poverty Archives - Page 3 of 5 - The Automatic Earth

Sometime in the late 1980s, a friend who was on the libertarian right of the Conservative Party explained the idea of the property-owning democracy to me. The point, he said, was to detach the respectable working class from their poorer neighbours, encourage them to identify with the middle-class and thereby turn them into Tories. It worked for a while. Middle earners had been doing relatively well since the 1970s and home ownership was within the reach of many once mortgages became more readily available. Helped along by cheap council house sales, home ownership rose. In recent years, though, things have started shifting back the other way. The property-owning democracy is now looking like a one-off event rather than the ongoing process it was meant to be. Property analyst Neal Hudson pointed out that, as a proportion of all tenure, home ownership peaked in 2003 but mortgage ownership peaked in 1996. As older property owners paid off their housing debts, they were not being replaced at the same rate by new mortgagors.

[..] As the Resolution Foundation comments: The typical mortgagor AHC income is now twice that of the typical social renter, and over the past decade this income has grown by 17% compared to just 4% growth for the typical private renter. Even more than was the case before the financial crisis, the living standards split between those who own their own home and those who do not has become a key divide. While the proportion of households owning their own homes has fallen generally, that decline has been sharper among those on low to middle incomes. (Defined by the Resolution Foundation as working-age households with someone in work but with less than the median household income.) In the mid 1990s, over half of those on low to middle incomes were mortgagors. Now that has fallen to a third. Over the same period, private renting among this group rose.

Last week’s report on poverty and inequality by the Institute for Fiscal Studies notes that most of those in poverty (defined as income less than 60% of the median) are now from households where someone is in work. “[R]elative poverty among children and working-age adults has increased and, over the past 20 years or so, has increasingly become an in-work phenomenon due to declines in worklessness, low earnings growth and widening earnings inequality.”

What bubble?

• Case-Shiller Home Prices Disappoint But Hit New Record High (ZH)

Great news ‘Murica – your house has never been worth more than it was in May (according to Case-Shiller’s national home price index). On the slightly less silver-lining side of the equation, April’s 0.28% gain in price was revised to 0.18% MoM drop and May’s proint disappointed at just 0.1% rise MoM. The 20-city property values index increased 5.7% y/y (est. 5.8%). All cities in the index showed year-over-year gains, led by a 13.3% advance in Seattle, an 8.9% increase in Portland and a 7.9% gain in Denver.

After seasonal adjustment, Seattle had the biggest month-over-month increase, at 0.9%, while New York posted a 0.6% decline. “Home prices continue to climb and outpace both inflation and wages,” David Blitzer, chairman of the S&P index committee, said in a statement. “The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.”

Just keep paying the piper.

• Australian Housing Affordability the Worst in 130 Years (Soos/David)

The astronomical bubble in Australian housing prices has generated plenty of commentary regarding the current lack of affordability. This state of affairs clearly concerns aspiring home buyers everywhere, and Sydney and Melbourne in particular. First home buyers (FHBs) face almost insurmountable odds: the highest price to income and deposit to income ratios, the lowest savings rates, runaway dwelling prices, weak wage growth, including a political and economic establishment hell-bent on ensuring land prices keep on inflating no matter the wider cost to the economy. The legion of vested interests – basically 99% of commentators – choose to contend housing is actually more affordable today than back in the days of high mortgage interest rates, especially when rates peaked at 17% in 1989.

This is demonstrated by the standard mortgage payment to household income formula shown above, assuming 80% loan to value ratio (LVR). Their contention is bogus, however, because the metric is a static one, displaying mortgage payments to income at a particular point in time. The peak in 1989, for instance, is very high if, and only if, prices, interest rates and incomes remain constant over the life of the mortgage. Yet, these variables change by the next period. So, a more dynamic approach is required to assess housing affordability. The correct method was advocated by Glenn Stevens in 1997, Guy Debelle in 2004 and other economists like Dean Baker, who identified the US housing bubble and predicted the Global Financial Crisis in 2002. The important factor to consider is the effect wage inflation has upon mortgage payments.

While high mortgage interest rates result in large mortgage payments relative to income, this only occurs in the early years of the mortgage as high wage growth inflates away the burden. In contrast, borrowers facing high housing prices with low interest rates and poor wage growth face a greater burden across the life of the mortgage due to greater payments to income. This housing affordability analysis is applied to long-term annual data between 1880 and 2016, anchored to the median house price at an LVR of 80% at the start of each decade thereon. While data on mortgage interest rates and wage growth for the years after 2016 cannot be known, they are assumed to hold still at the present rates: 5.4% for the mortgage interest rate and 1.4% for wages. The following chart illustrates the outcome of applying this method, demonstrating the proportion of aggregate mortgage payments to household income over the 25 years of the mortgage. The results are overpowering.

Well, that’s what Draghi’s QE guarantees.

• There Are More ‘Zombie’ Companies In Europe Now Than Pre-Lehman (CNBC)

The ECB needs to beware of raising interest rates too quickly as there are a significant number of “zombie firms” in Europe that have become too dependent on cheap credit, according to analysis by the Bank of America Merrill Lynch. Barnaby Martin, head of European Credit Strategy at BofA Merrill Lynch, said businesses in Europe which have benefited from the ECB’s corporate bond purchase program would struggle once the bank raises interest rates, expected sometime in 2018. “The worst kept secret in the market is Mario Draghi is going to be tapering monetary policy next year and yet last week he was super, super dovish so I think that we’ve forgotten that monetary policy in Europe is on its way out,” he told CNBC on Tuesday, adding “there’s clearly political pressure for him to move away from this extraordinary era.”

“So the question becomes ‘can we handle a rapid rise in interest rates?’,” he said. ECB stimulus measures as part of its quantitative easing program designed to boost the European economy currently amount to €60 billion ($69.9 billion) a month. Some of this money goes into purchasing corporate bonds. While these purchases have enabled companies to continue to operate and invest, aiding a recovery in the European economy, the bank’s purchases have been credited for keeping ailing companies alive, hence the name “zombies.” The ECB started purchasing corporate bonds in June 2016 as part of its “corporate sector purchase program” (CSPP) and, as of June 7, 2017, its CSPP holdings stood at €92 billion, the bank said.

In a note examining “The rise of the Zombies” BofA Merrill Lynch’s credit strategists Martin, Ionnis Angelakis and Souhair Asba noted that 9% of non-financial companies in Europe (by market cap of Stoxx 600) are zombies, with “very weak interest coverage metrics.” “Note that this is still quite a high number: It was around 6% pre-Lehman, and fell to 5% in late 2013 after the peripheral crisis had faded,” they said. “The plethora of monetary support in Europe over the last 5 years has allowed companies with weak profitability to continue to refinance their debt and stave off defaults.” The analyst team also noted that bond issuance had been concentrated in “the hands of a few.” “Year-to-date, the top 20 bonds issuers have accounted for 40% of supply. In 2015 and 2016, the number was closer to 25%. The result has been that “superfirms” have been quietly building across the credit market,” they noted.

“The Netherlands says they won’t let the UK be an offshore tax haven. That’s because they don’t want them taking their business.”

• Netherlands and UK Are Biggest Channels For Corporate Tax Avoidance (G.)

Almost 40% of corporate investments channelled away from authorities and into tax havens travel through the UK or the Netherlands, according to a study of the ownership structures of 98m firms. The two EU states are way ahead of the rest of the world in terms of being a preferred option for corporations who want to exploit tax havens to protect their investments. The Netherlands was a conduit for 23% of corporate investments that ended in a tax haven, a team of researchers at the University of Amsterdam concluded. The UK accounted for 14%, ahead of Switzerland (6%), Singapore (2%) and Ireland (1%). Every year multinationals avoid paying £38bn-£158bn in taxes in the EU using tax havens. In the US, tax evasion by multinational corporations via offshore jurisdictions is estimated to be at least $130bn (£99bn) a year.

The researchers reported that there were 24 so-called “sink” offshore financial centres where foreign capital was ultimately stored, safe from the tax authorities. Of those, 18 are said to have a current or past dependence to the UK, such as the Cayman Islands, Bermuda, the British Virgin Islands and Jersey. The tax havens used correlated heavily to which conduit country was chosen by the multinational’s accountants. The UK is a major conduit for investments going to European countries and former members of the British Empire, such as Hong Kong, Jersey, Guernsey or Bermuda, reflecting the historical links and tax treaties enjoyed by firms setting up in Britain. The Netherlands is a principal conduit for investment ending in Cyprus and Bermuda, among others. Switzerland is used as a conduit to Jersey. Ireland is the route for Japanese and American companies to Luxembourg.

[..] Dr Eelke Heemskerk, who led the research, said that the work showed the importance of developed countries cleaning up their financial sectors. He said: “In the context of Brexit, where you have the UK threatening, unless they get a deal, to change their model to be attractive to companies who want to protect themselves from taxes, well, they are already doing it. “The Netherlands says they won’t let the UK be an offshore tax haven. That’s because they don’t want them taking their business.”

Russia’s getting an invaluable lesson in self-suffciency. There’s nothing like it.

• US Sanctions Have Taken A Big Bite Out Of Russia’s Economy (CNBC)

Congress moved Tuesday to step up sanctions on a shrinking Russian economy that is already struggling under the weight of low oil prices, high inflation and a battered currency that has sent capital fleeing. In response to Moscow’s interference in the 2016 U.S. presidential election, the House voted overwhelmingly to tighten existing economic sanctions imposed in 2014 following the Russian invasion of Crimea. Among other things, the measures freeze assets and prohibit transactions with specific Russian companies and individuals, restrict financial transactions with Russian firms, and ban certain exports that are used in oil and gas exploration or have possible military uses.

Those 2014 U.S. sanctions were paired with related measures imposed by the European Union, which placed restrictions on business with Russia’s financial, defense and energy sectors. Today, Russia’s economy is still feeling the harsh impact of those measures, which coincided with a crash in global oil prices that cut deeply into revenues from the country’s main export. The loss of oil revenues – a drop of as much as 60%, according to a 2017 Congressional Research Service report — helped spark a collapse in Russia’s currency, the ruble, sending the prices of Russian consumer goods soaring. The Russian economy has also been hurt by a wave of capital flight out of the country, as individual Russians sought to move money offshore and convert their shrinking rubles to dollars and euros to protect their wealth. That money flow slowed in 2014 as U.S. and European sanctions took hold.

Though U.S. sanctions have put pressure on the Russian economy, the impact on American business has been limited because Russia makes up less than 1% of U.S. exports. Only six U.S states count Russia as a significant market for goods and services. Washington, the most reliant, sells roughly 1% of its total exports to Russia, consisting mostly of machinery and farm products. That’s half the level before the 2014 sanctions took effect. European nations, which export greater volumes to Russia than the U.S., imposed their own set of sanctions response to the Crimean annexation.

“The floundering non-elite masses have not learned the harsh lesson of our time that the virtual is not an adequate substitute for the authentic..”

• The Value of Everything (Jim Kunstler)

We are looking more and more like France on the eve of its revolution in 1789. Our classes are distributed differently, but the inequity is just as sharp. America’s “aristocracy,” once based strictly on bank accounts, acts increasingly hereditary as the vapid offspring and relations of “stars” (in politics, showbiz, business, and the arts) assert their prerogatives to fame, power, and riches — think the voters didn’t grok the sinister import of Hillary’s “it’s my turn” message? What’s especially striking in similarity to the court of the Bourbons is the utter cluelessness of America’s entitled power elite to the agony of the moiling masses below them and mainly away from the coastal cities. Just about everything meaningful has been taken away from them, even though many of the material trappings of existence remain: a roof, stuff that resembles food, cars, and screens of various sizes.

But the places they are supposed to call home are either wrecked — the original small towns and cities of America — or replaced by new “developments” so devoid of artistry, history, thought, care, and charm that they don’t add up to communities, and are so obviously unworthy of affection, that the very idea of “home” becomes a cruel joke. These places were bad enough in the 1960s and 70s, when the people who lived in them at least were able to report to paying jobs assembling products and managing their distribution. Now those people don’t have that to give a little meaning to their existence, or cover the costs of it. Public space was never designed into the automobile suburbs, and the sad remnants of it were replaced by ersatz substitutes, like the now-dying malls. Everything else of a public and human associational nature has been shoved into some kind of computerized box with a screen on it.

The floundering non-elite masses have not learned the harsh lesson of our time that the virtual is not an adequate substitute for the authentic, while the elites who create all this vicious crap spend millions to consort face-to-face in the Hamptons and Martha’s Vineyard telling each other how wonderful they are for providing all the artificial social programming and glitzy hardware for their paying customers. The effect of this dynamic relationship so far has been powerfully soporific. You can deprive people of a true home for a while, and give them virtual friends on TV to project their emotions onto, and arrange to give them cars via some financing scam or other to keep them moving mindlessly around an utterly desecrated landscape under the false impression that they’re going somewhere — but we’re now at the point where ordinary people can’t even carry the costs of keeping themselves hostage to these degrading conditions.

The kind of independence that tends to be bad for a man’s health.

• Bolivia’s President Declares ‘Total Independence’ from World Bank and IMF (AHT)

Bolivia’s President Evo Morales has been highlighting his government’s independence from international money lending organizations and their detrimental impact the nation, the Telesur TV reported. “A day like today in 1944 ended Bretton Woods Economic Conference (USA), in which the IMF and WB were established,” Morales tweeted. “These organizations dictated the economic fate of Bolivia and the world. Today we can say that we have total independence of them.” Morales has said Bolivia’s past dependence on the agencies was so great that the IMF had an office in government headquarters and even participated in their meetings. Bolivia is now in the process of becoming a member of the Southern Common Market, Mercosur and Morales attended the group’s summit in Argentina last week.

Bolivia’s popular uprising known as the The Cochabamba Water War in 2000 against United States-based Bechtel Corporation over water privatization and the associated World Bank policies shed light on some of the debt issues facing the region. Some of Bolivia’s largest resistance struggles in the last 60 years have targeted the economic policies carried out by the IMF and the World Bank. Most of the protests focused on opposing privatization policies and austerity measures, including cuts to public services, privatization decrees, wage reductions, as well the weakening of labor rights. Since 2006, a year after Morales came to power, social spending on health, education, and poverty programs has increased by over 45%.

A tour de force by Bill Mitchell. Germany’s profiting so much off of Greece’s despair that it can hide its own economic pitholes with it.

• Germany Fails To Honour Its Part Of The Greek Bailout Deal (Bilbo)

Effectively the “German Federal Government – through KfW” is providing funds to Greece as part of the bailout. On May 20, 2014, the KfW issued a further press statement – Institution for Growth in Greece (IfG) – which further details the way in which German government bailout support is channeled through the KfW. For example, in relation to the “three planned IfG sub-funds … The Hellenic Republic and KfW — on behalf of the German Federal Government — will each contribute EUR 100 million in funding debt to this sub-fund.” Clear enough. The Süddeutsche Zeitung article says that since 2010, these loans granted to Greece through the KfW have generated 393 million euros of interest income net of refinancing costs [..] A handy sum. And what is more – the profits generated have not been transferred to the Greek government.

Further gains were made on the Greek bailouts via the ECB’s Securities Market Program (SMP), which has generated German gains of around $€952 million, through ECB distributions of the profits to the Member State central banks. A similar story appeared in the English-version of the Handelsbatt next day (July 12, 2017) – Germany Profits From Greek Debt Crisis. It essentially sourced the Süddeutsche Zeitung and made the story more accessible (repeating it in English). It says that: “The German government has long been accused by critics of profiting from Greece’s debt crisis. Now there are some new numbers to back it up: Loans and bonds purchased in support of Greece over nearly a decade have resulted in profits of €1.34 billion for Germany’s finance ministry.”

The issue became public because the Greens parliamentary representatives have challenged the morality of the German government’s decision not to redistribute the profits and the role played by the KfW. The Greens representative was reported as saying that: “The profits from collecting interest must be paid out to Greece … Wolfgang Schäuble cannot use the Greek profits to clean up Germany’s federal budget …” It has long been claimed that “Greece’s crisis has helped” Schäuble keep the German fiscal balance in surplus. The KfW have been part of that. We knew back in 2015 that the KfW was helping the Finance Ministry generate fiscal surpluses.

On March 5, 2015, the German daily newspaper Rheinische Post published a report – So geht es den Griechen wirklich – presented a summary of a 40-page document that the German Finance Ministry had provided in response to a demand for information from the Linksfraktion (German Left Party Die Linke). The Finance Ministry document conceded that: “Between 2010 to 2014, the KfW has paid out around 360 million euro in revenues to the German government and in the coming years the federal government is expecting around 20 million euro per year on interest revenues.”

The Greek economy is worse than ever, but now people trust it?

• Insolvent Greece Goes To Market 2.0 (Varoufakis)

Why do I refuse to be impressed by the news of Greece’s return to the markets? “It is because the Greek state and the Greek banks remain deeply insolvent. And, their return to the money markets is a harbinger of the next terrible phase of Greece’s crisis, rather than a cause for celebration”. The above was my answer in a BBC interview on 9th April… 2014! It is also the only answer that fits today’s announcement of Greece’s new bond issue. Indeed, why script a new article, when that old post offers a most helpful response to the question: “What should the world think of Greece’s new bond issue?”

The only thing I need to add to these circa 2014 posts is this: The Tsipras government today is simply rolling over precisely the same bond that the Samaras-Venizelos-Stournaras government issued in 2014 – the subject matter of my criticism above. This is a remarkable U-turn by Mr Tsipras and his ministers. In 2014 they had sided entirely with my criticism of the then government’s argument that Greece’s return to the markets, with the issue of that one bond, was a sign the country was achieving escape velocity from the gravitational pull of its debt-deflationary crisis. Now, they are not only parroting the same arguments as Samaras-Venizelos-Stournaras but they are, lo and behold, rolling over the same bond! I rest my case.

It’s not that hard.

• Nine Out Of 10 People Call For ‘Plastic-Free Aisle’ In Supermarkets (Ind.)

Nine out of 10 people want supermarkets to introduce a “plastic-free aisle”, according to a new poll amid rising concern about pollution. The survey – of 2,000 British adults by Populus – was commissioned by campaign group A Plastic Planet, which said it was clear that the public wanted an alternative to “goods laden with plastic packaging”. Evidence of the synthetic substance’s harmful effects on the natural world is growing. Since 1950, humans have produced 8.3 billion tons of the stuff, with 6.3 billion tons being sent to landfill sites or simply being dumped in what scientists described as an “uncontrolled experiment” on the planet. Plastic, which acts like a magnet for toxic chemicals in the environment, breaks down into tiny pieces that are capable of passing through animals’ gut walls and into their body tissue.

The UN warned in a report last year that “the presence of microplastic in foodstuffs could potentially increase direct exposure of plastic-associated chemicals to humans and may present an attributable risk to human health”. A third of seabirds in the North Sea were also found to be suffering “widespread breeding failure”, largely because of plastic waste. The new poll found 91% of people supported aisles free from plastic packaging and 81% said they were concerned “about the amount of plastic packaging that is thrown away in the UK”. Sian Sutherland, a co-founder of A Plastic Planet, said: “It’s becoming increasingly clear that the Great British public wants a fresh alternative to goods laden with plastic packaging. Too much of our plastic waste ends up in oceans and landfill.

Am I a bad person for thinking that maybe this isn’t such a bad thing? Who wants more of us?

I like the term “semen parameters”. Name for a band. Double billing with Pussy Riot.

• Sperm Counts In The West Plunge By 60% In 40 Years (Ind.)

Sperm counts have plunged by nearly 60% in just 40 years among men living in the West, according to a major review of scientific studies that suggests the modern world is causing serious damage to men’s health. Pesticides, hormone-disrupting chemicals, diet, stress, smoking and obesity have all been “plausibly associated” with the problem, which is associated with a range of other illnesses such as testicular cancer and a generally increased mortality rate. The researchers who carried out the review said the rate of decline had showed no sign of “levelling off” in recent years. The same trend was not seen in other parts of the world such as South America, Africa and Asia, although the scientists said fewer studies had been carried out there.

One expert commenting on the study said it was the “most comprehensive to date”, and described the figures as “shocking” and a “wake-up call” for urgent research into the reasons driving the fall. Writing in the journal Human Reproduction Update, the researchers – from Israel, the US, Denmark, Brazil and Spain – said total sperm count had fallen by 59.3% between 1971 and 2011 in Europe, North America, Australia and New Zealand. Sperm concentration fell by 52.4%. “Sperm count and other semen parameters have been plausibly associated with multiple environmental influences, including endocrine disrupting chemicals, pesticides, heat and lifestyle factors, including diet, stress, smoking and body-mass index,” the paper said. “Therefore, sperm count may sensitively reflect the impacts of the modern environment on male health throughout the life course.”

Debt Rattle July 9 2017

Jul 092017

July 9, 2017 Posted by Raúl Ilargi Meijer at 8:57 am Finance Tagged with: Africa, austerity, boomers, freehold, NATO, poverty, Putin, river, Shale, tabloid, Trump Comments Off

Hieronymus Bosch St. John on Patmos 1489

• The Trump Effect Turns Every Paper Into A Tabloid (G.)

• G20 Launches Plan To Fight Poverty In Africa (AFP)

• The Russian Economy If You Aren’t Wearing NATO Night-Fighting Goggles (Helmer)

• Britain Isn’t Greece, Prime Minister (BBG Ed.)

• Baby Boomers Not Financially Prepared For Retirement (MW)

• UK Homebuyers Desperate To Know Who Really Owns Their Freehold (G.)

• Wall Street Cash Pumps Up Shale Oil Production Even as Prices Sag (WSJ)

• Polluted Indian River Reported Dead Despite ‘Living Entity’ Status (G.)

An inevitable story. And a too-easy trap: the Guardian presumes that it itself escapes this. It doesn’t. Blaming Trump for that is false: he doesn’t write the stories. Every news outlet is responsible for its own journalistic standards. “Trump made me do it” lacks all credibility. And besides, the Guardian, like so many US media, has been trying to put Trump down for a long time. Just like it hammered Jeremy Corbyn as ‘unfit’ and much worse until it did an embarrassing 180. Is Trump right in reacting as agressively as he has and does? Perhaps not, probably not. But is he justified? Perhaps he is. In the end for the media this is about the beam in thine own eye.

• The Trump Effect Turns Every Paper Into A Tabloid (G.)

You can find exactly the same fractured dialogue in Britain, too. What did the surprise of the Brexit vote show? Here’s another tidal wave of articles talking about the non-metropolitan forgotten masses. That, briefly, seemed a national call for understanding and change, one inchoately confirmed in the June election. But see how deafness and disdain soon set in. Let’s blame something – Boris, Rupert Murdoch, Paul Dacre, the BBC – for Brexit. Let’s contemplate the rise of Jeremy Corbyn and press a panic button. The Mail talks about “fake news, the fascist left and the REAL purveyors of hate”. Guardian columnists denounce the “open sewer” of Dacre coverage. Terms like “Tory scum” float from protesters’ posters into the new mass media. Jon Snow, amongst others, gets pasted for his supposed views about modern Conservatism. Irate Leave MPs stomp on the BBC welcome mat.

And every new day seems to bring fresh ingredients. Kensington council seeks to shut journalists out of its crucial meeting. Andrea Leadsom extols a “patriotic” press. There’s a raw edge to the debate now, sharpened after Grenfell Tower by outbreaks of pure and, sometimes, simulated rage. But: “Sit up, though, and look around. You may notice that, amid almost no public outrage whatsoever, we are quite a lot closer than once we were” to losing press freedom, says Hugo Rifkind in the Times. This is politics, and journalism, from the trenches as trust in the media plummets both here and in the US: American trust in the media down to just 38% in the latest Reuters Institute findings, the UK seven points down to 43%. Blame “deep-rooted political polarisation and perceived mainstream media bias”, says Reuters. In short, blame the frenzied state we’re in.

[..] observe how the new nihilism of scum and sewers brings its own narrow benefits. Richard Cohen in the Washington Post arrives clear-eyed. “Circulation is up. Eyeballs are popping. Trump is political pornography – gripping, exciting, lewd, fascinating. He devours adjectives so that, soon, we run out of them. The bizarre becomes ordinary. But he has done his damage. He has normalised contempt for the news media, framing it as a daily tussle between him, the tribune of the people, and us, vile overeducated snobs.”

And Jeet Heer of the New Republic pushes the argument on a notch as he charts the advantage of Trump’s alignment with the likes of the National Enquirer: “The tabloids offer a sordid vision of society, where the mainstream image of celebrities elides their secretly miserable lives (whether because of addiction, ageing, infidelity, or bankruptcy). In this nihilistic world, everyone is corrupt and every public statement is a lie. And if everyone is equally bad and untrustworthy, there’s no reason to hold Trump to any higher standard. This, ultimately, is why Trump and the tabloids were made for each other: They’re both committed to defining deviancy down.”

And while we’re at it, Guardian, let’s denounce this kind of thing for what it is. The G20 countries are responsible for poverty in Africa, and they’re not now going to solve it too. Just like the Paris agreement is complete nonsense: schemes to get rich.

• G20 Launches Plan To Fight Poverty In Africa (AFP)

G20 nations launched an unprecedented initiative Saturday at the group’s summit in Germany to fight poverty in Africa, but critics called the plan half-hearted. Under German Chancellor Angela Merkel’s “Investment Compacts”, an initial seven African countries would pledge reforms and receive technical support in order to attract new private investment. More than half of Africans are under 25 years old and the population is set to double by mid-century, making economic growth and jobs essential for the young to stop them from leaving, Merkel has said. Germany’s partner nations are Ghana, Ivory Coast and Tunisia, while Ethiopia, Morocco, Rwanda and Senegal are also taking part. Far poorer nations such as Niger or Somalia are so far not on the list.

