Mar 312020
 


Vincent van Gogh The Parsonage Garden at Nuenen in Spring 1884 (stolen yesterday)

 

Fauci Offers More Conservative Death Rate In Academic Article Than In Public Briefings (JTN)
Hospital Equipment Shortages Renew Spotlight On Supply Chain Middlemen (JTN)
US COVID19 Job Losses Could Be 47 Million, Unemployment May Hit 32% (CNBC)
Trump Rips Pelosi For Criticizing His Handling Of Coronavirus Pandemic (NYP)
Pelosi Aims To Move Fast On Next Rescue Package (Pol.)
Rachel Maddow’s Recent Predictions Get Roasted (JTN)
Political Distancing (Turley)
Many Brick & Mortar Stores Will Not Reopen, CMBS will Default (WS)
How Will COVID-19 Impact US Manufacturing? First Indications Are Ugly (WS)
“We Are Temporarily A Company With No Product And No Revenue” (WS)
Airbnb To Pay Out $250 Million To Hosts To Help Ease Cancellation Pain (R.)
China Says Manufacturing Activity Expanded In March (CNBC)
Hungary’s Viktor Orbán Wins Vote To Rule By Decree Indefinitely (Pol.)
Portugal Gives Migrants, Asylum-Seekers Full Citizenship Rights (CNN)
Five Days Of Worship That Set A Virus Time Bomb In France (R.)
People Get Ready! (Kunstler)
Italian Politicians Criticize Netherlands Over Lack Of Solidarity (NLT)

 

 

More countries are demanding people wear face masks, even the CDC in the US talks about making it obligatory, but masks are no more available in many places than tests are. We’re three months into this thing -though I know for most people it’s been just 2 weeks-, and we’re still debating this.

In the US, half the people have it easy, they can just blame everything on Trump, it’s a entire industry, even though his approval numbers rise at the same time. But in all those other countries, who do you blame when you have face the coordinated efforts to praise your government of the day? Life isn’t easy. Maybe you can blame Trump too.

Meanwhile, we’re sadly waiting for US cases and death numbers to explode. 15,000 new cases and close to 1,000 new deaths is devastating, but nowhere near what we expect the trend to become.

 

 

Cases 799,723 (+ 64,792 from yesterday’s 734,931)

Deaths 38,720 (+ 3,940 from yesterday’s 34,780)

 

 

 

From Worldometer yesterday evening -before their day’s close-. Note: Turkey’s in the ascendancy (though not in the zodiac)

 

 

From Worldometer -NOTE: mortality rate for closed cases is at 19% –

 

 

From SCMP:

 

 

From COVID2019Live.info:

 

 

 

 

Sharyl Attkisson noticed something too. Fauci must be more careful.

Fauci Offers More Conservative Death Rate In Academic Article Than In Public Briefings (JTN)

You’ve probably heard that COVID-19 is far deadlier than the flu. But it could turn out to be more akin to a severe flu season. Surprisingly, both of those assessments come from the same authority at the same time: Dr. Anthony Fauci, the nation’s chief infectious disease specialist. Fauci, the director of the National Institute of Allergy and Infectious Diseases, has repeatedly cited more jarring figures in public. For instance, Fauci declared in March 11 congressional testimony that the current coronavirus “is 10 times more lethal than the seasonal flu,” which would be about 1 percent. His testimony generated news headlines that blared across the internet and television news, and it remains frequently cited today. But among his learned colleagues in academia, he has provided the more conservative analysis.


“[T]he case fatality rate may be considerably less than 1%,” Fauci wrote in an article published in the New England Journal of Medicine on March 26. “This suggests that the overall clinical consequences of COVID-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%) or a pandemic influenza (similar to those in 1957 and 1968) rather than a disease similar to SARS or MERS, which have had case fatality rates of 9 to 10% and 36%, respectively.” A day after the NEJM article was published, Fauci was back to repeating the higher fatality number in public rather than “considerably less than 1%.” “The mortality of [COVID-19] is about 10 times [flu],” Fauci told Comedy Central host Trevor Noah on March 27.

Read more …

A lot of things won’t happen without kickbacks. The system is one sick puppy.. and no reform in sight, since both parties are beholden to the industry as a whole.

Hospital Equipment Shortages Renew Spotlight On Supply Chain Middlemen (JTN)

Healthcare providers facing medical equipment shortages and exorbitantly high drug prices during the coronavirus outbreak are captive to kickback-receiving “middlemen” who lock up hospitals in exclusive contracts that enable price gouging and supply bottlenecks, according to a network of physician advocacy groups representing 3,000 physicians. Nearly 90% of U.S. mayors who responded to a national survey released Friday by the U.S. Conference of Mayors said they lack enough protective equipment for their coronavirus medical workers, and 85% said they do not have enough ventilators for their hospitals.


Dr. Marion Mass, a Duke-educated physician who founded Practicing Physicians of America (PPA), told Just the News that so-called “safe harbor” (legal protection) provisions allowing for payments from medical equipment and drug manufacturers to pharmacy benefit managers (PBMs) and group purchasing organizations (GPO) — what Dr. Mass calls the “middlemen” between providers and manufacturers — amount to “kickbacks.” The “safe harbor” payments are overseen by the U.S. Department of Health and Human Services (HHS), monitored by the HHS Inspector General (IG), and are currently protected by law, but Dr. Mass and her physician network argue they should be repealed.

“After significant consolidation, four behemoth GPOs now control 90% of the entire chain of hospital and nursing home supplies, and we are in the grip of an unspeakably corrupt, pay-to-play system of financial kickbacks,” Mass wrote in a white paper co-authored by the Physicians for Reform and Texas Public Policy Foundation. “If the law that established the ‘safe harbor’ for kickbacks to the GPOs (and extended to PBMs in 2003) was repealed, the cost for medical supplies and medications would fall by an estimated 25% to 30%. The cost of prescription medications would fall by 35% to 43%. Additional declines in prices are projected as true competition replaces a rigged marketplace. We estimate this reform would save Medicare and Medicaid an estimated $75 billion each year.”

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DiMartino Booth tweet: “(Bloomberg) 3 days after President Trump signed $2T stimulus, Kohl’s, Macy’s & Gap joined growing number of retailers to halt pay for much of their workforce while preserving some benefits. With these furloughs, total number of employees out a paycheck at major US chains >500,000”

US COVID19 Job Losses Could Be 47 Million, Unemployment May Hit 32% (CNBC)

Millions of Americans already have lost their jobs due to the coronavirus crisis and the worst of the damage is yet to come, according to a Federal Reserve estimate. Economists at the Fed’s St. Louis district project total employment reductions of 47 million, which would translate to a 32.1% unemployment rate, according to a recent analysis of how bad things could get. The projections are even worse than St. Louis Fed President James Bullard’s much-publicized estimate of 30%. They reflect the high nature of at-risk jobs that ultimately could be lost to a government-induced economic freeze aimed at halting the coronavirus spread. “These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years,” St. Louis Fed economist Miguel Faria-e-Castro wrote in a research paper posted last week.


There are a couple of important caveats to what Faria-e-Castro calls “back-of-the-envelope” calculations: They don’t account for workers who may drop out of the labor force, thus bringing down the headline unemployment rate, and they do not estimate the impact of recently passed government stimulus, which will extend unemployment benefits and subsidize companies for not cutting staff. However, the jobless picture already looks bleak. A record 3.3 million Americans filed initial jobless claims for the week ended March 21. Economists surveyed by Dow Jones expect another 2.65 million to join them this week. Friday’s nonfarm payrolls count for March is expected to show a decline of just 56,000, but that’s largely due to a statistical distortion [..]

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Pelosi falls innto the Chuck Todd “blood on his hands” trap. It’s a cheap political game that should not now be played. Sure, Trump was way off. But so were his advisers (Fauci), all other western and other leaders, and Pelosi herself, who was busy fiddling with impeachment when she could have been focusing on what she now says Trump should have been doing.

Trump Rips Pelosi For Criticizing His Handling Of Coronavirus Pandemic (NYP)

President Trump unleashed on House Speaker Nancy Pelosi in an early morning phone interview on “Fox & Friends,” slamming her comments about his “deadly” handling of coronavirus. Speaking to the Fox News hosts Monday morning, the commander-in-chief described the California Democrat as “a sick puppy,” who has “a lot of problems,” when asked about Pelosi’s criticism of his response to the virus. Trump added that her remarks were “a horrible thing to say.” “When I stopped some very, very infected, very, very sick people — thousands coming in from China — earlier than anyone thought [was necessary], including the experts.

Nobody thought we should do it, except me,” Trump said, adding that he was praised by government infectious disease expert Dr. Anthony Fauci for his decision to close the borders. “If I didn’t do that, you would’ve had deaths like you have never seen before,” he continued before knocking Pelosi for not crediting him for the move. Trump went on to call San Francisco, a city that is part of Pelosi’s district, a “slum,” adding that the federal government may need to address the city’s problems. Speaking about Pelosi’s impeachment crusade against the president — which passed the House but failed in the Senate — Trump said, “Don’t forget, she was playing the impeachment game where she ended up looking like a fool.”

On Sunday, Pelosi slammed Trump’s response to the pandemic, telling CNN, “We should be taking every precaution. What the president, his denial at the beginning was deadly.” “As the president fiddles, people are dying. And we just have to take every precaution,” she continued. CNN host Jake Tapper pressed the speaker on whether she believed Trump’s downplaying of the crisis had cost American lives, to which Pelosi responded, “Yes, I am. I’m saying that.”

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More games. Scheduled to take at least another month. Posing and posturing.

Pelosi Aims To Move Fast On Next Rescue Package (Pol.)

House Democrats are moving rapidly on ambitious plans for a fourth coronavirus relief package, with Speaker Nancy Pelosi eager to put her imprint on legislation that she says could be ready for a vote in the coming weeks. Pelosi told reporters Monday that Democrats are in the early stages of drafting another major bill that will not only shore up health systems and protect frontline health care workers but could include substantial investments in infrastructure. “Our first bills were about addressing the emergency. The third bill was about mitigation. The fourth bill would be about recovery. Emergency, mitigation, recovery,” Pelosi said on a conference call. “I think our country is united in not only wanting to address our immediate needs — emergency, mitigation, and the assault on our lives and livelihoods — but also, how we recover in a very positive way.”


But Democrats’ approach could put them on a collision course with senior Republicans, who say they are very much in wait-and-see mode when it comes to another potential multi-trillion-dollar bill and are warning Pelosi not to try to jam the Senate with a progressive plan. “They’re approaching it — it seems like — as an opportunity to pass their political and ideological agenda. We’re approaching it as, ‘How do we protect the public health and our economy?’ And those are pretty divergent goals,” said Sen. John Cornyn (R-Texas) [..]

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RussiaRussiaRussia is speeding up those hospital boats just to make here look bad. Actually, I don’t want to talk about Maddow.

Rachel Maddow’s Recent Predictions Get Roasted (JTN)

MSNBC host Rachel Maddow on March 20 cast doubt on the notion that two Navy hospital ships would soon reach ports on the East and West coasts to relieve hospitals combatting the coronavirus pandemic as President Trump had promised. The ships have since arrived at their respective destination ports in California and New York where they will serve non-COVID-19 patients in an effort to decrease pressure on the hospitals ashore. “In terms of the happy talk we’ve had on this front from the federal government, there is no sign that the Navy hospital ships that the president made such a big deal of, the Comfort and the Mercy, there’s no sign that they’ll be anywhere on site helping out anywhere in the country for weeks yet,” Maddow said on her television show.


“The president said when he announced that those ships would be put into action against the COVID-19 epidemic, he said one of those ships would be operational in New York harbor by next week. That’s nonsense, it will not be there next week,” Maddow asserted. The USNS Comfort arrived in New York harbor on Monday March 30, while the USNS Mercy arrived in the Port of Los Angeles on Friday March 27 and began accepting patients on Sunday March 29. Republicans on Monday highlighted the Maddow clip.

It isn’t the first time the popular liberal host has faced criticism — both on the left and the right — for her prognostication or promotion. Maddow was criticized in March 2017 when she over-hyped a story about Donald Trump’s 2005 tax returns, underwhelming many viewers once she finally divulged the information she had been teasing. “In positioning it as a grand revelation, a vital step in comprehending Trump’s corruption, MSNBC created an exceedingly cynical spectacle,” Willa Paskin wrote on Slate.com.

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Lesson in federalism. There are lots of things the federal government can’t do that are normal in other countries.

Political Distancing (Turley)

New York Governor Andrew Cuomo called on the federal government to take control of the medical supply market. Illinois Governor J.B. Pritzker demanded that President Trump take charge and said “precious months” were wasted waiting for federal action. Some critics are even more direct in demanding a federal takeover, including a national quarantine. It is the legal version of panic shopping. Many seem to long for federal takeovers, if not martial law. Yet like all panic shopping, they are buying into far more than they need while not doing as much as they could with what they have. For decades, governors tried to retain principal authority over public emergencies, but they did very little with those powers.

While many are doing impressive work now, some governors seem as eager to contain the blame as the coronavirus. Call it political distancing. Even if Trump nationalized the crisis by deploying troops, imposing price controls, and forcing production of ventilators, the Constitution has left most police authority and public health safety to the states in our system of federalism. The Framers believed liberties and powers were safest when held closest to citizens in local and state governments. Elected officials at the local and state levels are more readily held accountable than unknown Washington bureaucrats. Of course, with authority comes responsibility, and the latter notion is not always as welcomed as the former.

Despite all the hyperbole of the last few days, the federal authority of the president to act is much more limited than many appear to believe. Trump cannot, and should not, simply take over the crisis. While he may want to “open for business” by Easter, he has no clear authority to lift state orders for citizens to stay at home. His greatest authority is supplying assistance in the production and delivery of necessary resources such as ventilators. While he can put conditions on some assistance, he cannot commandeer the authority of governors in their responses to the pandemic.

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The virus will change the entire country. But people find it hard to comprehend. Wolf Richter doing well. “Nothing Goes to Heck in a Straight Line”

Many Brick & Mortar Stores Will Not Reopen, CMBS will Default (WS)

Macy’s announced today that it would lay off “the majority” of its 123,000 employees after it had closed all its Macy’s, Bloomingdale’s and Bluemercury stores on March 18. Even before the lockdowns, its headcount was already down 17% from four years ago, in line with the decline of its brick-and-mortar operations. It said these stores would “remain closed until we have clear line of sight on when it is safe to reopen.” Whenever that may be. But “at least through May,” the furloughed employees who were already enrolled in its health benefits program “will continue to receive coverage with the company covering 100% of the premium.” And it said, “We expect to bring colleagues back on a staggered basis as business resumes.” That is, if business at these brick-and-mortar stores resumes.

Department stores have been on a 20-year downward spiral that has ended for many of them in bankruptcy court where they got dismembered and sold off in pieces. The survivors, which have been shuttering their brick-and-mortar stores for years, are now getting hit by the lockdowns. The chart depicts the brick-and-mortar business that Macy’s, Nordstrom, Kohl’s, JCPenney, Neiman Marcus, Sears, Bon-Ton Stores, Barney’s and others are in – or were in. Over the past 20 years, department store revenues declined by 43%. And now they’re getting whacked for good by the lockdowns. That declining line of revenues is going to make a 90-degree downward kink in Q1, Q2 and Q3, to violate the WOLF STREET beer-bug dictum that “Nothing Goes to Heck in a Straight Line”:

As many brick-and-mortar stores have shut down, and as people are fearful about going to those stores that are still open (such as grocery stores), ecommerce sales have exploded. Americans have long been reluctant to buy groceries online. But that has changed overnight. Amazon, Walmart and other online retailers have gone on a hiring binge to deal with the onslaught of online buying, including the stuff people normally bought in grocery stores. Online retail is the huge winner of COVID-19. When the Q1 and Q2 ecommerce revenues emerge, we will see a historic spike in online sales even as brick-and-mortar sales went straight to heck.

Read more …

More from Wolf. Depression.

How Will COVID-19 Impact US Manufacturing? First Indications Are Ugly (WS)

Most of the economic data is released weeks and months after the fact. But surveys of manufacturing and service companies foreshadow what will happen with the official data when it finally appears. The Texas manufacturing production index, for which data was collected between March 17 to 25 from 110 Texas-based unnamed manufacturers, plunged from +16.4 in February to -35.3 in March, the largest month-to-month drop in the history of the index going back to 2004, the Dallas Fed reported this morning:

Many manufactures in Texas supply the oil and gas industry, where mayhem had broken out long before the coronavirus lockdowns started impacting the economy. Manufacturer’s perceptions of broader business conditions collapsed from an already low 1.2 reading in February to -70.0, the lowest in survey history. The report observed laconically: “Perceptions of broader business conditions turned quite pessimistic in March”:

The price of crude-oil grade West Texas Intermediate (WTI) has now plunged into the range of $20 per barrel, which is catastrophic for the entire oil and gas sector. This is down from a range of $80 to $110 per barrel from 2010 through mid-2014. In an effort to stay alive a little longer, exploration-and-production companies and oil-field services companies are cutting operations, and as they’re running out of funds, they are slashing orders for equipment and supplies. And this ripples through the Texas economy. The comments made by the executives in the survey ranged from: “We are mostly just concerned.” …to something more apocalyptic: “If we see this downward trend continue, we will run out of cash within four months. New orders and inquiries have stopped instantly. Our work in-house will be finished mid to end of April, with no new orders coming in, all due to this real or imagined shutdown. I believe the country will be in a depression by the fall unless the work environment changes dramatically.”

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Cruise companies lining up for bailouts. Support people instead. The companies go, but the people will remain.

“We Are Temporarily A Company With No Product And No Revenue” (WS)

TUI, the global travel and vacation giant that owns six European airlines, 1,600 travel agencies, over 300 hotels and 14 cruise ships, desperately needs help. And it appears to have got it. On Friday, the company announced that the German government had approved a €1.8 billion loan to help keep the group afloat as COVID-19 brings the global travel sector to a literal standstill. The bridge loan, which still needs to be approved by TUI’s creditors, would be one of the biggest ever issued through German state-owned lender KfW. “We are currently facing unprecedented international travel restrictions. As a result, we are temporarily a company with no product and no revenue. This situation must be bridged,” TUI CEO Fritz Joussen said in a statement. The same could be said for millions of companies around the world. But unlike TUI, many of them don’t have the ear of their national government.


Even as giant travel companies like TUI line up with airlines and cruise owners for multi-billion dollar bailouts, huge question marks loom over the global travel industry’s future. The World Tourism Organization (UNWTO), in its updated assessment of the potential impact of COVID-19 — based on the optimistic assumption that the tourism industry will experience a swift recovery over the next 3-4 months — projects that for the whole year 2020, tourist arrivals will have fallen 20-30% from 2019, and international tourism revenues will have plunged by $300 billion to 450 billion, almost one third of the $1.5 trillion generated in 2019. Taking into account past market trends, this would mean that between five and seven years’ worth of accumulated industry growth will have been wiped out in one fell swoop.

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Why on earth does Airbnb need a $250 million war chest?

Airbnb To Pay Out $250 Million To Hosts To Help Ease Cancellation Pain (R.)

U.S. home rental firm Airbnb said on Monday it was allocating $250 million to help offset losses by hosts around the world whose guests have canceled bookings in the face of the coronavirus pandemic. The aid, which will pay hosts 25% of their normal cancellation fees, is being offered globally except for China, the company said in a letter sent to hosts by Chief Executive Brian Chesky. The payments apply to the cancellation of reservations with check-in dates between March 14 and May 31. Because hosts can choose different cancellation policies – some requiring a penalty payment, with others allowing free cancellation up to a certain date before check-in – not all canceled reservations will qualify.


Airbnb had earlier announced that guests would receive a full refund for the cancellation of reservations made on or before March 14 for check-in between March 14 and April 14, which angered many hosts. Airbnb also said that hosts could cancel reservations without a charge. Airbnb said it is funding the program for hosts itself and will begin to issue the payments in April. Airbnb’s revenue in 2019 exceeded $4.8 billion, up 35% on the year, and it has $3 billion in cash, a source told Reuters last week. [..] Airbnb also said it is creating a $10 million relief fund for its Superhosts – so-named for meeting certain requirements including good ratings – who rent out their own home and need help paying their rent or mortgage, and some Experience hosts who charge for sharing an experience like food tours.

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Not much has changed. China still cares little about credibility.

China Says Manufacturing Activity Expanded In March (CNBC)

China on Tuesday said the official Purchasing Manager’s Index for March was 52.0, beating expectations for an economy hit by the coronavirus outbreak. Analysts polled by Reuters had expected the official PMI to come in at 45 for the month of March. In February, the official PMI hit a record low of 35.7. PMI readings above 50 indicate expansion, while those below that level signal contraction. China’s National Bureau of Statistics said in its announcement of the PMI reading that there was continued improvement in the prevention and control of the outbreak in March, with a significant acceleration in the resumption of production. Sub-indices for production, new orders and employment expanded, the bureau said.


The bureau attributed the expansionary PMI reading to the low base in February, but cautioned that it does not mean that the country’s economic activities have returned to normal levels. Earlier this year, manufacturing activity slowed dramatically in China as the government instituted large-scale lockdowns and quarantines to contain the spread of the coronavirus disease, formally known as COVID-19. Qian Wang, Asia Pacific chief economist at Vanguard Investment Strategy, said March’s manufacturing PMI reading was “totally expected” as activity improved during the month. “In February, the Chinese economy was at a full stop. It doesn’t take much to rise from such a low base,” she told CNBC’s “Street Signs.”

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The EU will have to throw out Hungary.

– State of emergency w/o time limit
– Rule by decree
– Parliament suspended
– No elections
– Spreading fake news + rumors: up to 5 yrs in prison
– Leaving quarantine: up to 8 yrs in prison

Hungary’s Viktor Orbán Wins Vote To Rule By Decree Indefinitely (Pol.)

The Hungarian parliament on Monday voted by a two-thirds majority to allow the government of Prime Minister Viktor Orbán to rule by decree without a set time limit. While the new legislation remains in place, no elections can be held and Orbán’s government will be able to suspend the enforcement of certain laws. Plus, individuals who publicize what are viewed as untrue or distorted facts — and which could interfere with the protection of the public, or could alarm or agitate a large number of people — now face several years in jail. In the vote, 137 members of parliament were in favor, 53 against and 9 did not cast a ballot. The new rules can only be lifted with another two-thirds vote of the parliament and a presidential signature.

The legislation has elicited deep concern both among civil rights groups in Hungary and international institutions, with officials from the Council of Europe, United Nations and Organization for Security and Co-operation in Europe publicly expressing fears about the bill. The legislation also drew criticism from members of the European Parliament. Critics say that emergency measures to address the coronavirus crisis should be temporary and time-limited to allow for checks and balances. Hungary is currently facing Article 7 proceedings under the EU Treaty, used when a country is considered at risk of breaching the bloc’s core values.

“Civil society, journalists and international and European organizations will have to step up their efforts even more in this new situation to ensure that the potential for grave abuses by government overreach are monitored, documented and responded to,” Márta Pardavi, co-chair of the Hungarian Helsinki Committee, a human rights NGO, said following the passage of the bill. “It’s now essential that the idea that executive power cannot be unlimited is reinforced by action,” she said. “The health crisis cannot be allowed to turn into a constitutional crisis.”

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To make sure they have access to health care.

The opposite of Orban.

Portugal Gives Migrants, Asylum-Seekers Full Citizenship Rights (CNN)

Portugal has temporarily given all migrants and asylum seekers full citizenship rights, granting them full access to the country’s healthcare as the outbreak of the novel coronavirus escalates in the country. The move will “unequivocally guarantee the rights of all the foreign citizens” with applications pending with Portuguese immigration, meaning they are “in a situation of regular permanence in National Territory,” until June 30, the Portuguese Council of Ministers said on Friday. The Portuguese Council of Ministers explained that the decision was taken to “reduce the risks for public health” of maintaining the current scheduling of appointments at the immigration office, for both the border agents and the migrants and asylum seekers.


Portugal declared a State of Emergency on March 18 that came into effect at midnight that day and was due to last for 15 days. Portuguese Prime Minister Antonio Costa said during a news conference that “democracy won’t be suspended.” The country was a dictatorship for decades, with democracy being restored in 1974. President Marcelo Rebelo de Sousa called the Covid-19 pandemic “a true war,” which would bring true challenges to the country’s “way of life and economy.” Rebelo de Sousa also praised the behavior of Portuguese citizens, “who have been exemplary in imposing a self-quarantine,” reflecting “a country that has lived through everything.”

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Mass gatherings. Religious, soccer, carnival. That’s where most infections originate in Europe.

Five Days Of Worship That Set A Virus Time Bomb In France (R.)

From the stage of an evangelical superchurch, the leader of the gospel choir kicked off an evening of prayer and preaching: “We’re going to celebrate the Lord! Are you feeling the joy tonight?” “Yes!” shouted the hundreds gathered at the Christian Open Door church on Feb. 18. Some of them had travelled thousands of miles to take part in the week-long gathering in Mulhouse, a city of 100,000 on France’s borders with Germany and Switzerland. For many members of this globe-spanning flock, the annual celebration is the highpoint of the church calendar. This time, someone in the congregation was carrying the coronavirus. The prayer meeting kicked off the biggest cluster of COVID-19 in France – one of Europe’s hardest-hit countries – to date, local government said.

Around 2,500 confirmed cases have been linked to it. Worshippers at the church have unwittingly taken the disease caused by the virus home to the West African state of Burkina Faso, to the Mediterranean island of Corsica, to Guyana in Latin America, to Switzerland, to a French nuclear power plant, and into the workshops of one of Europe’s biggest automakers. Weeks later, Germany partially closed its border with France, suspending a free-movement pact that has been in place for the past 25 years. The church cluster was a key factor, two people familiar with the German decision told Reuters. Church officials told Reuters that 17 members of the congregation have since died of complications linked to the disease.

[..] As the faithful gathered on a clear Tuesday evening in the church, an old shopping centre converted into a 2,500 seat auditorium, the disease seemed remote. France had 12 confirmed cases, according to World Health Organization (WHO) data. There were none in the Mulhouse area. France, like other governments in northern Europe, had imposed no restrictions on big meetings. There was no alcohol gel for the congregations to clean their hands, no elbow bumps instead of handshakes. “At the time, we viewed COVID as something that was far off,” said Jonathan Peterschmitt, son of the lead pastor and grandson of the church’s founder. His father, Samuel, was unavailable for an interview because he had been sickened by the virus, his son and a church spokeswoman said.

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“The world is still here. We’re just going to have to learn to live in it differently.”

People Get Ready! (Kunstler)

The cable news announced the other day that Covid-19 patients placed in critical care may have to be on ventilators for 21 days. Only a few years ago, I went in for an ordinary hip replacement. A month or so later, I got the hospital billing statement. One of the line-items went like this: Room and board: 36 hours…$23,482.79. I am not jiving you. That was just for the hospital bed and maybe four lousy hospital meals, not the surgery or the meds or anything else. All that was billed extra. Say, what…? Now imagine you have the stupendous good fortune to survive a Covid-19 infection after 21 days on a ventilator and go home. What is that billing statement going to look like? Will the survivors wish they’d never made out of the hospital alive?

Right now, we’re in the heroic phase of the battle against a modern age plague. The doctors, nurses, and their helpers are like the trembling soldiers in an amphibious landing craft churning toward the Normandy beach where the enemy is dug in and waiting for them, with sweaty fingers on their machine guns and a stink in the pillbox. Some of the doctors and nurses will go down in the battle. The fabled fog-of-war will conceal what is happening to the health care system itself, while the battle rages. After that, what? One thing will be pretty clear: That the folks in charge of things gave trillions of dollars to Wall Street while tens or perhaps hundreds of thousands of Covid-19 survivors got wiped out financially with gargantuan medical bills.

Do you think the Chargemaster part of the hospital routine will just stop doing its thing during this emergency? The billings will continue – just as the proverbial beatings will continue until morale improves! In the aftermath, I can’t even imagine the ‘splainin’ that will entail. The rage may be too intense to even get to that. For some, it may be time to lubricate the guillotines? Meantime, of course, the global economy has shut down which suggests to me, anyway, that any prior frame of reference you may have had about money and business and social normality goes out the window. The world is still here. We’re just going to have to learn to live in it differently.

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“..the Netherlands will “no longer be a rich country in the North if the South falls.”

Italian Politicians Criticize Netherlands Over Lack Of Solidarity (NLT)

A group of 12 Italian politicians lambasted the Netherlands on Tuesday, angered by Dutch reticence to support European financial assistance to countries most affected by coronavirus. The Netherlands blocked emergency aid to EU member states, despite “using its tax system to withdraw tax revenue from major European countries for years,” they wrote in an open letter published in German newspaper Frankfurter Allgemeine Zeitung. At issue are “coronabonds”, where the funds raised from selling such bond instruments would be used to help all member states overcome economic hurdles during the ongoing health crisis. The money could then be invested in supporting any EU member state, while repayment obligations would be the responsibility of the entire EU.

Nine nations supported the plan. “However, the Netherlands are currently leading a group of countries that oppose this strategy, and Germany also seems to want to follow this group,” the politicians said, accusing the Dutch tax regime of siphoning money away from other member states which would otherwise have allowed them to assist “the socially week… who are most affected by the crisis today.” The politicians, led by Member of Europea Parliament Carlo Calenda, called for the German public to recall the unified support it had to rebuild after World War II, up through the country’s reunification. “The Dutch attitude is an example of a lack of ethics and solidarity in every respect.”

That sentiment was echoed by the leader of Dutch political party ChristenUnie, one of the parties in the governing coalition led by Prime Minister Mark Rutte. “[Italy] is in ruins. The first message, in my opinion, would be: we are going to help you,” said Gert-Jan Segers. He also called for an approach like the U.S. Marshall Plan which promoted the reconstruction of European nations after the War. The large European rescue fund could be structured similarly to the billions of deutschmarks Germany needed even though it “could never have repaid the accumulated debts,” the Italians stated. Former Dutch Central Bank leader Nout Wellink was also critical of the Dutch approach, saying that the crisis and the debt needed to get past it is “a shared responsibility.” He said, “the Netherlands will “no longer be a rich country in the North if the South falls.”

Read more …

 

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Oct 222015
 
 October 22, 2015  Posted by at 11:09 am Finance Tagged with: , , , , , , , , , , , ,  7 Responses »


Jack Delano Spectators at annual barrel rolling contest, Presque Isle, ME 1940

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)
HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)
Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)
Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)
Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)
China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)
China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)
Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)
ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)
Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)
3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)
The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)
The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)
The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)
UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)
EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)
Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)
A Cultural Revolution To Save Humanity (Serge Latouche)
Why Too Much Choice Is Stressing Us Out (Guardian)

Envy of the entire world. “We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)

In a move that would make many capitalists’ head explode if it ever happened here, Iceland just sentenced their 26th banker to prison for their part in the 2008 financial collapse. In two separate Icelandic Supreme Court and Reykjavik District Court rulings, five top bankers from Landsbankinn and Kaupping — the two largest banks in the country — were found guilty of market manipulation, embezzlement, and breach of fiduciary duties. Most of those convicted have been sentenced to prison for two to five years. The maximum penalty for financial crimes in Iceland is six years, although their Supreme Court is currently hearing arguments to consider expanding sentences beyond the six year maximum.

After the crash in 2008, while congress was giving American banks a $700 billion TARP bailout courtesy of taxpayers, Iceland decided to go in a different direction and enabled their government with financial supervisory authority to take control of the banks as the chaos resulting from the crash unraveled. Back in 2001, Iceland deregulated their financial sector, following in the path of former President Bill Clinton. In less than a decade, Iceland was bogged down in so much foreign debt they couldn’t refinance it before the system crashed. Almost eight years later, the government of Iceland is still prosecuting and jailing those responsible for the market manipulation that crippled their economy. Even now, Iceland is still paying back loans to the IMF and other countries which were needed just to keep the country operating.

When Iceland’s President, Olafur Ragnar Grimmson, was asked how the country managed to recover from the global financial disaster, he famously replied, “We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.” Meanwhile, in America, not one single banking executive has been charged with a crime related to the 2008 crash and U.S. banks are raking in more than $160 billion in annual profits with little to no regulation in place to avoid another financial catastrophe.

Read more …

Sweden, Norway, New Zealand, Australia. And the rest of the emerging markets.

HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)

“Forecasters spend much of their time finessing central projections. But sometimes by focusing on the most likely outlook for growth we lose track of vulnerabilities that are accumulating,” HSBC Economist James Pomeroy writes in the latest edition of the bank’s “Macro Health Check.” And while global markets may have stabilized since the volatile days of summer, there seems to be no shortage of potential vulnerabilities worth keeping an eye on. Here are the major trends Pomeroy is watching:

• Weakness in Asia: Lower commodity prices as well as capital flight is hurting a number of Asian economies, not to mention lowering their growth prospects. In particular, HSBC says it’s newly concerned about Malaysia and Indonesia thanks to their proximity to China – both geographically and in terms of trade. As Pomeroy puts it: “The downturn in Chinese data has hit sentiment. Currencies have weakened and borrowing costs have risen, putting the sustainability of the corporate sector at risk.”

• Bubbles in developed economies: Asset prices that are historically high as well as household debt levels well above the norm is concerning, according to Pomeroy. He notes that in Sweden and Norway, high levels of household debt and rising house prices are combining with central banks that have already cut interest rates to record lows. “This leaves them vulnerable to financial stability risks that could leave the economies exposed to any downturn or, at some later stage, a rise in rates,” he says.

• Commodities continue to struggle: Energy is still a huge topic for the world and emerging markets in particular, with Saudi Arabia and the United Arab Emirates on track to see big hits to their economies, the HSBC economist noted. There are also worries over the macroeconomic backdrops in countries like Brazil, Russia, Colombia, and Chile, where 50% of exports are commodities -related, Pomeroy adds.

Based on these concerns, HSBC presents a “diagnosis” showing how a number of economies are and are not seeing impacts from these and other macro factors. New entries on the bank’s list of concerns include the previously-mentioned Malaysia, Indonesia, Sweden and Norway, while New Zealand also makes the cut thanks to its links to China, rising asset prices and tumbling milk prices. “Although low risk, New Zealand may be one to watch,” Pomeroy says.

Read more …

Losing money way before the oil price crash… “..cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010..”

Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)

“Energy Investments After The Fall: Opportunity Or Slippery Slope?” So begins the latest presentation from renowned short-seller Jim Chanos. What follows is a powerful outlining of the spirally debt dynamics now dominating the future of the oil industry. At the heart of Chanos’s thesis is the contention that years of low interest rates, cheap financing, over-eager investors and ambitious managers have helped propel the boom in U.S. shale and imbue it with near unstoppable momentum; U.S. oil production is expected to grow 6% in 2015 despite a stunning 59% drop in the U.S. rig count over the past year. The extent of the capital market’s support for energy over the past half-decade is laid bare in the financial figures.

According to Chanos, cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010, meaning the firms have consistently outspent their income. That trend is present even at the larger “big oil” firms such as Exxon, Chevron and Royal Dutch Shell, Chanos claims, with cash flow following distributions to shareholders also firmly in the red. The question hovering over the energy sector now is whether the continuous flow of capital investment that has propped up shale firms for so long continues. There are signs that it might not. Spreads on the bonds issued by energy companies are currently 480 basis points wider than average yield on the debt of junk-rated companies, meaning investors are (finally) demanding extra return to compensate them for the added risk of E&P.

Many oil companies have large revolving credit facilities from which they could draw financing to help replace the hole left by suddenly skittish investors – an argument that has been picked up by energy bulls and managers with some aplomb. However, Chanos says that even the most reliable E&P firms will be reluctant to tap such revolvers, given the negative publicity around such a move. And while banks have so far largely continued to renew and extend credit lines to energy firms (opting perhaps to keep such companies afloat rather than cut them off and suffer the consequences on their own balance sheets) those renewals have been accompanied by a tightening of terms. It’s a reversal of an historic trend that has seen the balance of power firmly in favor of energy firms as the sheer amount of investors and bankers willing to lend to exploratory shale has meant the vast majority of debt and loans sold and issued in recent years came with far fewer protections for lenders, known as “covenants.”

