Nov 212015
 
 November 21, 2015  Posted by at 10:44 am Finance Tagged with: , , , , , , , , , ,  


Frances Benjamin Johnston Courtyard, 620-621 Gov. Nicholls Street, New Orleans 1937

Total US Household Debt Hits $12.1 Trillion As Subprime Auto Lending Jumps (WSJ)
US Oil Producer Bankruptcies Are Piling Up (WSJ)
Low Crude Prices Catch Up With the US Oil Patch (WSJ)
Speculators Test Saudi Currency As Oil Crisis Deepens (AEP)
Petrobras’s Dangerous Debt Math: $24 Billion Owed in 24 Months (Bloomberg)
Bank of Japan To Switch To Indicators That Show Rising Prices (Reuters)
Mario Draghi All But Announced an Expansion of ECB QE (Fortune)
The Power And The Impotence Of The ECB (Steve Keen)
Financially Engineered Stocks Drag Down S&P 500 (WolfStreet)
Volkswagen’s Emissions Scandal Is Getting Even Bigger, Again (AP)
EU Journalists Take European Parliament To Court Over Expense Accounts (EUO)
Australia Is A ‘Plaything’ Of World Economic Forces It Can’t Control (Guardian)
‘Terrible’ Public Finance Figures Heap Pressure On UK Chancellor (Ind.)
Is It Time To Close The Door To Foreign Buyers Of British Property? (Guardian)
A Nation Of Immigrants Wants To Close Its Doors (MarketWatch)
How Refugees Are Selected, Vetted, And Settled In The United States (Quartz)
EU-Turkey Refugee Talks Turn Sour As Erdogan Belittles Juncker
Merkel Slowly Changes Tune on Refugee Issue (Spiegel)
Over 900,000 Migrants Arrived In Germany This Year (Reuters)

Predators still rule. And that makes the economy look better for the moment.

Total US Household Debt Hits $12.1 Trillion As Subprime Auto Lending Jumps (WSJ)

Subprime auto lending is shifting into higher gear, raising some concerns in Washington where top financial regulators have sounded alarms about this category of loans. Over the six months through September, more than $110 billion of auto loans have been originated to borrowers with credit scores below 660, the bottom cutoff for having a credit score generally considered “good,” according to a report Thursday from the New York Fed. Of that sum, about $70 billion went to borrowers with credit scores below 620, scored that are considered “bad.” This rise in subprime auto lending comes against a backdrop of gradually improving credit across the economy. Overall household borrowing has climbed to $12.1 trillion, the highest level in more than 5 years, with rising balances for mortgages, auto loans, student loans and credit cards in the third quarter, according to the report.

But when it comes to auto loans, in particular, a rising volume of loans is going to borrowers with poor credit. The sum in that category has nearly reached the same level as in 2006, raising questions about the health of the nation’s auto-lending portfolio and drawing uncomfortable comparisons to the rise in subprime mortgages that helped fuel the housing collapse, financial crisis and recession. The comptroller of the currency, Thomas Curry, said in a speech last month that some of the activity in auto loans “reminds me of what happened in mortgage-backed securities in the run-up to the crisis.” And Richard Cordray, director of the Consumer Financial Protection Bureau, warned in September 2014 that subprime auto-loan borrowers “may be more vulnerable to predatory practices” and that “direct oversight of their lending practices is essential.”

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2016 will be a disaster year for US oil. And the lenders that allowed the restructuring delay.

US Oil Producer Bankruptcies Are Piling Up (WSJ)

It’s been a long year for oil and gas companies. After trading at an average price of $92.91 a barrel in 2014, the U.S. oil benchmark has averaged around $50 a barrel this year. It dipped below $40 a barrel briefly this morning. 36 North American oil and gas producers filed Chapter 11 bankruptcies this year through Nov. 8, according to law firm Haynes and Boone. The cases so far involve $13 billion in secured and unsecured debt, and “industry and economic indicators suggest more producer bankruptcy filings will occur before the year is out,” the law firm says. Sixteen of this year’s bankruptcies were filed in Texas, with another six in Canada, four each in Delaware and Colorado and the rest in Louisiana, Alaska, Massachusetts and New York. The biggest, with $4.3 billion of secured and unsecured debt, was KKR’s Samson Resources in September.

Earlier this week, a judge ruled that Samson’s resigning chief executive won’t be paid his bonus outright. Even so, some investors argue that not enough U.S. oil producers have gone under to help shrink the glut of crude that is weighing on oil prices. Oil producers have gotten more efficient, keeping production higher than some expected. U.S. production has fallen from 9.6 to about 9.2 million barrels a day, but recent weekly estimates from the Energy Information Administration show that the pace of declines has slowed. “There’s been more efficiency in the space than we all expected, and that’s helped current owners hold on a little longer,” said Rob Haworth at U.S. Bank Wealth Management. “We’re not seeing as much turnover in the oil patch as we’d expect, in terms of weak hands to strong hands. But things like that will need to happen at some point.”

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“Forty-dollar to fifty-dollar oil prices don’t work in this business..”

Low Crude Prices Catch Up With the US Oil Patch (WSJ)

The ingenuity and easy money that allowed American oil companies to keep pumping through a year-long price crash appear to be petering out as U.S. crude slides toward $40 a barrel. U.S. companies have stunned global rivals by continuing to produce oil—particularly from shale deposits—ever more cheaply as American crude prices plunged from over $100 a barrel in 2014. But the recent drop toward $40 a barrel and below puts even the most efficient operators in a bind. “Forty-dollar to fifty-dollar oil prices don’t work in this business,” Ryan Lance, chief executive of ConocoPhillips, the largest independent U.S. oil producer, said in an interview. The worst-case scenario most major producers have discussed in the past six weeks with investors involved a price of $50 a barrel. That is beginning to look optimistic as Saudi Arabia continues to produce near-record volumes and major exporters such as Iraq have increased output.

Many oil executives, including BP CEO Bob Dudley, expect prices to be “lower for longer.” The U.S. Energy Department is forecasting the price of oil will average around $50 a barrel next year. More than 250,000 people world-wide have lost their jobs in the industry over the past year, according to Graves & Co., a Houston consulting firm. Many companies that were hoping to weather low energy prices without new rounds of layoffs and salary cuts may be forced to slash those costs yet again, said Eric Lee, an energy analyst with Citigroup. “Who’s going to take the brunt of this? Shale has already cut back a lot,” Mr. Lee said, adding that new oil projects are being deferred around the world. In a way, he added, oil companies are responsible for the current situation. During brief price rallies, they raced back into fields to drill new wells—adding to the global glut of crude and cutting off the price rebounds.

Even as the number of rigs operating in the U.S. fell 60% so far this year, American oil production through August dipped just 3% from its April peak, federal data show. What happened was a combination of declining costs for oil-field services and equipment and impressive feats of engineering. Companies doubled the amount of sand they pumped into wells, figuring out how to better prop open rock layers to draw out more oil and natural gas. Operators moved rigs into areas where crude flowed the most freely, cut the number of days it took to drill by nearly half and extended the length of horizontal oil wells to reach nearly 2 miles. Costs for such big wells fell by as much as a third as oil explorers put extreme pressure on the suppliers that help them coax more fuel from the ground, including Halliburton. And producers became far more efficient. In the seven most prolific U.S. shale fields, they boosted oil production per rig by as much as 60% this year.

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“The Saudi strategy of flooding the world with oil in a bid to drive out rivals..” is a made-up idea. The Saudi’s simply looked at their forward contracts and thought: “Holy Sh*t!”

Speculators Test Saudi Currency As Oil Crisis Deepens (AEP)

Saudi Arabia’s currency regime is at risk of blowing up if oil prices fall further and the US dollar spikes higher, Bank of America has warned. The Saudi strategy of flooding the world with oil in a bid to drive out rivals may be hard to square with the country’s fixed dollar-peg, which is increasingly under scrutiny by currency traders as the US Federal Reserve prepares to raise interest rates. “The crucial point is what happens to the Saudi riyal. Saudi Arabia’s foreign exchange reserves still provide an ample buffer, but they have been falling fast,” said Francisco Blanch, the bank’s energy strategist. “Should Brent crude oil prices drop to $30, we estimate the foreign exchange reserve drain could accelerate to $18bn per month. Saudi Arabia may face a critical choice: cut oil supply, or de-peg,” he said.

The 12-month riyal forward contracts – watched by experts for signs that traders are betting on a collapse of the peg – has spiked violently to 535 from just 13 points in June. This is even higher than the peak after the 9/11 terrorist attacks in New York, and is approaching extremes seen in January 1999. Credit default swaps pricing bankruptcy risk has jumped to 153, the highest since the global financial crisis. Mr Blanch said a devaluation by China would leave the Saudis badly exposed and might ultimately force their hand. “A de-peg of the Saudi riyal is our number one ‘black-swan’ event for oil in 2016,” he said. The 30-year old dollar peg is the weak link in Saudi strategy. It matters more than dissent within OPEC as the cartel prepares for a stormy meeting in Vienna on December 4. To varying degrees, Algeria, Venezuela, Nigeria, Iraq, and Iran all want production cuts to stabilize the market.

Russia has been able to cushion the effects of the oil price crash by letting the rouble fall from 32 to 65 against the dollar since mid-2014. This protects oil revenues of the Russian state in local-currency terms. Saudi Arabia is taking the blow head-on, and is facing an extra tourniquet effect as Fed tightening pushes the global dollar index to a 12-year high. The central bank’s holdings of foreign securities fell $23bn in October. They are down $90bn since February. Foreign reserves are still $647bn but not all is usable. The Saudi government has had to cancel a raft of infrastructure projects and push through drastic spending cuts to rein in a budget deficit near 20pc of GDP. It denies reports that contractors are not being paid. Bank of America warned that a break-down of the Saudi dollar-peg would send the riyal tumbling, with major knock-on effects. “Oil could collapse to $25,” it said in a client note.

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2016: Annus Horribilis for Brazil.

Petrobras’s Dangerous Debt Math: $24 Billion Owed in 24 Months (Bloomberg)

The debt clock is ticking down at Brazil’s troubled oil giant, Petrobras. Next up: $24 billion of repayments over 24 months. That’s a towering hurdle for a company that hasn’t generated free cash flow for eight years and whose borrowing rates are soaring. Annual debt servicing costs have doubled to 20.3 billion reais ($5.4 billion) in the past three years. The delicate task of managing the massive $128 billion mound of debt accumulated by Petroleo Brasileiro – 84% of it in foreign currencies – falls to the two banking veterans parachuted atop the company earlier this year, CEO Aldemir Bendine, 51, and Chief Financial Officer Ivan Monteiro, 55. The pair came from the state-controlled Banco de Brasil to contain the damage from the biggest corruption scandal in the country’s history.

While prosecutors continue to grind away at years of suspicious dealings, Act II for the boys from the Bank of Brazil will further test their mettle. The challenge of Petrobras’s runaway debt, which has grown four-fold in five years, has been exacerbated by low oil prices, a weak currency and the Brazilian government’s own fiscal travails. “If you considered them to be totally independent and there were no chance of any kind of government support, I think the risk of default would certainly be there in a big way,” said Jason Trujillo at Invesco. Petrobras is not without options, but they tend to be either politically unpalatable or unattractive to the marketplace.

Bendine is actively trying to peddle off minority stakes in the Rio de Janeiro-based oil producer’s pipeline and gas station units, among others, but that plan is behind schedule and faces fierce opposition from the oil industry’s most powerful union. Other alternatives are also running up against resistance from one interest group or another. The only source of comfort for many bondholders is the belief the Brazilian government would stop at nothing to save the country’s biggest company – though, even at that, Trujillo said markets are “lessening the amount of implied government support.”

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Inventing new accounting methods, that’ll help!

Bank of Japan To Switch To Indicators That Show Rising Prices (Reuters)

The Bank of Japan will release a new set of price indicators this month that reconfigures the way price trends are measured as the central bank seeks to show the country’s below-target inflation rate is due to volatile items such as energy. Importantly, a new consumer price index (CPI) will exclude energy costs, which have been falling, but include the costs of items such as processed and imported foods, which have been rising. The BOJ currently uses the government’s core CPI, which excludes fresh food but includes energy costs, as its key price measurement in guiding monetary policy. With core CPI now slipping due largely to slumping oil prices, the central bank began internally calculating a new index that conveniently shows inflation exceeding 1% in the past few months.

That index strips away volatile fresh food and energy costs, but includes processed and imported food prices, which are rising. The BOJ said on Friday it will start publishing this month the new CPI, as well as other indicators such as one showing the ratio of goods seeing prices rise versus those that are falling, on a regular basis each month. “The performance of the government’s core CPI (in tracking broad price trends) seems to be deteriorating, although this is probably because of the temporary effect of large swings in crude oil prices,” the BOJ said in a research paper. The BOJ’s new indicators will be released on the day the government’s CPI figures are published. The upcoming release of the CPI and BOJ indicators is on Nov. 27. Government data showed core consumer prices fell 0.1% in the year to September, a second straight month of declines, keeping inflation distant from the BOJ’s 2% target.

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Beggar all of thy global neighbors.

Mario Draghi All But Announced an Expansion of ECB QE (Fortune)

The world’s two most important central banks are going separate ways. As the Federal Reserve drops increasingly heavy hints about raising interest rates for the first time in nearly a decade, ECB President Mario Draghi all but pre-announced a new round of stimulus for a Eurozone economy that is still flirting with deflation. In a closely-watched keynote speech at a banking conference in Frankfurt, Draghi dropped his clearest hint yet that the ECB will expand its program of asset purchases, which depresses interest rates by injecting money into the financial system, and may also push its official deposit rate even further into negative territory, from its current record low of -0.20%.

The latter move would be particularly radical, and has been bitterly resisted by banks who claim it effectively forces them to make losses. But the ECB’s chief economist Peter Praet said in an interview earlier this week that the evidence suggested it hadn’t had a negative impact so far. The ECB’s governing council is due to meet next on Dec. 3, two weeks before the Federal Open Market Committee Meeting where the Fed is expected to raise its official interest rates. Draghi said: “If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible. If we decide that the current trajectory of our policy is not sufficient to achieve our objective, we will do what we must to raise inflation as quickly as possible.”

Speculation on further easing has been growing since Draghi’s last press conference in October, when he expressed concern about fresh risks to the economy from the slowdown in China and other emerging markets, and about the stubborn refusal of inflation to come back to its targeted level of just under 2%. Thanks to low oil prices, consumer prices in the Eurozone have barely changed all year, and were up only 0.1% in the year to October. Gross domestic product, meanwhile, grew only 0.3% in the third quarter, down from 0.4% in the summer. The euro has already lost nearly 6% against the dollar since Draghi’s October press conference, and is already trading close to the 12-year low it posted back in March.

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“The King spoke, the subjects listened, and The King left. There was nothing his subjects could do about it but cope with its consequences.”

The Power And The Impotence Of The ECB (Steve Keen)

I’ve attended two conferences in two days where both the power and the impotence of the European Central Bank (EBC) have been on vivid display. Its political power is considerable, both in form and in substance. At both seminars, the ECB speaker—ECB Board member Peter Praet at the first, and ECB President Mario Draghi at the second—spoke first, and then left. In form, the ECB has no need to defend its policies because it is unimpeachable in its execution of them. In substance, it does not even considering engaging with its subjects—I use the word deliberately—in open and robust discussion. It’s not unusual for a political leader to turn up at an event, speak and then immediately leave. But even political leaders have to tolerate sometimes being savaged by fearless CNBC moderators when they speak in public.

And I expected that economic leaders would want to hang around and get some feedback—positive or otherwise—from the economic elite that gathered to hear them. Might they not learn something about why their policies weren’t working as they had expected them to? Not a bit of that for the ECB. There was plenty that could be criticised, even within the context their speeches set. Speaking at the FAROS Institutional Investors Forum, Praet acknowledged, numerous times, that the ECB had failed to hit many of its policy targets—in particular, he noted how many times the ECB had to put off into the more distant future its objective to return to 2% inflation. But there was no chance to challenge him as to why they had failed, because after a couple of perfunctory exchanges with the moderator, he was out the door.

At the more prestigious Frankfurt European Banking Congress Draghi stated bluntly that the ECB would continue to do all it takes to support asset markets via QE—in the belief that this supported the real economy. This was a declaration of the intention to use unlimited power—since there is no effective limit to the ECB’s capacity to buy assets from the private sector. A politician would have to respond to sceptics about the use of such unlimited powers. But there was not even a single question, nor even a murmur, from the audience. There was however a jolt of recognition. Draghi was going to continue supporting asset markets, and that was that. The King spoke, the subjects listened, and The King left. There was nothing his subjects could do about it but cope with its consequences.

German Finance Minister Wolfgang Schäuble, who book-ended the EBC conference, had no such luxury of freedom from interlocution—nor did he need it. He engaged in a lively banter with his interviewer as he defended the far more limited power he has over expenditure in Germany. I doubt that Schäuble will suffer electoral defeat any time soon, but unlike Draghi he faces the prospect that it could happen. That doesn’t make him any less resolute in defending his policies; it just means that he has to defend them. This is what the originally principled concept of “Central Bank Independence” has transmuted into.

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One buybacks start failing to support stocks, there’s a big black hole looming beneath.

Financially Engineered Stocks Drag Down S&P 500 (WolfStreet)

Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They’re counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring. And there’s a reason. IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It’s staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They’re all doing it. “Activist investors” – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

In March, General Motors acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn’t distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier. DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz’s Trian Fund Management, which was seeking four board seats to get its way.

In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

And in July, Qualcomm announced 5,000 layoffs. It’s hard to innovate when you’re trying to please a hedge fund. CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure. “None of it is optional; if you ignore them, you go away,” Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. “It’s all just resource allocation,” he said. “The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can.”

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VW keeps flipping regulators the bird. “VW never told regulators about the software, in violation of U.S. law.”

Volkswagen’s Emissions Scandal Is Getting Even Bigger, Again (AP)

Volkswagen’s emissions cheating scandal widened Friday after the U.S. Environmental Protection Agency said the German automaker used software to cheat on pollution tests on more six-cylinder diesel vehicles than originally thought. Volkswagen told the EPA and the California Air Resources Board the software is on about 85,000 Volkswagen, Audi and Porsche vehicles with 3-liter engines going back to the 2009 model year. Earlier this month the regulators accused VW of installing the so-called “defeat device” software on about 10,000 cars from the 2014 through 2016 model years, in violation of the Clean Air Act. The regulators said in a statement they will investigate and take appropriate action on the software, which they claim allowed the six-cylinder diesels to emit fewer pollutants during tests than in real-world driving.

The latest allegation means that more Volkswagen, Audi and Porsche owners could face recalls of their cars to fix the software, and VW could face steeper fines and more intense scrutiny from U.S. regulators and lawmakers. Audi spokesman Brad Stertz on Friday conceded that VW never told regulators about the software, in violation of U.S. law. He said the company agreed with the agencies to reprogram it “so that the regulators see it, understand it and approve it and feel comfortable with the way it’s performing.” The software is on Audi Q7 and Volkswagen Touareg SUVs from the 2009 through 2016 model years, as well as the Porsche Cayenne from 2013 to 2016. Also covered are Audi A6, A7, A8, and Q5s from the 2014 to 2016 model years, according to the EPA.

Stertz said the software is legal in Europe and it’s not the same as a device that enabled four-cylinder VW diesel engines to deliberately cheat on emissions tests. VW has told dealers not to sell any of the models until the software is fixed. VW made the disclosure on a day it was meeting with the agencies about how it plans to fix 482,000 four-cylinder diesel cars equipped with emissions-cheating software. U.S. regulators continue to tell owners of all the affected cars they are safe to drive, even as they emit nitrogen oxide, a contributor to smog and respiratory problems, in amounts that exceed EPA standards — up to nine times above accepted levels in the six-cylinder engines and up to 40 times in the four-cylinders.

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Letting politicians self-regulate their own spending?! Great idea!

EU Journalists Take European Parliament To Court Over Expense Accounts (EUO)

A group of 29 European journalists have filed complaints with the EU’s Court of Justice, demanding access to documents that will show how members of the European Parliament (MEPs) have been spending their allowances. The reporters filed freedom of information (FOI) requests with the European Parliament, asking for copies of documents that show details for the MEPs’ travel expenses, accommodation expenses, office expenses, and assistants expenses for the past four years. “We are not demanding access to records about how MEPs spend their salaries, which are intended for their personal and private use,” the group said in a statement. “We are demanding access to records that show details of how they spend all the extra payments they receive on top of their salaries, and only those extras which are paid to them solely for the exercise of their professional public mandates as elected representatives of European citizens,” they added.

In September, the parliament denied access to these documents, either because they contain personal data or, they argue, because no such records are held. A week ago, the reporters filed complaints with the Luxembourg-based Court of Justice of the European Union, with assistance from Natassa Pirc Musar, Slovenia’s former Information Commissioner. EP press spokesperson Marjory van den Broeke said the parliament has not yet received a formal notification from the court. “So formally, officially we cannot react to this, as we haven’t received it,” she told this website at a press conference Friday (20 November). However, she pointed out that when the EP does receive a FOI request, a balance must be struck between the EU’s rules on access to documents and its rules on personal data protection.

“Both these different aspects are taken into account when there is a proper investigation into the need to transfer personal data [to the FOI applicant],” said Van den Broeke, adding as an example of personal data that “some of these data could reveal political activities, which are the prerogative of an MEP to have, and which are their personal political convictions”. No clarification on the difference between personal political activities and public political activities was offered. According to the EP, around 27% of its almost €1.8 billion budget in 2014 was spent on MEP salaries and expenses, which include travel, office costs and assistants’ salaries. The journalists already know that there will be little information they can expect on the office costs, which are covered by the so-called general expenditure allowance (GEA), because little is recorded.

While MEPs are required to hand in receipts for their travel, accommodation and assistants expenses, they receive the GEA, which covers costs such as rent, phone bills, software, and furniture, as a monthly lump sum of €4,299 per MEP office. “The European Parliament spends €3.2 million each month solely on MEPs’ general expenditure allowance (almost €40 million per year). No one is monitoring this spending,” the journalists’ group noted.

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That’s still putting it mildly.

Australia Is A ‘Plaything’ Of World Economic Forces It Can’t Control (Guardian)

Australia is a “plaything” of forces it cannot control as the world economy heads into another phase of the global financial crisis, according to the former Greek finance minister Yanis Varoufakis. The “remarkable” flow of overseas money into the economy in recent years had created a “false sense of well-being”, he said, but the economy needed to change direction quickly to avert a crisis. Varoufakis, who quit as finance minister after a tumultuous six months in charge of the near-bankrupt Greek economy, taught economics at Sydney University for 12 years up to 2000 before he returned to Europe in dismay at Australia’s turn to the right under John Howard. The economist, who has dual Greek and Australian citizenship and whose daughter lives in Sydney, said Australia had become “complacent” about the health of its economy.

The Sydney and Melbourne housing boom, where price growth has been in double figures, was particularly alarming, said Varoufakis, who is in Australia for a short speaking tour. “Australia – especially Sydney and Melbourne – has always insulated itself from facts about the world. Aided and abetted by the remarkable flow of capital towards the property market in Sydney and Melbourne, it has created a false sense of wellbeing,” he told the Guardian. “People have always said to me that Australia is immune to the crisis because during the good times money has come as an investment. Then if things go wrong the rich Chinese will emigrate here and bring their dosh with them.” But Australia had become a “plaything of forces out of its control”, he said, and risked an economic shock as the credit bubble created by China in the wake of the global financial crisis began to deflate.

“The crisis of 2008 won’t go away. It is a unified, solid crisis, although it is metamorphisising and changing. Between the 80s and 2008 the world economy was fuelled by US debt, then financialisation [the huge increase in credit] which created a pyramid of money which collapsed in 2008. “The world economy lost its capacity to create demand for factories, but China reacted by creating a huge bubble. They were hoping the west would stabilise but it didn’t because America is ungovernable and Europe even more so.” After his bruising experience trying to face down the might of Germany, the ECB, the EU and the IMF, Varoufakis has become an outspoken critic of economic policy. He has described the settlement imposed on Greece in July as doomed to failure and will “go down in history as the greatest disaster of macroeconomic management ever”.

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And they’re thinking of making him PM?

‘Terrible’ Public Finance Figures Heap Pressure On UK Chancellor (Ind.)

The weakest set of October public finance figures for six years has given George Osborne a serious headache ahead of next week’s Autumn Statement. The borrowing figures for last month came in well above expectations, meaning the Chancellor is likely to fall short of his budget deficit reduction target set by the Office for Budget Responsibility only in July. Borrowing shot up to £8.2bn for the month – £1.1bn higher than the same month last year. Most City experts had pencilled in a £1.1bn fall to £6bn. The last time the Government borrowed more in an October was in 2009, when the deficit for the month was £9.6bn and the economy was still mired in recession. The figures are the latest in a run of disappointments in the monthly public finances. In the seven months of the financial year so far, cumulative borrowing is £54.3bn.

Although 10.9% below last year, it means the Chancellor needs a minor miracle to hit the Office for Budget Responsibility’s £69.5bn deficit target for the full year. Analysts said it was likely the OBR would revise up its full-year 2015-16 deficit forecast next month and that the deterioration would make the Chancellor’s job of mitigating his controversial tax credit cuts more difficult. “A critical question will be to what extent the OBR believes that this has implications for the fiscal targets further out,” said Howard Archer of IHS Global Insight. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the deficit could hit £80bn this year, adding that the “terrible borrowing figures provide a grim backdrop to the Autumn Statement”. He said: “Barring revisions, borrowing would have to be an implausible 48% lower year-over-year in the second half of this fiscal year for the official forecast to be met.”

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The horse has long bolted. It’ll take many years to repair that door.

Is It Time To Close The Door To Foreign Buyers Of British Property? (Guardian)

A global super-rich elite, some of them criminal, are snapping up property in Britain, pushing up costs for all of us and throwing the poor to the edge of the cities. Rampant landlordism is dividing Britain into a nation of housing haves and have-nots. Tax breaks for buy-to-lets are still too generous. Tenants are in despair. Many young people will never be able to buy their own home. This, extraordinarily, is not the language of some lefty academic or pressure group, but comes from the heart of the Conservative party in a new report by the Bow Group, the oldest Tory thinktank in the UK, which styles itself as the “intellectual home to conservatives”. It is a dramatic repudiation of decades of thinking in the Conservative party.

These are the people who have, until now, equated rising house prices with wealth and prosperity, and who have profited enormously from buy-to-let and billions in foreign cash. But the Bow Group now recognises that Britain’s housing market is broken – and its prescription for reform may stagger traditional Tory supporters. It turns conventional thinking on its head by saying the solution to Britain’s housing crisis is not millions of new homes, as so many argue, but cutting demand. The report’s author, Daniel Valentine, traces the phenomenal increase in house price inflation to the mid-1990s when three factors came together: a sudden surge in population growth, the explosion in buy-to-let lending, and the entry of China and Russia into the global economy, producing a global elite seeking a safe home for their cash.

These factors have corrupted the market, creating an insatiable “investment demand” divorced from the underlying needs of the people of Britain. Foreign buyers now own close to 10% of the UK’s housing stock, he claims, and, unchecked, will gobble up much more, increasingly in Manchester, Edinburgh and other regional cities. With the global financial elite numbering at least 15 million, “increasing housing supply can never bring down prices, no matter how much public land and green belt is turned into flats, because the demand for investment returns is almost infinite.” The accepted wisdom is that Chinese billionaires buying in Belgravia have no impact on Bromley or Birmingham. Not so, says the report, citing academic studies that prove that top-end buyers pull up prices through the entire market.

The Bow Group’s solution? To follow the example of Denmark, Switzerland and Australia and make it much tougher for foreign buyers to snap up homes as investment vehicles. It is astonishing that we allow, for example, millionaires in Singapore to buy land and property in Britain, but Singapore bars British and other foreign nationals from buying in their country. Denmark prohibits non-EU nationals from buying a home unless they have lived in the country for five years – and, like Finland and Malta, is allowed by the EU to restrict EU citizens from buying second homes in the country.

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“Yes, it’s happened before. (See European Jews and World War II.) It was not our finest hour.”

A Nation Of Immigrants Wants To Close Its Doors (MarketWatch)

Close the borders! Deny refugees from war-torn Syria asylum in the U.S.! Pass a bill to provide a safe haven to Syrian Christians, not Syrian Muslims! Such knee-jerk reactions to the multipronged terrorist attacks in Paris last Friday only exacerbated the growing anti-immigrant sentiment in the U.S. Republican presidential candidate Donald Trump may be the loudest proponent of build-a-wall and ship-’em-back, but evidence of the expanding reach of Islamic State has won him many converts. So far 28 governors have said they will refuse to accept Syrian refugees in their states. (It’s not clear they have the legal authority to deny refugees entry to a particular state once they have been admitted to the U.S.) Another 20 are lobbying for increased screening. Congressional leaders have called for a suspension of President Barack Obama’s announced program to settle 10,000 Syrian refugees in fiscal 2016.

The 2,150 Syrian refugees that have been admitted to the U.S. so far have undergone extensive background checks, including biometric screening, a process that can take years, according to the Obama administration. To deny these victims of ISIS terror entry to the U.S. is, quite frankly, un-American. Yes, it’s happened before. (See European Jews and World War II.) It was not our finest hour. U.S. authorities do need to practice smarter security and improve screening procedures in light of the heightened risk. Have you ever wondered how many terrorists the Transportation Security Agency has nabbed asking travelers, “Did you pack your own bags?” As a nation of immigrants, the U.S. reaps considerable benefits from foreigners who come here to live and work.