“We are ready to help interested African countries and call on other partners to join the initiative,” said the G20 in their final communique. The plan, as well as multinational initiatives on helping girls, rural youths and promoting renewable energy, would help “to address poverty and inequality as root causes of migration”. Some 100,000 people, most of them sub-Saharan Africans, have made the dangerous journey to Europe across the Mediterranean in rickety boats this year as the migration crisis shows no sign of abating. Anti-poverty group ONE said that the investment compacts “promised much, but too many G20 partners missed the memo and failed to contribute. “The flimsy foundations must now be firmed up, follow through and improved, especially for Africa’s more fragile states.”

“..it is the most self-sufficient and diversified economy in the world.” Which is funny when you hear Putin argue against protectionism.

• The Russian Economy If You Aren’t Wearing NATO Night-Fighting Goggles (Helmer)

If your enemy is waging economic war on you, it’s prudent to camouflage how well your farms and factories are doing. Better the attacker thinks you’re on your last legs, and are too exhausted to fight back. A new report on the Russian economy, published by Jon Hellevig, reveals the folly in the enemy’s calculation. Who is the audience for this message? US and NATO warfighters against Russia can summon up more will if they think Russia is in retreat than if they must calculate the cost in their own blood and treasure if the Russians strike back. That’s Russian policy on the Syrian front, where professional soldiers are in charge. On the home front, where the civilians call the shots, Hellevig’s message looks like an encouragement for fight-back – the economic policymaker’s equivalent of a no-fly zone for the US and European Union. It’s also a challenge to the Kremlin policy of appeasement.

Hellevig, a Finnish lawyer and investment analyst, has been directing businesses in Russia since 1992. His Moscow-based consultancy Awara has published its assessment of Russian economic performance since 2014 with the title, “What Does Not Kill You Makes You Stronger.” The maxim was first coined by the `19th century German philosopher Friedrich Nietzsche. He said it in a pep talk for himself. Subsequent readers think of the maxim as an irony. Knowing now what Nietzsche knew about his own prognosis but kept secret at the time, he did too. The headline findings aren’t news to the Kremlin. It has been regularly making the claims at President Vladimir Putin’s semi-annual national talk shows; at businessmen’s conventions like the St. Petersburg International Economic Forum (SPIEF); and in Kremlin-funded propaganda – lowbrow outlets like Russia Today and Sputnik News, and the highbrow Valdai Club.

A charter for a brand-new outlet for the claims, the Russian National Convention Bureau, was agreed at the St. Petersburg forum last month. Government promotion of reciprocal trade and inward investment isn’t exceptional for Russia; it is normal practice throughout the world. The argument of the Hellevig report is that the US and NATO campaign against Russia has failed to do the damage it was aimed to do, and that their propaganda outlets, media and think-tanks are lying to conceal the failure. Small percentage numbers for the decline in Russian GDP and related measures are summed up by Hellevig as “belt-tightening, not much more”. Logically and arithmetically, similarly small numbers in the measurement of the Russian recovery this year ought to mean “belt expanding, not much more.” But like Nietzsche, Hellevig is more optimistic.

Here’s what he concludes:
• “Industrial Production was down merely 0.6%. A handsome recovery is already on its way with an expected growth of 3 to 4% in 2017. In May the industrial production already soared by a promising 5.3%.”
• “Unemployment remained stable all through 2014 – 2016, the hoped-for effect of sanctions causing mass unemployment and social chaos failed to materialize.”
• “GDP was down 2.3% in 2014-2016, expected to more than make up for that in 2017 with 2-3% predicted growth.”
• “The really devastating news for ‘our Western partners’ (as Putin likes to refer to them) must be – which we are the first to report – the extraordinary decrease in the share of oil & gas revenue in Russia’s GDP.”
• “In the years of sanctions, Russia has grown to become an agricultural superpower with the world’s largest wheat exports. Already in the time of the Czars Russia was a big grain exporter, but that was often accompanied with domestic famine. Stalin financed Russia’s industrialization to a large extent by grain exports, but hereby also creating domestic shortages and famine. It is then the first time in Russia’s history when it is under Putin a major grain exporter while ensuring domestic abundance. Russia has made an overall remarkable turnaround in food production and is now virtually self-sufficient.”
• “Russia has the lowest level of imports (as a share of the GDP) of all major countries… Russia’s very low levels of imports in the global comparison obviously signifies that Russia produces domestically a much higher share of all that it consumes (and invests), this in turn means that the economy is superbly diversified contrary to the claims of the failed experts and policymakers. In fact, it is the most self-sufficient and diversified economy in the world.

Bloomberg argues that austerity is bad for Britain but good for Greece. Blind bats.

• Britain Isn’t Greece, Prime Minister (BBG Ed.)

Britain’s government isn’t due to announce a new budget until the autumn, but debate is already raging over public-sector pay. With Brexit bearing down, the embattled prime minister, Theresa May, will have to choose between making another embarrassing U-turn and defending a policy that is both unpopular and unnecessary. Sadly for May, the U-turn makes better sense. For years it was an article of faith among Britain’s Conservatives that the budget deficit had to be eliminated — by 2020, if not yesterday. Some Tories are now ready to abandon that line of thinking; others still hold the principle, if not the timetable, sacrosanct. Speaking in Parliament on Wednesday, May came down firmly on the side of austerity: Greece shows you where fiscal indiscipline leads, she argued.

Labour leader Jeremy Corbyn was unmoved. He decried the “low-wage epidemic” and argued that the 1 percent cap on increases in public-sector wages should be removed. Corbyn has a point. Britain’s workers are getting squeezed, especially in the public sector, thanks to rising inflation caused in part by the Brexit-induced fall in sterling. But he’s wrong to look at wages in isolation. Public-sector pay is only one of many claims on the government’s budget. The National Health Service, for instance, is in a state of permanent crisis; spending on care for the elderly and other needs is woefully inadequate. The list of other worthy expenditures is endless. Trying to meet all such claims would indeed be a formula for fiscal collapse. The government has to prioritize.

Where higher wages are needed to recruit and retain workers for essential services, raise them. Where additional public spending is needed to provide vital infrastructure, spur productivity, and support growth, make the investment. In such cases, higher taxes and/or higher public borrowing can be justified. If caps and ceilings are used in a way that makes this necessary flexibility impossible – not as emergency measures, moreover, but as a system of long-term control – they’ll do more harm than good. May’s embrace of blanket austerity, by the way, is bad politics as well as bad economics. Most British voters have forgotten, or never experienced, the ruinous consequences of profligate public spending.

That’s why Corbyn’s expansive promises are more popular than you might expect – and why there’ll be greater support for fiscal control if it’s seen to be smart and discriminating, rather than an act of blind ideological faith. To be sure, the timing for a change of fiscal strategy is hardly propitious. Brexit has alarmed investors, giving the government less room for maneuver. Even so, the government shouldn’t be paralyzed – and shouldn’t argue that cautious flexibility would make the country another Greece. That line won’t fly. Targeted spending to improve vital services and drive future growth is good policy, and Britain’s best buffer against the perils ahead.

What a surprise. Maybe it’s time to inject some reality.

• Baby Boomers Not Financially Prepared For Retirement (MW)

Retirement is right around the corner for baby boomers – if they haven’t already entered it – yet so many are financially unprepared. Baby boomers, or those born between 1946 and 1964, expect they’ll need $658,000 in their defined contribution plans by the time they retire, but the average in those employer-sponsored plans is $263,000, according to a survey of 900 investors by financial services firm Legg Mason. Older boomers, who are 65 to 74, have an average of $300,000. Their asset allocation for all of their investments are also conservative, according to QS Investors, an investment management firm Legg Mason acquired in 2014, with 30% in cash, 24% in equities, 22% in fixed income, 4% in non-traditional assets, 8% in investment real estate, 2% in gold and other precious metals and 8% in other investments.

“They have less than half the assets they hope to have in retirement,” said James Norman, president of QS Investors. “That’s a pretty big miss.” Americans across the country, and all age groups, are drastically under-saved for retirement. Only a third of Americans who have access to a 401(k) plan contribute to it, and previous research suggests the typical middle-aged American couple only has $5,000 saved for the future. Meanwhile, millennials may not be able to picture themselves in retirement at all, though are urged by financial professionals to make a habit of saving, if even only as little as $5. There are a multitude of reasons people may not have enough for retirement, such as having to leave the workforce in between their prime years to care for loved ones, not working long enough to qualify for certain government benefits. or choosing to pay for their childrens’ college tuition instead of saving for their own retirement.

Still, not saving enough was the biggest regret among older Americans, according to a survey of 1,000 participants by personal finance site Bankrate.com. Generation X, or those born between 1965 and 1981, aren’t doing all that much better, though they have the benefit of more time to reach their financial goals. More of them have a defined contribution plan, according to the Legg Mason survey, with an average of $199,000 stashed away for a goal of $541,000 by retirement. They are also investing conservatively, with 25% in cash, 21% in equities, 17% in fixed income, 11% in non-traditional assets, 16% in investment real estate, 7% in gold and other precious metals and 4% in other investments. Conversely, QS Investors suggest their Gen-X aged clients have 80% in equities, which faces more risks from the stock market but could also realize higher returns.

Retirement isn’t the picture-perfect image of lounging on a beach with the idea of a 9-to-5 job long gone. Benefits aren’t the same, either – for example, in 1985, retirees could expect Social Security to cover most of their income and employers typically covered most health-care costs. Retirees 30 years ago also probably didn’t expect to live for decades after resigning at 65, whereas now people are being told to plan to live well into their 80s.

A medieval society.

• UK Homebuyers Desperate To Know Who Really Owns Their Freehold (G.)

Buyers who purchased new properties direct from some of the UK’s biggest builders have been left in the dark as investment companies play pass-the-parcel with the land their homes stand on. Take Joanne Darbyshire, 46, and her husband Mark, 47. They bought a five-bedroom house in Bolton from Taylor Wimpey in 2010, and are among thousands of unfortunate leaseholders put on “doubling” ground rent contracts that in extreme cases have left their properties almost worthless, with mortgage lenders refusing loans to future buyers. The only way to escape the escalating payments is to buy the freehold. But in Darbyshire’s case, Taylor Wimpey sold it to Adriatic Land 2 (GR2) in 2012. In January 2017 that company transferred it to Adriatic Land 1 (GR3), while some of Darbyshire’s neighbours have seen their freeholds transferred from Adriatic Land 2 (GR2) to Abacus Land Ltd.

“You have no idea who owns the land under your feet,” says Darbyshire. “Your dream house is traded from one offshore company to another for tax reasons, or who knows what else?” Paul Griffin (not his real name) bought a property from Morris Homes in Winsford, Cheshire, in November 2014. By last year, when he decided to add a conservatory, his freehold was in the hands of Adriatic Land 3 and managed by its fee-collecting agents HomeGround. Young was horrified to discover he had to pay £108 just to look at his file. Although the conservatory didn’t need local authority planning permission and was not subject to building regulations, HomeGround then demanded £1,200 for a “licence” for the work to go ahead. This was broken down into solicitors fees (£480), surveyors (£360), and its own fee of £360.

On top of this it demanded numerous official documents at Young’s expense totalling about £400. Helen Burke (not her real name) in Ellesmere Port, meanwhile, was shocked to discover that after Bellway sold her freehold to Adriatic, the cost of seeking consent for a small single-storey extension rocketed. Initially, she had applied to Bellway – the freeholder at the time – and it wanted £300. But after putting off the work for a few months she discovered that Bellway had sold the freehold to Adriatic Land 4 (GR1) Ltd. HomeGround then demanded £2,440 for consent. That is not planning permission, which householders must obtain separately from the local authority. It is simply a fee charged without any material services provided.

“It’s daylight robbery,” says Burke. “The most disgusting thing is the developers like Bellway think they are doing nothing wrong selling the freeholds on and state that our T&Cs don’t change. Yes, the lease terms don’t change, but for a permission fee to increase from £300 to £2,440 in a matter of months is disgraceful and it should absolutely be pointed out to new homeowners, up front, that this might happen if they don’t buy the freeholds.” Burke said she was quoted £3,750 to buy the freehold off Bellway, but once it was sold to Adriatic the price quadrupled to £13,000. After a long legal battle she has acquired it for £7,680.

“..$57 billion Wall Street has injected into the sector over the last 18 months.”

• Wall Street Cash Pumps Up Shale Oil Production Even as Prices Sag (WSJ)

Easy Wall Street cash is leading U.S. shale companies to expand drilling, even as most lose money on every barrel of oil they bring to the surface. Despite a 17% plunge in prices since April, drillers are on pace to break the all-time U.S. oil production record, topping 10 million barrels a day by early next year if not sooner, according to government officials and analysts. U.S. crude fell again on Friday, dropping 2.8% to $44.23 a barrel on the New York Mercantile Exchange. Yet the U.S. oil rig count rose Friday to the highest level in more than two years. Operators have now put more than 100 rigs back to work from Oklahoma to North Dakota in the past three months. Companies have more capital to keep drilling thanks to $57 billion Wall Street has injected into the sector over the last 18 months.

Money has come from investors in new stock sales and high-yield debt, as well as from private equity funds, which have helped provide lifelines to stronger operators. Flush with cash, virtually all of them launched campaigns to boost drilling at the start of 2017 in the hope that oil prices would rebound. The new wave of crude has again glutted the market. The shale companies are edged even further from profitability, and a few voices have begun to question the wisdom of Wall Street financing the industry’s addiction to growth. “The biggest problem our industry faces today is you guys,” Al Walker, chief executive of Anadarko, told investors at a conference last month.

Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means, Mr. Walker said, adding: “It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.” Even if companies cut back on drilling now, it wouldn’t be enough to stop a new wave of oil from hitting the market in the second half of the year: U.S. shale output typically lags behind new drilling by four to six months, analysts say. “There’s been insufficient discrimination on the part of sources of capital,” said Bill Herbert, an energy analyst with Piper Jaffray’s Simmons. Big shale companies “are able to get what they want and invest what they want.”

Well, that status was declared dead too. So there. People are next.

• Polluted Indian River Reported Dead Despite ‘Living Entity’ Status (G.)

One morning in late March, Brij Khandelwal called the Agra police to report an attempted murder. Days before, the high court in India’s Uttarakhand state had issued a landmark judgment declaring the Yamuna river – and another of India’s holiest waterways, the Ganges – “living entities”. Khandelwal, an activist, followed the logic. “Scientifically speaking, the Yamuna is ecologically dead,” he says. His police report named a series of government officials he wanted charged with attempted poisoning. “If the river is dead, someone has to be responsible for killing it.” In the 16th century, Babur, the first Mughal emperor, described the waters of the Yamuna as “better than nectar”. One of his successors built India’s most famous monument, the Taj Mahal, on its banks.

For the first 250 miles (400km) of its life, starting in the lower Himalayas, the river glistens blue and teems with life. And then it reaches Delhi. In India’s crowded capital, the entire Yamuna is siphoned off for human and industrial use, and replenished with toxic chemicals and sewage from more than 20 drains. Those who enter the water emerge caked in dark, glutinous sludge. For vast stretches only the most resilient bacteria survive. The waterway that has sustained civilisation in Delhi for at least 3,000 years – and the sole source of water for more than 60 million Indians today – has in the past decades become one of the dirtiest rivers on the planet.

“We have water records which show that, until the 1960s, the river was much better quality,” says Himanshu Thakkar, an engineer who coordinates the South Asia Network on Dams, Rivers and People, a network of rights groups. “There was much greater biodiversity. Fish were still being caught.” What happened next mirrors a larger Indian story, particularly since the country’s markets were unshackled in the early 1990s: one of runaway economic growth fuelled by vast, unchecked migration into cities; and the metastasising of polluting industries that have soiled many of India’s waterways and made its air the most toxic in the world.

Debt Rattle November 17 2016

Nov 172016

November 17, 2016 Posted by Raúl Ilargi Meijer at 9:46 am Finance Tagged with: bubble, Civil War, debt relief, mortgage, NATO, Obama, poverty, rupee, Trump 3 Responses »

Dorothea Lange Salvation Army, San Francisco, California. Unemployed young men 1939

• Who’ll Get Hit by Fallout of $11 Trillion US Commercial Property Bubble? (WS)

• US Mortgage Applications Crash 30% As Borrowing Rates Surge (ZH)

• Congressional Panel Urges Ban On China State Firms Buying US Companies (R.)

• Foreign Central Banks Liquidate Record $375 Billion In US Paper (ZH)

• Panic In India As Gold Price Skyrockets After Currency Ban (AM)

• Modi May Need Six More Months to Replace India’s Junk Banknotes (BBG)

• NATO Prepares for Trump Presidency (Spiegel)

• Singapore’s Recession Risk Rises As October Exports Show 12% Decline (R.)

• China Civil War Is the Real Black Swan (RV)

• You Are Still Crying Wolf (Scott Alexander)

• One In Three UK Working Families Struggle To Pay Energy Bills (G.)

• Canadian Province To Give Every Citizen $1,320 Basic Income (Ind.)

• Obama Defends Globalization On Germany Visit (BBC)

• Athens Clings To Obama’s Words As Focus Shifts To Berlin (Kath.)

• Schaeuble Crushes Greek Debt Relief Hopes that Obama May Have Sowed (GR)

• 37.8% of Greek Children At Risk Of Poverty (Kath.)

• Drowning Deaths In Mediterranean Already 20% Higher Than All Of Last Year (G.)

“The Green Street Commercial Property Price Index has soared 107% from the trough in May 2009 and now exceeds the peak of the totally crazy bubble in 2007 by 26%“.

• Who’ll Get Hit by Fallout of $11 Trillion US Commercial Property Bubble? (WS)

Warnings about the loans, bonds, and commercial-mortgage-backed securities (CMBS) tied to the vast $11-trillion commercial property sector in the US have been hailing down for months. Moody’s Investor Services just warned about the rising delinquency rate of some $360 billion in CMBS it rates. Delinquencies of 60+ days jumped from 4.6% last year to 5.6% in September. Fitch Ratings has been fretting about valuations in the sector, and CMBS, for months. “Valuation and lending trends are not sustainable in the medium term,” it said most recently in its November report. It pinpointed debt backed by apartment buildings as a particular trouble spot. But now it’s also fretting about construction loans, which “experienced the highest loss severity in the last crisis, and we expect a similar trend in the next downturn,” it said.

It’s worried about the banks, whose commercial real estate (CRE) lending has reached “record levels”: “All of the most concentrated banks – those with more than 300% of risk-based capital in CRE – have less than $50 billion in assets and most have assets below $10 billion. These smaller banks also have varying degrees of sophistication in their risk management practices.” Fitch laments that the “timing and severity of this softening is uncertain and depends on factors including interest rates and overall economic conditions.” Alas, since the report was released on Election Day, interest rates have alread jumped. This comes at the worst possible moment, at the peak of the most gigantic CRE price bubble the US has ever seen. The Green Street Commercial Property Price Index has soared 107% from the trough in May 2009 and now exceeds the peak of the totally crazy bubble in 2007 by 26%:

Let’s see if a normal economy can still work.

• US Mortgage Applications Crash 30% As Borrowing Rates Surge (ZH)

Dear Janet…In the last few months, as The Fed has jawboned a rate hike into markets, mortgage applications in America have collapsed 30% to 10-month lows – plunging over 9% in the last week as mortgage rates approach 4.00%.

We suspect the divergent surge in homebuilders is overdone…

“We don’t want the U.S. government purchasing companies in the United States, why would we want the Chinese Communist government purchasing companies in the United States?”

• Congressional Panel Urges Ban On China State Firms Buying US Companies (R.)

U.S. lawmakers should take action to ban China’s state-owned firms from acquiring U.S. companies, a congressional panel charged with monitoring security and trade links between Washington and Beijing said on Wednesday. In its annual report to Congress, the U.S.-China Economic and Security Review Commission said the Chinese Communist Party has used state-backed enterprises as the primary economic tool to advance and achieve its national security objectives. The report recommended Congress prohibit U.S. acquisitions by such entities by changing the mandate of CFIUS, the U.S. government body that conducts security reviews of proposed acquisitions by foreign firms.

“The Commission recommends Congress amend the statute authorizing the Committee on Foreign Investment in the United States (CFIUS) to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies,” the report said. CFIUS, led by the U.S. Treasury and with representatives from eight other agencies, including the departments of Defense, State and Homeland Security, now has veto power over acquisitions from foreign private and state-controlled firms if it finds that a deal would threaten U.S. national security or critical infrastructure. If enacted, the panel’s recommendation would essentially create a blanket ban on U.S. purchases by Chinese state-owned enterprises.

The panel’s report is purely advisory, but could carry extra weight this year because they come as President-elect Donald Trump’s transition team is formulating its trade and foreign policy agenda and vetting candidates for key economic and security positions. Congress also could be more receptive, after U.S. voter sentiment against job losses to China and Mexico helped Republicans retain control of both the House and the Senate in last week’s election. Trump strongly criticized China throughout the U.S. election campaign, grabbing headlines with his pledges to slap 45 percent tariffs on imported Chinese goods and to label the country a currency manipulator on his first day in office. “Chinese state owned enterprises are arms of the Chinese state,” Dennis Shea, chairman of the U.S.-China Economic and Security Review Commission, told a news conference. “We don’t want the U.S. government purchasing companies in the United States, why would we want the Chinese Communist government purchasing companies in the United States?”

Normalization?

• Foreign Central Banks Liquidate Record $375 Billion In US Paper (ZH)

One month ago, when we last looked at the Fed’s update of Treasuries held in custody, we noted something troubling: the number had dropped sharply, declining by over $22 billion in one week, one of the the biggest weekly declines since January 2015, pushing the total amount of custodial paper to $2.805 trillion, the lowest since 2012. One month later, we refresh this chart and find that in last week’s update, foreign central banks continued their relentless liquidation of US paper held in the Fed’s custody account, which tumbled by another $14 billion over the course of a week, pushing the total amount of custodial paper to $2.788 trillion, a new post-2012 low.

Today, to corroborate the disturbing weekly slide in the Fed’s custody data, we also got the latest monthly Treasury International Capital data for the month of September, which showed that the troubling trend presented one month ago, has accelerated to an unprecedented degree. Recall that a month ago, we reported that in the latest 12 months we have observed a not so stealthy, actually make that a massive $343 billion in Treasury selling by foreign central banks in the period July 2015- August 2016, something unprecedented in size. Fast forward to today when in the latest monthly update for the month of September, we find that what until a month ago was “merely” a record $346.4 billion in offshore central bank sales in the LTM period ending August 31 has – one month later – risen to a new all time high $374.7 billion, or well over a third of a trillion in Treasuries sold in the past 12 months.

Among the biggest sellers – on a market-price basis – not surprisingly was China, which in August “sold” $28 billion in US paper (the actual underlying number while different, as this particular series is adjusted for Mark to Market variations, will be similar), bringing its total to $1.157 trillion, the lowest amount of US paper held by Beijing since 2012.

It wasn’t just China: Saudi Arabia also continued to sell its TSY holdings, and in August its stated holdings (which again have to be adjusted for MTM), dropped from $93Bn to $89Bn, the lowest since the summer of 2014. This was the 8th consecutive month of Treasury sales by the Kingdom, which held $124 billion in TSYs in January, and has since sold nearly 30% of its US paper holdings.

Eyewitness: “97% of the Indian economy is cash-based. With 88% of all outstanding currency no longer usable, the economy is coming to a standstill.”

• Panic In India As Gold Price Skyrockets After Currency Ban (AM)

I went to convert my banned banknotes into new ones. The largest amount one can have converted is Rs 4,000 ($60), until further notice. There was a huge rush of people at the bank. Arguments were erupting, as people refused to stand in queues and the banks gave no explanation of what needed to be done. Fights were breaking out. Amid the chaos I finally learned that there were three queues I had to go through in a sequence. I had to get a form from one counter, which I had to fill in with my name and address, my ID card details, the serial numbers of all the bills I wanted to exchange, and my cell-phone number. At the second counter, I then had to present the completed form along with a photocopy of my ID card. I had to sign on the photocopy which an official then stamped.

With my banknotes, the form and the photocopy of my ID card, I then went to the next queue to get my currency converted at a third counter. The whole process took about two hours. For most people in the busier parts of the cities, it took much longer.Anyone who thinks that a country which wastes two hours of every citizen’s life to convert his own $60 can ever hope to be an economic power is drinking too much Kool-Aid and cannot do primary level math. Forget any possibility of removing unaccounted for money or reducing corruption, what Modi is doing is a recipe for the destruction of whatever legitimate economy there is. That same afternoon, I went to the post office with a friend who wanted to get his money converted. After waiting a long time there, we found out that the post office had run out of cash.

Since then most ATMs have had limited amounts of cash available and banks keep running out of cash as well. The queues have continued to grow. People start lining up late into the night waiting for banks to open and still have to go back home with no cash. What started with two hours of queuing is becoming an endless slog now. Half of India’s citizens do not have a bank account and around 25% do not even have an ID card. These are the country’s poorest people, who have no way of converting their money – even if they learn how to do it, which is already a nigh insurmountable hurdle. Also, those who are old, disabled or sick have no choice but to suffer, for without personally visiting a bank branch office, one cannot convert one’s banknotes. 97% of the Indian economy is cash-based. With 88% of all outstanding currency no longer usable, the economy is coming to a standstill.

The daily-wage laborer, who leads a hand-to-mouth existence in a country with GDP per capita of a mere $1,600, no longer has work, as his employer has no cash to pay his wages. His life is in utter chaos. He is not as smart as Modi — despite the fact that Modi has no real life experience except as a bully and perhaps in his early days as a tea-seller at a train-station. He has no clue where his life is headed from here. These people are going hungry, and some have begun to raid food shops. People are dying for lack of treatment at hospitals. Old people are dying in the endless queues. Some are killing themselves, as they are unable to comprehend the situation and simply don’t know what to do. There are now hundreds of such stories in the media.

There are now voices that claim Modi used the measure to deprive oppositon parties of their campaign cash. Elections coming up in a key state.

