Dec 072017
 


MC Escher Convex and concave 1955

 

Note: no Debt Rattle tomorrow due to travel

 

The Great Credit Party Is Almost Over, Societe Generale Says (BBG)
Mother of All Bubbles Too Big to Pop – Peter Schiff (USAW)
One Day Soon, The Sun Will Not Rise (Econimica)
China’s Financial System Has Three Important ‘Tensions’ – IMF (CNBC)
Bitcoin Mining Service NiceHash Says Hackers Emptied Its Wallet (BBG)
Trump: Government Shutdown ‘Could Happen’ Saturday (CNBC)
Trump Calls On Saudi Arabia To End Yemen Blockade Immediately (Ind.)
Why the Deep State Is at War With Trump (Stockman)
How Corporate Power Killed Democracy (CP)
EU Regulators Threaten Court Challenge To EU-US Data Transfer Pact (R.)
Greek Stability Attracts US Investors Amid Turkey, Middle East Tumult (CNBC)
Greek Islands Boiling Over As Winter Arrives (K.)
Scientists Warn Of 93% Chance Global Warming Will Exceed 4°C (Ind.)

 

 

“Emerging market and high-yield markets are the most alarming.”

The Great Credit Party Is Almost Over, Societe Generale Says (BBG)

The great credit party that’s taken yield premiums in major markets down around lowest in a decade is probably months away from an end, as central banks normalize monetary policy and the economic outlook softens, Societe Generale predicts. “We expect next year to be a transition year, when the ultra-low yield environment finally starts to lose its grip,” Societe Generale credit strategists Juan Esteban Valencia and Guy Stear wrote in a note. “The U.S. and the eurozone are heading for an economic slowdown in 2019, and given the rising levels of corporate leverage, this should have an impact on credit.” U.S. investment-grade bond premiums will widen by mid-2018, with European counterparts following suit, as credit markets price in the economic slowdown, they wrote.

“The sword falls in 2H,” they predicted in a report that recognized last year’s annual outlook proved too bearish. Societe Generale had anticipated political risk to hurt credit in 2017, but changed tack by March as that didn’t pan out. Now, with global premiums having fallen further, “credit looks very pricey indeed,” they wrote. “Emerging market and high-yield markets are the most alarming.”

Read more …

Schiff is right, except he keeps being focused on the dollar alone. It’s an American thing.

Mother of All Bubbles Too Big to Pop – Peter Schiff (USAW)

Money manager Peter Schiff correctly predicted the financial meltdown in 2008. Now, 10 years later, what does Schiff see today? Schiff says, “I predicted a lot more than just the stock market going down back then. I predicted the financial crisis, but more importantly, I predicted what the government would do as a result of the financial crisis and what the consequences of that would be because that’s where we’re headed. The real crash I wrote about in my most recent book is still coming. . . . This is the third gigantic bubble that the Fed has inflated, and when this one pops, it’s not going to be ‘the third time is a charm.’ It’s going to be ‘three strikes and you’re out.’ I think this bubble is too big to pop. I think it’s the mother of all bubbles, and when it bursts, there is not a bigger one that the Fed is going to be able to inflate to mask these problems, meaning we can’t kick the can down the road anymore.”

This time, the crisis is going to hit everyone in the wallet. Schiff goes on to say, “I think the problem we are going to be confronted with is going to be much worse than a financial crisis. It is going to be a dollar crisis, and it is going to be a sovereign debt crisis where the bonds people are worried about are not some sub-prime mortgages. . . . It’s going to be the U.S. government that people are worried about and the solvency of the U.S. government and the Treasury bonds. If it’s a dollar crisis and people are worried about the dollar, the only thing worse than owning a dollar today is owning the promise of being paid in dollars in the future. I don’t think we have the courage to default and admit to our creditors that we don’t have the money and we can’t repay. I think we will create all the money that we need so we can pretend to repay, but what we end up doing is wiping out the debt with inflation.”

Read more …

Many more graphs in this from Chris Hamilton. US population growth? It was all immigration: “.. the US fertility rate has been negative for 45 years..”

One Day Soon, The Sun Will Not Rise (Econimica)

When the Q4 US resident population data is released, something that has not happened in the post WWII era will take place. The population of adults aged 15-64 years old will decline. This was not supposed to happen and will put an end to seven plus decades of continuous population growth which has meant a growing workforce, a growing consumer base, and growing tax base. A growing core US population, something considered as sacrosanct as the sun rising, will not happen. On a year over year basis, where there once were up to 3 million more homebuyers than the previous year, 3 million more car buyers than the year before, 3 million more potential customers…there will be likely be thousands fewer.

Many will assume this is a demographic issue of boomers exiting the working age population… but actually demographics is simply the early onset of a disease that will only progressively worsen. This is truly a population growth issue, not simply a demographic distribution problem. The economic system the US and world have adopted are dependent on perpetual growth on a quarter over quarter and year over year basis. Two negative quarters (or even zero growth) and a recession is called and all the Federal Reserve’s and federal governments tools are employed. Given the importance of growth, the most important factor in growing the economy is the rising demand represented by a growing population. But the US fertility rate has been negative for 45 years (chart below) meaning the native population (plus immigrants) have continually failed to replace themselves.

This means US population growth has simply been a story of immigration. And until 2000, N. America was the primary destination for the majority of the world’s immigrants. However, since ’00 and particularly since ’05, the migration patterns have significantly changed.

Read more …

The soft approach.

China’s Financial System Has Three Important ‘Tensions’ – IMF (CNBC)

An almost two-year long study of the Chinese financial system by the International Monetary Fund found three major tensions that could derail the world’s second-largest economy. Those tensions emerged as China moves away from its role as the world’s factory to a more modern, consumer-driven economy, the IMF said. The financial sector is critical in facilitating that transition, but in the process it evolved into a more complicated and debt-laden system. “The system’s increasing complexity has sown financial stability risks,” the fund said in the 2017 China Financial Sector Stability Assessment report released on Thursday morning Asia hours. The report was a culmination of the fund’s several visits to China between October 2015 and September 2017.

The assessment is intended to identify key sources of systemic risk in the financial sector so that policies can be implemented to enhance resilience to shocks and problems that could spread across the globe. The first tension in China’s financial system, according to the IMF, is the rapid build-up in risky credit that was partly due to the strong political pressures banks face to keep non-viable companies open, rather than letting them fail. Such struggling firms have, in recent years, taken on more debt to achieve growth targets set by the authorities. The overall debt-to-GDP ratio in the Asian economic giant grew from around 180% in 2011 to 255.9% by the second quarter of 2017, data by the Bank for International Settlements showed. The rise coincided with a slowdown in productivity growth and pressures on asset quality in the banking system – increasing the risks faced by the Chinese economy.

The second tension identified by the IMF is that risky lending has moved away from banks to the less-regulated parts of the financial system, commonly known as the “shadow banking” sector. That adds to the complexity of the financial sector and makes it more difficult for authorities to supervise activities in the system, the IMF said. And the third issue identified by the international organization is that there’s been a rash of “moral hazard and excessive risk-taking” because of the mindset that the government will bail out troubled state-owned enterprises and local government financing vehicles. An example is the “implicit guarantees” that financial institutions offer when selling products to retail investors. That is a situation where the financial product sold are not guaranteed, but banks almost always compensate investors for principal losses by dipping into their own capital.

The People’s Bank of China, in response to the IMF assessment, said in a statement on its website that it disagrees with some points in the report but the fund’s recommendations are “highly relevant in the context of deepening financial reforms” in the country. One of the points the Chinese central bank said it disagrees with is the conclusion that many banks lack the ability to withstand shocks. The IMF’s stress tests found that 27 out of 33 banks studied were under-capitalized. But the PBOC said the Chinese financial system is resilient.

Read more …

NiceHash is the largest bitcoin-mining exchange. Well, its coins have been found. But what now?

“a highly professional attack with sophisticated social engineering”

Bitcoin Mining Service NiceHash Says Hackers Emptied Its Wallet (BBG)

NiceHash, the marketplace for cloud-based mining of cryptocurrencies, said hackers breached its systems and stole an unknown amount of bitcoin from its virtual wallet. “We are working to verify the precise number of BTC taken,” the company said Wednesday in a statement on its Facebook page. It’s halting operations for 24 hours, it said. The venture’s main webpage showed a “maintenance” error message, linking to its social media accounts. NiceHash helps match people who can spare computing capacity with miners looking to solve complex math problems to obtain a variety of new coins. It later facilitates periodic payments to the service providers with bitcoin. A wallet address circulated by NiceHash users shows that more than $60 million of bitcoins might be affected, according to CoinDesk, the cryptocurrency research and news website.

Read more …

Seems a bit early, but echo chambers are deafening.

Trump: Government Shutdown ‘Could Happen’ Saturday (CNBC)

President Donald Trump on Wednesday said that a government shutdown “could happen” as soon as Saturday. “It could happen,” Trump said during a Cabinet meeting at the White House, in response to a reporter’s question about the Friday deadline for a spending bill to fund the government. “The Democrats are really looking at something that could be very dangerous for our country,” Trump said. “They are looking at shutting down. They want to have illegal immigrants, in many cases people that we don’t want in our country, they want to have illegal immigrants pouring into our country, bringing with them crime, tremendous amounts of crime.” Congress has until midnight on Friday to approve a short-term spending package to keep the government open. Despite majorities in both chambers, Republicans will need Democratic votes to pass the bill.

House Minority Leader Nancy Pelosi, D-Calif., responded on Twitter to Trump’s comments saying: “President Trump is the only person talking about a government shutdown. Democrats are hopeful the President will be open to an agreement to address the urgent needs of the American people and keep government open.” What congressional Democrats want in exchange for supporting the spending bill are permanent protections for the nearly 800,000 young, undocumented immigrants currently living in the United States who were brought here as children, the so-called Dreamers. Earlier this year, Trump canceled an Obama-era protection policy for Dreamers, the Deferred Action for Childhood Arrivals program, or DACA. The president’s order gave Congress until March 2018 to pass a bill with DACA-like protections.

Read more …

To balance out the Jerusalem decision? Jerusalem should be a religious city, not a political one.

Trump Calls On Saudi Arabia To End Yemen Blockade Immediately (Ind.)

US President Donald Trump has called on Saudi Arabia to end its Yemen blockade immediately, citing humanitarian concerns. Mr Trump said in a statement that he has directed US officials to call Saudi Arabian leaders and request they “completely allow food, fuel, water and medicine to reach the Yemeni people.” He said Yemenis “desperately need it.” A Saudi-led coalition has been fighting to defeat the Iran-backed Houthis and Yemeni President Ali Abdullah Saleh’s forces in Yemen since March 2015 with the aim of reinstating the internationally recognized government of Mr Saleh’s successor, Abed Rabbo Mansour Hadi. The US has been supporting the coalition through weapons sales, some intelligence sharing, and refuelling capabilities for air operations.

Since the conflict began, at least 10,000 people have died as a result and 40,000 have been wounded, Al Jazeera reported. Mr Saleh was killed earlier this week after moving to switch allegiances in the bloody conflict, making the situation in the country unpredictable according to experts. [..] The Saudi-led coalition had imposed a blockade on the country last month after Houthi rebels fired a missile on the Saudi capital of Riyadh. It responded by sending a slew of missiles into Yemen’s capital Sanaa. The blockade was partially lifted at the Hudaya port of the international airport in Sanaa and the first aid shipments were allowed to enter the country just last week. In the meantime, aid groups were forced to buy their own fuel in order to assist with relief work.

Read more …

Stockma’s not the lonly one pointing out that the NSA already knows everything. They don’t have to interview Flynn for that.

Why the Deep State Is at War With Trump (Stockman)

If you were a Martian visitor just disembarked from of one of Elon Musk’s rocket ships and were therefore uninfected by earth-based fake news, the culprits in Washington’s witch-hunt de jure would be damn obvious. They include John Brennan, Jim Comey, Sally Yates, Peter Strzok and a passel of deep state operatives – all of whom baldly abused their offices. After Brennan had concocted the whole Russian election meddling meme to sully the Donald’s shocking election win, the latter three holdovers – functioning as a political fifth column in the new Administration – set a perjury trap designed to snare Mike Flynn as a first step in relitigating and reversing the voters’ verdict. The smoking gun on their guilt is so flamingly obvious that the ability of the Trump-hating media to ignore it is itself a wonder to behold.

After all, anyone fresh off Elon’s rocket ship would learn upon even cursory investigation of the matter that the National Security Agency (NSA) intercepts electronically every single communication of the Russian Ambassador with any person on US soil – whether by email, text or phone call. So the clear-minded visitor’s simple question would be: What do the transcripts say? In fact, a Martian visitor would also quickly understand that the entire world – friend, rival, foe and enemy, alike – already knows of NSA’s giant digital spying operation owing to Snowden’s leaks, and that therefore there are no “sources and methods” on the SIGINT (signals intelligence) front to protect. Accordingly, the disinterested Martian would undoubtedly insist: Declassify the NSA intercepts and publish them on Facebook (and, for old timers, on the front page of the New York Times) so that the truth would be known to all.

Of course, that would punch a deep hole in the entire RussiaGate witchhunt because NSA, in fact, did record Flynn’s late December conversations with Russian Ambassador Kislyak. And there was not a single word in them that related to alleged campaign collusion or otherwise inappropriate communications by the in-coming national security adviser to a newly-elected President who was three-weeks from inauguration. Indeed, as explained below, Mueller has effectively told us that Flynn’s communications with Kislyak were clean as a whistle.

Read more …

Corporatism. Another name for Mussolini’s version of fascism.

How Corporate Power Killed Democracy (CP)

The rise of Corporate Power was the fall of democracy. Over the long haul, US politics has revolved around a deep tension between democracy and an unrelenting drive for plunder, power and empire. Granted that our democracy has been seriously flawed and only rarely revolutionary, yet the democratic movements are the source of every good thing America has ever stood for. Since the mid-1970s, when the corporations fused with the state, a new imperial order emerged that killed what remained of representative democracy. Not only would corporations exercise public authority as only government once had, but government would coordinate and serve corporate activity. Power and profits became one and the same. Corporate power has replaced democracy with oligarchy and justice with a vast militarized penal system.

Instead of innovative production, they plunder people and planet. To achieve this new order, elections and the economy had to be drained of any remaining democratic content. Both Democrats and Republicans were eager to have at it. By the 1990s “Third Way” Democrats like Bill Clinton abandoned what was left of the New Deal to try to outdo the Republicans as the party of Wall Street. The Republicans pioneered election fraud on a national scale in 2000, 2004, and 2016; a lesson the Democrats learned all too well by the 2016 Primary. Neither major party wants election reform since free and fair elections would threaten the system itself. So-called private corporations like Facebook, Google and Twitter control information and manage the 1st Amendment.

The corporate media now broadcast propaganda and play the role of censor once monopolized by the FBI and CIA. The migration of propaganda work to civilian organizations began under Ronald Reagan. While both major parties offer the people nothing beyond austerity and the worst kind of identity politics, the big banks like Goldman Sachs gained positions of real influence with both Republican and Democratic administrations and always with the Department of the Treasury and the Federal Reserve. Without pubic money and political protection the banking system — the headquarters of the mythical free market — could not function.

Read more …

Yes, this has everything to do with Google, Facebook et al (not just government spies). It involves some $260 billion in digital trade.

EU Regulators Threaten Court Challenge To EU-US Data Transfer Pact (R.)

European Union privacy regulators have threatened to bring a legal challenge to a year-old EU-U.S. pact on the cross-border transfer of personal data if their concerns about its functioning and U.S. surveillance practices are not resolved by the autumn of 2018, they said in a report. The EU-U.S. Privacy Shield pact was agreed last year after the European Union’s highest court had struck down the previous Safe Harbour Principles agreement which allowed companies to transfer European citizens’ personal data to the United States, due to concerns about intrusive U.S. surveillance of online data. The Privacy Shield pact enables companies to easily conduct everyday cross-border data transfers in compliance with EU data protection rules.

