brexit gets closer.

UK’s Cameron Tells EC President That Europe Must Change (Reuters)

British Prime Minister David Cameron told the president of the European Commission that the country needed a new deal on Europe, before he presses his case for reforms to the bloc with other national leaders this week. Talks between Cameron and EC President Jean-Claude Juncker over dinner on Monday focused on reforming the European Union and renegotiating the UK’s ties with Brussels, a government spokeswoman said. “The prime minister underlined that the British people are not happy with the status quo and believe that the EU needs to change in order to better address their concerns,” she said. Juncker reiterated he wanted to find a “fair deal for the UK and would seek to help”, she said, and they agreed more discussions would be needed to find a way forward.

Cameron promised before the British national election earlier this month he would renegotiate Britain’s role in Europe, and hold a referendum on the country’s continuing membership of the bloc by the end of 2017. He launched his reform drive at a summit of EU and ex-Soviet states in Latvia last week, saying he was confident of winning concessions although it would not be easy. Cameron has said changes to rules on welfare benefits were an absolute requirement in any renegotiation. He wants to force EU migrants to wait four years before accessing a range of welfare benefits in Britain, and to win the power to deport out of work EU jobseekers after six months.

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“..bringing criminal charges against individuals and even sending some of them to jail would not disrupt the economy.”

Banks as Felons, or Criminality Lite (NY Times)

As of this week, Citicorp, JPMorgan Chase, Barclays and Royal Bank of Scotland are felons, having pleaded guilty on Wednesday to criminal charges of conspiring to rig the value of the world’s currencies. According to the Justice Department, the lengthy and lucrative conspiracy enabled the banks to pad their profits without regard to fairness, the law or the public good. Besides the criminal label, however, nothing much has changed for the banks. And that means nothing much has changed for the public. There is no meaningful accountability in the plea deals and, by extension, no meaningful deterrence from future wrongdoing.

In a memo to employees this week, the chief executive of Citi, Michael Corbat, called the criminal behavior “an embarrassment” — not the word most people would use to describe a felony but an apt one in light of the fact that the plea deals are essentially a spanking, nothing more. As a rule, a felony plea carries more painful consequences. For example, a publicly traded company that is guilty of a crime is supposed to lose privileges granted by the Securities and Exchange Commission to quickly raise and trade money in the capital markets. But in this instance, the plea deals were not completed until the S.E.C. gave official assurance that the banks could keep operating the same as always, despite their criminal misconduct. (One S.E.C. commissioner, Kara Stein, issued a scathing dissent from the agency’s decision to excuse the banks.)

Also, a guilty plea is usually a prelude to further action, not the “resolution” of a case, as the Justice Department has called the plea deals with the banks. To properly determine accountability for criminal conspiracy in the currency cases, prosecutors should now investigate low-level employees in the crime — traders, say — and then use information gleaned from them to push the investigation up as far as the evidence leads. No one has thus far been named or charged. Nor has there been any explanation of how such lengthy and lucrative criminal conduct could have gone unsuspected and undetected by supervisors, managers and executives. The plea deals leave open the possibility of further investigation, but the prosecutors’ light touch with the banks makes it doubtful they will follow through.

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By their own main scientist.

China Warned Over ‘Insane’ Plans For New Nuclear Power Plants (Guardian)

China’s plans for a rapid expansion of nuclear power plants are “insane” because the country is not investing enough in safety controls, a leading Chinese scientist has warned. Proposals to build plants inland, as China ends a moratorium on new generators imposed after the Fukushima disaster in March 2011, are particularly risky, the physicist He Zuoxiu said, because if there was an accident it could contaminate rivers that hundreds of millions of people rely on for water and taint groundwater supplies to vast swathes of important farmlands.

China halted the approval of new reactors in 2011 in order to review its safety standards, but gave the go-ahead in March for two new units, part of an attempt to surpass Japan’s nuclear generating capacity by 2020 and become the world’s biggest user of nuclear power a decade later. Barack Obama, the US president, recently announced plans to renew a nuclear cooperation deal with Beijing that would allow it to buy more US-designed reactors, and potentially pursue the technology to reprocess plutonium from spent fuel. The government is keen to expand nuclear generation as part of a wider effort to reduce air pollution and greenhouse gas emissions, and cut dependence on imported oil and gas.

He, who worked on China’s nuclear weapons programme, said the planned rollout is going far too fast to ensure it has the safety and monitoring expertise needed to avert an accident. “There are currently two voices on nuclear energy in China. One prioritises safety while the other prioritises development,” He told the Guardian in an interview at the Chinese Academy of Sciences, where he is still working aged 88. He spoke of risks including “corruption, poor management abilities and decision-making capabilities”. He said: “They want to build 58 (gigawatts of nuclear generating capacity) by 2020 and eventually 120 to 200. This is insane.”