Read more …

Trouble brewing. A very imbalanced society.

Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said, underscoring the need of measures to shore up public finances amid the drop in oil prices. The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said. Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit.

Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.” Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of GDP fell to less than 2% in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80% of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest. The IMF expects Saudi’s budget deficit to rise to more than 20% of gross domestic product this year after King Salman announced one-time bonuses for public-sector workers following his accession to the throne in January. The deficit is expected to be 19.4% in 2016.

Read more …

Pension funds, mom and pop.

Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)

Banks, when reporting earnings, are saying a few choice things about their oil-and-gas loans, which boil down to this: it’s bloody out there in the oil patch, but we made our money and rolled off the risks to others who’re now eating most of the losses. On Monday, it was Zions Bancorp. Its oil-and-gas loans deteriorated further, it reported. More were non-performing and were charged-off. There’d be even more credit downgrades. By the end of September, 15.7% of them were considered “classified loans,” with clear signs of stress, up from 11.3% in the prior quarter. These classified energy loans pushed the total classified loans to $1.32 billion. But energy loans fell by $86 million in the quarter and “further attrition in this portfolio is likely over the next several quarters,” Zions reported.

Since the oil bust got going, Zions, like other banks, has been trying to unload its oil-and-gas exposure. Wells Fargo announced that it set aside more cash to absorb defaults from the “deterioration in the energy sector.” Bank of America figured it would have to set aside an additional 15% of its energy portfolio, which makes up only a small portion of its total loan book. JPMorgan added $160 million – a minuscule amount for a giant bank – to its loan-loss reserves last quarter, based on the now standard expectation that “oil prices will remain low for longer.” Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

Once a borrower reached the limit of the revolving line of credit, the bank pushed the company to issue bonds to pay off the line of credit. The company could then draw again on its line of credit. When it reached the limit, it would issue more bonds and pay off its line of credit…. Banks made money coming and going. They made money from interest income and fees, including underwriting fees for the bond offerings. It performed miracles for years. It funded the permanently cash-flow negative shale revolution. It loaded up oil-and-gas companies with debt. While bank loans were secured, many of the bonds were unsecured. Thus, banks elegantly rolled off the risks to bondholders, and made money doing so. And when it all blew up, the shrapnel slashed bondholders to the bone.

Banks are only getting scratched. Then late last year and early this year, the hottest energy trade of the century took off. Hedge funds and private equity firms raised new money and started buying junk-rated energy bonds for cents on the dollar and they lent new money at higher rates to desperate companies that were staring bankruptcy in the face. It became a multi-billion-dollar frenzy. They hoped that the price of oil would recover by early summer and that these cheap bonds would make the “smart money” a fortune and confirm once and for all that it was truly the “smart money.” Then oil re-crashed.

Read more …

Coming from a steel man, this can only mean it’ll be much worse.

China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)

China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s second-biggest mill by output, which raised the prospect that nationwide production may shrink 20%. Losses for the industry totaled 18 billion yuan ($2.8 billion) in the first eight months of the year compared with a profit of 14 billion yuan in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said. After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn.

The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production. “If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20%,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.” Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association.

The country produced 608.9 million tons in the first nine months, 2.1% less than the same period last year, the statistics bureau said on Monday. “The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector – both loans and the financing provided for steel and raw material stockpiles.” Losses in China’s steel industry are unprecedented, Macquarie Group Ltd. said in a report on Monday that summarized deteriorating sentiment in the industry. While small mills have already cut production significantly, big mills are still holding out, the bank said, forecasting further cuts.

Read more …

When you can’t afford empire anymore.

China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)

The slowdown in the world’s second-largest economy has seen Chinese cross-border investment in Africa plunge. Beijing has invested just $568 million in greenfield projects and expansion of existing projects in the first 6 months of 2015, down from $3.54 billion the previous year. That investment has been focused on China’s primary interest in Africa, namely its raw materials, writes Adrienne Klasa for The Financial Times. While overall investment plunged, investment in extractive industries almost doubled from $141.4 million to $288.9 million over the period. Chinese investment in Africa has at times been controversial, but has played a major role in regional growth. The African growth story has been complicated by global headwinds such as low prices of oil and other commodities.

Many African states rely on raw materials for large parts of their revenues. Although foreign direct investment has fallen, China has been Africa’s main trade partner since 2009. In 2013 there was more than $170 billion in trade between China and sub-Saharan Africa, compared to less than $10 billion in 2002. “FDI has dipped across the board from emerging markets into other emerging markets, and into Africa in particular,” says Vera Songwe, the IFC’s director for West and Central Africa. FDI reflects changing patterns of investment. There are some concerns that a bursting Chinese real estate bubble could see demand for African raw materials reduce even further. This could have a knock-on effect on investment in the sector, and in Africa in general.

Read more …

“..if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks..”

Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)

The delayed fuse on the eurozone’s debt-deflation policies has finally detonated in a second country. Portugal has joined the revolt against austerity. The rickety scaffolding of fiscal discipline and economic surveillance imposed on southern Europe by Germany is falling apart on its most vulnerable front. Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’. Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament.

The verdict from the markets has been swift. “We would be very reluctant to invest in Portuguese debt,” said Rabobank, describing the turn of events as a political shock. The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh. “The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University. Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency. The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy. His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.

Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks,” she said. She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation’s banking system.

Read more …

Any real action will send the message that there are problems.

ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)

Mario Draghi’s challenge on Thursday is to show that he’s readier than ever to step up stimulus, without panicking investors over the euro area’s health. In the run-up to the European Central Bank’s meeting in Malta, the institution’s president and most of his Governing Council said it’s too early to decide whether to expand their €1.1 trillion bond-buying program. Yet with economists seeing the need for a fresh boost before year-end, he’ll probably be pressured to provide reassurance that the penultimate monetary-policy session of 2015 won’t leave the ECB behind the curve. Officials sitting down to talk will have to deal with a complex scenario of mixed domestic economic signals, an uncertain global outlook, and divergent opinions on what’s needed to combat feeble inflation.

The paradox for Draghi is that when he holds his regular press conference, he may find himself addressing the risks to the recovery without yet committing to action. “The ECB seems more worried about the economy yet less inclined to act; markets are more confident in the economy yet expect something will be done,” said Francesco Papadia, chairman of Prime Collaterised Securities and a former director general of market operations at the ECB. “For Draghi, it’ll be difficult to even hint that something was discussed because it would send two messages: ‘Good, they’re doing something, and wait, the situation is worse than we thought.’

Read more …

Full insanity.

Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)

A modern diesel car pumps out more toxic pollution than a bus or heavy truck, according to new data, a situation described as a “disgrace” by one MEP. The revelation shows that effective technology to cut nitrogen oxides (NOx) pollution exists, but that car manufacturers are not implementing it in realistic driving conditions. Diesel cars tested in Norway produced quadruple the NOx emissions of large buses and lorries in city driving conditions, according to a report from the Norwegian Centre for Transport Research. A separate study for Transport for London showed that a small car in the “supermini” class emitted several times more NOx than most HGVs and the same amount as a 40-tonne vehicle.

“It is crackers,” said emissions expert James Tate from the University of Leeds. His own research, which uses roadside equipment to measure passing traffic, also shows the latest diesel models cars produce at least as much NOx as far heavier buses and trucks. The issue of NOx pollution, thought to kill 23,500 people a year in the UK alone, gained prominence when VW diesels were discovered to be cheating official US emissions tests. The scandal also led to revelations that the diesels of many car manufacturers produce far more NOx on the road than in EU lab tests, though not via illegal means. The UK government say the failure to keep NOx from vehicles low in the real world means road transport is “by far the largest contributor” to the illegal levels of NOx in many parts of the country.

“It is disgraceful that car manufacturers have failed to reduce deadly emissions when the technology to do so is affordable and readily available,” said Catherine Bearder, a Liberal Democrat MEP and a lead negotiator in the European parliament on the EU’s new air quality law. “The dramatic reduction in NOx emissions from heavier vehicles is a result of far stricter EU tests, in place since 2011, that reflect real-world driving conditions. If buses and trucks can comply with these limits, there’s no reason cars can’t as well.”

Read more …

VW is set to shrink a lot.

3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)

Volkswagen will need hardware fixes for about 3 million cars in Europe affected by the diesel-emission manipulations as the region’s largest automaker scrambles to meet demands from regulators. Cars featuring a 1.6-liter engine require technical tweaks, while software updates are sufficient to make the other affected engines compliant, a VW spokesman said by phone. VW said last week it will recall about 8.5 million cars across Europe through 2016 and acknowledged efforts to fix all cars might drag on until 2017. VW has also stated the fallout from the scandal will cost more than the €6.5 billion already set aside.

Worldwide some 11 million cars with diesel engines are affected by the wide-ranging emissions rigging that was uncovered by U.S. regulators and triggered the resignation of Chief Executive Officer Martin Winterkorn. Moody’s Investors Service said Wednesday that uncertainties about the potential impact on VW’s reputation, earnings and cash flows could weigh on the manufacturer’s credit profile into 2017. New CEO Matthias Mueller said last week protecting the company’s credit rating is a top priority. The manufacturer can recover from the scandal in two-to-three years if the right decisions are made now to make VW more efficient, agile and cost competitive, he said.

Read more …

“The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.”

The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)

One of the planet’s exemplars in preventing climate change, the EU has instituted tough emissions rules and strong support for renewable energy. Yet this doesn’t necessarily mean more solar panels or wind turbines dotting Europe’s skyline. Nope, the EU’s biggest source of renewable energy is old-school: burning wood. There’s just one problem with this. Torching wood has the potential to warm the atmosphere faster than burning coal does. So why does Europe get nearly half of its renewable energy that way? As Climate Central argues in this three-part piece, a legal loophole in the EU’s climate rules means it turns a blind eye to tens of millions of CO2 emissions that it pumps into the atmosphere each year. Worse, this policy means European governments issue hundreds of millions of dollars in incentives to encourage power plants to burn even more wood.

The core issue lies in how to count the CO2 pollution released when wood is burned for electricity and heat. Because trees grow back, EU law deems wood a “renewable energy” just like solar or wind (a source of fuel, in other words, that can be used to meet its fairly tough climate action target of sourcing 20% of its final energy consumption to come from renewable energy by 2020). But in many ways, wood is more like coal or oil—it must be burned to generate power. This process releases a lot of CO2, which traps heat in the atmosphere, warming the planet. But since trees also absorb CO2, they act as what’s been described as a “brake” on the rate of global warming. The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.

This makes complete sense—provided the wood you’re burning comes from already-dead wood that would release its carbon as it decomposed anyway. This includes dust and chips from sawmills, for example. And since the energy created when that wood is burned isn’t coming from fossil fuels, it’s ultimately a net positive for the atmosphere, as the CarbonBrief explains. However, that equation changes once you start clear-cutting forests for the sole purpose of fueling power plants. Wood tends to emit more carbon than fossil fuels to generate the same amount of energy, according to the Natural Resources Defense Council (pdf). Eventually, trees grow back and absorb this carbon. However, a growing body of peer-reviewed research suggests it can take decades—or even centuries—before a forest grows back enough to balance out the atmospheric CO2 created when its trees were burned.

Read more …

Like the Bloomberg title.

The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)

It has choked Singapore with smoke, triggered Pacific typhoons and left Vietnamese coffee growers staring nervously at dwindling reservoirs. In Africa, cocoa farmers are blaming it for bad harvests, and in the Americas, it has Argentines bracing for lower milk production and Californians believing that rain is finally, mercifully on the way. El Nino is back and in a big way. Its effects are just beginning in much of the world – for the most part, it hasn’t really reached North America – and yet it’s already shaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. It will dominate weather’s many twists and turns through the end of this year and well into next. And it’s causing gyrations in everything from the price of Colombian coffee to the fate of cold-water fish.

Expect “major disruptions, widespread droughts and floods,” Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado. In principle, with advance warning, El Nino can be managed and prepared for, “but without that knowledge, all kinds of mayhem will let loose.” In the simplest terms, an El Nino pattern is a warming of the equatorial Pacific caused by a weakening of the trade winds that normally push sun-warmed waters to the west. This triggers a reaction from the atmosphere above. Its name traces back hundreds of years to the coast of Peru, where fishermen noticed the Pacific Ocean sometimes warmed in late December, around Christmas, and coincided with changes in fish populations. They named it El Nino after the infant Jesus Christ. Today meteorologists call it the El Nino Southern Oscillation.

The last time there was an El Nino of similar magnitude to the current one, the record-setting event of 1997-1998, floods, fires, droughts and other calamities killed at least 30,000 people and caused $100 billion in damage, Trenberth estimates. Another powerful El Nino, in 1918-19, sank India into a brutal drought and probably contributed to the global flu pandemic, according to a study by the Climate Program Office of the National Oceanic and Atmospheric Administration. As the Peruvian fishermen recognized in the 1600s, El Nino events tend to peak as summer comes to the Southern Hemisphere. The impact can be broken down into several categories. Coastal regions from Alaska to the Pacific Northwest in the U.S., as well as Japan, Korea and China may all have warmer winters. The southern U.S., parts of east Africa and western South America can get more rain, while drier conditions prevail across much of the western Pacific and parts of Brazil.

Read more …

Strong graphs. More El Niño.

The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)

If there is one chart that might finally put to rest debate of a pause or “hiatus” in global warming, this chart created by the US National Oceanic and Atmospheric Administration has just supplied it. For years, climate change sceptics relied on a spike in global temperatures that occurred during the monster 1997-98 El Nino to say the world had stopped warming because later years struggled to set a higher mark even as greenhouse gas emissions continued to rise. Never mind that US government scientists found the hiatus was an illusion because the oceans had absorbed most of the extra heat that satellites could tell the Earth was trapping. Nor that 2005, 2010 and 2014 all set subsequent records for annual heat.

Those record years were too incrementally warmer compared with the 1997 mark to satisfy those who wanted to believe climate change was a hoax. But it is 2015, which is packing an El Nino that is on track to match the record 1997-98, that looks set to blow away previous years of abnormal warmth. “This one could end the hiatus,” said Wenju Cai, a principal research scientist specialising in El Nino modelling at the CSIRO. “Whether it beats [the 1997-98 El Nino] will be academic – it’s already very big.” NOAA data released overnight backs up how exceptional this year is in terms of warming, with September alone a full quarter of a degree above the corresponding month in 1997. As the chart above shows, for the first nine months, 2015 has easily been the hottest year on record, with sunlight second.

[..] El Ninos typically add 0.1-0.2 degrees to the background global warming. US climate expert John Abraham has estimated how year-to-date temperatures are adding another step-up to temperatures, as seen in this chart published by Think Progress. Climate change sceptics will probably not concede in their battle to avoid action to curb emissions. Satellite or meteorological data must have been manipulated, the oceans might be producing chemical compounds never detected before that counter carbon dioxide, or perhaps the sun is about to burn a lot less brightly. Still, they now have one more inconvenient chart they have to find a reason to ignore.

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114 people. That’s the whole story. But the UK won’t have none of it.

UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)

The UN refugee agency, the UNHCR, has said that the UK is legally obliged to resettle more than a hundred Syrian refugees who arrived by boat at a British military base in Cyprus, contradicting claims from the Ministry of Defence (MoD) that they were a Cypriot responsibility. Two overloaded wooden boats carrying 114 refugees from Syria, including 28 children, have been transferred to a temporary reception area in the sovereign base at Akrotiri on the southern coast of the Mediterranean island. According to the Cypriot coastguard, the refugees were abandoned offshore by people smugglers and left to fend for themselves.

The arrival on British territory of asylum seekers fleeing the Syrian conflict intensifies the scrutiny on the UK’s response to Europe’s worst refugee crisis since the second world war. David Cameron has offered to take in 20,000 Syrian refugees over five years – significantly less than most other western European countries, though the government has pointed out it gives more aid for refugee camps along Syria’s borders. Reacting to the arrivals at Akrotiri, the MoD said: “At the moment our key priority is ensuring everybody on board is safe and well. We have had an agreement in place with the Republic of Cyprus since 2003 to ensure that the Cypriot authorities take responsibility in circumstances like this.”

Asked whether the refugees would be able to claim asylum in Britain, an MoD official said: “That’s not our understanding.” A spokeswoman for the Home Office also stated: “The resettlement of refugees landing on the southern bases in Cyprus is not the responsibility of the United Kingdom.” But the UNHCR said in a statement that the 2003 UK-Cyprus memorandum made it clear that “asylum seekers arriving directly on to the SBA [Sovereign Base Area] are the responsibility of the UK but they would be granted access to services in the republic at the cost of the SBA.”

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They’ll throw -promises of- more money around. And that’ll be it, again.

EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)

The EU has called a mini summit with Balkan countries on the migrant crisis as Slovenia became the latest state to buckle under a surge of refugees desperate to reach northern Europe before winter. The leaders of Austria, Bulgaria, Croatia, Germany, Greece, Hungary, Romania and Slovenia will meet in Brussels on Sunday with their counterparts from non-EU states Macedonia and Serbia, the office of EC president Jean-Claude Juncker said. “In view of the unfolding emergency in the countries along the western Balkans migratory route, there is a need for much greater cooperation, more extensive consultation and immediate operational action,” a statement said. The continent has been struggling to find a unified response on how to tackle its biggest migration crisis since 1945.

More than 600,000 migrants and refugees, mainly fleeing violence in Syria, Iraq and Afghanistan, have braved the dangerous journey to Europe so far this year, the UN said. Of these, more than 3,000 have drowned or gone missing as they set off from Turkey in inflatable boats seeking to reach Greece, the starting point for the migrants’ long trek north. With the crisis showing no sign of abating, France’s interior minister Bernard Cazeneuve reinforced security in the port city of Calais from where migrants and refugees try to cross to Britain. He also announced that women and children would be given heated tents, as arrivals in a makeshift camp face a dip in temperature.

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EU police? Don’t think that exists. So, German and French cops patrolling in Slovenia? Really?

Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)

Slovenia has asked the European Union for police to help regulate the inflow of migrants from Croatia, Interior Minister Vesna Gyorkos Znidar told TV Slovenia. Over the past 24 hours, more than 10,000 migrants, many fleeing violence in Syria, have arrived in Slovenia, the smallest country on the Balkan migration route, on their way to Austria. “Slovenia has already asked other EU member states for police units,” Znidar said late on Wednesday. European Commissioner for Migration and Home Affairs Dimitris Avramopoulos on Thursday will visit Slovenia to discuss the migrant crisis, while Commission President Jean-Claude Juncker called an extraordinary meeting of several European leaders for Sunday.

Juncker invited the leaders of Austria, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia. Slovenia’s parliament has given more power to the army which is helping police control the border, while the country also plans to rehire retired police to help. Huge number of migrants started coming to Slovenia on Saturday after Hungary on Friday sealed its border with Croatia with a bottleneck building up through the Balkans.

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I’m all for it, but not for the We Must.. It will take a lot more than that.

A Cultural Revolution To Save Humanity (Serge Latouche)

We’ve reached a point that means we can no longer go on as we are doing! Everyone’s talking about crisis and it’s slightly paradoxical because I’ve always been hearing about a crisis ever since 1968 when there was a cultural crisis, then in 1972, with the publication of the work by The Club of Rome, there was talk of an ecological crisis, then there was the neoliberal counter-revolution and the social crisis with Margaret Thatcher and Reagan, and now there’s the financial crisis and the economic crisis after the collapse of Lehmann Brothers. Finally, all these crises are getting mixed up and we re seeing a crisis of civilisation, an anthropological crisis. At this point, the system can no longer be reformed – we have to exit from this paradigm – and what is it? It s the paradigm of a growth society.

Our society has been slowly absorbed by an economy based on growth, not growth to satisfy needs – and that would be a good thing – but growth for the sake of growth and this naturally leads to the destruction of the planet because infinite growth is incompatible with a finite planet. We need a real reflection when we talk about an anthropological crisis. We need to take this seriously because we need a decolonisation of the imagination. Our imagination has been colonised by the economy. Everything has become economics. This is specific to the West and it’s fairly new in our history. It was in the seventeenth century when there was a great ethical switch with the theory expounded by Bernard Mandeville. Before, people said that altruism was good and then: “no, we have to be egoists, we have to make as much profit as possible; greed is good . Yes – to destroy our “oikos (our home) more quickly. And we have actually got to that point.

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“Monstromart’s slogan was “where shopping is a baffling ordeal”.

Why Too Much Choice Is Stressing Us Out (Guardian)

Once upon a time in Springfield, the Simpson family visited a new supermarket. Monstromart’s slogan was “where shopping is a baffling ordeal”. Product choice was unlimited, shelving reached the ceiling, nutmeg came in 12lb boxes and the express checkout had a sign reading, “1,000 items or less”. In the end the Simpsons returned to Apu’s Kwik-E-Mart. In doing so, the Simpsons were making a choice to reduce their choice. It wasn’t quite a rational choice, but it made sense. In the parlance of economic theory, they were not rational utility maximisers but, in Herbert Simon’s term, “satisficers” – opting for what was good enough, rather than becoming confused to the point of inertia in front of Monstromart’s ranges of products.

This comes to mind because Tesco chief executive Dave Lewis seems bent on making shopping in his stores less baffling than it used to be. Earlier this year, he decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. For instance, Tesco used to offer 28 tomato ketchups while in Aldi there is just one in one size; Tesco offered 224 kinds of air freshener, Aldi only 12 – which, to my mind, is still at least 11 too many. Now Lewis is doing something else to make shopping less of an ordeal and thereby, he hopes, reducing Tesco’s calamitous losses. He has introduced a trial in 50 stores to make it easier and quicker to shop for the ingredients for meals.

Basmati rice next to Indian sauces, tinned tomatoes next to pasta. What Lewis is doing to Tesco is revolutionary. Not just because he recognises that customers are time constrained, but because he realises that increased choice can be bad for you and, worse, result in losses that upset his shareholders. But the idea that choice is bad for us flies in the face of what we’ve been told for decades. The standard line is that choice is good for us, that it confers on us freedom, personal responsibility, self-determination, autonomy and lots of other things that don’t help when you’re standing before a towering aisle of water bottles, paralysed and increasingly dehydrated, unable to choose.

That wasn’t how endless choice was supposed to work, argues American psychologist and professor of social theory Barry Schwartz in his book The Paradox of Choice. “If we’re rational, [social scientists] tell us, added options can only make us better off as a society. This view is logically compelling, but empirically it isn’t true.”

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Aug 072015
 
 August 7, 2015  Posted by at 10:18 am Finance Tagged with: , , , , , , , ,  2 Responses »


DPC “Wood Street, Pittsburgh, Pennsylvania.” 1905

Emerging Market Mayhem: Gross Sees “Debacle” As Currencies, Bonds Collapse (ZH)
China Growth Probably Half Reported Rate Or Less, Say Sceptics (Reuters)
The World Should Worry More About China’s Politics Than The Economy (Economist)
Another Major Pillar of the Bull Market Is Collapsing (Bloomberg)
How America Keeps The World’s Poor Downtrodden (Stiglitz)
Europeans Against the European Union (Village)
Indebted Portugal Is Still The Problem Child Of The Eurozone (Telegraph)
Greece’s Tax Revenues Collapse As Debt Crisis Continues (Guardian)
Hollande And Tsipras Want Greek Bailout Agreed In Late August (Reuters)
German Finance Ministry Favors Bridge Loan For Greece (Reuters)
German Industrial Output Slumps Unexpectedly (Marketwatch)
Corbyn’s “People’s QE” Could Actually Be A Decent Idea (Klein)
Indonesia’s Economy Has Stopped Emerging (Pesek)
Malaysia Mess Puts Goldman Sachs In The Hot Seat (Reuters)
To Please Investors, Big Oil Makes Deepest Cuts in a Generation (Bloomberg)
Inside Shell’s Extreme Plan to Drill for Oil in the Arctic (Bloomberg)
The Shale Patch Faces Reality (Bloomberg)
German TV Presenter Sparks Debate And Hatred With Support For Refugees (Guardian)
Migrant Crisis Overwhelms Greek Government (Kathimerini)
It’s Not Climate Change, It’s Everything Change (Margaret Atwood)

Again: this is just starting.

Emerging Market Mayhem: Gross Sees “Debacle” As Currencies, Bonds Collapse (ZH)

One particularly alarming case that we’ve been keen to document lately is that of Brazil which, you’ll recall, is “up shit creek without a paddle” both figuratively and literally. For one thing, as Goldman recently noted, there’s not a single period in over a decade “with a strictly-worse growth-inflation outcome than that of 2Q2015.” In other words, “since 1Q2004 there has not been a single quarter in which we had simultaneously higher inflation and lower growth than during 2Q2015.” And here is what that looks like on a scale of 100 to -100 with 100 being “high growth, low inflation” and -100 being “stagflation nightmare”:

This helps to explain why CDS spreads have blown out to post-crisis wides. For those who favor a more qualitative approach to assessing an economy’s prospects, don’t forget that the Brazilian economy recently hit its metaphorical, and literal, bottom when AP reported that, with the Brazil Olympics of 2016 just about 1 year away, “athletes in next year’s Summer Olympics here will be swimming and boating in waters so contaminated with human feces that they risk becoming violently ill and unable to compete in the games.” So that’s Brazil, and while not every EM country is coping with the worst stagflation in 11 years while simultaneously trying to explain away rivers of raw sewage to the Olympic Committee, the combination of slumping commodity prices and the threat of an imminent Fed liftoff are wreaking havoc across the space.

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Finally, we can let go of the nonsense? Or will the MSM keep reporting ‘official’ numbers?

China Growth Probably Half Reported Rate Or Less, Say Sceptics (Reuters)

China’s economy is growing only half as fast as official data shows, or maybe even slower, according to foreign investors and analysts who increasingly challenge how the world’s second largest economy can be measured so swiftly and precisely. Beijing’s official statisticians reported last month that China’s economy grew by a steady 7.0% in the first two quarters of the year, spot on its official 2015 target. That statistical stability comes at a time when prices of global commodities, which China still hungers for despite a campaign to rebalance the economy away from investment and manufacturing toward consumer spending, have cratered.

But perhaps the biggest question is how a developing country of 1.4 billion people can publish its quarterly GDP statistics weeks before first drafts from developed economies like the United States, the euro zone or Britain, and then barely revise them later. “We think the numbers are fantasy,” said Erik Britton of Fathom Consulting, a London-based independent research firm and one of the more vocal critics of official Chinese data. “There is no way those numbers are even close to the truth.” The uncanny official calm in China GDP data may well be contributing to sceptics’ exit from Chinese assets just as the authorities struggle to manage a volatile stock market.

Fathom, which decided last year to stop publishing forecasts of the official GDP release and instead publish what it thinks is really happening, reckons growth will be 2.8% this year, slowing to just 1.0% next year. One issue is that so many other forecasters stick to the script. In the latest Reuters poll of mainly sell-side bank economists, based both inside and outside China, the range of opinion is 6.5-7.2%. For next year, it’s 6.3-7.5%.

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China is due for epic unrest.

The World Should Worry More About China’s Politics Than The Economy (Economist)

How much indeed has changed in China, Mr Xi might reflect, since he came to power nearly three years ago? The economy is on course for its slowest year of growth in a quarter of a century. The stockmarket, having risen to its highest level since the global financial crisis seven years ago, crashed last month. Once hailed as an economic miracle, China is now a source of foreboding: witness the latest falls in global commodity prices. Mr Xi likes to describe slower growth as the “new normal”—a welcome sign that the country is becoming less dependent on credit-fuelled investment. But debates rage within the party elite over how to keep the economy growing fast enough to prevent financial strains from erupting into a fully fledged crisis.

A year after he took over as China’s leader, Mr Xi promised to let market forces play a “decisive” role in shaping the economy. His government’s heavy-handed (and counterproductive) efforts to boost the price of shares have created doubts about his commitment to that aim. During discussions in Beidaihe, some officials will doubtless point to the stockmarket as evidence of what can go wrong when markets are given free rein. Others will suggest that, on the contrary, economic reform is still badly needed to help China avoid falling into the Japanese trap of long-term stagnation. Much depends on which camp Mr Xi heeds. During meetings in Beidaihe in 1988, China’s then leader, Deng Xiaoping, vacillated in the face of a backlash against his economic reforms.

By pandering to conservatives, he fuelled political divisions that erupted the following year into nationwide pro-democracy protests. The unrest, centred on Tiananmen Square, came close to toppling the party. It was not until 1992 that Deng was able to set his reforms back on track. China’s leadership does not appear anything like as divided as it did in the build-up to the Tiananmen upheaval. But appearances may be more deceptive now. Mr Xi is a leader of a very different hue from his predecessors. He has rewritten the rules of Chinese politics, in effect scrapping Deng’s system of “collective leadership” by taking on almost every portfolio himself, while waging a war on corruption of unprecedented scale and intensity.

The latest high-ranking official to be targeted, Guo Boxiong, was once the most senior general in the armed forces; he was expelled from the party on July 30th and now faces trial for graft. A dozen other generals, more than 50 ministerial-level officials and hundreds of thousands of lesser functionaries have met similar fates. That suggests Mr Xi is strong, but also that he has many enemies or is busy creating them. His rounding up of more than 200 civil-rights lawyers and other activists since early last month—the biggest such clampdown in years—hints at his insecurity.

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” In just five stocks – Disney, Time Warner, Fox, CBS and Comcast – almost $50 billion of value was erased in two days.”

Another Major Pillar of the Bull Market Is Collapsing (Bloomberg)

A bull market without Apple is one thing. Removing cable television and movie stocks from the 6 1/2-year rally in U.S. equities is a little harder to imagine. Ignited by a plunge in Walt Disney, shares tracked by the 15-company S&P 500 Media Index have tumbled 8.2% in two days, the biggest slump for the group since 2008. The drop erased all of 2015’s gains for a group that has posted annualized returns of more than 33% since 2009. More than technology or even biotech, media stocks have ruled the roost during the share advance that restored $17 trillion to American equity prices since the financial crisis. Companies from CBS to Tegna and Time Warner Cable are among stocks with the 60 biggest increases during the stretch.

“This sector stripped out is certainly not going to help,” Larry Peruzzi, director of international trading at Cabrera Capital Markets LLC in Boston, said by phone. “There are a lot of companies adding pressure here and there’s an argument to be made that it’s an indicator of consumer sentiment, because that’s where media revenues come from.” Disappointing results from Disney after the close of trading Tuesday sparked the two-day rout. Selling spread to other television and publishing companies as quarterly reports from CBS to 21st Century Fox Inc. and Viacom Inc. were marked by shrinking U.S. ad sales and profits propped up by stock buybacks.

Until Tuesday, media shares were the best-performing shares of the bull market, rising 531% to eclipse automakers, retail stores and banks. The industry’s market capitalization was about $650 billion, compared with $135 billion in March 2009. That value is evaporating. In just five stocks – Disney, Time Warner, Fox, CBS and Comcast – almost $50 billion of value was erased in two days. Viacom slid 14% on Thursday alone, its biggest drop since October 2008.

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Interesting developments. US interests are bound to keep resisting what is inevitable.

How America Keeps The World’s Poor Downtrodden (Stiglitz)

Much has changed in the 13 years since the first International Conference on Financing for Development was held in Monterrey, Mexico, in 2002. Back then, the G-7 dominated global economic policy making; today, China is the world’s largest economy (in purchasing-power-parity terms), with savings some 50% larger than that of the U.S. In 2002, Western financial institutions were thought to be wizards at managing risk and allocating capital; today, we see that they are wizards at market manipulation and other deceptive practices. Gone are the calls for the developed countries to live up to their commitment to give at least 0.7% of their gross national income in development aid.

A few Northern European countries – Denmark, Luxembourg, Norway, Sweden and, most surprisingly, the United Kingdom in the midst of its self-inflicted austerity – fulfilled their pledges in 2014. But the United States (which gave 0.19% of GNI in 2014) lags far, far behind. Today, developing countries and emerging markets say to the U.S. and others: If you will not live up to your promises, at least get out of the way and let us create an international architecture for a global economy that works for the poor, too. Not surprisingly, the existing hegemons, led by the U.S., are doing whatever they can to thwart such efforts. When China proposed the Asian Infrastructure Investment Bank to help recycle some of the surfeit of global savings to where financing is badly needed, the U.S. sought to torpedo the effort.

President Barack Obama’s administration suffered a stinging (and highly embarrassing) defeat. The U.S. is also blocking the world’s path toward an international rule of law for debt and finance. If bond markets, for example, are to work well, an orderly way of resolving cases of sovereign insolvency must be found. But today, there is no such way. Ukraine, Greece, and Argentina are all examples of the failure of existing international arrangements. The vast majority of countries have called for the creation of a framework for sovereign-debt restructuring. The U.S. remains the major obstacle.

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Must read. Very good.

Europeans Against the European Union (Village)

[..] since 2011, a rival, pro-European identity has emerged which is highly critical of the Troika and the increasingly undemocratic apparatus of the EU. Last month, in Greece, this movement was given a name: Generation No. The vote in Greece was striking in its breakdown. The average No voter rejecting the Troika’s ultimatum was young, working-class and held increasingly left-wing views. The percentage for ‘oxi’ under 25 was 85, under 35 was 78. These were a new generation, living in conditions of over 60% unemployment, often having to stretch out their studies over many years to afford to complete them, relying on cash from their parents to survive. But also, it is a generation increasingly willing to challenge the shibboleths of our societies – to experiment in unorthodox relationships to the economy, to housing, to politics.

The price of building up the reputation of the EU as an arena of opportunity for Europe’s periphery has been the weight of frustrated expectations when this turned out not to be the case. As a result not just in Greece but in an increasing number of states it isn’t Generation Yes which represents the future but Generation No. This shift in orientation towards the European project is not down to a turn against Europe. In fact, the Greek No vote enjoyed enormous support from across the continent – marches, direct actions, statements from social movements, trade unions, NGOs, academics and intellectuals. Instead what has happened is that the EU has been stripped back to its essence as a neoliberal economic project. Gone are the pretences of internationalism or a social element – the Greek crisis has demonstrated that bonds of solidarity stretch only as far as is profitable.

To understand why this disconnect between growing internationalism of European peoples and the European Union exists, we have to explore its economic basis. The idea of a ‘social Europe’ has never been at the heart of this market-oriented project of European integration. At the same time as Jacque Delors was seducing Europe’s social democrats into this myth in the 1980s, he was trapping them into arrangements they would never agree to without it. First in 1988 the directive mandating for extensive free movement of capital and then, in 1992, the Maastricht Treaty. These arrangements provided the foundation for the euro – a currency which was to drive the stake of neoliberalism into the heart of the European Union. The money in our pockets is the most right-wing currency ever designed, with a central bank that doesn’t care about unemployment and won’t act as a lender of last resort, modelled to work only in the free-market utopias predicted to arrive at Francis Fukuyama’s end of history.

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Problems that are conveniently hidden behind ‘the Greece story’.

Indebted Portugal Is Still The Problem Child Of The Eurozone (Telegraph)

Portugal must carry out a bold programme of deep spending cuts and tax hikes to tackle its perilously high debt levels, the IMF has warned. A former bail-out economy often hailed as a poster child for the eurozone’s austerity medicine, Portugal continues to have the highest public and private debt ratio in the eurozone at over 360pc of GDP. The IMF has now told the government to redouble its belt-tightening efforts to reduce its debt overhang and meet a mandated budget deficit target of 2.7pc of GDP this year. Should Lisbon fail to cut spending, the deficit is expected to balloon to 3.2pc of economic output. Portugal officially exited its €78bn international bail-out programme last year.

The economy is now expected to expand by 1.6pc in 2015, an upturn largely attributed to favourable external factors such as low commodity prices and a weak euro, said the IMF. Despite noting the recovery was broadly “on track”, the IMF painted a precarious picture of an economy heavily exposed to a downturn in global fortunes and fears over Greece’s future in the euro. “A sudden change in market sentiment due to concerns about the direction of economic policies or re-pricing of risk could render Portugal’s capacity to repay more vulnerable,” warned the report. Four years of Troika-imposed measures has seen government debt hit 127pc of GDP this year, leaving the country “vulnerable to any prolonged financial market turbulence”, according to the IMF’s monitoring report.