“The WP29 (Article 29 Working Party) has identified a number of significant concerns that need to be addressed by both the (European) Commission and the U.S. authorities,” the regulators – known as the Article 29 Working Party – said in their report. The European Commission, which negotiated the Privacy Shield deal, conducted its first annual review in September and said it was satisfied with the way it was working. It did however ask Washington to improve it, including by strengthening the privacy protections contained in a controversial portion of the U.S. Foreign Intelligence Surveillance Act (FISA), known as Section 702. Section 702 allows the U.S. National Security Agency to collect digital communications from foreign suspects living outside the United States. It is due to expire on Dec. 31 in the absence of congressional action.

Read more …

It won’t remain stable. Or rather, it never was: poevry is making more victims every day.

Greek Stability Attracts US Investors Amid Turkey, Middle East Tumult (CNBC)

A series of positive factors for the Greek economy are attracting U.S. investors back to the embattled euro zone nation, a government minister told CNBC. “There are many American investors who are interested in participating in projects in Greece, because every clever investor would be interested in an economy that now starts to have positive growth rates,” Dimitris Tzanakopoulo, Greek minister of state and the government spokesperson, told CNBC Monday. Following a meeting between President Donald Trump and Greek Prime Minister Alexis Tsipras in October, there’s a renewed interest from the U.S. in shoring up its investments in Greece, especially in the energy sector.

Aside from a bounce back in economic growth, Tzanakopoulo said that Greece was “a pillar of stability in a region” and is winning back investors. “(The region) has many, many problems, wherever you look there’s destabilization, there is turbulence,” Tzanakopoulo said in his office in Athens. “We think we are one of the factors which will secure and guarantee stability in the region and this is something everybody knows, from the U.S. to our European partners,” he said. At the crossroads of Europe, Asia, and Africa, Greece is a key ally for many Western countries in the face of escalating tumult in Turkey and the rest of the Middle East.

Read more …

Apparently Berlin has not given permission to move refugees to the mainland. Shame on you, mutti Merkel.

Greek Islands Boiling Over As Winter Arrives (K.)

The decision by the Migration Policy Ministry to expand and upgrade hot spots on Chios and Lesvos have cultivated a tense atmosphere, as critics say it will do nothing to ease pressure on the eastern Aegean islands and or to alleviate the situation of thousands of stranded refugees and migrants crammed in camps designed to hold far less people. Moreover, the onset of winter has made a bad situation even worse and the calls for authorities to accelerate asylum applications so as to transfer people to the mainland have become even louder. In the bid to deal with the deteriorating conditions, a team from Medecins Sans Frontiers (MSF) has, since last week, set up operations outside the Moria camp in Lesvos, offering assistance to those in need in cooperation with the Hellenic Center for Disease Control and Prevention (KEELPNO).

In a Facebook post, MSF said the harsh conditions and the cold are posing a serious threat to the health of the some 7,000 people that remain at the Moria hot spot. The group, which has called for the immediate transfer of those living at Moria to the mainland, has set up a mobile unit outside the camp to help children under the age of 16 and pregnant women. MSF is also distributing blankets, mattresses and other basic necessities as the situation, it said, is on the brink of a humanitarian crisis. At the same time, the Migration Policy Ministry is planning to transfer another 65 prefabricated huts to Moria in a bid to increase the camp’s capacity and to improve the living conditions of those that are still staying in summer tents. But the move is set to trigger more acrimony, as islanders and local authorities have said they do not agree with the expansion of the hot spot’s capacity.

Read more …

That would mean much higher sea levels.

Scientists Warn Of 93% Chance Global Warming Will Exceed 4°C (Ind.)

Current predictions of climate change may significantly underestimate the speed and severity of global warming, according to a new study. Reappraisal of the models climate scientists use to determine future warming has revealed that less optimistic estimates are more realistic. The results suggest that the Paris Climate Agreement, which aims to keep global average temperatures from rising by 2C, may be overly ambitious. “Our study indicates that if emissions follow a commonly used business-as-usual scenario, there is a 93% chance that global warming will exceed 4C by the end of this century,” said Dr Ken Caldeira, an atmospheric scientist at the Carnegie Institution for Science, who co-authored the new study. This likelihood is an increase on past estimates, which placed it at 62%.

Climate models are vital tools for scientists attempting to understand the impacts of greenhouse-gas emissions. They are constructed using fundamental knowledge of physics and the world’s climate. But the climate system is incredibly complex, and as a result there is disagreement about how best to model key aspects of it. This means scientists have produced dozens of climate models predicting a range of different global warming outcomes resulting from greenhouse-gas emissions. Based on a “business-as-usual” scenario in which emissions continue at the same rate, climate models range in their predictions from a 3.2C increase in global temperatures to a 5.9C increase The new study, published in the journal Nature, sought to resolve this situation and establish whether the upper or lower estimates are more accurate.

To do this, Dr Caldeira and his collaborator Dr Patrick Brown reasoned that the most accurate models would be the ones that were best at simulating climate patterns in the recent past. “It makes sense that the models that do the best job at simulating today’s observations might be the models with the most reliable predictions,” said Dr Caldeira. Their conclusion was that models with higher estimates were more likely to be accurate, with the most likely degree of warming 0.5C higher than previous best estimates.

Read more …

 

If I knew for a certainty that a man was coming to my house with the conscious design of doing me good, I should run for my life.
—Thoreau

 

May 132016
 

Before you raise your voice, please allow me to say that I do indeed know this starts to feel like a set of Russian dolls, and this is a re-run of a re-run. It’s just, I didn’t start it. Got a mail yesterday from the people at OpEdNews.com asking if I would allow them to repost something I wrote over a year ago. And since I’m notoriously bad at remembering anything I wrote even just 24 hours ago, when I read what they wanted to republish, it was almost like a whole new world opened up for me. And I kind of liked it.

And only then I saw that what they had read, which was published May 2, 2015 as Quote Of The Year. And The Next. And The One After, was actually largely a rerun of a January 1 2013 article. But, you know, when someone tells you “Your essay is excellent. And as one who has been closely attuned to such matters for nearly 50 years I can say with confidence that your theme is fresh and current as any other we should be reading and heeding today. In fact, I think it is timeless.”, A) you feel young, and B) you say: who am I to disagree with that?

So this today went up at OpEdNews.com, and is now once again up at The Automatic Earth as well. Because I do still think it’s relevant and important to acknowledge that “we are going to evolve through crisis, not through proactive change.”, and that we are nowhere near realizing how true that is, and how much that denial, unfortunately, guides our existence. We’re either not even smart monkeys, or we’re that at best. We need a lot more self-reflection than we are getting, or we’re going down. And my bet, much as it pains me, is on door no. 2. From May 5, 2015:

I very rarely read back any of the essays I write. But maybe that’s not always a good thing. Especially when they deal with larger underlying issues beneath the problems we find ourselves in, why these problems exist in the first place, and what we can and will do to deal with them. Not all of these things can and perhaps should be re-written time and again. Commentary on daily events calls for new articles, but attempts to define the more in-depth human behavior behind these events should, if they are executed well, be more timeless.

Not that I would want to judge my own work, I’ll leave that to others, but I can still re-read something and think: that’s something I would like to read if someone else had written it. Since a friend yesterday sent me an email that referenced the essay below, I did go through it again and thought it’s worth republishing here. It’s from New Year’s Day 2013, or almost 2.5 years old, which should be a long enough time gap that many present day readers of The Automatic Earth haven’t read it yet, and long enough for those who have to ‘enjoy’ it all over again.

I am not very optimistic about the fate of mankind as it is, and that has a lot to do with what I cite here, that while our problems tend to evolve in exponential ways, our attempts at solving them move in linear fashion. That is true as much for the problems we ourselves create as it is for those that – seem to – ‘simply happen’. I think it would be very beneficial for us if we were to admit to our limits when it comes to solving large scale issues, because that might change the behavior we exhibit when creating these issues.

In that sense, the distinction made by Dennis Meadows below between ‘universal problems’ and ‘global problems’ may be very useful. The former concerns issues we all face, but can -try to – solve at a more local level, the latter deals with those issues that need planet-wide responses – and hardly ever get solved if at all. The human capacity for denial and deceit plays a formidable role in this.

I know that this is not a generally accepted paradigm, but that I put down to the same denial and deceit. We like to see ourselves as mighty smart demi-gods capable of solving any problem. But that is precisely, I think, the no. 1 factor in preventing us from solving them. And I don’t see that changing: we’re simple not smart enough to acknowledge our own limitations. Therefore, as Meadows says: “we are going to evolve through crisis, not through proactive change.” Here’s from January 1 2013:

Ilargi: I came upon this quote a few weeks ago in an interview that Der Spiegel had with Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago. Yes, the report that has been much maligned and later largely rehabilitated. But that’s not my topic here, and neither is Meadows himself. It’s the quote, and it pretty much hasn’t left me alone since I read it.

Here’s the short version:

[..] … we are going to evolve through crisis, not through proactive change.

And here it is in its context:

‘Limits to Growth’ Author Dennis Meadows ‘Humanity Is Still on the Way to Destroying Itself’

SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?

Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.

I don’t really think that Dennis Meadows understands how true that is. I may be wrong, but I think he’s talking about a specific case here . While what he makes me ponder is that perhaps this is all we have, and always, that it’s a universal truth. That we can never solve our real big problems through proactive change. That we can only get to a next step by letting the main problems we face grow into full-blown crises, and that our only answer is to let that happen.

And then we come out on the other side, or we don’t, but it’s not because we find the answer to the problem itself, we simply adapt to what there is at the other side of the full-blown crisis we were once again unable to halt in its tracks. Adapt like rats do, and crocodiles, cockroaches, no more and no less.

This offers a nearly completely ignored insight into the way we deal with problems. We don’t change course in order to prevent ourselves from hitting boundaries. We hit the wall face first, and only then do we pick up the pieces and take it from there.

Jacques Cousteau was once quite blunt about it:

The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

Without getting into specific predictions the way Cousteau did: If that is as true as I suspect it is, the one thing it means is that we fool ourselves a whole lot. The entire picture we have created about ourselves, consciously, sub-consciously, un-consciously, you name it, is abjectly false. At least the one I think we have. Which is that we see ourselves as capable of engineering proactive changes in order to prevent crises from blowing up.

That erroneous self-image leads us to one thing only: the phantom prospect of a techno-fix becomes an excuse for not acting. In that regard, it may be good to remember that one of the basic tenets of the Limits to Growth report was that variables like world population, industrialization and resource depletion grow exponentially, while the (techno) answer to them grows only linearly.

First, I should perhaps define what sorts of problems I’m talking about. Sure, people build dams and dikes to keep water from flooding their lands. And we did almost eradicate smallpox. But there will always be another flood coming, or a storm, and there will always be another disease popping up (viruses and bacteria adapt faster than we do).

In a broader sense, we have gotten rid of some diseases, but gotten some new ones in return. And yes, average life expectancy has gone up, but it’s dependent entirely on the affordability and availability of lots of drugs, which in turn depend on oil being available.

And if I can be not PC for a moment, this all leads to another double problem. 1) A gigantic population explosion with a lot of members that 2) are, if not weaklings, certainly on average much weaker physically than their ancestors. Which is perhaps sort of fine as long as those drugs are there, but not when they’re not.

It’s quite simple, isn’t it? Increasing wealth makes us destroy ancient multi-generational family structures (re: the nuclear family, re: old-age homes), societal community structures (who knows their neighbors, and engages in meaningful activity with them?), and the very planet that has provided the means for increasing our wealth (and our population!).

And in our drive towards what we think are more riches, we are incapable of seeing these consequences. Let alone doing something about them. We have become so dependent, as modern western men and women, on the blessings of our energy surplus and technology that 9 out of 10 of us wouldn’t survive if we had to do without them.

Nice efforts, in other words, but no radical solutions. And yes, we did fly to the moon, too, but not flying to the moon wasn’t a problem to start with.

Maybe the universal truth I suspect there is in Meadows’ quote applies “specifically” to a “specific” kind of problem: The ones we create ourselves.

We can’t reasonably expect to control nature, and we shouldn’t feel stupid if we can’t (not exactly a general view to begin with, I know). And while one approach to storms and epidemics is undoubtedly better than another, both will come to back to haunt us no matter what we do. So as far as natural threats go, it’s a given that when the big one hits we can only evolve through crisis. We can mitigate. At best.

However: we can create problems ourselves too. And not just that. We can create problems that we can’t solve. Where the problem evolves at an exponential rate, and our understanding of it only grows linearly. That’s what that quote is about for me, and that’s what I think is sorely missing from our picture of ourselves.

In order to solve problems we ourselves create, we need to understand these problems. And since we are the ones who create them, we need to first understand ourselves to understand our problems.

Moreover, we will never be able to either understand or solve our crises if we don’t acknowledge how we – tend to – deal with them. That is, we don’t avoid or circumvent them, we walk right into them and, if we’re lucky, come out at the other end.

Point in case: we’re not solving any of our current problems, and what’s more: as societies, we’re not even seriously trying, we’re merely paying lip service. To a large extent this is because our interests are too different. To a lesser extent (or is it?) this is because we – inadvertently – allow the more psychopathic among us to play an outsize role in our societies.

Of course there are lots of people who do great things individually or in small groups, for themselves and their immediate surroundings, but far too many of us draw the conclusion from this that such great things can be extended to any larger scale we can think of. And that is a problem in itself: it’s hard for us to realize that many things don’t scale up well. A case in point, though hardly anyone seems to realize it, is that solving problems itself doesn’t scale up well.

Now, it is hard enough for individuals to know themselves, but it’s something altogether different, more complex and far more challenging for the individuals in a society, to sufficiently know that society in order to correctly identify its problems, find solutions, and successfully implement them. In general, the larger the scale of the group, the society, the harder this is.

Meadows makes a perhaps somewhat confusing distinction between universal and global problems, but it does work:

You see, there are two kinds of big problems. One I call universal problems, the other I call global problems. They both affect everybody. The difference is: Universal problems can be solved by small groups of people because they don’t have to wait for others. You can clean up the air in Hanover without having to wait for Beijing or Mexico City to do the same.

Global problems, however, cannot be solved in a single place. There’s no way Hanover can solve climate change or stop the spread of nuclear weapons. For that to happen, people in China, the US and Russia must also do something. But on the global problems, we will make no progress.

So how do we deal with problems that are global? It’s deceptively simple: We don’t.

All we need to do is look at the three big problems – if not already outright crises – we have right now. And see how are we doing. I’ll leave aside No More War and No More Hunger for now, though they could serve as good examples of why we fail.

There is a more or less general recognition that we face three global problems/crises. Finance, energy and climate change. Climate change should really be seen as part of the larger overall pollution problem. As such, it is closely linked to the energy problem in that both problems are direct consequences of the 2nd law of thermodynamics. If you use energy, you produce waste; use more energy and you produce more waste. And there is a point where you can use too much, and not be able to survive in the waste you yourself have produced.

Erwin Schrödinger described it this way, as quoted by Herman Daly:

Erwin Schrodinger [..] has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment — that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is an organism cannot live in a medium of its own waste products.

The energy crisis flows seamlessly into the climate/pollution crisis. If properly defined, that is. But it hardly ever is. Our answer to our energy problems is to first of all find more and after that maybe mitigate the worst by finding a source that’s less polluting.

So we change a lightbulb and get a hybrid car. That’s perhaps an answer to the universal problem, and only perhaps, but it in no way answers the global one. With a growing population and a growing average per capita consumption, both energy demand and pollution keep rising inexorably. And the best we can do is pay lip service. Sure, we sign up for less CO2 and less waste of energy, but we draw the line at losing global competitiveness.

The bottom line is that we may have good intentions, but we utterly fail when it comes to solutions. And if we fail with regards to energy, we fail when it comes to the climate and our broader living environment, also known as the earth.