Consider some statistics from the Kauffman Foundation, which focuses on entrepreneurship:
• More than 40% of the 2010 Fortune 500 companies were founded by immigrants or their children;
• Between 2006 and 2012, one quarter of all technology and engineering startups had at least one immigrant founder.
• Immigrants are twice as likely as native-born Americans to become entrepreneurs;
• Immigrant entrepreneurs accounted for 28.5% of all new entrepreneurs in the U.S. last year, up from 13.3% in 1997.

Small companies, especially startups, are responsible for most, if not all, of the job growth in the U.S. To the extent that immigrants are drawn to entrepreneurship, they are a big plus. You may have heard it said that immigrants steal jobs from American citizens. (You can substitute “machines” or “automation” for immigrants.) This is one of those silly ideas that persists despite evidence to the contrary. So prevalent is the notion that immigrants and innovation steal jobs that economists have a name for it: the lump of labor fallacy. It’s based on the false idea that there is a fixed amount of work in an economy, to be divided up among the pool of workers. This discredited notion inspired France to implement a 35-hour workweek in 2000, widely considered to be a failure. While the official 35-hour workweek still exists — most businesses apply for an exemption — it has failed to reduce unemployment in France.

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Very thoroughly. The rest is all just fearmongering.

How Refugees Are Selected, Vetted, And Settled In The United States (Quartz)

Who are the refugees coming to the US? Every year, the President, in consultation with Congress, determines how many refugees should come into the U.S. In FY16, the ceiling is 85,000, up from 70,000 last year. They come from diverse areas. The largest groups of refugees the U.S. received last year came from Iraq, Burma, Somalia and Bhutan. In the past five years, the U.S. has received less than 2,500 Syrian refugees, most of whom were women and children.

How does the vetting process work? The vetting process for each refugee is highly rigorous, and usually takes two to three years to complete. Refugees first have to prove that they are actually refugee by registering and being accepted by the United Nations’s refugee agency overseas. This means they have to have a well-founded fear of persecution based on five specific grounds: nationality, race, religion, political opinion or membership in a particular social group. A small number of those registered—the most vulnerable cases—are referred to the U.S to be considered for resettlement. Only those who cannot return home or locally integrate in the country of asylum are referred for resettlement.

The US State Department’s Resettlement Support Center then collects biographical information and personal data for security clearance. The Department of Homeland Security, the FBI, the Department of Defense and multiple intelligence agencies then work together to carry out multiple security screenings based on biometric and biographic data, photographs, and other background information over a period that lasts on average 18 to 24 months. Any refugee who is deemed to pose a threat to our national security is denied. Syrian refugees also undergo “enhanced reviews” in which specially trained officers examine each case biography for accuracy and authenticity. In addition to these security checks, every single refugee is interviewed face-to-face by a Department of Homeland Security official and must undergo a medical screening.

How are refugees resettled in the US? Once refugees are conditionally approved for resettlement, they go through cultural orientation and pay for their own plane tickets to come to the U.S. World Relief, which is one of nine refugee resettlement agencies in the U.S, partners with local communities to help refugees get on their feet upon their arrival. This includes, partnering with local businesses and churches to assist with living arrangements, providing English classes, aiding in their job search, and much more. Refugees have been welcomed all over the country where they have become integrated, and become tax-paying, contributing members of many communities.

This is not to say that we shouldn’t carefully vet refugees, but let’s get the facts first before making generalizations and shutting down a program that has literally saved thousands of lives. To turn our backs on refugees now would betray our nation’s core values to provide refuge for the persecuted and affirm the very message those who perpetrate terrorism are trying to send.

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Nothing funnier than the truth: “Mr Erdogan at one point referred to Mr Juncker as the former premier of Luxembourg, “a country the size of a Turkish city”.

EU-Turkey Refugee Talks Turn Sour As Erdogan Belittles Juncker

The potential deal between the EU and Turkey to stem the migrant flow to Europe is floundering as Ankara pushes Brussels to deliver on a multibillion-euro aid package and other elements of the bargain. The challenge of completing the deal, hammered out in a month of negotiations, was underlined at a difficult meeting on Monday between EU officials and Turkish president Recep Tayyip Erdogan. According to people familiar with the talks, Mr Erdogan balked as Jean-Claude Juncker and Donald Tusk, the respective presidents of the European Commission and Council, pressed him for a timetable for measures intended to discourage migrants in Turkey from continuing their journey to Europe. These include tighter border controls and awarding work rights to 2m Syrian refugees.

One official familiar with the discussion said the meeting turned “sour” as Mr Erdogan demanded that Europe move first on its pledges. Ankara is seeking €3bn in financial support, regular Turkey-EU summits, and a clear political path to open several chapters in stalled EU membership talks. There was also disagreement as to whether a planned EU assistance package covered one or two years. According to another European official briefed on the meeting, Mr Erdogan at one point referred to Mr Juncker as the former premier of Luxembourg, “a country the size of a Turkish city”. On Thursday, Mr Juncker described the meeting as “sportive and exhausting”. German and other EU officials are convinced Mr Erdogan has the ability to sharply cut the outflow from Turkey and want to see tangible results by the end of the year. But it remains unclear how much Turkey can actually do to make that happen, even if it reaches an agreement with the EU.

Frans Timmermans, the commission’s vice-president, went to Ankara on Thursday to try to rescue the plan with Feridun Sinirlioglu, Turkey’s foreign minister. It was supposed to have been fleshed out and formally signed off at an EU-Turkey summit on November 29. Mr Juncker said the discussions with Mr Timmermans showed the will of “both sides to get closer together”. Thursday’s talks helped to steady the situation but diplomats worry that difficulties with Mr Erdogan may jeopardise the final sign-off. “We don’t want a summit for the sake of a summit,” said one Turkish official. “We have to see they are serious.” One European diplomat said the “tough exchange of views” underlined how difficult it was to negotiate with Turkey — particularly at a time when some member states are desperate for assistance with the crisis and have a weak bargaining position. “They are trying to exploit this situation in a way that some countries find unacceptable,” he said.

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Angela better stop the ugly side of Germany from rising from its ashes.

Merkel Slowly Changes Tune on Refugee Issue (Spiegel)

In early September, German Chancellor Angela Merkel issued an order to bring thousands of refugees who were stranded in Hungary to Germany. Germany’s basic right to asylum has no upper limits, she said. It was a moment of unaccustomed conviction from a chancellor who had become notorious for her ability to avoid making decisions until the last possible moment. But she went even further. She equated the refugee issue with other significant turning points in the history of her party, the center-right Christian Democrats (CDU). Issues such as West Germany’s integration into Western alliances and Kohl’s commitment to keeping nuclear weapons stationed in West Germany in the 1980s. It was as though she were elevating her refugee policy into the pantheon of Christian Democratic basic principles.

And she didn’t even bother to inform the CDU’s Bavarian sister party, the Christian Social Union (CSU), before doing so. Now, though, Merkel is in the process of preparing a reversal of her refugee policy. At the G-20 summit in Antalya, Turkey at the beginning of the week, she spoke of quotas – fixed numbers of refugees that Europe is willing to accept. On the one hand, of course, introduction the idea of quotas is a concession to reality, because the chancellor knows that the ongoing arrival to Germany of up to 10,000 refugees every day is not sustainable. But the change is also a silent capitulation to her critics. Horst Seehofer, the head of the CSU, and Interior Minister Thomas de Maizière are now setting the tone in Germany’s refugee policy, and the Paris terrorist attacks have only given them more leverage.

Seehofer and de Maizière have been calling for an upper limit on immigration for months. “Quota” is simply a different word for the same thing. Merkel is in a tight spot. She made the right decision by accepting the desperate refugees who set out from Budapest for Germany on foot in early September. But in the period that followed, the dimensions of the inflow kept growing and Merkel never conveyed the message that Germany’s capacity is limited. Even the coming winter has not stopped the flow of refugees, and leading conservatives are now more openly questioning the efficacy and wisdom of Merkel’s plan to limit immigration by combating the underlying causes of migration. For many, the notion of Germany serving as an intermediary and arbiter of global crises borders on megalomania.

Even though she is still publicly sticking to her rhetoric, Merkel has been on the retreat for about two weeks. Leading CDU parliamentarians received the first signs of her change of heart in early November, when they met with her at the Chancellery. In the meeting, the chancellor clearly promised that she would support a reduction in refugee numbers, says one of the attendees. “I cannot guarantee that you will already see a change in the coming weeks,” the attendee said, quoting Merkel. But she also said that the current situation could not continue as it was.

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It’ll be well over 1 million by year’s end.

Over 900,000 Migrants Arrived In Germany This Year (Reuters)

More than 900,000 migrants have been registered in Germany since the beginning of the year, the Bavarian Interior Ministry said on Friday. “The number of 900,000 was surpassed in the nationwide registration system last night,” a spokesman for Bavarian Interior Minister Joachim Herrmann said. The federal government had forecast that some 800,000 refugees would arrive in Germany this year, but senior politicians have said there could be as many as 1 million new arrivals.

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Aug 092015
 
 August 9, 2015  Posted by at 11:41 am Finance Tagged with: , , , , , , , , , ,  


Lewis Wickes Hine Drift Mouth, Sand Lick Mine, near Grafton, West Virginia 1908

China Producer Price Index Falls For 40th Straight Month (Reuters)
Peak Insanity: Chinese Brokers Now Selling Margin Loan-Backed Securities (ZH)
China Cancels $17.6 Billion Construction Projects ‘To Protect Environment’ (RT)
China’s Stock Crash Is Spurring a Shakeout in Shadow Banks (Bloomberg)
Stocks Are A ‘Disaster Waiting To Happen’: Stockman (CNBC)
The Widening Vortex Of Global Finance (Sampath)
Greece’s Collapse Was a Reversion to the Mean… Who’s Next? (Phoenix)
Greek Shipping Industry Extends Its Dominance (WSJ)
German Trade Surplus To Rise To New Record In 2015 (Reuters)
Finland Could Stay Out Of New Greek Bailout, Says Foreign Minister (Reuters)
How England’s Social Care System Fails The Most Vulnerable (Observer)
Oz FinMin Orders Sale Of Residential Properties Owned By Foreign Nationals (AAP)
Why Europe And The US Are Locked In A Food Fight Over TTIP (Bonadio)
Be Afraid: Japan Is About To Do Something That’s Never Been Done Before (ZH)
Petrobras Oil Scandal Leaves Brazilians Lamenting a Lost Dream (NY Times)
How Russian Energy Giant Gazprom Lost $300 Billion (Eurasia.net)
The Huge Hidden Costs Of Our Fossil-Fueled Economy (Shiller)
Antibiotic Resistance: Zoology To The Rescue (Economist)

“China’s corporate debt stands at 160% of gross domestic product, twice that of the United States..”

China Producer Price Index Falls For 40th Straight Month (Reuters)

China is under growing pressure to further stimulate its economy after disappointing data over the weekend showed another heavy fall in factory-gate prices and a surprise slump in exports. Producer prices in July hit their lowest point since late 2009, during the aftermath of the global financial crisis, and have been sliding continuously for more than three years. Exports tumbled 8.3% in the same month, their biggest fall in four months, as weaker global demand for Chinese goods and a strong yuan policy hurt manufacturers. “Policy focus is definitely the (producer) deflation at this stage,” said Zhou Hao at Commerzbank. He said China’s central bank would likely need to further cut interest rates again, having already cut four times since November in the most aggressive easing in nearly seven years.

The gloom may only deepen in the coming week with a raft of economic data forecast to show renewed weakness in factories, investment and domestic spending. The world’s second-largest economy is officially targeted to grow at 7% this year, still strong by global standards, but some economists believe it is growing at a much slower pace. Economists expect the central bank to cut rates by another 25 basis points this year, and further reduce the amount of deposits banks must hold as reserves by another 100 basis points, according to a Reuters poll last month. The producer price index fell 5.4% from a year earlier, the National Statistics Bureau said on Sunday, compared with an expected 5.0% drop. It was the worst reading since October 2009 and the 40th straight month of price decline.

Falling producer prices are worrying because they eat into the profits of miners and manufacturers and raise the burden of their debts. China’s corporate debt stands at 160% of gross domestic product, twice that of the United States, according to a Thomson Reuters study of over 1,400 firms. In line with the sluggish economy, annual consumer inflation remained muted at 1.6% despite surging pork prices, in line with forecasts and slightly higher than June’s 1.4%.

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It’s like one of those layered cakes..

Peak Insanity: Chinese Brokers Now Selling Margin Loan-Backed Securities (ZH)

One of the reasons why the Chinese dragon quite often appears to be chasing its own tail is that the country is trying to re-leverage and deleverage at the same time. Take China’s local government debt refi effort for instance. Years of off-balance sheet borrowing left China’s provincial governments to labor under a debt pile that amounts to around 35% of GDP and thanks to the fact that much of the borrowing was done via LGFVs, interest rates average between 7% and 8%, making the debt service payments especially burdensome. In an effort to solve the problem, Beijing decided to allow local governments to issue muni bonds and swap them for the LGFV debt, saving around 400 bps in interest expense in the process.

Of course banks had no incentive to make the swap (especially considering NIM may come under increased pressure as it stands), and so, the PBoC decided to allow the banks to pledge the new muni bonds for central bank cash which could then be re-lent into the real economy. So, China is deleveraging (the local government refi effort) and re-leveraging (banks pledge the newly-issued munis for cash which they then use to make more loans) simultaneously. We can see similar contradictions elsewhere in China’s financial markets. For instance, Beijing has shown a willingness to tolerate defaults – even among state-affiliated companies. This is an effort (if a feeble one so far) to let the invisible hand of the market purge bad debt and flush out failed enterprises.

Meanwhile, Beijing is enacting new policies designed to encourage risky lending. In April for instance, the PBoC indicated it was set to remove a bureaucratic hurdle from the ABS issuance process, which means that suddenly, trillions in loans which had previously sat idle on banks’ books, will now be sliced, packaged, and sold. Specifically, the PBoC said regulatory approval would no longer be required to issue ABS (hilariously, successive RRR cuts have served to reduce banks’ incentive to package loans, but we’ll leave that aside for now). Once again, deleveraging (tolerating defaults) and re-leveraging (making it easier for banks to get balance sheet relief via ABS issuance), all at once.

There’s a parallel between this dynamic and what’s taking place in China’s equity markets. That is, a dramatic unwind in the half dozen or so backdoor margin lending channels (a swift deleveraging) has been met with a government-backed effort to prop up the market via China Securities Finance Corp., which has been transformed into a state-controlled margin lending Frankenstein that could ultimately end up with some CNY5 trillion in dry power (a mammoth attempt at re-leveraging). Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans.

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“Even with last year’s 4.5% drop in housing prices, more than 60 million apartments in China remain empty. ”

China Cancels $17.6 Billion Construction Projects ‘To Protect Environment’ (RT)

China has rejected 17 construction projects with a total investment of $17.6 billion, attempting to bolster environmental protection strategies and fight corruption. The projects were among 92 examined by the Ministry of Environmental Protection (MEP), involving a total of more than 700 billion yuan ($112.6 billion) in investment, the Xinhua news agency reported on Friday. The projects’ rejection was said to improve the environmental impact assessment system and fix loopholes that allow corruption. The protection ministry has ordered all the environmental impact assessment agencies cut their links to government at all levels by the end of 2016. It has also launched random inspections of agencies and disqualified dozens of agencies and engineers, according to Xinhua.

MEP has speeded up approval of major projects such as railways and irrigation. Construction of major projects in China has been the main tool for boosting investment and sustaining growth since the beginning of 2015. Investment in the railways rose 22.6% year on year by the end of April. Beijing said in the next two years it would boost investment to foster technological progress in six manufacturing industries, including railway equipment, new-energy vehicles and medical equipment. The country is trying to upgrade its manufacturing sector and stimulate sluggish economic growth. China’s real economy cooling and a 30% stock market slump since the middle of June make it a tough task for Beijing to reach the aimed seven-percent growth in 2015.

Another key factor behind the project’s cancelation may be the real estate market, which has to stay healthy for the country’s targeted growth level. The Chinese government has engineered a property boom during the financial crisis to compensate for the weakness in overseas demand. Later it implemented tightening measures to cool the heated property market. Even with last year’s 4.5% drop in housing prices, more than 60 million apartments in China remain empty. While the real estate sector accounts for about 25-30% of China’s GDP, it’s impossible for the country to prop up the economy without reviving this vital industry.

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Something tells me these analysts have as little overview of the shadow banks as Beijing has.

China’s Stock Crash Is Spurring a Shakeout in Shadow Banks (Bloomberg)

China has been struggling to tame its shadow banks for years. Now, a stock market crash has hamstrung some of the fastest growing ones in a matter of weeks. Loans from sources such as online lenders for equity purchases have plunged by at least 700 billion yuan ($113 billion), a drop of 61% from this year’s peak, after authorities banned them from funding stock buying in July, according to a Bloomberg survey conducted last month. Peer-to-peer Internet lending for the purchases had more than tripled to 8 billion yuan in the second quarter, data from research firm Yingcan Group show. The reversal has helped cull riskier lenders in China’s online market, which was surging before the equity rout wiped out more than $4 trillion.

President Xi Jinping has already curbed traditional forms of unregulated funding – such as trust loans – as part of his effort to wean the economy from debt-fueled growth after corporate defaults mounted. “The new regulations are making the industry more disciplined and transparent,” said Wei Hou at Sanford C. Bernstein. “There may be short-term pain of a number of small players closing down. But it’s good for the industry in the long term.” Peer-to-peer lending was pioneered in the U.S. by companies such as LendingClub Corp., but China is where it’s really taking off. Origination of such loans totaled the equivalent of $41 billion in 2014 and will exceed $332 billion by 2017, according to Maybank Kim Eng. That compares with only $6 billion in the U.S. last year.

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“The point that I’m making is that it’s over.”

Stocks Are A ‘Disaster Waiting To Happen’: Stockman (CNBC)

David Stockman has long warned that the stock market is on the verge of a massive collapse, and the recent price action has him even more convinced than ever that the bottom is about to fall out. “I think it’s pretty obvious that the top is in,” the Reagan administration’s OMB director said Thursday on CNBC’s “Futures Now.” The S&P 500 has traded in a historically narrow range for the better part of 2015, having moved just 1% higher year to date. “It’s just waiting for the knee-jerk bulls, robo traders and dip buyers to finally capitulate.”

Stockman, whose past claims have yet to come to fruition, still believes that the excessive monetary policy from central banks around the world has created a “debt supernova,” and all the signs point to “the end of the central bank enabled bubble,” which could cause a worldwide recession. “The larger picture has nothing to do with the jobs report [Friday] or even the September decision by the Fed,” said Stockman. “It has to do with the the fact that the world economy, including the U.S., is heading into what is clearly going to be an epochal deflation to the likes of what we have never experienced in modern time.” According to Stockman, it’s only a matter of time before the collapse in China trickles down to other markets.

“The whole global economy since 2008 has been driven forward by this massive investment and construction and borrowing spree in China,” said Stockman. “The point that I’m making is that it’s over.” For Stockman, there’s no reversing the artificially inflated bubbles created by the Federal Reserve. “I think what we are seeing is the beginning evidence that the central bank-driven credit economy is over and we are in a new era,” said Stockman. “It’s a huge disaster waiting to happen.”

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How risk got financialized.

The Widening Vortex Of Global Finance (Sampath)

[..] .. rising inequality and sky-rocketing financial profits have paralleled the rise of neo-liberalism — a term used to refer to a cluster of economic policies that includes privatisation, cuts in welfare spending, loosening of labour laws, and deregulation of finance. If there is one common factor that undergirds all these economic policies — it is the rise of global finance, or “financialization”, which also denotes the growing penetration of real economic activity (to do with generating surplus value) by finance capital. In his book, The Everyday Life of Global Finance, the economic geographer, Paul Langley, explains how the common view of global finance as something “out there somewhere” — timeless, spaceless, identified with 24X7 global markets — is fallacious.

It is simply not true that finance operates primarily in a rarefied realm of super-specialists far removed from the world of everyday economic activity such as earning, saving and borrowing. On the contrary, Langley argues, global finance has fundamentally reengineered the ordinary ways we think about and manage money. Till the generation say right up to the 1980s, the future was conceived as a realm of uncertainty, one that held possible harm, for which one provisioned through thrift — specifically, savings and insurance. Financialisation is born when uncertainty is quantified into risk. How we frame risk, calculate it, and manage it, decides what we do with our money. In Langley’s formulation, if risk is calculated and managed as a future harm that requires prudence in the present, it makes for an approach of thrift and savings.

But if it is framed as an opportunity that holds the possibility of immense rewards, it mandates an approach where the most rational form of saving becomes investment. Therefore, at the ideological level, financialisation entails two basic manoeuvres: one, the transformation of nebulous uncertainty into quantifiable risk, which is then managed through an array of calculative technologies; two, a shift in the common sense understanding of risk as something potentially harmful, to something potentially rewarding. Given that risk is essentially a financial category, the current civilisational obsession with data is another testament to the growing supremacy of finance capital (in alliance with technology), which wants every piece of the world’s data on anything and everything in order to be able to manage risk optimally for maximum returns.

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Lest we forget… We must, however, be careful where we put the blame for this.

Greece’s Collapse Was a Reversion to the Mean… Who’s Next? (Phoenix)

Because of the rampant fraud and money printing in the financial system, the real “bottom” or level of “price discovery” is far lower than anyone expects due to the fact that the run up to 2008 was so rife with accounting gimmicks and fraud. The Greek debt crisis, like all crises in the financial system today, can be traced to derivatives via the large investment banks. Indeed, we now know that Greece actually used derivatives (via Goldman Sachs) to hide the true state of its debt problems in order to join the Euro. Spiegel:

Creative accounting took priority when it came to totting up government debt. Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three% of gross domestic product. Total government debt mustn’t exceed 60%. The Greeks have never managed to stick to the 60% debt limit, and they only adhered to the three% deficit ceiling with the help of blatant balance sheet cosmetics… “Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future,” one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period – to be exchanged back into the original currencies at a later date.

The above story for Greece is illustrative of the story for all “emerging markets” starting in 2003: tons of easy money, rampant use of derivatives for accounting gimmick, and the inevitable collapse. From a big picture scenario, in 2003, the global Central Banks abandoned a focus on inflation and began to pump trillions in loose money into the economy. Because large banks could loan well in excess of $10 for every $1 in capital on their balance sheets, global credit went exponential. The effect was sharply elevated asset prices that greatly benefitted tourism-centric economies such as Greece. As I stated in our issue Price Discovery:

If the foundation of the financial system is debt… and that debt is backstopped by assets that the Big Banks can value well above their true values (remember, the banks want their collateral to maintain or increase in value)… then the “pricing” of the financial system will be elevated significantly above reality. Put simply, a false “floor” was put under asset prices via fraud and funny money. Take a look at the impact this had on Greece’s economy. Below is Greek GDP dating back to the 1960s. Having maintained a long-term trendline of growth the country suddenly saw its GDP MORE THAN DOUBLE in less than 10 years after joining the EU?

In many regards, this “growth” was just a credit binge, much like housing prices, stock prices, etc. By joining the Euro, Greece was able to borrow money at much lower rates (2%-3% vs. 10%-20%). Rather than using these lower rates to pay off its substantial debts, Greece funneled as much money as possible towards Government employees (nearly one in three Greek workers). As a result, Government wages nearly doubled to the point that your typical Government employee was paid 150% more than his or her private sector counterpart. Add to this a pension system in which retirees are paid 92% of their former salaries and you have a debt bomb of epic proportions.

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Yes, there are still rich Greeks.

Greek Shipping Industry Extends Its Dominance (WSJ)

Greece’s shipping magnates, having emerged largely unscathed from both the country’s ravaging financial crisis and one the industry’s longest-ever downturns, are now extending their dominance by snapping up vessels from competitors who haven’t fared as well. The Greek owners, who operate almost 20% of the global fleet of merchant ships, are paying rock-bottom prices because assets once owned by bankrupt shipping lines are now in the hands of creditors, including German banks, who want to clear nonperforming loans from their portfolios. For years, Greece and Germany have been Europe’s shipping powerhouses.

But while the Greeks stuck to a hands-on approach in which the owner arranged everything from financing to chartering and operations, the so-called German KG system largely depended on scores of investors ranging from banks to the country’s wealthy middle class. Many of them put their money into shipping at the peak of the market, before the 2008 economic downturn. “As the global financial crisis took hold and the freight market gradually collapsed, the Greeks stayed above water as they were not overly leveraged and stood on cash generated during the boom years before 2008,” said Basil Karatzas, a New York-based maritime adviser. In Germany, by contrast, a single vessel often had up to 1,000 investors and the system wasn’t strong enough to absorb the market stress, Mr. Karatzas said.

“There were too many conflicts of interest, lopsided market concentration on container ships—which were among the hardest hit—and scores of loans by German banks, which poured billions into new vessels believing that demand will continue to grow,” he said. Analysts say that at the end of 2012, German lenders including HSH Nordbank, Commerzbank and Norddeutsche Landesbank Girozentrale controlled about a third of the $475 billion global ship-finance market. In the past four years, the three banks have set aside more than €3.6 billion in provisions for nonperforming shipping loans as they desperately try to sell vessels once owned by bankrupt shipping lines.

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Illegal under EU treaties.

German Trade Surplus To Rise To New Record In 2015 (Reuters)

Germany’s trade surplus is expected to rise to a new record in 2015 thanks to falls in the prices of imported oil and gas, Der Spiegel reported on Saturday. The Finance Ministry is estimating a trade surplus of 8.1% of economic output after 7.6% last year, the magazine said, citing an internal ministry document. The lower cost of imports of oil and gas is expected to boost the trade balance by around 1.2% alone, the document said. Without the decline in oil and gas prices, the trade surplus would have fallen compared with the previous year. Germany has come under international pressure to reduce its trade surplus, which critics say contributes to imbalances in the world economy.

In a report published last month, the IMF said Berlin should focus on bolstering medium–term growth and reducing external imbalances. The European Commission considers trade surpluses that are repeatedly over 6% of economic output as dangerous for stability and has urged Germany to undertake more investment to stimulate imports. Despite a fall in exports in June, the larger net balance between exports and imports meant that the trade surplus widened to a record €24.0 billion, data published on Friday showed.

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Let Finland be the one to blow up the edifice.

Finland Could Stay Out Of New Greek Bailout, Says Foreign Minister (Reuters)

Finland could stay out of a planned third bailout deal for Greece, the Nordic country’s Eurosceptic foreign minister said on Saturday, amid calls from his nationalist party, The Finns, for a more critical stance toward the EU. Finland has taken one of the hardest lines against bailouts among euro zone members, and got even tougher in May when The Finns joined a new center-right coalition. “Of course we can stay out of (the third bailout), that is possible,” Timo Soini told Reuters on the sidelines of his party’s congress. “We’re really out of patience … Our government has a very tight policy on this. We will not accept increasing Finland’s liabilities, or cuts in Greece’s debts.”

Athens is racing to wrap up agreement on a bailout worth up to €86 billion within days, hoping to receive a first disbursement in time to make a debt repayment to the European Central Bank. Finland has said it could accept a deal under which the EU’s bailout fund, the European Stability Mechanism, would be used only within its current capacity. At a meeting of euro zone finance ministers last month, Finland supported the idea of a temporary ‘Grexit’ – Greece leaving the bloc – but eventually accepted that new loan talks could begin. “If we vote against a deal, it goes to the emergency procedure, and a package is implemented regardless of us,” Soini said, referring to a clause in the fund that allows measures to be passed without unanimous approval if stability is deemed to be at risk.

“I don’t believe that this (bailout) policy will provide solutions, and I think that, in the longer term, ‘Grexit’ is the most likely scenario.” Soini’s party, formerly known as True Finns, has risen from obscurity within just a few years to become the second-biggest parliament group in an election last April. Its criticisms of the EU and its calls for tougher restrictions on immigration have resonated among many citizens as Finland struggles with recession and rising unemployment. But the party had to make compromises as it agreed for the first time to enter government, teaming up with millionaire prime minister Juha Sipila’s Centre party and the pro-EU National Coalition party.

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All care systems do.

How England’s Social Care System Fails The Most Vulnerable (Observer)

It is written in the dry language of the bureaucrat. But an inspector’s report published just last week into the red-brick Birdsgrove Nursing Home, near Bracknell in Berkshire, accommodating the elderly and frail, as well as people stricken by dementia still makes for uncomfortable reading. “We spoke with a person who was still in bed in night clothes,” the Care Quality Commission (CQC) inspector writes. “It was mid-morning and the person told the inspector they had been awake since 7am and were waiting for two staff to help move them from their bed to their chair, wash them and help them get dressed. The person said they were unsure if they were going to be washed today as they had not been told. They said: ‘You have to get used to it here, it’s a routine.’

“We left the person’s room and shortly afterwards heard them shouting for help. They were shouting: ‘Please help me’ and ‘Help me, please’. The person was in very obvious distress and their shouts for help were loud enough for any staff nearby to hear them. No staff responded to the person’s calls for help. “We went into their room and reassured the person and they became calm. We said we would get a member of staff to come and help them. One inspector spoke with a care worker on the corridor outside the person’s room and told them the person needed help. The care worker said they were helping another person adding: ‘I’m doing her, I don’t want this one wandering off as well.’