Prohibitive debt levels are now expected to dampen domestic demand, “constrain the pace of recovery and weigh on medium-term growth prospects”. In further worrying signs that the recovery has already lost steam, Portugal’s unemployment rate crept back up to 13.7pc in the first quarter of the year, up from 13.1pc in late 2014. Since the IMF’s assessment, joblessless has fallen back to 11.9pc in the three months to June. Last year, the government was forced to inject €5bn to stave off a collapse of Portugal’s biggest lender – Banco Espírito Santo. But the country’s financial system continues to be plagued by rising “bad” non-performing loans which grew by 12.3pc in the first three months of the year.

Political risk could also throw the country’s fragile recovery off track and precipate a fresh crisis for Brussels in the southern Mediterranean. Despite five years under a compliant centre-right government, progress on implementing structural reforms demanded by creditors has eased off, said the IMF. The country goes to the polls in October, where the anti-austerity Socialists are on course to win a parliamentary majority. Party leader Antonio Costa has vowed to roll back Troika-imposed reforms and end the country’s “obsession with austerity”.

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The deal remains far from done. But Greece is set to receive ’emergency’ funds before it’s time to sign, and that is perhaps the pivotal event.

Greece’s Tax Revenues Collapse As Debt Crisis Continues (Guardian)

Fresh evidence of the dramatic impact of the Greek debt crisis on the health of the country’s finances has emerged with official figures showing tax revenues collapsing. As talks continued over a proposed €86bn third bailout of the stricken state, the Greek treasury said tax revenues were 8.5% lower in the first six months of 2015 than the same period a year earlier. The bank shutdown that brought much economic activity to a halt began on 28 June. Public spending fell even more dramatically, by 12.3%, even before the new austerity measures the prime minister Alexis Tsipras has been forced to pass to win the support of his creditors for talks on a new bailout. Greece is due to make a €3.2bn repayment to the ECB on 20 August.

Talks with the quartet of creditors, which includes the ECB, the IMF, the European commission and Europe’s bailout fund, the European stability mechanism, are continuing, and Tsipras has suggested they are “in the final stretch”. However, it remains unclear whether the prime minister, who was only able to pass the latest package of austerity measures with the help of opposition MPs, will be able to win the backing of his radical Syriza party for new reforms, at a special conference due to be held next month. The IMF has made clear that it will refuse to commit any new funds until Greece has signed up to a new economic reform programme, and eurozone countries have made a concrete offer to write off part of the country’s debt burden.

Sweden’s representative on the 24-member IMF board, Thomas Östros, said there was strong support for a new Greek rescue, “but it will take time”. He told Swedish daily Dagens Nyheter: “There is going to be a discussion during the summer and autumn and then the board will make a decision during the autumn.” He also noted that Greece must adopt wide-ranging reforms first. “They have an inefficient public sector, corruption is a relatively big problem and the pension system is more expensive than other countries.” Despite the grim news on the public finances, Greek stock markets bounced back yesterday, after three straight days of decline, with the main Athens index closing up 3.65%.

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Sorry, can’t really see that happen. The IMF will insist on debt relief, which the EU and ECB will resist, and SYRIZA will protest it all.

Hollande And Tsipras Want Greek Bailout Agreed In Late August (Reuters)

A new bailout for Athens should be agreed by late August, Greek Prime Minister Alexis Tsipras and French President Francois Hollande said on Thursday. Greece is in negotiations with the European Union and International Monetary Fund for as much as €86 billion in fresh loans to stave off financial ruin and economic collapse. Tsipras said the new deal would be agreed soon after Aug. 15; Hollande said by the end of the month. The two men were speaking in Egypt on the sidelines of a ceremony to inaugurate the New Suez Canal. It will be Greece’s third bailout since its financial troubles became evident more than five years ago. Negotiations in the past have been heated, but all sides are reporting progress this time around.

An accord must be settled – or a bridge loan agreed – by Aug. 20, when a €5 billion debt payment to the ECB falls due. In a statement, Tsipras’s office in Athens said he and Hollande had agreed that the deal “should and could be concluded right after Aug. 15”. That would give enough time for the Greek parliament to approve it to enable the Aug. 20 repayment to the ECB. “They also agreed that everything should be done for the Greek economy to rebound, especially after the effects of the banking crisis,” the statement said. Greece’s banks are in need of recapitalization by €10 billion to 25 billion, according to the EU. France has been generally supportive of Greek requests for aid, contrasting with a harder line taken by Germany which has demanded stringent reform and austerity measures from Athens.

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Greece can take the €10-15 billion and prepare to leave.

German Finance Ministry Favors Bridge Loan For Greece (Reuters)

Germany’s Finance Ministry favors a bridge loan for Greece to give Athens and its creditors sufficient time to negotiate a comprehensive third bailout, the Sueddeutsche Zeitung daily reported on Friday. “A program that should last three years and be worth over €80 billion needs a really solid basis,” the paper quoted a ministry source as saying. “A further bridge loan is better than just a half-finished program.” Greece is in negotiations with the EU and IMF for as much as €86 billion in fresh loans to stave off financial ruin and economic collapse. A €3.5 billion debt payment to the ECB falls due on August 20 and without a bailout deal, Athens would need bridge financing. The reported German preference for a bridge loan contrasts with the view of Greek Prime Minister Alexis Tsipras and French President Francois Hollande, who said on Thursday a new bailout should be agreed by late August.

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That “great” story is over too.

German Industrial Output Slumps Unexpectedly (Marketwatch)

Germany’s industrial output and exports both slumped unexpectedly in June, a sign that growth in Europe’s largest economy failed to gather much momentum in the second quarter. Industrial production, adjusted for inflation and seasonal swings, declined 1.4% from May, leaving output in the second quarter flat from the previous period, the economics ministry said Friday. But strong manufacturing orders in June and healthy business sentiment indicate that “the modest upward trend in industry should be continued,” the ministry said. In a separate publication, the federal statistics office said Friday that German exports, adjusted for inflation and seasonal swings, dropped 1.0% from May; imports declined 0.5%. But Germany’s adjusted trade surplus, at €22 billion in June, remained near May’s record high of €22.6 billion, an indication that foreign demand underpinned economic activity in the second quarter.

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Both the UK and US are far too focused on election entertainment.

Corbyn’s “People’s QE” Could Actually Be A Decent Idea (Klein)

If Jeremy Corbyn becomes leader of the UK Labour Party, one positive consequence will be the ensuing discussion of the monetary policy transmission mechanism. It all started with his presentation on “The Economy in 2020” given on July 22:

The ‘rebalancing’ I have talked about here today means rebalancing away from finance towards the high-growth, sustainable sectors of the future. How do we do this? One option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects: Quantitative easing for people instead of banks. Richard Murphy has been one of many economists making that case.

That passage seems to have been mostly ignored until August 3, when Chris Leslie, Labour’s shadow chancellor, attacked the policy, which in turn led to a detailed response from the aforementioned Richard Murphy (see also here and here), at which point what seems like the bulk of the British economics commentariat erupted. Just search the internet for “Corbynomics” if you don’t believe us. Much of the commentary has been negative – former Bank of England economist Tony Yates concluded, for example, that “People’s QE” would be “the first step along the road to undermining the social usefulness of money” – although Chris Dillow gave an intelligent defense. We don’t understand the negativity. Some of the specific arguments justifying the proposal may be flawed, but the core idea is sound and possesses an impressive intellectual pedigree.

In fact, it could help solve one of the most troublesome questions in central banking: how policymakers can accomplish their objectives using the tools at their disposal, without producing too many unpleasant side effects. One of the oddities of “monetary policy” is that it has almost no direct impact on how much money there is to go around. Virtually all of what we commonly think of and use as money is actually short-term debt issued and retired at will by private financial firms. Monetary policymakers can affect the incentives of these profit-seeking entities but they have little control over the amount of nominal spending occurring in the economy. Nudging the unsecured overnight interbank lending rate up and down can encourage lenders to adjust their leverage, but good luck tying that to the traditional price stability mandate.

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One among many.

Indonesia’s Economy Has Stopped Emerging (Pesek)

Indonesia has come a long way since Oct. 20, when Joko Widodo was sworn in as president. Unfortunately, the distance the country has traveled has been in the wrong direction. Expectations were that Widodo, known as Jokowi, would accelerate the reforms of predecessor Susilo Bambang Yudhoyono – upgrading infrastructure, reducing red tape, curbing corruption. Who better to do so than Indonesia’s first leader independent of dynastic families and the military? In 10 years at the helm, Yudhoyono dragged the economy from failed-state candidate to investment-grade growth star. Jokowi’s mandate was to take Indonesia to the next level, honing its global competitiveness, creating new jobs, preparing one of the world’s youngest workforces to thrive and combating the remnants of the powerful political machine built by Suharto, the dictator deposed in 1998.

After 291 days, however, Jokowi seems no match for an Indonesian establishment bent on protecting the status quo. Growth was just 4.67% in the second quarter, the slowest pace in six years. What’s more, a recent MasterCard survey detected an “extreme deterioration” in consumer sentiment, which had plummeted to the worst levels in Asia. Investors are already voting with their feet. The Jakarta Composite Index has fallen 13% from its April 7 record high, one of Asia’s biggest plunges in that time. And foreign direct investment underwhelmed last quarter, coming in at $7.4 billion, little changed from a year earlier in dollar terms. Jokowi has plenty of time to turn things around; 1,535 days remain in his five-year term. But the “halo effect” Jokowi carried into office is fast fading as Indonesia’s 250 million people flirt with buyer’s remorse.

First, Jokowi must step up efforts to battle weakening exports. Indonesia’s weak government spending, stifling bureaucracy and conflicting regulations would be impediment enough; slowing world growth makes matters much worse. Jokowi must greenlight infrastructure projects to boost competitiveness and increase the number and quality of jobs. Next, Jokowi must decide what kind of leader he wants to be: a craven populist or the modernizer Indonesia needs. He has too often resorted to nationalistic rhetoric that hearkens to the Indonesian backwater of old – a turnoff for the multinational executives Jakarta should be courting. Last month, Jokowi raised import tariffs, while asking visiting U.K. Prime Minister David Cameron to do the opposite by cutting U.K. duties for Indonesian goods. Jokowi isn’t helping his constituents by driving up prices for goods while their currency is weakening.

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These things should be held against daylight, but where?

Malaysia Mess Puts Goldman Sachs In The Hot Seat (Reuters)

An unfolding political scandal in Malaysia is starting to reverberate far from Kuala Lumpur to the downtown New York headquarters of Goldman Sachs. State fund 1Malaysia Development Berhad (1MDB) is at the centre of allegations of graft and mismanagement. The furore has prompted renewed scrutiny of hefty fees the Wall Street bank led by Lloyd Blankfein earned selling bonds for 1MDB. The affair threatens to expose a blind spot in Goldman’s processes for vetting sensitive deals. The latest uproar was triggered by reports that almost $700 million landed in the personal accounts of Najib Razak, Malaysia’s Prime Minister. Najib denies taking any money from 1MDB for personal gain. The country’s anti-corruption commission says the funds came from an unnamed donor.

Even so, the investigations into the source of Najib’s mystery money have intensified questions about the management of the fund, which borrowed heavily to buy power assets and finance investments in recent years, but is now effectively being wound down. Goldman helped 1MDB raise a total of $6.5 billion from three bond issues in 2012 and 2013. Even at the time, the deals were controversial because they were so lucrative for the bank. Goldman earned roughly $590 million in fees, commissions and expenses from underwriting the bonds, according to a person familiar with the situation – a massive 9.1% of the total raised. That was almost four times the typical rate for a quasi-sovereign bond at the time.

It exceeds what Wall Street firms can charge in what has traditionally been their most lucrative work: taking companies public in the United States. Goldman was able to book hefty fees because it put its balance sheet at risk for 1MDB, which did not yet have a credit rating. And it wanted to raise a large amount of money very quickly. Yet the bonanza has left the bank exposed to its client’s woes. Malaysian opposition politician Tony Pua said earlier this year that 1MDB had been “royally screwed” by the deals.

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Goes to show how bad things are.

To Please Investors, Big Oil Makes Deepest Cuts in a Generation (Bloomberg)

Oil companies are making the largest cost cuts in a generation to reassure investors. They’re risking their own future growth. From Chevron to Shell, producers are firing thousands of workers and canceling investments to defend their dividends. Cutbacks across the industry total $180 billion so far this year, the most since the oil crash of 1986, according to Rystad Energy. BP CEO Bob Dudley said last week his “first priority” was payouts to shareholders. Chevron CFO Patricia Yarrington said her company was committed to continuing its 27-year record of annual dividend increases. While the dividend payouts please investors, the producers risk repeating the patterns of 1986 and 1999, when prices slumped and they slashed spending.

It took years for them to rebuild their pipelines of production growth. “You need to question whether it’s optimal to base the whole strategy on keeping the dividend,” said Thomas Moore, a director at U.K. fund manager Standard Life Investments. “The response to low oil prices has been savage cost-cutting.” Exxon Mobil, Shell, Chevron, BP and Total told investors last week that future growth plans aren’t imperiled and maintained their multi-year output targets. The history of previous cost-cutting is a cautionary tale.

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Crazy wager.

Inside Shell’s Extreme Plan to Drill for Oil in the Arctic (Bloomberg)

Chevron, ConocoPhillips, ExxonMobil, Statoil, and Total have all put Arctic plans on hold. “Given the environmental and regulatory risks in the Arctic and the cost of producing in that difficult setting, assuming they ever get to producing, Shell must anticipate an enormous find—and future oil prices much higher than they are today,” says Nick Butler, a former senior strategy executive at BP who does energy research at King’s College London. “It’s a dangerous wager.” One of the most powerful women executives in a decidedly masculine industry, Pickard, 59, meets a reporter visiting Anchorage in jeans and a blue button-down shirt.

Her rise through the ranks, first at the pre-merger Mobil and since 2000 at Shell, is especially impressive as she lacks the engineering or geology pedigree normally required of senior oil industry management. She has a graduate degree in international relations and has overseen exploration and production in Africa, Australia, Latin America, and Russia. “Ann doesn’t suffer fools,” says a (male) subordinate who pleads for anonymity. In 2005, Shell put Pickard in charge of sprawling operations in Nigeria long shadowed by pipeline thievery, militant attacks, and accusations—denied by Shell—of collaboration with brutal government crackdowns. Fortune magazine in 2008 labeled her “the bravest woman in oil”—a silly accolade, perhaps, but one that accurately reflects her reputation at Shell.

Most of the world’s “easy oil” has already been pumped or nationalized by resource-rich governments, Pickard says, leaving independent producers such as Shell no choice but to pursue “extreme oil” in dicey places. “I enjoy the challenge,” she says. That’s why in 2013, when she was planning to retire to spend more time with her husband, a retired Navy commander, and their two adopted children, she changed her mind and took over the troubled Arctic project.

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Living on fumes: “Next year it’s really going to come to a head.”

The Shale Patch Faces Reality (Bloomberg)

Not long ago the oil industry looked like it had dodged a bullet. After the worst bust in a generation cut crude prices from $100 a barrel last summer to $43 in March, the oil market rallied. By June, prices were up 40%, passing $60 for the first time since December. Oil companies that had cut costs began planning to deploy more rigs and drill more wells. “We didn’t think we’d be quite this good,” Stephen Chazen, chief executive officer of Occidental Petroleum, told analysts in May. The runup was short-lived. Fears over weak demand from China, along with rising production in the U.S., Saudi Arabia, and Iraq pushed prices back below $50. In July, even as the summer driving season boosted U.S. gasoline demand close to record highs, oil posted its biggest monthly drop since October 2008.

“The much feared double-dip is here,” Francisco Blanch at Bank of America wrote in a July 28 report. The largest oil companies are reporting their worst results in years. ExxonMobil’s second-quarter net income fell 52%; Chevron’s fell 90%. ConocoPhillips lost $180 million. Billions of dollars in capital spending have been cut, and more layoffs are likely. Part of the problem facing the majors is that they’re producing in some of the most expensive places on earth: deep water and the Arctic. With their healthy cash reserves the majors can hold out for higher prices, even if they’re years away. The same can’t be said for many of the smaller companies drilling in the U.S. shale patch.

Shale producers had bought themselves time by cutting costs, locking in higher prices with oil derivatives, and raising billions from big banks and investors. Many cut drilling costs by as much as 30%, fired thousands of workers, and renegotiated contracts with oilfield service companies. “That postponed the day of reckoning,” says Carl Tricoli at Denham Capital Management. But it’s not clear what’s left to cut. The futures contracts and other swaps and options they bought last year as insurance against falling prices are beginning to expire. During the first quarter, U.S. producers earned $3.7 billion from these hedges, crucial revenue for companies that often outspend their cash flow. “A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” says Chris Lang at Asset Risk Management. “Next year it’s really going to come to a head.”

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Germans need to speak up against hatred.

German TV Presenter Sparks Debate And Hatred With Support For Refugees (Guardian)

A television presenter in Germany has triggered a huge online debate after calling for a public stand against the growth of racist attacks towards refugees. Anja Reschke used a regular editorial slot on the evening news programme to lambast hate-filled commentators whose language she said had helped incite arson attacks on refugee homes. She said she was shocked at how socially-acceptable it had become to publish racist rants under real names. “Until recently, such commentators were hidden behind pseudonyms, but now these things are being aired under real names,” she said. “Apparently it’s no longer embarrassing anymore – on the contrary – in reaction to phrases like ‘filthy vermin should drown in the sea’, you get excited consensus and a lot of ‘likes’.

If up until then you had been a little racist nobody, of course you suddenly feel great,” she said in the two-minute commentary. The segment went viral within minutes of being broadcast, and by Thursday afternoon had been viewed more than 9m times, clocked up over 250,000 likes, 20,000 comments, and had been shared more than 83,000 times on Facebook. Reschke said the “hate-tirades” had sparked “group-dynamic processes” that had led to “a rise in extreme rightwing acts”. Calling on “decent” Germans to act, she said: “If you’re not of the opinion that all refugees are spongers, who should be hunted down, burnt or gassed, then you should make that known, oppose it, open your mouth, maintain an attitude, pillory people in public.”

Her appeal came a day after the head of the intelligence service, Hans-Georg Maassen, warned that a small group of rightwing extremists was in danger of escalating a wave of anti-asylum attacks. He made specific mention of the group Der III Weg or “The Third Way”, calling them “dangerous rabble-rousers”.

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Europe’s biggest moral failure continues unabated. Blaming Tsipras, though, is nonsense.

Migrant Crisis Overwhelms Greek Government (Kathimerini)

Prime Minister Alexis Tsipras is due to chair an emergency government meeting on Friday to address the refugee crisis facing Greece, which has been compounded by serious funding problems in Athens. The meeting was called in the wake of European Commissioner for Migration and Home Affairs Dimitris Avramopoulos informing Tsipras that Greece was missing out on more than €500 million in European Union funding because it has failed to set up a service to absorb and allocate this money for immigration and asylum projects. Kathimerini understands that Avramopoulos has told the prime minister Greece will be given as a down payment 4% of the total funding due over a six-year period. This will be followed by another 3% to cover actions this year.

Tsipras is due to discuss this issue, as well as the soaring number of refugees and migrants reaching Greece, with Alternate Minister for Immigration Policy Tasia Christodoulopoulou and several other cabinet members today. Christodoulopoulou admitted Thursday that the government has so far fallen short on this matter. “At the moment, nongovernmental organizations and charities are covering the gaps left by the state,” she told Mega TV. “Without them things would be worse.” The alternate minister said efforts were continuing to prepare a plot of land in Votanikos, near central Athens, so some 400 refugees currently living in tents in Pedion tou Areos park could be housed there. Authorities are currently carrying out work aimed at making the new site livable.

The refugees, including dozens of children, will be housed in prefabricated structures as well as large tents at Votanikos. Christodoulopoulou said the new site would operate as a reception, not detention, center. This means that up to 600 people who will be able to live there will be allowed to leave and enter the camp freely. The magnitude of the problem facing Greece was underlined by the United Nations on Thursday. A UN Refugee Agency (UNHCR) official told Agence-France Presse that by the end of July, around 224,000 refugees and migrants had arrived in Europe by sea and that of those, some 124,000 landed in Greece. More than 2,100 people have drowned or gone missing.

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Margaret!!

It’s Not Climate Change, It’s Everything Change (Margaret Atwood)

Oil! Our secret god, our secret sharer, our magic wand, fulfiller of our every desire, our co-conspirator, the sine qua non in all we do! Can’t live with it, can’t right at this moment live without it. But it’s on everyone s mind. Back in 2009, as fracking and the mining of the oil/tar sands in Alberta ramped up, when people were talking about Peak Oil and the dangers of the supply giving out, I wrote a piece for the German newspaper Die Zeit. In English it was called The Future Without Oil. It went like this:

The future without oil! For optimists, a pleasant picture: let’s call it Picture One. Shall we imagine it? There we are, driving around in our cars fueled by hydrogen, or methane, or solar, or something else we have yet to dream up. Goods from afar come to us by solar-and-sail-driven ship, the sails computerized to catch every whiff of air, or else by new versions of the airship, which can lift and carry a huge amount of freight with minimal pollution and no ear-slitting noise. Trains have made a comeback. So have bicycles, when it isn t snowing; but maybe there won’t be any more winter.

We ve gone back to small-scale hydropower, using fish-friendly dams. We re eating locally, and even growing organic vegetables on our erstwhile front lawns, watering them with greywater and rainwater, and with the water saved from using low-flush toilets, showers instead of baths, water-saving washing machines, and other appliances already on the market. We’re using low-draw lightbulbs; incandescents have been banned and energy-efficient heating systems, including pellet stoves, radiant panels, and long underwear. Heat yourself, not the room is no longer a slogan for nutty eccentrics: it’s the way we all live now.

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Jul 202015
 


NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

Schäuble Was Ready To Give Greece €50 Billion To Quit The Euro (HeardinEurope)
Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay (Bloomberg)
Greek Banks to Open Monday as Tsipras Prepares for Another Vote (Bloomberg)
Portugal’s Debts Are (Also) Unsustainable (Tavares)
Grexit Remains The Likely Outcome Of This Sorry Process (Münchau)
Krugman’s Money Is On A Grexit (CNN)
Why Austerity Is Not a Sound Economic Policy (Forbes)
The Failed Project of Europe (Jayati Ghosh)
The Great Greek Bank Drama, Act II: The Heist (Coppola)
Greek Austerity May Be An Economic Tale But Children Are The Human Cost (Conv.)
The Euro – The ‘New’ Coke Of Currencies? (Guardian)
Disgraced Ex-IMF Chief Strauss-Kahn Slams New Greek Deal As ‘Deadly Blow’ (RT)
The Right -Greek- Poem (New Yorker)
Youth Unemployment in Europe (OneEurope)
Ukraine Extends Creditor Talks As Threat Of Default Looms (FT)
China Stock Resumptions Dwindle as 20% of Shares Stay Halted (Bloomberg)
Gold Bulls In Retreat After Spectacular Plunge (CNBC)
Commodities Crash Could Turn Australia Into A New Greece (Telegraph)
Interview With Julian Assange: ‘We Are Drowning In Material’ (Spiegel)
Beijing To Become Center of Supercity of 130 Million People (NY Times)
Tiny Ocean Phytoplankton are Brightening Up the Sky (Gizmodo)

“..it appears that the Commission is keen to put in place a procedure for countries to leave the EU..” Wait, Schäuble is not in the Commission.

Schäuble Was Ready To Give Greece €50 Billion To Quit The Euro (HeardinEurope)

German Minister of Finance Wolfgang Schäuble was prepared “to give Greece €50 billion” had Yanis Varoufakis, his Greek counterpart at the time, agreed to his country leaving the eurozone, a high level source who recently spoke to Schäuble has revealed. The German minister was described by the source like “a true European” who had nothing against Greece, but favoured harsh medicine for a good cause. Schäuble was reported to assume that the leftist Syriza government would favour leaving the eurozone, a move consistent with its ideology. And he was prepared to put money on the table to encourage it to take this step. Schäuble was quoted as asking how much Greece wants to leave the euro by France’s Mediapart.

This is said to taken place before the 5 July referendum, in which a vast majority of Greeks rejected the international creditors’ proposals. But according to the information obtained by Heard in Europe, Schäuble had in mind a concrete figure – €50 billion – had Syriza opted for Grexit. Schäuble apparently didn’t say where the money would come from. Part of such a package could be sourced from the €35 billion of EU money due to Greece until 2020, plus ECB profits from Greek debt sovereign bonds due to Athens. Had Greece opted for a Grexit, more than €300 billion of its debt would be lost to creditors, but €50 billion of fresh money would come handy to the Syriza government to build a new financial system.

Under the bailouts, billions are disbursed to Greece, but the money goes mainly for servicing debt. Regardless of his party’s ideology, at the extraordinary Eurozone summit on 12 July, Greek Prime Minister Alexis Tsipras chose to honour the wishes of the majority of Greeks, who want to keep the euro. Tsipras’ decision was even more surprising given the creditor’s conditions, which our source described as “much, much more brutal compared to any country historically speaking”.

Schäuble is known to be in favour of a five-year timeout of Greece from the eurozone. The idea was rejected at the recent Eurozone summit, but it appears that the Commission is keen to put in place a procedure for countries to leave the EU, similar to the enlargement negotiations, Heard in Europe was told. According to this logic, Greece or the UK, or any other country for that matter, would receive EU support if it leaves the family in an orderly way. And the exit procedure would be accompanied by benchmarks, like the accession path. The money Schäuble was prepared to give Greece could be seen as a precursor to such support, similar to pre-accession financing.

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The ECB pays itself.

Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay (Bloomberg)

Greece has reached the deadline it couldn’t afford to miss, for a bill it can finally afford to pay. Monday is the day the country must reimburse the ECB €4.2 billion, including interest, as bonds bought during its last debt crisis mature. The impending reckoning may have been the factor that eventually forced Prime Minister Alexis Tsipras on July 13 to accept the austerity he and his electorate had previously rejected, in return for the funds needed to keep his nation from default. As Greece blew past multiple political and financial supposed end-dates over the past five months, July 20 always remained make-or-break. EU law bans the ECB from financing governments, meaning a default would probably require it to pull support from Greek lenders, leaving an exit from the single currency all but assured.

“The issue of repayment to the ECB was pivotal, because failure to make the payment would have had a knock-on impact on the ECB’s willingness to continue providing Emergency Liquidity Assistance to the Greek banks,” said Ken Wattret at BNP Paribas in London. “As the realization dawned that Greece was facing a very disorderly, painful exit from the monetary union, the government stepped back from the brink.” While Greece should now have the funds to make the payment, politicians cut it fine. Euro-area leaders agreed on a bailout package worth as much as €86 billion in an overnight summit that ended last Monday. The Greek parliament approved the austerity measures linked to the aid in the early hours of Thursday morning, and the currency bloc signed off on €7 billion of bridge financing the next day.

ECB President Mario Draghi signaled his approval on Thursday by persuading his Governing Council to increase the ELA that is keeping Greek lenders afloat. Banks will reopen for basic services on Monday, three weeks after they were shut to prevent their collapse. In a press conference after the ECB’s decision on ELA, Draghi said he was confident his institution would get its money back on its Greek bonds. “All my evidence and information leads me to say we will be repaid,” he said in Frankfurt. The idea that Greece might default “is off the table,” he said. The ECB hasn’t said if Greece is expected to pay its debt by a specific time.

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Nothing much changes, but perhaps the feeling will help a little.

Greek Banks to Open Monday as Tsipras Prepares for Another Vote (Bloomberg)

Greek banks reopen Monday three weeks after they were shut down to prevent their collapse, as Prime Minister Alexis Tsipras prepares for a second parliamentary vote crucial to securing a bailout. Greeks will regain access to some basic bank services, including the ability to deposit checks and access safe deposit boxes. Although customers will continue to face restrictions on cash withdrawals, the daily limit of €60 will be replaced by a cumulative maximum of €420 a week. The Athens Stock Exchange, which had also been closed during the month-long confrontation between Greece and its creditors, is expected to reopen, as trading was suspended only until the bank holiday ended.

Tsipras is seeking discussions with euro-zone governments on a third bailout after Greek lawmakers went along with their demands for more economic overhauls. Hours after the vote early Thursday, the European Central Bank approved emergency financing for the country’s lenders. The EU followed on Friday with €7 billion bridge loan to keep the country afloat during negotiations on a three-year rescue program worth as much as €86 billion. The loan will help cover a €3.5 billion payment to the ECB that falls due Monday. The Greek government still faces a parliamentary vote Wednesday on a second package of prerequisites for further financial assistance, including tax increases on farmers. Last week’s vote prompted some members of the Syriza party to rebel, forcing Tsipras to reshuffle his cabinet on Friday.

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And Italy’s, and Spain’s, and Ireland’s, and…

Portugal’s Debts Are (Also) Unsustainable (Tavares)

Everyone seems to be focusing on Greece these days – a country so indebted that it needs even more loans to repay just a fraction of its gigantic credits. Clearly this is unsustainable and something has to give. Even the IMF agrees. But what about the other Southern European countries? Actually, Portugal’s financial situation is looking particularly shaky, and any hiccups could have serious cross-border repercussions from Madrid all the way to Berlin. The prevailing narrative is that Portugal has been a star pupil compared to Greece, with austerity delivering much better results:

• The government, a coalition of a center party and center-right party that together have held the majority of parliamentary seats since the 2011 election, pretty much followed all the major guidelines demanded by its creditors (the famous “Troika”) pursuant to the 2010 bailout, and was even praised for it.
• Exports have performed exceedingly well given everything that was going on domestically and abroad; the managers of small and medium enterprises in Portugal are true heroes, operating in difficult conditions and with limited access to credit.
• Portugal has recently become a darling of international real estate investors and tourists.
• The country’s citizens have stoically endured a range of tough austerity measures with surprisingly little social disruption.

So it is understandable that hopes for Portugal’s future are much rosier than in Greece… AND YET ITS FINANCIAL SITUATION IS ALSO UNSUSTAINABLE! We realize that this is quite a bold statement. So to support our argument we will use some simple math to show where government finances stand after five years of austerity. The Bank of Portugal (“BdP”), Portugal’s central bank, publishes debt statistics of key sectors in the economy on a quarterly basis. As of March 2015, non-financial public sector debt stood at €288 billion, or 166% of GDP. You may think that there’s something odd right there because you are used to hearing that the Portuguese government “only” owes 130% of its GDP. That’s because the media generally uses Maastricht treaty calculations, not the total amount that the government owes as a whole (which includes public companies, for instance). But what’s 36 %age points of GDP among friends?

OK, let’s do some math: We start by dividing €288 billion by 166% to find out what nominal GDP the BdP used in its calculation: about €174 billion; Next, let’s assume that the cost of debt on all that government debt is only 1%. In this case, the annual interest expense for the government should be 1% x €2.88 billion, or €2.88 billion. We know that this is very low as the actual interest expense in 2014 was almost €7 billion (and likely not all of it, but government accounts can get quite murky); Then we assume that Portugal’s nominal GDP grows at 1%, which is not stellar but certainly better than recent years – from December 2011 to December 2014, the average nominal growth rate was actually -0.6% (BdP figures). So that’s 1% x €174 billion, or €1.74 billion;

Finally, we compare the assumed interest costs with the nominal GDP growth: €2.88 billion vs €1.74 billion. See what we are getting at here? USING FAIRLY OPTIMISTIC ASSUMPTIONS, THE PORTUGUESE ECONOMY IS UNABLE TO GROW ENOUGH TO COVER THE INTEREST ON ITS GOVERNMENT DEBTS, LET ALONE AFFORD ANY PRINCIPAL REPAYMENTS!

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If Tsipras implements all austerity measures, it’s impossible for the economy to grow.

Grexit Remains The Likely Outcome Of This Sorry Process (Münchau)

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors — until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency — IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided. But Mr Tsipras did not go for this, or indeed any other plan B.

Instead he capitulated. At that point, he was no longer even in a position to choose a Grexit — a Greek exit from the eurozone. The economic precondition for a smooth departure would have been a primary surplus — before debt service — and an equivalent surplus in the private sector. Greece has no foreign exchange reserves. If the Greeks were to reintroduce the drachma, they would have had to pay for all of their imports with the foreign exchange earnings of their exports. These minimum preconditions were in place in March but not in July. So, like his predecessors, Mr Tsipras ended up with another very lousy bailout deal. And this one suffers from the same fundamental flaws as its predecessors. This leads me to conclude that Grexit remains the most likely ultimate outcome after all.

There are three principal ways in which this can happen. The first is that a deal is simply not concluded. All that was agreed last week is for negotiations to start, plus some interim financing. A deal might fail because principal participants themselves are sceptical. Wolfgang Schäuble, the German finance minister, says he will keep up his offer of a Grexit in his drawer, just in case the negotiations fail. Mr Tsipras denounced the agreement on several occasions last week. And the International Monetary Fund is telling us that the numbers do not add up, and that it will not sign unless the European creditors agree to debt relief. The Germans refuse any discussion on this subject, citing some trumped-up rules according to which eurozone countries are not allowed to default.

This is legal hogwash, but I suppose the purpose is to describe new red lines in the negotiations. My hunch is that they will ultimately fudge a deal, but that will come — as it always does — with overwhelming collateral damage: less debt relief than needed, and more austerity than Greece can bear. A more likely Grexit scenario is that a programme is agreed and then fails. The Athens government may implement all the measures the creditors demand, but the economy fails to recover and debt targets remain elusive. Mr Tsipras already agreed last week that if this situation arose, he would pile on more austerity. So, unless the economy behaves in future in a very different way from the way it behaved in the past, it will remain trapped in a vicious circle for many years to come.

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“My money is on exit one way or another.”

Krugman’s Money Is On A Grexit (CNN)

Nobel Prize-winning economist Paul Krugman says Greece’s hard times are far from over – and a Grexit is not out of the question. Eurozone leaders are set to offer new bailout terms for the deeply-indebted Greeks this week. And the country’s banks will also reopen on Monday. Krugman, however, is not convinced the situation in Greece is any less concerning. “My guess is either in the end they will get this sort of enormous debt relief…or they will have to exit,” Krugman told CNN’s Fareed Zakari Sunday. “My money is on exit one way or another.”

And Krugman agreed with some other economists who have said a Grexit shouldn’t be underestimated. Even if forgiving the country’s debt does not lead to “Lehman-like” bank failures, it would affect the stability of the Eurozone. “If Greece exits and then starts to recover, which it probably would, that would be, in a way, encouragement for other political movements to challenge the euro,” Krugman said. “This is not trivial.”

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Not a balanced assessment in any sense, but she hits some valid points.

Why Austerity Is Not a Sound Economic Policy (Forbes)

Austerity is a dubious measure that creditors, such as the IMF like to enforce on poor and politically weak countries aiming to get their money back faster. Unfortunately, austerity creates zombie economies which may have low debt, but unfortunately also end up with low prosperity. Bulgaria, for example is a country that Madam Merkel praised as ”disciplined” with very little government debt that has been able to implement austerity policies effectively. Yet, Bulgaria has the lowest GDP per capita in the EU and remains one of the poorest economies in Europe with little prospects for growth. It is not surprising then that Greece refuses to play ball. The restructuring discussion would have been far more appealing to the Greeks and far more believable if more emphasis was paid to creative ideas of how to jumpstart the Greek economy.

Young and unemployed, the Greeks are not willing to hear about austerity, but would love to hear about how to get a job. At the latest GAIM Conference in Monaco, I participated in a simulation of the Greek crisis. Some of my colleagues suggested interesting ideas focused on Greek economic growth ranging from a Russian natural gas pipeline going through Greece, to Germany relocating manufacturing to Greece and Greeks providing cheap labor, to a free economic zone in the Mediterranean with an infusion of Chinese capital. While each idea may or may not be viable, what was more striking to me is that rarely if ever in the real Greek economic and political debate, do I hear much about stimulating growth and productivity.