We can only solve our climate/pollution problem if we use a whole lot less energy resources. Not just individually, but as a world population. Since that population is growing, those of us that use most energy will need to shrink our consumption more every passing day. And every day we don’t do that leads to more poisoned rivers, empty seas and oceans, barren and infertile soil. But we refuse to even properly define the problem, let alone – even try to – solve it.

Anyway, so our energy problem needs to be much better defined than it presently is. It’s not that we’re running out, but that we use too much of it and kill the medium we live in, and thereby ourselves, in the process. But how much are we willing to give up? And even if we are, won’t someone else simply use up anyway what we decided not to? Global problems blow real time.

The more we look at this, the more we find we look just like the reindeer on Matthew Island, the bacteria in the petri dish, and the yeast in the wine vat. We burn through all surplus energy as fast as we can find ways to burn it. The main difference, the one that makes us tragic, is that we can see ourselves do it, not that we can stop ourselves from doing it.

Nope, we’ll burn through it all if we can (but we can’t ’cause we’ll suffocate in our own waste first). And if we’re lucky (though that’s a point of contention) we’ll be left alive to be picking up the pieces when we’re done.

Our third big global problem is finance slash money slash economy. It not only has the shortest timeframe, it also invokes the highest level of denial and delusion, and the combination may not be entirely coincidental. The only thing our “leaders” do is try and keep the baby going at our expense, and we let them. We’ve created a zombie and all we’re trying to do is keep it walking so everyone including ourselves will believe it’s still alive. That way the zombie can eat us from within.

We’re like a deer in a pair of headlights, standing still as can be and putting our faith in whoever it is we put in the driver’s seat. And too, what is it, stubborn, thick headed?, to consider the option that maybe the driver likes deer meat.

Our debt levels, in the US, Europe and Japan, just about all of them and from whatever angle you look, are higher than they’ve been at any point in human history, and all we’ve done now for five years plus running is trust a band of bankers and shady officials to fix it all for us, just because we’re scared stiff and we think we’re too stupid to know what’s going on anyway. You know, they should know because they have the degrees and/or the money to show for it. That those can also be used for something 180 degrees removed from the greater good doesn’t seem to register.

We are incapable of solving our home made problems and crises for a whole series of reasons. We’re not just bad at it, we can’t do it at all. We’re incapable of solving the big problems, the global ones.

We evolve the way Stephen Jay Gould described evolution: through punctuated equilibrium. That is, we pass through bottlenecks, forced upon us by the circumstances of nature, only in the case of the present global issues we are nature itself. And there’s nothing we can do about it. If we don’t manage to understand this dynamic, and very soon, those bottlenecks will become awfully narrow passages, with room for ever fewer of us to pass through.

As individuals we need to drastically reduce our dependence on the runaway big systems, banking, the grid, transport etc., that we ourselves built like so many sorcerers apprentices, because as societies we can’t fix the runaway problems with those systems, and they are certain to drag us down with them if we let them.

Aug 182015
 
 August 18, 2015  Posted by at 2:32 pm Finance Tagged with: , , , , , , ,  7 Responses »


Gustave Doré Dante and Virgil among the gluttons 1868

In case you missed it, we’re doing something a little different. Nicole wrote a very lenghty article and we decided to publish it in chapters. Over five days we are posting five different chapters of the article, one on each day, and then on day six the whole thing. Just so there’s no confusion: the article, all five chapters of it, was written by Nicole Foss. Not by Ilargi.

This is part 4. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
Part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon
and part 3 is here:
Declining Energy Profit Ratio and Socioeconomic Complexity


Blind Alleys and Techno-Fantasies

The majority of proposals made by those who acknowledge limits fail on at least one of the previous criteria, and often several, if not all of them. Solution space is smaller than we typically think. The most common approach is to insist on government policies intended to implement meaningful change by fiat. Even in the best of times, government policy is a blunt instrument which all too often achieves the opposite of its stated intention, and in contractionary times the likelihood of this increases enormously.

Governments are reactive – and slowly – not proactive. Policies typically reflect the realities of the past, not the future, and are therefore particularly maladaptive at times of large scale trend change, particularly when that change unfolds rapidly. Those focusing on government policy are mostly not thinking in terms of crisis, however, but of seamless proactive adjustment – the kind of which humanity is congenitally incapable.

There is a common perception that government policy and its effect on society depends critically on who holds the seat of power and what policies they impose. The assumption is that elected leaders do, in fact, wield the power to determine and implement their chosen policies, but this has become less and less the case over time. Elected leaders are the public face of a system which they do not control, and increasingly act merely as salesmen for policies determined behind the scenes, mostly at the behest of special interest groups with privileged political access.

It actually matters little who is the figure-head at any given time, as their actions are constrained by the system in which they are embedded. Even if leaders fully understood the situation we face, which is highly unlikely given the nature of the leadership selection process, they would be unable to change the direction of a system so much larger than themselves.

Where public pressure on elected governments develops around a specific issue, for whatever reason, the political response is generally to act in such a way as to appear to do something meaningful, while actually making no substantive change at all. Often the appearance of action is nothing more than vacuous political spin, assuaging public opinion while doing nothing to threaten the extractive interests driving the system in the same direction as always. We cannot expect truly adaptive initiatives to emerge from a system hostage to powerful vested interests and therefore locked into a given direction.

Public understanding of the issues agitated for or against tends, unfortunately, to be limited and one-dimensional, meaning that it is essentially impossible to create public pressure for truly informed policy changes, and it is relatively simple to claim that the appearance of action constitutes actual action. A short public attention span makes this even simpler. People are also extremely unlikely to vote for policies which, if they were to make a meaningful difference, would amount to depriving those same people of the outsized consumption habits to which they have become accustomed. The insurmountable obstacles to achieving change through government policy become obvious.

Planned degrowth assumes the possibility of a smooth progression towards a lower consumption future, but this is not how contractions unfold following the bursting of a bubble. What we can expect is a series of abrupt dislocations that are going to wreak havoc with our collective ability to plan anything at all for many years, by which time we will already be living in a lower consumption future arrived at chaotically. Effective planning for an epochal shift requires the capacity for top-down policy implementation at large scale, combined with social cohesion, the ability to maintain complexity, and the energy to maintain control over a myriad distinct aspects simultaneously. It is simply not going to happen in the manner that proponents envisage.

Similarly, a steady state economy is not a realistic construct in light of many non-negotiable realities. Human history, and in fact the non-human evolution which preceded it, is a dynamic history of boom and bust, of niches opening up, being exploited, being over-exploited and collapsing. It is a history of opportunism and the consequences following from it. In the human experience, boom and bust in the form of the rise and fall of empire is an emergent property of civilizational scale. A steady state at this scale is prima facie impossible.

An approximation of steady state can exist under certain circumstances, where a population well below ecological carrying capacity, and surrounded by abundance, is left in isolation for a very long period of time. The Australian aboriginal existence prior to the European invasion is probably the best example, having persisted for tens of thousands of years. The circumstances which permitted it were, however, diametrically opposite to those we currently face.

Proponents of the steady state economy do not seem to appreciate the extent to which we have long since transgressed the point of no return from the perspective of being able to maintain what we have built. Even if we were merely approaching limits, instead of having moved substantially into overshoot, we would not be able to hold society in stasis just below those limitations.

Populations grow and expansion proceeds with it. Intentionally preventing population growth globally is unrealistic. Even China, as a single country, has struggled with population control policies, and has had to take drastic and dictatorial measures in order to slow population growth. This clearly relies on strong top-down control, which is only barely possible at a national level and will never be possible at a global level.

In China we are also going to see that the outcome of population control has challenging consequences, and that a policy supposedly designed to foster stability can have the opposite effect. The desire for a male child has dangerously distorted the gender ratio in ways which will leave the country with a large excess of young men with no prospects for either work or marriage. That is a guarantee of trouble, either at home or abroad, or possibly both. There will also be far too few employed young people to look after a burgeoning elderly population, meaning a rapid die-off of the elderly cohort at some point.

Even then China is unlikely to have managed to get itself back below the carrying capacity it has done so much to destroy during its frantic dash for growth. The tremendous modernity drive China has engaged in essentially undone any benefit curbing population growth might have had, by increasing energy and resource consumption per capita by an enormous margin. It is population times consumption which determines impact, and in China the ecological impact has in many ways been catastrophic. That has to some extent been compensated for by obtaining access to a great deal of land in other countries, but economic colonialism has done nothing for global stability.

While it is possible to conceive, as some steady-state and degrowth proponents do, of a world in which civilization and large-scale urbanism have been dismantled in favour of autonomous, yet networked, village-scale settlements, that does not make it even remotely realistic. Humanity may, in the distant future, after the overshoot condition has been resolved by nature, as it will eventually be, find itself living in villages once again, but they would not be networked in the modern, technological sense, and the population they housed would be very smaller smaller than at present.

If it is below carrying capacity, then it will grow again, restarting the cycle of expansion and contraction rather than settling for a steady-state. Reaching for the stars again would not be possible however, as the necessary energy and resources have already been consumed or dissipated.

People are often inclined to think that a different trajectory is a matter of choice – for instance that we must collectively choose to live differently in order to prevent an ecological catastrophe. In fact it is not a matter of choice at all. There is no basis for top-down control capable of delivering meaningful change, nor would humanity ever collectively choose to scale back its consumption pattern, although individuals can and do. Given opportunities as a species, we take them, as evolution has shaped us to do.

Groups which made a habit of forgoing opportunities in the past would quickly have been out-competed by those who did not. We are the descendants of a long long line of opportunists, selected over millennia for our flexibility in turning an incredibly wide range of circumstances to our advantage. But, in this instance we will have no choice – the shift to lower consumption will be imposed on us by circumstance. The element of choice will be only in how we choose to face that which we cannot change.

Another class of ideas for ways forward is grounded in techno-optimism, suggesting that because human beings are clever and creative, and have tended to push back apparent limits before, that we will be able to do so indefinitely. The notion is that changing our trajectory is unnecessary because limits can always be circumvented. Needless to say, such a view is not grounded in physical reality. These ‘solutions’ are entrepreneurial rather than policy-driven, although they may expect to be facilitated through policy.

Ideas in this category would include such things as smart renewables-based power grids, high-performance electric cars, high-tech energy storage systems, thorium reactors, fusion reactors, biofuels, genetically modified (pseudo)foodstuffs, geoengineering, enhanced automation, high-tech carbon sequestration, global carbon trading platforms, electronic crypto-currencies, clean-tech, vertical farming skyscrapers and many other notions.

Notice that all of these presume the ready availability of cheap energy and resources, along with large quantities of capital, and all assume that technological complexity can be maintained or even increased. Options such as these also have a substantial dependence on the continuation of globalized trade in both goods and services in order to satisfy their complex supply chains. However, globalization depends on the ability to operate at large scale in extremely complex ways, it depends on cheap energy, it depends on maintaining trust in trading partners, and it depends on the ability to travel without facing unacceptable levels of physical risk from piracy or conflict.

Trade does very poorly in times of financial and economic contraction. In the Great Depression of the 1930s, trade fell by 66% in two years. Trust collapses, and with it the contractual ability to agree on risk-sharing arrangements. Letters of credit become impossible to obtain in a credit crunch, and without them goods do not move.

Many goods will in any case have no market, as there will be little purchasing power for anything but essentials, and possibly not even sufficient for those. As we move from the peak of globalized trade, there will be an enormous excess of transport capacity, which will drive prices down relentlessly to the point where transporting goods becomes uneconomic. Much transport capacity will be scrapped. Without credit to oil the wheels of trade, our highly leveraged economic system will grind to a halt.

It is natural that we regard our current situation as being normal, and take for granted that the march of technological progress – the only reality most of us have known – will continue. Few question very deeply the foundations of our societies, and even those who do recognize that change must occur rarely realize the extent to which that change will inevitably strike at the fundamental basis of modern existence. Globalization has peaked and will shortly be moving into reverse. The world will be a very different place as a result.

This is part 4. Part 1 is here:
Global Financial Crisis – Liquidity Crunch and Economic Depression,
Part 2 is here:
The Psychological Driver of Deflation and the Collapse of the Trust Horizon
and part 3 is here:
Declining Energy Profit Ratio and Socioeconomic Complexity

Tune back in tomorrow for part 5: Solution Space

May 052015
 

I very rarely read back any of the essays I write. But maybe that’s not always a good thing. Especially when they deal with larger underlying issues beneath the problems we find ourselves in, why these problems exist in the first place, and what we can and will do to deal with them. Not all of these things can and perhaps should be re-written time and again. Commentary on daily events calls for new articles, but attempts to define the more in-depth human behavior behind these events should, if they are executed well, be more timeless.

Not that I would want to judge my own work, I’ll leave that to others, but I can still re-read something and think: that’s something I would like to read if someone else had written it. Since a friend yesterday sent me an email that referenced the essay below, I did go through it again and thought it’s worth republishing here. It’s from New Year’s Day 2013, or almost 2.5 years old, which should be a long enough time gap that many present day readers of The Automatic Earth haven’t read it yet, and long enough for those who have to ‘enjoy’ it all over again.

I am not very optimistic about the fate of mankind as it is, and that has a lot to do with what I cite here, that while our problems tend to evolve in exponential ways, our attempts at solving them move in linear fashion. That is true as much for the problems we ourselves create as it is for those that – seem to – ‘simply happen’. I think it would be very beneficial for us if we were to admit to our limits when it comes to solving large scale issues, because that might change the behavior we exhibit when creating these issues.

In that sense, the distinction made by Dennis Meadows below between ‘universal problems’ and ‘global problems’ may be very useful. The former concerns issues we all face, but can -try to – solve at a more local level, the latter deals with those issues that need planet-wide responses – and hardly ever get solved if at all. The human capacity for denial and deceit plays a formidable role in this.

I know that this is not a generally accepted paradigm, but that I put down to the same denial and deceit. We like to see ourselves as mighty smart demi-gods capable of solving any problem. But that is precisely, I think, the no. 1 factor in preventing us from solving them. And I don’t see that changing: we’re simply not smart enough to acknowledge our own limitations. Therefore, as Meadows says: “we are going to evolve through crisis, not through proactive change.” Here’s from January 1 2013:

Ilargi: I came upon this quote a few weeks ago in an interview that Der Spiegel had with Dennis Meadows, co-author of the Limits to Growth report published by the Club of Rome 40 years ago. Yes, the report that has been much maligned and later largely rehabilitated. But that’s not my topic here, and neither is Meadows himself. It’s the quote, and it pretty much hasn’t left me alone since I read it.

Here’s the short version:

[..] … we are going to evolve through crisis, not through proactive change.

And here it is in its context:

‘Limits to Growth’ Author Dennis Meadows ‘Humanity Is Still on the Way to Destroying Itself’

SPIEGEL ONLINE: Professor Meadows, 40 years ago you published “The Limits to Growth” together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?

Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.

I don’t really think that Dennis Meadows understands how true that is. I may be wrong, but I think he’s talking about a specific case here . While what he makes me ponder is that perhaps this is all we have, and always, that it’s a universal truth. That we can never solve our real big problems through proactive change. That we can only get to a next step by letting the main problems we face grow into full-blown crises, and that our only answer is to let that happen.

And then we come out on the other side, or we don’t, but it’s not because we find the answer to the problem itself, we simply adapt to what there is at the other side of the full-blown crisis we were once again unable to halt in its tracks. Adapt like rats do, and crocodiles, cockroaches, no more and no less.

This offers a nearly completely ignored insight into the way we deal with problems. We don’t change course in order to prevent ourselves from hitting boundaries. We hit the wall face first, and only then do we pick up the pieces and take it from there.

Jacques Cousteau was once quite blunt about it:

The road to the future leads us smack into the wall. We simply ricochet off the alternatives that destiny offers: a demographic explosion that triggers social chaos and spreads death, nuclear delirium and the quasi-annihilation of the species… Our survival is no more than a question of 25, 50 or perhaps 100 years.