• Modi May Need Six More Months to Replace India’s Junk Banknotes (BBG)

For Indians expecting respite from the government’s clampdown on cash, here’s a reality check: it probably won’t come soon. Prime Minister Narendra Modi’s administration may need until May 2017 to replenish the stock of now worthless bills, according to Saumitra Chaudhuri, an economist who advised Modi’s predecessor. The government on Nov. 8 banned 500 ($7.5) and 1,000 rupee notes in a surprise move against graft and tax evasion. Delays in replacing the currency risk prolonging the pain in the $2 trillion economy, where about 98 percent of consumer payments are made in cash. Deutsche Bank predicts the crunch could easily shave off a half-point from India’s growth in October-December, which could imperil its position as the world’s fastest-growing major market.

This is how Chaudhuri reached his conclusion, which he published in a blog post on the Economic Times’ website: Extrapolating from central bank data, he estimates that Modi’s move sucked out about 16.6 billion notes of the 500-denomination, and 6.7 billion 1,000-rupee bills. That means more than 23 billion notes totaling 15 trillion rupees. Modi intends to replace these with new 2,000-rupee and 500-rupee bills. However, Bharatiya Reserve Bank Note Mudran Pvt., which prints the higher denomination currency, has a stated capacity of just 1.3 billion notes a month. That’s with working double shifts. Raise this to triple shifts and it becomes 2 billion bills, which means it will need until the end of 2016 to replenish in value the 1,000-rupee notes.

Security Printing & Minting Corporation of India Ltd., whose capacity Chaudhuri estimates at 1 billion pieces a month, will need several more months to meet the 500-rupee target, even if it joins forces with BRBNM, he said. “Ergo, currency shortages will remain with us for many months and economic contraction will rule this period,” he wrote. “At the end of the period, confidence will be at new lows and recovery will take time.” In what could make matters worse, the presses – busy with the new bills – have almost completely stopped printing 100-rupee notes, Bloomberg Quint reported Wednesday citing central bank sources it didn’t name. These bills are the bread-and-butter of India’s $780 billion informal economy, which employs more than 90 percent of the workforce.

“..at the next NATO summit, in the spring of 2017, and Secretary General Jens Stoltenberg had planned to extend a hearty welcome to the new US president, Hillary Clinton.” “..even the female English pronouns “she” and “her” had crept into internal written correspondence..”

• NATO Prepares for Trump Presidency (Spiegel)

Everything had been so perfectly planned. Construction of the new NATO headquarters building near the Brussels Airport, a giant glass-and-steel structure to house the world’s most powerful military alliance in the future, will have cost more than €1 billion ($1.07 billion) by the time it opens next year. The mammoth building was supposed to be officially dedicated at the next NATO summit, in the spring of 2017, and Secretary General Jens Stoltenberg had planned to extend a hearty welcome to the new US president, Hillary Clinton. At least that’s how officials at NATO headquarters planned it. Anything else seemed unthinkable. So unthinkable that even the female English pronouns “she” and “her” had crept into internal written correspondence to refer to the future occupant of the White House.

But there will be no female president. Instead of Clinton, a reliable partner and good, old acquaintance in many trans-Atlantic circles, Donald Trump will be coming to Brussels – the same man who described the alliance as “obsolete” in his campaign. If he even comes, that is. Fearing that Trump won’t even attend the NATO summit, only a few weeks after his inauguration, the alliance has postponed the event. A meeting of NATO leaders without the presence of the American president, after all, would be a signal of its decline. Now organizers are envisioning a date next summer, in the hope that, by then, Trump will have recognized that the United States will also need NATO in the future. There are enormous doubts that this will happen. Consternation over the election of Donald Trump as the next US president is especially great within the Brussels alliance.

[..] In their most favorable scenario, the NATO strategists assumed that the new US president would only strictly insist that the Europeans spend more money on their security. During the campaign, after all, Trump left no doubt that he intends to radically change burden sharing within the Western alliance. One of Trump’s closest advisers, General Mike Flynn, the former head of US military intelligence, told SPIEGEL in an interview in July that, when it comes to money, Trump will pay little attention to the carefully tended harmony in the alliance. “We have to have these alliances going forward and see who’s going to pay for them,” Flynn said. He added that “NATO as a political alliance does need to be relooked at in terms of everything, (including) resourcing and capabilities,” soon after Trump’s administration takes office.

At the 2014 NATO summit in Wales, the member states agreed to a goal of spending 2% of their national GDP on defense. But few countries are currently meeting that goal. Germany, the second-strongest economy in the alliance, next to the United States, spends only 1.19% of its GDP on defense. Trump is now threatening to make the mutual defense commitment under Article 5 dependent on fulfilling this goal, or even to increase the%age. For Germany, 2% would already signify a dramatic increase in the defense budget, from about €34 billion today to roughly €65 billion. In any case, NATO officials are preparing themselves for growing demands on the Europeans. “Europe has no other choice: It has to strengthen the European column in NATO,” says EU foreign policy expert Alexander Graf Lambsdorff, a member of the pro-business Free Democratic Party.

Global trade again. Plummeting exports and imports across Asia.

• Singapore’s Recession Risk Rises As October Exports Show 12% Decline (R.)

Singapore’s exports in October shrank more than expected as sales to major markets fell, with those to Europe contracting sharply and raising risks of a recession in the trade-dependent economy. Non-oil domestic exports (NODX) skidded 12% last month from a year earlier, the trade agency International Enterprise Singapore said in a statement on Thursday, far worse than the median forecast of a 3.5% decline in a Reuters poll. In September, overseas shipments slumped a revised 5% on-year though the decline in sales to China slowed. On a month-on-month, seasonally adjusted basis, exports decreased 3.7% in October, missing a forecast of a 1% slide in the survey. Exports to the EU contracted 28.6% last month from a year earlier, compared with 9.9% growth in September. Contraction in sales of pharmaceuticals, non-electric engines & motors, as well as personal computers led the decline in October.

It’s not even a black swan. I’ve warned of this risk for a long time. Without constructing bubble upon bubble, and without the shadow system that finances them, China has a long way to fall.

• China Civil War Is the Real Black Swan (RV)

TL Tsim has studied the Chinese political scene since the 1980s, with a background in journalism, including the South China Morning Post and Hong Kong Economic Journal before starting his own consultancy. In an interview with Real Vision TV he said the greatest misconception among its people is that Chinese dynasties are super stable structures that last a long time. That’s not really the case, he argued, because none of them lasted longer than the Habsburgs in Austria, who ruled for over 800 years. The last one in China – the Qing dynasty – lasted 260 years, which is much shorter in comparison. People also underestimate the length of the civil wars between Chinese dynasties, which can last for 150 years, he adds. “That is something most Chinese people do not understand. And it has a bearing on the way we go forward,” Tsim said.

“In spite of all of the intelligence, the learning, and the experience of the Chinese people over 5,000 years, they have not come up with a system of government which can deal with the effective and peaceful transfer of power. In the West, you do it through the ballot box. So Brexit is Brexit. You accept it. But in China, the fight goes on.” The shortest dynasty of any size and power in Chinese history was the Yuan dynasty, which lasted just less than 100 years, Tsim said. “This government, this administration, the Chinese Communist Party, came to power in 1949. And so it’s been around for 67 years. “We don’t know when something like the Russian collapse, the implosion of the former Soviet Union might take place. We don’t know whether this is going to be the Yugoslavian model, when the country broke up into six or seven parts. So to speculate on the timing of it is something I do not do.“

But it is not idle to speculate on how this is going to happen. The most likely scenario is a power struggle over-spilling into a coup d’etat and then over-spilling into civil war. That would be the trajectory.” The real concern for Tsim – and he said for the Chinese leaders as well– is that if you look at the breakup of the former Soviet Union, the problem was internal, arising out of disagreements within the center of the party itself. [..] “And sadly, I think we’re not going to see a Yugoslavian model either, because there they did have a civil war. But the civil war– the war was small, in terms of size and scale, and didn’t last very long. That is not the Chinese model either. The Chinese model is a bitter, long-standing civil war– very destructive, very divisive. This is the real black swan.”

I know many people won’t like to, but I would recommend reading at least part of this very long expose. How racist is Trump? And how do you know?

• You Are Still Crying Wolf (Scott Alexander)

Back in October 2015, I wrote that the media narrative of Trump as “the white power candidate” and “the first openly white supremacist candidate to have a shot at the Presidency in the modern era” were being fabricated out of thin air. I said that “the media narrative that Trump is doing some kind of special appeal-to-white-voters voodoo is unsupported by any polling data”, and predicted that: “If Trump were the Republican nominee, he could probably count on equal or greater support from minorities as Romney or McCain before him.” Well, guess what? The votes are in, and Trump got greater support from minorities than Romney or McCain before him. You can read the Washington Post article, Trump Got More Votes From People Of Color Than Romney Did, or look at the raw data.

Trump made big gains among blacks. He made big gains among Latinos. He made big gains among Asians. The only major racial group where he didn’t get a gain of greater than 5% was white people. I want to repeat that: the group where Trump’s message resonated least over what we would predict from a generic Republican was the white population. Nor was there some surge in white turnout. I don’t think we have official numbers yet, but by eyeballing what data we have it looks very much like whites turned out in equal or lesser numbers this year than in 2012, 2008, and so on. The media responded to all of this freely available data with articles like White Flight From Reality: Inside The Racist Panic That Fueled Donald Trump’s Victory and Make No Mistake: Donald Trump’s Win Represents A Racist “Whitelash”.

I stick to my thesis from October 2015. There is no evidence that Donald Trump is more racist than any past Republican candidate (or any other 70 year old white guy, for that matter). All this stuff about how he’s “the candidate of the KKK” and “the vanguard of a new white supremacist movement” is made up. It’s a catastrophic distraction from the dozens of other undeniable problems with Trump that could have convinced voters to abandon him. That it came to dominate the election cycle should be considered a horrifying indictment of our political discourse, in the same way that it would be a horrifying indictment of our political discourse if the entire Republican campaign had been based around the theory that Hillary Clinton was a secret Satanist. Yes, calling Romney a racist was crying wolf. But you are still crying wolf.

But today’s headlines are all about unemployment reaching 11-year lows. Makes you wonder, doesn’t it?!

• One In Three UK Working Families Struggle To Pay Energy Bills (G.)

One in three working families struggle to pay their energy bills, it has been claimed, as pressure mounts on suppliers to do more to help poorer households move on to the cheapest deals. 29% of families do not put on the heating even when the house is cold, said comparison website uSwitch, while two-thirds fear cutting their energy use to save money will affect their family’s health. “It’s appalling that even families in work are struggling to pay their energy bills,” said uSwitch’s energy expert, Claire Osborne. “Suppliers must play their part by doing all they can to help their customers move to their best deal.” The energy regulator, Ofgem, backed calls for suppliers to alert customers to cost-saving schemes such as the warm home discount (WHD).

The initiative forces firms with more than 250,000 customers to offer a £140 discount to low-income pensioners and other vulnerable groups, though it has been criticised for long delays in delivering the reduction. “We want suppliers to engage more actively with customers, particularly those on standard variable tariffs, to help them get a better deal,” said an Ofgem spokesperson. This week the business minister criticised energy companies amid claims they were profiteering from deals that do not offer good value. “Customers who are loyal to their energy supplier should be treated well, not taken for a ride, and it’s high time the big companies recognised this,” Greg Clark said. “I have made clear to the big firms that this can’t go on and they must treat customers properly or be made to do so.”

I’ll keep saying that a basic income for only parts of a society -as the pilot is set up- is doomed to fail.

• Canadian Province To Give Every Citizen $1,320 Basic Income (Ind.)

A Canadian province is to run a pilot project aimed at providing every citizen a minimum basic income of $1,320 a month. The provincial government of Ontario confirmed it is holding public consultations on the $25m (£15m) project over the next two months, which could replace social assistance payments administered by the province for people aged 18 to 65. People with disabilities will receive $500 more under the scheme, and individuals who earn less than $22,000 (£13,000) a year after tax will have their incomes topped up to reach that threshold. The pilot report was submitted by Conservative ex-senator Hugh Segal, who suggested the project should be tested on three distinct sites: in the north, south and among the indigenous community of Ontario.

Areas with high levels of poverty and food insecurity should be chosen for the test project, Mr Segal recommended. “It is in fact the precinct of rational people when looking to encourage work and community engagement and give people a floor beneath which they’re not allowed to fall,” he said. “We can do this for seniors without having to add any more bureaucrats or civil servants, we respect their freedom to choose, we give them the money, they decide what’s important. Why would we treat other poor people differently? “What Ontario is doing is saying let’s have a pilot project, let’s calculate the costs, let’s calculate the positive and the nudge effects behaviourally.” Mr Segal confirmed that participation in the project, which is due to launch in spring 2017, will be voluntary and promised “no one would be financially worse off as a result of the pilot”.

he can defend it all he wants, but defending the past shows you are blind to the present.

• Obama Defends Globalization On Germany Visit (BBC)

US President Barack Obama has made a strong defence of globalisation as he arrived in Germany on his final visit to Europe before leaving office. In a joint article, Mr Obama and German Chancellor Angela Merkel said that with the global economy developing faster than ever, co-operation was vital. Mr Obama arrived in Germany from Athens where he had warned of threats to modern democracy. He is seeking to calm unease following the election of Donald Trump. In the article in the business magazine, Wirtschaftswoche (in German), he and Mrs Merkel made a strong case for international trade in contrast to Mr Trump’s more protectionist stance. “There will be no return to a world before globalisation,” they wrote. “We owe it to our companies and our citizens, indeed to the entire world community, to broaden and deepen our co-operation.”

The two leaders voiced support for the proposed Trans-Atlantic Trade and Investment Partnership (TTIP) between the US and the EU. By contrast, Mr Trump is a fierce critic of global free trade agreements and welcomed the UK’s decision in June to leave the EU. In Athens, Mr Obama acknowledged that globalisation had created a “sense of injustice” and a “course correction” was needed to address growing inequality. “When we see people, global elites, wealthy corporations seemingly living by a different set of rules, avoiding taxes, manipulating loopholes… this feeds a profound sense of injustice,” he told Greek leaders. Mr Obama’s visit to Greece was marked by street protests by leftist groups which denounced US “imperialism”. Police used tear gas against about 2,500 demonstrators who had tried to reach the city centre on Tuesday. The US president will stay in Germany until Friday and then head to Peru.

But the words were again empty.

• Athens Clings To Obama’s Words As Focus Shifts To Berlin (Kath.)

Greece on Wednesday hailed the support expressed by outgoing US President Barack Obama for debt relief for the country even as the latter arrived in Berlin for talks with German Chancellor Angela Merkel, whose country has consistently resisted restructuring Greece’s debt burden. Government spokesman Dimitris Tzanakopoulos expressed “satisfaction” with Obama’s references to the crucial issues of debt, the refugee crisis and Cyprus. “The US president made clear that austerity cannot lead to economic prosperity,” he said. Asked why an intervention by Obama in favor of Greek debt relief now that he is on his way out of the presidency should make a difference, Tzanakopoulos said that the situation in Europe is now very different and there is a shift against austerity.

“There is a very good possibility that by the end of the year we will have very positive developments as regards the Greek debt,” Tzanakopoulos said, noting that Athens was on course for a Eurogroup meeting on December 5. The spokesman described Obama’s visit as “an event of global significance” while sources indicated that the outgoing president had been “very friendly” to Prime Minister Alexis Tsipras. Earlier in the day, Obama delivered a stirring speech at the Stavros Niarchos Foundation Cultural Center, exalting the virtues of democracy and ancient Greece’s contribution to the modern world. “I came here with gratitude for all that Greece – ‘this small, great world’ – has given to humanity through the ages,” Obama said, referring to Aeschylus, Euripides, Herodotus, Thucydides, Socrates and Aristotle.

Obama took advantage of the speech to highlight the democratic values he sought to honor while in office and implicitly prodded his Republic successor Donald Trump to do the same. He also emphasized his respect for Greece’s efforts to respond to Europe’s refugee crisis despite its own problems. “Because our democracies are inclusive, we’re able to welcome people and refugees in need to our countries. And nowhere have we seen that compassion more evident than here in Greece,” he said.

“Whoever says ‘we will relieve your debts’ is doing Greece a disservice..”

• Schaeuble Crushes Greek Debt Relief Hopes that Obama May Have Sowed (GR)

U.S. President Barack Obama’s visit to Greece raised fresh hopes for debt relief that German Finance Minister Wolfgang Schaeuble rushed to quash. He said late on Tuesday that granting Greece its debt relief would not be helping the country, describing such a move as a “disservice.” A German Finance Ministry spokesman confirmed that Schaeuble had indeed made this statement, but that it was not in direct response to Obama’s visit to Greece. “Whoever says ‘we will relieve your debts’ is doing Greece a disservice,” said Schaeuble, according to the report by the daily newspaper, Passauer Neue Presse. His comments are not surprising bearing in mind that Germany has long supported the notion that no immediate debt relief is needed for Greece as this would discourage structural reforms.

“We have noted that President Obama has pointed to the importance of debt relief. The euro group agreed in May on a timetable on exactly that subject, regarding measures for the short term, and later in 2018 for mid-term measures,” said German government spokesman Steffen Seibert at a news conference. He added that Obama’s visit had not changed Germany’s position on the matter, during a government news conference. Seibert added that Obama’s view that austerity on its own does not create growth is a viewpoint that reflects that of the German government, adding that two things needed for long-term growth are a sustainable budget and the need for structural reforms.

Think Obama went to see them?

• Share of Greek Children At Risk Of Poverty Rises To 37.8% (Kath.)

More than a third, or 37.8%, of children aged up to 17 in Greece were at risk of poverty and social exclusion in 2015, compared to 28.7% in 2010, according to a report published by the European Statistics Agency (Eurostat). This means that they were living in households with at least one of the following characteristics: at-risk-of-poverty after social transfers (income poverty), severely materially deprived or with very low work intensity. The increase, which took the total number of children at risk of poverty and social exclusion in Greece to 710,000, is the largest in the European Union since 2010. After Greece, Cyprus was the country with the highest rise since 2010, with 7.1%.

At the same time, the EU average dropped from 27.5% in 2010 to 26.9% in 2015, which corresponds to the alarming figure of approximately 25.26 million children. Greece was third in the EU in the total number of children faced with such a predicament, behind Romania at 46.8% and Bulgaria at 43.7%. Hungary was fourth at 36.1%, ahead of Spain at 34.4% and Italy at 33.5%. The lowest rates were recorded in the Scandinavian countries, with Sweden at 14%, ahead of Finland and Denmark, with 14.9% and 15.7% respectively.

At some point you may want to wonder if it’s a bug or a feature of the system.

• Drowning Deaths In Mediterranean Already 20% Higher Than All Of Last Year (G.)

About 240 people are suspected to have drowned this week in four separate incidents in the Mediterranean, raising the total annual death toll to an unprecedented 4,500. Deaths in the Mediterranean are now nearly 20% higher than last year’s total of 3,771, which was the previous annual record. About 130 asylum seekers are missing after a rubber boat capsized on Sunday night, while another 100 are thought to have drowned on Tuesday night in a separate incident, the UN refugee agency said. Up to 10 people died in two further tragedies in recent days, bringing the death toll this week to at least 240.

In the accident on Sunday 15 survivors were left in the water for 10 hours, clinging on to a piece of a capsized boat, before being rescued by an oil tanker. Nine are still in hospital, Iosto Ibba, a spokesman for UNHCR, said in a phone call. Migration between Turkey and Greece has lessened significantly since March, after Turkey agreed to re-admit people deported from Greece. But crossings between Libya and Italy continue unabated. More than 165,000 people have reached Italy so far this year from north Africa, and the final annual total is likely to surpass the previous record of 170,000.

Debt Rattle November 4 2016

Nov 042016

November 4, 2016 Posted by Raúl Ilargi Meijer at 9:56 am Finance Tagged with: Brexit, deflation, devaluation, Egypt, France, Hillary, Kurds, pensions, poverty, Trump, Yucca Comments Off

DPC Madison Street east from Fifth Avenue, Chicago Sep 1 1900

• Both US Parties Need to Worry About Poverty (BBG)

• The End of a Great Industrial Power: France Car Production Collapses (Gef.)

• The Sad Case Of Japan Should Serve As A Warning For China (BBG)

• China Faces Looming Bulge in Currency Pressure (WSJ)

• Egypt Central Bank Devalues Currency By 48% In Exchange For IMF Loan (AlJ.)

• ‘The FBI Is Trumpland’: Anti-Clinton Atmosphere Spurred Leaks (G.)

• US Voters Fear The Media Far More Than Russian Hackers (WE)

• Trump is Half Right and Half Wrong about Mosul (Di Lorenzo)

• Tory MPs Warn High Court Trio Of Early Election If They Don’t Back Down (DM)

• Government Pension Plans Are Headed For Disaster (Mises Inst.)

• Toronto Home Prices Surge in October, Undaunted by New Rules (BBG)

• Turkey Police Round Up Kurdish Party Leaders in Midnight Raids (BBG)

• Turkey Appears To Have Closed Most Of The Internet (Ind.)

• Historic Climate Pact Enters Into Force (AFP)

• Early Closings Of US Nuclear Plants Leave Toxic Waste With Nowhere To Go (BBG)

Poverty is a problem the US flatly denies and ignores.

• Both US Parties Need to Worry About Poverty (BBG)

There’s a reason presidential nominee Donald Trump’s message of a declining America is inspiring support in Republican strongholds: poverty is worsening in his party’s congressional districts, a new analysis by the Brookings Institution shows. The poverty rate increased in nearly all – 96% – of the Republican-controlled districts between 2000 and the 2010-2014 period, according to a study by Elizabeth Kneebone, a fellow with the institute. She analyzed Census data and figures from the American Community Survey. The population living in poverty in all Republican districts climbed by 49%, compared with a 33% increase in Democratic areas. A big theme of this presidential election campaign that will be decided on Nov. 8 has been the battle to win low-income voters who feel left behind from the economic expansion.

Trump’s rallies have been often packed with middle-class supporters who are receiving his message to “make America great again.” Both him and Democratic candidate Hillary Clinton have promised to raise the minimum wage and deal with the affordability of college and childcare. Neighborhoods in Democrat-leaning districts also have a high proportion of poor people. Combined, the poverty rate in districts represented by Democrats was higher at 17.1% in 2010-14 than the 14.4% in Republican areas. However, the overall number of poor residents was larger in Red districts at 25.1 million compared with 22.7 million in Blue districts, the study found. “Poverty and opportunity should be more than a top-of-the-ticket conversation,” Kneebone said. “Challenges of poverty cut across the political divide and touch all 436 congressional districts.”

France suffers from the same disease as all Southern European contries. As long as it stays in the Eurozone, this can only get worse.

• The End of a Great Industrial Power: France Car Production Collapses (Gef.)

French industry has been contracting since the adoption of the euro. It was not able to recover after either of the 2001 or 2008 crises because the euro, a currency stronger than the French franc would be, has become a burden to France’s economy. The floating exchange rate works like an indicator of the strength of the economy and like an automatic stabilizer. A weaker currency helps to regain competitiveness during a crisis, while a stronger currency supports consumption of foreign goods. China has been accused of artificial devaluation of its currency to prop up exports, while the ECB’s policy has had an opposite effect for the economy of France and some South European countries: the euro has become too strong; whereas for Germany’s it has become too weak.

That is why the common currency has increased consumption and imports in less productive countries and strengthened German competitiveness and exports. Because of the euro France could not regain international competitiveness in the world’s market after the 2001 crisis, so its industry has been slowly dying ever since. What we are saying is not that weakening your currency is a solution to boost a never-ending growth. The floating exchange rate is a great tool for bad times, which is excellently known in Poland, where there was no recession because of, among others, a temporarily weaker national currency. France and South European countries have just given this tool over to the ECB and they were not able to have a quick recovery. Just like Germany has had with an undervalued euro in their case.

Today, according to the Eurostat, industry (except construction) makes up 14.1% of the French total gross value added, while in 1995 it was 19.2%. The EU’s average is still 19.3%, but in Germany 25.9%. Moreover, the share of industry in total employment in France is only 11.9%, also under the EU’s average (15.4%) and the German level (18.8%). One of the imprints of the dying French manufacturing under the ECB rules is automotive sector collapse. According to OICA data, the world’s car production almost doubled in the years 1997-2015 from 53 million vehicles produced yearly to 90 million. At the same time, Germany increased its car production by 20% from 5 to 6 million. What happened in France, once the proud producer of beautiful and modern vehicles?

Deflation.

• The Sad Case Of Japan Should Serve As A Warning For China (BBG)

China and Japan may seem to inhabit alternative economic universes. After more than two decades of stagnation, Japan is a fading global power that can’t seem to revive its fortunes no matter what unorthodox gimmicks it tries. By contrast, China’s ascent to superpower status appears relentless as it gains wealth, technology, and ambition. Yet these Asian neighbors have a lot in common, and that doesn’t bode well for China’s economic future. The sad case of Japan should serve as a cautionary tale for China’s policymakers. Beijing pursued almost identical economic policies to Tokyo’s to generate its rapid development. Now China’s leaders are repeating the missteps the Japanese made that tanked Japan’s economy and thwarted its revival.

30 years ago, few foresaw the decline of Japan, either. Japan was the East Asian giant poised to overtake the U.S. as the world’s top economy. Driving that ascent was an economic system that many considered superior to laissez-faire American capitalism. By fostering close, cooperative ties among the state, big corporations, and banks, Japan’s policymakers encouraged investment and guided a national industrial strategy. Bureaucrats in Tokyo interfered with markets to a degree unthinkable in the U.S. by protecting nascent industries and directing financing to favored sectors and companies. Backed by such support, Japanese companies burst onto the world stage and pushed their American competitors to the wall. But even as Japan appeared destined for greatness, its economy was, in reality, starting to rot.