Secondly, in addition to economic growth, an innovative approach to debt restructuring is needed not only for Greece but also as a precedent for the world. The global debt including government, corporate and household debt, currently stands at $200 trillion with $57 trillion added since 2007. Current debt levels are likely unsustainable and unlikely to be repaid not just in Greece. A combination of currency devaluation, significant debt forgiveness and creation of new debt instruments that act more like equity and link to GDP growth, for example, will better align incentives between the creditors and the borrowers and ultimately could lead to faster economic recoveries.

Referring to the Greek plan or lack there off, Ian Bremmer, president of Eurasia Group, a political-risk consulting firm said: “It’s clearly a Band-Aid solution. I’d love to say we’ll be back here in a year or two. It’s more likely to be a few months.” I could not agree more with Mr. Bremmer. Much more is needed than bridge loans and austerity.

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“There was clearly a need to punish both the Syriza-led government and the Greek voters for daring to protest, by forcing upon them the most appalling and humiliating terms that have been seen in a non-war situation for a European nation..”

The Failed Project of Europe (Jayati Ghosh)

There is a stereotypical image of an abusive husband, who batters his wife and then beats her even more mercilessly if she dares to protest. It is self-evident that such violent behaviour reflects a failed relationship, one that is unlikely to be resolved through superficial bandaging of wounds. And it is usually stomach-churningly hard to watch such bullies in action, or even read about them. Much of the world has been watching the negotiations in Europe over the fate of Greece in the eurozone with the same sickening sense of horror and disbelief, as leaders of Germany and some other countries behave in similar fashion. The extent of the aggression, the deeply punitive conditionalities being imposed as terms of a still ungenerous bailout and the terrible humiliation and pain being wrought upon the Greek people are hard to explain in purely economic or even political terms.

Instead, all this seems to reflect some deep, visceral anger that has been awakened by the sheer effrontery of a government of a small state that dared to consult its people rather than immediately bowing to the desires of the leaders of larger countries and the unelected technocrats who serve them. There was also anger directed at the people themselves, who dared to vote in a referendum against the terms of a bailout package that offered them only more austerity, less hope and continued pain in the foreseeable future, just so that their country can continue to pay the foreign debts that everyone (even the IMF!) knows simply cannot be paid. The response went beyond completely ignoring the will of the Greek people as expressed in the referendum, to insist on pushing even worse conditions on them for their resistance.

There was clearly a need to punish both the Syriza-led government and the Greek voters for daring to protest, by forcing upon them the most appalling and humiliating terms that have been seen in a non-war situation for a European nation, for the increasingly dubious advantage of staying within the eurozone. Greece will become an economic protectorate, indeed little more than a colony of Germany within the eurozone. It will have no control over its fiscal policies, forced to sell valuable public assets that amount to more than a third of annual national income just to keep trying to pay its creditors. It will have to reverse decisions made in the recent past to preserve some public employment such as of cleaning and sanitation workers and security guards, whom it will now have to fire again, and will have to cut pensions of elderly people who have already seen their pensions fall by 40%.

It will have to increase indirect taxes that will hit the poor most. It will have to accept the constant presence of the external rulers, in the form of an IMF team that will monitor the budget and the activities of the Greek government, who are not any more to be trusted by the European leaders. Since the troika has thus far not been able to push Syriza out of power, they are now seeking the alternative of a much weakened party in government (soon no doubt to become a “government of national unity” with the support of centrist and right wing MPs) under the direct political control of the (mostly unelected) European bosses.

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The Greek banking system was bled to death intentionally.

The Great Greek Bank Drama, Act II: The Heist (Coppola)

Back in the autumn of 2014, the ECB & EBA conducted stress tests on European banks, including all four of Greece’s large banks (which together make up about 90% of its banking sector). The Greek banks at that time passed the stress tests and were deemed solvent. They are now supervised not by Greek regulatory bodies, but directly by the ECB under the Single Supervisory Mechanism (SSM). Yet now, eight months later, sufficient damage has apparently been done to Greece’s banks to render them collectively insolvent. What on earth has gone wrong? Greece’s banks have suffered a continual deposit drain since the beginning of the year. This is how they became dependent on emergency liquidity assistance (ELA) funding from the Bank of Greece.

But liquidity shortfalls do not cause insolvency unless they are covered by means of asset fire sales. In this case, the liquidity drain was until 28th June covered by ELA. Collateral has to be pledged for ELA funding, and Greek banks consequently found their balance sheets becoming more and more encumbered. To make matters worse, the ECB recently increased collateral haircuts for Greek banks. Now the banks are reopening, it is not clear how much collateral they have left for ELA funding. Whether the ECB will relax collateral requirements to allow a wider range of assets to be pledged remains to be seen. It is probably conditional on good behaviour by the Greek sovereign. But it is not the funding side of Greek banks that is the real problem. It is the asset base.

Greece went into recession in Q4 2014 (yes, BEFORE Syriza came to power). Since then, there has been a considerable fall in output caused mainly by lack of confidence. On top of this, the Greek sovereign has been running substantial primary surpluses all year in order to maintain payments to creditors in the absence of bailout funding. It has done this not by collecting more taxes but by a considerable squeeze on public spending: this has mainly taken the form of delaying payments to the private sector. Additionally, the private sector itself has cut back spending and investment. The result is that real incomes have tumbled, unemployment has risen and loan defaults have increased. Non-performing loans in the Greek banking sector were already high at the beginning of the year but are now believed to have risen substantially. This is the principal cause of the possible insolvency of Greek banks.

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All young people are victims.

Greek Austerity May Be An Economic Tale But Children Are The Human Cost (Conv.)

Many perspectives have been shared about the social and economic repercussions that the third EU bailout proposal for Greece may have. The impact of these tough austerity measures is yet to unfold for the country, for the other southern states, or indeed Europe as a whole. But moving beyond a purely economic lens, there is already evidence about the extent of deprivation and youth unemployment of more than 50% during the past five years of the first and second bailout programmes, meaning that the likely effects of the third are easier to predict, at least for this generation. The links between poverty and a range of risk factors for child mental health problems and related outcomes is well established.

Nevertheless, the reality hit home a few weeks ago when I joined the Children’s SOS Villages in Greece in training their prospective new carers, or “mothers” and “aunts” as they are widely called. These carers work in a similar way to foster carers and residential care staff in other welfare systems. The villages were established in Austria after World War II to care for orphan children and since then their model has successfully spread across more than 120 countries. Their model may slightly vary, but their target groups are typically children without parents, for a range of reasons, or those who have been abused and/or neglected. Consequently, it came as a surprise to realise the extent of child abandonment (neglect, an inability to care for them or even asking social services to look after them) for predominantly financial reasons since the beginning of the Greek crisis.

The organisation has responded by diversifying its remit in Greece. In the absence of an increasingly stretched health and social care sector, they have now extended their services beyond the traditional villages to support, relieve and prevent abuse and neglect, running eight social centres in Greece’s major cities to help keep families together. A 2014 UNICEF report said that child poverty in Greece had almost doubled from 23% in 2008 to 40.5% in 2012, with migrant children particularly vulnerable. It found average family incomes were at 1998 levels, and 18% of households with children unable to afford a meal with meat, chicken, fish or a vegetable equivalent every second day.

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At least with Coke, the people got to vote.

The Euro – The ‘New’ Coke Of Currencies? (Guardian)

The date 23 April 1985 was a momentous day in the life of the Coca-Cola corporation. For years, the company had been planning a new drink to see off the challenge from Pepsi. There was no expense spared for Project Kansas. “New” Coke (as it was dubbed) bombed. The company responded with alacrity. It didn’t say consumers were wrong. It didn’t say that given time New Coke would be a success. It didn’t plough on simply because it had invested heavily in Project Kansas. Instead, it recognised that there was only one option: to go back to the traditional formula. This returned to the shelves on 11 July 1985, within three months of “New” Coke’s launch. There is a lesson here for both businesses and policymakers – and European policymakers in particular.

Sixteen years after its launch, it should be clear even to its most die-hard supporters that the euro is New Coke. European politicians took a formula that was working and messed around with it. They changed the ingredients that made the EU a success, thinking it would be an improvement. Coca-Cola thought New Coke would see off the challenge from Pepsi. Europe thought the euro would see off the challenge from the US. Both were wrong. The only difference is that Coke quickly saw the writing on the wall, and that Europe still hasn’t. It is not hard to see why the pre-euro European Union was popular. The EU was seen as a symbol of peace and prosperity after a period when the continent had been beset by mass unemployment, poverty, dictatorship and war.

Growth rates were spectacularly high in the 1950s and 1960s, a period when Europe caught up rapidly with the US. Britain’s decision to join what was then the European Economic Community in 1973 was mainly due to the feeling that Germany, France and Italy had found the secret of economic success. Other countries felt the same. They believed access to a bigger market would improve their economic prospects. In the last quarter of the 20th century, output per head in Greece, Portugal, Spain and – most spectacularly – Ireland, rose more rapidly than it did in core countries such as Germany and France. The gap in incomes per head did not entirely disappear but it certainly narrowed. As such, it was no surprise that countries in eastern Europe wanted to join the EU after the collapse of communism: Europe was associated with democracy and prosperity, a winning combination.

Since the birth of the euro, it has been a different story. The crisis in Greece has highlighted the problems that a one-size-fits-all interest rate can cause for countries on the periphery. In the good times, monetary policy is too loose for their needs, leading to asset bubbles, inflationary pressure and the loss of competitiveness. In the bad times, there are no shock absorbers other than wage cuts and austerity. Devaluation of the currency is not possible and there is no system to tio transfer resources from rich to poor parts of the union. Without a common social security system, the result is higher unemployment, rising poverty and political disaffection. What’s less remarked on is that the single currency has not been wonderful for ordinary workers in core Europe either. That’s not just true of Italy, a founder member, where living standards are no higher now than they were in the late 1990s, but also of Germany.

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The big wigs had solid reasons to want him out of the way.

Disgraced Ex-IMF Chief Strauss-Kahn Slams New Greek Deal As ‘Deadly Blow’ (RT)

The former head of the IMF, Dominique Strauss-Kahn, has decried the latest deal reached on a new Greek bailout as “profoundly damaging.” While admitting that the deal removed the risk of a Grexit, he stressed that “the conditions of the agreement, however, are positively alarming for those who still believe in the future of Europe.” “What happened last weekend was for me profoundly damaging, if not a deadly blow,” he wrote in the open letter entitled “To my German friends” published on Saturday. Strauss-Kahn referred to the deal as a “diktat” and accused European leaders of putting ideology and political gains ahead of real problems, and thus risking the integrity of the European Union.

“Political leaders seemed far too savvy to want to seize the opportunity of an ideological victory over a far left government at the expense of fragmenting the Union,” he said, adding that negotiations had ended up in a “crippling situation” due to this. He also accused the creditors of adopting ineffective strategies towards Greece, more intended to “punish,” than to promote the future of Europe. “In counting our billions instead of using them to build, in refusing to accept an albeit obvious loss by constantly postponing any commitment on reducing the debt, in preferring to humiliate a people because they are unable to reform, and putting resentments – however justified – before projects for the future, we are turning our backs on what Europe should be, we are turning our backs on (…) citizen solidarity,” Strauss-Kahn said in his letter.

He also emphasized the necessity of reforming the whole currency union calling it “an imperfect monetary union forged on an ambiguous agreement between France and Germany,” adding that neither Germany nor France had a “true common vision of the Union,” being “trapped in misleading and inconsistent” concepts. He stressed that Europe could not be saved “simply by imposing rules of sound management,” but only by mutual respect built “through democracy and dialogue, through reason, and not by force.” He also cautioned European leaders against taking measures that created division in Europe and being overly dependent on their perceived “friend” – the USA. “An alliance between a few European countries, even led by the most powerful among them, will be subjugated by our friend and ally the United States in the maybe not so distant future,” he said.

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A rich culture through the ages.

The Right -Greek- Poem (New Yorker)

When Greeks want to gesture “No,” they nod: a little upward snap of the head. The confusion that this can produce in visitors has long been an object of amusement for the locals—and the source of rueful anecdotes by tourists who have found themselves inadvertently refusing bellhops or a sweating glass of frappé after a hot afternoon on the Acropolis. Lately, you’d be forgiven for thinking that the Greeks themselves have been having a hard time understanding the difference between “yes” and “no.” On July 5th, at the ostensible encouragement of the Prime Minister, Alexis Tsipras, an overwhelming majority voted no to punishing new austerity measures in return for continued membership in the euro zone—“a bed of Procrustes,” as The American Interest described the dilemma.

A week later, however—after an escalating struggle between Tsipras’s government and European creditors that the Telegraph compared to “a tragedy from Euripides”—the same electorate was being called upon by Tsipras to say yes to a bailout offer more “draconian” (CNBC) than the last one. “Draconian,” “procrustean,” “Euripides”: however confusing the state of affairs in Athens and Brussels right now, it’s clear that the temptation to invoke the glories of ancient Greece in connection with the current Greek economic crisis is one that journalists have found impossible to resist. Most of the allusions are unlikely to send readers racing to Wikipedia. “ ‘Grexit’ Brinkmanship Is Classic Greek Tragedy,” went one headline, on Breitbart.com. (The article contained a link to the Web page for a Greek-tragedy course at Utah State University.)

Some betray a sentimental high-mindedness about Greece’s position in the history of civilization: “In Greece, A Vote Befitting The Birthplace Of Democracy?” Reuters mused. Of the more substantive attempts to link Greece’s grandiose past to its humbled present, nearly all have focussed on a notorious incident from the Peloponnesian War—the ruinous, three-decade-long conflict between Athens and Sparta. In 416 B.C., the Athenians brutally punished the tiny island state of Melos for trying to preserve its neutrality. In a famous passage of Thucydides’ history of the war, known as the Melian Dialogue, the Athenian representatives blithely tell their Melian counterparts, “The strong do what they can and the weak suffer what they must,” before killing all the adult males of the city and enslaving the women and children.

Perceived similarities between the Athenians of the fifth century B.C. and today’s Germans have provoked a flurry of think pieces. “What Would Thucydides Say About the Crisis in Greece?” an Op-Ed in the Times asked. Yet, despite the baggy analogizing and the rhetoric about eternal verities, attempts to use Pericles’ Athens to explain Tsipras’s Greece often obscure important differences. “Melos was a neutral state,” the Times Op-Ed tartly observed, “while modern Greece not only joined the European Union but over the years merrily plundered its treasury.”

It’s easy to see where the impulse to conflate “Greek history” with “Classical Greek history” comes from: appeals to Thucydides or Plato can confer authority in real-world decision-making. (In 2001, some conservatives cited the Athenians’ take-no-prisoners rhetoric at Melos to justify the invasion of Afghanistan.) But the presumption that nothing much of interest happened in Greece between the end of the Classical era, in 323 B.C., and the founding of the modern nation, in the early nineteenth century, has long irritated both Greeks and students of Greek history.

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Shameful.

Youth Unemployment in Europe (OneEurope)

According to this infographic made by Statista (Statista.com) youth unemployment is still a huge problem in many European countries. In March 2015 Spain, Greece, Croatia and Italy had the worst unemployment rate for people under 25 years of age. How could you explain these different%ages of youth unemployment across Europe? What are the main responsible factors for this issue? In which way do you think the European Union should work to solve it?

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Let’s see what the IMF has left in its warchest.

Ukraine Extends Creditor Talks As Threat Of Default Looms (FT)

Ukraine has extended hastily assembled talks with creditors amid predictions that the country could default as early as Friday if an agreement is not reached. Kiev’s desire to avoid the fate of Greece has encouraged both sides to tone down the combative rhetoric that has dogged negotiations over the past three months. However a principal-to-principal meeting held in Washington last week failed to elicit a deal to restructure Ukraine’s $70bn debt burden, although a joint statement declared that progress had been made. Bridging the gap between Ukraine and the international creditors who hold its sovereign debt will not be easy. Following Russia’s annexation of Ukraine’s Crimean region and the conflict with pro-Russian separatists in the east that has wrecked its economy, Ukraine’s debt is widely expected to top 100% of GDP this year.

Kiev hopes for a 40% debt writedown on bonds worth a little more than $15bn in order to make the debt sustainable. But a group of four creditors holding around $9bn of Ukrainian bonds, led by US asset manager Franklin Templeton, disagree that a haircut is needed and have put forward an alternative proposal for maturity extensions and coupon reductions. The only concrete example of progress so far has been the suggestion of swapping part of Ukraine’s debt for GDP-linked bonds, which both sides support, and which would offer equity-like returns if the country’s economy outperforms. So far, Ukraine has met all of its debt obligations, including a $75m coupon payment to Russia, and has successfully negotiated maturity extensions on a number of other payments.
However, Goldman Sachs has warned that default looks “likely” in July when a payment of $120m comes due on a Ukrainian government bond.

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Good lord: “The halted firms are valued at an average 243 times reported earnings…”

China Stock Resumptions Dwindle as 20% of Shares Stay Halted (Bloomberg)

A fifth of China’s stock market remains frozen as the number of companies resuming trading slows to a trickle. A total of 576 companies were suspended on mainland exchanges as of the midday break on Monday, equivalent to 20% of total listings, and down from 635 at the close on Friday. The halted firms are valued at an average 243 times reported earnings, compared with 164 times for all companies traded in Shanghai and Shenzhen. The ongoing suspensions are raising doubts about the sustainability of a rebound in Chinese stocks. The Shanghai Composite Index has climbed about 14% from its July 8 low, following a 32% plunge that helped erase almost $4 trillion of value.

The number of companies with trading halts exceeded 1,400, or around 50% of listings, during the height of the rout as the government took increasingly extreme measures to shore up equities. “When half the market becomes illiquid, that was a sign that China had regressed, they’re not willing to accept the ups and downs of a capital market,” Roshan Padamadan, the founder and manager of Luminance Global Fund, said in an interview on Bloomberg Television from Singapore. Researching companies becomes “pointless” when the government allows them to halt trading without reason, he said. The suspended companies have a combined value of 4 trillion yuan ($644 billion), equivalent to about 9% of China’s total market capitalization. The majority of halts were by shares listed on the Shenzhen Composite Index, the benchmark gauge for the smaller of China’s two exchanges.

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The trend must be worrying to some. Looks like gold goes the way of other commodities.

Gold Bulls In Retreat After Spectacular Plunge (CNBC)

Gold got whacked in the Asian trading session on Monday, plunging below $1,100 in for the first time since March 2010, and strategists say the precious metal is only headed lower from here. The precious metal’s latest leg down was reportedly triggered by speculative selling in the Shanghai Gold Exchange, catching investors off guard. “It was down to speculation here, someone taking advantage of the low liquidity environment,” Victor Thianpiriya, commodity strategist at ANZ, told CNBC. “Around 5 tonnes of gold was sold on the Shanghai Gold Exchange within the space of two minutes between 09:29 and 09:30. The daily volume last week was about 25 tonnes,” he noted. Gold slid over 4% to as low as $1,086 an ounce in early trade on Monday, before paring back some losses over the course of the day.

It was down 2.3% at $1,107 at around 12:00 SG/HK time. “It clearly wasn’t driven by fundamentals, because the U.S. dollar didn’t move at that time,” Thianpiriya said. The disappointing performance of the yellow metal, which is down 6.4% on a year-to-date basis, has sent gold bulls into retreat. Jonathan Barratt, chief investment officer at Ayers Alliance, a longtime gold bug, says he’s turned “neutral” on the metal. “As you know I’ve been a bull, [but] I’ve got to go neutral now. Gold’s broken through some very critical areas. From a technical perspective it doesn’t look hot,” said Barratt, who expects price could fall back to $1,100 or lower.

Technical analyst Daryl Guppy also warned of “bearish features” on the gold chart: “There is a higher probability of a future fall below $1,150 and a continuation of the downtrend towards historical support near $980.” With the Federal Reserve’s first rate hike looming and the prospect of a stronger greenback, the odds remained stacked against gold, say analysts. “I think there’s further downside on the price once the dust settles and the focus shifts back to U.S. dollar strength and the interest rate outlook,” said Thianpiriya. “The risk of it hitting $1,050 is clearly elevated.”

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Too many bets on too few horses. Both Australia and New Zealand look to get hit hard.

Commodities Crash Could Turn Australia Into A New Greece (Telegraph)

Last month Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty delivered an unwelcome shock to her workers in Western Australia: accept a possible 10pc pay cut or face the risk of future redundancies. Ms Rinehart, whose family have accumulated vast wealth from iron ore mining, has seen her fortune dwindle since commodity prices began their inexorable slide last year. The Australian mining mogul has seen her estimated wealth collapse to around $11bn (£7bn) from a fortune that was thought to be worth around $30bn just three years ago. This colossal collapse in wealth is symptomatic of the wider economic problem now facing Australia, which for years has been known as the lucky country due to its preponderance in natural resources such as iron ore, coal and gold.

During the boom years of the so-called commodities “super cycle” when China couldn’t buy enough of everything that Australia dug out of the ground, the country’s economy resembled oil-rich Saudi Arabia. While the rest of the world suffered from the aftermath of the global financial crisis, Australia’s economy – closely tied to China – appeared impervious, with full employment and a healthy trade surplus. However, a collapse in iron ore and coal prices coupled with the impact of large international mining companies slashing investment has exposed Australia’s true vulnerability. Just like Saudi Arabia, which is now burning its foreign reserves to compensate for falling oil prices, Australia faces a collapse in export revenue. Recently revised figures for April show that the country’s trade deficit with the rest of the world ballooned to a record A$4.14bn (£2bn).

That gap between the value of exports and imports is expected to increase as the value of Australia’s most important resources reaches new multi-year lows. Iron ore is now trading at around $50 per tonne, compared with a peak of around $180 per tonne achieved in 2011. Thermal coal has also suffered heavy losses, now trading at around $60 per tonne compared with around $150 per tonne four years ago. For an economy which in 2012 depended on resources for 65pc of its total trade in goods and services these dramatic falls in prices are almost impossible to absorb without inflicting wider damage. The drop in foreign currency earnings has seen Australia forced to borrow more in order to maintain government spending.

The respected Australian economist Stephen Koukoulas recently wrote of the dangers that escalating levels of foreign debt could present for future generations. Could a prolonged period of depressed commodity prices even turn Australia into Asia’s version of Greece, with China being its banker of last resort instead of the European Union. Mr Koukoulas points out that by the end of the first quarter this year, Australia’s net foreign debt had climbed to a record $955bn, equal to almost 60pc of gross domestic product. Although this is far behind the likes of Greece, which boasts an unenviable ratio of over 175pc, it is nevertheless unsustainable, especially if it is allowed to widen further.

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Long interview. Assange is a clever man.

Interview With Julian Assange: ‘We Are Drowning In Material’ (Spiegel)

SPIEGEL: Mr. Assange, WikiLeaks is back, publishing documents which prove the United States has been surveilling the French government, publishing Saudi diplomatic cables and posting evidence of the massive surveillance of the German government by US secret services. What are the reasons for this comeback?
Assange: Yes, WikiLeaks has been publishing a lot of material in the last few months. We have been publishing right through, but sometimes it has been material which does not concern the West and the Western media — documents about Syria, for example. But you have to consider that there was, and still is, a conflict with the United States government which started in earnest in 2010 after we began publishing a variety of classified US documents.

SPIEGEL: What did this mean for you and for WikiLeaks?
Assange: The result was a series of legal cases, blockades, PR attacks and so on. With a banking blockade, WikiLeaks had been cut off from more than 90% of its finances. The blockade happened in a completely extra judicial manner. We took legal measures against the blockade and we have been victorious in the courts, so people can send us donations again.

SPIEGEL: What difficulties did you have to overcome?
Assange: There had been attacks on our technical infrastructure. And our staff had to take a 40% pay cut, but we have been able to keep things together without having to fire anybody, which I am quite proud of. We became a bit like Cuba, working out ways around this blockade. Various groups like Germany’s Wau Holland Foundation collected donations for us during the blockade.

SPIEGEL: What did you do with the donations you got?
Assange: They enabled us to pay for new infrastructure, which was needed. I have been publishing about the NSA for almost 20 years now, so I was aware of the NSA and GCHQ mass surveillance. We required a next-generation submission system in order to protect our sources.

SPIEGEL: And is it in place now?
Assange: Yes, a few months back we launched a next-generation submission system and also integrated it with our publications.

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A city the size of Kansas.

Beijing To Become Center of Supercity of 130 Million People (NY Times)

For decades, China’s government has tried to limit the size of Beijing, the capital, through draconian residency permits. Now, the government has embarked on an ambitious plan to make Beijing the center of a new supercity of 130 million people. The planned megalopolis, a metropolitan area that would be about six times the size of New York’s, is meant to revamp northern China’s economy and become a laboratory for modern urban growth. “The supercity is the vanguard of economic reform,” said Liu Gang, a professor at Nankai University in Tianjin who advises local governments on regional development. “It reflects the senior leadership’s views on the need for integration, innovation and environmental protection.”

The new region will link the research facilities and creative culture of Beijing with the economic muscle of the port city of Tianjin and the hinterlands of Hebei Province, forcing areas that have never cooperated to work together. This month, the Beijing city government announced its part of the plan, vowing to move much of its bureaucracy, as well as factories and hospitals, to the hinterlands in an effort to offset the city’s strict residency limits, easing congestion, and to spread good-paying jobs into less-developed areas. Jing-Jin-Ji, as the region is called (“Jing” for Beijing, “Jin” for Tianjin and “Ji,” the traditional name for Hebei Province), is meant to help the area catch up to China’s more prosperous economic belts: the Yangtze River Delta around Shanghai and Nanjing in central China, and the Pearl River Delta around Guangzhou and Shenzhen in southern China.

But the new supercity is intended to be different in scope and conception. It would be spread over 82,000 square miles, about the size of Kansas, and hold a population larger than a third of the United States. And unlike metro areas that have grown up organically, Jing-Jin-Ji would be a very deliberate creation. Its centerpiece: a huge expansion of high-speed rail to bring the major cities within an hour’s commute of each other. But some of the new roads and rails are years from completion. For many people, the creation of the supercity so far has meant ever-longer commutes on gridlocked highways to the capital.

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“The Southern Ocean, isolated from human pollution, offers us a glimpse into what skies around the world might have looked like in pre-industrial times.”

Tiny Ocean Phytoplankton are Brightening Up the Sky (Gizmodo)

Phytoplankton may be microscopic, but that doesn’t mean we can’t see them. Just look up: These little critters are brightening up cloudy days around the world. That’s according to research published Friday in the open-access journal Science Advances, which highlights the surprisingly large role microbes in the Southern Ocean play in cloud formation. Tiny phytoplankton can be swept out of their watery homes by gusts of wind. And once airborne, they help encourage water condensation, forming brighter clouds that reflect additional sunlight. “The clouds over the Southern Ocean reflect significantly more sunlight in the summertime than they would without these huge plankton blooms,” said study co-author Daniel McCoy of the University of Washington in a statement.

“In the summer, we get about double the concentration of cloud droplets as we would if it were a biologically dead ocean.” It’s a well-known fact that phytoplankton play a huge role in managing Earth’s climate by drawing down CO2 for photosynthesis every year. The new study suggests another fascinating way that these little critters are shaping our planet—by making it a tad brighter. Averaged over the year, the researchers find that phytoplankton reflect an extra 4 watts of incoming solar radiation per square meter in the Southern Ocean skies. Clouds form when droplets of water condense out of the air around tiny particles— specks of salt, dust, dead organic matter, and even living microorganisms.

Turns out, particle size has a direct impact on cloud brightness: Smaller particles form smaller droplets, creating more surface area within the cloud to reflect back incoming sunlight, which in turn helps keep the Earth’s surface cooler. The researchers stumbled upon cloud-forming microbes somewhat by accident, while they were looking at cloud cover data captured by NASA’s Earth-orbiting MODIS satellite over the Southern Ocean in 2014. The team discovered that Southern Ocean clouds were reflecting more sunlight in the summer, suggesting a greater abundance of small cloud-forming particles. This was a bit weird, because the Southern Ocean surface waters are actually much calmer in the summer and send up less salt spray into to the atmosphere.

The new study took a closer look at what else could be making the clouds more reflective. Using ocean biology models and data on cloud droplet concentrations, the team identified marine life as the likely culprit. Phytoplankton emit gases such as dimethyl sulfide (the stuff that gives the ocean its distinctly sulfurous smell), which, once airborne, can also help condense water droplets. What’s more, summertime plankton blooms form a bubbly scum of tiny organic particles that are easily whipped up into the air. Taken together, these two biological pathways double the number of tiny droplets in Southern Ocean skies during the summer. The Southern Ocean, isolated from human pollution, offers us a glimpse into what skies around the world might have looked like in pre-industrial times. How much of an impact biological cloud seeding has on Earth’s global climate remains to be seen.

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Jun 282015
 
 June 28, 2015  Posted by at 11:42 am Finance Tagged with: , , , , , , , ,  6 Responses »


Harris&Ewing Goat team, Washington, DC 1917

A Perfect Storm Of Crises Blows Apart European Unity (Guardian)
The Losses For The EU Lenders Are Truly Eye-Watering (Muscatelli)
The Greek Butterfly Effect: Forcing The Issue of Math (Northman Trader)
Intervention in 27th June 2015 Eurogroup Meeting (Yanis Varoufakis)
Forget Greece, Portugal Is The Eurozone’s Next Crisis (MarketWatch)
Goldman’s Stunner: A Greek Default Is Precisely What The ECB Wants (Zero Hedge)
Tsipras Asking Grandma to Figure Out If Greek Debt Deal Is Fair (Bloomberg)
Here’s Why Any Greek Debt Deal Will Amount To Nothing (Satyajit Das)
Europe’s Moment of Truth (Paul Krugman)
Wikileaks: Plot Against Former Greek PM’s Life, ‘Silver Drachma’ Plan (GR)
Greece Referendum: Why Tsipras Made the Right Move (Fotaki)
IMF Heads Must Roll Over Shameful Greek Failings (Telegraph)
Austrians Launch Petition To Quit EU (RT)
The Government Must Run Deficits, Even In Good Times (Ari)
Pope Francis Recruits Naomi Klein In Climate Change Battle (Observer)

Because it has no morals.

A Perfect Storm Of Crises Blows Apart European Unity (Guardian)

The time was shortly after 3am when David Cameron descended from level 80 of the vast Justus Lipsius building in Brussels on Friday. The birds were singing as he was whisked away for a much-curtailed sleep at the British ambassador’s residence, five minutes up the road. The prime minister is no novice when it comes to long and tedious discussions at European summits. But what he had just witnessed over a seemingly never-ending dinner with the other 27 EU leaders was something different altogether. The immediate crisis under discussion was migration and what the EU should do to handle the many thousands who have crossed the Mediterranean from Africa and the Middle East and arrived via Italy and the western Balkans over recent months.

Increasingly, Europe is a magnet for those seeking a better life. But the EU does not know how to react and the problems are spreading. Last week a strike by French workers at Calais caused huge tailbacks on motorways leading to both the ferry port and Channel tunnel as hundreds of migrants – mainly from east Africa, the Middle East and Afghanistan – tried to take advantage of queueing traffic by breaking into lorries bound for the UK. Against this background, a supposedly cordial working dinner, held high in the Council of Ministers building, rapidly descended into personal insults and finger-jabbing – which an exhausted-looking Cameron later summed up as “lengthy and, at times, heated discussions”.

Matteo Renzi, the Italian prime minister, was incensed by the refusal of several countries, including Hungary, which has taken in 60,000 refugees since the beginning of the year, and the Czech Republic, to agree to take part in a compulsory refugee-sharing scheme to help ease Italy’s burden. Cameron kept fairly quiet. The UK has opted out of EU asylum policy and Renzi, who was in an emotional state, did not need to be reminded of its non-participation. But others took up the cudgels as the row intensified across the table. Dalia Grybauskaite, the Lithuanian president, told Renzi in no uncertain terms that her country would not take part either. Bulgaria, one of the EU’s poorest countries, took a similar line. Disputes flared. European commission president Jean-Claude Juncker, prime mover behind the idea of compulsory burden sharing, and council president Donald Tusk tore strips off each other over what should be done, as inter-institutional solidarity broke down.

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They don’t seem to realize that though.

The Losses For The EU Lenders Are Truly Eye-Watering (Muscatelli)

Greece is on the brink. Even if a last-minute deal is found it is clear that the solutions proposed are little more than a way to delay the crisis. A more comprehensive resolution of the Greek tragedy needs to address the medium-term (non-)sustainability of the Greek debt position. Economists know that negotiations usually break down when there is uncertainty in bargaining. When the two sides are uncertain as to what gains and losses the other side can make through any deal or by walking away. In this case, part of the uncertainty is political, because the Greek and other EU governments don’t fully know what might be acceptable to their electorates. But a good part of the uncertainty at this bargaining table is economic. Because we are in totally uncharted waters.

Monetary unions can be, and have been, dissolved before in history but, except in the aftermath of wars, not usually in anger. There are several sources of uncertainty for both sides in the dispute. First, if Greece leaves the Eurozone, at one level it will have greater freedom to walk away from at least some its debt, or to restructure it in a way which suits its short-term economic need. It could plan a moderate primary surplus. The problem for the Greek government is that it will inherit a broken banking system and there will be great uncertainty on whether a devaluing new Drachma could benefit its net trade position, with an impaired financial system, and shut out from world capital markets. Greece is not Iceland, and there is less social consensus on how to share the short-run burden of economic adjustment in a Grexit scenario.

Second, the losses for the EU lenders are truly eye-watering. The two bail-out packages for Greece amount to €215.8 billion. Of these €183.8 billion came from other EU countries and the rest from the IMF. The biggest shares of the support through the European Financial Stability Facility came from Germany and France. None of this includes the cost of support given to the Greek banking system via the ECB. The IMF would suffer considerable losses too (the UK’s main exposure is through this channel). The impact of Grexit and a partial or full debt repudiation on the rest of the EU would be considerable. Paradoxically by triggering a Grexit rather than an orderly debt restructure, the EU lenders may lose more of their current bail-out. So why are they not more accommodating? Because if it stays in, Greece will need a further bail-out, as no-one believes the current plan is sustainable. It’s that uncertainty again.

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Dead on. 1- 2 = -1.

The Greek Butterfly Effect: Forcing The Issue of Math (Northman Trader)

Many times nothing happens for a long time. Then all of a sudden everything happens at once. Like a dam break. It builds slowly and then it bursts. Example: Who would have ever thought the Confederate flag would be taken down across the South during the same week that a rainbow flag is symbolically hoisted across the entire country? Just because things seem unthinkable doesn’t mean they won’t happen. Take the global debt construct as another example. For decades the world has immersed itself in ever higher debt. The general attitude has been one of indifference. Oh well, it just goes higher. Doesn’t really impact me or so the complacent rationalize. When the financial crisis brought the world to the brink of financial collapse the solution was based on a single principle:

Make the math workable. In the US the 4 principle “solutions” to make the math workable were to:
1. End mark to market which had the basic effect of allowing institutions to work with fictitious balance sheets and claim financial viability.
2. Engage in unprecedented fiscal deficits to grow the economy. To this day the US, and the world for that matter, runs deficits. Every single year. The result: Global GDP has been, and continues to be overstated as a certain percentage of growth remains debt financed and not purely organically driven.
3. QE, to flush the system with artificial liquidity, the classic printing press to create demand out of thin air.
4. ZIRP. Generally ZIRP has been sold to the public as an incentive program to stimulate lending and thereby generate wage growth & inflation. While it could be argued it had some success in certain areas such as housing, the larger evidence suggests that ZIRP is not about growth at all.

ZIRP’s true purpose is actually much more sinister: To make global debt serviceable. To make the math work without a default. Here’s the reality: If we had “normalized” rates tomorrow the entire financial system would collapse under the weight of the math. In short: Default. Which brings us to Greece the butterfly, the truth and indeed the future: Greece for all its structural faults is the most prominent victim of fictitious numbers. From the original Goldman Sachs deal to get them into the EU based on fantasy numbers and to numerous bail-outs, the simple truth has always been the same: The math doesn’t work. It never has and it never will until there is a default on at least some of the debt. And in this context the Greek government’s move to call for a public referendum on July 5 may be a very clever strategic move as it forces the issue of math.