Without getting into specific predictions the way Cousteau did: If that is as true as I suspect it is, the one thing it means is that we fool ourselves a whole lot. The entire picture we have created about ourselves, consciously, sub-consciously, un-consciously, you name it, is abjectly false. At least the one I think we have. Which is that we see ourselves as capable of engineering proactive changes in order to prevent crises from blowing up.

That erroneous self-image leads us to one thing only: the phantom prospect of a techno-fix becomes an excuse for not acting. In that regard, it may be good to remember that one of the basic tenets of the Limits to Growth report was that variables like world population, industrialization and resource depletion grow exponentially, while the (techno) answer to them grows only linearly.

First, I should perhaps define what sorts of problems I’m talking about. Sure, people build dams and dikes to keep water from flooding their lands. And we did almost eradicate smallpox. But there will always be another flood coming, or a storm, and there will always be another disease popping up (viruses and bacteria adapt faster than we do).

In a broader sense, we have gotten rid of some diseases, but gotten some new ones in return. And yes, average life expectancy has gone up, but it’s dependent entirely on the affordability and availability of lots of drugs, which in turn depend on oil being available.

And if I can be not PC for a moment, this all leads to another double problem. 1) A gigantic population explosion with a lot of members that 2) are, if not weaklings, certainly on average much weaker physically than their ancestors. Which is perhaps sort of fine as long as those drugs are there, but not when they’re not.

It’s quite simple, isn’t it? Increasing wealth makes us destroy ancient multi-generational family structures (re: the nuclear family, re: old-age homes), societal community structures (who knows their neighbors, and engages in meaningful activity with them?), and the very planet that has provided the means for increasing our wealth (and our population!).

And in our drive towards what we think are more riches, we are incapable of seeing these consequences. Let alone doing something about them. We have become so dependent, as modern western men and women, on the blessings of our energy surplus and technology that 9 out of 10 of us wouldn’t survive if we had to do without them.

Nice efforts, in other words, but no radical solutions. And yes, we did fly to the moon, too, but not flying to the moon wasn’t a problem to start with.

Maybe the universal truth I suspect there is in Meadows’ quote applies “specifically” to a “specific” kind of problem: The ones we create ourselves.

We can’t reasonably expect to control nature, and we shouldn’t feel stupid if we can’t (not exactly a general view to begin with, I know). And while one approach to storms and epidemics is undoubtedly better than another, both will come to back to haunt us no matter what we do. So as far as natural threats go, it’s a given that when the big one hits we can only evolve through crisis. We can mitigate. At best.

However: we can create problems ourselves too. And not just that. We can create problems that we can’t solve. Where the problem evolves at an exponential rate, and our understanding of it only grows linearly. That’s what that quote is about for me, and that’s what I think is sorely missing from our picture of ourselves.

In order to solve problems we ourselves create, we need to understand these problems. And since we are the ones who create them, we need to first understand ourselves to understand our problems.

Moreover, we will never be able to either understand or solve our crises if we don’t acknowledge how we – tend to – deal with them. That is, we don’t avoid or circumvent them, we walk right into them and, if we’re lucky, come out at the other end.

Point in case: we’re not solving any of our current problems, and what’s more: as societies, we’re not even seriously trying, we’re merely paying lip service. To a large extent this is because our interests are too different. To a lesser extent (or is it?) this is because we – inadvertently – allow the more psychopathic among us to play an outsize role in our societies.

Of course there are lots of people who do great things individually or in small groups, for themselves and their immediate surroundings, but far too many of us draw the conclusion from this that such great things can be extended to any larger scale we can think of. And that is a problem in itself: it’s hard for us to realize that many things don’t scale up well. A case in point, though hardly anyone seems to realize it, is that solving problems itself doesn’t scale up well.

Now, it is hard enough for individuals to know themselves, but it’s something altogether different, more complex and far more challenging for the individuals in a society, to sufficiently know that society in order to correctly identify its problems, find solutions, and successfully implement them. In general, the larger the scale of the group, the society, the harder this is.

Meadows makes a perhaps somewhat confusing distinction between universal and global problems, but it does work:

You see, there are two kinds of big problems. One I call universal problems, the other I call global problems. They both affect everybody. The difference is: Universal problems can be solved by small groups of people because they don’t have to wait for others. You can clean up the air in Hanover without having to wait for Beijing or Mexico City to do the same.

Global problems, however, cannot be solved in a single place. There’s no way Hanover can solve climate change or stop the spread of nuclear weapons. For that to happen, people in China, the US and Russia must also do something. But on the global problems, we will make no progress.

So how do we deal with problems that are global? It’s deceptively simple: We don’t.

All we need to do is look at the three big problems – if not already outright crises – we have right now. And see how are we doing. I’ll leave aside No More War and No More Hunger for now, though they could serve as good examples of why we fail.

There is a more or less general recognition that we face three global problems/crises. Finance, energy and climate change. Climate change should really be seen as part of the larger overall pollution problem. As such, it is closely linked to the energy problem in that both problems are direct consequences of the 2nd law of thermodynamics. If you use energy, you produce waste; use more energy and you produce more waste. And there is a point where you can use too much, and not be able to survive in the waste you yourself have produced.

Erwin Schrödinger described it this way, as quoted by Herman Daly:

Erwin Schrodinger [..] has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment — that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is an organism cannot live in a medium of its own waste products.

The energy crisis flows seamlessly into the climate/pollution crisis. If properly defined, that is. But it hardly ever is. Our answer to our energy problems is to first of all find more and after that maybe mitigate the worst by finding a source that’s less polluting.

So we change a lightbulb and get a hybrid car. That’s perhaps an answer to the universal problem, and only perhaps, but it in no way answers the global one. With a growing population and a growing average per capita consumption, both energy demand and pollution keep rising inexorably. And the best we can do is pay lip service. Sure, we sign up for less CO2 and less waste of energy, but we draw the line at losing global competitiveness.

The bottom line is that we may have good intentions, but we utterly fail when it comes to solutions. And if we fail with regards to energy, we fail when it comes to the climate and our broader living environment, also known as the earth.

We can only solve our climate/pollution problem if we use a whole lot less energy resources. Not just individually, but as a world population. Since that population is growing, those of us that use most energy will need to shrink our consumption more every passing day. And every day we don’t do that leads to more poisoned rivers, empty seas and oceans, barren and infertile soil. But we refuse to even properly define the problem, let alone – even try to – solve it.

Anyway, so our energy problem needs to be much better defined than it presently is. It’s not that we’re running out, but that we use too much of it and kill the medium we live in, and thereby ourselves, in the process. But how much are we willing to give up? And even if we are, won’t someone else simply use up anyway what we decided not to? Global problems blow real time.

The more we look at this, the more we find we look just like the reindeer on Matthew Island, the bacteria in the petri dish, and the yeast in the wine vat. We burn through all surplus energy as fast as we can find ways to burn it. The main difference, the one that makes us tragic, is that we can see ourselves do it, not that we can stop ourselves from doing it.

Nope, we’ll burn through it all if we can (but we can’t ’cause we’ll suffocate in our own waste first). And if we’re lucky (though that’s a point of contention) we’ll be left alive to be picking up the pieces when we’re done.

Our third big global problem is finance slash money slash economy. It not only has the shortest timeframe, it also invokes the highest level of denial and delusion, and the combination may not be entirely coincidental. The only thing our “leaders” do is try and keep the baby going at our expense, and we let them. We’ve created a zombie and all we’re trying to do is keep it walking so everyone including ourselves will believe it’s still alive. That way the zombie can eat us from within.

We’re like a deer in a pair of headlights, standing still as can be and putting our faith in whoever it is we put in the driver’s seat. And too, what is it, stubborn, thick headed?, to consider the option that maybe the driver likes deer meat.

Our debt levels, in the US, Europe and Japan, just about all of them and from whatever angle you look, are higher than they’ve been at any point in human history, and all we’ve done now for five years plus running is trust a band of bankers and shady officials to fix it all for us, just because we’re scared stiff and we think we’re too stupid to know what’s going on anyway. You know, they should know because they have the degrees and/or the money to show for it. That those can also be used for something 180 degrees removed from the greater good doesn’t seem to register.

We are incapable of solving our home made problems and crises for a whole series of reasons. We’re not just bad at it, we can’t do it at all. We’re incapable of solving the big problems, the global ones.

We evolve the way Stephen Jay Gould described evolution: through punctuated equilibrium. That is, we pass through bottlenecks, forced upon us by the circumstances of nature, only in the case of the present global issues we are nature itself. And there’s nothing we can do about it. If we don’t manage to understand this dynamic, and very soon, those bottlenecks will become awfully narrow passages, with room for ever fewer of us to pass through.

As individuals we need to drastically reduce our dependence on the runaway big systems, banking, the grid, transport etc., that we ourselves built like so many sorcerers apprentices, because as societies we can’t fix the runaway problems with those systems, and they are certain to drag us down with them if we let them.

Nov 122014
 
 November 12, 2014  Posted by at 8:51 pm Finance Tagged with: , , ,  19 Responses »


Dorothea Lange Hoe culture in the South. Poor white, North Carolina July 1936

I’m afraid I got to delve into a particularly unpopular topics once again today. Blame it on Bloomberg. They ran a piece on the Silent Generation (people born between 1928-’45), which finds it self in a ‘sweet spot’ but refuses to spend enough. A funny problem: the by far richest group in the US doesn’t spend, while those who would like to spend, for instance to build a home and a family, are too poor to do it.

I know I’m not going to make myself popular with what I have to say about this, but then I’m not running for US President, or Miss Universe for that matter. Besides, people should be careful about taking things personal that are not.

My point is that the Silent Generation is by far the most destructive generation in human history, so it should be no surprise they’re also the richest ever. What’s more, the chance that there will ever be a more destructive generation is eerily close to zero, and that uniqueness warrants scrutiny.

My point is even more that the Silent Generation may and will claim innocence wherever they can, but there is no innocence left today. Today, they can all watch their TVs and look out the window and understand that this is not going to end well. Unless the Silent Generation make very substantial changes to their lifestyles and attitudes, they’re inviting a war with their own (grand)children.

It starts here: World population went from 2 billion in 1928 to 7+ billion today in 2014, as US population went from 120 million in 1928 to 320 million in 2014. In graphs, first the world:

And then the US:

That is huge. But there’s another factor at play that, interestingly, is both a cause and a consequence of the population numbers: energy use. Again, first the world:

And the US:

As should be clear, we’re looking at an exponential function multiplied by an exponential function. World population more than tripled, and all those extra people used 6-7-8 times more energy per capita then did prior generations. That’s 20-25 times more energy use in total. As I said, it should be no surprise that it should be no surprise that the Silent Generation is the richest ever.

But. But there’s one more graph that we should be careful not to leave out. if only because it’s interesting to see that the richest generation in human history, as they were coming of age, and while they were busy increasing their per capita energy use manifold, also started incurring more debt. Much more debt.

That last graph should make us wonder how rich they are exactly. Or, rather, how much of their alleged wealth will need to be serviced by their progeny. And then you have to ask what kind of wealth that is, exactly. Let’s turn to the Bloomberg article:

The Richest Elderly Generation Ever Doesn’t Like to Spend

Jon Burkhart was born during the Great Depression. [..] When he and his wife married in 1959, they lived in Texas and saved 10% of every paycheck. Thanks to well-timed equity and property investments, the 81-year-old now lives a much different life than the elderly he knew as a child. [..] The median net worth for the oldest Americans has climbed to near the top compared with other age groups from near the bottom just two decades ago .. This shift in buying power may not be a positive development for the economy as prime-age workers typically spend more than their elders.

The Silent Generation, born between 1928 and 1945, has benefited from improved health, a more generous social safety net, an exit from the job market ahead of the past recession and rebounding stock and home values. “They are in the sweet spot.” The median family net worth of Americans 75 and older was $194,800 last year adjusted for inflation, compared with $130,900 in 1989 ..Members of the Silent Generation are currently about ages 69 to 86. The title of richest ever will probably go unchallenged for now ..

Increased net worth of today’s elderly may not translate into a boon for consumer spending [..] household spending peaks at age 45 and then falls in every category except health care, dropping about 43% by the age of 75. The term Silent Generation was coined by Time Magazine in a 1951 article as the group was coming of age. It described the generation as “working fairly hard and saying almost nothing,” one that “does not issue manifestos, make speeches or carry posters.”

Not in 1951. They did not ‘not issue manifestos, make speeches or carry posters’ then. But they did in the 1960s, when they were in their late teens and up. It’s curious to see that those who did protest and wave banners and all, from Washington to Paris and beyond, concerned as they were with human rights, corruption and the environment, later became the wealthiest and most destructive people the world has ever witnessed, as a group, as a generation.

From 1962 through 1991, when mid-wave Silent Generation members were in their prime working years, gross domestic product grew an average of 3.5% a year. Since then, GDP has expanded 2.6% a year. The homes and financial assets they acquired as they aged saw outsized price gains over the decades. [..] Meanwhile the Federal Housing Finance Agency’s home price gauge has risen 472% since 1975.

For a large part of the ‘Silents’, rising home prices have been a substantial part of their wealth accumulation. Even when prices were falling in 2008, it didn’t matter much, because mortgages were long paid off.

Federal outlays on programs benefiting those 65 and older also became more generous over the decades. They rose to $27,975 in 2011 per capita adjusted for inflation from about $4,000 in 1960 [..] Consequently, 9.5% of Americans 65 and older were in poverty in 2013, lower than any other age group, according to the U.S. Census Bureau. That compares with 35% in 1959, when they had the highest poverty rate. Back then, “the poor people were old,” said Neil Howe, a demographer in Great Falls, Virginia. “That’s a really fascinating contrast with today.”

Ha! Yeah, fascinating, isn’t it?! Today, the poor people are young. But that’s a big problem, also for the older people. It’s sort of OK for now, just look at the average age of Senators and Congressmen and corporate shareholders. The old folk run the show, and they’re planning to hold on as long as they can,

“The Silents have done very well, and a lot of it has just been their location in history [..] They planned ahead, they were risk averse, they played by the rules and the system worked for them.”

That last bit sounds very cute, but a little too much so. The system didn’t just work for them, they were the system. They still are. They knew this in 1968, and so they can’t simply claim innocence after that. What happened is that they came from innocence, protested the system and then forgot all about it and themselves became the system.

Is it the population numbers, the energy use, or the debt increase that makes the Silent Generation so insidious? That is not even the most interesting issue, other than perhaps for historians. What’s far more intriguing is what the ‘Silents’ are going to do today and tomorrow, as they see their children and grandchildren sink.

Every parent used to want a better life for their sons and daughters than they had themselves. And there can be no doubt that most like nothing more then being fooled until they die by politicians’ promises of growth and recovery.

But one single honest look at younger generations should teach them that those promises are hollow and empty. Some can try and plead dementia, but even then.

I have no high hopes to see this resolved with grace and dignity and respect across generations, I think people across the board will be too reluctant to give up what they claim is theirs. If they are, though, that will mean the dissolution of entire societies, something that never happens in peaceful ways.