“We left the room as the person remained calm. Shortly after we left the room they began shouting for help again in the same manner. A registered nurse was observed standing in the corridor near to the person’s room not reacting to their cries for help. We had to find another member of staff and ask them to come to help the person. A few minutes later a care worker arrived to assist the person. The person’s cries for help were repeatedly ignored.”

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New Zealand and Canada next?

Oz FinMin Orders Sale Of Residential Properties Owned By Foreign Nationals (AAP)

Joe Hockey has ordered the sale of six residential properties owned by foreign nationals. The owners live in four countries, with one investor having two in a Perth suburb, the treasurer told reporters in Sydney on Saturday. Some purchased the properties with Foreign Investment Review Board approval but their circumstances have changed, while others have simply broken the rules, he said. Hockey said the purchase price of the properties – in Sydney, on the outskirts of Brisbane and in Perth – ranged from $152,000 to $1.86 million. The investors voluntarily came forward following the amnesty the federal government announced in May. “They now have 12 months to sell the properties, rather than the normal three-month period, and they will not be referred for criminal prosecution,” he said.

There are 462 other cases under investigation, with the treasurer predicting more divestment orders being made in the future. “I expect more divestment orders will be announced in the not too distant future,” he said. The treasurer urged others to come forward before the November 30 cut off, saying he will introduce tighter rules into parliament during the next two weeks. They will include tougher civil penalties, which will see investors lose the capital gain made on the property, 25% of the purchase price or 25% of the market value of the property. “Australia’s foreign investment policy for residential real estate is designed to increase our housing stock, but those who break the rules and purchase established property illegally are doing so to the detriment of all Australians,” he said.

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TPP looks dead, TTIP up next?!

Why Europe And The US Are Locked In A Food Fight Over TTIP (Bonadio)

Black Forest ham, Asiago, Gorgonzola, Gouda, and many other European geographical indications for foodstuffs are at the centre of a TTIP food fight. They are all protected from imitation by other companies in many countries of the world. Not in the US though. And as the details of the Transatlantic Trade and Investment Partnership are negotiated, the EU wants to stop American manufacturers from being able to falsely label their products with their protected names. Part of the EU’s legal framework for protecting regional food products is that they have acquired a strong reputation among consumers the world over. Favourable climates and centuries-old manufacturing techniques rooted in their protected areas have contributed to build up this renown. They are intellectual property rights that identify “products with a story”.

The US plays by different rules, however. There are numerous American companies that use European geographical and traditional names (including Parmesan, Asiago and feta for cheese) to identify products that have not been produced in the relevant European locations – and often do not have the same quality as the originals. This lack of protection – European negotiators stress – allows an unacceptable exploitation of Europe’s cultural heritage, as well as costing EU manufacturers large amounts of revenue. The US is, however, resisting these claims. Its negotiators maintain that their food producers have been using and trademarking European geographical names for many decades, and it would now be unfair to ask them to stop.

The US also claims that many of the geographical terms, such as Parmesan, Fontina, feta, Gouda and Edam, have become the generic names of the relevant products, and cannot be monopolised by anyone, including the European producers located in those areas. Indeed, most US consumers don’t even know that these terms are actually geographical names. To them they just describe the characteristics of a product. EU-style legal protection – the US argument goes – would basically allow rent-seeking by European food producers. It would amount to a trade barrier, which would force many US producers to go through an expensive re-brand, and would increase final prices for consumers. It would take a heavy toll on the US cheese market in light of the US$21 billion in US cheese production that uses European-origin names.

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How fitting. In the week that we remember Hiroshima and Nagasaki.

Be Afraid: Japan Is About To Do Something That’s Never Been Done Before (ZH)

When the words “mothballed”, “nuclear”, and “never been done before” are seen together with Japan in a sentence, the world should be paying attention… As TEPCO officials face criminal charges over the lack of preparedness with regard Fukushima, and The IAEA Report assigns considerable blame to the Japanese culture of “over-confidence & complacency,” Bloomberg reports,

Japan is about to do something that’s never been done before: Restart a fleet of mothballed nuclear reactors. The first reactor to meet new safety standards could come online as early as next week. Japan is reviving its nuclear industry four years after all its plants were shut for safety checks following the earthquake and tsunami that wrecked the Fukushima Dai-Ichi station north of Tokyo, causing radiation leaks that forced the evacuation of 160,000 people.

Mothballed reactors have been turned back on in other parts of the world, though not on this scale – 25 of Japan’s 43 reactors have applied for restart permits. One lesson learned elsewhere is that the process rarely goes smoothly. Of 14 reactors that resumed operations after four years offline, all had emergency shutdowns and technical failures, according to data from the World Nuclear Association, an industry group. “If reactors have been offline for a long time, there can be issues with long-dormant equipment and with ‘rusty’ operators,” Allison Macfarlane, a former chairman of the U.S. Nuclear Regulatory Commission, said by e-mail.

In case you are not worried enough yet…

As problems can arise with long-dormant reactors, the NRA “should be testing all the equipment as well as the operator beforehand in preparation,” Macfarlane of the U.S. said by e-mail. Although the NRA “is a new agency, many of the staff there have long experience in nuclear issues,” she said. Kyushu Electric has performed regular checks since the reactor was shut to ensure it restarts and operates safely, said a company spokesman, who asked not to be identified because of company policy.

“If a car isn’t used for a while, and you suddenly use it, then there is usually a problem. There is definitely this type of worry with Sendai,” said Ken Nakajima, a professor at Kyoto University Research Reactor Institute. “Kyushu Electric is probably thinking about this as well and preparing for it.”

It’s not the first time a nation has tried this..

In Sweden, E.ON Sverige AB closed the No. 1 unit at its Oskarshamn plant in 1992 and restarted it in 1996. It had six emergency shutdowns in the following year and a refueling that should have taken 38 days lasted more than four months after cracks were found in equipment.

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“..if I speak, the republic is going to fall.” They could triple the health care budget if they get rid of corruption.

Petrobras Oil Scandal Leaves Brazilians Lamenting a Lost Dream (NY Times)

Alberto Youssef, a convicted money launderer and former bon vivant, sat in a Brazilian jail cell in March of last year, getting ready to tell his lawyers a story. It was about an elaborate bribery scheme involving Petrobras, the government-controlled oil giant. He opened with a dire prediction. “Guys,” Mr. Youssef said, “if I speak, the republic is going to fall.” To those lawyers, Tracy Reinaldet and Adriano Bretas, who recently recounted the conversation, this sounded a tad melodramatic. But then Mr. Youssef took a piece of paper and started writing the names of participants in what would soon become known as the Petrobras scandal. Mr. Reinaldet looked at the names and asked, not for the last time that day, “Are you serious?”

[..] Oil was central to Brazil’s strategy, and that gave Petrobras a leading role in the nation’s growing influence — and pride of place. At one time it was the sixth-largest company in the world by market capitalization and accounted for roughly 10% of Brazil’s gross domestic product. For perspective, Apple, which has twice Petrobras’s peak market cap, represents 0.5% of the United States’ gross domestic product. The company has lost more than half its value in the last year, about $70 billion in market cap. Part of that stems from the worldwide decline in oil prices, but none of the company’s rivals have been punished as severely. That plunge has had repercussions for investors worldwide. Petrobras had been a favorite investment for big emerging-market bond funds sold to United States investors, for instance.

In Brazil, Petrobras’s plunge is so cataclysmic, according to analysts, that it is a major reason the economy is expected to contract by more than one%age point this year. Unemployment is up, and Standard & Poor’s has cut the nation’s long-term debt rating to one notch above junk status. All of this has provoked something that transcends outrage. Brazilians are in the midst of an identity crisis. Much of Brazil’s recently acquired cachet looks as if it was the product of fraud, and for an added touch of humiliation, a fraud cooked up at a company long regarded as an emblem of Brazil’s success and aspirations. “I’ve never seen my countrymen so angry,” said Maurício Santoro, a political science professor at Rio de Janeiro State University. “We have this sense that the dream is over.”

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As always when western media address Russia: beware of hidden political themes.

How Russian Energy Giant Gazprom Lost $300 Billion (Eurasia.net)

It was not too long ago that Gazprom, Russia’s state-controlled energy conglomerate, was one of the Kremlin’s most powerful weapons. But those days now seem like a distant memory. Today, Gazprom is a financial shadow of its former self. The speed of Gazprom’s decline is breathtaking. At its peak in May 2008, the company’s market capitalisation reached $367bn, making it one of world’s most valuable companies, according to a survey compiled by the Financial Times. Only fellow Exxonmobile and PetroChina were worth more. Gazprom’s deputy chair Alexander Medvedev repeatedly predicted that within a decade the Russian energy giant could be worth $1 trillion.

That prediction now seems foolhardy. Since 2008, Gazprom’s value has plummeted. In early August it had a market capitalisation of $51bn – losing more than $300bn. No company among the world’s top 5,000 has suffered a bigger collapse, Bloomberg Business News reported in April 2014, and by the end of the year net income had fallen by an astonishing 86%. Though share prices have rallied slightly since, indicators suggest Gazprom has further to fall. Lingering uncertainty raises questions about whether it can survive, with production continuing to tumble downward. So what happened? Why is a company with the world’s largest gas reserves, operating in a country bordering China and the European Union – two of the world’s top energy consumers, performing so badly?

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“..costs of the coal companies range mostly from about $40 to $100 for every dollar in profit”

The Huge Hidden Costs Of Our Fossil-Fueled Economy (Shiller)

Extracting fossil fuels is a lucrative business. Last year, ExxonMobil made $32.5 billion in profits. But, arguably, it’s a business built on shaky foundations. If we were to account for the full cost of fossil fuels to the environment, it might completely wipe out the industry’s profitability. That’s the conclusion of a new analysis from the University of Cambridge that tallies up the social cost of producing oil, gas and coal products. Across 20 leading companies, it finds “hidden economic costs” that is, costs that aren’t currently paid of $755 billion in 2008, and $883 billion in 2012. Which is several times what the companies reported in earned income in those years. “The 20 companies as a group are highly profitable, with after tax profits of about 8.2 % of revenues in 2008 and 8.6 % in 2012.

However this does not take account of the hidden economic cost to society that is caused when their products are burned and CO2 is emitted to the atmosphere,” says the paper by Chris Hope, Paul Gilding, and Jimena Alvarez. The researchers studied the accounts of major oil and gas groups like BP, Shell, Statoil, and Petrobras as well as several coal producers like Peabody and Coal India. The calculations are based on a U.S. Environmental Protection Agency model that says each ton of CO2 costs society $105 (in 2008 dollars). That’s higher than the working EPA figure of $37 per ton, but below what some other researchers have calculated it should be. The analysis doesn’t include some major state-owned producers such as Saudi Aramco, which don’t publish open public accounts.

Most of the oil and gas companies have hidden costs of $1.5 to $3 for every dollar is post-tax profit, while costs of the coal companies range mostly from about $40 to $100 for every dollar in profit, the paper says. The coal companies are also the most “unprofitable” with economic costs ranging from two to nine times annual revenues (let alone their profits). The point of the paper is to warn investors that they face risks if society ever wants to account for its losses (which doesn’t look likely at the moment, but still). “These results will be a useful starting point for investors seeking to manage their exposure to climate change risk, and for policy makers interested in fossil fuel companies net contribution to society,” the authors say.

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Love this sort of thinking.

Antibiotic Resistance: Zoology To The Rescue (Economist)

Much is made, in academic circles, of the virtues of interdisciplinary research. Its practice is somewhat rarer. But fresh thinking and an outsider’s perspective often do work wonders, and that may just have happened in the field of antibiotic resistance. Adin Ross-Gillespie of Zurich University is a zoologist, not a physician. But his study of co-operative animals such as meerkats and naked mole rats has led him to think about the behaviour of another highly collaborative group, bacteria. He and his colleagues have just presented, at a conference on evolutionary medicine in Zurich, a way of subverting this collaboration to create a new class of drug that seems immune to the processes which cause resistance to evolve.

Antibiotic resistance happens because, when a population of bacteria is attacked with those drugs, the few bugs that, by chance, have a genetic protection against their effects survive and multiply. As in most cases of natural selection, it is the survival of these, the fittest individuals, that spurs the process on. But Dr Ross-Gillespie realised that, in the case of bacteria, there are circumstances when the survival of the fittest cannot easily occur. One of these is related to the way many bacteria scavenge a crucial nutrient, iron, from the environment. They do it by releasing molecules called siderophores that pick up iron ions and are then, themselves, picked up by bacterial cells. In a colony of bacteria, siderophore production and use is necessarily communal, since the molecule works outside the boundaries of individual cells.

All colony members contribute and all benefit. In theory, that should encourage free riders—bacteria which use siderophores made by others without contributing their own. In practice, perhaps because the bacteria in a colony are close kin, this does not seem to happen. But inverting free riding’s logic makes the system vulnerable to attack, for a bug that contributes more than its share does not prosper. Following this line of thought Dr Ross-Gillespie turned to gallium, ions of which behave a lot like those of iron and can substitute for them in a siderophore, making it useless to a bacterium. In fact, siderophores bind more effectively with gallium than with iron, hijacking the whole process. A judicious dose of gallium nitrate can thus take out an entire bacterial colony, by depriving it of the iron it needs to thrive.

The crucial point is that, because siderophores are a resource in common, a mutated siderophore that did not bind preferentially to gallium would be swamped by the others, would fail to benefit the bug that produced it, and therefore would not be selected for and spread. At least, that was Dr Ross-Gillespie’s theory.

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Apr 232015
 
 April 23, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , ,  


Harris&Ewing Camp Meade, Maryland 1917

Half of US Fracking Companies Will Be Dead or Sold This Year (Bloomberg)
The ‘Grexit’ Issue And The Problem Of Free Trade (Stratfor)
If Greece Can Survive 2015, It’s Home Free (MarketWatch)
Greek Banks Win More Emergency Cash as Talks Loom (Bloomberg)
Greece: Of Parents And Children, Economists And Politicians (Wren-Lewis)
Greek Contagion Risks May Be Higher Than You Think (CNBC)
We’re Just Learning the True Cost of China’s Debt (Bloomberg)
‘Goldman Advising On The Economy Like Dracula On Running A Blood Bank’ (RT)
Russell Brand Eyes Cryptocurrency As Integral Part Of Global Revolution (RT)
More Than A Million Brits Have Used Food Banks In The Past Year (Guardian)
Petrobras, World’s Most Indebted Company, Gets Audited (CNBC)
Petrobras To Book Nearly $17 Billion In Charges (MarketWatch)
Most Migrants Crossing Mediterranean Will Be Sent Back (Guardian)
EU Borders Chief Says Saving Migrants’ Lives ‘No Priority’ (Guardian)
‘Maidan Snipers Trained In Poland’: Polish MP (RT)
US Accuses Russia Of ‘Ramping Up’ Ukraine Presence (BBC)
If A Clinton Were To Marry A Bush, The US Could Cancel Elections (RT)
Fed Refuses to Comply With Lawmakers’ Request For Names in Probe (WSJ)
Wolves Shot From Choppers Shows Oil Harm Beyond Pollution (Bloomberg)
What California Can Learn About Drought From ‘Chinatown’ (MarketWatch)

“It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

Half of US Fracking Companies Will Be Dead or Sold This Year (Bloomberg)

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford said. There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.

There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton announcing plans to buy Baker Hughes in November for $34.6 billion and C&J Energy buying the pressure-pumping business of Nabors Industries Ltd. Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.

Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35% this year, according to PacWest, a unit of IHS. While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek. Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment. “We go by and we see yards are locked up and the doors are closed,” he said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

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Not a big Stratfor fan, but smart analysis by Friedman: “The main assumption behind European integration was that a free trade zone would benefit all economies. If that assumption is not true, then the entire foundation of the EU is cast into doubt..”

The ‘Grexit’ Issue And The Problem Of Free Trade (Stratfor)

The Greek crisis is moving toward a climax. The issue is actually quite simple. The Greek government owes a great deal of money to European institutions and the International Monetary Fund. It has accumulated this debt over time, but it has become increasingly difficult for Greece to meet its payments. If Greece doesn’t meet these payments, the IMF and European institutions have said they will not extend any more loans to Greece. Greece must make a calculation. If it pays the loans on time and receives additional funding, will it be better off than not paying the loans and being cut off from more? Obviously, the question is more complex. It is not clear that if the Greeks refuse to pay, they will be cut off from further loans.

First, the other side might be bluffing, as it has in the past. Second, if they do pay the next round, and they do get the next tranche of funding, is this simply kicking the can down the road? Does it solve Greece’s underlying problem, which is that its debt structure is unsustainable? In a world that contains Argentina and American Airlines, we have learned that bankruptcy and lack of access to credit markets do not necessarily go hand in hand. To understand what might happen, we need to look at Hungary. Hungary did not join the euro, and its currency, the forint, had declined in value. Mortgages taken out by Hungarians denominated in euros, Swiss francs and yen spiraled in terms of forints, and large numbers of Hungarians faced foreclosure from European banks.

In a complex move, the Hungarian government declared that these debts would be repaid in forints. The banks by and large accepted Prime Minister Viktor Orban’s terms, and the European Union grumbled but went along. Hungary was not the only country to experience this problem, but its response was the most assertive. A strategy inspired by Budapest would have the Greeks print drachmas and announce (not offer) that the debt would be repaid in that currency. The euro could still circulate in Greece and be legal tender, but the government would pay its debts in drachmas. In considering this and other scenarios, the pervading question is whether Greece leaves or stays in the eurozone. But before that, there are still two fundamental questions.

First, in or out of the euro, how does Greece pay its debts currently without engendering social chaos? The second and far more important question is how does Greece revive its economy? Lurching from debt payment to debt payment, from German and IMF threats to German and IMF threats is amusing from a distance. It does not, however, address the real issue: Greece, and other countries, cannot exist as normal, coherent states under these circumstances, and in European history, long-term economic dysfunction tends to lead to political extremism and instability. The euro question may be interesting, but the deeper economic question is of profound importance to both the debtor and creditors.

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Won’t the Troika even give it that one year?

If Greece Can Survive 2015, It’s Home Free (MarketWatch)

For the third time in five years, Greece’s parlous financial state is shaking up global markets. In 2010 and 2012, the country was saved from default by two massive rescue packages organized by the EU, the ECB and the IMF. This time, the question is whether Greece, which owes about €320 billion to its creditors, really wants to save itself. Its government, run by radical left-wing group Syriza, says it doesn’t want to default, but it also won’t make the economic reforms creditors demand. In fact, Syriza has vowed to protect pensioners and public employees’ salaries even as debt payments come due. With nearly 20 billion euros owed to creditors over the next six months, the two sides are far apart, and the risks of a default or “Grexit” — Greece’s exit from the euro — are rising.

Still, all may not be lost. If Greece can get through 2015, it won’t have to pay creditors very much until the next decade. “People are saying this is the crunch year,” said Franklin Allen, an expert on financial crises who is executive director of the Brevan Howard Centre and professor at Imperial College London. In fact, we’re in the crunch months. Athens owes around €2.5 billion to the IMF by mid-June. It made a payment to the IMF in early April. Greece and its creditors meet again on Friday in Riga, Latvia, although few expect a deal. Both Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis have said Greece will meet its obligations, but on Monday Tsipras ordered local governments to transfer funds to the Greek central bank.

That amounts to confiscating €2 billion in reserves local governments hold in commercial banks. The money could be used to pay salaries and part of the debt to the IMF. The yield on Greece’s two-year bonds soared to near 30% on Tuesday. Yikes! The Greek government wants €7.2 billion in emergency bailout funds to get it over the hump. So far, creditors aren’t budging. IMF Managing Director Christine Lagarde last week warned against any payment delays and told Varoufakis to accelerate reforms, such as privatizations and labor-market changes. It’s a recipe for a stalemate. That’s why Allen, who also has taught finance at The Wharton School of the University of Pennsylvania, thinks “there’s about a 40% chance they’ll default on something.”

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What’s a few billion among friends?

Greek Banks Win More Emergency Cash as Talks Loom (Bloomberg)

The ECB almost doubled an increase in emergency funding to Greek banks from last week before political talks shift to Brussels and Latvia over the country’s bailout review. The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance by about €1.5 billion to €75.5 billion on Wednesday, people familiar with the decision said. ELA is funding provided by national central banks at their own risk and is extended against lower-quality collateral than the ECB accepts. “The ceiling increase shows that deposit outflows from Greek lenders continue,” said Andreas Koutras at In Touch Capital Markets Ltd. in London. “The question now is when will the collateral against ELA be exhausted — in other words how much time is left?”

Euro-area finance ministers will meet in Riga, Latvia, on Friday in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel are due to meet on the sidelines of a European Union immigration summit in Brussels on Thursday, according to a Greek government official. Greek stocks and bonds rose Wednesday after Finance Minister Yanis Varoufakis saw a “convergence” of views and ECB Executive Board member Benoit Coeure said progress was being made.

“In recent days, there has been tangible progress in the quality of the discussions,” Coeure said in an interview with the Athens-based newspaper Kathimerini. “Significant differences on substance remain.” There are signs Greece’s creditors are curbing demands for far-reaching reforms as part of current talks, focusing on a number of key actions instead, Medley Global Advisors said in a client report on Wednesday. The softening stance comes on condition Greece stays co-operative on fiscal targets, according to Medley.

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“..from the perspective of the Eurozone and IMF, this is all extremely small beer. You would think the key players on that side had more important things to do with their time.”

Greece: Of Parents And Children, Economists And Politicians (Wren-Lewis)

Chris Giles has a recent FT article where he describes how non-Greek policymakers (lets still call them the Troika) see themselves like parents trying to deal with the “antics” of the problem child, Syriza in Greece. He splits these parents into different types: those that want to act as if the child is grown up (though they believe they are not), those who want to be disciplinarians etc. As a description of how the Troika view themselves, and present themselves to the public, the analogy rings true. It certainly accords with the constant stream of articles in the press predicting an impending crisis because the Greeks ‘refuse to be reasonable’.

[..] We know that if Greece was not part of the Euro, but just another of a long line of countries that have borrowed too much and had to partially default, its remaining creditors would be in a weak position now that Greece has achieved primary surpluses (taxes>government spending). The reason why the Troika is not so weak is that they have additional threats that come from being the issuer of the Greek currency.

It is important to understand what the current negotiations are about. Running a primary surplus means that Greece no longer needs additional borrowing – it just needs to be able to roll over its existing debts. Part of the argument is about how large a primary surplus Greece should run. Common sense would say that further austerity should be avoided so that the economy can fully recover, when it will have much greater resources to be able to pay back loans. Instead the creditors want more austerity to achieve large primary surpluses. Of course the former course of action is better for Greece: which would be better for the creditors is unclear! The negotiations are also about imposing additional structural reforms. Greece has already undertaken many, and is prepared to go further, but the Troika wants yet more.

As Andrew Watt points out, from the perspective of the Eurozone and IMF, this is all extremely small beer. You would think the key players on that side had more important things to do with their time. The material advantages to be gained by the Troika playing tough are minimal from their perspective, but the threats hanging over the Greek economy are damaging – not just to investment, but also to the very primary surpluses that the Troika needs. So why do the Troika insist on continuing with brinkmanship? Can it be that this is really about ensuring that an elected government that challenges the dominant Eurozone political and economic ideology must be forced to fail?

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This has always been obvious no matter what Draghi or Schäuble say. They have no way of knowing, they can just wish.

Greek Contagion Risks May Be Higher Than You Think (CNBC)

A perception in financial markets that Greece exiting the euro zone would have limited knock-on effects is misguided, some analysts say. Euro zone officials meet in Latvia this week to discuss a rescue deal between Greece and its creditors amid growing talk that time is running out for Athens to avoid defaulting on its debt and being ejected from the 19-member euro zone. “UBS does not believe, as its base case that Greece, will leave the euro,” Paul Donovan, UBS global economist, said in a video published by the bank’s research team. “However, there seems to be a belief in financial markets that if Greece were to be forced from the euro area it should be regarded as an isolated incident,” he said. “This belief, seems to us, to be dangerous.”

Donovan said that the view that Greek problems were distinct from the rest of the euro zone was reflected in recent online search patterns: Searches on Google for the term “Grexit” had soared, while those for “euro crisis” or “euro collapse” had not, even though they did during the 2012 euro zone debt crisis. In the latest crisis, government bond yields in peripheral euro zone countries—in the past viewed as most vulnerable to any Greek contagion—have not followed Greek bond yields higher. Greek bond yields have risen sharply this week, reflecting the greater risk attached to holding them. Greece’s benchmark 10-year bond yielded over 13% on Tuesday, well above Spain’s 10-year yield at 1.48% and Portuguese yields at 2.12%.

Although this can partly be explained by the ECB’s massive monetary stimulus program, which is putting downward pressure on yields, it also reflects diminished contagion fears. “I don’t get the sense that there is a widespread view that if a deal is not made and Greece exits the euro zone, you would have this massive contagion effect,” Ben White, Politico’s chief economic correspondent, told CNBC on Monday. UBS’ Donovan said any contagion from a Grexit would come from the banking system. He said that if Greece did leave the euro area, any money in Greek banks would be redenominated into a new currency, which would probably plunge in value, distressing depositors.

Depositors in other countries may think their holdings are safe, since their country is not going to leave the euro zone–or they may decide to avoid any risk and withdraw their savings, Donovan said. “Why take the risk that your country probably won’t leave the euro, if it’s a relatively simple operation to withdraw your savings and hold them in cash?” Donovan asked. “A euro held as cash today is a euro tomorrow,” he said. “A euro held in a bank account today may be an entirely different currency tomorrow, if the irrevocable monetary union has been revoked. Investors are thus likely to choose cash over deposits.”

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We haven’t a clue yet.

We’re Just Learning the True Cost of China’s Debt (Bloomberg)

The true cost of the debt that China’s real estate developers peddled to eager international investors during a five-year property boom is now becoming clear. Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four – Kaisa, Fantasia, Renhe, Glorious Property – raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted. China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble.

Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years. “It was an unintended consequence of the Chinese government that property developers are selling equity and debt to offshore investors,” said Ben Sy, a Hong Kong-based managing director in JPMorgan’s private banking division. “There happened to be huge demand from international investors in the past few years driven by the intense search for yield.” Kaisa was the first to debut in the dollar note market in 2010, selling $650 million of five-year bonds that April.

The securities paid a 13.5% coupon, more than twice the 6.3% average yield for Bank of America Merrill Lynch’s U.S. Real Estate index at the time. The Shenzhen-based developer was among nine real estate companies that raised $4 billion selling offshore bonds that year, a record at the time and fourfold the previous high. Six of the nine had listed their shares on the Hong Kong stock exchange in the previous 24 months. Chinese developers’ move into the international capital markets started in earnest in 2007. From January to December, as the rest of the world slid deeper into recession, homebuilders raised $7.2 billion. Since 2008, another $11.5 billion has been raised via IPOs in Hong Kong.

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The Dracula Squid.

‘Goldman Advising On The Economy Like Dracula On Running A Blood Bank’ (RT)

Goldman Sachs’ claim that a Labour victory in the general election would impact negatively on Britain’s economy has been dismissed by leading British economists, who say the Wall Street giant’s outlook is laughable and colored by self-interest. In a research document sent to clients earlier this week, Goldman claimed a Labour-led government could spark an exodus of investors from the City of London to more business-friendly pastures. The bank’s warning adds to a growing chorus of concern emanating from the City that Ed Miliband’s party would formulate fiscal and economic policy in the interest of people rather than profit. Speaking to RT on Wednesday, British economist James Meadway insisted Goldman Sachs is not a credible voice on economic policy.

“Listening to Goldman Sachs for advice on how to run the economy is like listening to Dracula on how to run a blood bank,” he said. UK economist and anti-austerity campaigner Michael Burke added Goldman Sachs’ general election analysis amounts to “laughably bad economics.” Burke told RT Goldman’s assessment of Labour’s prospective role in government appears to “confuse the economy with the well-being of its own bankers.” He added the Wall Street banking giant’s prognosis is “blatantly political” and born of self-interest. Goldman Sachs is a powerful player in the City of London and across the European Union.

However, the investment bank has been the focus of a firestorm of criticism in recent years over allegations of insider trading, corruption, aggressive investment vehicles with profound social impacts, and its role in compounding Europe’s sovereign debt crisis. Despite the bank’s less-than-gleaming reputation, its condemnation of Labour will likely be welcomed by City financiers and Conservatives. Speaking to its clients earlier this week, the investment bank said a victory for Labour would be understood as “more problematic by the business community” than victory for the Tories. Goldman billed a coalition between Labour and the Scottish National Party (SNP) as the most toxic combination of parties that could enter government next month.

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I’m not sure I find the celebrity contest that seems to go along with this thing all that appealing. Nothing against Russell, or Max.

Russell Brand Eyes Cryptocurrency As Integral Part Of Global Revolution (RT)

In his quest for a global revolution, political activist Russell Brand is eyeing crypto currency and crowd funding as a way of negating and avoiding the capitalist system. Such combination can set the stage for a new era, believes RT’s Max Keiser. Russel Brand has long been promoting organized civil disobedience to bring about a political revolution and fair distribution of wealth unfeasible under capitalism. With his calls sometimes bordering on anarchy, Brand has emerged as a leftist political figure seeking social justice and decentralization of state control over the individual.