Those clubby ties among finance, business, and government misallocated capital and led to wasteful investments. Growth was given a boost by cheap credit in the second half of the 1980s, but that also helped inflate debt levels and stock and property prices. When this “bubble economy” burst in the early 1990s, the financial industry was flattened. Japan has yet to fully recover. [..] The methods Beijing employed to generate rapid growth—directing finance, nurturing targeted industries, and promoting exports—are replicas of Japan’s. And since the state in China’s “state capitalism” plays an even larger economic role than Japan’s officious bureaucracy does, the Chinese government interferes with markets to a greater degree.

More record lows every day.

• China Faces Looming Bulge in Currency Pressure (WSJ)

Markets have grown more accustomed to the slow-motion decline in the value of the Chinese yuan. The currency’s next milestone, however, may usher in a more challenging period. China’s currency has fallen nearly 4% against the dollar this year, with a chunk of that move taking place over the past month, though there has been a small recovery in recent days. Recent dollar strength is certainly a factor in the minds of China’s currency managers in deciding when to intervene and when to let the yuan slide. Beijing has spent more than $500 billion in reserves to manage the yuan’s slide over the past two years on a balance-of-payments basis. Still, the yuan has slipped from 6.06 a dollar to above 6.75. That is getting close to 6.82, the level around which the yuan was pegged for an extended period from 2008 until 2010.

Currency traders could be accused of overplaying such historical levels having an effect on current trading. But in this case, it may have more than just a psychological impact. The two years in which the yuan was stuck around 6.82 was also the period of the largest inflows into the Chinese economy, to the tune of $764 billion, noted Kevin Lai of Daiwa Securities. Quantitative easing in the U.S. was in full effect and trillions flowed to emerging markets, especially China. Individuals and companies that borrowed in dollars or brought money in as a carry trade may have hung on until now, figuring they haven’t lost money on the exchange rate. But seeing the yuan get back to the rate when they brought it in could hasten transfers.

Unlike the period from 2008 to 2010, when interest-rate differentials vastly favored bringing money to China, and the exchange rate was pegged, the difference between dollar rates and yuan rates have narrowed substantially, plus the Chinese have to account for the possibility the yuan will weaken further. That explains why Federal Reserve rate increases have such a powerful effect on China’s capital flows. [..] It isn’t inevitable that the bulge of money that flowed in from 2008 to 2010 will necessarily leave. But outflows do continue to bubble below the surface. The ghosts of inflows past may yet haunt China’s future.

Lagarde poking a stick into a hornest nest.

• Egypt Central Bank Devalues Currency By 48% In Exchange For IMF Loan (AlJ.)

Egypt has devalued its currency by 48%, meeting an important demand set by the IMF in exchange for a $13bn loan over three years to overhaul the country’s economy. Thursday’s much anticipated decision by the Egyptian Central Bank followed a sharp and sudden decline this week in the value of the dollar in the unofficial market, dropping from an all-time high of 18.25 pounds to around 13 to the US currency. The devaluation pegs the Egyptian pound at 13 to the dollar, up from nearly nine pounds on the official market. The IMF’s executive board has yet to ratify the $12bn loan provisionally agreed by Egypt and the IMF in August.

Egypt’s central bank increased interest rates by three percent to rebalance currency markets following weeks of turbulence. A shortage of dollars in the economy had put the currency under intense downward pressure in recent months. A rapid slide on the black market to 18 earlier this week pushed the importers to cease buying, with the rate strengthening to 13 late on Wednesday, creating a rare opportunity for the central bank to devalue. The central bank said the new exchange rate was non-binding and would serve as “soft guidance to jumpstart the market”.

Even this can be turned into an anti-everyone-but-Hillary piece, as the Guardian proves.

• ‘The FBI Is Trumpland’: Anti-Clinton Atmosphere Spurred Leaks (G.)

Deep antipathy to Hillary Clinton exists within the FBI, multiple bureau sources have told the Guardian, spurring a rapid series of leaks damaging to her campaign just days before the election. Current and former FBI officials, none of whom were willing or cleared to speak on the record, have described a chaotic internal climate that resulted from outrage over director James Comey’s July decision not to recommend an indictment over Clinton’s maintenance of a private email server on which classified information transited. “The FBI is Trumpland,” said one current agent. This atmosphere raises major questions about how Comey and the bureau he is slated to run for the next seven years can work with Clinton should she win the White House.

The currently serving FBI agent said Clinton is “the antichrist personified to a large swath of FBI personnel,” and that “the reason why they’re leaking is they’re pro-Trump.” The agent called the bureau “Trumplandia”, with some colleagues openly discussing voting for a GOP nominee who has garnered unprecedented condemnation from the party’s national security wing and who has pledged to jail Clinton if elected. At the same time, other sources dispute the depth of support for Trump within the bureau, though they uniformly stated that Clinton is viewed highly unfavorably. “There are lots of people who don’t think Trump is qualified, but also believe Clinton is corrupt. What you hear a lot is that it’s a bad choice, between an incompetent and a corrupt politician,” said a former FBI official.

Sources who disputed the depth of Trump’s internal support agreed that the FBI is now in parlous political territory. Justice department officials – another current target of FBI dissatisfaction – have said the bureau disregarded longstanding rules against perceived or actual electoral interference when Comey wrote to Congress to say it was reviewing newly discovered emails relating to Clinton’s personal server. [..] Comey’s decision to tell the public in July that he was effectively dropping the Clinton server issue angered some within the bureau, particularly given the background of tensions with the justice department over the Clinton issue. A significant complication is the appearance of a conflict of interest regarding Loretta Lynch, the attorney general, who met with Bill Clinton this summer ahead of Comey’s announcement, which she acknowledged had “cast a shadow” over the inquiry.

It’s only a poll of 1000, but perhaps the US voter is not completely stupid.

• US Voters Fear The Media Far More Than Russian Hackers (WE)

Voters fear the media far more than Russian hackers when it comes to tampering with election results. According to a Suffolk University/USA Today poll, 46% of likely voters believe the news media is “the primary threat that might try to change the election results.” The national political establishment was the second most-suspected group at 21%, and another 13% were undecided. Foreign interests, including “Russian hackers,” ranked fourth with 10% and “local political bosses” came in last with 9% of likely voters as the main threat to truthful election results. The poll results found 51% of likely voters were either “very concerned” or “somewhat concerned” about the possibility of violence erupting on election day or afterwards.

The poll of 1,000 likely voters was taken between Oct. 20 and Oct. 24 and followed the release of private emails by the hacking group WikiLeaks that revealed cozy relationships between some prominent media stars and the Clinton campaign. The WikiLeaks dump also discovered Donna Brazile, the interim chairwoman of the Democratic National Committee, forwarded a debate question to Clinton that was later asked at a CNN Democratic town hall. Brazile at the time was a CNN contributor. The poll found 39% of likely voters believe the media is coordinating coverage with individual political campaigns, while 48% said the media is reporting “completely of its own accord.” The Gallup Poll has found trust in the media to have sunk to an historic low. A September Gallup survey found just 32% of American adults saying they have a great deal or fair amount of trust in the media,” a number that has dropped 8 %age points from last year.

“.. keeping Boobus Americanus fooled into believing that that guy in the black pajamas with the giant sword will be in their neighborhood next week..”

• Trump is Half Right and Half Wrong about Mosul (Di Lorenzo)

In his campaign stump speech Donald Trump ridicules Obama for publicly announcing four months in advance that “we” will be invading Mosul, Iraq to kick out ISIS there and capture its leaders. No element of surprise there. Twelve minutes after the announcement, said Trump, and the ISIS leaders were gone. Trump is right to mock this foolish talk. The element of surprise is what military commanders dream about. Stonewall Jackson’s famous flanking maneuver at the Battle of Chancellorsville (VA), where his 60,000-man army outflanked and surprised the 133,000-man Army of the Potomac with a crushing defeat is still to this day taught at military academies around the world.

But Obama is not that stupid. He’s just not interested in winning the “war on terra,” as Dub-Yuh called it. His main interest is keeping Boobus Americanus fooled into believing that that guy in the black pajamas with the giant sword will be in their neighborhood next week chopping off heads if we ever stop intervening in the Middle East. It’s all theater, in other words. That’s why the regime announces some big new military escalation every few months, lest Boobus forgets that he’s supposed to be frightened into acquiescing in the never-ending explosive growth of the military-industrial complex and the relentless growth of the state in general that it nourishes.

The mess will only get deeper unless Brits stop blaming each other.

• Tory MPs Warn High Court Trio Of Early Election If They Don’t Back Down (DM)

Theresa May could be forced to hold an early election if judges and Remain campaigners do not back down in the war against Brexit, Tory MPs warned last night. On a frantic day at Westminster, the Prime Minister vowed to appeal yesterday’s High Court verdict which would allow Parliament to frustrate or even scupper the process of Britain leaving the EU. No 10 sent a clear message to the courts that 17.4 million voters had backed Brexit and that they should not get in the way of ‘delivering the best deal for Britain’. David Davis, the Brexit Secretary, said that – if yesterday’s verdict was upheld by the Supreme Court – a full Act of Parliament would be required to trigger Brexit.

This would allow MPs or unelected peers to table amendments that could dictate the terms of Brexit or even halt the process. But Mr Davis warned that heading down this path would be a huge mistake. And senior Tories said that, if MPs and peers did try to frustrate Brexit, a General Election was almost inevitable, suggesting Mrs May would have no option but to trigger an ‘immediate’ poll in early 2017. Last night, Mr Davis said: ‘Parliament voted by six to one to give the decision to the people, no ifs or buts, and that’s why we are appealing this to get on with delivering the best deal for Britain. ‘Parliament is sovereign and has been sovereign, but of course the people are sovereign.

‘The people are the ones who parliament represents…17.4 million of them, the biggest mandate in history, voted for us to leave the EU. ‘We’re going to deliver on that mandate in the best way possible for the British national interest. ‘The people want us to get on with it and that is what we intend to do.’ Ex-justice minister Dominic Raab said the verdict had opened ‘Pandora’s box’. He added: ‘I think the elephant in the room here is if we get to the stage where [Remainers] allow this negotiation to even begin, I think there must be an increased chance that we will need to go to the country again. ‘I think that would be a mistake and I don’t think those trying to frustrate the verdict in the referendum will be rewarded.’

A global phenomenon. “..the political process [..] actually rewards those who underfund the present and defray costs onto future generations.”

• Government Pension Plans Are Headed For Disaster (Mises Inst.)

The combined debt held by U.S. public pension plans will top $1.7 trillion next year, according to a just-released report from Moody’s Investors Services. This “pension tsunami” has already forced towns like Stockton, California and Detroit, Michigan into bankruptcy. Perhaps no government mismanaged their pension as badly as Puerto Rico, where a $43 billion pension debt forced the commonwealth to seek protection from the federal government after having defaulted on its obligations to bondholders — a default which is expected to spread to retirees in the form of benefit cuts. While the disastrous outcome of Puerto Rico’s pension plan – which is projected to completely run out of assets by 2019 – represents the worst-case scenario, the same series of events that led to its demise can be found in most public pension plans nationwide.

There are three primary culprits that can be found in nearly every state suffering from a public pension crisis: 1) The use of accounting gimmicks that are designed to shift costs onto future generations – an approach outlawed for private pension plans and rejected by both public and private plans in Canada and Europe. 2) Lawmakers, acting in their political self-interest, who have catered to the past demands of government unions to enrich their members’ benefits while passing the costs onto future generations. 3) A broken governance structure where public pension board members are actually penalized in tangible ways for acting responsibly, and are rewarded by choosing to delay the day of reckoning. Perhaps the most concise assessment of public pensions came from the former chief actuary for the nation’s largest public pension fund – CalPERS – who noted simply that: “Politics and pensions just don’t mix.”

And it’s not just “liberal” states like California who have succumbed to the siren call of public pensions. My home state of Nevada – historically thought to be a bastion of limited government thought – is in a proportionally deeper hole than our California neighbors! [..] In theory, government is ostensibly designed to override the allegedly short-sighted, greedy nature of individual actors with policies that are long-term oriented and designed to maximize the general welfare. Yet, as the case of public pensions (not to mention infrastructure spending, the national debt, entitlements, etc.) reveals, the political process actually does the exact opposite: it actually rewards those who underfund the present and defray costs onto future generations.

Just ask yourself: who profits?

• Toronto Home Prices Surge in October, Undaunted by New Rules (BBG)

Toronto home sales rose to a record and prices surged in October, showing little effect so far from new government rules designed to bring stability to the market. Sales in Canada’s biggest city rose 12% to 9,768 transactions from the same month a year earlier, while average prices jumped 21% to C$762,975 ($569,852), according to the Toronto Real Estate Board. The average price of a detached home was C$1,034,077, up 26% on the year. New listings rose 0.9% to 13,377 homes. “Until we experience sustained relief in the supply of listings, the potential for strong annual rates of price growth will persist, especially in the low-rise market segments,” Jason Mercer, the board’s director of market analysis, said in a statement on Thursday.

The market remained hot even as Finance Minister Bill Morneau unveiled new federal rules in October that included a stress test for home-loan borrowers and came into effect halfway through the month. The rules also stiffened requirements for low-ratio mortgage insurance and closed a tax loophole. Toronto’s march higher contrasts with Vancouver’s continued sales decline since the provincial government enacted a tax on non-Canadian home buyers. Sales in the west coast city fell 39% in October over the prior year, while prices for all residential properties climbed to an average of C$919,300, a 25% jump from a year earlier and a 0.8% decline from September.

The west uses the Kurds when it comes to fighting ISIS, but leaves them hanging when it comes to Erdogan’s delusions.

• Turkey Police Round Up Kurdish Party Leaders in Midnight Raids (BBG)

Turkish police began rounding up Kurdish lawmakers in post-midnight raids on Friday, extending a crackdown on the opposition as President Recep Tayyip Erdogan consolidates power following a July 15 coup attempt. Selahattin Demirtas and Figen Yuksekdag, co-chairs of the Peoples’ Democratic Party, also known as the HDP, were among those detained, according to CNN-Turk. At Erdogan’s request, parliament had passed a law in May stripping the party’s lawmakers of their immunity from prosecution, which allows them to be charged with terrorism-related offenses. Last year, Demirtas looked to be a rising political star in Turkey. He led a pro-Kurdish party to win seats in parliament for the first time, passing the threshold of 10% of the national vote.

He also ran for president in 2014, and campaigned on a promise to prevent Erdogan from winning the power he seeks to transfer the seat of power in Turkey from parliament to an enhanced executive presidency. The police raids were carried out in Diyarbakir, Turkey’s largest Kurdish-majority city, and in the capital Ankara, according to Haberturk newspaper. Sirri Sureyya Onder, a member of parliament representing Istanbul, was also detained in Ankara, it said. Over the weekend, police arrested the elected mayors of Diyarbakir and later replaced them with government appointees. Demirtas had said that members of his party wouldn’t abide by orders to appear before courts, saying they’d become servants of the ruling party and were illegitimate.

Erdogan says the HDP is merely a front for the Kurdistan Workers’ Party, or PKK, a group classified by Turkey and allies – including the U.S. and EU – as a terrorist organization. The HDP is the third-largest party in Turkey’s parliament, holding 59 of the legislature’s 550 seats.

Could still be an incident, but it would fit the pattern.

• Turkey Appears To Have Closed Most Of The Internet (Ind.)

Much of the internet appears to have gone down in Turkey. People in the country are having problems accessing much of the internet’s biggest websites and services, including Facebook, WhatsApp, YouTube, Twitter and more. The website Down Detector confirmed problems in the country, particularly in the west. Some have reported that the sites are simply slow, but that it is still possible to access them. Others say they are down entirely. It isn’t clear whether the outage has been caused by an intentional ban, a cyber attack or just an accident. Some reported that issues with Turk Telecom appeared to be the cause of the problems.

Turkey Blocks, a website that tracks issues with the internet in Turkey, claimed that web traffic including that for WhatsApp was subject to throttling, where connections are slowed down to the point they are unusable. It claimed that the internet ban was related to the arrest of some political activists the night before the outage went into effect. The issue began overnight but has been going on throughout the day, according to local reports. The internet in general seems to be having a rocky few weeks – recently, it went down for almost a full day after a strange cyber attack on the internet’s infrastructure that appeared to be executed by webcams.

Yeah, yeah, CON21. Mankind is capable of producing huge amounts of hot air in more ways than one.

• Historic Climate Pact Enters Into Force (AFP)

A hard-fought pact to stave off worst-case-scenario global warming enters into force Friday after record-fast ratification by nations reassembling next week for a fresh round of UN climate talks. Dubbed the Paris Agreement, it is the first-ever pact binding all the world’s nations, rich and poor, to a commitment to cap average global warming by curbing planet-warming greenhouse gases from burning coal, oil and gas. “Humanity will look back on November 4, 2016, as the day that countries of the world shut the door on inevitable climate disaster,” UN climate chief Patricia Espinosa said. While cause for celebration, “it is also a moment to look ahead with sober assessment and renewed will over the task ahead,” she said.

This meant drastically cutting emissions in the short term, “certainly in the next 15 years,” Espinosa pointed out a day after a UN report said current trends were steering the world towards climate “tragedy”. By 2030, said the UN Environment Programme, annual greenhouse gas emissions will be 12 to 14 billion tonnes of carbon dioxide equivalent (CO2e) higher than the desired level of 42 billion tonnes. The 2014 level was about 52.7 billion tonnes. 2016 is on track to become the hottest year on record, and carbon dioxide levels in the atmosphere passed an ominous milestone in 2015. On Friday, the Eiffel Tower in Paris as well as government and public buildings in Marrakesh, New Delhi, Sao Paulo and Adelaide, among others, will be lit up in green to mark the entry into force of the historic pact.

“..interim storage sites while the government develops a permanent solution..” Baloney. There is no permanent solution. Yucca Mountain was discarded after a judge ruled the government had to guarantee safe storage for 100,000 years. There is no such guarantee.

• Early Closings Of US Nuclear Plants Leave Toxic Waste With Nowhere To Go (BBG)

Under a 1982 law, the U.S. government, not the utilities, is responsible for disposing of radioactive waste that can take thousands, even hundreds of thousands, of years to degrade. But more than a half-century after nuclear energy powered the first American home, the U.S. Department of Energy still doesn’t have a permanent solution for the waste left behind. It’s a problem that will only get worse. On October 24, the Fort Calhoun Nuclear Generating Station near Blair, Nebraska, became the fifth nuclear plant to close in five years. Of 119 reactors in the U.S., 20 are now being decommissioned and a half-dozen more are expected to close prematurely, nudged out by cheap natural gas and growing use of renewables.

Beyond that, “the big wave of retirements really starts coming in around 2030,” Energy Secretary Ernest Moniz warned last month at an event in Washington. Among experts, the nuclear waste debate invariably turns on the fleeting nature of human institutions in dealing with an element that the Environmental Protection Agency has said must be isolated for 10,000 years to protect humans and the environment from toxic radiation. “The problem with federal agencies is that the management structure changes every few years,” said Allison Macfarlane, a former chairman of the Nuclear Regulatory Commission (NRC), which licenses and regulates civilian use of radioactive material. “In hundreds of years, will these institutions be there, will they care, will they pay?” That’s one issue. A second is where exactly to put the waste.

The safest thing to do is to bury it deep underground, below the water table and within a stable rock formation. Congress picked such a site in 1987: a desert ridge in Southern Nevada known as Yucca Mountain. The site abuts a nuclear weapons testing ground where 928 atomic tests were conducted between 1951 and 1992. While a few Nevada counties agreed with the selection, the state government didn’t, and the Yucca solution soon devolved into a decades-long political fight that crossed party lines and spanned presidential administrations. In 2010, President Barack Obama finally scrapped the plan altogether, declaring the site unworkable.

Debt Rattle October 25 2016

Oct 252016

October 25, 2016 Posted by Raúl Ilargi Meijer at 9:26 am Finance Tagged with: deficit, eurozone, FBI, Hillary, M5S, Orwell, outflows, poverty, Pyatt, rage, subprime Comments Off

NPC Grief monument, Rock Creek cemetery, Washington DC 1915

• The Eurozone Is Turning Into A Poverty Machine (Tel.)

• Barclays Warns ‘Politics of Rage’ Will Slow Global Growth (BBG)

• China Capital Outflows Highest Since Data Publishing Began In 2010 (BBG)

• Credit Card Lending To US Subprime Borrowers Is Starting To Backfire (WSJ)

• Bank of England Optimism Evaporates in Long-Term Debt (BBG)

• The Deficit Is Too Small, Not Too Big (McCulley)

• Welcome to the George Orwell Theme Park of Democracy (Jim Kunstler)

• How Democrats Killed Their Populist Soul (Matt Stoller)

• Hillary Clinton Is The Republican Party’s Last, Best Hope (Heat St.)

• Clinton Ally Aided Campaign of FBI Official’s Wife (WSJ)

• M5S Blasts Italian Constitutional Reform Proposed By PM Renzi (Amsa)

• 100 Million Canadians By 2100? Key Advisers Back Ambitious Goal (CP)

• A 1912 News Article Ominously Forecasted Climate Change (Q.)

• Refugee Camp On Lesbos Damaged In Riots As Rumors Fly (Kath.)

• Ex-US Ambassador To Ukraine Geoffrey Pyatt Now Ambassador To Greece (Kath.)

Why does this truth have to come from the right wing press?

• The Eurozone Is Turning Into A Poverty Machine (Tel.)

There are constant bank runs. The bond markets panic, and governments along its southern perimeter need bail-outs every few years. Unemployment has sky-rocketed and growth remains sluggish, no matter how many hundreds of billions of printed money the ECB throws at the economy. We are all tediously aware of how the euro-zone has been a financial disaster. But it is now starting to become clear that it is a social disaster as well. What often gets lost in the discussion of growth rates, bail-outs and banking harmonisation is that the eurozone is turning into a poverty machine. As its economy stagnates, millions of people are falling into genuine hardship. Whether it is measured on a relative or absolute basis, rates of poverty have soared across Europe, with the worst results found in the area covered by the single currency.

There could not be a more shocking indictment of the currency’s failure, or a more potent reminder that living standards will only improve once the euro is either radically reformed or taken apart. Eurostat, the statistical agency of the European Union, has published its latest findings on the numbers of people “at risk of poverty or social exclusion”, comparing 2008 and 2015. Across the 28 members, five countries saw really significant rises compared with the year of the financial crash. In Greece, 35.7pc of people now fall into that category, compared with 28.1pc back in 2008, a rise of 7.6 percentage points. Cyprus was up by 5.6 points, with 28.7pc of people now categorised as poor. Spain was up 4.8 points, Italy up 3.2 points and even Luxembourg, hardly known for being at risk of deprivation, up three points at 18.5pc.

It was not so bleak everywhere. In Poland, the poverty rate went down from 30.5pc to over 23pc. In Romania, Bulgaria, and Latvia, there were large falls compared to the 2008 figures – in Romania for example the percentage was down by seven points to 37pc. What was the difference between the countries where poverty went up dramatically, and those where it went down? You guessed it. The largest increases were all countries within the single currency. But the decreases were all in countries outside it. It gets worse. “At risk of poverty” is defined as living on less than 60pc of the national median income. But that median income has itself fallen over the last seven years, because most countries inside the eurozone have yet to recover from the crash. In Greece, the median income has dropped from €10,800 a year to €7,500 now.

[..] Why should Greece and Spain be doing so much worse than anywhere in Eastern Europe? Or why Italy should be doing so much worse than Britain, when the two countries were at broadly similar levels of wealth in the Nineties? (Indeed, the Italians actually overtook us for a while in GDP per capita.) Even a traditionally very successful economy such as the Netherlands, which has not been caught up in any kind of financial crisis, has seen big increases in both relative and absolute poverty. In fact, it is not very hard to work out what has happened. First, a dysfunctional currency system has choked off economic growth, driving unemployment up to previously unbelievable levels. After countries went bankrupt and had to be bailed out, the EU, along with the ECB and the IMF, imposed austerity packages that slashed welfare systems and cut pensions. It is not surprising poverty is increasing under those conditions.

If you ask me, they’ve got it the wrong way around. If growth hadn’t slowed down, there’d be much less rage.

• Barclays Warns ‘Politics of Rage’ Will Slow Global Growth (BBG)

Brexit, rising populism across Europe, the ascent of Donald Trump in America, and the backlash against income inequality everywhere. A slew of political and economic forces have nurtured a growing narrative that globalization is now on life support—a potential game-changer for global financial markets, which have staged a rapid expansion since the end of the Cold War thanks to unfettered cross-border flows. No more: Trade volumes have stalled while the “politics of rage” has taken root in advanced economies, driven by a collapse in the perceived legitimacy of political and economic institutions, a new report from Barclays warns.

The result, the bank says, is an oncoming protectionist lurch—restrictions on the free movement of goods, services, labor, and capital—combined with an erosion of support for supranational bodies, from the EU to the WTO. “Even mild de-globalization likely will slow the pace of trend global growth,” Marvin Barth, head of European FX strategy at Barclays, writes in the report. “A sense of economic and political disenfranchisement due to imperfect representation in national governments and delegation of sovereignty to supranational and intergovernmental organisations” has generated the backlash, he said. He cites as a major factor the collapse in support for centrist parties in advanced economies and adds that the role of income inequality may be overstated.

The report echoes Harvard University economist Dani Rodrik’s earlier contention that democracy, sovereignty, and globalization represent a “trilemma.” Expansion of cross-border trade links—and the attendant increase in the power of supranational authorities to adjudicate economic matters—is a direct threat to representative democracy, and vice-versa. The veto Monday of the EU’s free trade deal with Canada by the Belgian region of Wallonia—whose leader said the deadline to secure backing for the deal was “not compatible with the exercise of democratic rights”—is a sharp illustration of this trilemma.