Oct 292014
 
 October 29, 2014  Posted by at 11:41 am Finance Tagged with: , , , , , , , , , , , ,  5 Responses »


Russell Lee Photo booth at fiesta, Taos, New Mexico Jul 1940

Fed Set To End One Crisis Chapter Even As Global Risks Rise (Reuters)
How American QE Has Changed The World (Telegraph)
The Biggest Risk For US Investors Is A China Crash (MarketWatch)
Is China’s Export Boom Fake? (CNBC)
Another Reason Not to Trust China’s Economic Data (BW)
China Shadow Banking Shifted to Insurers Alarms Moody’s (Bloomberg)
US Homeownership Rate Drops To 1983 Levels (Zero Hedge)
Why British Interest Rates Will Never Go Up Again (MarketWatch)
EU Financial Transaction Tax Bid Falters on Revenue Disagreement (Bloomberg)
UK Faces ‘Debt Timebomb’ From Ageing Population (Telegraph)
Payday Loan Brokers Regularly Raid Bank Accounts Of Poor Customers (Guardian)
Dubai Insists the Boom is Not a Bubble This Time Around (Bloomberg)
Chinese Oil Trader Buys Record Number of Mideast Cargoes (Bloomberg)
Rajoy Apologizes as New Wave of Corruption Allegations Hits Spain (Bloomberg)
How The Consumer Dream Went Wrong (BBC)
Gross National Happiness – Can We Measure A Feelgood Factor? (Guardian)
Australia Protection Plan ‘Will Not Save Great Barrier Reef’ (BBC)
Blame The Cows: Kiwi Dollar May Stumble (CNBC)
Russia to Send 3,000 Tons of Aid to Eastern Ukraine Within Week (RIA)
Pope Francis: Evolution and Big Bang Theory Are Real (NBC)
Population Controls ‘Will Not Solve Environment Issues’ (BBC)

Mission accomplished.

Fed Set To End One Crisis Chapter Even As Global Risks Rise (Reuters)

– The U.S. Federal Reserve on Wednesday is expected to shutter its bond-buying program, closing one controversial chapter in its crisis response even as it struggles to manage a full return to normal monetary policy. The Fed is likely to announce at the end of a two-day meeting that it will no longer add to its holdings of Treasury bonds and mortgage-backed securities, halting the final $15 billion in monthly purchases under a program that at its peak pumped $85 billion a month into the financial system. An important symbolic step, the end of the purchases still leaves the Fed far from a normal posture.

Its balance sheet has swollen to more than $4 trillion, interest rates remain at zero, and, if anything, recent events have increased the risk the U.S. central bank may need to keep propping up the economy for longer than had been expected just a few weeks ago. The statement the Fed will issue at 2 p.m. will be read carefully for signs of how weak inflation, ebbing global growth and recent financial market volatility have influenced U.S. policymakers. There is no news conference scheduled after the meeting and no fresh economic forecasts from Fed officials. “They are worried about the economy, the global one,” and are likely to leave much of their language intact rather than signal progress towards a rate hike, Morgan Stanley analyst Vincent Reinhart wrote in a preview of the meeting.

Attention will focus on whether the Fed’s statement continues to refer to “significant” slack in the U.S. labor market, and whether it retains language indicating rates will remain low for a “considerable time,” as most economists expect. Paul Edelstein, director of financial economics at IHS Global Insight, said the Fed may also need to acknowledge the inflation outlook is weakening. “They have been kind of wrong about inflation lately,” Edelstein said. “It would behoove them to do something – signal to markets they are not going to tolerate inflation and inflation expectations persistently below 2%.” Fed officials have largely stuck to forecasts that the U.S. economy will grow around 3% this year, with inflation poised to move gradually back to their 2% goal.

Read more …

It has perverted just about all global economies for the benefit of banks and elites. As I said yesterday, perhaps that’s a touch of genius.

How American QE Has Changed The World (Telegraph)

The Federal Reserve is widely expected to end its asset purchasing programme today. If so, it will be a quiet end to one of the most radical monetary policy experiments in modern times. Since the financial crisis, the world’s biggest central bank has embarked on an unprecedented programme of asset purchases that has resulted in its balance sheet growing to more than $4.45 trillion. Under the most recent incarnation of monetary easing – dubbed “QE3” – the central bank has purchased around $1.6 trillion in government bonds and mortgage-backed securities. With QE3 now expected wind down, November could be the first time in more than 37 months that the Fed will not be dipping its toe in the securities market.

Here’s how QE has changed the global economy. In September 2012, the Fed announced it would be buying $40bn in mortgage-backed debt in addition to goverment bonds each month. At the time, the US economy was still in the midst of a fledgling recovery, while the eurozone crisis had begun to ease after Mario Draghi did his best to soothe markets. Then Fed chief Ben Bernanke announced the programme would be open-ended and contingent on improving conditions in the US labour market. In December last year, the central bank said that it would start to “taper” its purchases and buy fewer assets in each successive month. It has now decided the US economy is strong enough to and the stimulus altogether. Here’s why: Stubbornly high unemployment was one of the key reasons the Fed decided to embark on additional stimulative measures in 2012. Arguably, one the best indicators of the success of QE3 has been the fall in unemployment from more than 8pc, when the purchases began, to less than 6pc last month.

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“…if China’s economy slows, domestic consumption will start feeling the pain, leading to even less job creation and slower growth. That’s a feedback loop that will not end well for China.”

The Biggest Risk For US Investors Is A China Crash (MarketWatch)

There’s a lot of talk about how the U.S. stock market and the American economy will fare now that the Federal Reserve plans to end its bond-buying program. But the bigger risks are from overseas, namely a European slowdown and the threat of terrorism from ISIS in the Middle East. And the biggest risk for the next year is from China. Here’s why: China growth is falling fast: Last week, we learned that China’s gross domestic product growth rate for the third quarter was 7.3%, the slowest in five years. That’s down sharply from a peak of 11.9% in 2010 and below the 7.5% pace Beijing has been targeting. In fact, China has posted growth of 7.6% or higher dating back to 2000.

Domestic demand under pressure: Remember that China’s own policy makers estimate that 7.2% growth is running at about break-even. That’s because a growth rate that large is needed simply to create enough jobs — about 10 million annually — to support China’s massive (and still growing) population. Think of it this way: After the Great Recession, the U.S. returned to GDP expansion and even posted a respectable 2.5% growth rate in 2010 but, unfortunately, that didn’t necessarily mean much for American consumers or job-seekers that year. Or put another way, economists estimate about 2.2 million jobs must be created every year in the U.S. simply to ensure there’s work for a growing population of job-seekers. And China needs over four times that kind of growth. So if China’s economy slows, domestic consumption will start feeling the pain, leading to even less job creation and slower growth. That’s a feedback loop that will not end well for China, or investors in China stocks.

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Government created loopholes all over the place.

Is China’s Export Boom Fake? (CNBC)

Exports are regarded as the bright spot in China’s slowing economy, but growing evidence suggests mainland firms are “over-invoicing” outbound shipments, inflating the trade data, say economists. “When China’s external trade data for September came out two weeks ago, we were surprised by the apparent strength of exports. The Hong Kong trade data released [on Monday] suggests that renewed over-invoicing may be part of the reason for China’s strong September export data,” said Louis Kuijs, chief China economist at RBS. China’s exports rose 15.3% on year in September, beating a median forecast in a Reuters poll for a rise of 11.8%, following a 9.4% rise in August. In the same month, China reported that it exported $37.6 billion worth of goods to Hong Kong, while Hong Kong data revealed imports of just $24.1 billion, yielding an unusually large $13.5 billion gap.

“While there have always been discrepancies between the two sources on this trade flow, the discrepancy in September was equivalent to 4.3 percentage points of total export growth, the largest positive discrepancy since April 2013 during the previous round of over-invoicing,” said Kuijs. Widely seen in early 2013, over-invoicing is a technique by which companies inflate the value of exports, allowing them to evade capital controls and bring more funds into the country. Why is this happening? Last year, expectations of yuan appreciation seemed to be the key driving force. This year, the motivations appear to have shifted, said Kuijs. “One possible motivation could be that money was channeled to the Shanghai A-share market on expectations the A share market would rise after the launch of the Shanghai – Hong Kong Connect scheme,” he said. “Such flows may help to explain the rise in the A-share market index in September in the absence of obvious good economic or financial news,” he added.

Read more …

“…companies have “faked, forged, and illegally re-used” documents for exports and imports”

Another Reason Not to Trust China’s Economic Data (BW)

The numbers don’t match. In September, China exported $37.6 billion to Hong Kong, according to government data compiled by Bloomberg. For the same month, Hong Kong’s government says imports from the mainland amounted to only $24.1 billion. That’s this year’s biggest gap between Chinese and Hong Kong figures. Where did all those billions of dollars go? Julian Evans-Pritchard, Capital Economics’ China economist, called the results “very suspicious,” especially since the discrepancies are largely related to the trade of precious metals and stones. “It seems the Chinese customs are basically overvaluing these gems [and] these precious metals,” he told Bloomberg Television on Tuesday. Meanwhile, “Hong Kong customs are valuing them more accurately.” The China-Hong Kong discrepancy is just one example. Evans-Pritchard points to similar discrepancies regarding Chinese imports from South Korea. “

What appears to be happening [is] we have some round-tripping,” he said. Companies may be claiming to import the stones from Korea at a certain price and then export them to Hong Kong at a higher price, pocketing the difference. That helps companies evade Chinese government currency controls at a time when there’s renewed pressure to strengthen the yuan. With such conditions, “it makes a lot of sense” for Chinese companies to borrow money cheaply abroad and find ways to get that money into the country. The Chinese government is not blind to the problem. China has found almost $10 billion in fraudulent trades nationwide since April of last year, and companies have “faked, forged, and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, told reporters in Beijing in September.

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Dangerous development.

China Shadow Banking Shifted to Insurers Alarms Moody’s (Bloomberg)

A doubling in the trust holdings of China’s insurers has prompted ratings companies to warn the industry may be taking on too much shadow banking default-risk. Insurers held 281 billion yuan ($46 billion) of trust products on June 30, surging from 144 billion yuan at the end of last year, China Insurance Regulatory Commission data show. The companies’ shadow bank assets, including wealth management products and other financing kept off commercial lenders’ balance sheets, reached 1.14 trillion yuan, or 13% of their investments, Standard & Poor’s estimated, adding that this made them “vulnerable in times of stress.” China Pacific Life Insurance, Taiping Life Insurance and Du-Bang Property & Casualty Insurance all expanded trust investment fivefold or more in the first half, a “credit negative” for companies traditionally focused on fixed-income securities, according to Moody’s Investors Service. 51% of the trust investment was directed to real estate and infrastructure, making insurers vulnerable to a cooling property market, according to Fitch Ratings.

“If the insurers experience any liquidity problems, they won’t be able to easily turn these trust investments into cash,” said Sally Yim, a Moody’s analyst in Hong Kong. “These assets also tend to be more volatile. The yield may be higher, but there may also be defaults.” Chinese insurers’ assets doubled in the past five years to 9.6 trillion yuan last month, as premium income climbed an average of 14% annually. Squeezed by competition from wealth management products sold by banks and online funds, insurers started offering policies with investment characteristics to compete for money. “Over the last two or three years, banking product rates have been quite competitive compared with some of the rates offered by the insurers,” said Terrence Wong, a director at Fitch in Hong Kong. “So to enhance the yield, they have to seek investment instruments with higher returns.”

Read more …

More recovery.

US Homeownership Rate Drops To 1983 Levels (Zero Hedge)

The last time US homeownership declined down to 64.4% (which the Census Bureau just reported is what US homeownership declined to from 64.7% in Q2), was back in the fourth quarter of 1983. It goes without saying that this is about the bearishest news possible for those few who still believe in the American homewonership dream. Of course, those who have been following real-time rental market trends would be all too aware there is no rebound coming to the homeownership rate. The reason is simple: increasingly fewer can afford to buy, instead having no choice but to rent, which in turn has pushed the median asking rent to record highs.

In fact in the past two quarters, the asking rent was just $10 shy of its time highs at $756 per month. But capital allocation preferences aside, while explaining the disparity between rental and homeownership in a world where Renting is the new American Dream, what [this doesn’t explain] is why there is no incremental demand from all those millions of young Americans who enter the population and, eventually, the workforce. At least on paper. Earlier today, Bank of America was confused by precisely this:

Population growth of 25-34 year olds outpacing growth in the housing stock: The primary driver of household formation is population growth among 25 to 34 year olds. There is notable divergence with the growth in this age group and the growth in the housing stock. This suggests greater doubling up of households as a result of the recession and weak recovery. Unless doubling up turns into tripling up, household formation should recover over time, creating a need for greater building. Given tight credit conditions, this will tend to drive apartment construction more than single family construction. Either way, the housing stock is lagging well behind demographic fundamentals.

Read more …

Only, they will.

Why British Interest Rates Will Never Go Up Again (MarketWatch)

The autumn of 2014? Er, scratch that. The spring of 2015? Put that on the back burner. How about the autumn of 2015? For the moment, that seems to be the consensus. The markets have had plenty of dates that they penciled in for the first rate rise from the Bank of England. But each time one of them actually comes close, something comes along to blow it off course. It happened again this month. Analysts and economists in the City of London were confidently expecting the first rise sometime in the spring of next year. Then the plunge in the global markets of early October, combined with some disappointing economic data, meant that timetable was hurriedly reset. Here’s what is actually going to happen. Interest rates in the U.K. may not ever go up from the near-zero level of the last few years.

Japan cut its rates to those levels more than two decades ago and it is no closer to a rate rise now than it was in the mid-1990s. Sooner or later the penny is going to drop that rates are not going to go up, at least not in the working lives of most people in the market today. The timetable for the Bank of England to start moving interest rates back to normal levels is about as reliable as an Italian train. When Gov. Mark Carney moved from Canada to the U.K., he bought with him a policy of forward guidance, which was meant to give companies and consumers a clearer idea of where interest rates were heading. He set out criteria such as falling unemployment, and rising real wages, that would need to be met. But once those targets were hit, rates would start going up again.

There was certainly a lot to be said for that. It was on March 5, 2009, that the bank cut interest rates all the way down to 0.5%. At the time, it was presented as an emergency measure, designed to cope with deep recession bought on by the near collapse of the financial system a few months earlier. It was not presented as a normal rate, nor, at the time, is it likely that many of the members of the Monetary Policy Committee saw it that way either. They thought rates would stay at that level for a year or two, and then start to edge their way back towards normal. The trouble is, the right moment never seems to arrive. Despite heavy signaling through last spring that a rate rise was likely before the end of 2014, it hasn’t happened.

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It’s now become a joke.

EU Financial Transaction Tax Bid Falters on Revenue Disagreement (Bloomberg)

The European Union must figure out how to handle revenues from a proposed financial-transaction tax to meet a year-end deadline for moving ahead with the levy in participating nations. Ten nations pledged in May to seek agreement on a “progressive” tax on equities and “some derivatives” by the end of 2014, with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News. Derivatives and revenues are the biggest obstacles to moving forward with a proposed tax by year end, according to Italy, one of the participating nations and also current holder of the EU’s rotating presidency. National officials are due to discuss the tax plan this week, ahead of a Nov. 7 finance ministers’ meeting in Brussels. Italy proposed three possible models for shifting revenue from countries where transactions take place to nations where the trading firms are based, so that countries with smaller financial sectors wouldn’t be at a disadvantage.

This would allow the tax to be collected in the country of issuance, then allocated to take account of other parameters like residence. “Delegations could not agree on the solution of revenue distribution that would be acceptable to all of them,” according to the planning document. Willing nations are considering how to build the first phase of a trading tax, with an eye toward expanding it in future years. EU policy makers have considered a transactions tax to raise money and discourage speculative trading, goals that have gained urgency since the financial crisis and the euro-area budget rules adopted in its wake. Efforts to build a common tax for all 28 member nations fell apart, followed by a scaled back proposal for a joint tax among 11 willing nations. The plans have been criticized by banks and trading firms, which have warned that could curtail investment at a time when the EU is seeking to boost anemic economic growth.

“The FTT is about the worst idea of the last three centuries,” Wim Mijs, chief executive of the European Banking Federation, a Brussels-based industry group, told reporters yesterday. In some countries, the “cost of implementing it is higher than the possible gain,” he said. [..] Most participating nations are in favor of including equity derivatives, so that trading in equities doesn’t immediately jump to a non-taxed transaction. Still, some nations want to exclude equity derivatives, the document showed. Some nations want to tax credit default swaps. Other nations have concerns about interest-rate derivatives because these trades have ties to monetary policy and government bonds.