“I think what is important is to organize and to disobey. To be really, really disobedient. Revolution is required. It is not a revolution of radical ideas, but simply the implementation of the ideas that they say we already have,” Brand was telling his supporters as he campaigned for resistance. Now Brand has taken one of these revolutionary ideas, the cryptocurrency, and teamed up with StartJoin crowdfunding platform to help people break away from conventional monetary and financial systems. “Essentially what we need is alternative systems and models, and alternative currency is an integral part of that,” Brand told Max Kaiser, the co-guru behind the financial side of the StartCOIN project and the host of RT’s Kaiser Report.

“I’m very interested in setting up social enterprises, such as our cafe that we’ve started, replicating that model more and more,” Brand explained. “Small businesses, practical, functional things where people can come together in an entrepreneurial spirit, creatively, and work together – hopefully ultimately using an alternative currency and completely negating and avoiding the system.” “The more I deal with bureaucracy, the more I deal with consumerism, the more I think that there is really very little it can offer us,” he added. Brand’s latest project is aimed at promoting digital literacy, to further boost online activism. By raising £150,000 for at least 1,000 laptops he is planning to give away for free, Brand wants to make the voices of even the most marginalized individuals in the community heard.

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Land of shame.

More Than A Million Brits Have Used Food Banks In The Past Year (Guardian)

More than 1 million people, including rising numbers of low-paid workers, were forced to use food banks in the last 12 months, challenging claims that the dividends of Britain’s economic recovery are being equally shared. The latest figures from the Trussell Trust, which coordinates a network of food banks in the UK, show a 19% year-on-year increase in food bank users, demonstrating that hunger, debt and poverty are continuing to affect large numbers of low-income families and individuals. Nearly 1.1 million people received at least three days of emergency food from the trust’s 445 food banks in 2014-15 – up from 913,000 the previous year. Back in 2009-10, before the Liberal Democrat-Conservative coalition took power, the then little-known charity fed 41,000 people from its 56 food banks.

Chris Mould, the Trussell Trust chairman, said the figures showed many people were experiencing “catastrophic” problems as a result of low incomes, despite signs of a wider economic recovery. He said: “These needs have not diminished in the last 12 months.” Experts warned that the figures were the “tip of the iceberg” of food poverty in the UK, while doctors said the inability of families to buy enough food had become a public health issue. The Trussell Trust figures show the biggest proportion, 44%, of food bank referrals last year – marginally lower than the previous year – were triggered by people pitched into crisis because their benefit payments had been delayed, or stopped altogether as a result of the strict jobcentre sanctions regime. More than a fifth, 22%, of food bank users were referred because of low income – meaning they were unable to afford food due to a relatively small financial crisis such as a boiler breaking down or having to buy a school uniform.

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This should have been one of the richest entities in the world. And look at it! What came out, see below, is they say they lose $2 billion to ‘graft’. $2 billion? Try $200 billion. These guys spend $2 billion on champagne alone.

Petrobras, World’s Most Indebted Company, Gets Audited (CNBC)

Petrobras, the Brazilian oil giant, is hoping to finally release audited financial results for the fourth quarter after U.S. markets close on Wednesday, including an estimate of how much has been stripped out of the company by years of alleged fraud. The state-controlled oil company is engulfed in what’s probably the largest financial scandal in Brazil’s history—a high bar, given the country’s record of corruption. And Wednesday’s earnings report has big implications for investors and maybe even the future course of the world’s seventh-biggest economy. Markets are closely examining the results for the level of write-offs and impairments on Petrobras assets, whose values may have been inflated by the fraud. Estimates on how big those numbers may be are staggering: anywhere from $6 billion to $30 billion.

Andre Gordon of AMEC, a Brazilian shareholders’ rights group, said he’s “waiting to see the balance sheet” and expects impairments and writeoffs of between $10 billion to $15 billion. AMEC is active in lobbying for better corporate governance at Petrobras and within Brazil in general. Gordon said he hopes for a turning point for the company that will lead to less government entanglement with Petrobras, “but I am skeptical.” “Not even the opposition party talks about privatization of Petrobras—only small insignificant parties with small market share,” he said. The scandal started with the arrest early last year of a company director, who subsequently struck a deal with prosecutors in September. Since then, details have emerged almost daily of a decade-long, alleged bribery scheme involving company officials.

The executive alleged to investigators that for nearly 10 years, Petrobras contracts were routinely padded by 3%, with the extra money used for bribes and kickbacks. Much of that money was supposedly funneled to the country’s ruling political parties. Other executives have since come forward, and nearly 50 people have been arrested or charged, ranging from more than a dozen CEOs to politicians to party officials, including the treasurer of Brazilian President Dilma Rousseff’s Workers Party.

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Rousseff must step down and open the prosecutorial floodgates here, or there’ll be severe damage for decades.

Petrobras To Book Nearly $17 Billion In Charges (MarketWatch)

Brazilian state-run oil company Petróleo Brasileiro SA on Wednesday finally put a price tag on the impact of a corruption scandal that has battered the company’s shares, writing off 6.2 billion reais ($2.1 billion) of alleged bribe payments
In addition, the company booked an impairment charge of 44.6 billion reais ($14.8 billion) for 2014 after determining that assets were overvalued on its balance sheet. As a result, the company reported a net loss of 26.6 billion reais for the fourth quarter on revenue of 85.04 billion reais. Earnings before interest, taxes, depreciation and amortization stood at 20.06 billion reais, up from 15.55 billion reais a year earlier.

The disclosures were part of the first audited financial statements released by Petrobras in more than eight months. Brazilian federal prosecutors since last year have been investigating allegations that the company’s suppliers conspired to overcharge Petrobras for major projects, funneling some of the illicit profit to former Petrobras executives and politicians in the form of bribes and illegal political donations. Petrobras has portrayed itself as a victim of the graft and says it has cooperated with authorities. Still, the company struggled to calculate the scheme’s impact on its balance sheet, leading auditor PricewaterhouseCoopers to refuse to sign off on its statements since the third quarter of 2014.

“With the publication of audited 2014 results, Petrobras has cleared a significant obstacle, after a collective effort, that shows our ability to overcome challenges in an adverse environment,” Chief Executive Aldemir Bendine said in a statement. The financials come just days before an April 30 deadline in Petrobras’s bond covenants that could have allowed the holders of billions of dollars of Petrobras debt to demand early repayment.

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“Only 5,000 resettlement places across Europe are to be offered to refugees..”

Most Migrants Crossing Mediterranean Will Be Sent Back (Guardian)

Only 5,000 resettlement places across Europe are to be offered to refugees who survive the dangerous Mediterranean sea crossing under the emergency summit crisis package to be agreed by EU leaders in Brussels on Thursday. A confidential draft summit statement seen by the Guardian indicates that the vast majority of those who survive the journey and make it to Italy – 150,000 did so last year – will be sent back as irregular migrants under a new rapid-return programme co-ordinated by the EU’s border agency, Frontex. More than 36,000 boat survivors have reached Italy, Malta and Greece so far this year. The draft summit conclusions also reveal that hopes of a major expansion of search-and-rescue operations across the Mediterranean in response to the humanitarian crisis are likely to be dashed, despite widespread and growing pressure.

The summit statement merely confirms the decision by EU foreign and interior ministers on Monday to double funding in 2015 and 2016 and “reinforce the assets” of the existing Operation Triton and Operation Poseidon border-surveillance operations, which only patrol within 30 miles of the Italian coast. The European council’s conclusions said this move “should increase the search-and-rescue possibilities within the mandate of Frontex”. The head of Frontex said on Wednesday that Triton could not be a search-and-rescue operation. Instead, the EU leaders are likely to agree that immediate preparations should begin to “undertake systematic efforts to identify, capture and destroy vessels before they are used by traffickers”. The joint EU military operation is to be undertaken within international law.

The statement describes the crisis as a tragedy and says the EU will mobilise all efforts at its disposal to prevent further loss of life at sea and to tackle the root causes of the human emergency, including co-operating with the countries of origin and transit. “Our immediate priority is to prevent more people dying at sea. We have therefore decided to strengthen our presence at sea, to fight the traffickers, to prevent illegal migration flows and to reinforce internal solidarity,” it says, before adding that the EU leaders intend to support all efforts to re-establish government authority in Libya and address key “push” factors such as the situation in Syria. But the detail of the communique makes it clear that the measures to be agreed fall far short of this ambition.

In particular in terms of sharing responsibility across the EU for those who survive the journey, the draft statement suggests only “setting up a first voluntary pilot project on resettlement, offering at least 5,000 places to persons qualifying for protection”, it says. The EU leaders also make a commitment to “increasing emergency aid to frontline member states” – taken to mean Italy, Malta and Greece – “and consider options for organising emergency relocation between member states”.

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“Leggeri ruled out putting his ships anywhere near the Libyan coast, saying stepping up search-and-rescue operations would only encourage desperate migrants to risk the passage.”

EU Borders Chief Says Saving Migrants’ Lives ‘No Priority’ (Guardian)

The head of the EU border agency has said that saving migrants’ lives in the Mediterranean should not be the priority for the maritime patrols he is in charge of, despite the clamour for a more humane response from Europe following the deaths of an estimated 800 people at sea at the weekend. On the eve of an emergency EU summit on the immigration crisis, Fabrice Leggeri, the head of Frontex, flatly dismissed turning the Triton border patrol mission off the coast of Italy into a search and rescue operation. He also voiced strong doubts about new EU pledges to tackle human traffickers and their vessels in Libya.

“Triton cannot be a search-and-rescue operation. I mean, in our operational plan, we cannot have provisions for proactive search-and-rescue action. This is not in Frontex’s mandate, and this is in my understanding not in the mandate of the European Union,” Leggeri told the Guardian. The capsizing of a trawler off Libya late on Saturday sparked a public outcry. EU foreign and interior ministers held an emergency meeting on Monday and a special summit on the issue has been called for Thursday in Brussels. The ministers and the European commission agreed to bolster the current Triton mission, to increase its funding and assets, and to expand its area of operation while also calling for new military measures to “systematically capture and destroy” traffickers’ vessels.

Thursday’s summit is to finalise the EU response. Donald Tusk, the president of the European council, who called and will chair the emergency summit, said the leaders had to agree on quick and effective action. “Our overriding priority is to prevent more people from dying at sea … to agree on very practical measures, in particular by strengthening search and rescue possibilities,” he said. But Leggeri ruled out putting his ships anywhere near the Libyan coast, saying stepping up search-and-rescue operations would only encourage desperate migrants to risk the passage. He signalled that Frontex was not asking for more boats, and voiced scepticism about the new talk of military action.

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More great stuff from ‘our’ side.

‘Maidan Snipers Trained In Poland’: Polish MP (RT)

Snipers who are thought to have operated in Kiev’s Independence Square amidst events that led to a coup in February 2014 were trained in Poland and sent to Ukraine to “do a favor” for the US, a Polish Euro-MP claimed in an interview. On February 20, 2014, riot police trying to restrain anti-government demonstrators on Maidan Nezalezhnosti in Kiev suddenly retreated up the street from whence they had come. As the protesters rushed forward, gunfire suddenly broke out, with many witnesses saying it was a sniper attack. In some two hours, 46 people were killed.

A year after the tragedy that provoked a huge backlash from the Ukrainians, ultimately leading to the rapid toppling of then-President Viktor Yanukovich, the events on the square are still pending investigation. Several Berkut riot police officers have been detained, but not much progress has been made, while murky details and speculation have been emerging in the press. In a new development, Polish former presidential candidate Janusz Korwin-Mikke told Wiadomosci media outlet that the snipers had actually been trained in Poland. Korwin-Mikke, 72, a European lawmaker and leader of Poland’s conservative KORWiN party, claimed this was a CIA operation. This came as a “Yes” reply to the question whether he believed the CIA was involved.

“Yes – but it was also our operation. The snipers were trained in Poland,” Korwin-Mikke said adding this was done “to provoke riots.” Poland trained those “terrorists” to please the US, which invested heavily into Ukrainian coup, the politician alleged. “Let me say this again: we are doing a favor to Washington,” Korwin-Mikke said. Challenged about his sources, the politician said he overheard this in the European Parliament as Estonia’s Foreign Affairs Minister Urmas Paet “admitted” to the then-EU foreign affairs chief Catherine Ashton that it was “our people who opened fire on Maidan, not those of Yanukovich or Putin.” It is not clear when the conversation took place, but in March previous year a tape with a telephone conversation between the two politicians was leaked which went among the same lines.

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And we don’t need to provide no steenking proof.

US Accuses Russia Of ‘Ramping Up’ Ukraine Presence (BBC)

The US has accused Russia of deploying more air defence systems in eastern Ukraine in breach of a ceasefire deal. The state department also said Russia was involved in training separatist forces in the area and building up its forces along the border. The Kremlin has not yet responded to the claims. A truce between Ukrainian forces and pro-Russian rebels in east Ukraine was brokered by the West in Minsk in February. State department spokeswoman Marie Harf said in a statement that “combined Russian-separatist forces” were violating the terms of the Minsk deal, keeping artillery and multiple rocket launchers in prohibited areas.

“The Russian military has deployed additional air defence systems into eastern Ukraine and moved several of these nearer the front lines,” she said. ‘Complex training’ “This is the highest amount of Russian air defence equipment in eastern Ukraine since August.” Ms Harf said the “increasingly complex nature” of training of pro-Russian forces in east Ukraine “leaves no doubt that Russia is involved”. “Russia is also building up its forces along its border with Ukraine,” she said. “After maintaining a relatively steady presence along the border, Russia is sending additional units there. These forces will give Russia its largest presence on the border since October 2014.” Earlier this month, about 300 US paratroopers arrived in western Ukraine to train with Ukrainian national guard units. At the time, Kremlin spokesman Dmitry Peskov warned the move “could seriously destabilise” the situation in Ukraine.

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It’s should be mandatory. Get us royal family of lying chimps.

If A Clinton Were To Marry A Bush, The US Could Cancel Elections (RT)

With apologies to their respective spouses, if Jeb Bush’s son, George P. Bush, had married Chelsea Clinton, Americans could have spared themselves the spectacle of Election 2016 and saved billions of dollars. All that the USA needs now is for a young Clinton to pair up with a junior Bush. Should the union produce an heir, a single line of monarchy would be established. This is the reality of the USA’s broken politics in 2015. A country pretty much established in opposition to hereditary elites now has the most closed political system in the Western world. In the past, America’s strange obsession with the British Royal Family was usually explained by fact that the US has no monarchy of its own. The bad news for Queen Elizabeth’s bunch is that this is increasingly the case in name only.

Right now, Hillary Clinton is close to an even money favorite to become the next American President. The only other short-odds candidate appears to be Jeb Bush. After the former Florida governor there’s a clutch of outsiders like Rand Paul, Scott Walker and Marco Rubio filling out the field. It’s depressing on so many levels. Should Hillary, as expected, secure the White House and serve two terms it’ll mean that America will have been ruled by either a Bush or Clinton for 28 out of 36 years. The only break coming during the 8-year Obama Presidency. Of course, the former first lady served as Secretary of State for half of Obama’s reign. Despite a common misconception that the Roosevelts, Teddy and Franklin D, were close relatives, (they weren’t) keeping things in the family has not been the American way.

In fact, George Bush Senior was the first President since FDR to have been born into the politically-connected WASP elite. Instead, post-war American Presidents have tended to be outsiders, coming from left field. Think Reagan, Nixon and Carter, for instance. Even the ultimate ‘silver-spoon’ Commander-in-Chief, John F. Kennedy, was far from an insider by dint of his Catholic religion. Indeed, despite their great wealth and celebrity, the Kennedy clan never came close to establishing the kind of dynasty that the Bush family has managed. However, the Boston brood remains powerful in the world of baby kissers and it’s commonly accepted that the late Edward was pivotal in securing Obama’s nomination for the 2008 contest.

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Audit it.

Fed Refuses to Comply With Lawmakers’ Request For Names in Probe (WSJ)

The Federal Reserve has not replied to a lawmakers’ request that it identify the individuals who had contact with a private consulting firm that published a report on the central bank’s market-sensitive internal policy deliberations. In October 2012, the day before the Fed released its minutes of its September 2012 policy meeting, Medley Global Advisors, sent a report to its clients with several sensitive details that subsequently appeared in the minutes. A central bank probe found a “few” Fed staffers had contact with Medley before the report, but did not identify them. Rep. Jeb Hensarling (R., Texas), Chairman of the House Financial Services Committee, sent a letter to Fed Chairwoman Janet Yellen on April 15 asking the Fed to name them by 5 p.m. EDT April 22.

The deadline passed without any response by the Fed, a committee spokesman said Wednesday. The Fed declined to comment. Medley did not respond to a request for comment. The central bank’s policy-making Federal Open Market Committee makes decisions on interest rates that can cause huge swings in global financial markets. Confidential information about its internal deliberations or advance information about the minutes of its meetings or possible future actions can be worth huge sums of money to traders around the world.

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We won’t rest till all wildlife is gone.

Wolves Shot From Choppers Shows Oil Harm Beyond Pollution (Bloomberg)

Here’s one aspect of Canada’s energy boom that isn’t being thwarted by the oil market crash: the wolf cull. The expansion of oil-sands mines and drilling pads has brought the caribou pictured on Canada’s 25-cent coin to the brink of extinction in Alberta and British Columbia. To arrest the population decline, the two provinces are intensifying a hunt of the caribou’s main predator, the gray wolf. Conservation groups accuse the provinces of making wolves into scapegoats for man-made damage to caribou habitats. The cull carried out in winter when the dark fur of the wolves is easier to spot against the snow has claimed more than 1,000 animals since 2005. Hunters shoot them with high-powered rifles from nimble two-seat helicopters that can hover close to a pack or lone wolf.

In Alberta, some are poisoned with big chunks of bait laced with strychnine, leading to slow and painful deaths that may be preceded by seizures and hypothermia. “It’s an unhappy necessity,” Stan Boutin, a University of Alberta biologist, said of the government-sponsored hunt. “We’ve let the development proceed so far already that now, trying to get industry out of an area, is just not going to happen.” The energy industry has delivered a death blow to caribou by turning prime habitat into production sites and by introducing linear features on the landscape that give wolves easy paths to hunt caribou, such as roads, pipelines and lines of downed trees created by oil and gas exploration.

A drop in drilling after oil prices plunged can’t reverse the damage. More than C$350 billion ($285 billion) spent by Alberta’s oil-sands producers to build an industrial complex that’s visible from space have made the province’s boreal herds of woodland caribou the most endangered in the country. Their population is falling by about half every eight years, according to a 2013 study in the Canadian Journal of Zoology. Since 2005, Alberta has auctioned the rights to develop more than 25,000 square kilometers (9,652 square miles) of land in caribou ranges to energy companies, according to the Canadian Parks and Wilderness Society, an Ottawa-based charity. That’s equivalent to about three times New York’s metropolitan area.

“When the oil industry goes in there and cuts those lines and drills and puts in pipelines, it helps the wolves,” said Chad Lenz, a hunting guide with two decades of experience based in Red Deer, Alberta. Lenz has watched caribou herds shrink as the number of wolves soar. “There’s not a place in Alberta that hasn’t been affected by industry, especially the oil industry.” Home to the world’s third-largest proven crude reserves, Alberta depends on levies from the energy industry to build new roads, schools and hospitals.

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It’s no use staying. Your kids deserve better. California is yesterday.

What California Can Learn About Drought From ‘Chinatown’ (MarketWatch)

In the 1974 film “Chinatown,” a fictional Los Angeles politician issues a warning as he lays out his case for creating an aqueduct to bring water to the city from the inland valley more than 200 miles north: “Beneath every street there is a desert, and without water the dust will rise up and cover us as if this place never existed.” For California, these words still resonate as a severe drought drags into its fourth year, prompting the first-ever mandatory restrictions on water usage and stirring questions about how the drought will be handled as the climate becomes warmer and drier. With the mood of the present-day state becoming more unsettled, “Chinatown” is perhaps more timely than ever, offering a cautionary tale and a possible roadmap for our thinking about water.

“I can’t tell you how many times people have said, ‘Forget it, Jake. It’s Chinatown,’” said Jon Christensen at UCLA, speaking of the iconic movie’s staying power. Although the film itself is a fictional work, “like all great art,” Christensen said, “it captures a great truth about water in California and in the American West.” The film, starring Jack Nicholson, Faye Dunaway and John Huston, dramatizes the California water wars of the early 1900s, accenting corruption, deception and secret dealings within Los Angeles, a city whose character would be shaped by its growing thirst for water. The film is set in the 1930s but is loosely based on the events of 1913, when Los Angeles began siphoning off water from the Owens Valley, on the eastern side of the Sierra Nevada, through an aqueduct.

As the L.A. region flourished, businessmen involved in the deal to bring water to the city profited wildly, while farmers in the Owens Valley were left to watch their land go dry and their regional economy suffer. The tension between agricultural and residential interests has been a defining conflict in California’s history, according to many experts. In March, the Golden State’s cities and towns were ordered to reduce their water usage by 25%. Farmers were exempted from these restrictions, even though agriculture amounts to 80% of water use in the state. Gov. Jerry Brown defended agriculture’s water consumption but has said water rights may need to be re-examined.

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Apr 062015
 
 April 6, 2015  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  


G.G. Bain ‘Casino Theater playing musical ‘The Little Whopper’, NY 1920

7 Unfounded Fears About An Exit From The Euro (Beppe Grillo)
Teachers Warn Of ‘Victorian’ Poverty Among Pupils (BBC)
Once Over $12 Trillion, the World’s Reserves Are Now Shrinking (Bloomberg)
How Criminals Built Capitalism (Bloomberg)
Greek Political Unrest And Deepening Crisis Fuel Talk Of Snap Election (Guar.)
Greek Economy Staring At Recession Again (Kathimerini)
What Happens If Greece Defaults On Its IMF Loans? (Telegraph)
Greece and IMF Hold Talks on Crucial Debt Payment (NY Times)
Varoufakis Meets Lagarde: ‘Greece Will Pay All Creditors Including IMF’ (GR)
How Much Of Brazil’s Economy Got Lost In Petrobras Scandal? (Forbes)
Petrobras Woes Reach Europe, US (Bloomberg)
Japan’s Wary Manufacturers Resist Abe’s Urge To Splurge (Reuters)
The Inbred Bernanke-Summers Debate On Secular Stagnation (Steve Keen)
Leader Of Ukraine Neo Nazi Right Sector Appointed As Army Advisor (Zero Hedge)
Eastern Ukraine Leaders Appeal To Merkel, Hollane To End Embargo (DW)
Saudi Arabia Rejects Russian UN All-Inclusive Arms Embargo on Yemen (RT)
Record Gasoline Output to Curb Biggest US Oil Glut in 85 Years (Bloomberg)
UK Law Changed To Force Nuclear Waste Dumps On Local Communities (Guardian)

Beppe is not just an entertainer.

7 Unfounded Fears About An Exit From The Euro (Beppe Grillo)

1) Mortgages – Mortgages will be converted into the new currency the day we exit the Euro. For anyone with a variable interest rate, this will still remain linked to the Euribor and thus it will remain stable. In relation to mortgages, Italians will benefit.

2) Inflation – Just think that the goods (home, car, telephone) that we want to buy will come down in price. If we don’t spend, the economy stagnates. This is what is happening today with deflation. A low level of inflation is thus necessary to keep the economy going. On the other hand, it mustn’t be too high to avoid devaluing our ability to spend. This won’t happen because Italian products will become more competitive than foreign products and the products that we are obliged to import from abroad (for example: crude oil) have a limited impact on the final price (for example: in the last year the value of the Euro has fallen by about 25% in relation to the dollar, but the high level of customs duties on petrol, has meant that the effect has not been apparent).

3) Current account – Your current account in Euro will be converted into the new currency. But, just even today, you can have a different currency in your bank account. You will still be able to do that after the exit from the Euro. So you could have dollars, Euro, pounds sterling, francs or a new currency.

4) Government bonds – 95% of Italian State bonds will be converted into the new currency (given that 95% are issued in accordance with Italian legislation and so they would inherit the national currency). The State will pay out on them and will issue them in the new currency. Given the low yields and the high risk that we already see right now, Italian State bonds are not a good buy for an Italian citizen.

5) Transition from the Euro to the lira – There’ll probably be a 1 to 1 conversion with the new currency and it will then probably devalue a bit. The effect on prices will probably be that they stay the same as today but they will be given in the new currency.

6) Increase in the price of petrol – The price of petrol is a false problem as most of the price (64%) is paid in taxes. International prices of crude oil and the exchange rate only relate to 26% of the price. If we also consider that the price of crude oil is at a record low right now, an exit from the Euro will surely be no problem from this point of view.

7) Imports: increase in the prices of imported products – This problem, that is particularly important for technology products, can only be resolved by investing in innovation after the destruction of companies like Olivetti and the downsizing of Telecom Italia. Innovation is the only way to develop the country. Staying in the Euro is not going to help. Throughout history, we have exported and traded with the countries nearest to us, but not because they have the Euro, simply because they are the closest and the geographic location has made it easier to trade with them ever since the time of the Roman Empire.

However, the value of exports going into the countries using the Euro, has being going down ever since we joined the Euro. Just in 2007, those accounted for 60%, and today that’s now down to less than 50%. The only areas where the value of our exports is growing is outside the Euro zone as can be seen from research into Italian exports: “emerging markets currently represent the biggest proportion of our exports, while the importance of the Euro area has seen a significant fall“.

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While Cameron is boasting this huge recovery.

Teachers Warn Of ‘Victorian’ Poverty Among Pupils (BBC)

Teachers say they are seeing “Victorian conditions” with pupils arriving at school hungry and not wearing the right clothes needed for the weather. The NASUWT teachers’ union says schools and teachers are increasingly having to deal with the consequences of poor housing and poverty. Teachers reported bringing in their own food to school to give to children. The Conservatives said the number of children in poverty had fallen by 300,000 under the coalition government. The Liberal Democrats said they had helped families by introducing free school meals for all infant children. Tristram Hunt, Labour’s shadow education secretary, warned of the “quiet indignity of poverty that can wreak havoc with a child’s confidence”. He said poverty was one of the “biggest barriers” to pupils achieving in school.

Claims about poverty in the school-age population will be heard at the NASUWT teachers’ union annual conference in Cardiff. The union asked members for their experiences and received almost 2,500 responses. It was not a representative sample of teachers, but among those replying more than two in three reported seeing pupils come to school hungry. “Children in 2015 should not be hungry and coming to school with no socks on and no coats – some children are living in Victorian conditions – in the inner cities,” said one unnamed teacher. Almost one in four of the teachers who responded said they had brought in food for pupils who were hungry, and an even higher proportion had seen the school feeding pupils.

More than three in four had seen pupils arriving at school with “inappropriate clothing” such as no socks or coats in bad weather. Similar numbers claimed that a bad diet meant that pupils were unable to concentrate on their work. More children were being sent home with letters about unpaid school meals and pupils who were sick were still being sent to school because parents could not afford to take time off work, claimed teachers. The comments from the survey suggest teachers felt that they were having to cope with the wider problems linked to family hardship, such as children living in temporary accommodation or relying on food banks.

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All about emerging markets. They’re going to be steamrollered.

Once Over $12 Trillion, the World’s Reserves Are Now Shrinking (Bloomberg)

The decade-long surge in foreign-currency reserves held by the world’s central banks is coming to an end. Global reserves declined to $11.6 trillion in March from a record $12.03 trillion in August 2014, halting a five-fold increase that began in 2004, according to data compiled by Bloomberg. While the drop may be overstated because the strengthening dollar reduced the value of other reserve currencies such as the euro, it still underlines a shift after central banks – with most of them located in developing nations like China and Russia – added an average $824 billion to reserves each year over past the decade. Beyond being emblematic of the dollar’s return to its role as the world’s undisputed dominant currency, the drop in reserves has several potential implications for global markets.

It could make it harder for emerging-market countries to boost their money supply and shore up faltering economic growth; it could add to declines in the euro; and it could damp demand for U.S. Treasury bonds. “It’s a big challenge for emerging markets,” Stephen Jen, a former IMF economist, said. They “now need more stimulus. The seed has been sowed for future volatility,” he said. Stripping out the effect from foreign-exchange fluctuations, Credit Suisse estimates that developing countries, which hold about two-thirds of global reserves, spent a net $54 billion of this stash in the fourth quarter, the most since the global financial crisis in 2008. China, the world’s largest reserve holder, together with commodity producers contributed to most of the declines, as central banks sold dollars to offset capital outflows and shore up their currencies.

A Bloomberg gauge of emerging-market currencies has lost 15% against the dollar over the past year. China cut its stockpile to $3.8 trillion in December from a peak of $4 trillion in June, central bank data show. Russia’s supply tumbled 25% over the past year to $361 billion in March, while Saudi Arabia, the third-largest holder after China and Japan, has burned through $10 billion in reserves since August to $721 billion. The trend is likely to continue as oil prices stay low and growth in emerging markets remains weak, reducing the dollar inflows that central banks used to build reserves, according to Deutsche Bank.

Such a development is detrimental to the euro, which had benefited from purchases in recent years by central banks seeking to diversify their reserves, according to George Saravelos at Deutsche Bank. The euro’s share of global reserves dropped to 22% in 2014, the lowest since 2002, while the dollar’s rose to a five-year high of 63%, the International Monetary Fund reported March 31. “The Middle East and China stand out as two regions that are likely to face ongoing pressures to run down reserves over the next few years,” Saravelos wrote in a note. The central banks there “need to sell euros,” he said.

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By a gut named Clive Crook, no less.