Breaking the dollar peg is a dangerous game, given the amount of debt denominated in USD. It can get expensive quite fast.

• China Capital Outflows Highest Since Data Publishing Began In 2010 (BBG)

The offshore yuan traded near a record low as Chinese policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and an advance in the dollar. The exchange rate was at 6.7836 a dollar as of 1:01 p.m. in Hong Kong, after dropping to 6.7885, the weakest intraday level in data going back to 2010. In Shanghai, the currency was little changed at 6.7760, close to a six-year low and past the 6.75 year-end median forecast in a Bloomberg survey. The Chinese currency has come under increased pressure on signs that investors are taking more money out of the country. A gauge of the dollar rose to a seven-month high versus major currencies Monday as traders bet that the Federal Reserve may raise borrowing costs soon.

Unlike the yuan selloff earlier this year which sparked a global market rout, there’s no sense of panic yet as policy makers maintain a steady exchange rate against other currencies. “The central bank is tolerating more orderly depreciation of the yuan,” said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “But it will step in to avoid market panic arising from a sharp yuan depreciation. The 6.8 level is critical in the near term.” [..] The onshore yuan has weakened 4.2% this year, the most in Asia. It has declined in all but two sessions this month as some analysts speculated that the central bank has reduced support following the yuan’s inclusion in the IMF’s basket of reserves on Oct. 1.

A net $44.7 billion worth of payments in the Chinese currency left the nation last month, according to data released by the State Administration of Foreign Exchange. That’s the most since the government started publishing the figures in 2010. [..] Chinese policy makers have downplayed the importance of the yuan-dollar exchange rate, saying they aim to keep the yuan steady against a broad basket of currencies. A Bloomberg gauge mimicking China Foreign Exchange Trade System’s yuan index against 13 major currencies has been little changed around 94 since August after falling more than 6 percent in the previous eight months.

Imagine my surprise.

• Credit Card Lending To US Subprime Borrowers Is Starting To Backfire (WSJ)

Credit-card lending to subprime borrowers is starting to backfire. Missed payments on credit cards that lenders issued recently are higher than on older cards, according to new data from credit bureau TransUnion. Nearly 3% of outstanding balances on credit cards issued in 2015 were at least 90 days behind on payments six months after they were originated. That compares with 2.2% for cards that were given out in 2014 and 1.5% for cards in 2013. The poorer performance on newer cards pushed up the 90-day or more delinquency rate for all credit cards to 1.53% on average nationwide in the third quarter. That’s the highest level since 2012.

The recent increase in subprime lending is one of the big contributors. Lenders ramped up subprime card lending in 2014 and have been doling out more of these cards recently. They issued just over 20 million credit cards to subprime borrowers in 2015, up some 20% from 2014 and up 56% from 2013, according to Equifax. Separately, missed payments in states with large oil or energy sectors continue to worsen. The share of card balances that were at least 90 days past due increased 12% in Oklahoma, 10% in Texas and 20% in Wyoming in the third quarter from a year prior, according to TransUnion.

Really? They thought Carney could save the day?

• Bank of England Optimism Evaporates in Long-Term Debt (BBG)

Long-term sterling bonds suggest investors are quickly losing confidence in the Bank of England’s ability to support debt markets through the U.K.’s departure from the EU. Holders have lost about 10% in as little as seven weeks on long-dated notes issued by Vodafone, British American Tobacco and WPP. The bond sales took place after the central bank announced plans in August to buy corporate debt, sparking investor optimism. The mood has since soured because of concerns about a so-called hard Brexit, sterling’s tumble and the outlook for inflation. “With the benefit of hindsight, August was the best time to issue,” said Srikanth Sankaran, head of European Credit and ABS strategy at Morgan Stanley. “The market was more focused on the Bank of England’s support rather than the longer-term Brexit risk.”

McCulley used to be something big at PIMCO. He’s right, but it’s doubtful a change of course would be sufficient at this point. Austerity has killed a lot.

• The Deficit Is Too Small, Not Too Big (McCulley)

[..] while Clinton gets my vote, her insistence at the final debate that her proposed fiscal program will not “add a penny” to the national debt is fouling my wonk serenity this morning. Every penny of new expenditure, she says, will be “paid for” with a new penny of tax revenue. Her deficit-neutral fiscal proposal is, I readily acknowledge, better than the status quo, as her proposed new spending would add 100 cents on the dollar to the nation’s aggregate demand, while her proposed tax increases would not subtract 100 cents on the dollar. Why? Because she proposes getting the new tax revenue from those with a low marginal propensity to spend, or alternatively, a high marginal propensity to save. To wit, from the not poor, including yes, the rich.

Thus, in simple Keynesian terms, there is some solace in her deficit-neutral fiscal package: It would be net stimulative to the economy, because it would – in technical terms – drive down the private sector’s savings rate. In less technical terms, it would take money from people who don’t live paycheck to paycheck, who would still spend the same, but just have less left over to save. And I have no problem with that. What sends me around the bend is the notion that the only way to boost aggregate demand is to drive down the private-sector savings rate, in the context of holding constant the public sector’s savings rate. But, you retort: The public sector, notably at the federal level, has a negative savings rate; it runs a deficit! Are you nuts?

No, I am not. Unless faced with an incipient inflation threat, born of an overheated economy, there is no reason whatsoever that the public sector should ever have a positive savings rate. What it should have is a positive, a bigly positive, investment rate. And in fact, a higher public investment rate and a lower public savings rate are exactly what our economy presently needs. Yes, a larger fiscal deficit. [..] investment drives aggregate demand, which begets aggregate production and thus, aggregate income, the fountain from which savings flow. Thus, if and when there is insufficient aggregate demand to foster full employment at a just income distribution, the underlying problem is a deficiency of investment, not savings. More investment is the solution, and investment is constrained not by a shortage of savings, but literally a deficiency of investment itself.

“..the demonization of Russia – a way more idiotic exercise than the McCarthyite Cold War hysteria..”

• Welcome to the George Orwell Theme Park of Democracy (Jim Kunstler)

If Trump loses, I will essay to guess that his followers’ next step will be some kind of violence. For the moment, pathetic as it is, Trump was their last best hope. I’m more comfortable about Hillary — though I won’t vote for her — because it will be salutary for the ruling establishment to unravel with her in charge of it. That way, the right people will be blamed for the mismanagement of our national affairs. This gang of elites needs to be circulated out of power the hard way, under the burden of their own obvious perfidy, with no one else to point their fingers at. Her election will sharpen awareness of the criminal conduct in our financial practices and the neglect of regulation that marked the eight years of Obama’s appointees at the Department of Justice and the SEC.

The “tell” in these late stages of the campaign has been the demonization of Russia – a way more idiotic exercise than the McCarthyite Cold War hysteria of the early 1950s, since there is no longer any ideological conflict between us and all the evidence indicates that the current state of bad relations is America’s fault, in particular our sponsorship of the state failure in Ukraine and our avid deployment of NATO forces in war games on Russia’s border. Hillary has had the full force of the foreign affairs establishment behind her in this war-drum-banging effort, yet they have not been able to produce any evidence, for instance, in their claim that Russia is behind the Wikileaks hack of Hillary’s email.

[..] The media has been on-board with all this. The New York Times especially has acted as the hired amplifier for the establishment lies – such a difference from the same newspaper’s role in the Vietnam War ruckus of yesteryear. Today (Monday) they ran an astounding editorial “explaining” the tactical necessity of Hillary’s dishonesty: “In politics, hypocrisy and doublespeak are tools,” The Times editorial board wrote. Oh, well, that’s reassuring. Welcome to the George Orwell Theme Park of Democracy.

Absolute must read by Stoller, American history you didn’t know.

• How Democrats Killed Their Populist Soul (Matt Stoller)

While not a household name today, Wright Patman was a legend in his time. His congressional career spanned 46 years, from 1929 to 1976. In that near-half-century of service, Patman would wage constant war against monopoly power. As a young man, at the height of the Depression, he challenged Herbert Hoover’s refusal to grant impoverished veterans’ accelerated war pensions. He successfully drove the immensely wealthy Treasury Secretary Andrew Mellon from office over the issue. Patman’s legislation to help veterans recoup their bonuses, the Bonus Bill—and the fight with Mellon over it—prompted a massive protest by World War I veterans in Washington, D.C., known as “the Bonus Army,” which helped shape the politics of the Depression.

In 1936, he authored the Robinson-Patman Act, a pricing and antitrust law that prohibited price discrimination and manipulation, and that finally constrained the A&P chain store—the Walmart of its day—from gobbling up the retail industry. He would go on to write the Bank Secrecy Act, which stops money-laundering; defend Glass-Steagall, which separates banks from securities dealers; write the Employment Act of 1946, which created the Council of Economic Advisors; and initiate the first investigation into the Nixon administration over Watergate.

Far from the longwinded octogenarian the Watergate Babies saw, Patman’s career reads as downright passionate, often marked by a vitality you might see today in an Elizabeth Warren—as when, for example, he asked Fed Chairman Arthur Burns, “Can you give me any reason why you should not be in the penitentiary?” Despite his lack of education, Patman had a savvy political and legal mind. In the late 1930s, the Federal Reserve Board refused to admit it was a government institution. So Patman convinced the District of Columbia’s government to threaten foreclosure of all Federal Reserve Board property; the Board quickly produced evidence that it was indeed part of the federal government.

Kind of like a second chapter to Stoller’s piece above.

• Hillary Clinton Is The Republican Party’s Last, Best Hope (Heat St.)

While Trump has pushed a populist, anti-free trade message, Hillary champions the large multinational corporations that create jobs for everyday Americans. As secretary of state, she worked tirelessly to advance the Trans-Pacific Partnership, the “gold standard” of trade agreements. As a candidate, she expertly silenced the gullible radicals supporting Bernie Sanders by pretending she won’t sign TPP into law as president. (She will.) Hillary’s disdain for left-wing agitators does not end there. She has also gone to bat for the heroes in America’s fracking industry, telling environmentalists to “get a life” in emails uncovered by Wikileaks. [..]

One of the greatest sources of frustration for Republicans during the Obama presidency has been his weak-sauce, isolationist foreign policy. In the absence of strong American leadership, the world has plunged into chaos. Trump shares Obama’s ideology of avoiding foreign entanglements, even going so far as to question the need for NATO as Putin runs amok unchecked. It is precisely at this moment that America needs the hawkish leadership of Hillary Clinton to defend American exceptionalism and reassert our hegemony on the world stage. Among her fellow neoconservative war hawks, Hillary is admired for her sterling record on foreign policy — from supporting the invasion of Iraq in 2002 to her valiant efforts as secretary of state to persuade Obama to stop being such a pushover on the world stage.

During the Arab Spring in 2011, Hillary impressed upon Obama the need for a U.S.-led “coalition of the willing” to help mold the future of the Middle East in the name of freedom. Muammar Gaddafi wound up dead in a ditch. Later, when the president sought input on Syria, Hillary recommended force and arming rebel groups. Obama’s failure to follow her advice led to the current migrant crisis and ongoing tragedy in Syria. Bashar al-Assad is still alive and well. Imagine our enemies cowering in the shade as President Hillary’s massive drone armada blocks out the sun en route to visit death upon the enemies of freedom. Slay Queen, indeed. Voters looking for a reliable pro-business, conservative hawk to undo eight years of Obama’s feckless progressivism and combat the cancer of Trumpism need look no further than Hillary Rodham Clinton. She is the GOP’s last, best hope.

Incredible. Just incredible.

• Clinton Ally Aided Campaign of FBI Official’s Wife (WSJ)

The political organization of Virginia Gov. Terry McAuliffe, an influential Democrat with longstanding ties to Bill and Hillary Clinton, gave nearly $500,000 to the election campaign of the wife of an official at the FBI who later helped oversee the investigation into Mrs. Clinton’s email use. Campaign finance records show Mr. McAuliffe’s political-action committee donated $467,500 to the 2015 state Senate campaign of Dr. Jill McCabe, who is married to Andrew McCabe, now the deputy director of the FBI. The Virginia Democratic Party, over which Mr. McAuliffe exerts considerable control, donated an additional $207,788 worth of support to Dr. McCabe’s campaign in the form of mailers, according to the records.

That adds up to slightly more than $675,000 to her candidacy from entities either directly under Mr. McAuliffe’s control or strongly influenced by him. The figure represents more than a third of all the campaign funds Dr. McCabe raised in the effort. Mr. McAuliffe and other state party leaders recruited Dr. McCabe to run, according to party officials. She lost the election to incumbent Republican Dick Black. [..] Dr. McCabe announced her candidacy in March 2015, the same month it was revealed that Mrs. Clinton had used a private server as secretary of state to send and receive government emails, a disclosure that prompted the FBI investigation. At the time the investigation was launched in July 2015, Mr. McCabe was running the FBI’s Washington, D.C., field office, which provided personnel and resources to the Clinton email probe.

That investigation examined whether Mrs. Clinton’s use of private email may have compromised national security by transmitting classified information in an insecure system. [..] At the end of July 2015, Mr. McCabe was promoted to FBI headquarters and assumed the No. 3 position at the agency. In February 2016, he became FBI Director James Comey’s second-in-command. As deputy director, Mr. McCabe was part of the executive leadership team overseeing the Clinton email investigation, though FBI officials say any final decisions on that probe were made by Mr. Comey, who served as a high-ranking Justice Department official in the administration of George W. Bush.

“Di Maio was also ironic about the endorsement of the reform received by Renzi from President Obama during a recent visit to Washington. “Let’s say it is not the first time Obama has intervened concerning a referendum in another country, he supported ‘Remain’ in England and ‘Brexit’ won. Now he is backing the Yes vote and so the No front should be reassured..”

• M5S Blasts Italian Constitutional Reform Proposed By PM Renzi (Amsa)

The anti-establishment Five Star Movement (M5S) will vote No in the December 4 referendum on Constitutional reform because the law “deprives us of democratic rights”, party bigwig and Deputy House Speaker Luigi Di Maio said on Monday. “In our opinion, the title of the law does not in any way reflect its content, in the same way that the title of the Good School law does not in any way reflect the content of that reform,” Di Maio told radio broadcaster Rtl 102.5. The M5S recently lost a legal challenge against the question in the consultative referendum, which echoes the wording of the title of the constitutional law, arguing it amounts to a “deceptive” advertisement for the government’s position in favour of a Yes vote.

On December 4, Italians will be called to answer ‘yes’ or ‘no’ on a question that reads: “Do you approve a constitutional law that concerns the scrapping of the bicameral system (of parliament), reducing the number of MPs, limiting the operating costs of public institutions, abolishing the National Council on Economy and Labour (CNEL), and amending Title V of the Constitution, Part II?”. The reform approved by parliament in April would turn the Senate into a leaner body of indirectly elected regional and local representatives with limited lawmaking powers. Critics of the reform, including M5S and a left-wing faction within Premier Matteo Renzi’s own Democratic Party (PD), say it will actually make procedures more complicated.

Di Maio was also ironic about the endorsement of the reform received by Renzi from US President Barack Obama during a recent visit to Washington. “Let’s say it is not the first time Obama has intervened concerning a referendum in another country, he supported ‘Remain’ in England and ‘Brexit’ won. Now he is backing the Yes vote and so the No front should be reassured,” he said.

There is a reason why Canada is sparsely populated. Let’s not tell them. Don’t spoil the fun.

• 100 Million Canadians By 2100? Key Advisers Back Ambitious Goal (CP)

Imagine Canada with a population of 100 million — roughly triple its current size. For two of the most prominent voices inside the Trudeau government’s influential council of economic advisers, it’s much more than a passing fancy. It’s a target. The 14-member council was assembled by Finance Minister Bill Morneau to provide “bold” advice on how best to guide Canada’s struggling economy out of its slow-growth rut. One of their first recommendations, released last week, called for a gradual increase in permanent immigration to 450,000 people a year by 2021 — with a focus on top business talent and international students. That would be a 50% hike from the current level of about 300,000.

The council members — along with many others, including Economic Development Minister Navdeep Bains — argue that opening Canada’s doors to more newcomers is a crucial ingredient for expanding growth in the future. They say it’s particularly important as more and more of the country’s baby boomers enter their golden years, which eats away at the workforce. The conviction to bring in more immigrants is especially significant for at least two of the people around the advisory team’s table. Growth council chair Dominic Barton, the powerful global managing director of consulting firm McKinsey, and Mark Wiseman, a senior managing director for investment management giant BlackRock, are among the founders of a group dedicated to seeing the country responsibly expand its population as a way to help drive its economic potential.

The Century Initiative, a five-year-old effort by well-known Canadians, is focused on seeing the country of 36 million grow to 100 million by 2100. Without significant policy changes on immigration, the current demographic trajectory has Canada’s population on track to reach 53 million people by the end of the century, the group says on its website. That would place it outside the top 45 nations in population size, it says.

It goes back quite a bit further.

• A 1912 News Article Ominously Forecasted Climate Change (Q.)

Published Aug. 14, 1912. (The Rodney and Otamatea Times and Waitemata and Kaipara Gazette)

A short news clip from a New Zealand paper published in 1912 has gone viral as an example of an early news story to make the connection between burning fossil fuels and climate change. It wasn’t, however, the first article to suggest that our love for coal was wreaking destruction on our environment that would lead to climate change. The theory—now widely accepted as scientific reality—was mentioned in the news media as early as 1883, and was discussed in scientific circles much earlier than that. The French physicist Joseph Fourier had made the observation in 1824 that the composition of the atmosphere is likely to affect the climate. But Svante Arrhenius’s 1896 study titled, “On the influence of carbonic acid in the air upon the temperature on the ground” was the first to quantify how carbon dioxide (or anhydrous carbonic acid, by another name) affects global temperature.

Though the study does not explicitly say that the burning of fossil fuels would cause global warming, there were scientists before him who had made such a forecast. The earliest such mention that Quartz could find was in the journal Nature in December of 1882. The author HA Phillips writes: “According to Prof Tyndall’s research, hydrogen, marsh gas, and ethylene have the property to a very high degree of absorbing and radiating heat, and so much that a very small proportion, of say one thousandth part, had very great effect. From this we may conclude that the increasing pollution of the atmosphere will have a marked influence on the climate of the world.” Phillips was relying on the work of John Tyndall, who in the 1860s had shown how various gases in the atmosphere absorb heat from the sun in the form of infrared radiation.

Now we know that Phillips was wrong about a few scientific details: He ignored carbon dioxide from burning coal and focused more on the by-products of mining. Still, he was drawing the right conclusion about what our demand for fossil fuels might do to the climate. Newspapers around the world took those words published in a prestigious scientific journal quite seriously. In January 1883, the New York Times published a lengthy article based on Phillips’ letter to Nature, which said: “The writer who has partially discussed the subject in the columns of Nature has fixed upon 1900 as the date when the earth’s atmosphere will become entirely irrespirable. This is probably a misprint, for unless the consumption of cigarettes increases unlooked-for rapidly the atmosphere ought to remain respirable until 1910, or even 1912. At the latter date all mankind will have perished, and nothing except the hardier plants will be living on the surface of the earth.”

The EU is a failure of historical proportions economically, politically and above all morally.

• Refugee Camp On Lesbos Damaged In Riots As Rumors Fly (Kath.)

Migrants on Monday attacked the premises of the European Asylum Support Office (EASO) inside the Moria hot spot on the eastern Aegean island of Lesvos, completely destroying four container office units and damaging another two during a protest that was contained by riot police. Officials said the protesters, most of them men from Pakistan, threw rocks and burning blankets at the EASO facilities, allegedly frustrated at delays in processing their asylum applications. Riot police were called in to contain the riot. The blaze was put out by the fire service before it could cause further damage. There were no reports of injuries.

The violence at Moria prompted authorities on other migrant-hosting islands, including Chios, Samos, Kos and Leros, to beef up their security measures. Speaking on condition of anonymity, a local government official told Kathimerini that migrant riots were often triggered by rumors. “Refugees and migrants are told that if their facilities are destroyed they will have nowhere to stay and so they will be transferred to the mainland,” the source said.

Victoria Nuland’s neocon and Kiev coup instigator buddy. Bad news for Greece. Wonder what the pressure on Tsipras has been.

• Ex-US Ambassador To Ukraine Geoffrey Pyatt Now Ambassador To Greece (Kath.)

The official welcome ceremony for new US Ambassador to Greece Geoffrey R. Pyatt took place on the US 6th Fleet command and control ship USS Mount Whitney, in the port of Piraeus south of Athens, Monday. Earlier in the day, Pyatt presented Greek President Prokopis Pavlopoulos with his diplomatic credentials at the Presidential Mansion. The ceremony was attended by Foreign Minister Nikos Kotzias. Nominated by President Obama, Pyatt is widely regarded as an experienced diplomat. He previously served as US ambassador in Kiev and had to deal with the fallout of the Ukrainian crisis. His appointment comes at a key time for both Athens and Washington. Recent developments in the wider region have created challenges as well as opportunities for the two NATO allies. Obama is expected to visit Athens in November. Political and military officials have been exchanging visits ahead of the trip.

Debt Rattle October 8 2016

Oct 082016

October 8, 2016 Posted by Raúl Ilargi Meijer at 9:34 am Finance Tagged with: Brexit, bubble, elites, executions, jobless, poachers, poverty, rhino, Saudi, Trump, worries 4 Responses »

DPC Royal Street, New Orleans 1900

• US Consumer Borrowing Rises by Most in Nearly a Year (BBG)

• US Consumer Credit Has Second Biggest Jump On Record (ZH)

• US Payrolls Up 156K, Missing Expectations, Unemployment Rate Rises To 5.0% (ZH)

• EU Leaders Line Up To Insist UK Will Pay A High Price For Brexit Stance (G.)

• Worries Deepen That Globalization Is Hitting the Skids (WSJ)

• Worries Grow That China Faces a Perilous Property Bubble (WSJ)

• EU Imposes Import Duties Of Up To 73.7% On Cheap Chinese Steel (G.)

• He’ll Likely Lose – But Trump Is The Final Warning To Elites (G&M)

• Why Does This Happen on My Vacation? -The Trump Tapes (Scott Adams)

• Hounds Hot On The Heels Of Poachers In Rhino Country (G.)

• New Zealand Child Poverty A Source Of Deep Concern: UN (G.)

• UN Watchdog Demands Saudis Stop Child Executions (AFP)

No deleveraging: Household debt rises 8.5% annualized.

• US Consumer Borrowing Rises by Most in Nearly a Year (BBG)

Household borrowing increased in August at the fastest pace in almost a year, led by a jump in loans for school and automobile purchases. The $25.9 billion increase, or an annualized 8.5%, followed a revised $17.8 billion gain the prior month, Federal Reserve figures showed Friday. The median projection called for a $16.5 billion advance. Non-revolving credit, which includes car and educational loans, also posted the largest advance since September of last year. Steady hiring and income growth may be making Americans more willing to borrow, helping to sustain consumer spending and the economic expansion.

Non-revolving credit increased $20.2 billion, while revolving debt rose $5.6 billion during the month, the Fed’s report showed. Lending by the federal government, mostly for student loans, climbed $18.7 billion in August on an unadjusted basis as students prepared to return to school for the fall semester. The Fed’s consumer credit report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.

Tyler on the household debt topic, delving a bit deeper, as in beyond seasonal adjustments.

• US Consumer Credit Has Second Biggest Jump On Record (ZH)

It will likely not come as a big surprise that at a time when US personal savings are once again declining, perhaps as a result of soaring health insurance costs, that US consumers are forced to borrow increasingly more to make ends meet. And, as expected, the latest consumer credit report confirmed this, when moments ago the Federal Reserve announced that in August, total US credit surged by $25.9 billion on a seasonally adjusted basis, smashing expectations of a $16.5 billion increase, and the third biggest monthly jump since 2001.[..] what was perhaps most interesting is that on a non-seasonally adjusted basis, when removing the artificial Arima-X-13 seasonal factors, August consumer credit soared by a near record $46.8 billion, an absolute outlier month, and surpassed just once in history.

So for all those who, still, erroneous claim that US consumers are deleveraging, show them this chart, because the scramble if not so much into revolving debt then certainly into government-funded auto and student loans, is unlike anything ever seen. And speaking of just those two kinds of debt, here they are broken out: they have both never been higher.

Last big jobs report before the elections (November’s will come too late to make much difference) is mixed, but certainly not very good.

• US Payrolls Up 156K, Missing Expectations, Unemployment Rate Rises To 5.0% (ZH)

With Wall Street all bulled up on the economy, expecting a print of 175K while the whipser number was decidedly higher, and closer to 200K thanks to Goldman’s optimism, moments ago the BLS reported that in September the US created only 156K jobs, missing expectations, and down from the upward revised 167K in August, leaving the question of whether the Fed will hike imminently, unanswered. However, offsetting the September miss, last month’s disappointing print of 151K was revised to 167K. At the same time, the change in total nonfarm payroll employment for July was revised down from +275,000 to +252,000. With these revisions, employment gains in July and August combined were 7,000 less than previously reported.

Over the past 3 months, job gains have averaged 192,000 per month. The household survey employment number of 151.968MM was 354K bigger than last month, and pushed the annual increase higher by 2.0%, the biggest since March 2016. The unemployment rate, at 5.0%, and the number of unemployed persons, at 7.9 million, changed little in September, up 0.1% from August and the highest in 6 months. Both measures have shown little movement, on net, since August of last year. The participation rate rose by 0.1% t 62.9% as people not in the labor force declined by 207K.

Which should make Britons very happy to leave that bunch of mobsters behind. Even if their own new ‘leaders’ are just as bad. But those you can vote out next time around.

• EU Leaders Line Up To Insist UK Will Pay A High Price For Brexit Stance (G.)