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Many nations do.

UK Faces ‘Debt Timebomb’ From Ageing Population (Telegraph)

Britain’s ageing population has created a “debt timebomb” that can only be defused through a combination of significant spending cuts, faster increases in the state pension age and ending universal free healthcare, according to a respected think-tank. The Institute of Economic Affairs (IEA) warned that the Government would need to slash public spending by a quarter in order to get Britain’s debt mountain down to sustainable levels. In a set of radical proposals, the IEA called on the Government to end “unhelpful” policies such as the “triple lock guarantee” that ensures the state pension increases by the higher of inflation, average earnings or a minimum of 2.5pc every year. It also said charging for some NHS services would help to reduce demand.

The IEA calculated that Government spending cuts equivalent to 9.6pc of GDP – or £168bn per year in today’s money – were needed to reduce Britain’s debt-to-GDP ratio to 20pc by 2063. This is equivalent to cutting the health, welfare and pensions budgets in half, or overall spending by a quarter. “Politicians must wake up to the size of the debt time bomb in the UK. Older generations have voted themselves benefits that will indebt future generations, meaning crippling tax hikes for our children and grandchildren,” said Philip Booth, editorial director at the IEA. “Very significant spending restraint and reform of entitlements will be required in the next parliament and beyond to get our debt levels back under control.” While the think-tank welcomed the measures introduced by the Government to link the state pension age to life expectancy and commit to a further £67bn worth of austerity by 2018-19, it said that without further reforms, debt would continue to rise in the long-term.

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How is this possible? Why do we condone preying on the poor?

Payday Loan Brokers Regularly Raid Bank Accounts Of Poor Customers (Guardian)

A new breed of payday loan brokers are making as many as 1m attempts per month to raid the bank accounts of some of the poorest members of society. The behaviour is provoking alarm at one of Britain’s biggest high street banks, Natwest, which says it is being inundated with complaints from its most vulnerable customers. NatWest said it is seeing as many as 640 complaints a day from customers who say that sums, usually in the range of £50 to £75, have been taken from their accounts by companies they do not recognise but are in fact payday loan brokers. The brokers are websites that promise to find loans, but are not lenders themselves. Often buried in the small print is a clause allowing the payday broker to charge £50 to £75 to find the person a loan – on top of an annual interest charge as high as 3,000%. In the worst cases, the site shares the person’s bank details with as many as 200 other companies, which then also attempt to levy charges against the individual.

The City regulator has received a dossier of information about the escalating problem, and the Financial Ombudsman Service also confirmed that it is facing a wave of complaints about the issue. NatWest, which is owned by the Royal Bank of Scotland, gave as an example a 41-year-old shop assistant who took a payday loan of £100 at 2,216% interest. A month later she complained to NatWest after seeing a separate fee of £67.88 paid to My Loan Now and £67.95 to Loans Direct on her account, companies she said she had never dealt with. The broker sites tell customers they need their bank account details to search for a loan, but then pass them on to as many as 200 other brokers and lenders, which then seek to extract fees, even if they have not supplied a loan. The small print allowing the site to pass on the details and demand payments can be hidden in the site’s ‘privacy policy’ or in small print at the bottom of the page.

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Sure.

Dubai Insists the Boom is Not a Bubble This Time Around (Bloomberg)

Alongside the Dubai Mall, one of the world’s largest shopping centers, sits an ersatz version of what would be an authentic retail experience in most Persian Gulf cities: an Arab souk. If, in the evening, you stroll through this air-conditioned, hassle- and haggle-free caricature of a market, staffed mostly by smiling South Asians, you can amble out onto the shores of man-made Burj Khalifa Lake, named after the world’s tallest building, which looms over it. Here – bumping elbows with a veritable United Nations General Assembly of residents and tourists decked out in everything from dishdashas to Dior – you can gawk at the Dubai Fountain, Bloomberg Markets magazine will report in its December issue. Every half-hour, an array of computer-choreographed nozzles sends jets of water erupting from the lake’s surface 500 feet into the air, gyrating to Middle Eastern pop one minute and Andrea Bocelli singing “Con Te Partiro” the next.

Awash in fantasia, this metropolis of glass and steel sprouting from the barren sands of the Arabian Peninsula often seems nothing more than an illusion born of desert heat. Never was Dubai more miragelike than five years ago, after the global financial crisis crushed what had been a bastion of wealth and growth. House prices plunged as much as 60%. Half of the city’s $582 billion in construction projects were either placed on hold or abandoned, their incomplete steel skeletons left poking from the sand, a 21st-century Ozymandias. Now, Dubai is booming again. To understand why, journey 20 miles (32 kilometers) from the Dubai Mall to a part of the city few tourists ever see. Here, if you pass through the security gates at Jebel Ali port, you’re treated to another mesmerizing mechanical ballet – one less ephemeral and arguably more important to the city-state’s fate than the Dubai Fountain’s dancing waters. Towering gantry cranes sidle up to 1,200-foot-long (365-meter-long) container ships bound for Mumbai or Singapore or Rotterdam.

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“The big question is what China will do with all of these cargoes…”

Chinese Oil Trader Buys Record Number of Mideast Cargoes (Bloomberg)

China National United Oil Co., a unit of the country’s biggest energy company, bought the most ever cargoes of Middle East crude through a pricing platform in Singapore amid oil’s slump into a bear market. The company, known as Chinaoil, purchased about 21 million barrels this month through the system used to determine benchmark prices by Platts, a unit of McGraw Hill Financial Inc. It bought more than 40 cargoes of the Dubai, Oman and Upper Zakum grades in the so-called window, according to data compiled by Bloomberg. A Beijing-based press officer for CNPC, the parent company, wasn’t immediately able to comment and asked not to be identified because of internal policy. “It’s very difficult for the market to know Chinaoil’s strategy,” Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England, said by phone.

“Prices have gone down and China is always interested in buying more crude whenever the price is right, but they could also have some other different trading strategy.” Benchmark oil prices tumbled to the lowest in almost four years this month amid signs of an expanding global supply glut, led by the highest U.S. production in about three decades. China consumed the second-largest amount of crude ever last month and its stockpiles increased to a record. Some of Chinaoil’s cargoes may be used to fill the country’s strategic crude reserves, according to JBC Energy GmbH, a Vienna-based consultant. “The big question is what China will do with all of these cargoes,” JBC said in an e-mailed report Oct. 21. “If the Middle Kingdom puts the barrels into strategic storage, something that would be logical given low outright prices, they will disappear entirely from the market and China will still have to buy more crude for its day-to-day needs.”

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How corrupt is the government that’s supposed to fight corruption?

Rajoy Apologizes as New Wave of Corruption Allegations Hits Spain (Bloomberg)

Prime Minister Mariano Rajoy apologized to the Spanish people yesterday amid mounting public outrage at a new wave of corruption allegations against officials from his party. All members of the governing People’s Party among the 51 arrested this week on bribery allegations have had their party membership suspended and will be expelled if the charges are proved, Rajoy told the Senate in Madrid. “I understand and share fully the indignation of so many Spaniards at the accumulation of scandals,” Rajoy said. “In the name of the People’s Party I want to apologize to all Spaniards for having appointed to positions for which they were not worthy those who would seem to have abused them.”

Rajoy is battling to retain his moral authority amid evidence that local officials took bribes to hand out public contracts while he was administering the harshest budget cuts in Spain’s democratic history. This week’s arrests follow allegations from the former PP treasurer, Luis Barcenas, that Rajoy and other senior party officials including Rodrigo Rato, a former deputy prime minister, accepted cash from a party slush fund. Rajoy has denied the allegations against him. Barcenas produced handwritten ledgers to back up his claims that he handed out envelopes of cash to party officials and received text messages of support from Rajoy during the early part of the investigation. He’s in jail while the National Court probes his financial affairs.

A survey by the state pollster in July showed political corruption is the second-biggest concern for Spaniards after the country’s 24% unemployment rate, the second highest in the European Union. “Explain about the envelopes, explain about the messages you sent to Barcenas, explain about the secret financing of your party,” the opposition Socialist leader in the Senate, Maria Chivite, told Rajoy in response. “Explain to all Spaniards how many senior official from your party will appear before the courts because of their accounts in Switzerland.”

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It’s not like we we born as consumers.

How The Consumer Dream Went Wrong (BBC)

We could, it seemed, have it all. So what went wrong? The truth is this: despite all its promise, the idea of the Consumer is killing us. And before it does, we must kill it. I can perhaps best explain why the golden dream went so wrong by describing one of a series of recent experiments that have explored the effect of this word on our behaviour. The simplest was a survey of environmental and social attitudes and values. The group taking the survey was split in half. For half, the front cover said Consumer Reaction Study, for the rest, Citizen Reaction Study. No specific attention was drawn to this and there was no other significant difference between the two groups; just this one word. Yet those who answered the Consumer Reaction Study were far less motivated to care about society or the environment.

That pattern has been seen elsewhere, and the only possible explanation for the difference is the unconscious effect of merely being exposed to the language of the Consumer as a prime, a kind of mental framing of the task at hand. How can this be? Can a word, just a word, really make us less likely to care about one another and about the world, and less likely to trust and work with one another to fix it? Here’s the thing – nothing is “just a word”. Language is the scaffolding on which we build our thoughts, attitudes, values and behaviours. And as we do so, we would do well to recognise that the Consumer is a deeply dangerous place to start. Because what looks at surface level like a word is in fact a moral idea, an idea of what the right thing is for us to do in our daily lives. This word Consumer represents the idea that all we can do is consume, choosing between the options offered us, and that the morally right thing for us to do is to pick the best of these for ourselves, measured in material standards of living, as narrowly defined individuals, and in the short term.

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But we can be happy only as consumers these days.

Gross National Happiness – Can We Measure A Feelgood Factor? (Guardian)

The UK economy continues to recover, albeit at a slower pace, the latest official figures show. But how well does this reflect how people are feeling? GDP measurements only provide part of the picture and so the Office for National Statistics will soon reveal details of a new set of supplementary indicators on economic well-being. It follows a pledge by the prime minister, David Cameron, in 2010 to make the UK one of the first countries to officially monitor happiness. The inaugural release including how households are doing, how well-off people feel and other insights into well-being will be published just in time for Christmas on 23 December.

Bhutan is the real trailblazer in this area. The tiny nation to the east of the Himalayas has long been renowned for its focus not on GDP – gross domestic product – but GNH (gross national happiness). In other words, what matters to Bhutan more than upping production and improving productivity is whether its citizens are happy. It’s a measure the remote south Asian nation has been using since the early 1970s, well before the rest of the world began to realise that wealthier does not necessarily translate into happier. The ONS says its new regular well-being release will help businesses, households and policymakers in the UK make better-informed decisions by providing a whole “dashboard” of indicators on the state of the economy.

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They’re not trying.

Australia Protection Plan ‘Will Not Save Great Barrier Reef’ (BBC)

Australia’s Academy of Science says an Australian government draft plan to protect the Great Barrier Reef will not prevent its decline. The group said the Reef 2050 Long-Term Sustainability Plan failed to address key pressures on the reef including climate change and coastal development. Much bolder action was needed, said Academy Fellow Professor Terry Hughes. “The science is clear, the reef is degraded and its condition is worsening,” said Prof Hughes. “This is a plan that won’t restore the reef, it won’t even maintain it in its already diminished state,” he said in a statement released on Tuesday. “It is also more than disappointing to see that the biggest threat to the reef – climate change – is virtually ignored in this plan.”

Public submissions on the draft plan – an overarching framework for protecting and managing the reef from 2015 to 2050 – closed on Monday. The plan will eventually be submitted to the World Heritage Centre in late January, for consideration by Unesco’s World Heritage Committee mid-next year. Unesco has threatened to place the reef on its List of World Heritage in Danger. According to scientists, another major threat to the reef’s health is continual expansion of coal ports along the Queensland coast. In a controversial move earlier this year, the Australian government approved a plan to dredge a port at Abbot Point in Queensland, and dump thousands of tonnes of sediment in the sea.

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New Zealand needs to diversify away from export-driven monoculture, and towards its own domestic market.

Blame The Cows: Kiwi Dollar May Stumble (CNBC)

Once billed as the hottest currency trade this year, New Zealand’s dollar is set to stumble, tripped up by spilled milk. “Since peaking in February this year, international dairy prices per Fonterra Global Dairy Trade (GDT) auction have fallen by almost 50%,” Morgan Stanley said in a note Tuesday, noting that dairy products are New Zealand’s largest export, accounting for 26.4% of the total. “Due to New Zealand’s specialization in whole milk powder (WMP) exports to China, we expect the fall in price and import demand to weigh on the New Zealand dollar,” the note said. It’s a turnaround from the beginning of the year, when analysts had expected strong gains in the kiwi. BK Asset Management in January called the New Zealand dollar, also known as the kiwi, one of its favorite trades for the year, citing expectations the central bank would hike interest rates and increased demand for “soft commodities.”

After starting the year around $0.8221, the kiwi climbed to highs of over $0.88 in July, but it has since stumbled, fetching around $0.79 in early Asia trade Wednesday. Dairy prices face a lot of headwinds, likely keeping milk prices depressed for a while. “We expect the recent peak in dairy prices, the lift of EU dairy quota and lower feed costs to increase global milk production,” Morgan Stanley said, noting the USDA forecasts global dairy export volume to rise 10% in 2014. The EU dairy quota system, which fined countries for surplus production over a delivery quota, is set to be scrapped after the first quarter of next year, and Morgan Stanley noted that farmers there have already begun increasing their cow counts. While New Zealand will likely continue to dominate WMP exports to China, media reports indicate the mainland’s inventories are stocked up and lower prices aren’t likely to spur additional demand, the note said.

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By plane as well…

Russia to Send 3,000 Tons of Aid to Eastern Ukraine Within Week (RIA)

Russia will send up to 3,000 metric tons of humanitarian aid to Ukraine’s southeastern regions within a week, Russian Deputy Emergencies Minister Vladimir Stepanov told RIA Novosti Tuesday. “Within a week the total weight of humanitarian aid will amount to 3,000 metric tons,” Stepanov said, adding that it will be delivered both by aircraft and land vehicles. According to Stepanov, on Tuesday three aircraft will deliver part of the aid to the Russian city of Rostov-on-Don, where it will be loaded onto trucks. The aid includes food, medicine and construction materials that will help residents of southeastern Ukraine to prepare for the winter.

The deliveries of aid to Ukraine are being carried out in coordination with the Red Cross and the Russian Foreign Ministry. Earlier today, Russia’s Emergency Ministry confirmed that on October 28 a convoy of up to 50 trucks carrying humanitarian aid for the people of Donetsk and Luhansk regions will depart from the city of Noginsk. Since August, Russia has sent three humanitarian convoys of trucks carrying food, water, power generators, medication and warm clothes to eastern Ukrainian regions, which went through a severe humanitarian crisis due to the military operation initiated by Kiev’s authorities in April.

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Is he talking about TV series?

Pope Francis: Evolution and Big Bang Theory Are Real (NBC)

Big Bang theory and evolution in nature “do not contradict” the idea of creation, Pope Francis has told an audience at the Vatican, saying God was not “a magician with a magic wand.” The Pope’s remarks on Monday to the Pontifical Academy of Sciences appeared to be a theological break from his predecessor Benedict XVI, a strong exponent of creationism. “The beginning of the world is not the work of chaos that owes its origin to something else, but it derives directly from a supreme principle that creates out of love,” Pope Francis said.

“The Big Bang, that today is considered to be the origin of the world, does not contradict the creative intervention of God; on the contrary, it requires it. Evolution in nature is not in contrast with the notion of [divine] creation because evolution requires the creation of the beings that evolve.” The Pontiff said God created beings “and let them develop in accordance with the internal laws that he has given to each one.” He said: “When we read in Genesis the account of creation [we are] in danger of imagining that God was a magician, complete with a magic wand that can do all things. But he is not.”