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“The very idea that a government would consult its people on a problematic proposal put to it by the institutions was treated with incomprehension and often with disdain bordering on contempt.”

Intervention in 27th June 2015 Eurogroup Meeting (Yanis Varoufakis)

Colleagues, In our last meeting (25th June) the institutions tabled their final offer to the Greek authorities, in response to our proposal for a Staff Level Agreement (SLA) as tabled on 22nd June (and signed by Prime Minister Tsipras). After long, careful examination, our government decided that, unfortunately, the institutions’ proposal could not be accepted. In view of how close we have come to the 30th June deadline, the date when the current loan agreement expires, this impasse of grave concern to us all and its causes must be thoroughly examined.

We rejected the institutions’ 25th June proposals because of a variety of powerful reasons. The first reason is the combination of austerity and social injustice they would impose upon a population devastated already by… austerity and social injustice. Even our own SLA proposal (22nd June) is austerian, in a bid to placate the institutions and thus come closer to an agreement. Only our SLA attempted to shift the burden of this renewed austerian onslaught to those more able to afford it – e.g. by concentrating on increasing employer contributions to pension funds rather than on reducing the lowest of pensions. Nonetheless, even our SLA contains many parts that Greek society rejects.

So, having pushed us hard to accept substantial new austerity, in the form of absurdly large primary surpluses (3.5% of GDP over the medium term, albeit somewhat lower than the unfathomable number agreed to by previous Greek governments – i.e. 4.5%), we ended up having to make recessionary trade-offs between, on the one hand, higher taxes/charges in an economy where those who pay their dues pay through the nose and, on the other, reductions in pensions/benefits in a society already devastated by massive cuts in basic income support for the multiplying needy.

Let me say colleagues what we had already conveyed to the institutions on 22nd June, as we were tabling our own proposals: Even this SLA, the one we were proposing, would be extremely onerous to pass through Parliament, given the level of recessionary measures and austerity it entailed. Unfortunately, the institutions’ response was to insist on even more recessionary (aka parametric) measures (e.g. increasing VAT on hotels from 6% to 23%!) and, worse still, on shifting the burden massively from business to the weakest members of society (e.g. to reduce the lowest of pensions, to remove support for farmers, to postpone ad infinitum legislation that offers some protection to badly exploited workers).

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There’s more than one candidate.

Forget Greece, Portugal Is The Eurozone’s Next Crisis (MarketWatch)

In the end, they kicked the can a little further down the road. After keeping the markets on a cliff-hanger for the last week, wondering whether the Greeks might end up getting kicked out of the eurozone, a deal of some sort looks likely. It won’t fix Greece, and it won’t fix the euro either. But it will patch the whole system up until Christmas — and that will buy everyone some time to concentrate on something else. And yet, in reality, the real crisis may not be in the east of the eurozone, but right over in the west. Portugal is the ticking time-bomb waiting to explode. Why? Because the country has run up unsustainable debts, most of the money is owed to foreigners, and with the economy still in deep trouble it may have to default as well.

The elections later this year may well trigger the second Portuguese crisis — and that will reveal how the problems in Europe involve far more than just Greece, even if that attracts most of the world’s attention. All the evidence suggests that, once the debt-to-GDP ratio climbs into the 130% bracket and above, it is basically unsustainable. Back in 2011 and 2012, when the euro crisis first flared up, three countries went bust. Of those, Greece is still in intensive care, and looks likely to remain so for the foreseeable future — the Greeks look willing to do just enough to stay in the eurozone, while the rest of Europe is willing to offer it just enough money to stay afloat while making it impossible to grow (it is a reverse Goldilocks — probably the worst of all possible solutions).

Ireland, which was always the strongest of the three bankrupt nations, is now growing again at a reasonable rate, helped along by the robust recovery in the U.K., which is still its main export market. And then there is Portugal — which is not in Greek-style permanent crisis, and yet does not seem capable of a sustainable recovery. On the surface, Portugal looks in much better shape than it did three years ago. It has exited the bailout scheme, leaving the program in May last year, after hitting European Central Bank and International Monetary Fund targets. The economy is starting to expand again. GDPt rose by 0.4% in the latest quarter, extending the run to a whole year of expansion, taking the annual growth rate up to 1.5%. It is forecast to expand by another 1.6% this year.

If Portugal can indeed recover, that would be a big win for the EU and IMF. Their catastrophic mix of internal devaluation and austerity looks to have been a complete failure in Greece, but if they can make it work in both Ireland and Portugal, the reputation of both institutions could be salvaged.

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Don’t think the ECB is smart enough to oversee the fall-out.

Goldman’s Stunner: A Greek Default Is Precisely What The ECB Wants (Zero Hedge)

[..] if this is correct, Goldman essentially says that it is in the ECB’s, and Europe’s, best interest to have a Greek default – and with limited contagion at that – one which finally does impact the EUR lower, and resumes the “benign” glideslope of the EURUSD exchange rate toward parity, a rate which recall reached as low as 1.05 several months ago before rebounding to its current level of 1.14. Needless to say, that is a “conspiracy theory” that could make even the biggest “tin foil” blogs blush. A different way of saying what Goldman just hinted at: “Greece must be destroyed, so it (and the Eurozone) can be saved (with even more QE).” Or, in the parlance of Rahm Emanuel’s times, “Let no Greek default crisis go to QE wastel.” Goldman continues:

Greece, like many emerging markets before it, is suffering a balance of payments crisis, whereby a “sudden stop” in foreign capital inflows caused GDP to fall sharply. In emerging markets, this comes with a large upfront currency devaluation – on average around 30% across nine key episodes (Exhibit 1) – that lasts for over four years. This devaluation boosts exports, so that – as unpleasant as this phase of the crisis is – activity rebounds quickly and GDP is significantly above pre-crisis levels five years on (Exhibit 2).

In Greece, although unit labor costs have fallen significantly, price competitiveness has improved much less, with the real effective exchange rate down only ten% (with much of that drop only coming recently). This shows that the process of “internal devaluation” is difficult and, unfortunately, a poor substitute for outright devaluation. The reason we emphasize this is because, even if a compromise is found that includes a debt write-down (as the Greek government is pushing for), this will do little to return Greece to growth. Only a managed devaluation can do that, one where the creditors continue to lend and help manage the transition.

Here, Goldman does something shocking – it tells the truth! “As such, the current stand-off is about something much deeper than the next disbursement. It signals that the concept of “internal devaluation” is deeply troubled.” Bingo – because what Goldman just said in a very polite way, is that a monetary union in which one of the nations is as far behind as Greece is, and recall just how far behind Greece is relative to IMF GDP estimates imposed during the prior two bailouts..

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It’s stunning to see that when confronted with basic democracy, the press has no idea what to say or do.

Tsipras Asking Grandma to Figure Out If Greek Debt Deal Is Fair (Bloomberg)

Economists with PhDs and hedge-fund traders can barely stay on top of the vagaries of Greece’s spiraling debt crisis. Now, try getting grandma to vote on it. That’s what Prime Minister Alexis Tsipras is doing by calling a snap referendum for July 5 on the latest bailout package from creditors. The 68-word ballot question namechecks four international institutions and asks voters for their opinion on two highly technical documents that weren’t made public before the referendum call and were only translated into Greek on Saturday.
Worse, they may no longer be on the table. International Monetary Fund chief Christine Lagarde told the BBC late on Saturday that “legally speaking, the referendum will relate to proposals and arrangements which are no longer valid.”

Tsipras’s decision means everyone from fishermen to taxi-drivers and factory workers will have to form an opinion on the package, with their country’s economic future hanging in the balance. A rejection of the bailout terms could lead to an exit from the euro area and economic calamity; accepting them would probably keep Greece in the euro, but with more austerity. “Usually in democracies, it’s the technocrats and the politicians who take care of the details, while voters are asked about broader issues and principles,” said Philip Shaw, the chief economist in London at asset manager Investec. “This is a transfer of responsibility from parliament to the voters.”

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The numbers stopped making sense long ago. Quit looking at the numbers.

Here’s Why Any Greek Debt Deal Will Amount To Nothing (Satyajit Das)

All the heated negotiations and analysis around a bailout for Greece seem oblivious to the key problems of any settlement. Since February’s “deal,” the parties have inched close to an agreement in a prolonged battle of alternative drafts (some incorrect; other misdirected). It remains highly uncertain whether agreement can be reached. The creditors insist this is their “last and best” offer. The Greeks bluster about democracy and blackmail. Now, the Greek government has called a snap referendum on the new proposals. In its current form, the terms will represent a few concessions by the creditors, but almost total capitulation by the Greek government. Consider:

First, the agreement is likely to cover five months, necessitating a more comprehensive further program, which will inevitably require creditors to provide new financing to Greece (in effect a third bailout) if default is to be avoided. Second, the focus originally has been on the release of €7.2 billion from the existing second bailout program. If the amounts that Greece has run down from reserves, pensions and also its account at the IMF are replaced, then there is little additional new funding to Greece. It seems the European have found a little more money, by shuffling funds, whereby the amount would be a more “generous” 17 or so billion euro. But it is far from clear what Greece needs in any case.

Third, the issue of debt repayments or relief is not addressed, other than in vague terms. Greece has commitments of around 5-10 billion euro each year plus the continuing need to roll over around €15 billion in short-term Treasury bills. Greece may not have the ability to meet these obligations on an ongoing basis. This does not take into account additional funding needs of the State that may arise from budget shortfalls or the need of Greek banks.

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Oh, c’mon, I feel so awkward agreeing with Krugman….

Europe’s Moment of Truth (Paul Krugman)

Until now, every warning about an imminent breakup of the euro has proved wrong. Governments, whatever they said during the election, give in to the demands of the troika; meanwhile, the ECB steps in to calm the markets. This process has held the currency together, but it has also perpetuated deeply destructive austerity — don’t let a few quarters of modest growth in some debtors obscure the immense cost of five years of mass unemployment. As a political matter, the big losers from this process have been the parties of the center-left, whose acquiescence in harsh austerity — and hence abandonment of whatever they supposedly stood for — does them far more damage than similar policies do to the center-right.

It seems to me that the troika — I think it’s time to stop the pretense that anything changed, and go back to the old name — expected, or at least hoped, that Greece would be a repeat of this story. Either Tsipras would do the usual thing, abandoning much of his coalition and probably being forced into alliance with the center-right, or the Syriza government would fall. And it might yet happen. But at least as of right now Tsipras seems unwilling to fall on his sword. Instead, faced with a troika ultimatum, he has scheduled a referendum on whether to accept. This is leading to much hand-wringing and declarations that he’s being irresponsible, but he is, in fact, doing the right thing, for two reasons.

First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn’t, we need to know that, too.) Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it’s even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way. If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point. But they have, and I can’t at all blame Tsipras for turning to the voters, instead of turning on them.

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Getting ugly.

Wikileaks: Plot Against Former Greek PM’s Life, ‘Silver Drachma’ Plan (GR)

Evidence pointing to international espionage, a plot to murder former Greek Prime Minister Costas Karamanlis and a 2012 plan for Greece’s exit from the euro code-named the “Silver Drachma” are just some of the sensational findings unveiled in a report by Greek Anti-Corruption Investigator Dimitris Foukas, released on Friday and sent to the Justices’ Council for consideration. The report outlines the findings of three converging judicial investigations spanning several years, initiated after the notorious phone-tapping scandal in 2005 and revelations that the mobile phones of then Prime Minister Karamanlis and dozens of other prominent Greeks were under surveillance.

This investigation later merged with that of the “Pythias Plan’” – for the neutralization and even murder of Karamanlis – and allegations that Greek National Intelligence Service officers and former Minister Michalis Karchimakis had leaked classified state secrets and documents. Foukas cited evidence – including Wikileaks reports – supporting the existence of the Pythias Plan, which he said was designed to exert pressure on the Greek government to change its policy in crucial sectors, such as energy, arms procurements and public sector procurements. According to the report, the rapprochement between Greece and Russia provoked action by the United States to avert agreements for Russian pipelines, leading to the gradual abandonment of the plans by Athens and its commitment to the Trans-Adriatic Pipeline (TAP), as well as the cancellation of plans to acquire Russian military equipment.

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Word: “With hundreds of thousands of people depending on soup kitchens, and thousands of suicides in the years 2010-2015, the moral case for debt forgiveness seems just as strong as the technical one based on economics.”

Greece Referendum: Why Tsipras Made the Right Move (Fotaki)

Greece will hold a referendum on July 5 on whether the country should accept the bailout offer of international creditors. The government’s decision to reject what was on offer and call the referendum is ultimately an attempt to take charge of its domestic policy and reaffirm its credibility with voters. Although Greece is hard strapped for cash this is clearly a political decision with profound consequences for the future of the European Union. It is also the right one. This is not merely useful as a negotiating tactic for obtaining a better deal with its creditors, as many commentators might suggest. The coalition of the left, Syriza, had no choice but to oppose further measures that would lock its economy into a deflationary spiral, the trappings of which are destroying Greek society.

Elected with the mandate to end the savage austerity policies already imposed, Syriza could hardly accept the further cuts demanded. These include cuts in income support for pensioners below the poverty line and a VAT hike of up to 23% on food staples. Even more onerous was the demand that Greece should deliver a sustained primary budget surplus of 1% for 2016, gradually increasing to 3.5% in the following years when its economy has already been contracting for six years. By most counts the austerity policies imposed by Greece’s creditors in 2010 in exchange for the bailout money have been an abject economic and moral failure. The IMF itself has acknowledged “a notable failure” in managing the terms of the first Greek bailout, in setting overly optimistic expectations for the country’s economy and underestimating the effects of the austerity measures it imposed.

The former IMF negotiator, Reza Moghadam, has acknowledged the fund’s erroneous projections about Greek growth, inflation, fiscal effort and social cohesion. The debt is now almost 180% of Greece’s GDP, up from 120% when the bailout program began. And this is mainly due to the fact that GDP has contracted by 25%, rather than the significantly lower projections by the IMF. The shrinking of the economy and rising unemployment levels have exceeded those that hit the US in the financial crisis of the 1930s. The human and social costs have been even more staggering in Greece. Incomes have fallen by an average of 40%, and the unemployment rate reached 26% in 2014 (and higher than 50% for youth). With hundreds of thousands of people depending on soup kitchens, and thousands of suicides in the years 2010-2015, the moral case for debt forgiveness seems just as strong as the technical one based on economics.

Yet in the terms presented to Greece by their creditors there is no commitment to reducing Greece’s crippling debt (which all commentators acknowledge is unrepayable). Nor is there any tangible proposal for rebuilding the Greek economy. Germany, France, and the EU, aided by the IMF and ECB, continue to insist on implementing policies that have so manifestly failed Greece. They do so to avoid having to justify the massive bailouts of their own financial systems – shifting the burden from banks to taxpayers – if Greece fails to make the repayments. The leading EU partners must not be seen to act leniently towards Greece as this might encourage anti-austerity parties Spain and elsewhere.

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No, the IMF should be dismantled.

IMF Heads Must Roll Over Shameful Greek Failings (Telegraph)

Whatever the eventual outcome of the Greek debt talks, there are a number of judgments can already be made; one is that a large part of the blame for this ever deepening debacle lies at the doors of the International Monetary Fund, which from the very beginning has had both its priorities and its analysis of the situation hopelessly wrong. The IMF is meant to fix these things; instead, it has conspired to turn what should have been a containable crisis into a total disaster. With its reputation in tatters and its credibility shot to bits, it is small wonder that China and others are seeking alternative, rival models of governance for the global financial system. If this were any normal organisation, the IMF’s managing director, Christine Lagarde, would be forced to resign and someone with less of a vested interest in propping up the folie de grandeur of EMU installed in her place.

Tharman Shanmugaratnam, deputy prime minister of Singapore – measured, clever, internationally respected and impressively free- market orientated in his approach to global affairs – would make an excellent choice, though even he, as a long-standing chairman of the IMF’s policy committee, is somewhat tainted. It may require a complete outsider. Crisis management is of course what the IMF is there for; and if in the thick of a crisis, you are almost bound to get flak. Has there ever been a crisis in the IMF’s 70-year history that was not said to have done irreparable damage to the organisation’s reputation? It’s hard to think of one. Whatever it does, the IMF always gets it in the neck. Take the Russian financial crisis of 1998. The $5bn the IMF lent to help the country over its difficulties was immediately stolen and spirited away into Swiss bank accounts.

Or the pre-millennial Asian crises, where the IMF was accused of imposing a degree of austerity on afflicted nations it would never dare advocate for any G7 economy. I could go on, but it would fill the rest of the newspaper. In any case, criticism comes with the territory, which is possibly why the IMF has always been so impervious to it, and also why it repeatedly fails to learn from its mistakes. By any standards, however, the IMF’s entanglement with the eurozone crisis is a whopper of a screw-up. Nor is it something in which the IMF should have got involved in the first place. Europe, one of the richest regions in the world, should have been left to sort out its own affairs. This is more particularly the case as the Greek debt crisis is almost entirely one of the eurozone’s own making.

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Shut off the light on your way out.

Austrians Launch Petition To Quit EU (RT)

Austrians have launched a petition to quit the EU, arguing that the nation will be better off economically if it leaves the union. To force the national parliament to consider the initiative activists need to have gathered 100,000 signatures by July 1. The petition was started by a retired 66-year-old translator, Inge Rauscher, who has collected enough signatures to launch an official campaign. The plea seeks to request that the national parliament debate the idea of a referendum on quitting the EU. However, to get that issue even discussed, the petition must gather 100,000 signatures. “We want to go back to a neutral and peace-loving Austria,” Rauscher said at the start of the campaign this week. Austrians have until July 1 to sign the petition which they can do in municipal or district offices.

Rauscher and her non-partisan Heimat & Umwelt committee (Homeland and Environment) argue that Austria will benefit from leaving the EU both economically and environmentally. She also criticized Austria’s forceful endorsement of EU sanctions against Russia, generally blaming Brussels for the economic downturn. “We are not any longer a sovereign state in the European Union. Over 80% of all essential legislation is being imposed by Brussels, not by elected commissioners. In our view, Europe is not a democracy. The European Parliament does not even have legislative powers,” Rauscher told Sputnik Radio.

An independent Austria, the committee believes, would gain an extra €9,800 per household per year, because the country will be freed from the burdens of EU bureaucracy. Recent polls show that only about one third of Austrians would be in favor of leaving the EU, according to the Local. The idea is championed by both the right-wing Freedom Party and the Euro-skeptic Team Stronach party. “This initiative is open for all political parties and we expect a broad support,” Rauscher said. “This is proved by our numerous conversations with the citizens over the past months.”

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Ari, interesting, but you kill your own argument by defining inflation as rising prices.

The Government Must Run Deficits, Even In Good Times (Ari)

It is my view that it is very important to keep things simple and this is what I will aim to do here. I will get down to the simplest identity and build from there using empirical data. I will draw conclusions which logically follow from the data and base assumptions. But despite the elementary nature of the idea, I still think that what it will show is very informative and the conclusion it leads to is one that the current government in the UK would be appalled to consider. Although the conclusion will be surprising to some people, I believe that every step of the logic shown here is undeniably true. I would be very interested if someone can show me a faulty link in the chain. The starting point is the basic identity here:

If GDP in one year is given by £A, then the total amount of money spent on domestic goods and services is £A.
If nominal GDP the next year grows by proportion n, then GDP in year two is given by £A*(1+n) and the total amount of money spent in year two is also £A*(1+n).
What it means is that, if, for example, growth is 2% and inflation is 2%, then a total of 4% more money MUST be spent in year two than was spent in year one.

The question I will mainly be answering in the rest of this post is ‘where does this money come from?’. I will not just try to answer this question in the abstract but to quantify the effect of different sources of money. When money is spent in an economy then it contributes to nominal GDP. Nominal GDP growth is the increase in A above. The economy can be simplified to how much money was spent and how much of that leads to real growth and how much to inflation. I will try to show, using empirical data, the source of funding for our economic growth and how this leads to the conclusion that we have a big problem now. I am trying to keep things simple so I will avoid using any long equations, but to see this idea broken down into greater detail, it can be seen in the model I develop here and give an example of here (where I explain that the next crash we will have could well be a painful one).

I am not too concerned with the supply side during this discussion; it is a different issue. For example, better infrastructure and training will increase future real growth by improving productivity. There are two sides to an economy and both are important. However all of this is irrelevant for this analysis because it is just looking at the importance of demand. Deficiencies in supply will be shown in inflation figures. The supply side can expand supply to fill a certain amount of the demand as demand grows. This is dependent upon the spare capacity in the economy. If many people are out of work, then it would be easier to fulfill an increase in demand than if there is full employment. This will show in the numbers. The higher the level of GDP, the higher proportion of the extra spending that will lead to inflation.

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Not sure about this…

Pope Francis Recruits Naomi Klein In Climate Change Battle (Observer)

She is one of the world’s most high-profile social activists and a ferocious critic of 21st-century capitalism. He is one of the pope’s most senior aides and a professor of climate change economics. But this week the secular radical will join forces with the Catholic cardinal in the latest move by Pope Francis to shift the debate on global warming. Naomi Klein and Cardinal Peter Turkson are to lead a high-level conference on the environment, bringing together churchmen, scientists and activists to debate climate change action. Klein, who campaigns for an overhaul of the global financial system to tackle climate change, told the Observer she was surprised but delighted to receive the invitation from Turkson’s office.

“The fact that they invited me indicates they’re not backing down from the fight. A lot of people have patted the pope on the head, but said he’s wrong on the economics. I think he’s right on the economics,” she said, referring to Pope Francis’s recent publication of an encyclical on the environment. Release of the document earlier this month thrust the pontiff to the centre of the global debate on climate change, as he berated politicians for creating a system that serves wealthy countries at the expense of the poorest. Activists and religious leaders will gather in Rome on Sunday, marching through the Eternal City before the Vatican welcomes campaigners to the conference, which will focus on the UN’s impending climate change summit.

Protesters have chosen the French embassy as their starting point – a Renaissance palace famed for its beautiful frescoes, but more significantly a symbol of the United Nations climate change conference, which will be hosted by Paris this December. Nearly 500 years since Galileo was found guilty of heresy, the Holy See is leading the rallying cry for the world to wake up and listen to scientists on climate change. Multi-faith leaders will walk alongside scientists and campaigners, hailing from organisations including Greenpeace and Oxfam Italy, marching to the Vatican to celebrate the pope’s tough stance on environmental issues. The imminent arrival of Klein within the Vatican walls has raised some eyebrows, but the involvement of lay people in church discussions is not without precedent.

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May 212015
 
 May 21, 2015  Posted by at 10:12 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Harris&Ewing F Street N.W., Washington, DC 1918

Has The Fed Got A Grasp On Economic Reality? (Gambles)
Global Inflation Mystery Risks Making Central Bankers Bystanders (Bloomberg)
Investors Need To Face The Possibility Of A ‘Great Reset’ (MarketWatch)
Guilty Pleas and Heavy Fines Seem to Be Cost of Business for Wall St. (NY Times)
Cui Bono (Richard Breslow)
Record Number of American Stores, Malls Closing: Davidowitz (Bloomberg)
Defiant Greeks Force Europe To Negotiating Table As Time-Bomb Ticks (AEP)
Greek Pensions Said To Be In Creditor Crosshairs (Bloomberg)
Giving Greece a Chance (Bruegel)
Investors And Policy Makers Eye Consequences Of Greek Default (FT)
Europe Faces 2nd Revolt As Portugal’s Ascendant Socialists Spurn Austerity (AEP)
Portuguese Politicians Turn a Deaf Ear to IMF (WSJ)
A Finance Minister Fit for a Greek Tragedy? (NY Times Magazine)
UK Enters Era Of Deflation With CPI At Minus 0.1% (EI)
Osborne Plans For Biggest Sell-Off Of British Public Assets (ITV)
China’s Factory Activity Contracts For Third Month (CNBC)
China Province Completes Landmark Bond Sale (FT)
Goldin Group Losses Wipe $25 Billion Off Market Cap In One Day (FT)
Hanergy Shares Suspended After 47% Plunge Wipes $19 Billion Off Market Cap (FT)
The Weight Of Chinese Money Adds To The Cost Of Australian Housing (SMH)
Moscow Says It Will Retaliate If Ukraine Hosts US Anti-Missile Defenses (RT)
Russia Will Take Ukraine to Court If June Coupon Payment Missed (Bloomberg)
In America, Inequality Begins In The Womb (PBS)

“..selective mass blindness prevents the economics profession answering the question posed by Queen Elizabeth II to the London School of Economics “Why did nobody notice it (the GFC)?”

Has The Fed Got A Grasp On Economic Reality? (Gambles)

History shows us that the U.S. Federal Reserve’s grasp on economic reality hasn’t been anywhere near as strong as you might hope or expect, so maybe it’s time it used a new economic model. Back in 2011, CNBC’s Karen Tso asked me how I could be so critical of Yellen’s predecessor, Ben Bernanke, an acknowledged academic expert on the Great Depression. My answer was that Bernanke, his predecessor, Alan Greenspan, and many others in the economic establishment are associated with a single strand of economic thinking, neo-classical (and more specifically, monetarist) economics. Although this approach is being increasingly discredited, in practice it remains despite its utter failure to anticipate the global financial crisis (GFC) — or indeed just about any other significant financial crisis- the dominant school of economic thinking.

Professor Steve Keen, my advisory board colleague of economics think tank IDEA Economics, has stridently criticized the group-think of Bernanke including Larry Summers, Ken Rogoff, Paul Krugman and the IMF’s Olivier Blanchard, who all studied the same courses taught by Stanley Fischer at the Massachusetts Institute of Technology. The group’s views aren’t entirely uniform; but are informed by a uniform economic framework. Differences in opinion tend to be about details rather than fundamentals. Hence selective mass blindness prevents the economics profession answering the question posed by Queen Elizabeth II to the London School of Economics “Why did nobody notice it (the GFC)?” The answer is that quotations by leading economists about the apparently rude health of the US and global economies in 2007-08 would fill volumes.

They tend to range from Bernanke waxing lyrical about “the Great Moderation” to Blanchard telling us, as late as August 2008, “The state of macro is good”. Tempting as it may be, I’m not poking fun at high-profile individuals’ shortcomings, so much as diagnosing widespread institutional failure. While the GFC has been put behind us, the lack of any better understanding of its causes among most influential mainstream economists and policymakers remains a cause for concern. They tend to believe debt is merely a liquidity preference; one wealthy retiree’s deposits fund, via bank intermediation, is another borrower’s home or business loan. This ignores the fact that in the USA or the U.K. over 95% of ‘money’ is simply created by bank lending.

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Long as they’re not called ‘innocent bystanders’.

Global Inflation Mystery Risks Making Central Bankers Bystanders (Bloomberg)

Janet Yellen’s Federal Reserve is “reasonably confident” it can drive up consumer prices. Mario Draghi says his ECB’s stimulus has already “proven so far to be potent.” The Bank of England reckons inflation is “likely to return” to its target within two years. While not quite declarations of victory, such statements show policy makers’ optimism that record-low interest rates and bond-buying will be enough to return inflation to the 2% range most of them eye. Yet, central banks have repeatedly overestimated inflation since the middle of 2011, according to Marvin Barth at Barclays in London. To him, a mounting concern is that about a third of the decade-long decline in worldwide inflation is potentially inexplicable.

If he’s right then what he calls “global missingflation” threatens the ability of Yellen and company to push up prices and raises questions over whether they will ever be able to declare mission accomplished and truly end their use of easy stimulus. “‘Global missingflation’ likely will keep central banks nervous and should give pause to those who think downside risks to inflation are no longer a risk,” Barth, a former U.S. Treasury official, said in a report to clients on Wednesday. “It also should instill greater caution in market participants who think that ‘lowflation’ or deflation are receding risks.” To make his case, Barth studied 27 economies to identify why consumer prices outside of food and energy dropped 0.46 percentage point in industrial nations in the decade up to December 2014 and 0.74 percentage point in emerging markets.

Once he allowed for traditional drivers of prices such as demand or productivity, he found 35% of the slide in global inflation hard to pin down. Among the possible reasons could be deleveraging, technological progress, globalization, aging populations or China’s deflationary impulse. Whatever the explanation, the inflation puzzle is a reason for central banks to worry about the power of policy and may leave them reliant on factors over which they have less control such as commodities, currencies or wages to propel prices. Worse still is the risk that financial markets and the public lose faith in policy makers to control inflation. The inflation expectations of both over the next five years may start to suggest such doubts.

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You betcha. They won’t be investors anymore.

Investors Need To Face The Possibility Of A ‘Great Reset’ (MarketWatch)

Watch out if corporate-profit margins narrow to their long-term average share of GDP. If so, the S&P 500 Index would trade at less than 1,700 in five years, a decline of more than 20%. I’m not necessarily forecasting such a dismal eventuality, though it’s in the realm of possibility. I merely point it out to illustrate how dependent the stock market is on wide profit margins. Few seem to be focusing on this vulnerability. Take the discussion about George Mason University professor Tyler Cowen’s Friday column in The New York Times. Cowen discusses the possibility of a “Great Reset” as it collectively dawns on us that what workers in the future will earn a lot less than they did in the past. Yet I’ve not seen any mention in these discussions about Wall Street, where corporate profitability has been soaring even as wages struggle.

Wall Street needs to squarely face the possibility of a Great Reset of its own. If corporate-profit margins shrink even halfway to their long-term average, investors would suffer significant losses in coming years. There is more than one way of calculating the average profit margin of corporate America, and each approach has defects. For the chart at the top of this column, I used a simple ratio of corporate-after-tax-profits to GDP, which shows the latest profit margin to be 8.7%. Though lower than 10.1% from a couple of years ago, the current level is still two standard deviations above the six-decade average of 6.3%. To calculate what would happen if corporate profitability falls back to that average, I made a number of assumptions. For example, I assumed that this return to average takes five years.

I also assumed that the S&P 500’s price-to-earnings ratio stays constant, which is a generous assumption since the market’s current P/E is 30% above its 130-year average. I also had to assume a sales growth rate. I chose 4.2% annualized, which is how fast per-share sales for S&P 500 companies have grown since the economy emerged from the 2008-2009 recession. Notice that this generously assumes there will be no recession between now and May 2020. Even with those assumptions, however, the S&P 500 in May 2020 would be trading at 1,683 if corporate-profit margins revert to their historical average.

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What an incredible disgrace. When did we start accepting this as normal? When did we start accepting this, period?

Guilty Pleas and Heavy Fines Seem to Be Cost of Business for Wall St. (NY Times)

Even as five big banks plead guilty to felonies and paying out billions of dollars, the question remains whether top executives will shrug off the penalties as just an average cost of doing business. The Justice Department hailed the guilty pleas by JPMorgan Chase, Citigroup, Barclays, UBS and the Royal Bank of Scotland to foreign exchange and Libor manipulation charges as a victory for discouraging corporate misconduct. Attorney General Loretta E. Lynch said that the penalty of more than $5 billion that the banks agreed to pay, including $2.5 billion in criminal fines, “should deter competitors in the future from chasing profits without regard to fairness, to the law, or to the public welfare.”

Whether traders will ever be dissuaded from seeking out ways to gain any edge possible in financial dealings is an open question. The watchword for prosecutors and regulators these days in dealing with multinational businesses is “cooperation.” Last week, officials at both the Justice Department and the Securities and Exchange Commission emphasized that corporations and individuals would receive consideration if they were forthcoming about known violations. The price will be much steeper if they choose not to tell everything they know as early as possible. Yet even as penalty after penalty is paid by big banks in various cases, it seems as though the same cast of corporate characters keeps reappearing. It makes you wonder whether the global banks are acting like teenagers who find it easier to beg forgiveness than actually change their behavior.

The guilty pleas are noticeably tougher than the enforcement actions of just a few years ago, when virtually every case involving violations in the financial sector resulted in only a deferred or nonprosecution agreement. To send a message that repeat offenders will now pay a price, the Justice Department took the additional step of tearing up the 2012 nonprosecution agreement with UBS, which had resolved the investigation of its manipulation of the London interbank offered rate, or Libor. Now, UBS is pleading guilty and paying an additional $203 million fine. The bank had no defense to the Libor charges because its admissions could be used against it once the government found that it breached a provision of the nonprosecution agreement that promised it would not commit any more crimes.

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I smell collapse.

Cui Bono (Richard Breslow)

The bad news is that we are investing in a world where Graham and Dodd’s “Security Analysis” has become a quaint relic of simpler times, when the nuts and bolts of a company’s fundamental were meant to motivate how analysts viewed its prospects. Now we have QE and buybacks. We live in a world where good Keynesians Tobin and Brainard’s work on valuation (which led to Tobin’s q test) was meant to remind investors that markets needed to be grounded in some form of reality. (Interestingly, as an aside, William Brainard was strongly in favor of Janet Yellen being appointed to the Fed Chair). Today we read that equities are at all-time highs because weak economic numbers may keep the Fed on hold longer. The good news is that investing is a lot easier if you have central banks on your side.

Central bankers admit they follow the markets, as they should. What has evolved in this world of activist central banks as proxy sovereign wealth funds are policy makers who watch, care and try to manage price levels in markets, rather than managing liquidity and continuous pricing. Front-running mutual funds used to be something of a skill and art. Front-running central banks merely requires not losing sight of the bigger picture and managing your positions. Oddly enough, skill at the latter is what old-fashioned traders, who are in the process of being killed off by boxes, were actually most prized for. In today’s world, negative rates are argued to be realistic. Markets that go up 100% in a year are prescient.

Markets that go down are described as killing wealth, not, perhaps, normalizing in the face of better numbers. Economists extol the value of the “wealth effect” on economic prospects. Translated that means central banks should be in the business of helping markets along. We are all meant to be on the same side here, right? European bonds have sold off in response to better numbers. Cruising speed. Cue the ECB’s Coeure to announce bigger buying of bonds now. He assured us this had nothing to do with the recent back-up in yield but rather prudent liquidity management. Europe does treasure the summer holidays after all.

And it ain’t only developed markets. After a nasty sell-off last week, Egypt’s EGX30 index is up over 9% this week as the government “postponed” the widely-praised capital gains tax on equities. For those gregarious enough to trade this market, watch the key 9000 level which held as resistance today This morning, everything German responded favorably to the QE-steroid announcement. Later in the session, the ZEW was released and was horrid on its face. Immediate reaction? Profit-taking. Gives you a good example of what is driving things.

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Howard’s back!

Record Number of American Stores, Malls Closing: Davidowitz (Bloomberg)

Davidowitz & Associates Chairman Howard Davidowitz discusses the U.S. retail industry and economy.

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“Pensions have already been cut by 44pc, and 48pc for public sector workers, and these stipends are the final safety net for Greek society. The recipients are literally feeding their children and grandchildren and extended kin. ”

Defiant Greeks Force Europe To Negotiating Table As Time-Bomb Ticks (AEP)

Europe’s creditor powers have started to wobble. Berlin, Paris and Brussels are coming to the grim conclusion that Greece may not capitulate as expected, and time is running out fast. Athens is now warning openly that the “moment of truth” will come on June 5, when the country faces default on a €300m payment to the IMF, unless the EU authorities hand over the next tranche of bail-out cash. It would be hazardous to bet the integrity of monetary union on the assumption that this is just a bluff. For the past four months the creditor bloc has been dictating terms, mechanically repeating the same demand that Alexis Tsipras and his Syriza rebels deliver on an austerity contract that they vowed to repudiate and which the previous conservative government was unable to implement.

EMU leaders have never at any moment acknowledged that the extra loans imposed on a bankrupt Greek state in 2010 were chiefly designed to save the euro and stem a European-wide banking crisis at a time when the eurozone had no defences against contagion. They have yielded slightly on Greece’s primary budget surplus but are still insisting on fiscal targets that can only trap Greece in a vicious circle of low growth and under-investment. Such a regime would leave the country just as bankrupt in the early 2020s as it was when the traumatic ordeal began, with nothing to show for so many cuts and a decade of depression. They are still pushing Greece to sell off state assets for a pittance to the same old oligarchy, further entrenching the deformities of the Greek economy, presumably – for there is no other urgent imperative – so that they can collect their debts.