Britain and the EU appear more bitterly divided over Brexit than at any time since the referendum, with European leaders ramping up their rhetoric after Theresa May signalled she would seek a clean break with the bloc. The prime minister’s Conservative conference speech, in which she indicated Britain would prioritise immigration control and restore the primacy of UK law to become an “independent, sovereign nation” without full access to the single market, drew a sharp response from continental capitals. In Paris, François Hollande said Britain must suffer the consequences of its decision. “The UK has decided to do a Brexit. I believe even a hard Brexit,” he said. “Well, then we must go all the way through the UK’s willingness to leave the EU. We have to have this firmness.”

If not, “we would jeopardise the fundamental principles of the EU”, the French president said on Thursday night. “Other countries would want to leave the EU to get the supposed advantages without the obligations.. There must be a threat, there must be a risk, there must be a price.” Hollande’s message was underlined on Friday by the president of the European commission, Jean-Claude Juncker, who said the 27 remaining member states must not give an inch in exit negotiations. “You can’t have one foot in and one foot out,” he said. “We must be unyielding on this point.” Britain risked “trampling everything that has been built” over six decades of European integration, he said.

In Berlin, Angela Merkel rammed home the same point. “If we don’t insist that full access to the single market is tied to complete acceptance of the four basic freedoms, then a process will spread across Europe whereby everyone does and is allowed what they want.”

Turns out, globalization is just another religion. Hilarious that the CEO of United Parcel Service is quoted; yes, we understand they are all for ‘free’ trade, it’s what their business is based on.

• Worries Deepen That Globalization Is Hitting the Skids (WSJ)

Global finance ministers and central bankers are descending on Washington this week with a central concern in mind: fear that the modern age of globalization is hitting a wall. Last year’s $646 billion in foreign direct investment in rich economies represents a 40% drop from the peak before the financial crisis. International lending, as measured by cross-border banking claims at the Bank for International Settlements, is down nearly $2.6 trillion, or 9%, over the past two years. International trade this year will grow at the slowest pace since 2007, according to the World Trade Organization, which has slashed its forecast for growth in global trade volumes to 1.7% in 2016 from a previous estimate in April of 2.8%.

Imports among the world’s 20 largest economies have fallen as a share of their GDP for four consecutive years, and growth in demand for shipping containers fell to 4% this year after four decades of double-digit expansion. As financial officials gather in the U.S. capital this week at semiannual meetings of the IMF and the World Bank, there is widespread concern that this global malaise could worsen if nations intentionally turn inward. Too many politicians are backing trade barriers in a misguided effort to boost national growth in the short term, said Roberto Azevedo, director general of the WTO. “The medicine that is being often prescribed is protectionism, and that is exactly the kind of medicine that is going to hurt the patient, not help him,” he said.

The head of the IMF, Christine Lagarde, also expressed concern over rising protectionism around the world, including in the U.S. “Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” she said. The slower-than-expected economic activity is feeding a cycle of banks pulling back from international risk, companies hesitant to invest in new production, and governments issuing regulations—often linked to national security—favoring domestic producers. “Now that we’re in this 2% [growth] range in the U.S. and less than that in other countries, people are clinging more to the past and thinking more how to protect versus embracing the future,” said David Abney, CEO of United Parcel Service.

“The reality speaks of morbid financial excess..” (BTW, two WSJ articles in a row that start with Worries, some that deepen, others grow -same thing)

• Worries Grow That China Faces a Perilous Property Bubble (WSJ)

The latest buying frenzy began late last year, when Mr. Xi set a national goal of reducing the number of unsold homes in 2016. In the following months, cities rushed to relax home-purchase curbs that were put in place to discourage speculation during the last housing boom. Beijing also made it easier for homebuyers to access credit. The Chinese leadership’s hope was that modest borrowing by families and individuals would boost property sales and cut inventory, aiding related industries such as construction that, all told, account for about a fifth of China’s gross domestic product. It hasn’t gone as planned. Too much investment went into housing, economists say, aided by a series of central-bank easing measures since late 2014.

Government data show more than a third of new loans in the first half of 2016 went to housing. By comparison, an average 17.4% of new loans went to housing between 2010 and 2015, according to BNP Paribas. “The reality speaks of morbid financial excess,” said Harrison Hu at RBS. In July, six major cities showed home-price gains of more than 20% from the prior year; in August, 10 cities did. In the coastal city of Xiamen, prices skyrocketed 44.3%. Average new home prices across 70 Chinese cities in August rose far less, 7.5%, suggesting that many smaller cities are still struggling with too much inventory.

Chinese households’ leverage, meanwhile, is fast rising to dangerous levels. A study by China’s Haitong Securities shows that total home loans are expected to make up 30% China’s GDP this year, up from less than 20% three years ago. That is higher than Japan’s level during its property-bubble years in the late 1980s. One moderating factor: Most Chinese households pay down payments equal to about a third of the home’s value, making homeowners less vulnerable to price drops.

Yeah, about that globalization thing… You know, protectionism and all that…

• EU Imposes Import Duties Of Up To 73.7% On Cheap Chinese Steel (G.)

The European Union has slapped tariffs of up to 73.7% on Chinese steel after manufacturers were forced to cut jobs due falling prices and demand for the material amid an influx of cheap imports from Asia. Thousand of job have already been lost in the steel industry in Britain in the last year with thousands more at risk as the sector remains under pressure. Industry leaders have partly blamed the squeeze on the sector on China’s dumping of cheap steel in Europe as it struggles to find buyers for its products domestically. The EU has agreed to impose import duties of between 13.2% and 22.6% on Chinese hot-rolled steel, which is used in pipelines and gas containers, and 65.1% and 73.7% on heavy plates, which are used in civil engineering projects.

The state of the steel industry became part of the debate about Britain’s future in the EU before the referendum in June, with Brexiters claiming that the country would be better able to protect workers and introduce tariffs on Chinese imports if it voted to leave. UK Steel, the industry trade body, welcomed the speed at which the new EU tariffs had been introduced but warned that the levy on hot-rolled steel was not high enough, which could hurt Port Talbot, the biggest steelworks in Britain. Dominic King, head of policy and external affairs at UK Steel, said: “The speed at which tariffs have been imposed on dumped steel from China by the EU is very welcome. However, while we hope the tariffs for heavy plate are robust enough to ensure free and fair trade, the proposed levels for hot-rolled steel are not high enough, which might encourage China to continue dumping it on to the EU market.”

I don’t think Trump will lose. But good perspective, from Canada.

• He’ll Likely Lose – But Trump Is The Final Warning To Elites (G&M)

Donald Trump will probably lose the election. But he is a final warning. Unless political elites of both the left and the right become more humble, unless they once again ask themselves how their agendas will play in Peoria, the next rough beast might slouch over the corpse of the republic. “Will it play in Peoria?” goes back to the days of vaudeville. The city of 115,000 in central Illinois was once considered the ultimate focus group, the embodiment of Middle America, the place to test a joke or a soda or a social policy to learn what white folks without a fancy degree thought of it. Back in the day, you knew better than to defy the settled judgment of this ultimate test market. You went as far as Peoria would let you, and no further.

But we grew impatient. You have to fight Jim Crow, whatever Peoria thinks. Free trade will lift most boats, even if it swamps a few. The environment is too precious, and at too much risk, to go slow. Lower taxes and less red tape will help the economy grow, even if it profits some more than others. The left wanted social justice, protection for minorities, a cleaner environment. The right wanted lower taxes and trade deals. Despite the rhetoric, each accommodated the other. Republicans left the Democrats’ progressive policies largely intact; Democrats learned to embrace, or at least reluctantly accept, globalization. And everybody knew what was really going on in Washington. A tax break for you. A subsidy for me. You take care of my client and I’ll take care of yours. Deal? Then let’s celebrate. We’ll expense it.

What did the guy on the line think about this? The wife at Wal-mart? The folks at the ball park? No one really cared. Yeah, politicians chased their vote. But respect them, even defer to their collective wisdom? Not so much. The accommodation between left and right started unravelling in the 1980s. The Bork confirmation. The Thomas confirmation. Contract with America. Impeaching Bill Clinton. Iraq. Obama. The Tea Party. Gay marriage. And now the Democrats want to replace a black president with a woman? A CLINTON? Meanwhile, Peoria is hurting. The city is home to Caterpillar. But the heavy-equipment giant has outsourced most of its work force overseas or to so-called right-to-work states.

But what does Washington care? The left worries more about combatting global warming than about blue-collar workers with bad backs and no jobs. The right promises to retrain them, but somehow never gets around to it. The laid-off boys in the bars of Peoria blame the illegals, the only ones even more voiceless than themselves. They seethe at the Wall Street suits who destroyed the economy and got off scot-free. And what the hell is transgender, anyway? They look at their daughter’s report card. She’s only getting Cs. What future is there for anyone who’s only getting Cs?

How wrong is Dlibert’s alter ego? “It is fair to assume that Bill and Hillary are about to experience the worst weeks of their lives.”

• Why Does This Happen on My Vacation? -The Trump Tapes (Scott Adams)

By now you know about the Access Hollywood recording in which Donald Trump said bad things eleven years ago. Many of my readers asked me to weigh in. I’ll give you my thoughts, in no particular order.

1. If this were anyone else, the election would be over. But keep in mind that Trump doesn’t need to outrun the bear. He only needs to outrun his camping buddy. There is still plenty of time for him to dismantle Clinton. If you think things are interesting now, just wait. There is lots more entertainment coming.

2. This was not a Trump leak. No one would invite this sort of problem into a marriage.

3. I assume that publication of this recording was okayed by the Clinton campaign. And if not, the public will assume so anyway. That opens the door for Trump to attack in a proportionate way. No more mister-nice-guy. Gloves are off. Nothing is out of bounds. It is fair to assume that Bill and Hillary are about to experience the worst weeks of their lives.

4. If nothing new happens between now and election day, Clinton wins. The odds of nothing new happening in that timeframe is exactly zero.

5. I assume that 75% of male heads of state, including our own past presidents, are total dogs in their private lives. Like it or not, Trump is normal in that world.

6. As fictional mob boss Tony Soprano once said in an argument with his wife, “You knew what you were getting when you married me!” Likewise, Trump’s third wife, Melania, knew what she was getting. It would be naive to assume Trump violated their understanding.

7. Another rich, famous, tall, handsome married guy once told me that he can literally make-out and get handsy with any woman he wants, whether she is married or not, and she will be happy about it. I doubted his ridiculous claims until I witnessed it three separate times. So don’t assume the women were unwilling. (Has anyone come forward to complain about Trump?)

8. If the LGBTQ community wants to be a bit more inclusive, I don’t see why “polyamorous alpha male serial kisser” can’t be on the list. If you want to label Trump’s sexual behavior “abnormal” you’re on shaky ground.

9. Most men don’t talk like Trump. Most women don’t either. But based on my experience, I’m guessing a solid 20% of both genders say and do shockingly offensive things in private. Keep in mind that Billy Bush wasn’t shocked by it.

10. Most male Hollywood actors support Clinton. Those acting skills will come in handy because starting today they have to play the roles of people who do not talk and act exactly like Trump in private.

11. I’m adding context to the discussion, not condoning it. Trump is on his own to explain his behavior.

12. Clinton supporters hated Trump before this latest outrage. Trump supporters already assumed he was like this. Independents probably assumed it too. Before you make assumptions about how this changes the election, see if anyone you know changes their vote because of it. All I have seen so far is people laughing about it.

12. I hereby change my endorsement from Trump to Gary Johnson, just to get out of the blast zone. Others will be “parking” their vote with Johnson the same way. The “shy Trump supporter” demographic just tripled.

13. My prediction of a 98% chance of Trump winning stays the same. Clinton just took the fight to Trump’s home field. None of this was a case of clever strategy or persuasion on Trump’s part. But if the new battleground is spousal fidelity, you have to like Trump’s chances.

14. Trump wasn’t running for Pope. He never claimed moral authority. His proposition has been that he’s an asshole (essentially), but we need an asshole to fight ISIS, ignore lobbyists, and beat up Congress. Does it change anything to have confirmation that he is exactly what you thought he was?

Stop bombing teh Middle East and send your troops to protect Afrian wildlife. Much better use of force. May actually save mankind instead of destroying it.

• Hounds Hot On The Heels Of Poachers In Rhino Country (G.)

“I am ready to die for conserving the rhino,” says Wisdom Makhubele. But the brave young ranger now has another weapon in the war against rhino poaching: the extraordinary nose of tracking hounds. The trained dogs can run poachers to ground far faster than people, sometimes even being set free in packs and followed from helicopters. The new canine training unit at the Southern African Wildlife College (SAWC), near Acornhoek, opened earlier this year and dogs have already brought armed poachers to heel in Kruger national park, the epicentre of the rhino poaching crisis. At least 6,000 African rhinos have been slaughtered by poachers since 2008, to fuel the soaring demand for its horn in Asia, where it is highly valued as a supposed tonic and status symbol.

The rhino poaching epidemic across Africa has exploded in recent years, with annual increases in killings every year since 2009: 1,338 were slaughtered in 2015. It was a hot topic at the major wildlife trade summit in Johannesburg this week, where an attempt by Swaziland to legalise rhino horn trade was defeated. South Africa hosts more than 90% of the 20,000 surviving white rhinos and almost half the 4,800 remaining black rhinos and saw a slight dip in the slaughter in 2015, the first decrease in nine years. Over 70% of the rhino kills occur in Kruger and a sign on the way into the park reads “Poachers will be poached”. Dogs have been used for camp security for years, but the escalating poaching crisis has found them a new role.

“They are awesome – they are instinctive to tracking,” says Johan van Straaten, manager of the dog unit, which has been funded by WWF Nedbank Green Trust. “All these dogs can track, it’s in their genes. But we train them to track the scent we want. These dogs are imprinted on human scent, like narcotics dogs are on drugs.” [..] Being a ranger in the war on poaching can be deadly – more than 1,000 rangers were killed around the world in the last decade and many more injured. The danger follows the rangers home too. “They are targets and their families can be targets, that’s for certain,” says van Straaten. Makhubele comes from a local village. “People there know me and some of them are poachers, but I am not afraid,” he says. “This [rhino population] is our legacy and we have to look after it.”

New Zealanders must stand up against their government. It’s very much your shame too.

• New Zealand Child Poverty A Source Of Deep Concern: UN (G.)

The UN has said in a damning report that it is deeply concerned about New Zealand’s persistently high rates of child poverty. Unicef says 300,000 children – a third of New Zealand’s child population – now live below the poverty line. This is a rise of 45,000 in a year. Government representatives travelled to Geneva last month to present the country’s progress on its commitment to protecting the rights of the child to the UN. The UN committee’s report acknowledges widespread public debate and media attention on child poverty in New Zealand, but expresses serious concern about the government’s failure to address the issue systematically.

“The committee is deeply concerned about the enduring high prevalence of poverty among children,” the report says, highlighting “the effect of deprivation on children’s right to an adequate standard of living and access to adequate housing, with its negative impact on health, survival and development, and education”. The report expresses particular concern about the number of Maori and Pasifika children living in deprived circumstances. Both groups are disproportionately represented in child poverty statistics.

It calls for “urgent measures to address disparities in access to education, health services and a minimum standard of living for Maori and Pasifika children and their families” and says more effort should be invested in preserving Maori children’s cultural identity. The government of the National party is urged to take a systematic approach to tackling child poverty, and to establish a “national definition” to measure child poverty, something it has repeatedly refused to do. The Green party co-leader Metiria Turei welcomed the UN report. “The national government has repeatedly denied the seriousness of the problem and deserves the criticism it has received from the committee,” she said. “And that means thousands on NZ children are missing out on their chance for a decent life, especially Maori and Pasifika children.”

What is more sickening, that the Saudis do this, or that we insist on continuing to call them our friends? “..the stoning, amputation and flogging of children..” does not belong in our world.

• UN Watchdog Demands Saudis Stop Child Executions (AFP)

UN rights experts demanded Friday that Saudi Arabia immediately overturn laws allowing for the execution of children, and for punishments of minors including stonings, amputations and flogging. In a report on the plight of children in the wealthy Gulf state, a UN committee took Riyadh to task for allowing minors to be sentenced as adults, including to harsh corporal punishment and even the death penalty. The United Nations Committee on the Rights of the Child also criticised what it called Saudi Arabia’s systematic discrimination against girls, who are not considered full subjects, and who can be married off as early as nine years of age.

In its report, the committee expressed its “deepest concern” that Saudi Arabia “tries children above 15 years as adults and continues to sentence to death and to execute persons for offences that they allegedly committed when they were under the age of 18”. The committee, which is composed of 18 independent experts who monitor the implementation of the UN Convention on the Rights of the Child, pointed to a number of cases where minors had been sentenced to death. It said that at least four of the 47 people executed on January 2 this year were under 18 when they were sentenced to death.

And it demanded that Riyadh “immediately halt the execution” of those currently on death row who allegedly committed their crimes when they were minors, including Ali Mohammed Baqr al-Nimr, Abdullah Hasan al-Zaher, and Salman Bin Ameen Bin Salman Al-Qureish. Committee chairman Benyam Mezmur told reporters Saudi Arabia was only one of five countries, alongside China, Iran, Pakistan, and the Maldives, where child rights experts had ever needed to raise concerns about executions. “This is a very, very serious issue,” he said. The committee also demanded that Saudi Arabia immediately repeal laws permitting “the stoning, amputation and flogging of children”.

Debt Rattle September 22 2016

Sep 222016

September 22, 2016 Posted by Raúl Ilargi Meijer at 8:24 am Finance Tagged with: backlash, debt, Fed, paycheck, poverty, rate hike, Saudi, social fabric, war, Wells Fargo Comments Off

Harris&Ewing Harding inauguration 1921

• The Global Economic Outlook: Dark Clouds Ahead (Guardian Ed.)

• UN Fears Third Leg Of Global Financial Crisis – With Epic Debt Defaults (AEP)

• Major Trend Forecast For The Rest Of 2016 (Celente)

• Report Highlights Rising US Poverty (D&C)

• In Places With Fraying Social Fabric, a Political Backlash Rises (WSJ)

• Greek Bakers Unite To Give Away Bread To Those Too Poor To Afford It (KTG)

• Young Britons Live In ‘Suspended Adulthood’ (G.)

• It’s Not Just Consumers That Are Living Paycheck To Paycheck (BBG)

• Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely (BBG)

• Bank of Japan’s Inflation Overshoot Deepens Policy Innovation (BBG)

• Real Estate Gets Its Seat At The S&P 500 Table (Forbes)

• With Mortgage Rates So Low, Why Are So Many People Still Renting? (Time)

• House-Flippers Are Back, With Anonymous Funding (BBG)

• China Chalks Up $667-Billion Debt Pile Over Toll Roads (R.)

• Wells Fargo Too Arrogant To Own Up To Its Fraudulent Ways (WaPo)

• 27 US Senators Rebel Against Arming Saudi Arabia (I’Cept)

• A First Step for Syria? Stop the Killing (Jimmy Carter)

• Apologizing to My Daughter for the Last 15 Years of War (Van Buren)

Actually not all that bad from the Guardian Ed. staff. Though they predictably conclude with plain silliness: In the long run, this failed globalisation needs to be turned into something more sustainable and more inclusive, built on higher wages, robust tax systems and strong public safety nets.

• The Global Economic Outlook: Dark Clouds Ahead (Guardian Ed.)

Eight years ago this month, a bank collapsed, Wall Street went into meltdown and the world economy plunged into crisis. Trillions were lost in output ($22tn in the US, within just five years), millions of workers were made redundant (8.8 million in America’s great recession, 1.2 million in the UK) and thousands of promises were made by politicians and policymakers – everyone from Barack Obama and Gordon Brown to David Cameron and Christine Lagarde – that things would change. Yet, nearly a decade later, what is most striking is how little has changed. In the US, the UK and the rest of the developed world, policymakers talk of the “new mediocre”, so tepid is economic performance. And in the developing world things look even worse.

Such is the message from two of the world’s leading economic thinktanks, the OECD and the UN Conference on Trade and Development (Unctad). Both their reports on Wednesday were thick with cloud and short on silver lining. Yes, the OECD believes that Brexit Britain will have a slightly easier time this year – but that will be followed by a far choppier 2017. And the Unctad report is even more troubling. The biggest single warning it makes is that the world is on the verge of “entering a third phase of the financial crisis”. What began in the US subprime housing market before roiling Europe’s governments is likely to rear its head again – this time in Latin America, Africa and other poor countries. What will do for them, believe the Unctad researchers, is what also did for America and Europe: debt.

Much of the cheap money created by the Fed, the BOE and the ECB has been pushed by financial speculators into the higher-yielding markets of South Africa, Brazil and India, among others. Economists at the Bank for International Settlements, the central banks’ central bank, reckon that $9.8tn was pumped out in foreign bank loans and bonds in the first half-decade after the Lehman Brothers collapse. Unctad calculates that around $7tn of that was pushed through to emerging markets. By any standards, that is a flood of credit – one that was encouraged by panicky policymakers.

Wasn’t it the turn of China and the rest to pick up the slack in the global economy? Except now developing countries are lumbered with a gigantic private debt mountain to pay down. The private, non-financial sector across the developing world has debt service obligations worth nearly 150% of its income. The comparable figure for the developed world, by contrast, is just above 80%. And now developing countries are hobbling along rather than sprinting ahead, while commodity prices have tanked. To make matters worse, companies will typically have borrowed in US dollars and invested in their local currencies – but the strength of the dollar will make those loans all the harder to repay.

“What is clear is that world will soon need a massive and coordinated spending push by governments to create demand and bring the broken global system back into equilibrium. UNCTAD is entirely right about that. If this does not happen, it is sauve qui peut.”

• UN Fears Third Leg Of Global Financial Crisis – With Epic Debt Defaults (AEP)

The third leg of the world’s intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history. It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity. “Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out,” said the annual report of the UN Conference on Trade and Development (UNCTAD). We know already that the poisonous side-effect of zero rates and quantitative easing in the US, Europe, and Japan was to flood developing nations with cheap credit, upsetting their internal chemistry and drawing them into a snare.

What is less understood is just how destructive this has been. Much of the money was wasted, skewed towards “highly cyclical and rent-based sectors of limited strategic importance for catching up,” it said. Worse yet, these countries have imported the deformities of western finance before they are ready to cope with the consequences. This has undermined what UNCTAD calls the “profit-investment nexus” that ultimately drives growth and prosperity. The extraordinary result is that some countries are slipping backwards, victims of “premature deindustrialisation”. Many of them have fallen further behind the rich world than they were in 1980 despite opening up their economies and following the global policy script diligently.

The middle income trap closed in on Latin America and the non-oil states of the Middle East a long time ago, but now it is beginning to close in such countries as Malaysia and Thailand, and in some respects China. “The benefits of a rushed integration into international financial markets post-2008 are fast evaporating,” it said. Yet the suffocating liabilities built up over the QE years remain. UNCTAD says corporate debt in emerging markets has risen from 57pc to 104pc of GDP since the end of 2008, and much of this may have to written off unless there is a world policy revolution. “If the global economy were to slow down more sharply, a significant share of developing-country debt incurred since 2008 could become unpayable and exert considerable pressure on the financial system,” it said.

“There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis which began in the US housing market in late 2007 before spreading to the European bond market,” it said. These are deeply-disturbing assertions. The combined US subprime and ‘Alt-A’ property exposure before the Lehman crisis was just $2 trillion, and Greece’s debts were trivial. What UNCTAD is talking about is an order of magnitude larger.

Haven’t featured Celente in ages…

• Major Trend Forecast For The Rest Of 2016 (Celente)

Central bank policies rule the financial world. Their never-in-the-history-of-the-world negative and historically low interest rate policies, plus massive government and corporate bond buying schemes have enriched equity markets but not the general economy… “In fact, what we have been forecasting and reporting since 2010, the Bank for International Settlements confirmed this week with its warning that central bank behavior, not economic fundamentals, hold sway over markets. Claudio Borio, head of the monetary and economic department of the BIS questioned whether “market prices fully reflect the risk ahead,” and “doubts about valuations seem to have taken hold in recent days.” Indeed true price discovery is dead.

Despite massive Federal Reserve intervention in the US that has driven the Dow and NASDAQ to new highs, S&P 500 companies reported five straight quarters of year-over-year declines. Also on the market fundamental front, with retail sales down 0.3% in August, there was no back-to-school-splurge. The service sector, the main economic driver of the United States economy, fell to its lowest level since 2010. Despite “experts” forecasting US GDP to rise 3% in 2016, it’s slogged along at an annualized 1% for the first two quarters. Just yesterday it was reported that housing starts in the US came in at an annualized rate of 1.14 million in August, well below the expected 1.19 million while construction permits fell 0.4% to a 1.14 million-unit rate last month.

And while President Obama chastised “Anyone claiming that America’s economy is in decline is peddling fiction,” US economic growth since the recession ended is tracking at its weakest pace of any expansion since 1949. As the BIS report concludes, “A more balanced policy mix is essential to bring the global economy into a more robust, balanced and sustainable expansion.” Yet, today, all equity eyes are concentrated more on central bank maneuvers than market fundamentals. In Japan, with new data showing exports falling 9.6% and imports down 17.3% in August, the focus is on what new schemes the Bank of Japan will invent to boost the economy despite its long proven track record of failure.

Similarly, later today in the US, the markets await news of if, and when, the Fed will raise interest rates. Yet, as the data proves since the Panic of ’08, central banks’ “policy mix” has failed …and we forecast despite pending measures, they will continue to fail to generate true economic growth. Thus we forecast continued equity market volatility with increasing prospects for a market meltdown.

There should have been much more of this. People would have understood the world they live in so much better. The lack of this sort of analysis gives birth to Brexit and the Donald.

• Report Highlights Rising US Poverty (D&C)

Among the troubling statistics in a new report released Tuesday was the rising concentration of poverty in city neighborhoods, and expanding number of census tracts where the poverty rate stood at 40% or higher. The count of high-poverty census tracts has nearly doubled in the city, from 19 to 37 since 2000. Fully one-third of Rochester residents live in poverty, and nearly another third require some outside assistance to get by, according to estimates in the ACT Rochester and Rochester Area Community Foundation update to its 2013 report on the state of poverty and self-sufficiency across the Greater Rochester region. The numbers are a near mirror-image of the suburbs, where more than two-thirds of residents are self-sufficient. And while the poverty rate in the nine-county Greater Rochester region continues to creep upward, it remains below state and national averages, the report shows.