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Not a problem for us to solve.

Population Controls ‘Will Not Solve Environment Issues’ (BBC)

Restricting population growth will not solve global issues of sustainability in the short term, new research says. A worldwide one-child policy would mean the number of people in 2100 remained around current levels, according to a study published in the Proceedings of the National Academy of Sciences. Even a catastrophic event that killed billions of people would have little effect on the overall impact, it said. There may be 12 billion humans on Earth by 2100, latest projections suggest. Concerns about the impact of people on the planet’s resources have been growing, especially if the population continues to increase. The authors of this new study said roughly 14% of all the people who ever existed were alive today.

These growing numbers mean a greater impact on the environment than ever, with worries about the conversion of forests for agriculture, the rise of urbanisation, the pressure on species, pollution, and climate change. The picture is complicated by the fact that while the overall figures have been growing, the world’s per-capita fertility has been declining for several decades. The impact on the environment has increased substantially, however, because of rising affluence and consumption rates. Many experts have argued the best way of tackling this impact is to facilitate a rapid transition to much lower fertility rates.

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Jun 152014
 
 June 15, 2014  Posted by at 4:23 pm Finance Tagged with: , , ,  4 Responses »


Russell Lee Flood refugee in schoolhouse at Sikeston, Missouri January 1937

A strange point of view is expressed in George Mason University economics professor Tyler Cowen’s NY Times article ‘The Lack of Major Wars May Be Hurting Economic Growth’, strange in more ways than just the obvious ones. Of course we find it counterintuitive to link growth to warfare. And of course we don’t like to make a link like that. But there’s a lot more here than meets the eye. For one thing, the age-old truth that correlation does not imply causality, something Cowen hardly seems to consider at all. Which is curious, and certainly makes his arguments carry a whole lot less weight, and interest. It makes his whole article just about entirely one-dimensional. Here’s an excerpt:

The Lack of Major Wars May Be Hurting Economic Growth

The continuing slowness of economic growth in high-income economies has prompted soul-searching among economists. They have looked to weak demand, rising inequality, Chinese competition, over-regulation, inadequate infrastructure and an exhaustion of new technological ideas as possible culprits. An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace. The world just hasn’t had that much warfare lately, at least not by historical standards. Some of the recent headlines about Iraq or South Sudan make our world sound like a very bloody place, but today’s casualties pale in light of the tens of millions of people killed in the two world wars in the first half of the 20th century. Even the Vietnam War had many more deaths than any recent war involving an affluent country.

Cowen misses an elephant-sized potential culprit of the continuing slowness of economic growth: debt, in particular the exponentially fast growing debt levels that the – western – has seen since the 1970s. And which have grown to such proportions today that not including them in a list of possible causes is even suspicious.

Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely. This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction. The claim is also distinct from the Keynesian argument that preparing for war lifts government spending and puts people to work. Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right – whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

A curious argument is made here: a government’s focus on liberalizing an economy would bring more growth. While one might even be inclined to believe that in the present, as IMF-induced ideas of reform and liberalization are all the fad, what proof is there of it in historical records? For instance, did Germany, Japan, Russia and the US actually liberalize their economies in the late 1930s?

Tyler Durden has a respectable response to Tyler Cowen’s piece:

New York Times Says “Lack Of Major Wars May Be Hurting Economic Growth”

The fun part will be when economists finally do get their suddenly much desired war (just as they did with World War II, and World War I before it, the catalyst for the creation of the Fed of course), just as they got their much demanded trillions in monetary stimulus. Recall that according to Krugman the Fed has failed to stimulate the economy because it simply wasn’t enough: apparently having the Fed hold 35% of all 10 Year equivalents, injecting nearly $3 trillion in reserves into the stock market, and creating a credit bubble that makes the 2007 debt bubble pale by comparison was not enough. One needs moar! And so it will be with war. Because the first war will be blamed for having been too small – it is time for a bigger war. Then an even bigger war. And so on, until the most worthless human beings in existence – economists of course – get their armageddon, resulting in the death of billions.

Perhaps only then will the much desired GDP explosion finally arrive? Luckily for Cowen, he stops from advocating war as the ultimate panacea to a slow growth (at least for now: once the US enters a recession with another quarter of negative growth, one can only imagine what lunacy Krugman columns will carry). Instead he frames it as an issue of trade offs: “We can prefer higher rates of economic growth and progress, even while recognizing that recent G.D.P. figures do not adequately measure all of the gains we have been enjoying. In addition to more peace, we also have a cleaner environment (along most but not all dimensions), more leisure time and a higher degree of social tolerance for minorities and formerly persecuted groups. Our more peaceful and — yes — more slacker-oriented world is in fact better than our economic measures acknowledge.”

But Durden doesn’t bring up, let alone address, the debt situation either. Let’s go to the graph Cowen posted with his article, and then talk correlation and causality:

So yes, there were fewer battle related deaths. And over the past years, we’ve seen less economic growth. But how and why does that mean one leads to another? One more thing, before we continue, about debt: without having the ‘made for the hockey stick model’ exponential rise in debt levels basically ever since Nixon dumped Bretton Woods – or gold – in 1971, it should be awfully obviously clear to everyone that we would have much less economic growth, at least as far as it’s expressed in GDP numbers and the like. We have borrowed much of our growth since the 1970s, we just didn’t realize it at first, and many still don’t.

John Haskell in the Bangor Daily News has another reaction to Cowen in ‘War and Economic Growth’ , in which he claims, quoting Ezra Klein, that the reason government R&D spending is inefficient is that it’s tied up in military projects – I think his ‘defense’ is a very manipulative and misleading term to use in this context -. Still what neither do address is why that is. Though, granted, they do suggest that while it may be economically inefficient, it is ‘politically efficient’.

And yes, there is some possible link between that and my own idea that R&D spending is tied up in defense projects, because 1) that’s where it was in times the US did indeed go to war, and the idea stuck, because 2) this situation solidified the position of the military industrial complex, which knows just what politicians to target with which lobbyists. In fact, since Eisenhower warned the American people about it, it’s grown enormously and should today really be labeled the financial military political industrial complex. At least it now it truly deserves the moniker ‘complex’.

However that may be, Cowen’s is overall still a strange argument. Because a ‘lack of war’ is not the only thing that changed since the ‘glory days’ of economic growth. Ever since the ‘battle related deaths’ peak in the graph, which occurred in 1950, and the later and smaller peak in 1970, not only did debt rise exponentially, so did for instance the world population, which went from 2.5 billion in 1950 to almost double 3.7 billion in 1970 to almost double again 7.1 billion today. And while undoubtedly some part of that can be explained by a ‘lack of warfare’, then again, a probably much bigger part of it is due to better medicine, falling child death rates and longer life expectancies. I’m not claiming this leads to lower economic growth, that’s Cowen’s hobby horse, I’m just saying that fewer war casualties is just one stat that changed since WWII, and I find it far-fetched – I’m being polite here – to pick out one stat from a very long list and hammer it till you’re tired. Because he does that, and ignores so much else, Cowen and his argument have very little credibility.

And I can go on. Another thing that changed since 1950 is that people, certainly in the west, got a whole lot richer. Since about 1980 more and more of that was borrowed, but the feeling remained. And still does, because people are simply not told that they have become much poorer. And as long as the feeling persists, we might want to consider that maybe we have arrived at such a thing as enough economic growth after all. That maybe economic growth is just so yesterday, and peace is the new black.

Maybe the concept of economic growth belongs only in outdated economics textbooks, from whence spouts the notion that growth equals happiness, and therefore if war is the only way to achieve – strong – growth, we can be happy only when we wage war. Maybe people don’t want all that economic growth al that much, maybe they have a notion deep inside that they’re satisfied, that they have enough gadgets and frills, and they just want their kids to grow up to be happy, and absolutely not send them to war. And you can call that a ‘slacker’ attitude if you will – again a manipulative choice of words -, but that’s perhaps nothing but yet another misleading term.

There is no rational ground on which to believe that there is no possibility of people reaching a point of satiation when it comes to growth. The biggest problem there is seems more likely to be the system in which we live, which is still based on notions that no longer hold, on economics textbooks that are based solely on political preferences (economics is nothing but politics in disguise), and on groups that have held on to power, and expanded it, for 100 years or more, and whose grip on power depends on their ignorant foot soldiers believing in growth. Those groups may win the day and lead us into more and, given the “improvements” in weapons systems, more extreme warfare. But that doesn’t in any way lend credence to Tyler Cowen’s ‘war and growth’ ideas, especially when he refuses to acknowledge other growth correlations such as debt and population numbers, and thereby fails to establish any causality. This myth is busted.

The Lack of Major Wars May Be Hurting Economic Growth (NY Times)

The continuing slowness of economic growth in high-income economies has prompted soul-searching among economists. They have looked to weak demand, rising inequality, Chinese competition, over-regulation, inadequate infrastructure and an exhaustion of new technological ideas as possible culprits. An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace. The world just hasn’t had that much warfare lately, at least not by historical standards. Some of the recent headlines about Iraq or South Sudan make our world sound like a very bloody place, but today’s casualties pale in light of the tens of millions of people killed in the two world wars in the first half of the 20th century. Even the Vietnam War had many more deaths than any recent war involving an affluent country.

Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely. This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction. The claim is also distinct from the Keynesian argument that preparing for war lifts government spending and puts people to work. Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth.

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That’s Right -Blame It On The Lack Of War! (Zero Hedge)

It is no secret that as the Fed’s centrally-planned New Normal has unfolded, one after another central-planner and virtually all economists, have been caught wrong-footed with their constant predictions of an “imminent” economic surge, any minute now, and always just around the corner. And yet, nearly six years after Lehman, five years after the end of the last “recession” (even as the depression for most rages on), America is about to have its worst quarter in decades (excluding the great financial crisis), with a -2% collapse in GDP, which has been blamed on… the weather.

That’s right: economists are the only people who will look anyone in the eye, and suggest that it was harsh weather that smashed global trade, pounded retail sales (in the process freezing the internet because people it was so cold nobody shopped online), and even with soaring utility usage and the Obamacare induced capital misallocation still led to world’s largest economy to a 5% plunge from initial estimates for 3% growth in Q1. In other words, a delta of hundreds of billion in “growth lost or uncreated” due to, well, snow in the winter.

Sadly for the same economists, now that Q2 is not shaping up to be much better than Q1, other, mostly climatic, excuses have arisen: such as El Nino, the California drought, and even suggestions that, gasp, as a result of the Fed’s endless meddling in the economy, the terminal growth rate of the world has been permanently lowered to 2% or lower. What is sadder for economists, even formerly respectable ones, is that overnight it was none other than Tyler Cowen who, writing in the New York Times, came up with yet another theory to explain the “continuing slowness of economic growth in high-income economies.” In his own words: “An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace.” That’s right – blame it on the lack of war!

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As I said a few times: it’s too profitable, once it’s been widely accepted, to not delve into, even for Beijing.

China’s Collateral Rehypothecation Fraud Is Systemic (Zero Hedge)

It’s official – everyone’s involved! According to the 21st Century Business Herald, at least 17 financial institutions involved in copper, aluminum and other nonferrous metals financing business face losses of almost 15 billion Yuan (not including the contagious rehypothecated collateral chains involved) due to the over-invoicing of the Qingdao port. Crucially, it appears that the evaporation of collateral (i.e. multiple loans secured by the same collateral) has been confirmed officially and banks such as Standard Chartered have already ceased any new business via this supposedly secured channel. Via Caijing (via Google Translate),

According to the 21st Century Business Herald, Qingdao, where at least 17 banks involved in copper, aluminum and other nonferrous metals financing business, which 17 banks, including China Eximbank, the establishment of diplomatic five rows of workers and peasants, China, Minsheng, Industrial, Investment, CITIC five medium-sized banks, also includes Prudential, Qilu, Rizhao, Weihai, Weifang, Shandong and other local financial institutions, coupled with a remote city in Hebei banking firm. Informed sources said 17 financial institutions involved in the financing amount Qingdao Port trade finance business in non-ferrous metals 14.8 billion yuan from top to bottom, including single-family Eximbank in 4 billion and down, accusing him of involving an amount of more than 1 billion are down.

At the end of the first quarter of 2014, the outstanding loans in foreign currencies, Qingdao 998.46 billion, of which the balance of the manufacturing sector was 228.53 billion; 15 billion equivalent to 1.5% of total outstanding loans to local financial institutions, manufacturing 6.5% of the loan balance . Qingdao Port nonferrous metals repercussions in the financial institutions financing fraud also caused the divergence. Next, the bank is bound to tighten credit financing, a thorough investigation of existing financing facilities of collateral, which will further exacerbate the bad debt exposure process. [..]

As early as the end of April, the CBRC supervision quarterly meeting, the China Banking Regulatory Commission had warning, “the steel industry trade violations financing model has been copied to sign the copper, coal, iron ore, soybeans and other commodities trade finance field.” [..] Commodity trade finance risks for the first time and industries with excess capacity, and real estate financing platform tied to become the focus of regulatory agencies in the field of credit risk prevention. For a number of foreign banks involved in financing scam Qingdao Port nonferrous metals foreign banks, including Standard Chartered Bank, had previously announced a halt for some Chinese metal financing business from new customers.

The effects are already clear in Copper and Iron Ore prices.. next we see if the physical gold bid re-appears as CCFD unwinds continue and credit contracts for all but the most creditworthy names in China (and there’s not many of them left).

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Behind the times and weak from the Economist.

Commodity Finance In China: Collateral Damage (Economist)

At the best of times, seizing collateral on defaulted loans in China is a fraught task, plagued by patchy enforcement. These are not the best of times in the port of Qingdao, a trading hub in the north-east. Police are investigating whether companies have committed fraud by pledging the same holdings of copper and aluminium to multiple banks, multiple times. The banks are scrambling to see how much of the metal sitting in Qingdao’s warehouses actually belongs to them. More than just a fraud, the tale exposes China’s financial idiosyncrasies and the lengths to which firms sometimes go to borrow money. Regulators have tried to choke off credit to metal traders in recent years as part of efforts to slow pell-mell construction. Traders have devised a simple workaround.

Banks have been willing to grant them letters of credit to fund purchases of metal. The traders have used the credit to buy some and then, on occasion, immediately resell it, leaving them with cash to invest in high-yielding shadow-bank products. This ruse can earn enticing returns. The gap between the traders’ investment returns and their funding costs can reach ten percentage points. And that is before fraud enters the picture. By obtaining letters of credit from different banks to buy the same copper again and again, traders amplify their returns. The crucial ingredient in this deceit is a receipt of ownership issued by the warehouse where the metal sits. The 21st Century Business Herald, a Chinese newspaper, said receipts tied to the same stash of metal had been issued ten times.

Financial alchemy of this kind is common on the margins of China’s banking system. But in this case, it comes with global connections. First, there is China’s demand for commodities. The Qingdao investigation will make banks more reluctant to grant letters of credit, even when legitimate, hampering imports and so weighing on prices. Second, foreign banks have been big issuers of letters of credit to Chinese metals traders. Goldman Sachs estimates that commodity-backed deals account for as much as $160 billion, or about 30%, of China’s short-term foreign-exchange borrowing. Only a tiny sliver of that is believed to be at risk in Qingdao, but foreign creditors may become more skittish. Call it collateral damage.

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Can only get worse.

Iron Ore Declines to Lowest in 21 Months Amid Qingdao Port Probe (Bloomberg)

Iron ore fell to the lowest since 2012 on concern that a probe into commodity financing at China’s Qingdao port may hurt demand for the raw material amid a global seaborne glut. Ore with 62% iron content delivered to the port of Tianjin declined 0.7% to $90.90 a dry ton today, the lowest level since September 2012, according to The Steel Index Ltd. Prices lost 3.8% this week and retreated in eight of the past nine weeks. Chinese and foreign banks are examining loans linked to metals at Qingdao amid concern that risks are more widespread in the country, where traders use commodities from copper to iron ore and rubber to get funding.