How Criminals Built Capitalism (Bloomberg)

Whenever buyers and sellers get together, opportunities to fleece the other guy arise. The history of markets is, in part, the history of lying, cheating and stealing — and of the effort down the years to fight commercial crime. In fact, the evolution of the modern economy owes more than you might think to these outlaws. That’s the theme of “Forging Capitalism: Rogues, Swindlers, Frauds, and the Rise of Modern Finance” by Ian Klaus. It’s a history of financial crimes in the 19th and early 20th centuries that traces a recurring sequence: new markets, new ways to cheat, new ways to transact and secure trust. As Klaus says, criminals helped build modern capitalism. And what a cast of characters.

Thomas Cochrane is my own favorite. (He was the model for Jack Aubrey in Patrick O’Brian’s “Master and Commander” novels.) Cochrane was an aristocrat and naval hero. At the height of his fame in 1814 he was put on trial for fraud. An associate had spread false rumors of Napoleon’s death, driving up the price of British government debt, and allowing Cochrane to avoid heavy losses on his investments. Cochrane complained (with good reason, in fact) that the trial was rigged, but he was found guilty and sent to prison. The story is fascinating in its own right, and the book points to its larger meaning. Cochrane, in a way, was convicted of conduct unbecoming a man of his position. Playing the markets, let alone cheating, was something a man of his status wasn’t supposed to do.

Trust resided in social standing. As the turbulent century went on, capitalism moved its frontier outward in every sense: It found new opportunities overseas; financial innovation accelerated; and buyers and sellers were ever more likely to be strangers, operating at a distance through intermediaries. These new kinds of transaction required new ways of securing trust. Social status diminished as a guarantee of good faith. In its place came, first, reputation (based on an established record of honest dealing) then verification (based on public and private records that vouched for the parties’ honesty). Successive scams and scandals pushed this evolution of trust along.

Gregor MacGregor and the mythical South American colony of Poyais (“the quintessential fraud of Britain’s first modern investment bubble,” Klaus calls it); Beaumont Smith and an exchequer bill forging operation of remarkable scope and duration; Walter Watts, insurance clerk, theatrical entrepreneur and fraudster; Harry Marks, journalist, newspaper proprietor and puffer of worthless stocks. On and on, these notorious figures altered the way the public thought about commercial trust, and spurred the changes that enabled the public to keep on trusting nonetheless.

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They’ll only do snap if the polls allow for it. Doesn’t look anywhere near.

Greek Political Unrest And Deepening Crisis Fuel Talk Of Snap Election (Guar.)

The worsening Greek debt crisis has reanimated talk within the ruling Syriza party of a snap general election if discussions with creditors fail, as the country faces a Thursday deadline to repay a €450m loan to the IMF. The Greek finance minister, Yanis Varoufakis, was scheduled to hold informal talks with the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday, while warnings of early elections underscored the political unrest in Athens. The slow pace of negotiations with creditors and worsening state of the Greek economy brought a warning from the far-left Syriza of snap polls being held before the summer – just months after winning power. “If we are not satisfied [with the outcome] we will go to the people,” Kostas Chrysogonos, a prominent Syriza MEP told local media at the weekend.

“We have a popular mandate to bring about a better result,” he said of the talks aimed at concluding a reform-for-cash programme to keep the crisis-hit country afloat. “If, ultimately, creditors insist on following an inflexible line … then the electoral body will have to assume its responsibilities.” Varoufakis’ unexpected meeting with the IMF chief has been arranged as senior government officials repeated assurances that Greece was not about to to default on its debt repayments. The deputy finance minister, Dimitris Mardas, said the IMF payment would be made and civil service wages would be paid. “There is money for the payment of salaries, pensions and whatever else is needed in the next week.”

The prospect of renewed political strife in Greece coincided with mounting dissent within Syriza over the extent to which it should roll back on pre-electoral reforms. The anti-austerity government led by Alexis Tsipras has found itself increasingly cornered with creditors – the so-called troika – refusing to endorse proposed reforms under an extension of its €240bn bailout. Militants led by energy minister Panagiotis Lafazanis have ratcheted up the pressure by rejecting any notion of making necessary concessions starting with privatisations.

On Sunday, Lafazanis denounced Greece’s international creditors for treating the country with “unbelievable prejudice and as a colony”. Raising the prospect of a deal with Russia, he said, “A Greek-Russian agreement would help our country greatly in negotiations with lenders.” Despite assertions over the weekend that Sunday’s talks were part of the negotiation process, Athens is believed to harbour hopes that the IMF – which has proved to be a more conciliatory partner than either the EU or ECB in negotiations – will agree to cut the government some slack when Varoufakis discusses the reform programme with Lagarde. On Friday, Syriza’s parliamentary spokesman, Nikos Filis, also piled on the pressure saying Tsipras’ leftist-led coalition would prefer to pay salaries and pensions than bondholders if forced to make a choice.

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“The combination of a better-than-expected tax collection in March, the postponement of some budget expenditures and internal borrowing from some state entities and other sources made it possible for the government to pay both creditors and pensioners and civil servants last month.”

Greek Economy Staring At Recession Again (Kathimerini)

The Greek state may be able to service its debt and pay pensions and salaries to civil servants in April. However, the limited progress in negotiations between the government and the official creditors on the conclusion of the economic policy program increases uncertainty, reduces credit availability and adversely affects domestic demand despite less austerity. The economic damage has increased the risk of recession. The combination of a better-than-expected tax collection in March, the postponement of some budget expenditures and internal borrowing from some state entities and other sources made it possible for the government to pay both creditors and pensioners and civil servants last month. Greece paid an estimated €2.5 billion to the IMF and other creditors in March without including T-bills.

Assuming tax revenues remain on track and more general government entities lend part of their cash reserves to the state, we would expect Greece to be able to meet its obligations to creditors in April but it will face a tougher hurdle in May. It is reminded the state owes about 458 million euros to the IMF on April 9 and has to find an additional €700 million or so for T-bills maturing on April 14 which are held by international investors and most likely will not be rolled over. It will also have to pay €194 million to private bondholders on April 17 and €80 million to the ECB on April 20, according to Bank of America Merrill Lynch (BofA). Deputy Finance Minister Dimitris Mardas, who is in charge of the General Accounting Office, assured recently that the state will make the payment to the IMF on time and pay wages to some civil servants in the middle of the month.

This contrasts with leaks in the press, citing other government officials’ warnings that Greece would run out of money on April 9. Although no one disputes that the central government is in a tough financial position, some abroad suspect these warnings are also part of a Greek strategy to get some funding from the EU via the EFSF or indirectly from the ECB. Even if Greece is able to overcome this hurdle in April, it will have to pass another test in early May, assuming it has not reached an agreement with its creditors by then. It will have to pay €200 million to the IMF on May 1 and an additional €763 million on May 12, according to a recent report by BofA.

Of course, the country has shown that it intends to honor its obligations so far and could be able to continue doing so in the rest of April and even May to the extent that it is able to mobilize the cash reserves of state entities, collect more revenues than targeted in the adjustment program and postpone expenditures to suppliers and others for the future, building arrears.

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This will take until at least June. “According to IMF protocol, Greece would be afforded a 30-day grace period..” They’ll pay on April 9. The next payments are May 1 and 12. Add 30 days to that. That’s when payments to other creditors are due.

What Happens If Greece Defaults On Its IMF Loans? (Telegraph)

The Greek government faces another crucial deadline in its interminable bail-out drama this week, as fears mount that the country could become the first developed nation to ever default on its international obligations. After a harrowing March, cash-strapped Athens now faces a €448m payment to the IMF on Thursday. But with public sector wages and pensions to pay out, a cacophony of voices on Syriza’s Left have vowed to prioritise domestic obligations unless creditors finally unlock the remainder of its €240bn bail-out programme. “We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” a senior Greek official told The Telegraph last week.

The rhetoric is a far cry from February, when Greece’s finance minister pledged his government would “squeeze blood out of a stone” to meet its obligations to the Fund. Yanis Varoufakis will now spend Easter Sunday with IMF director Christine Lagarde in a bid to gain some leeway on the country’s reforms-for-cash programme. Greece owes €9.7bn to the IMF this year. Missing its latest installment in order to pay out its social security bill on April 14, would see the country fall into an arrears process, unprecedented for a developed world debtor. Although no nation has ever officially defaulted on its obligations in the post-Bretton Woods era, Greece would join an ignominious list of war-torn nations and international pariahs who have failed to pay back the Fund on time.

What happens after April 9? Missing Thursday’s payment would not immediately trigger a default however. According to IMF protocol, Greece would be afforded a 30-day grace period, during which it would be urged to pay back the money as soon as possible, and before Ms Lagarde notifies her executive board of the late payment. Following this hiatus, a technical default could be declared a month later, when “a complaint regarding the member’s overdue obligations is issued by the Managing Director to the Executive Board”. In the interim, Greece may well stump up the cash having spooked creditors and the markets of the possibility of a fatal breach of the sanctity of monetary union. Should no money be forthcoming however, the arrears process may well extend indefinitely. Greece’s IMF burden would also start piling up, with the government due to pay another €963m by May 12.

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Very predictable.

Greece and IMF Hold Talks on Crucial Debt Payment (NY Times)

Mr. Varoufakis, from the moment he became finance minister this year, has gone out of his way to cultivate ties with Ms. Lagarde and has said that paying the fund was a priority for Greece. Over the last month, however, the economic situation in Greece has worsened greatly. Deposits worth about €25 billion have been withdrawn from Greek banks, some of which are now on life support with the European Central Bank. The government’s tax collections are also suffering as companies and consumers fret over the prospect that Greece might be forced to abandon the euro. Now, with Europe refusing to permit Greece access to temporary lines of liquidity — such as letting its banks issue more short-term treasury notes — Greece is running out of cash.

Which means that if it were to pay the fund €458 million this Thursday, there might not be enough left in the coffers to pay pensions and public sector wages the next week, some Greek officials say. Mr. Varoufakis, who came to power on a platform of ending the policy of putting the needs of Greece’s creditors above its suffering citizens, was to make the case to Ms. Lagarde that his government could not meet all of its commitments. “This government has made strong statements that they will meet their commitments,” said a person who was involved in the negotiations but was not authorized to speak publicly. The problem is, this person said, Greek officials have made commitments to their own people as well. “They are being pushed to the wall.”

There is some wiggle room. Even if Greece does not pay up on Thursday, it will not be in technical default as there is a 30-day grace period that could allow the government to pay its pension and wage obligations and strike a broader deal so that its creditors could disburse the needed funds. Mr. Varoufakis is also planning to meet with officials in the United States Treasury on Monday in the hope that the United States, as the dominant voice at the I.M.F., might pressure fund officials, and Europe as well, to cut Greece some slack. The United States has been quietly critical of Europe’s harsh stance toward Greece, warning of the consequences that a Greek default and exit from the euro would have on financial markets.

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Hollow phrases exercise.

Varoufakis Meets Lagarde: ‘Greece Will Pay All Creditors Including IMF’ (GR)

Greek Finance Minister Yanis Varoufakis said Greece will pay all its creditors, including the upcoming International Monetary Fund installment, as he was exiting a meeting with IMF managing director Cristine Lagarde in Washington, DC on Sunday April 5. Greece faces a deadline to repay a €450m loan to the International Monetary Fund on April 9th, and many sources had speculated that the crisis-hit country won’t be able to pay the installment. “Greece was a founding member of Bretton Woods institutions,” the Greek Finance Chief noted to reporters outside the IMF. Christine Lagarde made the following statement after the meeting: “Minister Varoufakis and I exchanged views on current developments and we both agreed that effective cooperation is in everyone’s interest. We noted that continuing uncertainty is not in Greece’s interest and I welcomed confirmation by the Minister that payment owing to the Fund would be forthcoming on April 9th.”

“I expressed my appreciation for the Minister’s commitment to improve the technical teams’ ability to work with the authorities to conduct the necessary due diligence in Athens, and to enhance the policy discussions with the teams in Brussels, both of which will resume promptly on Monday. I reiterated that the Fund remains committed to work together with the authorities to help Greece return to a sustainable path of growth and employment.” The Greek finance minister traveled to Washington, DC to hold an informal discussion on the Greek government’s reform program with the IMF’s managing director, Christine Lagarde. The Varoufakis-Lagarde meeting started at 6.15 pm on Sunday and lasted for two hours. The Greek Finance minister is also scheduled to meet with President Obama’s top economic and national security adviser Caroline Atkinson on Monday.

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Lowballing.

How Much Of Brazil’s Economy Got Lost In Petrobras Scandal? (Forbes)

A study out this week in Brazil estimates just how much the country lost to this ugly Petrobras oil scandal. The price tag: R$87 billion ($27.1 billion) that is expected to have been lost in GDP this year because of Petrobras’ corrupt, little ways. All told, that comes out to a little more than 1% of Brazil’s GDP burned up in scandal. Brazil’s GDP is about $2.2 trillion. The study was done by the Getulio Vargas Foundation. It based its estimates on Petrobras planned reduction in investments this year, which will hit oil and gas service firms, construction, engineering and consumer spending. Layoffs in construction will likely take at least R$13.6 billion from federal coffers this year. Two construction companies that colluded with Petrobras in the scandal, OAS and Galvao, have both filed for bankruptcy.

Construction companies are expected to reduce GDP by another R$10 billion, with the Foundation estimating a massive blood-letting in the job market, well into the thousands. Petrobras has yet to release earnings due to its third party auditors fearing repercussions if it signs off on phony accounts. So far, the market has April 30 as the date to discover just what Petrobras earned last year. But that can be delayed because shareholder lawsuits in New York have forced the Securities and Exchange Commission to review the earnings data before it is released to the market. The SEC will have their final say. At least three law firms have filed class action suits against the Brazilian oil giant. New York law firm Pomerantz is lead counsel on the case. Earnings will not include losses accrued from the scandal, the local Estado de Sao Paulo newspaper reported this week.

The newspaper also said that changes to the way auditors and regulators are reviewing Petrobras’ books might work in the oil firm’s favor. Last year, Deloitte said that Petrobras inflated its assets to the tune of R$88.6 billion. That number is expected to decline by at least half. Petrobras’ ex-CEO Maria Gracas Foster and her auditing firm PricewaterhouseCoopers are part of the shareholder lawsuit along with Brazilian bank Itau Unibanco. Estimates are for Brazil’s economy to contract by around 0.5% this year. “Brazil’s problems are all domestic and you can trace it to Petrobras,” says economist Alex Wolf at Standard Life Investments. “Consumer sentiment is down, unemployment is up slightly and investment is still down. We think Brazil is one of the most vulnerable emerging markets around.”

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“It’s a stark reversal from five years ago when a wave of European and US oil-services companies eagerly flocked to Brazil to build plants and set up offices.”

Petrobras Woes Reach Europe, US (Bloomberg)

When Italian oil services company Saipem spent $300 million at the start of the decade in Brazil, it joined a long list of foreign companies jockeying for business with Petrobras. Now it’s struggling to get paid. Saipem is one of at least five European companies that spoke about late payments, delivery delays or other difficulties in Brazil during fourth-quarter earnings calls. While day-to-day operations are functioning, Petrobras partners are also facing decision-making obstacles that are inhibiting planning, said officials at partners Galp Energia, BG Group and Repsol who asked not to be named. It’s a stark reversal from five years ago when a wave of European and US oil-services companies eagerly flocked to Brazil to build plants and set up offices.

Back then, Petrobras was ramping up investments to more than $100 million a day after making the Western Hemisphere’s biggest crude finds in decades. Today, Petrobras is slashing spending as oil prices plunge and it’s all but locked out of credit markets because of a sweeping corruption scandal. “Brazil’s a big market,” Terje Soerensen, CEO of Norwegian Siem Offshore, said in a telephone interview. “When that stops, it affects the entire industry.” Siem doesn’t know if the four to six vessels it had marked for Brazilian contracts will be needed now, Soerensen said. Saipem executives said in a February 16 earnings call that some payments from Petrobras were late. Norway’s Aker CEO Luis Araujo said in a March 17 interview that the company was asked to delay equipment deliveries.

Vallourec, a French oil-pipeline maker, and Alfa Laval, a Swedish oil industry engineering firm, also cited a difficult business environment in February conference calls. US oilfield-service providers Halliburton and Schlumberger echoed similar concerns. Halliburton sees activity continuing to decline in Brazil, President Jeff Miller said in a conference call earlier this year. The spending cuts Petrobras has announced will create “challenges” this year, Schlumberger CEO Paal Kibsgaard said.

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“But Japan’s bankers are laughing all the way to the…”

Japan’s Wary Manufacturers Resist Abe’s Urge To Splurge (Reuters)

Hirotoshi Ogura, a self-described “factory geek”, is Daikin Industries’ master of doing more with less – and part of the reason Japan’s recovery remains stuck in the slow lane. As Japan heads into the season of peak demand for room air-conditioners, Ogura and other Daikin managers have been tasked with figuring out how to boost output by some 20% at a plant in western Japan that six years ago the company had almost given up on as unprofitable. The wrinkle: they have no budget for new capital investment at the 45-year-old Kusatsu plant.

The still-evolving workaround shown to a recent visitor involves home-made robots for ferrying parts, experimental systems using gravity rather than electricity to power parts of the line, more temporary workers on seasonal contracts and dozens of steps to chip away at the 1.63 hours it takes to make a typical new air conditioner. “We can do a lot without spending anything,” says Ogura, a 33-year Daikin veteran who joined the company just after high school. “Anything we need, we first try to build ourselves.” Like Daikin, a number of Japanese manufacturers are shifting production back to Japan from China and elsewhere to take advantage of a weaker yen.

Rival Panasonic has pulled back some production of room air-conditioners, Sharp has brought back production of some refrigerators, and Canon has repatriated some output of high-end copiers, according to a list compiled by Nomura. But even as output recovers, Japanese companies remain cautious about new capital investment in factories and equipment. The trend is especially pronounced for smaller firms down the supply chain. After increasing capital spending by 6% in the just-completed fiscal year, small manufacturers plan a 14% decrease in the current year, according to the Bank of Japan’s quarterly survey released this week. Big manufacturers like Daikin plan a 5% increase, but overall investment remains 10% below pre-crisis 2007 levels.

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Economics and inbreeding.

The Inbred Bernanke-Summers Debate On Secular Stagnation (Steve Keen)

Ben Bernanke has recently started blogging (and tweeting), and his opening topics were why interest rates are so low around the world, and a critique of Larry Summers’ “secular stagnation” explanation for this phenomenon, and for persistent low growth since the financial crisis. Summers then replied to Bernanke’s argument, and a debate was on. So who is right: Bernanke who argues that the cause is a “global savings glut”, or Summers who argues that the cause is a slowdown in population growth, combined with a dearth of profitable investment opportunities, not only now but for the foreseeable future? I’d argue both of them, and neither simultaneously—both, because they can both point to empirical data that support their case; neither, because they are only putting forward explanations that are consistent with their largely shared view of how the economy works.

And the extent to which they are the product of a single way of thinking about the world simply cannot be exaggerated. It goes well beyond merely belonging to the same school of thought within economics (the “Neoclassical School” as opposed to the “Austrian”, “Post Keynesian”, “Marxist” etc.), or even the same sect within this school (“New Keynesian” as opposed to “New Classical”). Far beyond. They did their graduate training in the same economics department at the Massachusetts Institute of Technology (MIT). They attended the same macroeconomics class: Stanley Fisher’s course in monetary economics at MIT for graduate students (was it the same year—does anybody know?) Some of their fellow Fisher alumni included Ken Rogoff and Olivier Blanchard.

And that’s not all—far from it. Paul Samuelson (MIT) was overwhelming the intellectual architect of what most people these days think is Keynesian economics. Paul Samuelson is Larry Summers’ uncle. Samuelson’s “Foundations of Economic Analysis” was the core of the MIT approach to economics, and it became the model for economics textbooks around the world. Gregory Mankiw’s (PhD, MIT) market-dominating text today is a pale echo of Samuelson’s original. This group has been notably dismissive of other approaches to doing economics. Krugman (PhD MIT) leads the pack here, deriding views that are outside this mindset.

If I were describing a group of thoroughbred horses, alarm bells would already be ringing about a dangerous level of in-breeding. Sensible advice would be proffered about the need to inject new blood into this dangerously limited breeding pool. But the issue would only be of importance to the horseracing community. Instead I am talking about a set of individuals whose ideas have had enormous influence upon both the development of economic thought and the formation of economic policy around the globe for the last four decades. The fact that so much of the dominant approach to thinking about the economy emanates, not merely from such a limited perspective, but from such a limited and interconnected pool of people, should be serious cause for alarm – especially given how the world has fared under the influence of this thoroughbred group.

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Time to stop our support right here and now.

Leader Of Ukraine Neo Nazi Right Sector Appointed As Army Advisor (Zero Hedge)

With Greece on the verge of either getting kicked out of Europe or suffer through yet another government overhaul, one which many suggest may usher the “last” option for Greece, the ultra nationalist, neo-Nazi Golden Dawn party into governance, some wonder if it is not Europe’s ulterior intention to force a populist shift toward right wing, nationalist parties (perhaps best observed in France where Marine le Pen’s dramatic rise to power has left many dazed and confused) one which will lead to social instability and shortly thereafter, war (because in a world in which every Keynesian voodoo trick to revive the economy has failed, war is the last remaining outcome).

So while we await to see if Europe’s turn to ultra right wing movements accelerates in the coming months, we just learned of a very disturbing development in just as insolvent Ukraine, where moments ago the website of the local Ministry of Defense reported that Dmytro Yarosh, leader of Ukraine’s “Right Sector” political party, whose political ideology has been described as nationalist, ultranationalist, neofascist, right-wing, or far right, was just appointed as Advisor to Chief of General Staff. From the Ukraine ministry of defense:

Dmytro Yarosh appointed as Advisor to Chief of General Staff – Dmytro Yarosh, leader of ‘Pravyi Sector’ (Right Sector) political party, appointed as Advisor to Chief of General Staff. Yesterday, Colonel General Viktor Muzhenko, Chief of General Staff, and Dmytro Yarosh agreed the format of cooperation between ‘Pravyi Sector’ and the Ukrainian Armed Forces. Colonel General Viktor Muzhenko stressed the Ukrainian army had become one of the strongest armies of Europe; the Ukrainian soldiers proved they knew how to fight and appreciated the contribution of volunteer battalions to defense of Ukraine and said: “We understand the needs of changes and increase of efficiency at all the army levels. We also consider various models of formation of the army reserve.

We are developing the reforms and will implement them. We gathered all the patriots and defenders of Ukraine under single leadership. The enemy understands our unity and that its attempts end in failure. We have one goal and the united Ukraine. The Army becomes stronger each week”. Dmytro Yarosh underlined the unity was the key precondition for further successful fighting and demonstrated the readiness to establish the cooperation and integration of volunteer battalions to the Ukrainian Armed Forces. ‘Pravyi Sector’ is ready to be subordinated to military leaders in issues related to defense of state from the external enemy.

In other words, the leader of Ukraine’s Neo-Nazis will, as a local “patriot and defender of Ukraine” be advising, i.e., fighting for, what little remains of Ukraine’s army. Sadly the parallels with Europe of the 1920s and 1930s, not to mention the decade just following, grow more visible with every passing day.

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“..the UN warned in December that Kyiv’s embargo might be a violation of its obligations to citizens in the rebel-held territory.”

Eastern Ukraine Leaders Appeal To Merkel, Hollande To End Embargo (DW)

Alexander Zakharchenko and Igor Plotnitsky, the elected leaders of Donetsk and Luhansk, called for an end to Kyiv’s embargo on government services in eastern Ukraine on Saturday. In an open letter to Chancellor Angela Merkel and President Francois Hollande, they asked the leaders who helped negotiate the ceasefire in Ukraine to use their “influence to encourage Ukrainian offices to begin paying out welfare services to Donbass residents once again.” The government in Kyiv placed an embargo on social services to the country’s eastern residents in November following what it deemed illegal elections that gave power to Zakharchenko and Plotnitsky.

Although the EU, the US and the UN also condemned the polls, the UN warned in December that Kyiv’s embargo might be a violation of its obligations to citizens in the rebel-held territory. “The fate for many [in those areas] may well be life-threatening,” the Office of the UN High Commissioner for Human Rights said.” Kyiv had not only ceased paying out pensions, but had also relocated hospitals, schools and prisons, leaving a what the UNHCHR described as a “severe protection gap.”

The open letter to Merkel and Hollande also pointed to numerous violations of a ceasefire, which was implemented in February. Both Kyiv and Donbass have blamed each other for not upholding the truce. Over the weekend, three soldiers were killed by a landmine near Donetsk. Those were the first deaths reported since Monday, when one soldier was killed. Fighting in the region has claimed roughly 6,000 lives since last spring.

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The whole world should speak up against this warfare. Where’s the US?

Saudi Arabia Rejects Russian UN All-Inclusive Arms Embargo on Yemen (RT)

Saudi Arabia has rejected Russia’s amendments to a Security Council draft resolution which would see an all-inclusive arms embargo on all parties in the Yemeni conflict, as it continues to spiral out of control with civilian death toll climbing up. “There is little point in putting an embargo on the whole country. It doesn’t make sense to punish everybody else for the behavior of one party that has been the aggressor in this situation,”Saudi Arabia’s representative to the UN Abdallah Al-Mouallimi said after a closed emergency UN Security Council meeting on Saturday. Al-Mouallimi added that he “hopes” Russia won’t resort to its veto power in case the all-inclusive embargo clause is not added into the draft submitted by the Gulf Cooperation Council that urges an arms embargo only on the Houthis.

At the same time, Riyadh agreed with Moscow’s calls for need of “humanitarian pauses” in the Saudi-led coalition’s air campaign in Yemen – though saying that Saudi Arabia already cooperates fully in this regard. “We always provided the necessary facilities for humanitarian assistance to be delivered,” Al-Mouallimi told reporter heading out of the meeting. “We have cooperated fully with all requests for evacuation.” Moscow convened an emergency meeting on a draft resolution demanding “regular and obligatory” breaks in air assaults against Houthi rebels, in which many civilians keep dying in increasing numbers. The Russian-proposed draft circulated on Saturday demanded “rapid, safe and unhindered humanitarian access to ensure that humanitarian assistance reaches people in need.”

The current council president and Jordan’s Ambassador Dina Kawar said that the council members “need time” to consider the Russian draft resolution, adding that the talks would continue. “We hope that by Monday we can come up with something,” Kawar said. The 15-member council is considering the possibly of merging the Russian and Gulf Cooperation Council proposed drafts into one. The Security Council meeting coincided with the call from the International Committee of the Red Cross for a “humanitarian pause.” The NGO urged to break hostilities for at least 24 hours. “We urgently need an immediate halt to the fighting, to allow families in the worst affected areas, such as Aden, to venture out to get food and water, or to seek medical care,” said Robert Mardini, head of the ICRC’s operations in the Near and Middle East.

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As per these geniuses, Americans are going to drive like crazy. Storage problem? Just make gasoline! It’s the Forrest Gump approach.

Record Gasoline Output to Curb Biggest US Oil Glut in 85 Years (Bloomberg)

Refiners are poised to make gasoline at a record pace this year, keeping the biggest U.S. crude glut in more than 80 years from overflowing storage. They’re enjoying the best margins in two years as they finish seasonal maintenance of their plants before the summer driving season. They’ll increase output to meet consumer demand and they’ve added more than 100,000 barrels a day of capacity since last summer, when they processed the most oil on record. Booming crude production expanded inventories this year by 86 million barrels to 471 million, the highest level since 1930. Analysts from BofA to Goldman Sachs have said storage space may run out. What looks like an oversupply to banks is turning into an all-you-can-eat buffet for those making gasoline and diesel fuel.

“A lot of the excess crude we’ve been sitting on is going to get chewed up quickly,” Sam Davis at Wood Mackenzie, said in Houston April 2. “We’re going to move from a stock build to a stock draw.” Goldman Sachs and Bank of America have said storage builds are increasing the risk of breaching storage capacity, sending prices tumbling. West Texas Intermediate, the U.S. benchmark, already has lost more than half its value since June as growing U.S. shale production led to a global oversupply. Inventories surged as U.S. output rose 71% over the past five years as drillers used techniques like horizontal drilling and hydraulic fracturing to tap previously inaccessible oil in shale rock layers.

In Cushing, Oklahoma, the delivery point for WTI futures, supplies have more than tripled since early October to a record 58.9 million barrels. Last July, refiners processed 16.5 million barrels of crude a day, the highest level in monthly Energy Department data going back to 1961. Refining margins in March have averaged $28.09 a barrel, the most since March 2013. Refiners typically schedule maintenance shutdowns in the spring and fall, reducing oil demand during that time. U.S. refiners increased crude runs by an average 1.1 million barrels a day in April through July over the past five years. During that period, U.S. crude inventories have fallen an average of 24.7 million barrels from the end of May through September.

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Just lovely.

UK Law Changed To Force Nuclear Waste Dumps On Local Communities (Guardian)

Nuclear waste dumps can be imposed on local communities without their support under a new law rushed through in the final hours of parliament. Under the latest rules, the long search for a place to store Britain’s stockpile of 50 years’ worth of the most radioactive waste from power stations, weapons and medical use can be ended by bypassing local planning. Since last week, the sites are now officially considered “nationally significant infrastructure projects” and so will be chosen by the secretary of state for energy. He or she would get advice from the planning inspectorate, but would not be bound by the recommendation. Local councils and communities can object to details of the development but cannot stop it altogether.