“We don’t really have a poverty problem,” said Edward Doherty, a Strategic Community Intervention associate who served as project manager and editor of the report, and is active in local efforts to combat poverty. “We have a concentration of poverty problem.” Rochester has the third-highest concentration of poverty in the nation. And a significant segment of that population is female-headed families with children younger than 18. Though accounting for 17% of the population, the report found, the city has 36% of such households, and that population has a staggering poverty rate of 59.9%. Doing the math, the report estimates these families account for nearly half of all people living in poverty in the city, and these children account for more than 80% of all poor children in the city.

This is changing the world, all over the world. Poverty and loss hidden from us by media and political propaganda.

• In Places With Fraying Social Fabric, a Political Backlash Rises (WSJ)

Reading, Pa.— The buckling of social institutions fundamental to American civic life is deepening a sense of pessimism and disorientation, while adding fuel to this year’s rise of political populists like Donald Trump and Bernie Sanders. Here and across the U.S., key measures of civic engagement ranging from church attendance to civic-group membership to bowling-league participation to union activity are slipping. Unlocked doors have given way to anxiety about strangers. In Reading, tension between longtime white residents and Hispanic newcomers has added to the unease. For Mr. Martin, social and economic setbacks led him to support Mr. Sanders, who he figured would stick it to the big businesses Mr. Martin feels have sold out working people.

Other people here find resonance in Mr. Trump’s message that the U.S. has skidded so far off course that it needs to lock out immigrants and block imports to recover an era of greatness. “When you lose the family unit and you lose the church community, you are losing a whole lot,” says Bonnie Stock, a retired teacher in Reading and Trump supporter, who says the church where she was baptized is dying from lack of young members. “People are looking at Trump because most of us see this [country] isn’t working,” she says. Ms. Stock figures Mr. Trump’s business experience would help him better attack societal problems like drug addiction.

Across the U.S., the Republican presidential nominee has his firmest support among the white working class. In the Republican primaries, he carried all but nine of the country’s 156 counties where at least 85% of the adult population was whites without four-year college degrees. Mr. Trump won 64% of the vote in Berks and Schuylkill counties, where noncollege whites were 66% of the adult population as of 2014. In Berks County, once famous for the Reading Railroad stop on the Monopoly board game, social ills have been exacerbated by a 30% decline in manufacturing jobs and 6% fall in inflation-adjusted median income since 1995.

In case you’re wondering why the Automatic Earth tries so hard to help the poorest Greeks. These are the very people your generous donations assist. The problem is their numbers are rising fast.

But we’re not going to give up. I’m breaking my head over the next steps in the process. We need to do something big for Christmas. Meanwhile, please keep donating through our Paypal widget, top left corner of the site, in amounts that end in $0.99 or $0.37.

• Greek Bakers Unite To Give Away Bread To Those Too Poor To Afford It (KTG)

Did you know that there are people in Greece who cannot afford to buy even a loaf of bread at a cost of €0.60 – €0.70? Almost a year after Greece surrendered into the arms of the international lenders and the IMF and the austerity cuts started to affect people’s lives, a bakery in our neighborhood was offering a bread at a special price for pensioners and unemployed. The special price was just half a euro. At one point, I remember that more and more people were going to this bakery and asking for bread from the previous day for a couple of cents or even free of charge. Two days ago, the grim Greek reality hit me again. I was at the bakery sometime at noon. All different kinds of bread loafs were waiting for customers, nicely set in order, one by one, next to each other.

Yet, somewhere, in a corner at one of the lower shelves there was a group of breads: several loaves, long and round, white and wholewheat, a couple of baguettes. “What are these?” I asked the baker and he answered “This is bread from yesterday, for the poor. We give it free of charge.” He told me further, that he had 6-7 returning customers who come every second day for the bread from yesterday. Mostly elderly, pensioners. And “maybe 2-3 people per day,” people he does not know who just step in and ask for “old bread for free.” The problem of poverty is not widespread only in Athens, where the cost of living is much higher than in the countryside. Today, I read about the action of the Bakers’ Association in Kozani, in Northern Greece. Customers can buy extra bread for those in need, while the bakers will keep records of the “Bread on the waiting” – as they call their action – and give it to those who cannot afford it.

As I’ve written before: and still everyone says they love their kids.

• Young Britons Live In ‘Suspended Adulthood’ (G.)

Despair, worries about the future and financial pressures are taking a toll on millions of young Britons, according to a poll which found young women in particular were suffering. Low pay and lack of work in today’s Britain are resulting in “suspended adulthood”, with many living or moving back in with their parents and putting off having children, according to the poll of thousands of 18 to 30-year-olds. Large numbers describe themselves as worn down (42%), lacking self-confidence (47%) and feeling worried about the future (51%).

The Young Women’s Trust, the charity that commissioned the polling by Populus Data Solutions, warned that Britain was facing a “generation of young people in crisis” as it called on the government to take steps including creating a minister with responsibility for overall youth policy. Young women are being particularly affected. The percentage of women reporting that they lacked self-confidence was 54%, compared with 39% of young men. While four in 10 young people said they felt worn down, the percentage for young women was 46% compared with 38% of men. One in three said they were worried about their mental health, including 38% of young women and 29% of young men.

US small business dances on the edge. They account for 50% of GDP and more than 50% of new job creation.

• It’s Not Just Consumers That Are Living Paycheck To Paycheck (BBG)

As Federal Reserve officials gather to issue their monthly assessment of the world’s largest economy, a new study lays bare the extent to which many small firms are pressed for cash. “Most small businesses are operating on very small margins,” Diana Farrell, CEO of the JPMorgan Chase Institute, an in-house think tank that uses data from the bank to analyze the economy. “The small business sector is less full of future Googles and Ubers and tons and tons of very small operators living month to month,” she said in a phone interview. The companies in question may be small, but they represent an outsized share of the U.S. economy.

According to the Small Business and Entrepreneurship Council, they account for roughly 50% of GDP and more than 50% of new job creation — a metric that’s closely watched by the Fed in determining whether the economy can withstand a constriction in financing conditions. Yet even though they’re contributing a great deal to the economy there remains ignorance about their financial health, Farrell added. On average, the companies surveyed have just 27 days worth of cash reserves — or money to cover expenses if inflows suddenly stopped — according to the JPMorgan study, which analyzed 470 million transactions by 570,000 small business last year. Restaurants typically hold the smallest cash buffers, with just 16 days of reserves, while the real-estate sector boasts the biggest, at 47 days.

These people get far too much attention. That makes them feel much too important. We should ignore them. After taking their undemocratic powers away.

• Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely (BBG)

A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end. “Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength.

Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 – a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election. “The statement is much more hawkish than I thought it would be,” said Stephen Stanley at Amherst Pierpont Securities in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.” Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester – in her first dissent – and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.

Uh, no: The need for yet another overhaul of the BOJ’s policy framework [..] speaks to the deep-seated challenges facing policy makers. Actually, it speaks to the utter failure of all ‘policies’ up till now.

• Bank of Japan’s Inflation Overshoot Deepens Policy Innovation (BBG)

The first major central bank to adopt quantitative easing in the modern era has innovated again. BOJ Governor Haruhiko Kuroda and his colleagues adopted a pledge of “overshooting” their 2% inflation target, an idea floated by central bankers including Federal Reserve Bank of Chicago President Charles Evans, but not formally adopted up to now. They also unveiled a strategy of targeting short- and longer-term rates to provide the economy with cheap borrowing costs. Since taking the helm in 2013, Kuroda had previously pursued a QE-on-steroids policy to shock Japan out of deflation. Yet after three and a half years, he was running into increasing concerns about the sustainability of the purchases of government bonds, which have run at about 15% of gross domestic product annually.

The adoption of a negative interest rate on some bank reserves resulted in an outcry from banks, and – for a time – an alarming plunge in yields even on longer-dated securities. The Federal Reserve had a cap on long-term yields back in the 1940s, as part of the U.S. government’s efforts to keep down wartime and postwar debt financing. But a strategy of targeting the yield curve as a reflation initiative is new to the major central banks of today. “The BOJ had to do something revolutionary out of necessity – they are concerned about sustainability,” said Yuji Shimanaka at Mitsubishi UFJ Morgan Stanley Securities. The need for yet another overhaul of the BOJ’s policy framework – this is the third iteration under Kuroda alone – speaks to the deep-seated challenges facing policy makers. Japan’s consumer prices slumped 0.5% in July from a year before, far from the 2% gains targeted “at the earliest possible time.”

There are still scores of greater fools out there… This time lured by low rates.

• Real Estate Gets Its Seat At The S&P 500 Table (Forbes)

In case you haven’t noticed, the S&P 500 Index is looking a little different these days. Once a sub-industry of the financial sector, real estate now has its own zip code in the universe of blue chip stocks. It’s the first time since 1999 that such a change has been made to the S&P’s composition. The new sector has a weighting of nearly 3%, all of it taken out of financials. Real estate’s promotion should attract more institutional and individual investors to the space. It tells them this is no longer a niche market but one with a distinct and significant presence, with its own unique business drivers.

This has been a long time coming, to be perfectly honest. Ever since the housing and financial crisis, real estate investment trusts (REITs) have been pulling in some serious cash as more become available for trading on the New York Stock Exchange and elsewhere. Altogether, REITs currently have a market cap of over $1 trillion, according to REIT.com. With investors on the hunt for yield, it’s not hard to see why. As of August 31, the FTSE NAREIT All Equity REITs Index yielded an average of 3.61%, compared to the S&P 500’s 2.11%. During 2015, stock exchange-listed REITs paid out a whopping $46.5 billion in dividends.

Looking just at the residential housing market, business is definitely booming. With 30-year mortgage rates at below 3.5%, the market is scorching hot in many parts of the U.S.—so much so, some builders are reporting a shortage in construction workers to meet demand. New construction starts rose to 1.2 million in July, beating analysts’ forecasts and suggesting the U.S. housing market appears to have finally made a full recovery eight years following the recession, with Bloomberg calling this the “strongest home sales since the start of the economic expansion.”

Trouble could be brewing, however. As I shared with you last month, millennials just aren’t buying homes at the same rate we’ve historically seen from 18- to 34-year-olds. There are many theories as to why this is, from millennials delaying starting families to focus on careers, to a loss of trust in homeownership as a reliable investment or even as an institution, to a preference to rent. This trend has contributed to the lowest U.S. homeownership rate in five decades. How can this be? How could there be both massive housing demand and yet declining home ownership?

“On average, homeowners paid 28% more in mortgage payments than renters did in monthly rent.”

• With Mortgage Rates So Low, Why Are So Many People Still Renting? (Time)

With interest rates lower than they have been for years, many people still find that renting is more budget-friendly than a monthly mortgage payment. This is not true in all parts of the U.S., but a study by Robert W. Baird & Co. shows that living in one of the biggest housing markets in the country is often more expensive. The study looked at 28 different cities, and found that U.S. homeowners in 24 of the cities paid more than those who rent. On average, homeowners paid 28% more in mortgage payments than renters did in monthly rent. The study looked at properties with ratings of four or five stars to keep variables to a minimum.

The study also made some assumptions, such as that all mortgages were 30-year fixed loans, that all homeowners made a down payment of 15%, and that all mortgages included private mortgage insurance, homeowners’ insurance, and taxes. Of the 28 different markets examined, it was more affordable to own than to rent in Baltimore, Maryland, Tampa, Florida, Jacksonville, Florida, and Norfolk/Richmond, Virginia. Of the remaining 24 cities, 15 showed a 20% or higher difference in the cost of renting versus the cost of owning. These differences were due to factors such as the increase in housing prices and the fact that there are few houses on the market in many of these areas.

More fallout from the war on interest rates.

• House-Flippers Are Back, With Anonymous Funding (BBG)

Alex Sifakis never raised this much money this fast. The house flipper from Jacksonville, Florida, crowdfunded nine deals totaling more than $9 million through RealtyShares over the last two and a half years. A July deal for $1 million took him just 12 hours. “Generally, raising money takes so much time,’’ said Sifakis, 33. “This offers so much flexibility and time savings. It’s so much better than going to family offices, banks or Wall Street firms.’’ House flippers and property developers are increasingly crowdfunding — tapping the virtual wallets of anonymous internet backers on platforms such as RealtyShares, LendingHome, PeerStreet and Patch of Land. For riskier ventures, such as building new homes and buying, renovating and selling existing ones, they’re finding quick financing can be easier to get online than from banks.

That’s contributed to an increase in home flipping. In the second quarter, 39,775 investors bought and sold at least one house, the most since 2007, according to ATTOM Data Solutions. The crowdfunding sites are part of the multibillion-dollar ecosystem of marketplace lenders, like LendingClub Corp. and Prosper Marketplace Inc., that match users who need money with people who want to provide it for anything from debt consolidation to elective medical procedures. That business hasn’t always run smoothly. LendingClub is going through a rough stretch after years of rapid growth. In May, its founder and chief executive officer resigned amid an internal probe into a botched loan sale, sending LendingClub’s shares tumbling. So far, there have been few defaults in real estate crowdfunding deals. When they happen, the platforms say they’ll pay investors the proceeds from property sales.

The business has other potential pitfalls. When it comes to real estate, faster isn’t always better. Wall Street’s home-mortgage machine of the mid-2000s valued speed over accuracy, with disastrous results, though most crowdfunding sites cater to investors and not homebuyers. Also, clicking for capital can be exploited by fraudsters who may not be who they say they are, according to Sara Hanks, co-founder and CEO of CrowdCheck, which provides due-diligence services for online investors. “We’ve seen some things where the entity that’s supposed to own the property doesn’t actually own it,’’ she said.

“..40% of China’s expressways were built between 2010 and 2015..”

• China Chalks Up $667-Billion Debt Pile Over Toll Roads (R.)

China’s toll roads have stacked up a debt pile of 4.45 trillion yuan ($666.96 billion), with almost 80% of their annual income last year going to repay loans, the transport ministry said, as the country accelerates road building. Beijing has cranked up state spending on infrastructure to support economic growth as private sector investment falters, and efforts to lure investors into private-public partnerships to build projects such as toll roads have had few successes. The ministry published the 2015 figures late on Tuesday in a report that comes as global investors express growing concern over China’s overall credit, much of which has gone to build infrastructure. The toll road network’s debt grew an annual 15.7% last year, far outpacing income growth of 4.6%, the ministry said in the report.

“Although China’s toll road debt is relatively large, this is just a phase,” state newspaper the People’s Daily quoted Sun Yonghong, an official of the ministry’s highway division, as saying. “In the long run, the risks are controllable.” About three-quarters of 2015 revenue of 409.78 billion yuan went to paying down debt and interest, as banks sought payment of the principal one year after project completions, Sun said. Toll roads make up less than 4% of China’s road network, which stretches 4.5 million km (2.8 million miles). Sun said much of the debt was incurred to build expressways, and accumulation would slow as the road network matured. Almost 40% of China’s expressways were built between 2010 and 2015, at a cost of 3.32 trillion yuan, about 2.23 trillion yuan of which was paid through loans, he said.

Sickening.

• Wells Fargo Too Arrogant To Own Up To Its Fraudulent Ways (WaPo)

The 2008 financial collapse was eight years ago this month — and the big banks are back to their old shenanigans. Venerable Wells Fargo has engaged in behavior that would have made a robber baron blush: It pressured low-wage workers with unrealistic sales targets, so these workers created 2 million bogus accounts over five years, causing customers to be hit with fees and damage to their credit ratings. About 5,300 workers have been fired and $185 million in penalties assessed to the bank, but not a single high-level executive has been sacked or even forced to give back the tens of millions of dollars in pay earned based on the fraud. When Wells Fargo chairman and CEO John Stumpf sat before the Senate Banking Committee this week, he represented a bank too big to fail, too sprawling to manage and too arrogant to own up to its failures.

Can’t Wells Fargo take back some of the executive payouts? “I’m not an expert in compensation,” Stumpf said. Would he commit to investigate whether the fraud began in earlier years? “I can’t tell you that today.” Did he learn about the fraud before reading about it in the Los Angeles Times? “I don’t remember the exact time frame.” Stumpf informed the senators that what Wells Fargo did “was not a scam,” disputed that “this is a massive fraud” and said he had no idea “why people did this.” Sen. Jerry Moran, R-Kan., encouraged Stumpf to “make certain that the employees are not the scapegoat for behavior at higher levels.” Stumpf repeated that “the 5,300, for whatever reason, they were dishonest, and I’m not scapegoating.” If high-level bankers didn’t go to prison for the subprime high jinks that caused the 2008 crash, it’s a safe bet that none will in the Wells Fargo scandal either.

But if arrogance were a criminal offense, Stumpf would be looking at a life sentence. The bank’s fraud, and the executive’s insolence, may have one salutary result: It takes off the agenda any plan to dismantle the Consumer Financial Protection Bureau, one of the post-2008 regulatory creations and a top target of Donald Trump and congressional Republicans. The Los Angeles city attorney and the Los Angeles Times may deserve more credit for exposing the wrongdoing, but the audacity at Wells Fargo shows that the industry isn’t about to police itself. Stumpf also managed to create rare bipartisan unity on the Banking Committee – in condemnation of his actions. Sherrod Brown, D-Ohio, was “stunned.” Dean Heller, R-Nev., compared him to Sgt. Schultz of “Hogan’s Heroes.” Robert Menendez, D-N.J., called the actions “despicable.” Patrick J. Toomey, R-Pa., told Stumpf: “This isn’t cross-selling, this is fraud.”

“Let’s ask ourselves whether we are comfortable with the United States getting slowly, predictably, and all too quietly dragged into yet another war in the Middle East.”

• 27 US Senators Rebel Against Arming Saudi Arabia (I’Cept)

A Senate resolution opposing a $1.15 billion arms transfer to Saudi Arabia garnered support from 27 senators on Wednesday, a sign of growing unease about the increasing number of civilians being killed with U.S. weapons in Yemen. A procedural vote to table the resolution passed 71-27. The Obama administration announced the transfer last month, the same day the Saudi Arabian coalition bombed a potato chip factory in the besieged Yemeni capital. In the following week, the Saudi-led forces would go on to bomb a children’s school, the home of the school’s principal, a Doctors Without Borders hospital, and the bridge used to carry humanitarian aid into the capital. Saudi Arabia began bombing Yemen in March 2015, four months after Houthi rebels from Northern Yemen overran the capitol, Sanaa, and deposed the Saudi-backed ruler, Abdu Rabbu Mansour Hadi.

In addition to providing Saudi Arabia with intelligence and flying refueling missions for its air force, the United States has enabled the bombing campaign by supplying $20 billion in weapons over the past 18 months. In total, President Obama has sold more than $115 billion in weapons to the Saudi kingdom – more than any other president. After the White House failed to respond to a letter from 60 members of Congress requesting that the transfer be delayed, Sens. Chris Murphy, D-Conn., and Rand Paul, R-Ky., introduced a resolution condemning the arms sale. Paul and Murphy said they had planned to pursue binding legislation if their resolution was successful. “It’s time for the United States to press ‘pause’ on our arms sales to Saudi Arabia,” Murphy said. “Let’s ask ourselves whether we are comfortable with the United States getting slowly, predictably, and all too quietly dragged into yet another war in the Middle East.”

Carter’s a real man. No Clinton, Bush or Obama is fit to shine his shoes.

• A First Step for Syria? Stop the Killing (Jimmy Carter)

The announcement this month of a new cease-fire agreement in Syria is good news. But a lack of trust among the Syrian belligerents and their foreign supporters means this agreement, like the one that came before it, is vulnerable to collapse. It is already showing severe signs of strain. Over the weekend, the United States accidentally bombed Syrian government troops. On Monday, the Syrian military declared it would no longer respect the deal, resumed airstrikes on Aleppo, and even a humanitarian aid convoy was bombed. Still, there is reason for hope. If Russia and the United States were willing to come far enough in their negotiations to reach this deal, these setbacks can be overcome. The targeting of the humanitarian convoy, a war crime, should serve as an added impetus for the United States and Russia to recommit to the cease-fire.

The two parties were well aware of the difficulties as they spent a month negotiating the cease-fire’s terms. The agreement can be salvaged if all sides unite, for now, around a simple and undeniably important goal: Stop the killing. It may be more likely than it sounds. Reliable sources estimate the number of Syrians killed to date at almost half a million, with some two million more people wounded. Well over half of the country’s 22 million prewar population has been displaced. These shocking numbers alone should convince all concerned that war itself is the greatest violation of human rights and the ultimate enemy of Syria. If this cease-fire is to last, the United States and Russia must find ways to work beyond the lack of trust that undermined the previous cease-fire, in February.

The countrywide cessation of hostilities that began then started to crumble within two months, with battles in much of the countryside around Damascus, central and northern Syria, and Aleppo. The resumption of the conflict led in April to the suspension of UN-sponsored peace talks in Geneva. However, a strong effort was made earlier in the year when the United States and Russia pressed their respective allies to pause the fighting and give the negotiations a chance. But the American and Russian expectation that they reach an agreement on issues of transitional governance by Aug. 1 was unrealistic. After five years of killing, and before any semblance of trust could be established, pushing the Syrian parties and their supporters to agree on power-sharing was seen as too threatening by some and too inadequate by others. Unsurprisingly, they reverted to violence.

A lovely letter.

• Apologizing to My Daughter for the Last 15 Years of War (Van Buren)

I recently sent my last kid off for her senior year of college. There are rituals to such moments, and because dad-confessions are not among them, I just carried boxes and kept quiet. But what I really wanted to say to her — rather than see you later, call this weekend, do you need money? – was: I’m sorry. Like all parents in these situations, I was thinking about her future. And like all of America, in that future she won’t be able to escape what is now encompassed by the word “terrorism.” Terrorism is a nearly nonexistent danger for Americans. You have a greater chance of being hit by lightning, but fear doesn’t work that way. There’s no 24/7 coverage of global lightning strikes or “if you see something, say something” signs that encourage you to report thunderstorms.

So I felt no need to apologize for lightning. But terrorism? I really wanted to tell my daughter just how sorry I was that she would have to live in what 9/11 transformed into the most frightened country on Earth. Want the numbers? Some 40% of Americans believe the country is more vulnerable to terrorism than it was just after September 11, 2001 – the highest%age ever. Want the apocalyptic jab in the gut? Army Chief of Staff General Mark Milley said earlier this month that the threat remains just as grave: “Those people, those enemies, those members of that terrorist group, still intend – as they did on 9/11 – to destroy your freedoms, to kill you, kill your families, they still intend to destroy the United States of America.” All that fear turned us into an engine of chaos abroad, while consuming our freedoms at home.

And it saddens me that there was a different world, pre-9/11, which my daughter’s generation and all those who follow her will never know. [..] After the last cardboard boxes had been lugged up the stairs, I held back my tears until the very end. Hugging my daughter at that moment, I felt as if I wasn’t where I was standing but in a hundred other places. I wasn’t consoling a smart, proud, twenty-something woman, apprehensive about senior year, but an elementary school student going to bed on the night that would forever be known only as 9/11. Back home, the house is empty and quiet. Outside, the leaves have just a hint of yellow. At lunch, I had some late-season strawberries nearly sweet enough to confirm the existence of a higher power. I’m gonna really miss this summer.

Debt Rattle August 16 2016

Aug 162016

August 16, 2016 Posted by Raúl Ilargi Meijer at 9:14 am Finance Tagged with: beluga, BHP, commodities, debt, oligarchy, pensions, poverty, surplus, USD, yen 1 Response »

Harris&Ewing Army surplus 1919

• Mining Giant BHP Slumps To Record Loss (BBC)

• Chinese Traders Are Falling Out Of Love With Commodities (BBG)

• China’s Fading Animal Spirits (BBG)

• Germany Amassing Huge Surpluses – And Huge Risks (MW)

• Bundesbank Floats Higher Retirement Age -69- in German Pension Debate (BBG)

• Top UK Firms Paid Five Times More In Dividends Than Into Pensions (G.)

• Pension Funds Are Driving The Biggest Bond Bubble In History (ZH)

• Hedge Funds Bet Dollar Will Lose More Ground Versus Yen (BBG)

• Krugman’s Arrow Theory Misses Target by Light Years (Mish)

• A Government of Scoundrels, Spies, Thieves, And Killers (JW)

• Jimmy Carter: The US Is an ‘Oligarchy With Unlimited Political Bribery’ (IC)

• Burning Down the House (Jim Kunstler)

• Sleeping Bear Of Debt Set To Wake (Herald Sun)

• One-Third Of New Zealand Children Live Below The Poverty Line (G.)

No matter what anybody does, the overbuilding, overcapacity and overconsumption in China can no longer be extended. Infrastructure investment in other countries won’t be enough to pick up the slack.

• Mining Giant BHP Slumps To Record Loss (BBC)

Mining giant BHP Billiton has reported a record loss for the past year following a mining disaster in Brazil and a slump in commodity prices. The Anglo-Australian commodities firm reported an annual net loss of $6.4bn (£5bn) for the year to 30 June. The global mining sector has seen years of weak demand attributed largely to slowing growth in China. BHP results were also hit by costs after the Samarco mining disaster in Brazil, which killed 19 people. The record losses come after the company had reported a $1.9bn net profit. “While commodity prices are expected to remain low and volatile in the short to medium term, we are confident in the long-term outlook for our commodities, particularly oil and copper,” chief executive Andrew Mackenzie said in a statement.