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“These are the only choices for the masses: whether to be a “doomer” or a “wisher.”

Yesterday’s Tomorrowland (Jim Kunstler)

America takes pause on a big holiday weekend requiring little in the way of real devotions beyond the barbeque deck with two profoundly stupid movie entertainments that epitomize our estrangement from the troubles of the present day. First there’s Mad Max: Fury Road, which depicts the collapse of civilization as a monster car rally. They managed to get it exactly wrong. The present is the monster car show. Houston. Los Angeles. New Jersey, Beijing, Mumbai, etc. In the future, there will be no cars, gasoline-powered, electric, driverless, or otherwise. Mad Max: Fury Road is actually a perverse exercise in nostalgia, as if we’re going to miss being a nation of savages in the driver’s seat, acting out an endless and pointless competition for our little place on the highway.

The other holiday blockbuster is Disney’s Tomorrowland, another exercise in nostalgia for the present, where the idealized human life is a matrix of phone apps, robots, and holograms. Of course, anybody who had been to Disneyland back in the day remembers the old Tomorrowland installation, which eventually had to be dismantled because its vision of the future had become such a joke — starting with the idea that the human project’s most pressing task was space travel. Now, at this late date, the monster Disney corporation — a truly evil empire — sees that more money can be winkled out of the sore-beset public by persuading them that techno-utopia is at hand, if only we click our heels hard enough.

Another theme running through both films is the idea that girls can be what boys used to be, that it’s “their turn” to be masters-of-the-universe, that men are past their sell-by date and only exist to defile and humiliate females. That this message is really only a mendacious effort to rake in more money by enlarging the teen “audience share” for the reigning wishful fantasy du jour is surely lost on the culture commentators, who are so busy these days celebrating the triumph and wonder of transgender life. The reviewers are weighing these two movies on the popular pessimism / optimism scale. These are the only choices for the masses: whether to be a “doomer” or a “wisher.” Both positions are cartoon world-views that don’t provide much guidance for continuing the project of civilization, in case anyone is actually interested in that.

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“We got the dietary guidelines wrong. They’ve been wrong for decades.”

Flawed Science Triggers U-Turn On Cholesterol Fears (Daily Mail)

For decades they have been blacklisted as foods to avoid, the cause of deadly thickening of the arteries, heart disease and strokes. But the science which warned us off eating eggs – along with other high-cholesterol foods such as butter, shellfish, bacon and liver – could have been flawed, a key report in the US has found. Foods high in cholesterol have been branded a danger to human health since the 1970s – a warning that has long divided the medical establishment. A growing number of experts have been arguing there is no link between high cholesterol in food and dangerous levels of the fatty substance in the blood. Now, in a move signalling a dramatic change of stance on the issue, the US government is to accept advice to drop cholesterol from its list of ‘nutrients of concern’.

The US Department of Agriculture panel, which has been given the task of overhauling the guidelines every five years, has indicated it will bow to new research undermining the role dietary cholesterol plays in people’s heart health. Its Dietary Guidelines Advisory Committee plans to no longer warn people to avoid eggs, shellfish and other cholesterol-laden foods. The U-turn, based on a report by the committee, will undo almost 40 years of public health warnings about eating food laden with cholesterol. US cardiologist Dr Steven Nissen, of the Cleveland Clinic, said: ‘It’s the right decision. We got the dietary guidelines wrong. They’ve been wrong for decades.’ Doctors are now shifting away from warnings about cholesterol and saturated fat and focusing concern on sugar as the biggest dietary threat.

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Regard: your future.

EU Dropped Pesticide Laws Due To US Pressure Over TTIP (Guardian)

EU moves to regulate hormone-damaging chemicals linked to cancer and male infertility were shelved following pressure from US trade officials over the Transatlantic Trade and Investment Partnership (TTIP) free trade deal, newly released documents show. Draft EU criteria could have banned 31 pesticides containing endocrine disrupting chemicals (EDCs). But these were dumped amid fears of a trade backlash stoked by an aggressive US lobby push, access to information documents obtained by Pesticides Action Network (PAN) Europe show. On 26 June 2013, a high-level delegation from the American Chambers of Commerce (AmCham) visited EU trade officials to insist that the bloc drop its planned criteria for identifying EDCs in favour of a new impact study.

Minutes of the meeting show commission officials pleading that “although they want the TTIP to be successful, they would not like to be seen as lowering the EU standards”. The TTIP is a trade deal being agreed by the EU and US to remove barriers to commerce and promote free trade. Responding to the EU officials, AmCham representatives “complained about the uselessness of creating categories and thus, lists” of prohibited substances, the minutes show. The US trade representatives insisted that a risk-based approach be taken to regulation, and “emphasised the need for an impact assessment” instead.

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