Yet creditor bluster has reached its limits. It is by now clear that Syriza is so angry, and so driven by a sense of injustice, that it may be willing to bring the whole temple of monetary and political union crashing down on everybody’s heads, if pushed to the brink. Mr Tsipras spent five hours trying to calm the party leadership on Tuesday as a mutinous caucus on the hard-Left, but not only them, berated him furiously for raiding reserve funds to pay off creditors. Better to default and be done with it. The mood was already clear at a “war cabinet” 10 days ago when all wings of the party agreed that they would stand and fight – whatever the consequences – rather than submit to demands for a further cut in wages and pensions, or accept any deal that fails to offer debt relief and imposes a primary surplus above 1pc of GDP.

Pensions have already been cut by 44pc, and 48pc for public sector workers, and these stipends are the final safety net for Greek society. The recipients are literally feeding their children and grandchildren and extended kin. More than 900,000 registered unemployed – or 86pc of the total – receive no benefits. The Greek drama has, in any case, escalated to a higher level. Washington has brought to bear its immense diplomatic power, warning Germany ever more insistently that it would be a geo-strategic disaster of the first order if an embittered Greece were to spin out of control and into the orbit of Vladimir Putin’s revanchist Russia. Wiser heads in Berlin need no persuasion. Vice-Chancellor Sigmar Gabriel, the Social Democrat leader, clenches his teeth with exasperation when told that Europe can safely handle a €315bn default and a Greek ejection from the euro. “It is extremely dangerous politically. Nobody would have any more faith in Europe if we break apart in the first big crisis,” he said.

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Yes, that’s the same pensions that have already been cut by 48% for public sector workers.

Greek Pensions Said To Be In Creditor Crosshairs (Bloomberg)

Greece’s creditors are making pension reforms a top priority, leaving the door open to compromises on other issues like the country’s minimum wage proposals. Greek negotiators are meeting Wednesday with the so-called Brussels Group as efforts continue to reach a deal by month-end, according to two officials close to the talks. If Prime Minister Alexis Tsipras can offer sufficient pledges to overhaul Greece’s retirement program – one of the nation’s biggest hurdles to qualifying for IMF aid – creditors might offer leniency on their demands to restrict increases to the minimum wage. “The pension system looks unsustainable and needs reform,” said Guntram Wolff, director of the Brussels-based Bruegel group.

“If you don’t reform it and want debt relief, you’re essentially asking your partners to fund an unsustainable pension system.” The debate over pensions, wages and other contentious points delves into details as some European policy makers strike a more optimistic tone that a deal to unlock bailout aid can be reached. An agreement is possible in the coming weeks, EU Economic Commissioner Pierre Moscovici told the French Senate Wednesday, the day after German Chancellor Angela Merkel said Greece had until the end of the month to reach a resolution. Creditors won’t accept raising the Greek minimum wage back to its pre-2012 level, according to one of the officials.

At the same time, they might be open to a more gradual increase that takes into account the impact of higher wage requirements on unemployment and the overall economy, the official said. An acceptable deal with Greece may comprise as little as a third of the country’s previous commitments for economic policy changes, according to a German government official who asked not to be identified. A second German official said an agreement that rolls back minimum-wage pledges would wipe out about three quarters of what the Greeks had initially promised to deliver. Taken together, the comments suggest a minimum-wage compromise is not ruled out if there is no other alternative. The officials reiterated Germany’s view that Greece needs to live up to its bailout promises if it wants to get the rest of its money owed under the program.

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Bit weak for a ‘think tank’.

Giving Greece a Chance (Bruegel)

The Greek tragedy must not go on. Europe’s growing frustration with the new Greek government has triggered calls for stopping negotiations and even accepting “Grexit”, Greece’s exit from the euro. We believe that this would be a mistake. Grexit would be a collective political failure. Above all, it would cause a social and economic catastrophe for Greek citizens. However, keeping Greece in the euro area at the cost of citizens of other countries, without a serious and credible commitment by the Greek government to reform its economy and its institutions, would be a collective political failure as well. It would not only erode further the credibility of Europe’s institutions and its architecture, but as well the roots of European integration, which was based from the beginning on the respect of common rules.

The national sovereignty of each member state must be respected. But in a deeply integrated Europe, sovereignty is increasingly shared, rather than national. Time is running out quickly for the Greek government. It needs to decide now whether to get serious about reforming the country. It continues to have one major advantage, namely a clear mandate for a fresh start for Greece, not relying on the old elites who ruined the country. But it has also one serious challenge: the fact that it won its political mandate based on contradictory promises that it could not fulfil under any circumstances. The idea to call for a referendum in Greece should therefore not be regarded as a threat, but as an opportunity.

If Greek voters decide in a referendum to follow through with a serious programme of economic and institutional transformation, the new Greek government would obtain the necessary legitimacy to adjust its agenda. If Greek citizens decide otherwise, they will do so in the full knowledge of the implications, including the possibility of Greece’s exit from the euro. However, a Greek referendum will not exonerate Europe from its responsibilities. We need to acknowledge that the two support programmes for Greece were a colossal bail-out of private creditors, not least those based in France and Germany, at the expense of European taxpayers.

The optimism of the two programmes regarding Greece’s ability to reform and its debt sustainability was deeply flawed. Yet we should also honour our historic responsibility in stabilizing a continent in a peaceful common union. And we should accept that every European country in such a deep crisis, as Greece is in today, deserves solidarity and continued support.[..] In addition, European taxpayers would pay a high price, as loans to the Greek government could no longer be repaid. The combined official exposure of Germany and France to Greece amounts to close to €160 billion, or around €4350 for a German or French family of four.

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Important: “Default but no Grexit cannot be a stable equilibrium..”

Investors And Policy Makers Eye Consequences Of Greek Default (FT)

With Greece fast running out of cash, investors and policy makers have begun contemplating the possibility of a default and its consequences. The question they are asking is whether it is possible to keep Athens in the eurozone even if it failed to repay some of its creditors, thereby sparing the global economy renewed uncertainty. Our base-case scenario remains that Greece and its international partners will reach an agreement, wrote Reinhard Cluse, an economist at UBS, in a research note. Nevertheless .. the risk of failure and eventual Grexit [Greek exit from the currency bloc] should not be underestimate . The cash position of the Greek government is extremely murky, making it hard to assess when exactly Athens might be forced to renege on its obligations.

Silvia Merler, an economist at European think-tank Bruegel, has calculated that the government is running a better than expected primary surplus. However, this is largely the result of a severe squeeze on public spending, which is partly due to delayed supplier payments. Athens faces a challenging debt redemption schedule during the summer with about €2bn due to the INF and €6.5bn to the ECB and other eurozone central banks between June and August. The Greek government also has to pay its civil servants and pensioners, while the existing, stalled bailout programme with the eurozone terminates at the end of June. Athens is adamant that an agreement is in sight but the possibility of an accident remains.

While a default need not necessarily lead to a Grexit economists warn that it would substantially increase the risks of a departure. Default but no Grexit cannot be a stable equilibrium, Mr Cluse said. The short-term consequences of a default may depend on who exactly the Greek government fails to pay, as well as on the reaction by creditors — in particular depositors and the ECB. A default by Athens on domestic payment obligations, in the form of IOUs to pensioners and civil servants, would probably be the least risky. While such a move would almost certainly be challenged in court — as well as creating substantial political problems for the government — any ruling would be delayed.

A default on IMF loans would look politically ugly, as Greece would indirectly be refusing to repay some of the poorest countries in the world who contribute to the institution’s coffers. However, it is generally seen as less risky than a default to the ECB. The fund’s executive board would only be notified a month after Greece had not met its obligations and it would take several months before any concrete steps, which could go as far as excluding Greece from the IMF, were taken. Refusing to pay the IMF would be unlikely to trigger an automatic cross-default on other obligations. For example, the European Financial Stability Facility, the eurozone rescue fund, would need to decide if Greece was in default, leaving room for discretion among other European governments.

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“Greece is the testing ground and everybody is watching very carefully…”

Europe Faces 2nd Revolt As Portugal’s Ascendant Socialists Spurn Austerity (AEP)

Europe faces the risk of a second revolt by Left-wing forces in the South after Portugal’s Socialist Party vowed to defy austerity demands from the country’s creditors and block any further sackings of public officials. “We will carry out a reverse policy,” said Antonio Costa, the Socialist leader. Mr Costa said a clear majority of his party wants to halt the “obsession with austerity”. Speaking to journalists in Lisbon as his country prepares for elections – expected in October – he insisted that Portugal must start rebuilding key parts of the public sector following the drastic cuts under the previous EU-IMF Troika regime. The Socialists hold a narrow lead over the ruling conservative coalition in the opinion polls and may team up with far-Left parties, possibly even with the old Communist Party.

“There must be an alternative that allows us to turn the page on austerity, revive the economy, create jobs, and – while complying with euro area rules – restore hope to this county,” he said. While the Socialist Party insists that it is a different animal from the radical Syriza movement in Greece, there is a striking similarity in some of the pre-electoral language and proposals. Syriza also pledged to stick to EMU rules, while at the same time campaigning for policies that were bound to provoke a head-on collision with creditors. Mr Costa accused the Portuguese government of launching a blitz of privatisations in its dying days, signalling that the Socialists will either block or review the sale of the national airline TAP, as well as public transport hubs and water works.

His harshest language was reserved for the IMF but this reflects the cultural milieu of the Portuguese Left. In reality the IMF was the junior partner in the Troika missions. Mr Costa unveiled a package of 55 measures in March, led by a wave of spending on healthcare and education that amounts to a fiscal reflation package. The party would also roll back labour reforms and make it harder for companies to sack workers. The plan would appear entirely incompatible with the EU’s Fiscal Compact, which requires Portugal to run massive primary surpluses to cut its public debt from 130pc to 60pc of GDP over 20 years under pain of sanctions.

The increasingly fierce attacks on austerity in Lisbon are likely to heighten fears in Berlin that fiscal and reform discipline will break down altogether in southern Europe if Greece’s rebels win concessions. Worry about political “moral hazard” is vastly complicating the search for a solution in Greece. “Greece is the testing ground and everybody is watching very carefully. That is why the Spanish and Portuguese prime ministers have been so hawkish,” said Vincenzo Scarpetta, from Open Europe.

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It’s not just the Socialist Party either.

Portuguese Politicians Turn a Deaf Ear to IMF (WSJ)

Five months ahead of a general election, the Portuguese government and the main opposition Socialist Party can agree with one thing: the IMF no longer has a say here. Earlier this week, the IMF, which along with the European Union bailed out Portugal in 2011 with a €78 billion loan, issued a staff report. Portugal, it wrote, is still far from achieving significant growth levels, having failed to implement all the necessary reforms to make its economy more competitive. In addition, it warned that while the country’s current account has turned positive, a fall in imports—not a rise in exports–has played an important role in fixing external imbalances. And as imports pick up along with the economy, the current account could revert to a deficit.

On Wednesday, Finance Minister Maria Luis Albuquerque largely dismissed the IMF assessment, saying the report “has a very distorted view related to a series of issues.” “The big difference [between now and under the bailout] is that today we can disagree, because we gained that right,” Ms. Albuquerque, who oversaw Portugal’s exit from the bailout program a year ago, said. Portugal’s vocal opposition to the IMF represents a major U-turn. At least in public, the government spent its bailout years picturing itself as a poster child to the austerity drive in the eurozone.

For its part, the Socialist Party, which is currently slightly ahead in the polls, has called the bailout program, designed by the IMF and the EU and implemented by the government, a mistake. The party, which released its campaign program Wednesday, said it can keep fiscal targets in check by rebalancing spending and revenue. Ultimately, it believes that raising family incomes will lead to higher consumption and a needed pick-up in the economy. With that goal, the party has promised to cut taxes, which were sharply raised over the past three years, and reverse the salary cuts in the public sector.

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Superficial long piece. Revelation: Yanis taped Riga meeting(s).

A Finance Minister Fit for a Greek Tragedy? (NY Times Magazine)

Varoufakis is neither a politician nor a banker by training. He has been one of the most visible and vociferous critics of the Greek government, the European establishment and the Greek-European bailout. Imagine that President Obama had, instead of picking Timothy Geithner to be his Treasury secretary in the midst of the financial crisis, appointed a progressive academic economist like Paul Krugman or Joseph Stiglitz, only edgier and funnier, someone who had spoken out scathingly against bank bailouts, freely expressing himself however he wanted on television and in public debates because he wasn t running for office. His popularity was undeniable, though. When Syriza did put Varoufakis on the ballot for Parliament in January, despite the fact that he was living in Austin, Tex., at the time, he won more votes than any other candidate.

Four months into his political tenure, Varoufakis is at the center of a contest that could determine the entire Continent’s future. No deal between Greece and the domineering center of European authority has been reached. Varoufakis finds himself struggling to hold on to his principles, what he calls the red lines that prevent him, in his mind, from becoming like every other Greek politician before him. Those ideals risk bringing more hardship to Greece, but Varoufakis has staked his academic integrity on a particular economic and moral critique of the crisis. To what, to whom, does he presently owe his ultimate responsibility? For the people who are now 15, 16, 17 years old, to have a chance by the time they are 20 this is what matters, he told me this month.

There’s no doubt that this economy now is far worse off in the last two months as a result of our hard bargaining. He described that change as a trade-off, an investment in a better future. And an investment always involves a short-term cost, he said. I asked him about that short-term cost. Is he worried about the Greek economy today? Terrified, he said. Terrified and aghast.

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“Remember: cash is King, Queen and Prince in a deflationary environment.”

UK Enters Era Of Deflation With CPI At Minus 0.1% (EI)

According to the latest figures from the Office of National Statistics, the Consumer Price Index (CPI) fell by 0.1% in the year to April 2015, making it the first time in the past 55 years that the UK has experienced deflation on this measure. There has been a lot of talk about how falling prices are good for consumers. However, what is hardly reported is the effect deflation has on those with debts. If we enter a period of sustained deflation, as predicted by some economists such as Professor Steve Keen – the so-called Japan-like scenario – the burden of paying everything from your credit card bill to your mortgage will become a lot more onerous. On this basis, house prices will likely fall quite a long way.

The UK recovery seems to have been based on debt financing, everything from 30-year mortgages for first time buyers to people taking advantage of ostensibly cheap car finance. Inflation shrinks debts but deflation will mean it takes much, much longer to pay that debt off. This is because deflation increases the real value money and the real value of debt. The overall economy will also suffer. With shrinking prices will come shrinking sales, leading to falling corporate profits. They’re will inevitably be less investment and spending as a result. Most workers can forget about pay rises, indeed pay cuts may become the norm. After all, in an era of atomised, non-unionised workforces on short-term and zero hour contracts people will be in no position to argue.

Just as worrying will be the effect of deflation on government finances. With falling sales and more caution on the part of indebted consumers struggling to service their debts, national GDP will shrink. Thus the debt-to GDP figures will increase. Just ask any ordinary Greek what this scenario will feel like. For investors in such a scenario, it makes sense to steer clear of some of the behemoths exposed to the consumer side and instead invest more in high growth small caps – although this is an area where you need to take extreme care. Remember: cash is King, Queen and Prince in a deflationary environment. Its buying power will increase, other things being equal.

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All of Britain will be owned by private investors. Sovereign country?

Osborne Plans For Biggest Sell-Off Of British Public Assets (ITV)

George Osborne has set out his plans to help restore Britain’s economy by staging the biggest ever sell-off of government and public owned corporate and financial assets this year. The Chancellor will create a new government-owned company who will be in charge of the sales, which are expected to be worth £23 billion. UK Government Investments (UKGI) will sell shares in Lloyds Banking Group, UK Asset Resolution assets, Eurostar and the pre-2012 income contingent repayment student loan book. It is part of plans to cut spending by £13 billion by 2017/18.

Speaking at the Confederation of British Industry (CBI), Osborne said: “If we want a more productive economy, let’s get the government out of the business of owning great chunks of our banking system – and indeed other assets that should be in the private sector.” A “plan to make Britain work better” will be published over the next few weeks, setting out proposals to improve transport, broadband, planning, skills, ownership, childcare, red tape, science and innovation. Osborne also addressed the issue of the EU referendum saying he will be “fighting to be in Europe but not run by Europe”.

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This is not less growth, this is contraction.

China’s Factory Activity Contracts For Third Month (CNBC)

China’s manufacturing sector contracted for a third straight month in May as output shrank at the fastest rate in a year, a private survey showed on Thursday. The HSBC flash Purchasing Managers’ Index (PMI) came in at 49.1, weaker than the 49.3 print forecast by Reuters but better than the 48.9 final showing in March. A reading below 50 indicates contraction. “Softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near-term, as companies tempered production plans in line with weaker demand conditions,” said Annabel Fiddes, an economist at Markit. “On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required.”

The sub-index on new exports orders fell to a 23-month low of 46.8 in May, while overall new orders shrank for the third straight month, albeit at a slower pace. The output sub-index contracted for the first time this year, to a 13-month low of 48.4, while the employment sub-index showed manufacturers shed jobs for the 19th month in a row. The Shanghai Composite initially turned negative on the news, before recovering to trade about 0.5% higher. The Australian dollar trimmed gains by nearly 0.1% to $0.7877 against the U.S. dollar. “I think we’re still quite far away from where we should be in a recovery. Last month was a really poor… a one year low. So you would expect that the number would improve a little bit,” said Julia Wang, Greater China Economist at HSBC.

“But I think that this number coming in a little bit below than medium forecast shows that the strength of the economy is still not as good as people expected even though expectations have been scaled back continuously in 2015,” she added. The data is the latest in a string of downbeat indicators from China, and reinforces the view that policymakers will be unleashing further stimulus to reach its 7% growth target for 2015. The People’s Bank of China has cut interest rates three times since November, and lowered the reserve requirement ratios (RRR) – the cash banks must hold as reserves -twice. The moves aim to reduce companies’ borrowing costs and boost lending.

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Local government liabilities could be $6-7 trillion.

China Province Completes Landmark Bond Sale (FT)

The Chinese province of Jiangsu completed a landmark bond sale on Monday that marks the start of a massive local government debt bailout that some have described as quantitative easing with “Chinese characteristics”. After an initial failure in April that forced the province to postpone its bond sale, the central government issued administrative orders, guarantees and preferential policies to convince state-owned banks to buy the bonds, the first in a wider Rmb1tn ($161bn) local government debt swap. On Monday Jiangsu sold Rmb52.2bn with a coupon rate only slightly higher than equivalent sovereign Treasury rates, after the central bank capped the premium local governments could offer.

The plan is aimed at reducing the interest burden for debt-laden local governments, which have all borrowed heavily in recent years to pay for the enormous government construction boom unleashed to prop up the economy following the 2008 global financial crisis. The Jiangsu government estimated that Monday’s bond sale would reduce its interest burden by about half, since most of the proceeds would be used to repay expiring short-term bank loans with interest rates of 7-8%. The three, five, seven and 10-year bonds are sold at rates ranging from 2.94% to 3.41%, only slightly higher than China’s Treasury bond rates, which ranged from 2.77% to 3.39% for 10-year notes on Monday.

Not even Beijing seems to know the true scale of local government borrowing in recent years since much of the debt was taken on by off-balance sheet “local government financing vehicles” that allowed provincial authorities to skirt rules banning them from running deficits. In mid-2013 Beijing estimated that local governments had direct and indirect liabilities of nearly Rmb18tn, but they have continued to borrow heavily since then and some analysts believe the actual amount could be more than double that.

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There go the Chinese markets.

Goldin Group Losses Wipe $25 Billion Off Market Cap In One Day (FT)

A day after Hanergy Thin Film shares plunged 47% and were suspended, the two listed units of Goldin Group, the Hong Kong real estate, horse-breeding and electronics conglomerate, have suffered their biggest losses on record. A steep sell-off continued on Thursday afternoon in Hong Kong for Goldin’s two units, having collectively lost more than $25bn from their market capitalisations in fewer than two days. Since the Hong Kong market’s opening on Wednesday, Goldin Properties’ market capitalisation declined from $12.7bn to as low as $5.2bn, while Goldin Financial slid from $29.9bn to $11.3bn. Each stock fell as much as 60% on Thursday alone, and trading continues. As of 1pm in Hong Kong, Goldin Properties shares were down 45%, whilst Goldin Financial stock was 57 lower on the day.

The listed subsidiaries each issued “unusual price and trading volume” announcements to the Hong Kong stock exchange, but did not offer a reason for the losses. “The board confirms that it is not aware of any reasons for these movements or of any information that must be announced to avoid a false market in the company’s securities or of any inside information that needs to be disclosed,” both Goldin subsidiaries said. The Securities and Futures Commission warned in mid-March that Goldin Financial shares “could fluctuate substantially” given the high concentration of ownership. Just 20 shareholders owned almost 99% of the company’s shares, as of March 4, including Pan Sutong, chairman, who held a 70.3% stake.

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The main shareholders lost billions in mere minutes.

Hanergy Shares Suspended After 47% Plunge Wipes $19 Billion Off Market Cap (FT)

Almost $19bn was wiped off the value of Hanergy Thin Film Power on Wednesday when the Hong Kong-listed solar equipment supplier’s shares plunged 47%, on the same day as its chairman failed to turn up at its annual meeting. Li Hejun, chairman of HTF and its Chinese parent Hanergy group, has become one of China’s richest men as the Hong Kong-listed subsidiary’s shares surged about 600% over the past two years. In recent months, an investigation by the Financial Times has raised questions over HTF’s business model and trading patterns in its shares. HTF’s stock was suspended on Wednesday, about 30 minutes after the share price drop, pending an announcement by the company. No other information was given.

Hong Kong’s markets regulator has recently been probing trading in HTF shares, sending written requests for information and meeting investment groups and brokers who have bought and sold stock in the company, according to people familiar with the matter. The Securities and Futures Commission declined to comment. HTF’s public relations company confirmed that Mr Li, who is the controlling shareholder at both Hanergy group and its Hong Kong-listed subsidiary, did not attend Wednesday’s annual meeting. HTF managers, including Frank Dai Mingfang, chief executive, and Eddie Lam, finance director, were present.

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China’s started bailing out real estate.

The Weight Of Chinese Money Adds To The Cost Of Australian Housing (SMH)

The Evergrande Real Estate Group in China recently received a $20 billion bailout (US$16.2 billion) from a group of state-controlled banks which extended it a line of credit to protect the company from insolvency. That’s $20 billion, not million. The chairman of Evergrande is Xu Jiayin, also known as Hui Ka Yan, regarded as the biggest home-builder in China, has a troubled Australian connection. Last November, Xu paid $39 million for Point Piper mansion Villa del Mare, a transaction made via a series of shelf companies to avoid the foreign ownership laws. The federal government examined the high-profile purchase, found it contravened the law on foreigners buying residential property, and ordered the Sydney mansion sold within 90 days.

It only took 60 days to find another Chinese buyer willing to pay $40 million for the property. It sold last week to a Sydney resident with extensive business links in China. Meanwhile, back at Evergrande, big-spending Xu’s real estate empire is so stretched, in a nationally contracting housing market, that the government, via surrogates, is keeping it solvent. Beijing doesn’t want a contagion from the mayhem enveloping another nationally important property developer, Kaisa, which has achieved the negative trifecta of financial distress, a plunging share price and a corruption scandal. The Kaisa scandal coincides with a nationwide anti-corruption drive, instigated by President Xi Jinping, which has enmeshed hundreds of thousands of government officials. It has precipitated a recession in the gambling centre of Macao, a honeypot for laundering money in the grey economy.

The crackdown has caused capital flight, with many Chinese keen to place assets out of the sight and reach of the government. Australia has long been seen as a safe haven for Chinese investors, especially real estate in Sydney and Melbourne, and the local property industry has been a sieve for investments that would not pass the Foreign Investment Review Board guidelines if investigated. As the $20 billion bailout for Evergrande shows, the amount of money sluicing through the volatile Chinese real estate sector is enormous, at a time when the Australian government is looking for more investment from China.

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Russia’s had enough.

Moscow Says It Will Retaliate If Ukraine Hosts US Anti-Missile Defenses (RT)

Russia will take retaliatory measures to protect itself if Ukraine decides to station US anti-missile defense systems in its territory, a Kremlin spokesman told the media. “Concerning Ukraine’s plan to house anti-missile systems in its territory, we can only perceive it negatively,” Dmitry Peskov said Wednesday. “Because it will be a threat to the Russian Federation. In case there are missile defense systems stationed in Ukraine, Russia will have to take retaliatory measures to ensure its own safety.” He was commenting on a recent statement by the head of Ukraine’s Security Service, Aleksandr Turchinov, which claimed that Ukraine faces a “Russian nuclear threat.”

In an interview-structured statement published by the Ukrainian Security Council’s website, Turchinov claims Russia has stationed nuclear missiles on the Crimean peninsula. “Nuclear weapons in Crimea will be targeted, first and foremost, at European countries. There is also real danger for Turkey, which is, by the way, a NATO member,” Turchinov said. “To protect ourselves from the nuclear threat, we may have to hold consultations about stationing components of an anti-missile defense system in Ukraine,” Turchinov said in his statement.

The statement also calls for additional international sanctions against Russia, including blocking the Bosphorus strait from Russian navy vessels and shutting Russia off from the international SWIFT financial transfer system. When asked about Turchinov’s statements on hosting anti-missile defense, a NATO representative told the RIA Novosti news agency he could not comment, saying only that the alliance was “responsible for protecting its member states from missile threats.” Although NATO leaders have expressed support for Ukraine, it is not a member of the alliance. Russia has already rebuffed the idea, with Foreign Minister Sergey Lavrov saying that Turchinov’s statements are “hot air” and “have no prospects.”

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Russia will not give in on this.

Russia Will Take Ukraine to Court If June Coupon Payment Missed (Bloomberg)

Russia said it will take Ukraine to court if the government in Kiev fails to make its next coupon payment after passing a law allowing it to stop servicing its debt. “In June, a $75 million payment is due,” Finance Minister Anton Siluanov told reporters in Moscow on Wednesday. “We’ll see, if they miss the payment, we will use our right to go to court.” Ukraine has failed to bring Russia to the table as it begins negotiating with creditors to reduce its $23 billion of international debt. Russia says the $3 billion bond that comes due in December shouldn’t be included in the restructuring because it was bought from the regime of former Ukrainian President Viktor Yanukovych as part of a government aid agreement.

Ukraine raised the pressure on creditors to accept a writedown on their holdings on Tuesday when it passed a bill enabling the government to halt payments if it can’t reach agreement with bondholders by its June 15 target. Failure to cut a deal risks future tranches of a $17.5 billion IMF loan that Ukraine needs after a conflict with pro-Russian separatists pushed it into the worst recession since 2009. “If Russia takes Ukraine to court, that might be an incentive for other creditors to go down the same route,” Jakob Christensen at Exotix Partners in London, said by phone on Wednesday. “I would wait until after June 20 to go forward with” any moratorium, he said.

Ukraine’s sovereign bonds advanced on Wednesday after falling the most in two months yesterday. The nation’s debt levels are “unsustainable” and there is “no alternative” for creditors but to accept maturity extensions, coupon reductions and principal writedowns on their holdings, Finance Minister Natalie Jaresko said on Tuesday. “I wouldn’t assume that Ukraine is not willing to default on the Russia bond,” Anna Gelpern, a Georgetown University law professor and fellow at the Peterson Institute for International Economics, said by phone on Tuesday. “They’ve said that they want to restructure them on the same terms as everybody else.”

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Scary numbers.

In America, Inequality Begins In The Womb (PBS)

The womb is a miraculous tiny organ prior to pregnancy — not greater than a medium-size orange; its sole purpose is to nurture and protect the fetus until it is expelled into the world. Though small, its impact is gigantic: the nature of its environment during the short period between conception and birth has lifelong consequences on the fetus. For instance, babies born prior to the 37 weeks of gestation or weighing less than 5.5 pounds will be disadvantaged for the rest of their lives in just about everything including their lifetime earnings. Fetuses exposed to toxins or infections will be irreparably damaged. The elephant in the room that we’ve been ignoring for the most part is that inequality — the big social issue of our time — begins amazingly during those 37 weeks.

Sadly, zip codes of birth do matter in the U.S. and they matter more than we think. If the fetus happens to find itself in a womb at 10104 (sandwiched between 5th Avenue and the Avenue of the Americas between W. 51st and 52nd Streets) with an average annual income of an unbelievable $2.9 million, it’ll surely enjoy the best nutrition imaginable: no toxins, no infections, certainly no shortage of micronutrients, and a stupendous team of doctors will make sure that it sees the light of day with optimal weight under optimal circumstances. Those in zip-code 10112 (near Rockefeller Center), who have to make do with $700,000 less, would not be bad either.

However, should the fetus have somehow used an inaccurate GPS and landed in the Melrose-Morrisania neighborhood of the South Bronx — a small mix-up measured in miles — where in some housing projects half the households have less than $9,000 (no, not per month but per year) the fetus’ environment surely would be like on another continent. The kind of inhumane deprivation that exists in the dysfunctional low-income crime-ridden environment that is colloquially called a slum and which the federal government refers euphemistically as “targeted census tracts,” leads to stress, anxiety, abuse, poor nutrition, infrequent doctor visits or no visits at all until the time of delivery, because of lack of money and lack of health insurance.

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Nov 032014
 
 November 3, 2014  Posted by at 1:11 pm Finance Tagged with: , , , , , , , , , ,  2 Responses »


DPC Masonic Temple, New Orleans 1910

Bank of Japan Bazooka To Spark Currency War (CNBC)
China Faces Trap In Currency War (MarketWatch)
Germany Ready To Accept British Exit From Europe (Daily Mail)
For Japanese, Are Higher Prices Really A Good Thing? (Reuters)
Yen’s Worst Yet to Come in Options After Kuroda Shocks (Bloomberg)
The Experiment that Will Blow Up the World (Tenebrarum)
Boj’s Desperate QE Move To Hurt Japanese Spending Power (Steen Jakobsen)
US Consumers Resisting Enticements To Increase Spending (MarketWatch)
More Than One Fifth Of UK Workers Earn Less Than Living Wage (Guardian)
ECB Skips Fireworks for Day One of New Role as Banking Supervisor (Bloomberg)
Europe’s Crazy Finance Tax (Bloomberg)
Vicious Circle of Bad Loans Ensnaring Italian Companies (Bloomberg)
Portugal Sees Chinese Do 90% of Bids at Property Auction (Bloomberg)
Gold Bulls Retreat With $1.3 Billion Pulled From Funds (Bloomberg)
Globalisation Is Turning In On Itself And It Is Each Man For Himself (Pal)
Wanted: 500,000 New Pilots In China By 2035 (Reuters)
25 Years Ago, As The Berlin Wall Fell, Checks On Capitalism Crumbled (Guardian)
Insects Could Be On Your Dinner Menu, Soon (CNBC)
Greenhouse Gas Levels At Highest Point In 800,000 Years (ABC.au)
UN Sees Irreversible Damage to Planet From Fossil Fuels (Bloomberg)

All Asian countries MUST participate.

Bank of Japan Bazooka To Spark Currency War (CNBC)

The Bank of Japan’s (BoJ) stimulus blitz raises the specter of currency wars as a rapidly weakening yen threatens the competitiveness of export-driven economies, say strategists. “Whenever you have these kinds of disruptive moves by central banks, there’s always going to be fall out effects,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. Markets were caught off guard by the BoJ’s announcement on Friday that it would expand purchases of exchange-traded funds (ETFs) and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds (JGBs), and increase the pace of monetary base expansion. The yen plunged nearly 3% against the U.S. dollar on Friday and extended its selloff on Monday, falling to a fresh 7-year low in early Asian trade. It last traded at 112.71.

“The hottest currency war today is Japan vs Korea. That’s probably the one to keep an eye on. The yen-won cross rate is very sensitive as Japan and Korea compete in a lot of key areas,” said Sean Callow, senior currency strategist at Westpac. The Japanese currency has fallen around 20% against the won since the BoJ launched its unprecedented stimulus program in April 2013. Currency strategists say the BoJ’s actions could encourage the Bank of Korea (BoK) to become more defensive against local currency strength through intervention in the foreign exchange market or a rate cut. “We see increasing risks that it may cut rates by 25 basis points to 1.75% in coming months,” Young Sun Kwon, economist at Nomura wrote in a note late Friday, highlighting that Korea’s export momentum already looks weak.

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“The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars.”

China Faces Trap In Currency War (MarketWatch)

Last Friday, the Bank of Japan effectively tossed a grenade into the region’s currency markets with its surprise announcement of a new round of quantitative easing sending the yen to fresh lows. The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars, in which countries try to steal growth from their trading partners through competitive devaluations. It also comes at a time when Beijing is already battling foes on two fronts: hot-money outflows and an economy flirting with deflation. The consensus is that the world’s largest trading nation will resist the temptation to enter the fray with a competitive devaluation or move to a market-based exchange rate. Yet Japan’s latest actions will hurt, as they hold Beijing’s feet to the fire.

The decision last Friday by the Bank of Japan to boost its bond purchases by more than a third to roughly $725 billion a year, among other actions, sent the yen tumbling to a seven-year low as the dollar rallied to above ¥112. This means the currency of the world’s second-biggest economy has now risen by roughly a third against that of the world’s third-biggest since late 2012. That’s a significant revaluation to swallow by any measure, all the more so as Japan and China are increasingly competing with each other, say analysts. According to new report by HSBC, Japan and China are already rivals in 19 manufactured product lines, and this total is growing. Panasonic has already said it is considering “on-shoring” certain production back to Japan. The other reason Japan’s escalation of QE turns up the heat on China is that it risks exposing the vulnerabilities in Beijing’s piecemeal approach to opening up its capital account.

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Major loss of face for Cameron.

Germany Ready To Accept British Exit From Europe (Daily Mail)

Germany would rather see Britain leave the EU than allow David Cameron to tear up its rules on free movement of labour, Angela Merkel has said. The Chancellor warned the Prime Minister that he is reaching a ‘point of no return’ by pushing for reform of the bloc’s sacred free movement system. The threat has forced Mr Cameron to tone down his ambitions for any deal to curb EU immigration. The pair clashed at a summit in Brussels last month, German magazine Der Spiegel said. Citing senior officials, it said Mrs Merkel told Mr Cameron he was nearing a ‘point of no return’ with plans to introduce quotas for the number of EU workers who can come to Britain.

She threatened to abandon her efforts to keep Britain in the EU unless he backed down. One government insider was quoted on Radio Bavaria saying: ‘The time for talking is close to over. ‘Mrs Merkel feels she has done all she can to placate the UK, but will not accept immigration curbs from EU member states under any circumstances. It has come to a Mexican stand-off and it is now a question of who blinks first.’ Mrs Merkel was confident of winning the battle of wills, the insider added. It came amid reports that Mr Cameron is ditching his quota plan to appease Berlin. Ministers will focus on making the existing rules work better for Britain. A source said Mr Cameron’s plans – to be outlined before Christmas – would stretch EU rules ‘to their limits’.

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Why Abenomics and Kuroda will fail: “If prices rise, people might not buy as much.” An entirely overlooked mechanism. Abe et all think that if prices rise, people will spend more, because they’re afraid they’ll rise more.

For Japanese, Are Higher Prices Really A Good Thing? (Reuters)

Bank of Japan Governor Haruhiko Kuroda does not need to convince Japanese people like Kazue Shibata that deflation brings problems, but getting them to believe that higher prices will make things better is proving to be a harder sell. Shibata, 65, who runs a small dress shop in central Tokyo, worries the BOJ’s mission to hit a 2% inflation target could end up driving business away unless people also have more money in their pockets. “If prices rise, people might not buy as much,” she said, echoing a concern of many private-sector economists. On Friday, Kuroda’s BOJ doubled down on a high-stakes bet that the central bank can shake Japan’s consumers from a defensive set of expectations hardened by a decade and a half of era of falling prices, lower incomes and stop-and-go growth. “It’s important for the BOJ to strongly commit to achieving its price target to get that price target firmly embedded in people’s mindset,” Kuroda said at a news conference on Friday, after the BOJ stunned markets with an unexpected expansion of its monetary stimulus program.