The move went barely noticed as it was passed late on the day before parliament was prorogued for the general election, but has alarmed local objectors and anti-nuclear campaigners. Friends of the Earth’s planning advisor, Naomi Luhde-Thompson, said: “Communities will be rightly concerned about any attempts to foist a radioactive waste dump on them. We urgently need a long-term management plan for the radioactive waste we’ve already created, but decisions mustn’t be taken away from local people who have to live with the impacts.” Objectors worry that ministers are desperate to find a solution to the current radioactive waste problem to win public support to build a new generation of nuclear power stations.

Zac Goldsmith, one of the few government MPs who broke ranks to vote against the move, criticised the lack of public debate about such a “big” change. “Effectively it strips local authorities of the ability to stop waste being dumped in their communities,” he said. “If there had been a debate, there could have been a different outcome: most of the MPs who voted probably didn’t know what they were voting for.”

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Mar 072015
 
 March 7, 2015  Posted by at 11:28 am Finance Tagged with: , , , , , , ,  


Wyland Stanley Bulletin press car: Mitchell auto at Yosemite National Park 1920

A Fair Hearing For Sovereign Debt (Stiglitz/Guzman)
Berlin Alarmed by Aggressive NATO Stance on Ukraine (Spiegel)
Week of Milestones for US Stocks Spoiled by Fed Rate Anxiety (Bloomberg)
Dear Janet Yellen: We’re Nowhere Close To Full Employment (MarketWatch)
‘A Conspiracy Of Silence’: HSBC, Guardian And The Defrauded British Public (ML)
Almost 100 Families Evicted Daily In Spain (RT)
It Might Be Time To Panic About Greek Government Bonds (John Dizard)
Greek And German Bruisers Limber Up For ‘Rumble In The Eurozone’ (AFP)
Europe Holds ‘Noose Around Greek Necks’ Says PM Tsipras (Telegraph)
Time For Greece To Plan Its Exodus From The Euro (MarketWatch)
Greece Sends Proposals, But No Decision Due At Monday’s Eurogroup (Kathimerini)
Cash-Strapped Greece Repays First Part Of IMF Loan Due In March (Reuters)
Greece Wants Immediate Talks With Troika On Bailout, Eyes Follow-up Deal (Reuters)
The Noise From Brazil? An Economy On The Brink (Guardian)
Brazil Supreme Court Clears Probe of Top Lawmakers Amid Petrobras Scandal (WSJ)
Petrobras Has a $13.7 Billion Yard Sale (Bloomberg)
RBS Top Bankers Received Millions Despite £3.5 Billion Loss (Guardian)
EU To Hold Immigrants At Bay With Third-Country Asylum Centers (RT)
ISIS Generates Up To $1 Billion Annually From Trafficking Afghan Heroin (RT)

“..simple modifications like contract amendments will not overcome the system’s deficiencies.”

A Fair Hearing For Sovereign Debt (Stiglitz/Guzman)

Last July, when United States federal judge Thomas Griesa ruled that Argentina had to repay in full the so-called vulture funds that had bought its sovereign debt at rockbottom prices, the country was forced into default, or “Griesafault”. The decision reverberated far and wide, affecting bonds issued in a variety of jurisdictions, suggesting that US courts held sway over contracts executed in other countries. Ever since, lawyers and economists have tried to untangle the befuddling implications of Griesa’s decision. Does the authority of US courts really extend beyond America’s borders? Now, a court in the UK has finally brought some clarity to the issue, ruling that Argentina’s interest payments on bonds issued under UK law are covered by UK law, not US judicial rulings.

The decision – a welcome break from a series of decisions by American judges who do not seem to understand the complexities of global financial markets – conveys some important messages. First and foremost, the fact that the Argentinian debt negotiations were pre-empted by an American court – which was then contradicted by a British court – is a stark reminder that market-based solutions to sovereign-debt crises have a high potential for chaos. Before the Griesafault, it was often mistakenly assumed that solutions to sovereign-debt repayment problems could be achieved through decentralised negotiations, without a strong legal framework. Even afterwards, the financial community and the IMF hoped to establish some order in sovereign-bond markets simply by tweaking debt contracts, particularly the terms of so-called collective-action clauses (which bind all creditors to a restructuring proposal approved by a supermajority).

But simple modifications like contract amendments will not overcome the system’s deficiencies. With multiple debts subject to a slew of sometimes-contradictory laws in different jurisdictions, a basic formula for adding the votes of creditors – which supporters of a market-based approach have promoted – would do little to resolve complicated bargaining problems. Nor would it establish the exchange rates to be used to value debt issued in different currencies. If these problems are left to markets to address, sheer bargaining power, not considerations of efficiency or equity, will determine the solutions. The consequences of these deficiencies are not mere inconveniences. Delays in concluding debt restructurings can make economic recessions deeper and more persistent, as the case of Greece illustrates.

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Finally some sense?

Berlin Alarmed by Aggressive NATO Stance on Ukraine (Spiegel)

It was quiet in eastern Ukraine last Wednesday. Indeed, it was another quiet day in an extended stretch of relative calm. The battles between the Ukrainian army and the pro-Russian separatists had largely stopped and heavy weaponry was being withdrawn. The Minsk cease-fire wasn’t holding perfectly, but it was holding. On that same day, General Philip Breedlove, the top NATO commander in Europe, stepped before the press in Washington. Putin, the 59-year-old said, had once again “upped the ante” in eastern Ukraine – with “well over a thousand combat vehicles, Russian combat forces, some of their most sophisticated air defense, battalions of artillery” having been sent to the Donbass. “What is clear,” Breedlove said, “is that right now, it is not getting better. It is getting worse every day.”

German leaders in Berlin were stunned. They didn’t understand what Breedlove was talking about. And it wasn’t the first time. Once again, the German government, supported by intelligence gathered by the Bundesnachrichtendienst (BND), Germany’s foreign intelligence agency, did not share the view of NATO’s Supreme Allied Commander Europe (SACEUR). The pattern has become a familiar one. For months, Breedlove has been commenting on Russian activities in eastern Ukraine, speaking of troop advances on the border, the amassing of munitions and alleged columns of Russian tanks. Over and over again, Breedlove’s numbers have been significantly higher than those in the possession of America’s NATO allies in Europe. As such, he is playing directly into the hands of the hardliners in the US Congress and in NATO.

The German government is alarmed. Are the Americans trying to thwart European efforts at mediation led by Chancellor Angela Merkel? Sources in the Chancellery have referred to Breedlove’s comments as “dangerous propaganda.” Foreign Minister Frank-Walter Steinmeier even found it necessary recently to bring up Breedlove’s comments with NATO General Secretary Jens Stoltenberg. But Breedlove hasn’t been the only source of friction. Europeans have also begun to see others as hindrances in their search for a diplomatic solution to the Ukraine conflict. First and foremost among them is Victoria Nuland, head of European affairs at the US State Department. She and others would like to see Washington deliver arms to Ukraine and are supported by Congressional Republicans as well as many powerful Democrats.

Indeed, US President Barack Obama seems almost isolated. He has thrown his support behind Merkel’s diplomatic efforts for the time being, but he has also done little to quiet those who would seek to increase tensions with Russia and deliver weapons to Ukraine. Sources in Washington say that Breedlove’s bellicose comments are first cleared with the White House and the Pentagon. The general, they say, has the role of the “super hawk,” whose role is that of increasing the pressure on America’s more reserved trans-Atlantic partners.

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Not too much sense, though.

EU To Prepare Possible New Sanctions On Russia Over Ukraine (Reuters)

Britain’s foreign minister said on Friday the European Union would prepare possible new sanctions on Russia for its involvement in the Ukraine conflict that could be imposed quickly if the Minsk ceasefire agreement is broken. Both Kiev and pro-Russia separatists have accused each other of violence since last month’s peace deal that calls for heavy weapons to be withdrawn from the frontline in east Ukraine. “The European Union will remain united on the question of sanctions, sanctions must remain in place until there is full compliance (with the Minsk agreement),” Philip Hammond said. “We will prepare possible new sanctions, which could be imposed quickly if there is further Russian aggression or if the Minsk agreement is not complied with,” he said.

Hammond also said Britain does not have immediate plans to supply Kiev with weapons, but it is “not ruling anything out for the future” as the situation in east Ukraine remains “dynamic”. At a joint conference with his British counterpart in Warsaw, Polish Foreign Minister Grzegorz Schetyna said new sanctions could be imposed if, for example, separatists attack Ukraine’s port city of Mariupol, but a move such as excluding Russia from the SWIFT payments system was an extreme option. “(Exclusion) from SWIFT is the ‘nuclear’ option, this is an extreme option and there is a long list of sanctions that may be used before that,” he said. “Also, the truth is that it is a ‘double-edged sword’.”

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What comes up…

Week of Milestones for US Stocks Spoiled by Fed Rate Anxiety (Bloomberg)

The specter of the Federal Reserve raising interest rates spoiled a week of milestones for U.S. equities. The Standard & Poor’s 500 Index capped a sixth year of the bull market, the Nasdaq Composite Index topped 5,000 for the first time in 15 years and Apple Inc., the world’s largest company by market value, gained admission to the Dow Jones Industrial Average. None of that stopped benchmarks from notching their worst week since January, as concern mounted that the monetary stimulus that helped equities triple from March 2009 will soon end, after a surge in hiring fueled speculation the Fed will raise borrowing costs this year.

The S&P 500 lost 1.6% in the five days, trimming its gain in 2015 to 0.6%, worst among 24 developed-nation markets. “It’s definitely been a week of milestones,” Russ Koesterich, the New York-based chief investment strategist at BlackRock, said in a phone interview. “People are obviously taking a pause as valuations aren’t cheap. This is all about rates. The ultra-dovish view that it won’t happen until next year is much less likely.” The S&P 500 tumbled 1.4% in the final session of the week after data showed employers added 295,000 workers to payrolls in February, more than forecast, and the unemployment rate dropped to 5.5%, the lowest in almost seven years.

The jobless rate has now reached the Fed’s range for what it considers full employment, keeping policy makers on course to raise interest rates this year as persistent job growth sets the stage for a pickup in wages. Three rounds of Fed bond-buying and near-zero interest rates have helped the S&P 500 rally more than 200% since its bear-market low on March 9, 2009. The current bull market, lasting almost 2,200 days, is about two months away from overtaking the 1974-1980 run as the third longest since 1929. The gauge hasn’t had a 10% drop since 2011.

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She doesn’t care. She wants the narrative, not reality.

Dear Janet Yellen: We’re Nowhere Close To Full Employment (MarketWatch)

The unemployment rate fell to 5.5% in February, dropping to a level that some might call “full employment.” The Federal Reserve has said that, in the long run, the unemployment rate can’t go much below 5.2% to 5.5% without fostering a lot of unwanted inflation. With the February report, we’ve crossed that line. Already, the Fed is under a lot of pressure to raise interest rates this summer to make sure inflation doesn’t get too high. The February jobs report adds to that pressure. There’s just one problem: Inflation isn’t too high, and there’s no sign that inflation will suddenly accelerate. In fact, the main concern right now is that the inflation rate is too low. The Fed has long operated under a theory that there’s a limit to how low unemployment can safely go. This rate is known as the “non-accelerating inflation rate of unemployment,” or NAIRU.

The Fed has pegged this number at 5.2% to 5.5%. The argument goes like this: At low levels of unemployment, companies can’t find the workers they need without offering more pay. Once companies get into a bidding war for skilled workers, everyone’s pay goes up. And to pay those wages, companies need to raise their selling prices. Voilà! Inflation. It’s a tidy argument that might have made a lot of sense in 1979, but in today’s economy, there’s no sign that the labor market is so tight that wages are being bid up, even though lots of policy makers and private-sector economists are positive that inflationary wages are coming any day now, that they are right around the corner, just you wait. They’ve been saying that for months.

Here are the facts. According to the Bureau of Labor Statistics, average hourly earnings (wages) for all private-sector workers are up 2% in the past 12 months, about the same wage growth we saw last year and the year before that and the year before that. Average hourly wages for the 80% of workers who aren’t supervisors are up 1.6% in the past year, down from the 2.5% growth reported a year ago. The Employment Cost Index, which is a little more sophisticated than the average hourly wages report, tells a similar story: Wages and benefits are up 2.3% in the past year, up from 2% in the year before that. The ECI shows a little acceleration in compensation, but Fed Chair Janet Yellen has said that workers’ compensation can grow at about 3% to 4% without engendering any inflationary pressures. We’re still a long way from there.

Does anyone really think we’re close to full employment today? Officially, there are 8.7 million people who were actively searching for work last month, plus another 6.5 million people who didn’t look last month but who say they want a job. Plus another 6.6 million who want to work full-time but can only get a part-time job. That’s nearly 22 million people who are unemployed or underemployed. They deserve a shot at a job that pays a living wage. The Fed should think about them, rather than pay attention to a phantom inflation problem.

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Go Nafeez!

‘A Conspiracy Of Silence’: HSBC, Guardian And The Defrauded British Public (ML)

The corporate media have swiftly moved on from Peter Oborne’s resignation as chief political commentator at the Telegraph and his revelations that the paper had committed ‘a form of fraud’ on its readers over its coverage of HSBC tax evasion. But investigative journalist Nafeez Ahmed has delved deeper into the HSBC scandal, reporting the testimony of a whistleblower that reveals a ‘conspiracy of silence’ encompassing the media, regulators and law-enforcement agencies. Not least, Ahmed’s work exposes the vanity of the Guardian’s boast to be the world’s ‘leading liberal voice’.

Last month, the corporate media, with one notable exception, devoted extensive coverage to the news that the Swiss banking arm of HSBC had been engaged in massive fraudulent tax evasion. The exception was the Telegraph which, as Oborne revealed, was desperate to retain advertising income from HSBC. But now Ahmed reports another ‘far worse case of HSBC fraud totalling an estimated £1 billion, closer to home’. Moreover, it has gone virtually unnoticed by the corporate media, for all the usual reasons. According to whistleblower Nicholas Wilson, HSBC was ‘involved in a fraudulent scheme to illegally overcharge British shoppers in arrears for debt on store cards at leading British high-street retailers’ including B&Q, Dixons, Currys, PC World and John Lewis. Up to 600,000 Britons were defrauded.

Wilson uncovered the crimes while he was head of debt recovery for Weightmans, a firm of solicitors acting on behalf of John Lewis. But when he blew the whistle, his employer sacked him. He has spent 12 years trying to expose this HSBC fraud and to help obtain justice for the victims. The battle has ‘ruined his life’, he said during a brief appearance on the BBC’s The Big Questions, the only ‘mainstream’ coverage to date.

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Europe’s recovery symbol.

Almost 100 Families Evicted Daily In Spain (RT)

At least 95 families were evicted every day in Spain in 2014, fresh statistics say as Spaniards struggle to meet mortgage payments. Home foreclosures have become a stark symbol of the 7-year economic crisis, with 2014 seeing a further rise in numbers. The number of foreclosures on all types of residences, including holiday homes, offices and farms, reached 119,442 last year, almost 10% higher than in 2013, according to data from the National Statistics Institute. Foreclosure procedures on main residences rose to 34,680 families in 2014, an increase of 7.4% over the previous year.

Andalusia, Catalonia and Valencia were the worst-affected regions. Evictions have become a symbol of the economic crisis Spain has been struggling with since 2008. Most of them were connected to mortgages taken out during property booms in 2006 and 2007. The situation has provoked nationwide protest. Campaigners often rally outside homes in an attempt to prevent residents from having to spend the night in the street. They are calling on the country’s authorities to make more housing available, or allow vacant housing following developers’ bankruptcies to be used.

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“The problem with taxing the shipowners is that it would take only 24 hours for them to reflag their entire fleet..”

It Might Be Time To Panic About Greek Government Bonds (John Dizard)

Judging by the prices of Greek government bonds, the investing community seems to have overcome its blind, unreasoning panic about the Syriza-led government that took office in January. In the past five weeks, the 10-year benchmark yield has dropped from a peak of about 11.2% to just over 9.5%. This is good. Blind, unreasoning panic is wrong. I think it might be time for open-eyed, reasoned panic about traded Greek Government bonds. They might look cheap compared to negative yield German bonds, or zero yield GDF Suez bonds, but they will get even cheaper later this year. If you own them, sell them. Bond investors have been lulled too quickly by the truce declared between Greece and its European creditors.

Not that Greece will necessarily default on the already-haircut issues held by the private sector. The principal payments will not be due for another eight years or so, and the interest payments are not very burdensome. Those bonds are now governed by English law, which makes them rather more enforceable than the old “local law” Greek debt. The Syriza cabinet recognises these facts. The problem is that the Greek government will run out of cash to pay its operating expenses in full by the summer, or even sooner, and neither the Europeans nor anyone else will give them enough new money to pay its bills. That means the Syriza cabinet will have to tell public sector employees and pensioners that part of their income will be paid in (transferable) IOUs, which will plunge to a steep discount.

The leaders can blame Germans, oligarchs, neoliberal economists or Martians, but a lot of their core supporters will be unhappy, and quite open about their feelings. The eurogroup political leadership and the eurocracy are prepared for this. Their recent civil exchange of letters represents a truce, not a peace. The eurogroupies know that there is no mutually acceptable deal to be had with the Syriza government. So their silent intention is to negotiate with the next government, whoever that might be, after the Greek government is forced to call for an early election. Things have to get pretty bad for that to happen; after all, Syriza just won fair and square less than two months ago, and their policies are supported by a majority of the Greek public. Bad enough for those 9.5% yields to look a bit thin on a risk-adjusted basis. And they will.

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Greece does good cop bad cop pretty well.

Greek And German Bruisers Limber Up For ‘Rumble In The Eurozone’ (AFP)

They are both tough men of a certain age used to getting their way. In one corner stands Wolfgang Schaeuble, the dry 72-year-old German Finance Minister and self-appointed guardian of the European Union’s fiscal orthodoxy. And at the opposite end of Europe’s austerity divide glowers former Communist Panagiotis Lafazanis, Greece’s obdurate new energy and output minister. Schaeuble and Lafazanis, 63, have not yet sat down together around a negotiating table in Brussels, but a clash between them is unavoidable nonetheless as Athens and Berlin square up for another bail-out showdown. Lafazanis is responsible for some of Greece’s main state companies that were slated to be privatized under the rescue plan agreed with the EU and the International Monetary Fund.

These include dominant electricity provider PPC, state gas distributor DEPA and leading refiners HELPE. State stakes in all three were to be sold to private investors as part of the Greece’s bail-out deal until January, when the new hard-left Syriza government pulled the plug on the plan. “No privatisation will be held in the energy sector – neither at PPC, nor at DEPA nor at HELPE,” Lafazanis said at the time. When electricity workers were given a pay rise this week – to general consternation – the ministry did not object. Schaeuble, however, insists on the new Greek government honoring the country’s existing pledges, and he has castigated Syriza for making promises they cannot afford to keep.

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Juncker will need to act.

Europe Holds ‘Noose Around Greek Necks’ Says PM Tsipras (Telegraph)

Greece’s prime minister has accused the ECB of holding a noose around the country’s neck as his government rushes to assure creditors it can avert bankruptcy this month. Speaking in an interview with Der Spiegel magazine, Alexis Tsipras appealed to the ECB to alleviate pressure on the cash-strapped country. The ECB “is still holding the rope which we have around our necks” said Mr Tsipras, referring to the central bank’s reluctance to resume ordinary lending to Greek banks at a meeting in Cyprus on Thursday. The central bank has also rebuffed Greek appeals to raise the limit on short-term debt issuance, as it faces €6.5bn in payments over the next three weeks. Should the ECB continue to resist Greek pleas for assistance, “the thriller we saw before February 20 will return” warned Mr Tsipras, referring to the market turmoil which gripped the country as it carried out protracted negotiations with its creditors.

Greece made its first €300m payment to the International Monetary Fund on Friday. It faces another €1.2m in loan redemptions to the Fund before the end of the month. But the government is scrambling to find the funds it needs to meet its obligations to creditors in March. Athens is not due to receive €7.2bn of bail-out money before April. ECB president Mario Draghi said a collateral waiver on Greek bonds would only be reinstated once “a successful completion of the bail-out review be put in place”. Greek banks are having to rely on an a form of expensive emergency funding to stay afloat as capital has rushed out of the country. Ahead of a meeting of European ministers on Monday, Greece’s Yanis Varoufakis submitted an 11-page list of reforms his government intends to carry out to unlock the vital cash it needs from its creditors.

The proposals include measures to fight tax evasion using students, tourists and housekeepers as undercover tax inspectors. The “rock-star” finance minister also made an appearance on the cover of the Greece’s Esquire magazine for March. Following the ECB’s hostility to Greece’s woes, Mr Tsipras asked to meet with the European Commission’s Jean-Claude Juncker but was turned down, according to a Greek government source. A meeting between the two could now take place next week to “discuss how Greece will utilise European funds to address the humanitarian crisis and unemployment”, said a Syriza spokesman. Amid fears that the country will not come good on its election promises, Mr Varoufakis has promised his Leftist government has “alternative plans” to plug its financing gap over the next 21 days. “We go into the negotiations with optimism, with especially good preparation”, said the finance minister.

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Be sure the plan is there. They just can’t talk about it.

Time For Greece To Plan Its Exodus From The Euro (MarketWatch)

Greece must now plan on a way to exit the euro if it is to have any chance of staying. This is not a conundrum; it is the way negotiation works. The new government of Prime Minister Alexis Tsipras was forced to backtrack last month on its election pledges to get its foreign debt reduced and reverse austerity because it had no plausible alternative to European Union intransigence on extending the bailout. The only viable alternative would be to exit the euro, default on the debt and suffer the consequences, and Athens was not ready to do that. This “Plan B” cannot be a bluff and at this point it is better than even odds it will be the plan Greece will have to follow.

Tsipras and his finance minister, Yannis Varoufakis, have so far argued in their “Plan A” that Greece can stay in the euro, but pinned that belief on Germany and other EU members being reasonable. Germany — as well as the European Commission, the European Central Bank, and the International Monetary Fund — made it amply clear in the initial round of negotiations that they have no intention of being reasonable in the way Tsipras and Varoufakis believe they should. It was always a fairly delusional assumption that German leaders would suddenly see the light and embrace an enlightened Keynesian solution to the economic and social crisis in Greece. Berlin and Brussels remain pitiless and more convinced than ever of the rightness of their destructive neoliberal policies.

The only way Greece can regain its sovereignty — which is essentially what Tsipras’s Syriza party pledged to voters in its rise to power — is to reclaim its sovereign rights, and especially control of its currency and banking system. The consequences of defaulting on the country’s debt would be dramatic, but relatively short-lived compared to the guaranteed long-term misery of the EU austerity program.

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Finance ministers are out of their league, they need third-party advisers.

Greece Sends Proposals, But No Decision Due At Monday’s Eurogroup (Kathimerini)

Greece submitted to Eurogroup chief Jeroen Dijsselbloem Friday an outline of seven reform proposals to form the basis for discussion at Monday’s meeting of eurozone finance ministers, but the signs from Brussels are that Athens is no closer to securing the release of its next tranche of bailout funding. The 11-page document sent by Finance Minister Yanis Varoufakis sets out several proposals that have already been made public as well as some that were only made known Friday. The suggestion that caused the most surprise was to fight tax evasion by enlisting non-professional inspectors, including tourists, on a two-month basis during which they would collect audiovisual data that could be used to target evaders. Varoufakis also outlined plans to activate a fiscal council to generate budget savings and update licensing of gaming and lotteries to boost state revenues by an estimated €500 million.

He also gave details of the government’s plan to ease the social impact of the crisis, which will cost some €200 million, and to introduce a new payment plan for tax debtors, which the coalition estimates could raise €3 billion in revenues. In his letter to Dijsselbloem, Varoufakis calls for technical discussions regarding the proposals to begin as soon as possible. “We envisage that… the majority of the items on our first list can be further specified as soon as possible so that the resulting agreement can be ratified by the Eurogroup, and Greece’s Parliament, and become the basis for the review,” wrote the Greek finance minister, who added that the government proposes all technical discussions and fact-finding or fact-exchange sessions should take place in Brussels.

Read more …

It’s about what comes after.

Cash-Strapped Greece Repays First Part Of IMF Loan Due In March (Reuters)

Greece repaid on Friday the first €310 million instalment of a loan from the International Monetary Fund that falls due this month, as it scrambles to cover its funding needs. Prime Minister Alexis Tsipras’s newly elected government must pay a total of €1.5 billion to the IMF this month, but it is rapidly depleting its cash. The payments fall due over two weeks starting on Friday. The next three instalments are due on March 13, 16 and 20. “The payment of €310 million has been made, with a Friday value date,” a government official told Reuters, requesting anonymity. The Tsipras government has said it will make the payments, but uncertainty has been growing over Greece’s cash position. It faces a decline in tax revenues, while aid from EU/IMF lenders remains on hold until Athens completes promised reforms.

Athens sent an updated list of reforms to Brussels on Friday, before a meeting of euro zone finance ministers on Monday, a Greek government official said. The list expanded on an earlier set of proposals, he said. The reforms include measures to fight tax evasion and red tape and facilitate repayment of tax and pension fund arrears owed by millions of Greeks, the official said. It also proposes a “fiscal council” to generate savings for the state. In the letter to the Eurogroup, Greek Finance Minister Yanis Varoufakis says Athens aims to save €200 million by cuts in public-sector spending, offseting an estimated €200 million cost to tackle what it calls the country’s “humanitarian crisis.” It also aims to collect €500 million in extra revenues annually from new gaming licences and taxing online gaming operators.

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Keep up the pressure, see if they make mistakes.

Greece Wants Immediate Talks With Troika On Bailout, Eyes Follow-up Deal (Reuters)

Greece asked euro zone countries on Friday for an immediate start of technical talks with international creditors on the first batch of reforms that would help conclude its current bailout programme and allow the disbursement of more loans. The request marks a softening of Greece’s stance. Until now, it has rejected talks with the three institutions that have supervised it so far on implementing reforms. But Greece, which faces loan repayments over the coming weeks and months, is running out of cash and needs more euro zone credit to avoid bankruptcy. If it concludes the bailout, which means implementing reforms the previous government had agreed to, but which the current government rejects, it could get €1.8 billion of loans remaining from the existing 240 billion-euro bailout.

It would also be eligible to get €1.9 billion that the ECB made in profits on buying Greek bonds. And Greek banks would again become eligible to finance themselves at the ECB’s open market operations. “I am now writing to you … to convey the Greek government’s view that it is necessary to commence immediately the discussions between our technical team and that of the institutions,” Greek Finance Minister Yanis Varoufakis said in a letter to the chairman of euro zone finance ministers, Jeroen Dijsselbloem. Varoufakis proposed that discussions with the institutions take place in Brussels – avoiding the connotation of a loss of sovereignty that visits to Athens by Troika representatives over the past five years have had for the Greek public.

Read more …

Bye bye Rousseff.

The Noise From Brazil? An Economy On The Brink (Guardian)

The more you look at Brazil’s fundamentals, the more shaky the country looks. And we are not talking about the defensive prowess of David Luiz here. It is the country’s economic backline that risks tumbling down like a set of dominoes. When a Latin American economy is in trouble a good place to start is its inflation rate. Brazil’s is today running at 7.5%. While this is nowhere near the 2,000-3,000% of the early 1990s, when the price of everything went up several times a week, it is far higher than the central bank’s mid-point target of 4.5%. On Wednesday, in an effort to bring inflation down, Brazil’s central bank raised interest rates to 12.75%, a six-year high.

The problem is that the country is hiking interest rates – and trying to curb high prices – at a time in which its economy is on the brink of recession. Between 2002 and 2008, Brazil’s economy expanded at 4% a year. It has since averaged less than 2%. GDP is expected to contract 0.5% this year. High inflation makes matters worse in at least two ways. First, high prices hinder shoppers’ purchasing power. The Economist calculates that about half of the country’s growth over the past decade was driven by consumption. A drop in purchases will not only dampen economic prospects but would lead to a recession that would freeze the pay of millions because the minimum wage is linked to GDP and inflation.

Elsewhere, salaries in both the public and private sector have grown above GDP for the past decade and are now unlikely to keep pace with inflation. Tax hikes and fare rises will not help either. It is therefore not surprising that consumer confidence is at its lowest since records began in 2005. Second, next to rising prices, the real is sinking. Despite the rate increase, Brazil’s currency hit R$3 to the US dollar on Wednesday for the first time in more than a decade. This puts further pressure on prices: the cost of imported goods goes up – more bad news for shoppers.

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Cats in a sack.

Brazil Supreme Court Clears Probe of Top Lawmakers Amid Petrobras Scandal (WSJ)

A corruption dragnet that has jailed dozens of executives and erased billions from Brazil’s state-controlled oil giant has now snared some of the nation’s top lawmakers, deepening a crisis that is weighing on South America’s largest economy. Brazil’s Supreme Court on Friday gave the go-ahead to federal prosecutors to investigate close to 50 politicians, including Senate President Renan Calheiros and Eduardo Cunha, head of the Chamber of Deputies, as part of a widening corruption probe of Petróleo Brasileiro S.A., known as Petrobras. Both men are members of the PMDB party, Brazil’s largest and a key partner in President Dilma Rousseff ’s effort to pass austerity measures to narrow a yawning budget gap. With the economy skidding and Brazil in danger of losing its investment-grade sovereign rating, the investigation could push top legislators away from strict measures and toward populism.