Iron ore slumped 32% this year as mining companies from BHP Billiton to Rio Tinto expanded output, deepening a global surplus as growth slowed in China, the world’s largest buyer. Banks are more vigilant about iron ore financing,” Marcus Garvey, a London-based commodity analyst at Credit Suisse Group AG, said by e-mail. “Credit is clearly tight for a lot of people in the sector.” Banks including Standard Chartered Plc, Citigroup Inc. and Standard Bank Group are reviewing potential fallout from Qingdao, where officials are checking whether metal stockpiles fell short of collateral obligations.

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Detroit Reaches Deal With Bondholders in Bankruptcy Talks (BW)

Detroit cleared another hurdle in its effort to end a landmark $18 billion municipal bankruptcy, reaching a deal with the insurer of taxpayer-backed bonds on how to treat debt holders. Details are being put into final written form, according to a statement filed today with the court in Detroit by the mediators appointed to help broker a deal. The mediators didn’t say how much the bondholders, who are owed about $163.5 million, would recover or how much insurers would have to pay to cover any losses on the limited tax, general obligation bonds, or LTGOs. “The settlement recognizes the unique status and niche of the LTGOs in the municipal finance market,” the mediators said.

Municipal bond investors have been watching Detroit’s bankruptcy because the city has argued that its general obligation bonds aren’t secured by any collateral. That contradicted long-held assumptions among investors that such bonds had priority over other obligations, such as some government services and employee benefits. “It’s an enormous negative for general obligation bondholders to receive anything below par,” Matt Fabian, managing director of Municipal Market Advisors, a Concord, Massachusetts, research firm, said in a phone interview. “It implies more risk for general obligation secured bondholders in Michigan.”

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And that’s a good thing. Group psychology is very different from individual psychology, and what works in one often does not in the other. Think modest.

We’re Losing Faith In Global Change (Observer)

Localism is all in the interpretation. So to Eric Pickles, it’s decentralising planning. In surfing culture, it’s the right, assumed by local surfers, to chase non-locals off their wave breaks. And now environmental localism is beginning to mean something too. Something big. Might it even refresh the parts other green movements can’t reach, and take them mainstream? Certainly, the London venue where I hosted the Observer Ethical Awards last week was bursting with eco talent from grassroots organisations. This has been the case over the past two years – a surge of entrants and finalists who aren’t waiting for legislative change or government leads and are forging ahead with sustainable plans in their own communities. Case in point: the winners of our inaugural community energy award, Lancaster Co-housing, who fought off property developers to claim their site and have constructed an impressive co-housing community.

According to a new report from the Fabian Society, Pride of Place, this grassroots, people-power approach is on the money. Not only is this a trend – it’s also something that needs to happen if environmentalism is to have any chance of mainstream traction in the UK and, you might contend, any chance of achieving anything significant. As it stands, environmentalism is not pulling in the punters. The report’s authors, Natan Doron and Ed Wallis, lay the blame at the feet of a movement with too great a dependency on three things: elite-level engagement, the rationalism of climate science and the agency of top-down legislation. Environmentalism, they argue, should begin at home, focusing on issues that people are actually concerned with, rather than “abstract” international issues, such as climate change.

Suggesting all this to Rob Hopkins, who set up the UK’s first Transition Town, in Totnes, south Devon, in 2005, is the very definition of teaching your grandmother to suck eggs. The theory behind the Transition network is that communities build resilience through sustainable blueprints for energy, food and transport and more. This will enable them to cope when the world runs out of oil or climate change kicks in. In practice, the apocalyptic motivation seems to have been eclipsed as communities in 43 countries decide it’s just quite a smart way to live. “When people are presented with big-scale stuff they have no influence,” says Hopkins. “You have what we might call ‘a national debate’ but what’s that? If we had taken our energy blueprint the national government route and tried to lobby on a national level, we’d have found so many obstacles in our way, including resistance and barriers from lobbyists for national energy companies.”

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It really is an eco”system”.

Deforestation Leaves Fish Undersized And Underfed (BBC)

Deforestation is reducing the amount of leaf litter falling into rivers and lakes, resulting in less food being available to fish, a study suggests. Researchers found the amount of food available affected the size of young fish and influenced the number that went on to reach adulthood. The team said the results illustrated a link between watershed protection and healthy freshwater fish populations. The findings have been published in Nature Communications. “We found fish that had almost 70% of their biomass made from carbon that came from trees and leaves instead of aquatic food chain sources,” explained lead author Andrew Tanentzap from the University of Cambridge’s Department of Plant Sciences.

“While plankton raised on algal carbon is more nutritious, organic carbon from trees washed into lakes is a hugely important food source for freshwater fish, bolstering their diet to ensure good size and strength,” he added. Dr Tanentzap observed: “Where you have more dissolved forest matter you have more bacteria, more bacteria equals more zooplankton. “Areas with the most zooplankton had the largest, fattest fish,” he added, referring to the study’s results. The team of scientists from Canada and the UK collected data from eight locations with varying levels of tree cover around Daisy Lake, Canada, which forms part of the boreal ecosystem.

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Smart and brave man.

Pope Francis Warns The Global Economy Is Near Collapse (HuffPo)

The global economic system is near collapse, according to Pope Francis. An economy built on money-worship and war and scarred by yawning inequality and youth unemployment cannot survive, the 77-year-old Roman Catholic leader suggested in a newly published interview. “We are excluding an entire generation to sustain a system that is not good,” he told La Vanguardia’s Vatican reporter, Henrique Cymerman. (Read an English translation here.) “Our global economic system can’t take any more.” The pontiff said he was especially concerned about youth unemployment, which hit 13.1% last year, according to a report by the International Labor Organization. “The rate of unemployment is very worrisome to me, which in some countries is over 50%,” he said. “Someone told me that 75 million young Europeans under 25 years of age are unemployed. That is an atrocity.”

That 75 million is actually the total for the whole world, according to the ILO, but that is still too much youth unemployment. Pope Francis denounced the influence of war and the military on the global economy in particular: “We discard a whole generation to maintain an economic system that no longer endures, a system that to survive has to make war, as the big empires have always done,” he said. “But since we cannot wage the Third World War, we make regional wars,” he added. “And what does that mean? That we make and sell arms. And with that the balance sheets of the idolatrous economies — the big world economies that sacrifice man at the feet of the idol of money — are obviously cleaned up.”

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Yeah, right…

Citigroup, BofA Said to Face US Lawsuits as Talks Stall

Citigroup and Bank of America are facing the prospect of being sued by the Justice Department after officials broke off talks aimed at settling probes into the banks’ sales of mortgage-backed bonds. Justice Department officials suspended negotiations with the banks June 9 because they’re unsatisfied with the offers, said a person familiar with the discussions who asked not to be named because they are confidential. A civil lawsuit against Citigroup could be filed as early as next week, the person said. The department has asked for more than $10 billion from New York-based Citigroup and $17 from Bank of America, though prosecutors are willing to consider proposals below those amounts, the person said. Bank of America has offered about $12 billion while Citigroup has put forward less than $4 billion, the person said.

“Even though talks have broken off, it doesn’t mean they can’t be restarted,” after lawsuits are filed, said Matthew Axelrod, a former senior Justice Department official whose firm is handling lawsuits against banks, including Bank of America and Citigroup, over mortgage-backed securities. The Justice Department is taking a tougher approach following criticism that it hadn’t done enough to punish large institutions for their role in the collapse of home prices and ensuing financial market turmoil. Prosecutors are demanding multibillion-dollar penalties from banks for wrongdoing including tax evasion and sanctions violations and have used the threat of lawsuits to reach settlements.

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HA!

The Baltic Dry Index Is Having Its Worst Year Ever (Zero Hedge)

At 906, the Baltic Dry Index slumped to 12-month lows showing absolutely no signs whatsoever of the Q2 renaissance in global growth that has been heralded by all the highly-paid meteoroconomists. In fact, thanks to increasing fears over China’s commodity financing ponzi scheme, this is the worst year for the Baltic Dry on record. Of course, we will hear the echo chamber of ‘over-supply’ of ships rather than any ‘under-demand’ of actual aggregate product argument but the circularity of this argument is entirely lost on status quo huggers who viewed rising dry bulk commodity prices as indicative of growth (and built more ships) as opposed to the ponzi-financing scheme it really was… mal-investment writ large once again in a manipulated (and mismanaged) world.

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1930s Show Monetary Reflation Won’t Revive Main Street (Alhambra)

On Monday I examined the character change of post-interest rate targeting recoveries. By comparing recession/recovery cycles before and after 1990 it becomes obvious that the entire process of economic cycles has been altered. As such, the relative track of the Great Recession earned that name in sharp contrast to the much shorter and less dramatic recessions between the end of World War II and 1990. I have been asked to add the Great Depression to that examination, particularly in contrast to the Great Recession. On its face, the Great Recession is dwarfed by the immense nature of the downturn of the 1930’s by any measure. That doesn’t mean there is nothing interesting about comparing the two periods. In fact, doing so leads to some striking similarities, if not in scale then at least in trajectory and shortcomings.

Using just the labor market, there are problems of data comparability since the Establishment Survey only goes back to 1939. What is available as a substitute is annual rather than monthly, and is modern rather than contemporary. Most statistical accounts from that age have been recreated using more “modern” techniques, which leads to both positive and negative attributes. In my analysis, there are more negatives in the highly adjusted, probabilistic series than the originals. With that in mind, for our purposes here I am using the factory employment and payroll indices in the original Federal Reserve Bulletins. These are, of course, narrower in scope, measuring just one economic sector, than the Establishment Survey, which tallies all business-related employment (though omitting most self-employment). Even with that caveat in mind, it makes a worthwhile contrast in how dramatic the collapse after June 1929 actually was measured against recent experience

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What have we come to, and what’s yet to come?

In 33 U.S. Cities, It’s Illegal to Feed the Homeless (PolicyMic)

The news: In case the United States’ problem with homelessness wasn’t bad enough, a forthcoming National Coalition for the Homeless (NCH) report says that 33 U.S. cities now ban or are considering banning the practice of sharing food with homeless people. Four municipalities (Raleigh, N.C.; Myrtle Beach, S.C.; Birmingham, Ala.; and Daytona Beach, Fla.) have recently gone as far as to fine, remove or threaten to throw in jail private groups that work to serve food to the needy instead of letting government-run services do the job.

Why it’s happening: The bans are officially instituted to prevent government-run anti-homelessness programs from being diluted. But in practice, many of the same places that are banning food-sharing are the same ones that have criminalized homelessness with harsh and punitive measures. Essentially, they’re designed to make being homeless within city limits so unpleasant that the downtrodden have no choice but to leave. Tampa, for example, criminalizes sleeping or storing property in public. Columbia, South Carolina, passed a measure that essentially would have empowered police to ship all homeless people out of town. Detroit PD officers have been accused of illegally taking the homeless and driving them out of the city.

The U.N. even went so far as to single the United States out in a report on human rights, saying criminalization of homelessness in the United States “raises concerns of discrimination and cruel, inhuman or degrading treatment.” “I’m just simply baffled by the idea that people can be without shelter in a country, and then be treated as criminals for being without shelter,” said human rights lawyer Sir Nigel Rodley, chairman of the U.N. committee. “The idea of criminalizing people who don’t have shelter is something that I think many of my colleagues might find as difficult as I do to even begin to comprehend.”

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Must Read.

Pentagon Preparing For Mass Civil Breakdown (Guardian)

A US Department of Defense (DoD) research programme is funding universities to model the dynamics, risks and tipping points for large-scale civil unrest across the world, under the supervision of various US military agencies. The multi-million dollar programme is designed to develop immediate and long-term “warfighter-relevant insights” for senior officials and decision makers in “the defense policy community,” and to inform policy implemented by “combatant commands.” Launched in 2008 – the year of the global banking crisis – the DoD ‘Minerva Research Initiative’ partners with universities “to improve DoD’s basic understanding of the social, cultural, behavioral, and political forces that shape regions of the world of strategic importance to the US.”

Among the projects awarded for the period 2014-2017 is a Cornell University-led study managed by the US Air Force Office of Scientific Research which aims to develop an empirical model “of the dynamics of social movement mobilisation and contagions.” The project will determine “the critical mass (tipping point)” of social contagians by studying their “digital traces” in the cases of “the 2011 Egyptian revolution, the 2011 Russian Duma elections, the 2012 Nigerian fuel subsidy crisis and the 2013 Gazi park protests in Turkey.” Twitter posts and conversations will be examined “to identify individuals mobilised in a social contagion and when they become mobilised.” Another project awarded this year to the University of Washington “seeks to uncover the conditions under which political movements aimed at large-scale political and economic change originate,” along with their “characteristics and consequences.” The project, managed by the US Army Research Office, focuses on “large-scale movements involving more than 1,000 participants in enduring activity,” and will cover 58 countries in total.

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Electronic War Games Blamed For Jets Vanishing Off Radars In Europe (RT)

Electronic military exercises were to blame for the mysterious disappearance of dozens of planes from air-traffic control screens in the heart of Europe, Slovak authorities have said. About 50 planes temporarily disappeared from radars in Austria, Germany, the Czech Republic, and Slovakia between June 5 and June 10, Austria’s flight safety monitor said. German and Czech air traffic control also reported brief disappearances. Slovakia blamed the outages on planned military exercises. “The disappearance of objects on radar screens was connected with a planned military exercise which took place in various parts of Europe…whose goal was the interruption of radio communication frequencies,” the Slovak air traffic services said in a statement. “This activity also caused the temporary disappearance of several targets on the radar display, while in the meantime the planes were in radio contact with air traffic controllers and continued in their flight normally.”

Right after the problem with the radars was detected, the organizing party was made aware and the exercises were stopped, Slovakia’s air traffic services added.Slovakia did not mention a military force involved in the exercises, but Austrian media pointed towards NATO. Austrian daily Kurier reported on June 7 that the first disappearance problems coincided with NATO conducting electronic warfare exercises in Hungary. During the exercises NATO was reportedly using devices that can interfere with enemy radar, according to the Telegraph. German air traffic control stated that it is trying to identify the cause of the outages. “Planes disappeared from screens for a matter of seconds, here and there. The outages were sporadic and not grave…It must have been an external source of disruption,” a spokesperson said. Authorities said the outages did not pose any serious threat.

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Go VT!

Trade Groups Sue Vermont Over GMO Labeling Law (Burlington Free Press)

Four national organizations whose members would be affected by Vermont’s new labeling law for genetically engineered foods filed a lawsuit Thursday in federal court challenging the measure’s constitutionality. “Vermont’s mandatory GMO labeling law — Act 120 — is a costly and misguided measure that will set the nation on a path toward a 50-state patchwork of GMO labeling policies that do nothing to advance the health and safety of consumers,” the Grocery Manufacturers Association said in a statement about the lawsuit. “Act 120 exceeds the state’s authority under the United States Constitution and in light of this GMA has filed a complaint in federal district court in Vermont seeking to enjoin this senseless mandate.” The Legislature passed the labeling law in April, and Gov. Peter Shumlin signed the bill in May. The labeling requirements would take effect in two years: July 1, 2016.

Lawmakers, the governor and the attorney general expected the law to be challenged in court. Trade groups had promised to fight the law in court. Attorney General William Sorrell noted Thursday he had advised lawmakers as they deliberated that the law would invite a lawsuit from those affected “and it would be a heck of a fight, but we would zealously defend the law.” “We have been gearing up,” Sorrell said when reached Thursday afternoon in New York City. His office had yet to be served with the complaint. “I want to see the nature of the attack on the law,” he said, but added, “I don’t think there are going to be any surprises.” The statement from the Grocery Manufacturers Association summarizes the grievances of the four plaintiff organizations: GMA, the Snack Food Association, the International Dairy Foods Association and the National Association of Manufacturers.

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