“It won’t do much good in trying to shake off the public’s deflation mindset if you just say inflation will reach 2% some day,” Kuroda said. At the core of Prime Minister Shinzo Abe’s “Abenomics” agenda is the assumption that the outlook for sustained inflation will prompt consumers to anticipate rising prices, and that consumption will rise as a result. That represents a sea change for a country used to deflation, where clinging to cash today meant greater buying power tomorrow, a set of expectations that has proven hard to shake a year-and-a-half into an unprecedented easing by the BOJ. Kaoru Sakai, 65, who runs a hair salon in Tokyo, did not raise prices even after the national sales tax was raised to 8% to 5% in April, worried the sticker shock could scare away business. “The fact is that people don’t feel confident about the future,” Sakai said. “Our society and economy has tilted people toward lower-end options. For example, it’s like people choosing to eat at fast-food places, or standing-only soba shops even when they could, realistically, eat at proper restaurants.”

Unless Japanese people see real progress in solving fundamental problems, such as lack of wage growth, a shrinking manufacturing base, and an unsustainable welfare system, many might prefer the problem they know to the one Kuroda hopes will replace it. Classical economics would argue that consumers should welcome deflation, because it increases their purchasing power, an argument some consumers echo. “Deflation reflects the underlying economy. Our population is decreasing, production is low and we’re not seeing innovation. We are losing power compared with other countries,” said Yohei Tanaka, 33, an accountant in Tokyo. “I don’t think this is the time to drive the economy to inflation. I don’t think inflation is the end solution. Deflation, in a certain way, is good.”

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The yen will be reduced to something resembling a penny stock.

Yen’s Worst Yet to Come in Options After Kuroda Shocks (Bloomberg)

The worst is yet to come for the yen after Japan’s two-pronged attack on deflation sent the currency tumbling to its weakest level in almost seven years. Option prices show traders see a 6%chance the yen, which has already slumped 6.8% this year, will drop an additional 1.8% to 115 per dollar in the next three months, according to data compiled by Bloomberg. That’s up from 18% on Oct. 30, the day before authorities surprised investors by saying the government pension fund will invest more of its money overseas and Bank of Japan Governor Haruhiko Kuroda will expand currency depreciating stimulus.

“The BOJ has dropped another stimulus bombshell,” Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said by phone on Oct. 31. “It’s quite possible the yen will drop to 112 or 113 per dollar by the end of the year, or even 115.” That level – last reached in November 2007 – is already starting to become the consensus. Companies from Nomura Holdings Inc., Japan’s biggest brokerage, to JPMorgan Chase & Co. cut their year-end forecast to 115 per dollar on Friday, while Goldman Sachs said the day’s announcements made its estimate for the yen to reach that level in 12 months suddenly seem “conservative.”

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“… the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.

The Experiment that Will Blow Up the World (Tenebrarum)

In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far. Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently decline to a mere 4.3% year-on-year, as the rate of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to 9.4% annualized in spite of the BoJ’s pumping. The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in terms of its “QE” operations directly from banks – this creates new bank reserves at the BoJ, but no new deposit money.

By contrast, the Fed buys only from primary dealers, which are legally non-banks (even though most of them belong to banks). This creates both bank reserves and deposit money concurrently. The BoJ’s actions can only directly inflate the money supply to the extent it buys securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei. In short, the effectiveness of the BoJ’s pumping depends on the extent to which commercial banks are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create additional fiduciary media. Japan’s banks are doing the exact opposite, mainly because there simply isn’t sufficient demand for credit. Why would anyone borrow more money, given Japan’s demographic situation?

However, one result of this is that an ever larger portion of Japan’s money supply actually consists of covered money substitutes – deposit money that is “backed” by standard money. Covered money substitutes have grown by more than 77% over the past year. Bank reserves can be transformed into currency when customers withdraw cash from their deposits, hence to the extent that deposit money is “backed” by bank reserves, it ceases to be a form of circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this, roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency (outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion yen. It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP – the latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax revenues, which is actually the more relevant datum.

We conclude from this that the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”. On the surface, this monetarist wizardry suggests that one can indeed “get something for nothing” – but that just isn’t true. Deep down, market participants know that it isn’t true – so even though they are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also creating a fault line – and that fault line is the external value of the yen.

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” … central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions”

Boj’s Desperate QE Move To Hurt Japanese Spending Power (Steen Jakobsen)

The Bank of Japan has increased the targeted monetary base from JPY 60-70 trillion to JPY 80 trillion an increase of 25-35% and an almost desperate move to keep the Abenomics’ wheels going. The decision is quite controversial as the vote was a narrow 5/4. This is extremely unusual as big decisions like these are generally only done with full consensus, but it clearly shows Abenomics is running out of time and room as core-inflation, excluding tax, was at 1.1% vs. the 2.0% target. The International Monetary Fund has been critical of Abenomics recently telling Japan that is falling short of helping the economy. From a market perspective the move [Friday] was almost perfectly timed coming on the heels of a Federal Open Market Committee meeting which ended quantitative easing and expose the big difference on future monetary paths between the BoJ and the Fed.

There is, however, a dark side to this big move. Prime Minister Shinzo Abe needs and needs to decide soon on whether to increase sales tax, VAT, again or disappoint on his third arrow. Abenomics has not deserved its name as a new approach. it has been all about printing money and making the state take a bigger and bigger role. It is hardly a new policy but more a reflection on an inability to change a conservative society with poor demographics. Tactical and trading wise, the USDJPY has reached a new high and it’s hard to fade a central so desperate is very likely as US dollar strength the name of the game through Mid-November. The easier monetary policy will force USDJPY and NIKKEI higher as it’s a one-way street, but it will more importantly force Japanese banks to lend out and overseas. I see/hear desperate Japanese bankers trolling the world to find things to finance and it seems they are in desperate need of US dollar funding (I.e: they have not hedged proportionally).

This could make USDJPY test 125/135 over coming months but the “risk” remains China, which even prior to this action was upset at the ‘beggar thy neighbour’ policy of Japan. Overall, tactically, it confirms the world is again moving towards lower yields in G10. A new low remains my only and main call and furthermore as big a move as this is, it also tells a story of how central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions. Personally I see this as the final round – Japan was ALWAYS going to give it one more shot – now it happened.

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They have no money left to spend. And you want to tell me your economy is doing well?

US Consumers Resisting Enticements To Increase Spending (MarketWatch)

The U.S. is adding jobs at the fastest rate since the end of the Great Recession and another strong month of hiring is expected in October, but Americans still aren’t spending like good times are here to stay. The lackluster pace of consumer spending — outlays fell in September for the first time in eight months — largely explains why the U.S. is only growing at a post-recession annual average of 2.2%. Yet most economists think that could change in the near future. The reason: wages finally appear to be moving higher as the unemployment rate falls and companies find it harder to attracted talented workers. Employment costs jump for second straight quarter.

Even more jobs and higher pay for the average worker, however, might not be enough to get consumers to sharply boost spending, other economists say. Despite rising consumer confidence, they point out, many Americans still aren’t sharing in the spoils of a healing economy. And many bear psychological scars from the Great Recession that impel them to save more than they used to in order to protect themselves against another downturn. The U.S. savings rate, for example, rose to 5.6% in September to match a two-year peak, putting it twice as high as it was in the last year before the recession. “The economy is doing well for some people but very poorly for many others,” said Joshua Shapiro, chief economist at MFR Inc. in New York. “People understand that things are improving slowly, but until they see it in their paychecks it’s hard to truly believe that.”

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Three-quarters of young people make less than a living wage. And you want to tell me your economy is doing well?

More Than One Fifth Of UK Workers Earn Less Than Living Wage (Guardian)

More than a fifth of UK workers earn less than the living wage, with bar staff and shop assistants among the most likely to live “hand to mouth” because of low pay, a report warns on Monday. Published to mark living wage week, the research also finds that younger workers, women and part-timers are more likely to be paid less than the living wage, a voluntary threshold calculated to provide a basic but decent standard of living. New living wage rates will be announced on Monday, with the current rate at £8.80 per hour in London and £7.65 elsewhere. The report by consultancy firm KPMG adds to evidence of low pay remaining prevalent in Britain, despite the economic recovery. The proportion of employees on less than the living wage is now 22%, up from 21% last year, the study found. In real terms, that was a rise of 147,000 people to 5.28 million.

The Trades Union Congress (TUC) urged more employers to adopt the pay benchmark, following news that more than 1,000 companies representing around 60,000 employees are now committed to the wage and will adopt the new rate on Monday. Frances O’Grady, the TUC general secretary, said: “Low pay is blighting the lives of millions of families. And it’s adding to the deficit because it means more spent on tax credits and less collected in tax. We have the wrong kind of recovery with the wrong kind of jobs – we need to create far more living wage jobs, with decent hours and permanent contracts.” Alan Milburn, the government’s social mobility tsar, said both employers and government must do more to make Britain a living wage country. “This research is further proof that more workers are getting stuck in low paid work with little opportunity for progression,” said the former Labour cabinet minister, now chair of the government’s Commission on Social Mobility.

“It is welcome that the number of accredited living wage firms has increased. But far more needs to be done to help millions of people move from low pay to living pay.” The research, conducted by Markit for KPMG, shows 43% of part-time workers earn less than the living wage, compared with 13% of full-time employees. It found 72% of 18-21 year olds were earning less than the living wage, compared with just 15% of those aged 30-39. One in four women earn less than the benchmark, compared to 16% of men. “Far too many UK employees are stuck in the spiral of low pay,” said Mike Kelly, head of living wage at KPMG. “With the cost of living still high, the squeeze on household finances remains acute, meaning that the reality for many is that they are forced to live hand to mouth,” added Kelly, also chair of the Living Wage Foundation.

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All the wrong people do a job the ECB should never have been assigned. They can only make things worse.

ECB Skips Fireworks for Day One of New Role as Banking Supervisor (Bloomberg)

The European Central Bank is about to achieve its biggest expansion of powers since the start of the euro. No celebrations are planned. As the Single Supervisory Mechanism takes charge of the euro area’s 120 biggest institutions tomorrow, officials aren’t in the mood for fanfare. Instead, staff at the ECB’s new overseer are preparing to monitor capital issuance by banks, and processing the results of a year-long asset review that revealed a stash of soured loans in the bloc now amounts to almost €900 billion ($1.1 trillion). Led by France’s Daniele Nouy, the SSM in Frankfurt will immediately set about trying to blend 18 sets of national supervisory habits into pan-European consistency, and prod banks to take more precautions against crises. While the ECB will have the status of a new heavyweight among global regulators, that role carries with it the burden of restoring confidence in a battered banking system vulnerable to renewed economic shocks. “They have an awful lot on their plate from day one,” said Guntram Wolff, Director of the Bruegel institute in Brussels.

“There’s a very big pile of bad loans, profitability in this environment is going to be difficult, and the banking system itself probably needs to be restructured. The question is how the new supervisor can address that.” [..] While the ECB found an overall shortfall of €9.47 billion euros, that becomes €6.35 billion when discounting five failing lenders that have agreed restructuring plans or are in resolution. The outstanding sum “doesn’t seem insurmountable,” Mathias Dewatripont, a Belgian member of the new SSM board, said last week in Berlin. “I would still be happier if we had more capital in the system.” Soon to be in charge of that system is a new corps of almost 1,000 bank supervisors drawn from all over Europe, including existing authorities and the private sector. Notables among senior management include Stefan Walter, a former official of the Federal Reserve Bank of New York who will lead oversight of the biggest lenders including Deutsche Bank, and Finland’s Jukka Vesala, who oversaw the Comprehensive Assessment.

They inherit a banking industry loaded with unpaid debt. While the ECB says credit standards eased for a second quarter in the three months through September, an extra €136 billion in bad loans identified by the Comprehensive Assessment could hamper a return to growth. The path towards managing that legacy will be trodden by both the ECB’s new cadres and 5,000 national supervisors who remain in charge of the thousands of smaller banks in the euro region. The Frankfurt hub will make its presence felt by having its say on everything from bank licensing to merger approval, imposing fines and influencing international regulation.

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is it really that crazy to tax what cost us all those trillions? Bloomberg’s ed. staff is not its brightest segment.

Europe’s Crazy Finance Tax (Bloomberg)

Wrangling among the 11 euro-region nations planning to tax financial transactions is further evidence, if any were needed, that the levy is a bad idea that should be abandoned. The European Commission acknowledges that the latest version of its planned financial transactions tax (or Tobin tax, or Robin Hood tax, if you prefer) isn’t the best option. That, it says, would be a globally coordinated toll on trading – which is laughably unlikely. The narrower the tax’s coverage, the less sense it makes. That’s why Europe’s proposed transactions tax isn’t even second-best: An earlier effort to apply it across all 27 European Union members failed. In its current diluted form, the tax would charge 0.1% for nonderivative securities such as government bonds or company shares, and 0.01% on the notional value of derivatives trades. Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain are the willing 11 countries; but they can’t agree on how to divvy up the proceeds.

They’re struggling to meet a self-imposed deadline for an agreement by the end of the year, with the duty scheduled to be imposed by the end of 2015. The most fundamental question about the tax still hasn’t been answered – what’s it for? If the aim is to reduce volatility and speculation in the securities markets, it’s far from clear that the tax would work, according to a study by the consulting firm PricewaterhouseCoopers. If the idea is to strengthen the economy, the tax is a failure at the planning stage. Depending on how the proceeds were spent, the commission itself estimates the transactions tax would raise the cost of capital and could cut as much as 0.28% from gross domestic product — a little more than it would raise in extra revenue. With the bloc threatening to slide back into recession, you’d think any policy that risked hurting growth would be rejected out of hand. The chief motivation for the tax is populist politics: It’s mostly about vengeance for the financial crisis. Bashing bankers, regardless of the collateral damage, remains popular with European politicians.

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Get out of the EU!

Vicious Circle of Bad Loans Ensnaring Italian Companies (Bloomberg)

Italian borrowers are becoming trapped in a vicious circle. As bank loans turn sour at the rate of about €2 billion ($2.5 billion) a month, corporate lending is dwindling to the least in more than a decade. Lenders are sitting on a total €174 billion of non-performing loans, an increase of 62% from three years ago, according to the latest data from Bank of Italy. New corporate lending dropped in August to €21 billion, the lowest since at least 2003, the data show. With public debt of more than €2 trillion, Italy is battling the longest economic slump since World War II that has thrown millions of people out of work. The scarcity of lending is spurring the European Central Bank’s asset purchase program with President Mario Draghi seeking to boost economic growth by freeing up bank balance sheets.

“Banks’ failure to deal with the soured loans is partly to blame for Italy’s worsening recession,” said Riccardo Serrini, chief executive officer at Prelios Credit Servicing, a Milan-based adviser for debt sales. “Without the debt burden, they could be helping to boost the economy.” Unlike lenders from Spain to the U.K., Italian banks are proving unable, or unwilling, to offload bad debts and free up their balance sheets. About €11 billion of loans where borrowers have fallen behind on payments were sold by Italian institutions since 2011, compared with €189 billion for all European lenders, according to PricewaterhouseCoopers.

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Our world today: China prints $25 trillion and buys up Europe’s oldest civilizations with it.

Portugal Sees Chinese Do 90% of Bids at Property Auction (Bloomberg)

As bargain-hunters waited in a packed room at a property auction in Lisbon last month, one language dominated their chat: Mandarin. About 90% of the bidders for the government-owned apartments and stores on offer were Chinese, according to Jorge Oliveira, the official overseeing the asset sale. They ended up acquiring more than two-thirds of the 45 properties, he said. “A Portuguese investor bought a store to start a bakery and coffee shop, but most of the properties went to the Chinese,” Oliveira said in an interview after the sale.

Portugal is the latest target for Chinese investors who have been acquiring buildings around the world as China allows freer movement of funds in and out of the country. The Chinese accounted for almost one in five foreign property purchases in Portugal during the first nine months, according to the Lisbon-based Portuguese Real Estate Professionals and Brokers Association. Bing Wong, a 52-year-old store-owner from Shanghai who attended the Oct. 24 auction, has been buying properties in Lisbon to create a network of outlets to serve the biggest concentration of Chinese residents in Portugal. “Lisbon is cheap if you compare it with other cities,” he said. “The economy is improving and there are some good deals to be done here.”

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Expect major swings. Like everywhere else.

Gold Bulls Retreat With $1.3 Billion Pulled From Funds (Bloomberg)

Speculators cut their bullish gold bets before prices tumbled to the lowest since 2010 as demand for a hedge against inflation diminished. The net-long position in New York futures and options declined for the first time in three weeks, U.S. government data show. Gains for the American economy have eroded the appeal of bullion as a haven and helped boost the dollar to a four-year high. The Federal Reserve said last week it saw enough improvement to end its bond-buying stimulus program. More than $1.3 billion was pulled from U.S. exchange-traded products tracking precious metals in October, the biggest monthly decline this year, data compiled by Bloomberg show.

Societe Generale’s Michael Haigh, the analyst who correctly predicted gold’s slump into a bear market last year, said the crash in oil prices underscores why inflation is unlikely to accelerate and adds “ammunition” to the pressure on bullion. “We are betting on lower gold prices and telling our clients that they should have zero allocation in gold,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Deltec International Group, said Oct. 31. “The dollar will continue to strengthen as other nations are printing money at a time when the U.S. has taken stimulus off the table. U.S. growth is another reason why people will stay away from gold.” [..] Gold climbed 70% from December 2008 to June 2011 as the U.S. central bank bought debt and held borrowing costs near 0% in a bid to shore up growth. Prices slumped 28% last year, the most in three decades. The Fed’s $4 trillion of bond purchases since 2008 have yet to generate the runaway inflation that some gold buyers expected.

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That’s the very essence of globalization.

Globalisation Is Turning In On Itself And It Is Each Man For Himself (Pal)

A few things are also appearing on my radar screen – future visions if you like – that I want to share with you. These are not conclusive, but rather a stream of unfiltered thoughts, which will develop over time. I virtually never use geopolitics to assess asset markets. I have learned the hard way over time that it is the way to the poor house. Economies run financial markets, not wars. But I do note that at the margin, the world’s geopolitics is changing. Gone are the fluffy days of Putin shaking hands with George Bush agreeing to keep the world supplied with oil, gone are the days of China helping US firms make profits using their cheap labour, gone are open-for-business days of Europe, gone is the Japanese military neutrality, gone are the Saudis as an unshakeable ally, gone is Israel also a steadfast ally, etc. What is happening is something deeply concerning. Globalisation is turning in on itself and it is each man for himself. This was always going to be the outcome of an imbalanced, debt-drowning world.

Everyone wants a cheap currency and since that doesn’t work then everyone wants to find some way to get the upper hand on their own terms. I have had recent conversations with a long-term strategy group within the Pentagon about economic threats to the US and the risk of global collapse, and the potential for it to turn into a military outcome. It seems that the Department of Defence’s deep thinkers are mulling over the kinds of issues we all are – is the inevitable outcome a military one? They don’t know either but they give it a probability and thus need to understand it and plan for it. My issue has been for a long time that the true threat to the world is not the Muslim nations we so like to beat as a scapegoat (gotta have an enemy, right?) but China. The Pentagon’s think-tank also agrees. If China has an economic collapse, which again is a high probability event, then what are the odds of massive civil unrest?

And would a military conflict put the people back on the side of the government (i.e. how the Nazis came to power)? I agree. I think this is the risk somewhere down the road. I also, along with this defence strategy group, think that there is a risk that the Western powers meddling in the time of bad economic crisis will form strong alliances between let’s say Russia and China. In direct opposition to the government, many people inside the Pentagon are saying, “Please don’t fuck with Russia, they are not threatening us militarily but securing their own borders, we cannot control the outcomes, and most of them are bad, probably not militarily but economically, and economic instability causes outcomes we can’t forecast – even seizing the assets of powerful Russians has unintended consequences”. Here, here. The law of unintended circumstances is a bitch.

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That’s great news!

Wanted: 500,000 New Pilots In China By 2035 (Reuters)

China’s national civil aviation authority says the country will need to train about half a million civilian pilots by 2035, up from just a few thousand now, as wannabe flyers chase dreams of landing lucrative jobs at new air service operators. The aviation boom comes as China allows private planes to fly below 1,000 meters from next year without military approval, seeking to boost its transport infrastructure. Commercial airlines aren’t affected, but more than 200 new firms have applied for general aviation operating licences, while China’s high-rollers are also eager for permits to fly their own planes.

The civil aviation authority’s own training unit can only handle up to 100 students a year. With the rest of China’s 12 or so existing pilot schools bursting at the seams, foreign players are joining local firms in laying the groundwork for new courses that can run to hundreds of thousands of dollars per trainee. “The first batch of students we enrolled in 2010 were mostly business owners interested in getting a private license,” said Sun Fengwei, deputy chief of the Civil Aviation Administration of China’s (CAAC) pilot school. “But now more and more young people also want to learn flying so that they can get a job at general aviation companies.”

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Reasonable historic view.

25 Years Ago, As The Berlin Wall Fell, Checks On Capitalism Crumbled (Guardian)

It was 25 years ago this month that communism ceased to be a threat to the west and to the free market. When sledgehammers started to dismantle the Berlin Wall in November 1989, an experiment with the command economy begun in St Petersburg more than 70 years before was in effect over, even before the Soviet Union fell apart. The immediate cause for the collapse of communism was that Moscow could not keep pace with Washington in the arms race of the 1980s. Higher defence spending put pressure on an ossifying Soviet economy. Consumer goods were scarce. Living standards suffered. But the problems went deeper. The Soviet Union came to grief because of a lack of trust. The economy delivered only for a small, privileged elite who had access to imported western goods. What started with the best of intentions in 1917 ended tarnished by corruption. The Soviet Union was eaten away from within. As it turned out, the end of the cold war was not unbridled good news for the citizens of the west.

For a large part of the postwar era, the Soviet Union was seen as a real threat and even in the 1980s there was little inkling that it would disappear so quickly. A powerful country with a rival ideology and a strong military acted as a restraint on the west. The fear that workers could “go red” meant they had to be kept happy. The proceeds of growth were shared. Welfare benefits were generous. Investment in public infrastructure was high. There was no need to be so generous once the Soviet Union was no more. What was known as neoliberal economics was born in the 1970s, but it was not until the 1990s that market forces reigned supreme. The free market spread to poorer parts of the world where it had previously been off limits, expanding the global workforce. That meant cheaper goods but it also put downward pressure on wages. What’s more, there was no longer any need to be inhibited. Those running companies could take a bigger slice of profits because there was nowhere else for workers to go. If citizens did not like “reform” of welfare states, they just had to lump it.

And, despite some grumbles, that’s pretty much what they did until the global financial crisis of 2008. This was a blow to the prevailing free-market orthodoxy for three reasons. First, it was the crash that should never have happened. Economists had constructed models that showed markets were always rational and self-correcting. It was quite a shock to find that they weren’t. Second, the financial crash made countries poorer. Deep recessions have been followed by historically weak recoveries characterised by falling real wages and cuts in benefits. Finally, the crisis and its aftermath have revealed the dark side of the post-cold war model. Instead of trickle down, there has been trickle up. Instead of the triumph of democracy, there has been the triumph of the elites.

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A local supermarket had them on the menu just last week.

Insects Could Be On Your Dinner Menu, Soon (CNBC)

Feeding the world’s growing population is a major issue for global policy makers, and Euromonitor thinks it has the answer: insects. The thought of eating insects may turn the stomachs in the western world, but an estimated 2 billion people worldwide eat insects, Euromonitor said in a report. Eating insects for their taste and nutritional value is popular in many developing regions of central and South America, Africa and Asia. Insects contain high levels of protein, minerals and vitamins, and are considered a healthier alternative to meat. Insects could therefore provide a viable solution to food shortages and the increasing demand for meat, the Euromonitor report said. Consumer expenditure on meat will rise by 87.9% in emerging and developing countries in 2014-2030, more than three times higher than the equivalent 25.3% growth in developed economies, according to Euromonitor’s forecasts.

At the same time, global food supply issues have become a more prominent concern. Extreme weather cycles have played havoc with harvests and crops leading to extreme spikes in food prices, protectionist policies and crop hoarding. In the past three years, Australia, Canada, China, Russia and the U.S. have all suffered huge harvest losses from floods and droughts, Reuters reported. Earlier this year, the United Nations Food and Agriculture Organization warned that global food production needed to increase by 60% by mid-century or risk food shortages that could bring social unrest and civil wars. “The most obvious challenge to insects becoming a viable food source for the future is that negative attitudes in Western cultures towards insects as food need to change,” said Media Eghbal, head of countries’ analysis at Euromonitor. Eghbal pointed out that as a result of the western world’s more squeamish palate, a more realistic solution could be using more insects in animal feed, demand for which is bound to increase as global demand for meat rises.

The report also highlighted other benefits of using insects as a source of food. Farming insects is better for the environment than traditional livestock farming as the process requires less land and water, it said, and produces less greenhouse gas emissions. It’s also cheaper. Consumers would pay less for these food products, which could help reduce poverty and boost economic growth. Insects are a popular source of food in countries including Thailand, Vietnam, Cambodia, China, Africa, Mexico, Columbia and New Guinea. The most popular delicacies include crickets, grasshoppers, ants, scorpions, tarantulas and various species of caterpillar, according to www.insectsarefood.com.

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In human history, that’s a very long time.

Greenhouse Gas Levels At Highest Point In 800,000 Years (ABC.au)

The world’s top scientists have given their clearest warning yet of the severe and irreversible impacts of climate change. The United Nations Intergovernmental Panel on Climate Change (IPCC) has released its synthesis report, a summary of its last three reports. It warns greenhouse gas levels are at their highest they have been in 800,000 years, with recent increases mostly due to the burning of fossil fuels. “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems,” the report said. “Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate change risks.”

IPCC chairman Rajendra Pachauri said the comprehensive report brings together “all the pieces of the puzzle” in climate research and predictions. “It’s not discrete, and [highlights] distinct elements of climate change that people have to deal with, but [also] how you might be able to deal with this problem on a comprehensive basis by understanding how these pieces of the puzzle actually come together,” Dr Pachauri said. The report reiterates that the planet is unequivocally warming, that burning fossil fuels is significantly increasing greenhouse gas emissions and the effects of climate change – like sea level rises – are already being felt.It also said most of the world’s electricity should be produced from low carbon sources by 2050 and that fossil fuel burning for power should be virtually stopped by the end of the century.

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” … it doesn’t mean we have to sacrifice economic growth”. What if it did? Why does an Institute for Climate Impact Research have a chief economist in the first place?

UN Sees Irreversible Damage to Planet From Fossil Fuels (Bloomberg)

Humans are causing irreversible damage to the planet from burning fossil fuels, the biggest ever study of the available science concluded in a report designed to spur the fight against climate change. There’s a high risk of widespread harm from rising global temperatures, including floods, drought, extinction of species and ocean acidification, if the trend for increasing carbon emissions continues, a panel convened by a United Nations body said today in Copenhagen. Humans can avoid the worst if they significantly cut emissions and do so swiftly, it said. “We must act quickly and decisively if we want to avoid increasingly disruptive outcomes,” UN Secretary-General Ban Ki-moon told reporters in Copenhagen. “If we continue business-as-usual, our opportunity to keep temperature rises below” the internationally agreed target of 2 degrees Celsius, “will slip away within the next decades,” he said.

The report is designed to guide policy makers around the world in writing laws and regulations that will curb greenhouse gases and protect nations most at risk from climate change. It will also feed into talks among 195 nations working on an international agreement to rein in emissions that envoys aim to reach in Paris in December 2015. “We need to get to zero emissions by the end of this century” to keep global warming below dangerous levels, Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, outside Berlin, and a co-author of the report, said in a telephone interview. “This requires a huge transformation, but it doesn’t mean we have to sacrifice economic growth.”

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Aug 052014
 
 August 5, 2014  Posted by at 8:08 pm Finance Tagged with: , , ,  2 Responses »


Jack Delano Thirst Stops Here: Durham, North Carolina May 1940

I should maybe start off by saying that we’ve seen so many blatant lies lately we might want to be careful what we label a ‘lie’ and what not. I want to point out a bunch of things that are perhaps more misinterpretations, or just different interpretations, than blatant lies. But the difference between the two is often paper thin and slippery. I just simply noticed a few issues on which opinions vary, for whatever reason. And it doesn’t always matter whether that originates in innocence, ignorance or purposeful deceit.

First, I was my impression lately that everyone could agree the lack of volatility in the financial markets was not a good thing. That we don’t have actual markets if and when these don’t reflect what happens in the economies they ‘represent’. That plane loads full of central bank largesse makes price discovery impossible, so nobody knows what anything is worth anymore.

Which is a bad thing, because you can’t tell whether you’re buying something really valuable or of you’re being ripped off. Ultra low interest rates enable individuals and companies to purchase certain things at such low prices, and at so little risk even if the underlying risk is massive, that everyone’s view gets distorted.

An individual can buy a home or a car at an ultra low rate that (s)he could never have bought otherwise, and that they will default on overnight when rates rise. Do that car and that home have the value paid for them in the situation distorted by the low interest rate? Not when rates go up they don’t, and rates can only go up from here.

Ultra low interest rates also allow companies to buy back their shares, and engage in all sorts of mergers and acquisitions, even if their balance sheets wouldn’t let them with higher rates. We’ll get to see yet, and soon, how corrupting and perverting the past 10-20 years of central bank policies have been. Not just the Fed, China and Japan have done more than their share too.

One thing that’s certain is the policies killed off volatility. Something investors may hate, but something without which markets can’t function. This lack of volatility has created fat paychecks for some, and years of added misery for the rest. Someone always has to pay. And in the end it’s always the men in the street who do.

Last week, volatility came back. And it’s here to stay. US/EU sanctions against Russia, combined with the unproven – and likely unfounded – accusations they are based on, make sure of that. Throw in the continuing Fed taper, and the dollar demand it will cause, and you got a situation the world won’t come out of for a while. The market’s no longer Mr. Nice Guy.

Anyone who had a return of volatility on their bucket list – and there were many – can cross that one off now. You’ll have so much volatility you’re going to wonder what you were thinking when you wished for it. Anything you saw last week was nothing compared with what’s ahead.

Predictable financial markets that set records against the backdrop of deteriorating real economies were never seen as long term viable, but the speed at which the tables turn will catch most of us off guard. As this silly CNBC bit proves:

Why Markets Are Drowning In Uncertainty?

Just as life guards warn not to swim in water you don’t know, does the same apply to guardians of funds, as the markets they’re being asked to trade look murky and unfamiliar? Central banks haven’t made decision-making any easier. Is the Federal Reserve still buoying asset prices to nurture recovery, or is it turning into a monster of the sea as it slows asset purchases and considers interest rate hikes? Historians know it is never a smooth ride as rates climb. “The number of times that the Federal Reserve has hiked interest rates without a negative economic or market impact has been exactly zero,” said Lance Roberts of STA Wealth Management.

What a load of baloney. As if a central bank’s task is to help investors make money. As if anyone has the right to demand that. People sure get used to things soon. What they mean is actually not ‘drowning in uncertainty’, but back to what it should have been all along. Where investing is a risk, not a handout. Where investors can lose their shirts, not taxpayers. Well, a lot of shirts will be lost, but taxpayers will still be on the hook.

But what a strange perception of reality that article demonstrates. Like a baby crying when its silver sugar spoon gets taken away.

Another issue in which points of view vary widely is that of the Argentina bonds. There is a sort of consensus in the western press that Argentina did it all to themselves, that they engaged in irresponsible government policies, and did so for the umpteenth time. The crucial issue at this point, from where I’m sitting, is whether the vulture funds led by Paul Singer’s Elliott bought credit default swaps to cash in even bigger on an Argentine default. Something Elliott representatives have denied in front of a judge.

The government in Buenos Aires seems convinced that was a lie. And has asked the Securities and Exchange Commission to investigate. But what are their chances there? The ISDA, the international body that decides whether something is a credit event, has ruled Argentina’s failure to pay its creditors is. It is of course at least a little suspect, or is that just unfortunate(?!), that the Elliott fund is on the board of ISDA, along with JPMorgan, Morgan Stanley et al. What’s impartial about that?

As the Telegraph reports, Argentina has chosen the attack, it accuses the vulture funds, the court appointed mediator, the judge and the US government and threatens to take the case before the and the International Court of Justice.

Argentina Accuses Default Hedge Funds Of ‘Fraudulent Manoeuvres’

Argentina will ask the US markets watchdog to probe two hedge funds involved in its $1.5bn default, saying that they used “fraudulent manoeuvres” to make “incredible profits”. Cabinet chief Jorge Capitanich has said he will urge the Securities and Exchange Commission to act after the unnamed funds allegedly made money from “privileged information”. [..] Mr Capitanich also called on “bondholders, trustees and clearing agencies” to take legal action against what his country has labelled “vulture funds”.

Last week, a US judge told Argentina to stop spouting “half truths” about its second default in 12 years and return to talks with bondholders. The South American nation has repeatedly denied it has defaulted, blaming the US government for stopping it agreeing a deal with creditors that would draw a line under its last default in 2002. “Let’s cool down any idea of mistrust [and] let’s go back to work,” US District Judge Thomas Griesa, who has jurisdiction over the bonds after Argentina agreed to hold talks under New York law, said on Friday.

He also ordered President Cristina Fernandez de Kirchner’s government to return to the negotiating table with bondholders, adding that the disparaging remarks should stop because nothing will eliminate Argentina’s obligations to pay bondholders – a fact that its government is ignoring.

Argentine officials deny the country has defaulted because they deposited $539m for creditors in a bank intermediary. But Mr Griesa blocked that deposit in June, saying it violated his ruling that Argentina must first pay $1.5bn to settle its dispute with holdout investors first. “To say that Argentina is in technical default is a ridiculous hoax,” Mr Capitanich said after last week’s deadline for talks had passed. He accused Judge Griesa of acting as an “agent” for what the country has labelled “vulture funds”.“There’s been mala praxis here by the US justice system, for which all three branches of the government are responsible. Argentina has tried to negotiate in good faith,” he added.

Mr Capitanich has previously warned that Argentina is considering calling for a debate at the United Nations and launching an appeal at the International Court of Justice in The Hague. “We can’t hold any positive expectations because [Mr Griesa] has always held the view of someone who is partial,” Mr Capitanich said on Friday. Mr Capitanich also announced on Monday that Buenos Aires has formally asked Mr Griesa to dismiss the mediator in the case, Daniel Pollack, accusing him of failing to be impartial.

Isn’t that cute? Depending on the beholder, where would you personally think the lie is?

I noticed a third intriguing case of differing interpretations this morning with regards to the failed Portuguese bank Espírito Santo, and its bail out by the government in Lisbon with EU funds. First, Bloomberg has this, an an article whose title magically changed to “What Crisis? EU Rules on Banks Lauded as Right After All” during the day, as if to hammer in their satisfaction a bit more.

Espirito Santo Sets Benchmark for Creditor Pain in EU Bank Rules

Portugal’s rescue of Banco Espirito Santo SA may have eased some doubts about Europe’s banking industry by showing investors how the European Union’s thinking has evolved on handling failing lenders. The decision shielding some creditors spurred a rally in bank stocks and Portuguese assets yesterday by demonstrating authorities were able to shutter a bank without sparking a fresh bout of market tensions that have roiled Europe since 2009.

Instead of forcing losses on unsecured depositors and other senior creditors, as was required of Cyprus, Portugal is following Spain’s gentler approach that focused losses on junior debt and stockholders. “This is bad for the bank’s shareholders and creditors, but it’s good for the wider banking industry,” said Stefan Bongardt, a European banking analyst at Independent Research GmbH in Frankfurt. “Everyone knows the rules of the game now and that draws uncertainty out of the market.” The yield on Portugal’s 2-year bonds closed at a record low yesterday.