“What’s going to prevail is the survival instinct,” said Ricardo Ismael at Rio’s Pontifical Catholic University. “The big problem I think is with the economy because the government was really counting on fast votes from Congress, so they could share the cost of the fiscal adjustment.” Fear that fallout from the scandal would threaten budget cuts has weighed on Brazil’s stocks and currency. The IBOVESPA stock index declined by 3.1% this week, while the real plunged about 7%. On Tuesday, hours after rumors emerged that his name was on “Janot’s list,” Mr. Calheiros torpedoed an executive order from Ms. Rousseff that would have raised payroll taxes to fill government coffers. Local press characterized the move as retaliatory, though it followed a period of heightened tension between the two politicians. The attorney general is independent of the government.

“What happened this week is that the risks, which were already there, became more visible,” says Carlos Melo, a professor at São Paulo business school Insper. “After Renan´s move, it is clear the government will not be able to push any kind of fiscal adjustment through Congress without negotiating first.” In practice, analysts say, that stretches the odds of the government meeting its 1.2% target for the primary budget surplus, seen by many as a make-or-break goal in the effort to avoid a sovereign downgrade. Prosecutors say the PMDB, Ms. Rousseff’s Workers’ Party, and other government-aligned parties suggested executives to run major divisions at Petrobras.

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“The devourers of capitalism had become the devourers of Petrobras.”

Petrobras Has a $13.7 Billion Yard Sale (Bloomberg)

Staggered by $135 billion in debt and scandal, Brazilian state-run oil giant Petroleo Brasileiro SA has announced plans to offload some $13.7 billion in assets. Officials claim this is not a plan to raffle the jewel of the government crown. Instead think fire sale, a maneuver to raise cash and keep creditors at bay. The move plays like a scene in a script coming full circle. Luiz Inacio Lula da Silva once joked that back in the 1990s, when he was still the country’s ranking lefty and not its president, “people trembled” whenever he passed by the door of the Sao Paulo stock exchange. “There goes that devourer of capitalism,” they’d say.

Yet scarcely more than a decade later, Lula, a self-described “walking metamorphosis,” was at Bovespa as president of Brazil, hosting the feast as the state-run oil giant went on the bloc in one of the world’s biggest public stock offerings. “Capitalization,” he beamed in 2010, “is one of the safeguards the government has to assure that this wealth doesn’t get lost to the labyrinths of waste and dubious interests.” Tell that to prosecutor general Rodrigo Janot, who just handed the Supreme Court a list of 54 lawmakers and government officials suspected of looting the country’s flagship multinational for political gain. So labyrinthine is waste and corruption that the new management – the old one resigned in disgrace – has yet to file the 2014 balance sheet, which is one reason why Moody’s Investor Services recently downgraded Petrobras paper to junk.

The fire sale Petrobras is planning may prove difficult. With crude prices slumping, it’s a buyer’s market for rigs and refineries. Meanwhile, the ruling Working Party and union rank and file, who see a plot to privatize Petrobras by stealth, have called for a mass protest March 13 to defend the company and roll back austerity measures announced by Lula’s successor, President Dilma Rousseff. Leading the charge, strangely enough, is Lula himself, who exhorted companheiros to stand up to bottom-feeding “neoliberals.” This was wagging the dog. It’s not the market-friendly opposition that threatens Brazil’s biggest brand, but repeated government attempts – first by Lula, then Rousseff — to suspend the basic rules of economic gravity. The devourers of capitalism had become the devourers of Petrobras.

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New normal.

RBS Top Bankers Received Millions Despite £3.5 Billion Loss (Guardian)

Royal Bank of Scotland paid 128 of its top bankers more than €1m (£720,000) in 2014, a year when it reported its seventh consecutive year of losses since being bailed out by the taxpayer and was punished by regulators for rigging foreign exchange markets. Three bankers, whose identities are protected because only the pay deals of boardroom directors have to be published, received up to €6m. The disclosures are likely to reignite the controversy over the pay handed out by the bank, which has incurred losses on a par with the £45bn ploughed in by taxpayers to prevent it going bust. None of the 79% stake has yet to been sold off although George Osborne has promised to sell it as “quickly as we can” if he remains chancellor after the 7 May election.

Chief executive Ross McEwan was paid £1.8m in salary, pension and benefits in 2014 and was handed £1.5m in shares to buy him out of his previous employer in Australia when he was recruited to run the retail bank. He was awarded £1.5m of shares under a long-term plan that will pay out in the future. The pay of the New Zealander, though, was eclipsed by a number of colleagues. The newly recruited finance director Ewen Stevenson received £3.1m after being bought out of his previous employer, Credit Suisse, and Rory Cullinan, who runs the non-core division of the bank, received £2.2m from bonuses handed out in previous years. Cullinan, who has been promoted to help wind down the investment banking arm, cashed in £1.2m of shares and was awarded £2m in a new pay deal.

The bank published share payouts and awarded to the members of the executive management team who do not sit on the board. When share awards to McEwan and Stevenson are included, eight senior managers were awarded shares worth £11m which will payout in the future. In total more than £5m of shares were cashed in from previous years. The bank said the 128 paid more than €1m compares with 149 a year ago when the staff who have relocated to the US through its Citizens Financial arm, in the process of being floated in the US stock market, are included.

Read more …

Too little too late.

EU To Hold Immigrants At Bay With Third-Country Asylum Centers (RT)

Opening processing centers in transit countries in the hope that it will curb the number of illegal immigrants is Brussels’ answer to the inflow of refugees, who risk their lives to cross the Mediterranean in search of a better life. The measure is part of the new European Agenda on Migration, which will be published later in mid-May. At a media conference this week, Dimitris Avramopoulos, the European Commissioner for Migration and Home Affairs, said amending the way the EU deals with illegal immigration is an urgent issue that requires complex solutions. “When presenting a comprehensive European Agenda on Migration we have to think about all dimensions of migration – this is not about quick fixes; this is about creating a more secure, prosperous and attractive European Union,” he said.

Last year, over 276,000 people entered the EU illegally, which is 155% more than in 2013, according the EU borders agency Frontex. Some 220,000 arrived via the Mediterranean, with at least 3,500 and possibly more than 4,000 people dying en route. The passage is considered the most dangerous in the world. “We need to be effective, as Europeans, on the immediate response and at the same time to address the root causes, starting from the crises spreading at our borders, most of all in Libya,” said EU foreign policy chief Federica Mogherini. “That’s why we are increasing our work with origin and transit countries to provide protection in conflict regions, facilitate resettlement and tackle trafficking routes.”

Establishing processing centers in countries like Niger, Egypt, Turkey or Lebanon represents a U-turn in EU policies as the idea is gaining traction among the more affected members. Southern European countries including Italy and Malta are among those members of the union that pay the greatest price dealing with the inflow. France and Germany also favor the idea. Strong opposition to the idea remains among national governments less eager to welcome refugees from countries like Libya and Syria on their soil, such as Denmark and the UK. Part of the reluctance is because some EU members don’t want to relinquish authority over immigration policies to Brussels.

Read more …

How’s the CIA supposed to make a living now?

ISIS Generates Up To $1 Billion Annually From Trafficking Afghan Heroin (RT)

Drug money is a massive source of profit for ISIS, who makes up to $1 billion annually from sales throughout its conquered lands, according to the Russian Federal Drug Control Service (FSKN). “The area of poppy plantations is growing. This year, I think, we’ll hear news about a record-high poppy harvest, therefore a high yield of opium and heroin. So this issue should be raised not only in Moscow, but also in the UN in general, because this is a threat not only to our country, but also European security. Over the past five years the Balkan route has been split – heroin traffic now also goes through Iraqi territory,” TASS quotes FSKN head Viktor Ivanov as saying. What makes profits especially huge is that, despite not operating in Afghanistan, large quantities of poppy are being transported through those parts of Iraq the Islamic State (IS, formerly ISIS) controls.

To Ivanov, this makes possible a “huge financial sponsorship.” “According to our estimates, IS makes up to $1 billion annually on Afghan heroin trafficked through its territory,” he added. The FSKN in November said that the sale of Afghan heroin in Europe could generate upwards of $50 billion for the militants. What’s more, over half of Europe’s heroin now comes from the IS, according to Ivanov. Indeed, drug money has been high on the IS’s list of profit generators, together with oil and conquest. A recent report by the Financial Action Task Force talked of how the IS has been branching out into all manner of finance-generating activities, though it is the reliance on oil that makes them a truly unique terrorist group, unlike others before it.

It remains unclear whether IS can hold its drugs though, let alone run a smuggling business. One British ex-soldier who joined the Peshmerga Kurdish fighters in November 2014 to fight the IS describes the majority of Islamist militants as a disorganized bunch of “office workers and villagers” on drugs. “They do not have a choice, and they don’t have any information, or even any clear leadership. Many of them are heavily involved in taking drugs they are so terrified,” Jamie Read said.

Read more …

Mar 042015
 
 March 4, 2015  Posted by at 11:50 am Finance Tagged with: , , , , , , ,  


NPC Communist Party Young Communist League, Washington, DC 1925

It’s not that long ago, in 2001, that Jim O’Neill, then still with Goldman Sachs, coined the term BRICs, for the fast emerging markets of Brazil, Russia, India and China. O’Neill saw a global power shift from the west to these four nations happening. Fast forward to today, and we see Russia under multiple attacks, including economic ones, from the west, as India just announced the second rate cut this year and China is attempting controlled demolition of the possibly biggest financial bubble in the history of the world.

And Brazil? If anything, it’s falling even faster off its pedestal than the other three nations. And in Brazil, it’s as much corruption scandals as it is the financial crisis and the plunge in oil revenues that take center stage. The stories have long been simmering, but they all came together in the media yesterday.

First, a seemingly minor one. Eike Batista was once the richest man in Brazil, and one of the 10 richest men on the planet, having made a fortune in gold mining and later oil. Then he went on to become probably the one man to lose the most money in the shortest time, going from $32 billion in early 2013 to minus $5 billion or so a little over a year later, impossible to pin down exactly for numerous reasons, but spectacular for sure.

Yesterday Mr. Batista made the news when the judge in a case against him for insider trading, was taken off that case for driving one of Batista’s luxury cars to his own home. He claimed the police had no place to store the vehicle…

Brazilian Court Upholds Removal of Judge From Eike Batista Trial

An appeals court on Tuesday upheld a decision to remove the judge presiding over the trial of Brazilian businessman Eike Batista , throwing out many of the judge’s rulings, according to a spokeswoman for the court in Rio de Janeiro. Later Tuesday, the court said it granted the judge— Flávio Roberto de Souza —a medical leave until April 8th. A separate appeals court had ordered last week that Federal Judge de Souza be removed from the case after he allegedly drove one of the cars he had ordered seized from Mr. Batista. Tuesday’s ruling was on a motion filed in December by Mr. Batista’s lawyers to have Judge de Souza removed from the case, claiming he had given a number of news interviews in which he used language demonstrating bias against Mr. Batista.

Judge de Souza has denied being partial. His removal will delay the case, which could be assigned to a new judge as early as Tuesday, the spokeswoman said. Mr. Batista is on trial for market manipulation and insider trading, charges he has denied. The judges who ruled on Tuesday overturned all of Judge de Souza’s actions during the trial until another judge can decide how to continue the case. The freeze on Mr. Batista’s assets ordered by Judge de Souza remains in place, however.

Police in February seized 11 vehicles, including a Porsche Cayenne the judge allegedly drove, as well as a Lamborghini Aventador, from Mr. Batista’s homes. They also took jewelry, a grand piano and a fake Fabergé egg as guarantees to repay investors in the event the entrepreneur is found guilty. The cars were to be sold at auction and the proceeds placed into escrow until the conclusion of the trial, an action allowed under Brazilian law. The piano, which was being kept at the apartment of one of Judge de Souza’s neighbors, along with one of the seized cars have been returned to Mr. Batista…

Then, on the same day, Brazil’s top prosecutor asked the country’s Supreme Court to start 28 separate investigations against 54 individuals, mostly politicians, in the Petrobras kickback scandal (‘under Brazilian law, politicians and cabinet members can only be tried by the Supreme Court.’) I don’t know how many politicians Brazil has, but it would seem 54 is a solid haircut. And, of course, current president Dilma Rousseff was herself head of Petrobras from 2003-2010, the period in which the kickbacks took place. She’s probably not among the 54 to be investigated, however.

Petrobras did Batista one better. Its market capitalization was a reported $310 billion in May 2008. It has since lost $270 billion of that. According to the BBC, $100 billion was lost just since last September.

Petrobras Scandal Takes Politicians To Court

Prosecutor-General Rodrigo Janot’s office did not release the names of the politicians, but plea bargain testimony by defendants in the case leaked to local media indicate that most are members of the ruling Workers’ Party and coalition allies in Congress. O Estado de S. Paulo and other newspapers said the list includes Senate President Renan Calheiros and Speaker of the Chamber of Deputies Eduardo Cunha, both the top leaders of Congress and members of the PMDB party, the largest ally in Rousseff’s ruling coalition. The judge in charge of the case must decide whether to lift a secrecy provision and release the names and plea bargain statements.

The politicians were named by a former senior manager at Petrobras and a black market currency dealer whose arrest last March triggered an investigation into the funnelling of money from overpriced infrastructure contracts into the pockets of corrupt executives and politicians. Some of that money, prosecutors say, may have helped finance election campaigns for political parties, including Rousseff’s Workers’ Party and other members of her governing coalition.

The corruption probe known as “Operation Car Wash” has so far led to 40 indictments on racketeering, bribery and money laundering charges. Officials have indicted two former senior managers at Petroleo Brasileiro as the company is formally called and 23 executives from six of Brazil’s leading construction and engineering firms. The scandal threatens to have a ripple effect on Brazil’s already weak economy, prompting Petrobras to halt or cancel several investment projects.

Prosecutors are seeking the return from construction firms of about $1.6 billion siphoned off Petrobras contracts and are investigating Swiss bank accounts where funds were transferred and in some case laundered through off-shore front companies. The investigation and possible trial of politicians by the Supreme Court could take years. Brazil’s largest political corruption case to date, involving monthly payments to lawmakers in return for support in Congress for the Workers’ Party, took seven years before it went to trial in 2012.

Rousseff has denied knowing about the scheme during those years and has vowed to respect the Judiciary’s independence. A recent opinion poll, however, showed three in four Brazilians believe Rousseff knew about the scam. … even opposition leaders believe that recent calls for her impeachment will go nowhere.

Sabrina Valle and Anna Edgerton, writing for Bloomberg, must have seen this coming. They have a very long article on Rousseff and her power politics, very much worth reading. Some excerpts:

Petrobras CEO Lost Job Over a $30 Billion Disagreement

As the kickback and money-laundering scandal engulfing state-run oil giant Petrobras escalated in late January, Brazilian President Dilma Rousseff got calls from two of her top appointees. They were in the midst of a marathon board meeting and they heatedly disagreed. The first was from her former finance minister and current Petrobras chairman, warning her that the board was discussing the release of a potentially embarrassing number: a $30 billion writedown that company auditors were saying was partially tied to scandal-related losses. The chairman left in the middle of the meeting to call his political benefactor to discuss releasing it – believing it was a bad number conjured up by faulty methodology. Rousseff agreed.

The second call, later in the same evening, came from Maria das Gracas Foster, the Petrobras chief executive officer whom Rousseff had appointed three years earlier. She expressed the opinion that under Brazilian law the $30 billion figure, whether faulty or not, had to be released because if the board now knew the number, the market had a right to know as well. Foster was aware Rousseff preferred the number not be released and hoped her close friend the president would understand her position..

After a dramatic ten-hour boardroom showdown, the number would in fact be included in a note to Petrobras’s overdue third-quarter earnings but it would be costly to Foster. On Feb. 6, Rousseff replaced her with Aldemir Bendine, CEO of state-run Banco do Brasil – a government executive popular with Rousseff’s leftist Workers’ Party. The appointment sent the shares of the company formally known as Petroleo Brasileiro down 6.9% that day.

Rousseff’s replacement of Foster also has ruptured the long-held bond of loyalty the two forged over more than a decade as business and political allies rising up in the ranks among a sea of powerful men. Foster’s departure further helps to isolate Rousseff as Foster joins a cadre of onetime close supporters who have been swept aside in various government dust-ups.

For Brazil and millions of ordinary Brazilians, Petrobras has become both an embarrassment and a source of anger even as they hope for a rebound. Only five years ago, the company was the darling of the global energy world, able to raise a staggering $70 billion at a share sale because of deep-water oil and natural gas finds so huge that they were expected to propel Brazil to decades of growth.

The first allegations of Petrobras corruption came in March of last year [..] Foster, however, seemed to be weathering the storm until October, when video tapes published online by a federal judge in a Parana, Brazil, court showed that same executive confessing to investigators that Petrobras had long been compromised – that for at least nine years he and others siphoned millions in kickbacks from companies to whom Petrobras awarded inflated construction contracts.

As allegations of wrongdoing escalated, the public became more outraged and investors continued to dump Petrobras shares; the hard-charging Foster found the political weather turning foul. [..] Throughout the ordeal, Foster had offered to resign several times. Rousseff wasn’t having it..

But the scandal kept escalating. A growing list of former executives started cooperating with investigators, hoping for reduced sentences. Cash deliverymen went by flamboyant nicknames such as Big Tiger, Watermelon and Eucalyptus, according to testimony before the Parana court. One former Petrobras manager admitted to taking as much as $100 million in kickbacks as part of a plea bargain deal.

As the drama unfolded, the one constant was Rousseff’s support for Foster, the woman she met in the early 2000s when she was an energy secretary for a southern state of Brazil and Foster was Petrobras’s representative for a gas pipeline to Bolivia. This trust began to unravel in December, when Foster decided to ban 23 construction companies caught up in the probe from doing business with Petrobras, according to a person familiar with the situation. Rousseff’s public position was that corrupt individuals — not the companies that employed millions of Brazilians and worked on strategic infrastructure projects — should be held accountable.

Then came the contentious Jan. 27 board meeting. Foster found herself at odds with Guido Mantega, the Italian-born, left-leaning Petrobras chairman. Foster knew that a fight with Mantega was a fight with Rousseff. But at some point, with the back and forth exhausted, Foster signaled to her management team and declared “enough, huh?” according to people who were in the room.

A week later, on Feb. 3, Foster was summoned by Rousseff to the presidential palace about 465 miles away in Brasilia. After two hours of candid discussion, the two came to terms. Foster and her executive team would be replaced by month’s end while a search for successors proceeded… Foster then boarded a commercial flight back to Rio de Janeiro and was booed by other passengers. There was no relief back home. Dozens of protesters greeted her at her Copacabana apartment, banging pots and pans outside her door, demanding she resign.

The CEO was still willing to stay on until Rousseff named a replacement but in a conference call from Brasilia with her five-member executive staff they declined to continue as lame ducks. Since Foster had said publicly she would never serve without her team, she had no choice but to go. The announcement came on the morning of Feb. 4 in a one-line regulatory filing that took the market by surprise.[..]

Petrobras continues to face huge challenges. With its market value shrunken, its debt ratings in the tank and its global image tarnished, it desperately needs to get back to basics. Over the past decade, its oil and gas production has lagged the company’s own projections — due to equipment delivery delays, maintenance issues and faster-than-expected declines in its older fields – even though that is starting to change.

Starting in 2007, stupendous deepwater offshore finds in an area known as the pre-salt had exponentially raised its reserves. Those discoveries still afford Petrobras plenty of potential upside assuming they are managed properly, analysts say. The most productive of its pre-salt wells pumps 35,000 barrels of crude a day. At the Bakken shale formation in North Dakota it takes more than 300 wells to pump that much. That’s in the top 1% for “all oil wells on the planet,” said Cleveland Jones, a geologist and researcher at Rio de Janeiro State University.

I think it might be wise to question the real reserves in those ‘stupendous’ finds. And in any case, the deeply inbred culture of corruption could easily waste all of it even if they are indeed so huge. With Lula as president, things seemed to go well, though he might have just been lucky to be at the right place at the right time. Rousseff has no such luck. And she doesn’t seem able to cope with the power she has, either. But it doesn’t look like she’ll have to bother with that for much longer:

Brazil’s Senate Resists Rousseff’s Austerity Push

Brazil’s Senate on Tuesday threw out a presidential decree that reduces payroll tax breaks for businesses, in a political setback for President Dilma Rousseff’s new fiscal austerity crusade. The Senate’s president Renan Calheiros said the matter was not urgent and should be presented to Congress in a bill rather than a temporary decree that bypasses lawmakers. Rousseff immediately responded by sending Congress a legislative proposal to trim the tax breaks, saying the change does not hamper the government’s fiscal savings plan.

In an action applauded by financial markets, Rousseff on Friday moved to pare back tax breaks on payrolls and export revenues to save the government up to 7 billion reais ($2.39 billion) this year and reduce its widening budget deficit. The new-found fiscal rigor threatens to tip the Brazilian economy into a deep recession, raising opposition from lawmakers and even senior members of her own Workers’ Party who want to water down the savings measures.

Since her narrow re-election win in October, Rousseff has made a dramatic U-turn in economic policy to regain the trust of investors worried with the financial health of an economy that until recently was one of the world’s most dynamic. Calheiros, a member of Rousseff’s main ally in Congress, the PMDB party, said her government was trampling on the constitutional right of Congress to legislate on important matters that affect Brazilians, such as raising taxes.

Opposition leaders praised Calheiros’ decision to assert the independence of the Senate, which will make it harder for Rousseff to push through belt-tightening legislation needed to avoid a credit rating downgrade. The surprise move by Calheiros, who has been a loyal ally to Rousseff during her first term, comes at a time of tension in Congress where politicians are worried that they will be implicated in a corruption scandal engulfing state-run oil company Petrobras.

One of other measures under fire includes a controversial decree that trims unemployment and pension benefits to save state coffers about 18 billion reais this year.

If the Petrobras affair doesn’t bring Rousseff down, her decisions will. You have to be an exceptional politician to survive the kind of huge economic downturn that Brazil finds itself in. Rousseff is no such exceptional politician. And of course most ‘leaders’ are not (that makes the few exceptional). That in turn means we will see increasing numbers of leadership changes as economies go downhill. Argentina went through 5 presidents in less than 3.5 years at the beginning of the century. Don’t be surprised if Brazil goes down that path too. And many other countries.

Dec 272014
 
 December 27, 2014  Posted by at 12:42 pm Finance Tagged with: , , , , , , ,  


John Vachon Billie Holiday at the Newport Jazz Festival Jul 1954

Natural Gas Drops Below $3 for First Time Since 2012 (Bloomberg)
Oil Caps Fifth Weekly Loss on Global Supply Glut Concern (Bloomberg)
Saudi Arabia Maintains Spending Plans in 2015 Despite Oil Slide (WSJ)
Saudis To Hit ‘Panic Button’ At $40 Oil: Energy CEO (CNBC)
Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs (Oilprice.com)
Gartman: Get Ready For Oil Bankruptcies (CNBC)
China November Industrial Profits Suffer Sharpest Fall In 27 Months (Reuters)
China’s Shadow-Banking Boom Is Over (WSJ)
Game Over Japan: Real Wages Crash, Savings Rate Turns Negative (Zero Hedge)
Brazilian Oil Company Petrobras Sued By US City In Corruption Scandal (BBC)
Nicaragua Canal A Potential Threat To The US And Western Powers (RT)
The Cradle of Democracy Rocks the Autocrats (StealthFlation)
A Capitalist Christmas (Mises Inst.)
60 Prominent Germans Appeal Against Another War In Europe (Zero Hedge)
Gorbachev: Putin Saved Russia From Disintegration (RT)
Putin: It Is Time to Play Your Ace in the Hole (Daily Bell)
Google Further Crapifies Search, Exploiting Both Users and Advertisers (NC)
Apple Spent $56 Billion On Buybacks In 2014 (MarketWatch)
Strange Predictions For The Future From 1930 (BBC)

“We don’t see anything scary in the forecast ..”

Natural Gas Drops Below $3 for First Time Since 2012 (Bloomberg)

Natural gas slumped below $3 per million British thermal units in New York for the first time since 2012 on speculation that record production will overwhelm demand for the heating fuel. Futures settled at the lowest in 27 months and have plunged 26% in December, heading for the biggest one-month drop since July 2008, as mild weather and record production erased a surplus to year-ago levels for the first time in two years. Temperatures will be mostly above average in the eastern half of the U.S. through Dec. 30, according to Commodity Weather Group LLC. “We don’t see anything scary in the forecast,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania.

“You had this psyche where people were worried about a polar vortex; we had a cold October and a cold early November, and boom, if you were long you are wrong.” Natural gas for January delivery fell 2.3 cents, or 0.8%, to settle at $3.007 per million Btu on the New York Mercantile Exchange. Futures touched $2.973, the lowest intraday price since Sept. 26, 2012. Volume was 54% below the 100-day average for the time of day at 2:32 p.m. Gas dropped 13% this week, a fifth straight weekly decline. Prices broke below several technical support levels, including $3.046 and then $3, and may be headed toward $2.80 or lower, said Schork. “I am playing this market short,” he said. “Anyone who is selling now is trying to trigger a panic selloff.”

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Why insist on talking about “OPEC’s refusal to cut production”, and not America’s?

Oil Caps Fifth Weekly Loss on Global Supply Glut Concern (Bloomberg)

Oil fell, capping a fifth weekly loss on concern that OPEC’s refusal to cut production will worsen a global supply glut. Brent and West Texas Intermediate extended their annual declines of more than 40%, the biggest since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share while the highest U.S. production in three decades exacerbated a global glut. Trading volume headed for the lowest this year. “The market is still reeling from oversupply,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s really hard to muster a substantial rally until we figure out how we are going to use all this oil.”

Brent for February settlement slipped 79 cents, or 1.3%, to $59.45 a barrel on the London-based ICE Futures Europe exchange, down 3.1% this week. The volume of all futures was 84% below the 100-day average as of 3:10 p.m., with much of Europe on holiday after Christmas. West Texas Intermediate crude for February delivery fell $1.11, or 2%, to $54.73 on the New York Mercantile Exchange with volume 68% below average. Prices were down 3.2% this week. Trading reached 174,562 contracts at 2:49 p.m. The previous lowest volume this year was 244,240 on Aug. 25. Brent traded at a premium of $4.72 to WTI on the ICE.

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They have zero choice.

Saudi Arabia Maintains Spending Plans in 2015 Despite Oil Slide (WSJ)

The Saudi government unveiled a 2015 budget on Thursday that signaled a continuation of a high level of spending despite pressures from a steep fall in oil prices in recent months. The kingdom, the world’s top oil exporter, depends on oil revenue to fund social spending, helping head off the kind of unrest that has roiled Middle Eastern countries since 2011. A prolonged oil-price slump could threaten such policies here and in other Gulf monarchies. Saudi King Abdullah struck a note of caution in the budget announcement, instructing officials to consider the developments that led to oil’s decline by “rationalizing the expenditure.” Riyadh has chosen not to cut output in an effort to push up prices, despite its dependence on oil exports.

The Saudi oil minister, Ali al-Naimi—secretary-general of OPEC – on Sunday blamed a lack of coordination among non-OPEC producers, along with speculators and misleading information, for the fall in the oil price. In an indication of the government’s confidence that it can weather the market volatility, Mr. al-Naimi described the slump as “a temporary situation.” The kingdom didn’t say on what price of oil it based its 2015 budget. The International Monetary Fund and others estimate a Saudi Arabia’s fiscal break-even price for oil at well above $90 a barrel—it has been trading recently under $60 – underlining the country’s vulnerability to changes in the energy market.

“It is worrying when the expanding government expenditure begins to erode the financial surpluses built over the last few years,” Saudi economist Fadhil Albuainain said. Saudi Arabia said on Thursday that it projects total expenditure in 2015 to reach 860 billion Saudi riyals ($229.3 billion), an increase of nearly 1% from the last budget, a record. It will likely use cash from its reserves to spend ondevelopment projects in sectors such as health care and education. The kingdom expects to run a wider deficit of 145 billion riyals to continue with its spending plans, as projected revenue falls by nearly a third to 715 billion riyals, according to a finance ministry statement.

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Really?

Saudis To Hit ‘Panic Button’ At $40 Oil: Energy CEO (CNBC)

Saudi Arabia has insisted that OPEC will keep oil production at 30 million barrels per day no matter the cost of crude, but even the world’s biggest oil exporter has a limit, the CEO of Breitling Energy told CNBC on Friday. “I think the panic button is at $40,” Chris Faulkner said in a “Squawk Box” interview. “They can say whatever they want, but at the end of the day, they can’t just bleed out money forever.” With the Saudis’ deficit for 2015 projected to reach $50 billion—the official figure is $39 billion—the country’s leaders will face challenges in maintaining its subsidies, he said. Young people will not stand for planned wage cuts, either, he added.

That said, Faulkner expects oil prices to rebound to the low $70s by the end of 2015, after initially sliding further into the low $50s and possibly recovering in the second quarter. With oil prices at current levels, Venezuela will likely default on its debt payments due in March and October, Faulkner said. Brent crude for February delivery traded below $61 in morning trade on Friday. Faulkner sees natural gas remaining below $5 until 2020, as the supply and demand fundamentals are unlikely to change significantly. Natural gas dipped below $3 on Friday for the first time since Sept. 24, 2012.

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A bit of hurt for Halliburton is always welcome.

Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs (Oilprice.com)

Offshore oil contractors such as Halliburton or Transocean have seen their share prices tank worse than exploration companies because their revenue comes from being paid to drill, not necessarily from oil production after wells are completed. That means that when drilling slumps, their profits take an immediate hit. Even worse, exploration companies may see rising profits from existing production as oil prices rebound, but drilling service companies don’t benefit if their drilling contracts had been put on hold or cancelled. The problem is compounded by the fact that a slew of new offshore oil rigs are set to come into operation – an estimated 200 over the next six years. As Bloomberg reports, these new rigs will mean there could be a surplus of about 140 rigs, meaning offshore oil contractors will have to scrap that many to bring new ones online.

If oil prices stay where they are now – in the neighborhood of $60 per barrel – a deep contraction in shipping rig supply will be inevitable. In 2015, spending on offshore exploration may be slashed by 15%, which will mean taking a deep knife to companies providing rigs and contracting. Transocean has already announced that it is idling seven deepwater rigs, along with several other drillships. However the shakeout may take some time because offshore contractors can resort to using older rigs in order to bring down the rates they are charging, essential to maintaining market share. In order to entice exploration companies to keep up the drilling frenzy, older ships can keep costs lower. But that may not be a tenable prospect since offshore contractors will feel compelled to put the new and more state-of-the-art rigs into operation. That will force companies with older fleets to start discarding the most dated drilling rigs.

Transocean already took a $2.6 billion impairment charge in the third quarter of this year, due to a “decline in the market valuation of the company’s contract drilling services business.” By scrapping more ships, it expects to write down at least $240 million in the fourth quarter. More may be in the offing – Transocean released an update on the status of its fleet in mid-December, confirming its plans to scrap 11 ships. The statement also added that “additional rigs may be identified as candidates for scrapping.” Perhaps it is Seadrill, another offshore drilling services company, that has taking the worst of the oil price downturn. The company decided to cancel its dividend in November amid falling oil prices, a move that sent its share price tumbling downwards. Seadrill has seen its shares lose almost 75% of their value since July.

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Lots of ’em if the price doesn’t start rising soon.

Gartman: Get Ready For Oil Bankruptcies (CNBC)

Shale oil firms in the U.S. will suffer in the next two years due to the dramatic fall in the price of the commodity, according to Dennis Gartman, the founder and editor of the Gartman Letter, who expects a further fall in prices in the near term. The commodities investor has turned slightly more bearish on oil since last week, telling CNBC Tuesday that “crude oil prices haven’t seen their lows yet.” “I’m afraid we’re going to see demonstrably lower prices still,” he said. “Demand is weak and that price is going to continue to go down more.” The U.S. has seen a revolution in gas and oil production in the U.S. with new technology unlocking new shale resources.

This oil and gas boom has spurred economic activity and giving industry a competitive edge with less expensive fuel prices. However, the recent drop in prices – with Brent crude and WTI crude both down around 47% since mid-June – is set to impact the blossoming sector over the next two years, Gartman fears. “There will clearly be bankruptcies,” Gartman said, name checking oil production sites like the Permian Basin and the Marcellus Shale. U.S. oil production is a private-sector venture and differs wildly from the state-run companies in the Gulf states and South America.

These countries are able to extract oil from the ground at a cheaper cost than U.S. shale firms and there has been speculation that the two different industries could be playing a “game of chicken” over the price of oil before cutting back to ease the oversupply. A brief rally for oil on Monday was cut short with Saudi Arabian Oil Minister Ali al-Naimi stating that Organization of the Petroleum Exporting Countries would not cut production at any price, according to Reuters. Oil majors in Europe also received a stark warning this week with credit ratings agency Standard & Poor’s (S&P) placing BP, Total and Shell all on a negative watch. The change now means that the three firms are more likely to have their debt rating downgraded in the next three months.

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The “major unexpected headwinds” keep on coming.

China November Industrial Profits Suffer Sharpest Fall In 27 Months (Reuters)

Chinese industrial profits dropped 4.2% in November to 676.12 billion yuan ($108.85 billion), official data showed on Saturday, the biggest annual decline since August 2012 as the economy hit major unexpected headwinds in the second half. Despite last month’s drop, profits for January-November were 5.3% higher than in the first 11 months of 2013, according to the National Bureau of Statistics (NBS) data. The NBS attributed November’s profit drop to declining sales and a long-running slide in producer pricing power. “Increasing price falls shrank the space for profit,” the agency said. It said the impact of prices for coal, oil and basic materials falling to their lowest levels in years “was extremely clear”. As the NBS analysis suggested, the net slide in industrial profits was driven primarily by weakness in coal mining, and oil and gas industries, where November profits tumbled from a year earlier by 44.4% and 13.2% respectively.

Oil, coking coal and nuclear fuel processing industries saw their profits slide by 34.2%, according to the data. On the upside, Chinese technology industries saw profits grow sharply last month. Telecommunications firms saw a 20.7% increase, electronics and machinery grew 15.1% and automobile manufacturers enjoyed a 16.7% gain. “This suggests that on the one hand, in the context of weak investment demand, stable consumption demand provided a certain degree of support; on the other hand, promoting industry restructuring is having a positive effect on efficiency,” the NBS analysis said. However, the unbalanced nature of the performance highlights a quandary regulators face. They want to restructure the Chinese economy away from credit- and energy-intensive heavy industries toward lightweight technology products and services, yet they must also avoid causing a crisis in the financial system.

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Dangerous political games.

China’s Shadow-Banking Boom Is Over (WSJ)

Following years of explosive growth, China’s shadow-banking industry is experiencing a sharp slowdown after Beijing tightened its grip on the sector, which has been a key source of funding for the economy but also has added to rising debt levels and other risks in the financial system. The industry, a mélange of informal lenders such as trust companies and leasing firms, takes in money from investors and lends it to often risky projects for which traditional bank lending is unavailable. Investors have flocked to the so-called wealth-management and trust products sold by shadow lenders in recent years because they typically promise returns ranging from 4% to more than 10%, much higher than a bank account. But the sector has been hit especially hard in the second half of this year. Investors have shifted their cash into the rallying stock market.

The slowdown may become even more pronounced next year, with authorities set to increase efforts to rein in financial risks as the economy slows. “The government has realized that shadow banking has fallen off its radar screen and it carries enormous risks. The days of laissez-faire are over,” said Shen Meng, executive director of Chanson Capital, a boutique investment bank. A decline in interest rates in China and diminishing returns on property and infrastructure projects may also reduce the promised investment gains on the products issued by shadow banks. The outstanding value of shadow-banking products stood at 21.87 trillion yuan ($3.52 trillion) at the end of November, up 14.2% from the level a year earlier, according to estimates by Nomura Securities based on central-bank data. That growth is significantly slower than the 35.5% rise it registered for the whole of last year and the 33.1% gain in 2012.

The growth rate was as high as 75% in 2010, when Beijing encouraged shadow lenders to complement overstretched traditional banks and help extend a lending binge to keep the economy humming following the global financial crisis. The slowdown in the industry this year has primarily been caused by a series of tighter regulations that made it less profitable for shadow lenders to issue new products, or forced them to enhance risk controls. Shadow-lending products are usually sold through traditional banks. In July, China’s banking regulator asked banks to separate their wealth-management-product business from their retail-lending business, a move that incurred extra costs. Banks also were ordered to set up independent departments to oversee wealth-management products, and to better explain in sales documents that these products aren’t deposits and carry risks.

The result was immediate: New issuance of shadow-banking products fell by 309.6 billion yuan in July from a month earlier. That followed a month-on-month increase of 526.2 billion yuan in June and a rise of 993.2 billion yuan in January, according to estimates by Nomura Securities. There was a mild rebound in August, but issuance shrank in September and October before seeing a modest rise of 28.4 billion yuan in November. The slowdown since July coincided with a surge in China’s long-depressed stock market. Compared with the 43% gain of the Shanghai market this year, the yields on trust and wealth-management products, which have declined, no longer look as attractive.

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How much longer for Abe?

Game Over Japan: Real Wages Crash, Savings Rate Turns Negative (Zero Hedge)

When about a month ago it was revealed that Japan’s shadow economic advisor is none other than Paul Krugman, we said it was only a matter of time before the Japanese economy implodes. Terminally. We didn’t have long to wait and last night the barrage of Japanese economic data pretty much assured Japan’s transition into failed Keynesian state status. In fact, after last night’s abysmal Japanese eco data, we doubt even the most lobotomized Keynesian voodoo priests have anything favorable left to say about Abenomics: not only did core inflation miss expectations and is now clearly in slowdown mode despite Japan openly monetizing all gross Treasury issuance.

Not only did industrial production decline 0.6% missing expectations of an increase and record its first decline in 3 months with durable goods shipments crashing, not only did consumer spending plunge for the 8th straight month dropping 2.5% in November (with real spending on housing in 20% freefall), but – the punchline – both nominal and real wages imploded, when total cash wages and overtime pay declined for the first time in 9 months and 20 months, respectively. And the reason why any poll that shows a recently “re-elected” Abe has even a 1% approval rating has clearly been Diebolded beyond recognition, is that real wages cratered 4.3% compared to a year ago. This was the largest decline since the 4.8% recorded in December 1998. In other words, Abenomics has now resulted in the worst economy, if only for consumers, in the 21st century.

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The Petrobras scandal is yet to reach its climax. Brazil as a whole will be severely shaken.

Brazilian Oil Company Petrobras Sued By US City In Corruption Scandal (BBC)

The US city of Providence, Rhode Island is suing the Brazilian state-run oil company Petrobras over investor losses due to a corruption scandal. Unlike other class actions, some of the company’s senior executives have also been named as defendants. Providence alleges that Petrobras made false statements to investors that inflated the company’s value. Its lawyers say that when the corruption scandal broke, the city’s investments plummeted. So far, 39 people in Brazil have been indicted on charges that include corruption, money laundering and racketeering. They have been accused of forming a cartel to drive up the prices of major Petrobras infrastructure projects and of channelling money into a kickback scheme at Petrobras to pay politicians. The executives could face sentences of more than 20 years in jail.

The case has shaken the government of President Dilma Rousseff, who served as chair of the Petrobras board for seven years until 2010. She has denied any knowledge of the scheme. According to the Brazilian Federal Police the group under investigation moved more than $3.9bn (£2.5bn) in what police describe as “atypical” financial transactions. Brazilian courts have blocked around $270m in assets belonging to various suspects. Federal agents revealed contracts worth $22bn are regarded as suspicious. Former Petrobras director Paulo Roberto Costa, who worked at the company from 2004 to 2012, has told investigators that politicians received a 3% commission on contracts signed during this period.

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Crazy plan.

Nicaragua Canal A Potential Threat To The US And Western Powers (RT)

The Nicaragua Canal can become an alternative route through Central America for China and Russia, as well as an alternative route for potential military use right in America’s backyard, international consultant and author Adrian Salbuchi told RT. Nicaragua has begun the most ambitious construction project in Latin America – a waterway connecting the Atlantic and the Pacific oceans that is supposed to become an alternative to the Panama Canal. It is 278 km long, will cost around $50 billion and provide jobs for 50,000 people. The construction is being run by a Hong Kong company and should be completed by 2020. The project is supposed to boost Nicaragua’s GDP. Meanwhile, ecologists fear the giant ship canal will endanger Lake Nicaragua – Central America’s largest lake and Nicaragua’s largest main water source – which the waterway will run through. Locals are concerned their homes and farm lands are under threat. According to some estimates, around 30,000 people may be displaced by the waterway. RT discussed the project and protests it sparked in Nicaragua with international consultant and author Adrian Salbuchi.

RT: The residents are promised compensation. Why are they protesting? Were they misinformed about the project?
Adrian Salbuchi: It’s understandable because we are talking about a mega project that will displace many people; some estimates say as many as 30,000 farmers will be displaced. There will be an ecological impact, no doubt about it. However, I think we have to be very careful to distinguish between what is this spontaneous reaction of many of these farmers which is probably genuine, and what may also be some engineering of social convulsion from foreign powers, not only the US that had been doing that in the so-called Arab Spring and that had been doing that throughout Latin America for many decades. So I wouldn’t be surprised if some of the exaggeration or some of the future problems do come from some American agitators or Western agitators. Don’t forget this is the country which is governed by President Daniel Ortega of the Sandinista Liberation Front, who are enemies of the US for many decades.

RT: Just to push you a bit on this, do you think there may be a foreign state involved?
AS: Absolutely. And we should even take it together with what just happened with Cuba because if America is trying to bring Cuba into the fold, it might try to play a similar card with Nicaragua to try to range them away as in the case of Cuba from Russia, in the case of Nicaragua from China. We have to see not just the trade implications that are huge, and the economic implications that are also huge, as well as social and ecological, but much more so the geopolitical implications. This is a Chinese private company, but we all know that very likely behind the Chinese investment there are geopolitical factors being handled and being driven by the Chinese government quite rightly, who have an increasing interest throughout Latin America.

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People vs power.

The Cradle of Democracy Should Defy the Autocrats & Kleptocrats (Landevoisin)

On the old continent, this December 29th, a succinct political showdown is scheduled to take place which may well become a defining moment for our entirely unsettled new millenium. What is at stake is none other than the prosperity of the common man pitted against the privilege of concentrated power. Lamentably, this deliberate dogmatic divide has relentlessly defined human civilization for the ages. What is at hand isn’t so much about lofty ideals. It’s not about Socialism. It’s not about Capitalism. It’s not about Communism. It’s not about being a progressive, or a conservative or a liberal. It’s not about left vs right. Forget all those dumbed down dichotomies. It’s much more fundamental than all of that. Quite simply, it’s about People vs. Power, that’s it, nothing more. Those that have and wield institutional power, and those that do not. It’s as elementary and base as that I’m afraid.

Take a good look around, I defy you to point to a single socioeconomic construct in our supposedly enlightened and advanced society of today which is not essentially determined by that crude polarizing characterization. Whether it be our bought and paid for Political Class, our rapacious Banking Sector, our entitled Multinational Corporations, our entrenched Governmental Agencies, our marauding Military Industrial Complex, our fleecing Healthcare Providers, our muzzled Free Press, our hijacked Justice System, or our grossly overpaid CEOs, Athletes, and Entertainers, they all have one thing in common, and I assure you that it’s not the common good that they share. What they seek above all else is to expand the existing institutional dominion and their own privileges within it.

Sad to say, but at the end of the day, perhaps dog eat dog is what we humans are really best at, and the only state of being we’re actually capable of. Maybe all those exalted ideals of enlightened forms of governance are just a load of crap to make us feel better about ourselves. Judging by the overt self seeking avarice that dictates the pace of just about everything these days, it sure seems that way.

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“Menacing figures arrive at your door uninvited, demand your property, and threaten to perform an unspecified “trick” if you don’t fork over.”

A Capitalist Christmas (Mises Inst.)

Halloween has a socialist tenor. Menacing figures arrive at your door uninvited, demand your property, and threaten to perform an unspecified “trick” if you don’t fork over. That’s the way the government works in a nutshell. Thanksgiving has been reinterpreted as the white man, after burning, raping, and pillaging the noble Indian, trying to make amends with a cheap turkey dinner. New Year’s can be ruined as the beginning of a new tax year, and the knowledge that the next five or six months will be spent working for the government. That’s why I love Christmas. To this day it remains a celebration of liberty and private life, as well as a much-needed break from the incessant politicization of modern life. It’s the most pro-capitalist of all holidays because its temporal joys are based on private property, voluntary exchange, and mutual benefit.

In Christmas shopping, we find persistent reminders of charity programs that work and little sign of those (welfare bureaucracies) that don’t. The Salvation Army, Goodwill dispensers in parking lots, and boxes filled with canned goods and toys are all elements of true charity. This giving is based on volition rather than coercion, which is the key to its success. People complain about “commercialism,” but all the buying and selling is directed toward meeting the needs of others. Even if the recipient doesn’t give gifts in return, the giver still receives satisfaction. Absent entirely is the zero or negative-sum political process that tilts property in favor of one group or another. Santa, unlike Halloween figures, comes to your home to bring gifts and goodwill, and never takes anything except milk and cookies.

You wouldn’t think of hiding your silver from him. Unlike government bureaucrats, Santa and his workers are entirely trustworthy, and even work overtime by creating goods that are desired by millions of people. If the Labor Department or OSHA ever get around to investigating the North Pole, they’ll probably find all sorts of labor violations: safety and health (too cold), unemployment insurance (does he pay it?), minimum wage (is there exploitation here?), overtime (Heaven knows they work long hours), civil rights (any non-elves employed?), and disability (is Santa accommodating these tiny men?). But the point is that everyone is there voluntarily, and no doubt considers it an honor and privilege.

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What I said yesterday, in different words: “We appeal to the media, to more scrupulously adhere to their obligation to provide unbiased reporting.”

60 Prominent Germans Appeal Against Another War In Europe (Zero Hedge)

Two weeks ago, as the S&P was preparing to surge on the latest round of all time high market-goosing algo trickery by the FOMC, 60 prominent German personalities from the realms of politics, economics, culture and the media were less concerned with blinking red and green stock quotes and were focused on something far more serious to the future of the world: the threat of war with Russia. In a letter published by Germany’s Die Zeit, numerous famous and respected Germans including a former president and former prime minister write “Wieder Krieg in Europa? Nicht in unserem Namen!”, or, roughly translated, “War in Europe Again? Not in Our Names!”

The open letter to the German government, parliament, and media, excerpted here, was signed by more than 60 prominent German personalities and published in the weekly Die Zeit on Dec. 5. The initiators were Horst Teltschik (CDU), advisor to then-Chancellor Helmut Kohl at the time German of reunification; Walther Stützle (SPD), former Secretary of State for the Ministry of Defense; and Antje Vollmer (Greens), former Bundestag Vice President. Teltschik said, in motivating the appeal, “We are giving a political signal that the justified criticism of Russia’s Ukraine policy should not wipe out all the progress that we have made in the past 25 years in relations with Russia.” Below is an excerpted translation (source) of the original letter:

“Nobody wants war. But North America, the European Union, and Russia are inevitably driving towards war if they do not finally halt the disastrous spiral of threats and counter-threats. All Europeans, including Russia, are jointly responsible for peace and security. Only those who do not lose sight of this goal can avoid fatal actions. The Ukraine conflict shows that the quest for power and domination has not been overcome. In 1990, at the end of the Cold War, we all hoped that it would be. But the success of the détente policy and the peaceful revolutions allowed people to become lethargic and careless. In both East and West. The Americans, Europeans, and Russians all lost, as their guiding principle, the idea of permanently banishing war from their relationship.

Otherwise it is impossible to explain either the West’s eastward expansion without simultaneously deepening cooperation with Moscow—a policy which Russia sees as a threat—or Putin’s annexation of Crimea in violation of international law. At this moment of great danger for the continent, Germany has a special responsibility for the maintenance of peace. Without the will for reconciliation of the people of Russia, without the foresight of Mikhail Gorbachov, without the support of our Western allies, and without the prudent action by the then-Federal government, the division of Europe would not have been overcome. To allow German unification to evolve peacefully was a great gesture, shaped by the wisdom of the victorious powers. It was a decision of historic proportions. [..]

We call upon the members of the German Bundestag, delegated by the people as their political representatives, to deal appropriately with the seriousness of the situation. . . . Whoever is constructing a bogeyman, putting the blame on only one side, is exacerbating tensions, when the signals should be for de-escalation. We appeal to the media, to more scrupulously adhere to their obligation to provide unbiased reporting.than they have hitherto done. Editorialists and leading commentators are demonizing entire nations, without fully taking their histories into account. Any journalist experienced in foreign affairs would understand the Russians’ fear, since members of NATO in 2008 invited Georgia and Ukraine to join the Alliance. It is not about Putin. Heads of state come and go. What is at stake is Europe.

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And so he did. But not everybody likes that.

Gorbachev: Putin Saved Russia From Disintegration (RT)

Russian President Vladimir Putin saved the country from falling apart, former Soviet leader Mikhail Gorbachev said during the presentation of his new book ‘After the Kremlin.’ Gorbachev also commented on the situation in Ukraine and NATO expansion. “I think all of us – Russian citizens – must remember that [Putin] saved Russia from the beginning of a collapse. A lot of the regions did not recognize our constitution. There were over a hundred local constitutional variations from that of the Russian constitution,” RIA Novosti quoted Gorbachev as saying on Friday. He added that saving Russia during that crucial period was a “historical deed.” Gorbachev remarked that he knew the Russian president before Putin took office, describing him as having good judgment and discipline.

Commenting on the situation in Ukraine, the ex-Soviet president said the armed stand-off must be immediately stopped and both sides need to come to the negotiating table. “All of us are concerned by what is happening in Ukraine – politicians and the public. And the fact that our government is supporting the people who are in trouble there, no matter how hard things are at home, it is what always distinguished us,” Gorbachev said, stressing that the conflict cannot be solved through violence. Gorbachev also noted that influential American and European politicians need to speak out against the worsening of international ties, adding that many of his old colleagues are seeing the first signs of a new Cold War and understand how crucial it is to calm things down.

He said he has received comments which include concerns on how not to miss the escalating situation, and stopping it before it “acquires an explosive nature.” In terms of Russia’s worries over NATO’s expansion, Gorbachev agrees that the US is playing a key role in the process. “[NATO] began to establish bases around the world…I think the president is mostly right when drawing the attention to the special responsibility the US has,” Gorbachev said. Meanwhile, when speaking about the domestic situation in the country, the former president of the USSR expressed confidence that Russia will get out of the crisis, adding that the only questions are “when and at what price.” “Now we need to be very careful in politics – what policy is implemented, by who, and who stands to benefit?”

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Not smart enough for my tastes.

Putin: It Is Time to Play Your Ace in the Hole (Daily Bell)

The entire world is watching Putin play poker with the Western politicians lead by Obama and followed by Washington quislings in London, Brussels and Berlin. America’s goal since the end of the Cold War has been to weaken by financial, economic and, if necessary, military means any real competition to its global financial and resource domination through the petrodollar and dollar world reserve currency status. The current trade and economic sanctions against Russia and Iran follow this time-tested action that is never successful on its own, as we know from the 50-plus-year blockade of Cuba. But this strategy can lead to opposition nations retaliating by military means, often their only alternative to end blockades etc., which are an act of war and allow the US and other democracies to bring their ultimate superior military power to bare against the offending sovereign state.

This worked for Lincoln against the Confederate States of America, by Woodrow Wilson against the Central Powers before World War One, against the Japanese Empire before World War Two, Iraq, Libya – the list is endless. Recently the US has created the oil price collapse, working closely with its client state Saudi Arabia, in order to weaken the economic power of both Iran and Russia, the two main nations opposing US hegemony, foreign policy and petrodollar policy. Yes, this will play havoc with the US shale oil industry as well as London’s North Sea oil industry but oil profits pale in comparison to the importance of maintaining Western power over Russia and China. I hope Putin realizes the US is not playing games here, as this is a financial and strategic game to the death for Washington and it’s Western allies that have foolishly followed the Goldman Sachs/central banking cartel’s deadly sovereign debt recipe and for growth and prosperity.

The time is up; the debts can never be repaid and sooner or later must be repudiated one way or the other. China is waiting in the wings as the new world economic power and while it is too big to challenge, US strategy is to take out its top two allies, Iran and Russia, to buy time for Wall Street and Washington. The strategy might be a competitive economic course of action but the risk of military consequences and even a third world war loom on the horizon and no country has ever defeated Russia in a land attack. This is risky brinkmanship just to protect our banking and Wall Street elites and their profits at the expense of the American people, I might add, but the US has done this before.

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Nice takedown.

Google Further Crapifies Search, Exploiting Both Users and Advertisers (NC)

Google is a case study of why we need antitrust enforcement. With Google at 97% market share in search, Yahoo and Bing don’t have enough of a foothold for it to be worth the gamble of trying to beat Google at search, even with Google having degraded its service so badly that there are now obvious ways that a challenger could best them. I had assumed that the ongoing crapification of Google was for a commercial purpose, namely to optimize the browser for shopping and the hell with everything else. But as we will discuss in more detail below, my experience in poking around to see about buying a new laptop demonstrates that Google has gotten worse at that too. Lambert, who I enlisted to confirm my experience, was appalled and said, “What have they been doing with all that money?”

But as we’ll see, there is an evil purpose here, just not the evil purpose we’d first assumed. It isn’t as if the degradation of Google is a new phenomenon. I used Google heavily while researching ECONNED, which was written on an insanely tight time schedule. It worked really well then. But even a mere year later, by late 2010, the search algo had been restructured in some mysterious way to make the results much less targeted, and it’s been downhill since then. The most recent appalling change came in the last few months: eliminating the ability to do date range searches. But all of this ruination was so Google could make more money by optimizing for shopping right? Apparently not. I’ve idly and actively looked for stuff on the Internet over the years.

A reliable way to do that was to type in a rough or better yet precise description of the product/product name plus the word “price”. That would usually get you a nice list of vendors selling what you wanted so you could comparison shop, and often you’d get links to sites like Nextag which would provide a list of vendors with all-in prices as well as vendro ratings. Over the last two months, I’ve been looking for an easy-to-install monochrome laser printer (I have NO time to deal with anything more demanding than plug and play, and sadly, dealing with printers on a Mac is not plug and play). I didn’t get any good answers from all my searching and would up buying a used version of my current out-of-production printer. In retrospect, it appears some of my search hassles may have been due to Google, not to having atypical requirements.

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Biggest company on the planet because they buy their own stock?

Apple Spent $56 Billion On Buybacks In 2014 (MarketWatch)

If Apple’s year had a theme, it was the year the company finally started to chip away at that colossal hoard of cash. After a little nudging by activist investor Carl Icahn, Apple boosted its share-buyback program in April to $90 billion and increased the pace of capital returns. New data from FactSet show that Apple has been the biggest buyback spender of 2014 among the S&P 500, pouring more than $56 billion into the program on a trailing 12-month basis as of the end of the third quarter. That’s nearly three times the outlay of runner-up IBM, which spent $19.2 billion. Apple bought back $17 billion in shares last quarter, a 240% year-over-year increase that marks the second-highest dollar amount spent on buybacks during a quarter by any individual company in the S&P 500 since 2005, when FactSet began tracking the data. It’s second only to Apple’s own record of $18.6 billion set in the first quarter as part of the same buyback program.

Morningstar analyst Brian Colello said that while it’s not all surprising the world’s most valuable company would top a list such as this given its enormous cash cushion, he said the buybacks have undoubtedly been a “big contributor” to the stock’s strong performance in 2014. Adjusted for a 7-for-1 stock split earlier this year, shares of Apple have climbed more than 43% over the last 12 months. Since hitting a 52-week low back on Jan. 30, they have been on the march higher — flirting with all-time highs since September. “It showed that management was confident in its upcoming product launches and helped to put a floor into the company’s valuation during times of skepticism,” said Colello. Apple is the world’s most valuable company, with a $641.7 billion market cap, almost double the market valuations of the next companies on that list, Microsoft and Exxon Mobil, both valued around $377 billion.

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Curious.

Strange Predictions For The Future From 1930 (BBC)

Shortly before he died in 1930, former cabinet minister and leading lawyer FE Smith, a friend of Winston Churchill and one of the more outspoken British politicians of his age, wrote a book predicting how the world would look in 100 years’ time. They covered science, lifestyles, politics and war. So what did he say?

Health/lifespan Smith, a former Lord Chancellor who became the Earl of Birkenhead a few years before his death, was writing in a period when tuberculosis was a major killer in the UK and around the world. He was optimistic enough to suggest the eradication of this and other epidemic diseases was “fairly certain” by 2030, as was “the discovery of cures for such scourges as cancer”. Death from old age could also be delayed, Smith thought. Scientists would create injections containing an unspecified substance bringing “rejuvenations”, which would be used to prolong the average lifespan to as much as 150 years. Smith acknowledged this would present “grave problems” from an “immense increase in population”. He also foresaw extreme inter-generational inequality, wondering “how will youths of 20 be able to compete in the professions or business against vigorous men still in their prime at 120, with a century of experience on which to draw”?

Work and leisure
Mechanisation would mean a “gradual contraction” of hours worked, Smith believed. By 2030 it was likely the “average week of the factory hand will consist of 16 or perhaps 24 hours”, which no worker could possibly “grudge”. But, with factories largely automated, work would provide little scope for self-fulfilment, becoming “supremely easy and supremely dull”, consisting largely of supervising machines. It didn’t occur to Smith, in an age before widespread use of computers, that the machines might become self-monitoring. The cut in hours hasn’t happened yet. According to figures from the OECD group of industrialised nations, the lowest average weekly hours worked in a main job in 2013 were 30, in the Netherlands. The highest figure was 47.9, in Turkey. In the UK it was 36.5, with the US among the countries for which information was not provided.

Smith believed that, despite the shortening of hours, everyone would earn enough by 2030 to afford to play football, cricket or tennis in their spare time. But one of the big winners in this more leisure-rich world would be fox-hunting, one of his own hobbies. “As wealth increases, we shall all be able to ride to hounds,” he said. Men would free up even more time with changes to sartorial rules. By 2030 they would be expected to own only two outfits, one for leisure and the other for more formal occasions. John Logie-Baird had demonstrated television in the late 1920s and Smith was excited by the idea. He said that by 2030 full “stereoscopic television in full natural colours” would be available in people’s homes, with proper loudspeaker-quality sound. This meant exiled US citizens would be able to watch any baseball match and, in cricket, “the MCC selection committee, in conclave at Lord’s, will be able to follow the fortunes of an English eleven through the days (or weeks) of an Australian Test match”.

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