“The systemic euro crisis is over,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note to clients. “While the euro zone still has issues, it now has a well-oiled machine to deal with them. The vicious contagion risks, which were the hallmark of the euro crisis, can be kept at bay.” The Bank of Portugal unveiled a €4.9 billion ($6.6 billion) bailout over the weekend that will leave shareholders and junior bondholders with losses, while sparing senior creditors and unsecured depositors. Banco Espirito Santo, once the country’s largest lender by market value, will be split in two, with depositors and healthy assets joining the newly formed Novo Bank while bad loans and junior creditors stay with the old bank until it can be shut down.

The bank of the Holy Spirit, it turns out, has been a private and family led disaster for decades, and allegedly not always this side of the law. And that bail out, too, in a completely different take from what Bloomberg says, smells of last year’s sardines, says Ambrose Evans-Pritchard in a hard hitting piece. And not just him either:

Europe’s Tough New Regime For Banks Fails First Test In Portugal (AEP)

Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for large potential losses, sparing senior bondholders in the first serious test of the EU’s tougher rules for bank failures. The controversial €4.9bn bailout over the weekend set off a relief rally on the Lisbon bourse, with bank stocks soaring.

It also set off a political furore as opposition parties accused premier Pedro Passos Coelho of bending to the banking elites. “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank,” said Catarina Martins, leader of the Left Bloc.

European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus.

The EU’s new “bail-in” rules do not come into force until 2016, but it was assumed the broad principle would be followed. Portugal’s decision to protect senior bondholders is incendiary in a country already near austerity fatigue. The rescue comes three weeks after the central bank said Espirito Santo’s problems were safely contained. Carlos Costa, the central bank’s governor, said Lisbon was forced to act after the crippled lender revealed shock losses from exposure to the Espirito Santo family empire.

He accused the management of “fraudulent schemes” involving the rotation of funds across the world to deceive regulators. “International experience shows that schemes of this kind are very hard to detect before they collapse,” he said. The rescue raises fresh doubts about the underlying health of the banks as Portugal grapples with debt deflation and a private and public debt burden near 380% of GDP, the highest ratio in Europe.

The plan splits Espirito Santo into a bad bank that retains the toxic assets, and a Banco Novo for normal depositors. The state will inject €4.5bn of public money, dipping into EU-IMF funds left over for bank recapitalisations. This will raise Portugal’s net debt by 3% of GDP. Mr Passos Coelho said the money would be recouped when the new bank is sold off, insisting that there will be no extra costs for the taxpayer. Other Portuguese banks will have to cover any shortfall through a resolution fund.

Megan Greene, from Maverick Intelligence, said this is wishful thinking: “The losses could be much larger than people think. This is eerily similar to what happened in Ireland, and I think taxpayers will end up footing the bill.” Frances Coppola, a banking expert at Pieria, said the plan fails to tackle moral hazard and will come back to haunt the Portuguese state. “Those who brought down Banco Espirito Santo will walk away with the proceeds, and ordinary people will pay,” she said.

João Rendeiro, former head of BPP bank, said the collapse of Espirito Santo will do far more damage than claimed. “The economic impact is gigantic. It could lead to a contraction of GDP by 7.6%. I don’t know of any parallel to this in our economic history,” he said.

Mr Passos Coelho took a major gamble by going for a “clean exit” at the end of Portugal’s EU-IMF Troika programme in April, refusing to accept a backstop credit line. He brushed aside warnings from the IMF, worried about debt redemptions over the next two years. He insisted that the country is safely out of the woods, able to borrow cheaply from the markets without having to accept dictates from Brussels.

It’s like a game of spot the differences, isn’t it? Given the evidence, I’m inclined to give Ambrose the game. An initial $6 billion in EU taxpayer funds (and perhaps more), a potentially much higher number from the Portuguese people, and an economy that could lose as much again as it did in the depths of the crisis. Plus, obviously, regulators who’ve been asleep for many years, not exactly a confidence booster either. But still, what was Bloomberg thinking when they published their take?

We’re going to see a lot of spectacle and theater as the Fed and PBoC are forced to wind down their insanity. And we’ll see tons of different interpretations coming from all angles. As you’ve seen from what happened and happens in Ukraine, and from so many other events, you can’t trust your governments or media to tell you the truth. There’s a lot of plain dumb asses among them, and even more lying bastards with agendas. So keep your eyes and your nose open. A lot of things will look good at first sight but come with a nasty odor.

The US is Bankrupt: Liabilities Exceed Household Net Worth (TrimTabs)

There are many ways to look at the United States government debt, obligations, and assets.  Liabilities include Treasury debt held by the public or more broadly total Treasury debt outstanding.  There’s unfunded liabilities like Medicare and Social Security.  And then the assets of all the real estate, all the equities, all the bonds, all the deposits…all at today’s valuations.  But let’s cut straight to the bottom line and add it all up…$89.5 trillion in liabilities and $82 trillion in assets.  There.  It’s not a secret anymore…and although these are all government numbers, for some strange reason the government never adds them all together or explains them…but we will.

The $89.5 trillion in liabilities include:

  • $20.69 trillion
    • $12.65 trillion public Treasury debt (interest rate sensitive bonds sold to finance government spending)
      • Fyi – $5.35 trillion of “intra-governmental” Treasury debt are not included as they are considered an asset of the particular programs (SS, etc.) and simultaneously a liability of the Treasury
  • $6.54 trillion civilian and Military Pensions and Benefits payable
  • $1.5 trillion in “other” liabilities https://www.fms.treas.gov/finrep13/note_finstmts/fr_notes_fin_stmts_note13.html.
  • $69 trillion (present value terms what should be saved now to make up the present and future anticipated tax shortfalls vs. present and future payouts).
    • $3.7 trillion SMI (Supplemental Medical Insurance)
    • $39.5 trillion Medicare or HI (Hospital Insurance) Part B / D
    • $25.8 trillion Social Security or OASDI (Old Age Survivors Disability Insurance)
      • Fyi – $5+ trillion of additional unfunded state liabilities not included.

Source: 2013 OASDI and Medicare Trustees’ Reports. (pg. 183), https://www.gao.gov/assets/670/661234.p

These needs can be satisfied only through increased borrowing, higher taxes, reduced program spending, or some combination.  But since 1969 Treasury debt has been sold with the intention of paying only the interest (but never repaying the principal) and also in ’69 LBJ instituted the “Unified Budget” putting all social spending into the general budget reaping the gains in the present year absent calculating for the future liabilities. If you don’t know the story of how unfunded liabilities came to be and want to understand how this took place, please stop and read as USA Ponzi explains nicely… https://usaponzi.com/cooking-the-books.html

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Why Markets Are Drowning In Uncertainty (CNBC)

It’s been a hot summer for some, with U.S. stock markets breaking out to fresh highs in July, and European investors debating whether to dip a toe in the water on the back of more European Central Bank (ECB) action. But as thunder clouds roll in, and after Wall Street suffered its worst week since mid 2012, a solo swim does not seem all that appealing. Just as life guards warn not to swim in water you don’t know, does the same apply to guardians of funds, as the markets they’re being asked to trade look murky and unfamiliar? Central banks haven’t made decision-making any easier. Is the Federal Reserve still buoying asset prices to nurture recovery, or is it turning into a monster of the sea as it slows asset purchases and considers interest rate hikes? Historians know it is never a smooth ride as rates climb. “The number of times that the Federal Reserve has hiked interest rates without a negative economic or market impact has been exactly zero,” said Lance Roberts of STA Wealth Management.

Short-term trading is no easier, based on musings from the boss of the Fed. Janet Yellen caused sweat on the brows of those long technology stocks when she warned that there is too much heat in social media stocks. But taking Yellen’s advice would have meant missing an earnings-inspired spike in Facebook, Twitter and LinkedIn, perhaps one of the sauciest trading opportunities of the summer. Gautam Batra of Signia Wealth accuses central banks of messing with the seasonals. He said we’re still witnessing the usual market roll over. “It was just delayed after the ECB launched fresh stimulus.” The ECB’s actions were welcomed initially, but the fresh liquidity has not been enough. Confidence about the pace of recovery is waning, particularly after the latest data cast a shadow over the summer. The inflation rate risks dragging Europe under, while PMIs for France, Italy, Germany, even the U.K. indicate a cooler breeze, as all faced choppier manufacturing conditions.

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Espirito Santo Sets Benchmark for Creditor Pain in EU Bank Rules (Bloomberg)

Portugal’s rescue of Banco Espirito Santo SA may have eased some doubts about Europe’s banking industry by showing investors how the European Union’s thinking has evolved on handling failing lenders. The decision shielding some creditors spurred a rally in bank stocks and Portuguese assets yesterday by demonstrating authorities were able to shutter a bank without sparking a fresh bout of market tensions that have roiled Europe since 2009. Instead of forcing losses on unsecured depositors and other senior creditors, as was required of Cyprus, Portugal is following Spain’s gentler approach that focused losses on junior debt and stockholders. “This is bad for the bank’s shareholders and creditors, but it’s good for the wider banking industry,” said Stefan Bongardt, a European banking analyst at Independent Research GmbH in Frankfurt. “Everyone knows the rules of the game now and that draws uncertainty out of the market.” The yield on Portugal’s 2-year bonds closed at a record low yesterday.

“The systemic euro crisis is over,” Holger Schmieding, chief economist at Berenberg Bank in London, said in a note to clients. “While the euro zone still has issues, it now has a well-oiled machine to deal with them. The vicious contagion risks, which were the hallmark of the euro crisis, can be kept at bay.” The Bank of Portugal unveiled a €4.9 billion ($6.6 billion) bailout over the weekend that will leave shareholders and junior bondholders with losses, while sparing senior creditors and unsecured depositors. Banco Espirito Santo, once the country’s largest lender by market value, will be split in two, with depositors and healthy assets joining the newly formed Novo Bank while bad loans and junior creditors stay with the old bank until it can be shut down. EU leaders vowed in 2012 to create a banking union within the euro zone so that taxpayers would no longer shoulder the burden of repairing banks for investors’ benefit. Five of the currency bloc’s 18 members required aid during the worst of the crisis, which was fueled by bouts of contagion between sovereign debt and banks.

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Crédit Agricole Loses Big On 14.6% Espírito Santo Stake (MarketWatch)

Crédit Agricole has reported a slump in second-quarter net profit, hit by the crisis facing Portuguese lender Banco Espírito Santo SA, in which the French bank owns a 14.6% stake. France’s second largest listed bank by assets said on Tuesday it has booked a €502 million ($673 million) loss related to its stake in Banco Espírito Santo, which reported a record €3.49 billion second-quarter loss after its troubled parent found ways to use the bank to raise funds that are now largely unrecoverable. The French bank also wrote off the entire €206 million value of its stake in Banco Espírito Santo in its books after Portugal’s central bank late Sunday unveiled a plan to break up the local lender and pump in billions of euros of state money. The combined impact of Banco Espírito Santo’s woes on Crédit Agricole in the quarter was €708 million. The Paris-based lender reported a net profit of €17 million in the three months to end-June, compared with a EUR698 million net profit a year ago. Revenue fell by 6% to €3.93 billion in the second-quarter.

Crédit Agricole’s misadventure in Portugal points to yet another misstep by the French bank in southern Europe, where it once had big ambitions. After sinking billion of euros into extricating itself from an ill-fated acquisition in Greece, and unloading its stake in Spanish lender Bankinter. Under the central bank’s plan, Crédit Agricole, along with other shareholders, will stay with a bad bank, set up with toxic assets from the lender, including the loans given to Espírito Santo entities that could be unrecoverable. The bad bank will be wound down. The French lender said it didn’t expect to book additional losses related to its stake in the Portuguese lender. Crédit Agricole CEO Jean-Paul Chifflet said the bank would take part in any legal action Banco Espírito Santo’s new management may choose to bring against the Portuguese lender’s former management. “We can only deplore having being cheated by a family with whom Crédit Agricole tried to build a real partnership to create Portugal’s largest private bank,” said Mr. Chifflet [..]

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Europe’s Tough New Regime For Banks Fails First Test In Portugal (AEP)

Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for large potential losses, sparing senior bondholders in the first serious test of the EU’s tougher rules for bank failures. The controversial €4.9bn (£3.9bn) bailout over the weekend set off a relief rally on the Lisbon bourse, with bank stocks soaring. It also set off a political furore as opposition parties accused premier Pedro Passos Coelho of bending to the banking elites. “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank,” said Catarina Martins, leader of the Left Bloc.

European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus.

The EU’s new “bail-in” rules do not come into force until 2016, but it was assumed the broad principle would be followed. Portugal’s decision to protect senior bondholders is incendiary in a country already near austerity fatigue. The rescue comes three weeks after the central bank said Espirito Santo’s problems were safely contained. Carlos Costa, the central bank’s governor, said Lisbon was forced to act after the crippled lender revealed shock losses from exposure to the Espirito Santo family empire. [..] João Rendeiro, former head of BPP bank, said the collapse of Espirito Santo will do far more damage than claimed. “The economic impact is gigantic. It could lead to a contraction of GDP by 7.6pc. I don’t know of any parallel to this in our economic history,” he said.

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Oh yes it is. But then, so is everybody’s.

Asia’s Next Crisis Is a Flood of Debt (Bloomberg)

Asia is still traumatized by the great financial crisis of 1997, when Thailand’s devaluation of the baht set off a region-wide collapse in markets. Could it happen here again? The mere question will strike many as odd, given Asia’s rapid growth and progress in strengthening financial systems, improving transparency and amassing trillions of dollars of currency reserves. But Asia now faces three risks that could quickly undo those gains: Federal Reserve tapering, a Chinese crash and an explosion of household debt. The danger of the Fed pulling too much liquidity out of markets has been well documented. So have China’s rising vulnerabilities. Debt, though, deserves far more scrutiny. As economists survey the scene, Thailand once again tops the worry list. Debt there has risen rapidly, underwriting standards appear loose and nonperforming loans are rising.

Thailand has plenty of company in Asia, Oxford Economics warns in a new report. Financially conservative Singapore has seen credit growth in the last six years exceed that of the U.S. in the run-up to its 2008 subprime meltdown. Several nations now have private-debt ratios of between 150% and 200% of gross domestic product. They include the higher-income set – Australia, Hong Kong, South Korea and Taiwan – as well as China, Malaysia, Thailand and Vietnam. Even where debt levels are lower, Indonesia and the Philippines, the trajectory is troublesome. “Debt surges of this kind often end badly,” says Oxford economist Adam Slater.

Even more worrisome than the absolute levels of debt, says Frederic Neumann, Hong Kong-based co-head of Asian economic research at HSBC, is the pace of increase. For all its rapid growth and buoyant markets, Asia isn’t as healthy as it appears on the surface, and might take on even more debt to support growth. As leverage exceeds the peak before the 1997 crash, is a sharp correction on the way? “The optimists argue that’s unlikely to occur in Asia, where people tend to be more prudent and save more of their monthly income,” Neumann says. “Well, not necessarily.” All this fresh debt leaves Asia highly exposed to financial shocks and economic shifts. Any destabilizing event – Fed Chairman Janet Yellen over-tightening, renewed turmoil in Europe, a Chinese credit crunch, surging oil prices, troubles in Japan’s bond market – could push Asia back to the brink. And it’s not as though export markets are booming to provide a cushion.

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Yeah, he has clout.

Hollande Calls On ECB To Fight Deflationary Risk In Europe (CityAM)

French President Francois Hollande has implored the European Central Bank (ECB) to do more to support growth and employment and combat a “real deflationary risk” in Europe. In an interview with LeMonde, Hollande argued that “weak inflation too has negative fiscal consequences on revenues as well as debt. A lot will depend on the level of the euro, which has weakened over the past few days but not enough.” Germany was also subjected to the French President’s pleas. “We are not asking for any leniency from Germany, but we are asking it to do more to boost growth,” Hollande said.

If Hollande is expecting a dramatic shift in ECB policy, he will most likely be disappointed, according to Bank of America Merrill Lynch. BoAML says it expects no action from ECB and believes Mario Draghi is likely to downplay the surprise in inflation on the downside. The French President said the time had come for the ECB to pump more liquidity into the European economy. The comments come only a day after Moody’s warned that measures being taken tackle France’s deficit and revive the stagnating economy were falling behind rivals such as the UK.

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Oh wait, he doesn’t.

ECB ‘Won’t Move A Muscle’ Despite Deflation Fears (CNBC)

The European Central Bank (ECB) is expected to hold fire at its monetary policy meeting this week, despite a shock fall in inflation reigniting deflation concerns. It came as something of a shock to most economists – and likely the ECB – when official figures released last week showed that euro zone inflation fell more than expected in July. Inflation rose by 0.4% compared to the same period last year, failing to match expectations of 0.5%. It was the lowest level seen since October 2009 and below last month’s reading of 0.5%. The region’s continuing sluggish growth saw the ECB unveil a host of measures at its June meeting designed to give the euro zone’s recovery a boost.

But July’s disappointing inflation data has boosted concerns that the region is heading towards a period of deflation, with even French President Francois Hollande telling Le Monde newspaper on Monday: “There is a real deflation risk in Europe… The ECB must take all the necessary measures to inject liquidity into the economy.” Despite calls for action by Hollande and numerous economists, ECB President Mario Draghi is unlikely to unveil any further stimulus at the bank’s policy meeting on Thursday, as he waits for June’s interest rate cuts and a new loan program – dubbed the TLTRO – to take effect. “The ECB seems bound to not move a muscle at the Thursday meeting following June’s easing package, whose centerpiece (the TLTRO program) starts in September,” Daiwa economists said in a note.

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Is it trying?

Can China Fight The Fed? (MarketWatch)

While global markets fret about the end of the U.S. Federal Reserve’s multi-year quantitative easing, China appears to be following its own path. Speculation is mounting its central bank has quietly launched its own version of quantitative easing, helping lift Chinese stocks to their biggest monthly gain since 2012. You might ask why shouldn’t China join in the QE party? But as the world’s second-largest economy still more or less pegs its currency to the U.S. dollar, moving in the opposite direction could set its financial and currency markets up for a shock. At the moment, analysts are trying to make sense of the chunky new 1 trillion yuan ($162 billion) loan in question, extended by the central bank to policy lender China Development Bank, as details trickle out in the press. But with the new pledged lending facility (PLF) reportedly directed at the ailing property sector, this at least offers timely relief; as worries over extended debt levels leading to a property unraveling can be pushed out for another day.

[..] Last weekend, the PBoC warned that debt is rising quickly and credit expansion is high, yet it is simultaneously choosing this moment to adopt unconventional monetary policy. Standard Chartered in a note last week said the PLF is technically quantitative easing, although there seems little clarity on whether loans have already been made and on what collateral has been pledged. The facility appears to offer China Development Bank access to funds at below-market rates, with the intent to target urban redevelopment and social housing. Standard Chartered reckons the ultimate beneficiaries of the new lending will likely be local governments’ investment vehicles. Economists at Société Générale see another role for the PLF, as it also helps the PBOC offer guidance on preferred long-term borrowing costs, indicating a push lower for funding costs.

[..] … what of the risk foreign capital flows will now not just slow, but reverse? This is a question that cannot be ignored as the Fed nears the end of QE. This would present the PBOC with a real policy headache, as it would have to choose between defending its de-facto peg to the U.S. dollar and contracting money supply, or else letting the currency weaken. But letting the currency weaken risks triggering an outflow of foreign exchange. Furthermore, arguments that China is immune to capital flows due to its closed capital account no longer hold. Its recent credit spree has also pulled in substantial foreign-exchange funding with, by some estimates, Hong Kong at the center of a $1.2-trillion carry trade to mainland Chinese companies. If we do reach a situation of a yuan under pressure, then QE is only likely to exacerbate matters. One way or another, China looks as if it is getting closer to the end-point of its debt party.

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Real Estate Oversupply Becoming Bigger Problem For China (Forbes)

If you build it they will come. Eventually. That’s been the mantra of Chinese real estate developers and their lenders who have been throwing them buckets filled with yuan for the past several years. Now, an oversupply problem in second and third tier cities promises to derail the economy by as much as one%age point, the International Monetary Fund has warned. How important is real estate to the Chinese economy? In the year 2000, real estate accounted for around 5% of China’s GDP. By 2012 it rose three times to 15%, according to the IMF’s calculations. It certainly did not decline in 2013 and 2014, despite Beijing working overtime in forcing a market correction. The IMF did not have data for the last two years. The real estate market appears to be undergoing a correction. While a slowing of investment and construction by as much as 10% would definitely reduce growth from 7.5% to 6.5%, an orderly adjustment is still factored into the IMF’s baseline scenario.

The IMF said in a report released on Friday that oversupply was already a big problem in the industrial northeast and in coastal cities in the north. China’s real estate bubble is different from the price inflation that took out the U.S. economy in 2008. There is no subprime or foreclosure crisis in China. And there is not the additional worry of a mortgage backed securities bubble in the works either. But despite those two key differences, China housing has undergone a major growth spurt in the last decade. Rich Chinese are buying up second homes as investments. And local LOCM +2.58% municipalities have been funding local builders to erect housing in order to create jobs. The problem is, Chinese urbanization trends have not sped up enough to account for the new high-rises, many of which are not fully sold. Unsold properties mean less money for developers who in turn have less revenue to pay off debts. For now, many municipal lenders have been either forgiving or rolling over those debts to extend the life of the loans.

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It’s market thing: it it pays, there’s demand.

Russia Scraps Ruble Bond Sale as Yields Jump to Five-Month High (BW)

Russia canceled its third ruble bond auction in a row as U.S. and European Union sanctions drive the nation’s borrowing costs to the highest levels since March. The Finance Ministry pulled tomorrow’s sale, citing “unfavorable market conditions” in a statement on its website. The yield on Russia’s 10-year bonds rose six basis points to reach 9.72%, the highest since March 14. The rate on the notes increased 109 basis points since a day before a Malaysian passenger jet crashed in Ukraine on July 17. The U.S. and EU last week expanded sanctions against Russia for what they see as President Vladimir Putin’s destabilizing role in Ukraine. Switzerland added new people and companies to its list of sanctions today.

Russia has now axed 11 auctions since the start of the year and voided four more after bidders sought higher yields than the ministry was prepared to offer.The government won’t sell bonds when borrowing costs are too high, Finance Minister Anton Siluanov said April 1. Russia has raised 124 billion rubles ($3.5 billion) from selling OFZ bonds this year and has placed 100 billion rubles in untraded GSO bonds with the Pension Fund. Next year the ministry plans to increase the gross borrowings on the local market to about 1 trillion rubles, Konstantin Vyshkovsky, head of the Finance Ministry’s debt department, said last month.

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Nouriel lives!

Russia’s Eurasian Vision Contest (Roubini)

The escalating conflict in Ukraine between the Western-backed government and Russian-backed separatists has focused attention on a fundamental question: what are the Kremlin’s long-term objectives? Though Russian President Vladimir Putin’s immediate goal may have been limited to regaining control of Crimea and retaining some influence in Ukrainian affairs, his longer-term ambition is much bolder. That ambition is not difficult to discern. Putin once famously observed that the Soviet Union’s collapse was the greatest catastrophe of the 20th century. Thus, his long-term objective has been to rebuild it in some form, perhaps as a supra-national union of member states like the European Union. This goal is not surprising: declining or not, Russia has always seen itself as a great power that should be surrounded by buffer states. Under the czars, imperial Russia extended its reach over time. Under the Bolsheviks, Russia built the Soviet Union and a sphere of influence that encompassed most of central and eastern Europe.

And now, under Putin’s similarly autocratic regime, Russia plans to create, over time, a vast Eurasian Union (EAU). While the EAU is still only a customs union, the European Union’s experience suggests that a successful free-trade area leads over time to broader economic, monetary, and eventually political integration. Russia’s goal is not to create another North American Free Trade Agreement (Nafta); it is to create another EU, with the Kremlin holding all of the real levers of power. The plan has been clear: start with a customs union – initially Russia, Belarus, and Kazakhstan – and add most of the other former Soviet republics. Indeed, now Armenia and Kyrgyzstan are in play. Once a broad customs union is established, trade, financial, and investment links within it grow to the point that its members stabilise their exchange rates vis-à-vis one another. Then, perhaps a couple of decades after the customs union is formed, its members consider creating a true monetary union with a common currency (the Eurasian ruble?) that can be used as a unit of account, means of payment, and store of value.

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It’s regulations that spoil the party.

Moody’s Downgrades Outlook On UK Banks To Negative (Reuters)

Moody’s Investors Service has revised down its outlook on British banks, citing new regulations designed to prevent taxpayers having to stump up funds to rescue failing banks. Moody’s said on Tuesday it had downgraded its view of the sector to ‘negative’ from ‘stable’. It also raised concerns over British banks’ continued exposure to litigation and misconduct charges.

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Argentina Accuses Default Hedge Funds Of ‘Fraudulent Manoeuvres’ (Telegraph)

Argentina will ask the US markets watchdog to probe two hedge funds involved in its $1.5bn default, saying that they used “fraudulent manoeuvres” to make “incredible profits”. Cabinet chief Jorge Capitanich has said he will urge the Securities and Exchange Commission to act after the unnamed funds allegedly made money from “privileged information”. Argentina officially defaulted on Friday after the International Swaps and Derivatives Association ruled that its failure to pay $539m to its creditors earlier this week constituted a “credit event”. The ISDA’s move will almost certainly trigger credit default swaps on Argentina’s debt worth $1bn. Mr Capitanich also called on “bondholders, trustees and clearing agencies” to take legal action against what his country has labelled “vulture funds”. Last week, a US judge told Argentina to stop spouting “half truths” about its second default in 12 years and return to talks with bondholders.

The South American nation has repeatedly denied it has defaulted, blaming the US government for stopping it agreeing a deal with creditors that would draw a line under its last default in 2002. “Let’s cool down any idea of mistrust [and] let’s go back to work,” US District Judge Thomas Griesa, who has jurisdiction over the bonds after Argentina agreed to hold talks under New York law, said on Friday. He also ordered President Cristina Fernandez de Kirchner’s government to return to the negotiating table with bondholders, adding that the disparaging remarks should stop because nothing will eliminate Argentina’s obligations to pay bondholders – a fact that its government is ignoring. “What occurred this week did not extinguish or reduce the obligations of the Republic of Argentina.”

Argentine officials deny the country has defaulted because they deposited $539m for creditors in a bank intermediary. But Mr Griesa blocked that deposit in June, saying it violated his ruling that Argentina must first pay $1.5bn to settle its dispute with holdout investors first. “To say that Argentina is in technical default is a ridiculous hoax,” Mr Capitanich said after last week’s deadline for talks had passed. He accused Mr Griesa of acting as an “agent” for what the country has labelled “vulture funds”. “There’s been mala praxis here by the US justice system, for which all three branches of the government are responsible. Argentina has tried to negotiate in good faith,” he added.

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Which side are we supporting, you said?

730,000 Have Left Ukraine For Russia Due To Conflict (Reuters)

About 730,000 people have left Ukraine for Russia this year due to the fighting in eastern Ukraine, UNHCR’s European director Vincent Cochetel said on Tuesday. That figure implies a far higher exodus than the 168,000 who have fled and applied to Russia’s Migration Service. A further 117,000 people are displaced inside Ukraine, a number that is growing by about 1,200 per day, he said. UNHCR stripped out the seasonal figures and numbers for people who would normally have crossed the border in the course of trade or tourism to arrive at the 730,000 figure, Cochetel told a U.N. news briefing.

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One lone voice of reason. One.

Why Won’t Obama Just Leave Ukraine Alone? (Ron Paul)

President Obama announced last week that he was imposing yet another round of sanctions on Russia, this time targeting financial, arms, and energy sectors. The European Union, as it has done each time, quickly followed suit. These sanctions will not produce the results Washington demands, but they will hurt the economies of the US and EU, as well as Russia. These sanctions are, according to the Obama administration, punishment for what it claims is Russia’s role in the crash of Malaysia Airlines Flight 17, and for what the president claims is Russia’s continued arming of separatists in eastern Ukraine. Neither of these reasons makes much sense because neither case has been proven. The administration began blaming Russia for the downing of the plane just hours after the crash, before an investigation had even begun. The administration claimed it had evidence of Russia’s involvement but refused to show it.

Later, the Obama administration arranged a briefing by “senior intelligence officials” who told the media that “we don’t know a name, we don’t know a rank and we’re not even 100% sure of a nationality,” of who brought down the aircraft. So Obama then claimed Russian culpability because Russia’s “support” for the separatists in east Ukraine “created the conditions” for the shoot-down of the aircraft. That is a dangerous measure of culpability considering US support for separatist groups in Syria and elsewhere. Similarly, the US government claimed that Russia is providing weapons, including heavy weapons, to the rebels in Ukraine and shooting across the border into Ukrainian territory. It may be true, but again the US refuses to provide any evidence and the Russian government denies the charge. It’s like Iraq’s WMDs all over again. Obama has argued that the Ukrainians should solve this problem themselves and therefore Russia should butt out.

I agree with the president on this. Outside countries should leave Ukraine to resolve the conflict itself. However, even as the US demands that the Russians de-escalate, the United States is busy escalating! In June, Washington sent a team of military advisors to help Ukraine fight the separatists in the eastern part of the country. Such teams of “advisors” often include special forces and are usually a slippery slope to direct US military involvement. On Friday, President Obama requested Congressional approval to send US troops into Ukraine to train and equip its national guard. This even though in March, the president promised no US boots on the ground in Ukraine. The deployment will be funded with $19 million from a fund designated to fight global terrorism, signaling that the US considers the secessionists in Ukraine to be “terrorists.” Are US drone strikes against these “terrorists” and the “associated forces” who support them that far off?

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There’s much more where this came from.

New Drilling Largely Financed With Debt, Deferred Taxes (Oilprice.com)

Major oil and gas companies are taking on an increasing share of debt in order to maintain drilling momentum, according to data from the U.S. Energy Information Administration. Beginning around 2010, energy companies have been increasing their spending, particularly in the United States, as the tight oil revolution took off. Major firms snatched up acreage in oil-rich shale formations like the Bakken and the Eagle Ford and began drilling at a frenzied pace. The significant outlays required to ramp up such an operation were offset by the rising price of oil, which allowed oil companies to expand their operations without having to take on substantial volumes of debt. But after several years of increases, global oil prices began to plateau in mid-2011 and have stayed relatively steady since then. In fact, 2013 experienced the least oil price volatility since 2006.

And oil prices in 2014 have remained remarkably consistent, especially taking into account record levels of global demand and the abundance of geopolitical tension around the globe, from Ukraine to Iraq and Syria. As a result of oil prices trading in a narrow band – roughly between $100 and $120 for Brent Crude and $90 and $105 for WTI – revenues for oil and gas companies flattened out even as their costs continued to rise. From 2012 through the beginning of 2014, average cash from drilling operations increased by $59 billion over the same average seen in 2010-2011. But spending rose at a faster clip: up more than $136 billion. The yawning gap that opened up between spending and revenues has largely been closed by the acquisition of more debt.

For shale drillers in particular, debt has doubled over the last four years while revenues grew at a meager 5.6%. As the EIA points out, taking on debt is not necessarily a bad thing, especially if it is used to invest in new sources of production and growth. But a new report from Taxpayers for Common Sense points to one other factor that may be contributing to the rise in spending long after earnings flat-line. Under the U.S. tax code, oil and gas companies can defer billions of dollars in taxes by maintaining elevated levels of spending. That is partly by design. Drilling new oil and gas wells is capital intensive, and thanks to a provision in the 2009 stimulus bill, energy companies can use what is known as “bonus depreciation” to write off all depreciation in a single year, as opposed to spreading it out over future tax cycles.

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And then there’s plain greed.

Colorado Fracking Opponents Losing Local Control Fight (Bloomberg)

Colorado’s compromise with drilling opponents has dealt a blow to environmentalists’ expanding battle to give local communities more control to limit fracking. Governor John Hickenlooper and Representative Jared Polis agreed to a deal that weakened the prospects for two proposed ballot initiatives aimed at restricting oil and gas activity, the two men said at a news conference in Denver yesterday. Polis, who was expected to help finance the campaign for the measures, agreed to withdraw his support after Hickenlooper promised to create a task force to study the industry’s impact on local communities.

“Responsible oil and gas development in Colorado is critical to our economy, our environment, our health and our future,” said Hickenlooper. The Democrat, who told a Senate committee last year that he drank fracking fluid to prove its safety, has been a strong proponent of drilling. Colorado crude output grew faster than in any other state in 2013. Ballot initiative proponents said they planned to proceed with their proposals to restrict fracking unless the backers of two competing measures supported by the energy industry agreed to drop their plans. “Until we receive confirmation that the industry is withdrawing Initiatives 121 and 137, we are continuing to move forward,” said Mara Sheldon, a spokeswoman for the anti-drilling group, Safe. Clean. Colorado.

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Great Farrell.

300 Million Self-Hating Americans Need A New Dr. Freud (Paul B. Farrell)

Yes, America has a deep, dark self-destructive secret: We hate ourselves. We hate America. Yes, Americans are consumed with self-hatred. Can’t face our demons. In denial, destroying our great nation. Basic psychology: A dangerous virus infects America’s collective unconscious. We project our self-hatred on our enemies, the world “out there,” blaming leaders, bosses, neighbors, family. American souls are in so much pain, we attack everyone, anyone, those closest. Yes, basic psychology. Freud, Jung warned us. Self-haters must blame. Can’t stand the darkness festering within. Project on “them,” blaming others, anyone. Self-haters carry a deep secret the therapist seeks, to help free them from their self-destructive pain. The big problem is, this virus is spreading fast. Millions of self-hating Americans collect and dump their secrets in our one big collective unconscious.

Hidden deepest: Our fear America has “peaked.” America is declining. To 1% GDP. Wars will accelerate. Do-nothing politics. Widening inequality. All hiding under the disappearing myth of the American Dream, a future where if you just work hard, tomorrow will be better than today, for our children, ourselves, everyone in this great nation. Gone. An illusion. Yes, deep within our souls is America’s new collective reality. No longer leader of the free world, we’re falling behind, falling into a self-hatred so painful we block it from our conscious mind. In denial, we won’t take personal responsibility for our pain, our recovery. Instead, we get rid of it … get someone else to take our pain … someone to blame … someone “out there” to take these overwhelming feelings. Americans can’t stand who we’ve become, what we’re done to ourselves, must blame someone, find someone to take away our painful self-hatred secret.

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We keep seeing real heroes in the Ebola case.

Ebola Drug Made From Tobacco Plant Saves US Aid Workers (Bloomberg)

A tiny San Diego-based company provided an experimental Ebola treatment for two Americans infected with the deadly virus in Liberia. The biotechnology drug, produced with tobacco plants, appears to be working. In an unusual twist of expedited drug access, Mapp Biopharmaceutical Inc., which has nine employees, released its experimental ZMapp drug, until now only tested on infected animals, for the two health workers. Kentucky BioProcessing LLC, a subsidiary of tobacco giant Reynolds American Inc., manufactures the treatment for Mapp from tobacco plants. The first patient, Kent Brantly, a doctor, was flown from Liberia to Atlanta on Aug. 2, and is receiving treatment at Emory University Hospital. Nancy Writebol, an aid worker, is scheduled to arrive in Atlanta today and will be treated at the same hospital, according to the charity group she works with. Both are improving, according to relatives and supporters.

Each patient received at least one dose of ZMapp in Liberia before coming to the U.S., according to Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases. “There’s a very scarce number of doses,” and it’s not clear how many each patient needs for treatment, Fauci said. “I’m not sure how many doses they’ll get.” [..] The antibody work came out of research projects funded more than a decade ago by the U.S. Army to develop treatments and vaccines against potential bio-warfare agents, such as the Ebola virus, Arntzen said in a telephone interview. The tobacco plant production system was developed because it was a method that could produce antibodies rapidly in the event of an emergency, he said. To produce therapeutic proteins inside a tobacco plant, genes for the desired antibodies are fused to genes for a natural tobacco virus. The tobacco plants are then infected with this new artificial virus.

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