Underlying earnings for the past year, which strip out one-off costs, came in at $1.22bn. The financial fallout from the Samarco mining tragedy is still not clear though warns James Butterfill, head of research & investment strategy at ETF Securities. “There’s a huge uncertainty overhang,” he told the BBC. “The report hasn’t been published with regard to the Samarco dam collapse and there’s currently a $48bn lawsuit. It’s unrealistic to be that amount, but this is really BHP’s Macondo well incident theoretically that BP endured.”

As consumption and investment falls, so will prices. Commodity producers worldwide are sitting on huge overcapacity. They must shrink their operations, but the first reaction is always to produce more to make up for falling revenue.

• Chinese Traders Are Falling Out Of Love With Commodities (BBG)

Chinese traders are falling out of love with commodities. Aggregate volumes across the nation’s three biggest exchanges have shrunk to the lowest level in six months, a shadow of the fevered trading in March and April when retail investors charged into markets for everything from iron ore to cotton, driving up prices and stoking fears of a bubble. Chinese authorities brought an end to the frenzy by introducing curbs on excessive speculation and trading has failed to recover since. Flush with record credit and hunting for returns, investors piled into commodities in the first half of the year, spurred by bets that China’s economic stimulus and industrial reforms would lead to shortages of raw materials. Now, there’s just not much for traders to get excited about, according to Wei Lai, an analyst with Cofco Futures.

Industrial production and fixed-asset investment slowed in July and a measure of new credit expanded the least in two years, spurring concern over growth in the world’s second-largest economy. “Investors are reluctant as there isn’t much information to play around with in the market,”’ Shanghai-based Wei said in an e-mail. High prices for some commodities may also be deterring traders, Wei said. Combined aggregate volume across the Shanghai Futures Exchange, Dalian Commodity Exchange and Zhengzhou Commodity Exchange slid to 23 million contracts as of Aug. 12, the lowest since February and compared with a peak of more than 80 million on April 22 when a total of $261 billion changed hands. Chinese exchanges double count trading volume and turnover.

China will become known for the biggest misallocation of investment in history.

• China’s Fading Animal Spirits (BBG)

The July wobble in China’s economy – like its multi-year slowdown – has much to do with the waning “animal spirits” of Chinese businesses caused by an historic shift in housing. That’s according to Chi Lo, greater China senior economist at BNP Paribas Investment Partners in Hong Kong. A property-led pick up in the first half lost momentum in July, suggesting the market is struggling to digest an overhang in supply of apartments. “In the past, the economic players expanded supply first and created jobs so as to create demand, but that is gone now,” Lo said in a telephone interview after Friday’s disappointing data. “It has to clean out the excess capacity, which means the supply-expansion model has to change.”

Another way of putting it: China’s build-it-and-they-will-come strategy needs to shift to one where demand, not supply, is in the drivers’ seat. It’s a change companies are struggling to come to terms with, leaving private investment in the doldrums. “Little attention has been paid to the underlying structural factor that is hurting private investment incentive,” Lo wrote in a research note ahead of the data last week. “This is the weakening of the final demand for output produced by the investment or capital-intensive sector in China. The key to understand this puzzle is China’s housing market.” That’s because it accounts for about half of all investment in China once spillovers into industries like metals and machinery are thrown in.

With such pervasive impact on everything from cement to cars, China’s property market was dubbed the most important sector in the universe back in 2011 by a UBS economist. BNP’s Lo says it’s unlikely to ever recapture the glory days of old. “China’s housing demand has likely passed its high-growth phase, with housing construction growth expected to go into a secular decline soon,” according to Lo. “This means that the capital-intensive sector, which has focused on producing all this housing units through the decades, is facing a structural decline in demand for its output.”

One might be forgiven for thinking Berlin is blowing up the eurozone on purpose. What is needed are transfer payments to southern Europe, but there is too much resistance to those.

• Germany Amassing Huge Surpluses – And Huge Risks (MW)

As one of the world’s largest exporters, Germany saw an important part of the political and economic rationale of entering European economic and monetary union in 1999 as lowering risks on its international commercial interactions. Nearly two decades later, Germany, more than ever, is an export champion. It is likely to register the world’s largest trade surplus this year, according to the OECD, at $324 billion (against China’s $314 billion), and will amass a record current-account surplus of 9.2% of gross domestic product. Yet, as a result of the large imbalances within EMU that these surpluses symbolize, Germany is a long way from insulating itself against foreign-currency risks.

The Bundesbank provides the strongest indicator of this change. The quintessentially hard-money central bank provided a role model for the ECB at the heart of the euro bloc. Yet the Bundesbank now confronts on its balance sheet a range of potential hazards that the euro’s founding fathers in the 1980s and 1990s would have regarded as inimical to economic stability and, for that reason, impossible to countenance. The Bundesbank’s balance sheet rose to €1.2 trillion in July from €222 billion when monetary union started in January 1999. Underlining the Bundesbank’s pivotal role in eurozone monetary operations, the German central bank’s balance sheet has expanded faster than that of the Eurosystem (the ECB and the constituent national central banks) as a whole.

The Bundesbank’s balance sheet now encompasses around 37% of Eurosystem assets of €3.3 trillion (computed on a net basis that strips out individual central banks’ claims and liabilities against each other under the Target-2 payments system), against 32% at the inception of EMU. The acceleration stands in marked contrast to the central bank’s stated desire, when monetary union started, to slim down its balance sheet and especially to economize on foreign-exchange reserves, held mostly in dollars. These have traditionally (together with gold) made up the lion’s share of the Bundesbank’s foreign assets, but have been cut from €45 billion to €50 billion when the euro was launched to only €30 billion to €35 billion in recent years.

You’re not going to solve the problems by tweaking the age; that merely shifts the issue into the future. Can, road.

• Bundesbank Floats Higher Retirement Age -69- in German Pension Debate (BBG)

Germany’s Bundesbank said raising the legal retirement age to 69 by 2060 could ease some of the pressure on the country’s state pension system as the population ages. Recent reforms won’t protect citizens from a drop in the level of pension payments from 2050, the central bank said in its monthly report published on Monday. Citizens who don’t opt for state-supported private insurance may face shortfalls a lot sooner. Low average interest rates could further reduce available provisions. While higher premiums could theoretically keep payouts stable, they would “raise the strain on those paying the contributions, and an increasing, high burden of payments overall has negative consequences on economic development,” the Bundesbank wrote. To avoid that, “the legal retirement age ultimately needs to be adjusted.”

The Bundesbank said the government’s current plans that include raising the retirement age to 67 by 2030 and increasing contributions don’t account for the fact that the ratio of retirees to contributors is set to widen further. Increasing life expectancy means retirees will draw from pension funds for a longer period of time, and a generation of baby boomers that retires post-2030 means there will be more pensioners to take care of per working adult, while birth rates remain low, according to the report. “Amid demographic change, the parameters of a contribution-based pension system can’t all be kept stable,” the Bundesbank said. “Confidence in pension insurance could be strengthened and uncertainty about financial stability at old age could be decreased if it were made clear how the parameters of retirement age, provision levels, and contribution rates can be adjusted in the long term.”

Short termism perfected.

• Top UK Firms Paid Five Times More In Dividends Than Into Pensions (G.)

Britain’s biggest companies paid five times more in dividends than they did pension contributions last year, according to a new report that highlights the pressure on retirement schemes. FTSE 100 companies paid £13.3bn towards their defined benefit pension schemes, compared with £71.8bn in payments to shareholders, according to the consultancy firm LCP’s annual study of pensions. The report has been published after Sir Philip Green was heavily criticised by a parliamentary investigation into the collapse of BHS for leaving the retailer with a £571m pension deficit, despite his family and other investors banking more than £400m in dividends. BHS’s 164 stores are all scheduled to close by 28 August, a week later than administrators planned last month as the retailer continues to sell its remaining stock.

Green remains locked in talks with the Pensions Regulator about a rescue deal for the BHS pension scheme. He has pledged to sort out the problems facing it, but the regulator has launched an investigation into whether the billionaire tycoon should be forced to make a financial contribution to fill the black hole. Other companies with large pension deficits could face action from the regulator if they are paying dividends, LCP says in its report. The 56 FTSE 100 companies that disclosed a pension deficit at the end of their 2015 financial year had a combined deficit of £42.3bn, but the same companies paid out dividends worth £53bn, 25% more than their pension contributions.

“..a $1BN pension that is fully funded at prevailing interest rates would be nearly $700mm underfunded if interest rates declined 300bps and all of their assets were invested in 30-year treasury bonds.”

• Pension Funds Are Driving The Biggest Bond Bubble In History (ZH)

We’ve frequently discussed the many problems faced by pension funds. Public and private pension funds around the globe are massively underfunded yet they continue to pay out current claims in full despite insufficient funding to cover future liabilities…also referred to as a ponzi scheme. In fact, we recently noted that the Central States Pension Fund pays out $3.46 in pension funds for every $1 it receives from employers. The pension problem is often attributed to low returns on assets. As Bill Gross frequently points out, low interest rates are the enemy of savers and pension funds have some of the biggest savings accounts around. That said, the impact of declining interest rates on the asset side of a pension’s net funded status is dwarfed by the much more devastating impact of declining discount rates used to value future benefit obligations.

The problem is one of duration. By definition, pension liabilities represent the present value of future benefit payments owed to retirees which is a virtually perpetual cash flow stream. Obviously, the longer the duration of a cash flow stream the larger the impact of interest rate swings on the present value of that stream. We created the chart below as a simplistic illustration of the pension “duration dilemma.” The chart graphs how a pension liability grows in a declining interest rate environment versus the value of 5-year and 30-year treasury bonds. As you can see, a $1BN pension that is fully funded at prevailing interest rates would be nearly $700mm underfunded if interest rates declined 300bps and all of their assets were invested in 30-year treasury bonds. The result is obviously even worse if the fund’s assets are invested in shorter duration 5-year treasuries.

How Abenomics gets strangled.

• Hedge Funds Bet Dollar Will Lose More Ground Versus Yen (BBG)

Hedge funds and other large speculators increased net bets the dollar will weaken against the yen to the highest level in a month, according to Commodity Futures Trading Commission data as of Aug. 9. Traders will focus on the meetings of the Federal Reserve and the Bank of Japan next month for direction, after disappointing stimulus announced last month by the BOJ failed to halt yen strength.

“Krugman would do himself a favor if he threw away what he thinks he knows about economics and went back for a nice 5th grade education.”

But the saddest part of course is that belugas are kept in an aquarium and learn tricks to amuse Japanese. Who are we?

• Krugman’s Arrow Theory Misses Target by Light Years (Mish)

With full employment, roads paved and repaved to nowhere, and bubble blowing beluga whales, just what the hell is Japan supposed to waste money on? Curiously, Krugman says it doesn’t matter. He once proposed a fake aliens from outer space scare as the solution to stimulate the economy. But roads and bridges and bubble blowing blowing beluga whales are surely better than fabricating space aliens or paying people to dig ditches and others to fill them up again. The problem is, it’s hard arguing with economic illiterates like Krugman. He can (and will) say “spending wasn’t enough”.

One can never prove him wrong. The implosion of Japan would not do it. His built-in excuse would be Japan did too little, too late. Just once I would like Krugman to address in his model what happens when the stimulus stops. He cannot and he won’t because he has no answer. The average 5th grader understands it’s absurd to pay money for something guaranteed to be useless, but the average Keynesian economist doesn’t. Krugman would do himself a favor if he threw away what he thinks he knows about economics and went back for a nice 5th grade education.

John Whitehead does not mince words.

• A Government of Scoundrels, Spies, Thieves, And Killers (JW)

“There is nothing more dangerous than a government of the many controlled by the few.”—Lawrence Lessig, Harvard law professor

The U.S. government remains the greatest threat to our freedoms. The systemic violence being perpetrated by agents of the government has done more collective harm to the American people and our liberties than any single act of terror. More than terrorism, more than domestic extremism, more than gun violence and organized crime, the U.S. government has become a greater menace to the life, liberty and property of its citizens than any of the so-called dangers from which the government claims to protect us. This is how tyranny rises and freedom falls.

As I explain in my book Battlefield America: The War on the American People, when the government views itself as superior to the citizenry, when it no longer operates for the benefit of the people, when the people are no longer able to peacefully reform their government, when government officials cease to act like public servants, when elected officials no longer represent the will of the people, when the government routinely violates the rights of the people and perpetrates more violence against the citizenry than the criminal class, when government spending is unaccountable and unaccounted for, when the judiciary act as courts of order rather than justice, and when the government is no longer bound by the laws of the Constitution, then you no longer have a government “of the people, by the people and for the people.”

What we have is a government of wolves. Worse than that, we are now being ruled by a government of scoundrels, spies, thugs, thieves, gangsters, ruffians, rapists, extortionists, bounty hunters, battle-ready warriors and cold-blooded killers who communicate using a language of force and oppression. Does the government pose a danger to you and your loved ones? The facts speak for themselves. We’re being held at gunpoint by a government of soldiers—a standing army. While Americans are being made to jump through an increasing number of hoops in order to exercise their Second Amendment right to own a gun, the government is arming its own civilian employees to the hilt with guns, ammunition and military-style equipment, authorizing them to make arrests, and training them in military tactics.

Among the agencies being supplied with night-vision equipment, body armor, hollow-point bullets, shotguns, drones, assault rifles and LP gas cannons are the Smithsonian, U.S. Mint, Health and Human Services, IRS, FDA, Small Business Administration, Social Security Administration, National Oceanic and Atmospheric Administration, Education Department, Energy Department, Bureau of Engraving and Printing and an assortment of public universities. There are now reportedly more bureaucratic (non-military) government civilians armed with high-tech, deadly weapons than U.S. Marines. That doesn’t even begin to touch on the government’s arsenal, the transformation of local police into extensions of the military, and the speed with which the nation could be locked down under martial law depending on the circumstances. Clearly, the government is preparing for war—and a civil war, at that—but who is the enemy?

2 weeks old, but highly relevant.

• Jimmy Carter: The US Is an ‘Oligarchy With Unlimited Political Bribery’ (IC)

Former president Jimmy Carter said on the nationally syndicated radio show the Thom Hartmann Program that the United States is now an “oligarchy” in which “unlimited political bribery” has created “a complete subversion of our political system as a payoff to major contributors.” Both Democrats and Republicans, Carter said, “look upon this unlimited money as a great benefit to themselves.” Carter was responding to a question from Hartmann about recent Supreme Court decisions on campaign financing like Citizens United. Transcript: HARTMANN: Our Supreme Court has now said, “unlimited money in politics.” It seems like a violation of principles of democracy. … Your thoughts on that?

CARTER: It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members. So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over. … The incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves. Somebody’s who’s already in Congress has a lot more to sell to an avid contributor than somebody who’s just a challenger.

“..generate Money-Out-Of-Thin-Air (QE) for the purpose of allowing “liquidity” flows to end up in US equity and bond markets in order to paint a false picture of “recovery” so as to insure the election of Hillary Clinton.”

• Burning Down the House (Jim Kunstler)

There’s a new feature to the Anything-Goes-and-Nothing-Matters economy: Nothing-Adds-Up. The magicians who pretend to measure the growth of GDP (Gross Domestic Product — the monetary value of all the finished goods and services) came up with a second quarter “adjusted” figure of 1.2 percent. That would have to be construed by anyone acquainted with basic econ stats as perfectly dismal. And yet the Bureau of Labor Statistics put out a sparkly Nonfarm Payroll Report of 255,000 for July, way above the forecast 180,000. There were so many ways to game the jobs number — between people forced to work more than one shit job and the notorious “birth/death model” used to just make up any old number for political purposes — that no one can take this information seriously.

Anyway, the GDP number was instantly forgotten and the jobs number launched the stock markets to previously uncharted record altitude. It’s that time of the year for the hedge fund boys, with their testosterone flowing, to start burning down their house rentals in the Hamptons. And it’s also the time of year for an ever more stressed financial system to go down in flames. And, of course, it’s a presidential election season. Even for one allergic to conspiracy theories, it’s not farfetched to imagine a coordinated effort by central banks — under government direction — to generate Money-Out-Of-Thin-Air (QE) for the purpose of allowing “liquidity” flows to end up in US equity and bond markets in order to paint a false picture of “recovery” so as to insure the election of Hillary Clinton.

I think that is exactly behind the recent money-printing activities by the Japanese and European Central Banks, and the Bank of England. Why would it end up in US markets? For bonds, because the Euro and Japanese bond sovereign yields are in sub-zero territory and the BOE just cut its prime rate lower than the US Federal Reserve’s prime rate; and for stocks, because the value of the other three currencies is sliding down and the dollar has been rising — so, dump your falling currency for the rising dollar and jam it into rising US stocks. It’ll work until it doesn’t.

Why do this for Hillary? Because she represents the continuity of all the current rackets being used to prop up belief in the foundering business model of western civilization. If she doesn’t get into the White House there may be no backstopping of the insolvent banks and bankrupt governments and a TILT message will appear in the sky.

Australia is a private debt disaster. Public debt is much less important.

• Sleeping Bear Of Debt Set To Wake (Herald Sun)

The great sleeping bear of Australia’s economic future – of your economic future – is the current account deficit and our foreign debt. They have completely disappeared from the front page – indeed, even from the business pages. Nobody seems to mention them. But they most certainly haven’t disappeared in reality. And in reality, they’ve never been bigger. The deficit, the CAD, in the latest March quarter was more than $20 billion. It will top $80 billion for the full 2015-16 year. The net foreign debt sits at a tad more than $1 trillion. To give you a sense of the scale, that’s more than half the size of the Australian economy; more than double the total of all federal tax revenues in a year.

The CAD is the difference between what we earn from exports and from our international investments each year and what we pay for imports and to foreign investors in Australia. That last bit includes the interest we pay on our existing foreign debt. And the deficit each year is mostly covered by borrowing more from foreigners. In recent years, the biggest borrowers have been our banks. So we have this merry-go-round. The bigger the foreign debt, the bigger the deficit tends to be because of the interest paid on the debt. Then, the bigger the deficit, the bigger the foreign debt gets. Sound familiar? Because it’s exactly the same as the merry-go-round with the Budget deficit and the national debt. The deficit increases the national debt; and the interest on the debt increases the next year’s deficit; and that deficit further increases the debt.

“..as a society, are we really prepared to let our children grow up this way?”

• One-Third Of New Zealand Children Live Below The Poverty Line (G.)

One-third of New Zealand children, or 300,000, now live below the poverty line – 45,000 more than a year ago. Unicef’s definition of child poverty in New Zealand is children living in households who earn less than 60% of the median national income – NZ$28,000 a year, or NZ$550 a week. The fact that twice as many children now live below the poverty line than did in 1984 has become New Zealand’s most shameful statistic. “We have normalised child poverty as a society – that a certain level of need in a certain part of the population is somehow OK,” said Vivien Maidaborn, executive director of Unicef New Zealand. “The empathy Kiwis are famous for has hardened. Over the last 20 years we have increasingly blamed the people needing help for the problem.

“If you can’t afford your children to have breakfast, you’re a bad budgeter. If you aren’t working you’re lazy. But our subconscious beliefs about some people ‘deserving’ poverty because of poor life choices no longer apply in today’s environment. We have to ask ourselves as a society, are we really prepared to let our children grow up this way?” For a third of New Zealand children the Kiwi dream of home ownership, stable employment and education is just that – a dream. For poor children in the developed South Pacific nation of 4.5 million illnesses associated with chronic poverty are common, including third world rates of rheumatic fever (virtually unknown by doctors in comparable countries like Canada and the UK), and respiratory illnesses.

Debt Rattle August 1 2016

Aug 012016

August 1, 2016 Posted by Raúl Ilargi Meijer at 8:54 am Finance Tagged with: Abenomics, capital controls, glut, oil, PMI, poverty, Shale, Social Security Comments Off

Wyland Stanley Marmon touring car at Yosemite 1919

• Abe’s Fiscal Plan Follows a Long Road of Packages That Failed (BBG)

• China July Factory Activity Unexpectedly Dips (R.)

• China’s Love Affair With U.S. Real Estate Fades (BBG)

• For Social Security “Time’s Up – The Pain Must Begin Now” (CH)

• Impact Of Poverty Costs The UK £78 Billion A Year (G.)

• Did Germany Just Blink? (DQ)

• US Shale Producers Weather Oil Price Storm (AEP)

• Growing Oil Glut Shows Investors There’s Nowhere to Go But Down (BBG)

• Amid Britain Nuclear Debacle, China’s Xinhua Decries ‘Suspicion’ (R.)

• Greece Eases Back On Capital Controls In Bid To Reverse Currency Flight (G.)

• Building a Progressive International (YV)

• India Rescues 10,000 Starving Workers In Saudi Arabia (Sky)

There’s a hole in the bucket, dear Shinzo.

• Abe’s Fiscal Plan Follows a Long Road of Packages That Failed (BBG)

Prime Minister Shinzo Abe’s “bold” plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor. While some analysts say the latest round of spending may buy the economy time, few are convinced it will be enough to dramatically change the course.

First off, much of the 28 trillion yen announced by Abe last week won’t be spending, but lending. And if previous episodes are any guide, an initial sugar hit to markets and growth will quickly fade amid a realization that extra spending does little to cure the economy’s underlying problems. A Goldman Sachs study found that markets gave up their gains in the first month after the cabinet approved the stimulus in 18 of the 25 packages it studied since 1990. Skeptics of Abe’s latest plan aren’t hard to find. Instead of adding to a debt pile already more than twice the economy’s size, more should be done to tackle thorny structural problems such as a declining labor force and protected industries, according to Naoyuki Shinohara, a former Japanese finance ministry official.

“Looking at the history of the Japanese economy, there have been lots of fiscal stimulus packages,” according to Shinohara, who was a top official at the IMF until last year. “But the end result is that it didn’t have much impact on the potential growth rate.”

A lot of seemingly contradictory reports today. Manufacturing PMI down, but services PMI up.

• China July Factory Activity Unexpectedly Dips (R.)

Activity in China’s manufacturing sector eased unexpectedly in July as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree. While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey on Monday suggested China’s overall industrial activity remains sluggish at best. Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs.

And other readings on Monday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind better-than-expected economic growth in the second quarter. The official Purchasing Managers’ Index (PMI) eased to 49.9 in July from the previous month’s 50.0 and below the 50-point mark that separates growth from contraction on a monthly basis. While the July reading showed only a slight loss of momentum, Nomura’s chief China economist Yang Zhao said it may be a sign that the impact of stimulus measures earlier this year may already be wearing off. That has created a dilemma for Beijing as the Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debt-fueled stimulus.

“The government has realized the downward pressure is great but they’ve also realized that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging,” Zhao said.

Monopoly money running out.

• China’s Love Affair With U.S. Real Estate Fades (BBG)

For David Wong, the business of selling homes isn’t as good this year as it was in 2015, and he’s blaming that on a decline in customers from China. “The residential-property market here, especially for those priced between $2.5 million to $3 million, has been affected by China’s measures to control capital flight,” said the New York City-based Keller Williams Realty Landmark broker. “You need to cut the price, or it may take a real long time.” Wong is not the only one who has felt the cooling in the U.S. real estate market for foreign buyers. Total sales to Chinese buyers in the 12 months through March fell for the first time since 2011, to $27.3 billion from $28.6 billion a year earlier, according to an annual research report released by the National Association of Realtors.

The number of properties purchased by Chinese also declined to 29,195 units from 34,327 units. While the total international sales saw its first decline in three years, the 1.25% pace is slower than 4.5% recorded for Chinese buying. In terms of U.S. dollar value, the total share of Chinese buying of international sales dropped from 27.5% to 26.7%. [..] The yuan began plummeting in August, driving the Chinese currency to a five-year low versus the U.S. dollar. The Chinese authorities have been compelled to increasingly tighten the noose on cross-border capital flows to defend the yuan and to slow down the burnout of the nation’s foreign-exchange reserves since then. This includes increasing scrutiny of transfers overseas, to closely check whether individuals send money abroad by breaking up foreign-currency purchases into smaller transactions.

This is why I recently wrote that a basic income should replace old-age provisions.

• For Social Security “Time’s Up – The Pain Must Begin Now” (CH)

In 2010, Social Security (OASDI) unofficially went bankrupt. For the first time since the enactment of the SS amendments of 1983, annual outlays for the program exceeded receipts (excluding interest credited to the trust funds). The deficit has grown every year since 2010 and is now up to 8% annually and is projected to be 31% in 2026 and 44% by ’46. The chart below highlights the OASDI annual surplus growth (blue columns) and total surplus (red line). This chart includes interest payments to the trust funds and thus looks a little better than the unvarnished reality. For a little perspective, the program pays more than 60 million beneficiaries (almost 1 in 5 Americans), OASDI (Old Age, Survivors, Disability Insurance) represents 25% of all annual federal spending, and for more than half of these beneficiaries these benefits represent their sole or primary source of income.

The good news is since SS’s inception in 1935, the program collected $2.9 trillion more than it paid out. The bad news is that the $2.9 trillion has already been spent. But by law, Social Security is allowed to pretend that the “trust fund” money is still there and continue paying out full benefits until that fictitious $2.9 trillion is burned through. To do this, the Treasury will issue another $2.9 trillion over the next 13 years to be sold as marketable debt so it may again be spent (just moving the liability from one side of the ledger, the Intergovernmental, to the other, public marketable). However, according to the CBO, Social Security will have burnt through the pretend trust fund money (that wasn’t there to begin with) by 2029.

Below, the annual OASDI surplus (in red) peaking in 2007, matched against the annual growth of the 25-64yr/old (in blue) and 65+yr/old (grey) populations. The impact of the collapse of the growth among the working age population and swelling elderly population is plain to see. And it will get far worse before it eventually gets better. [..] Americans turning 67 in 2030 will be told that after being mandated to pay their full share of SS taxation throughout their working lifetime, they will not see anything near their full benefits in their latter years. However, those in retirement now and those retiring between now and 2029 are being paid in full despite the shortfall in revenue. They will be paid in full until this arbitrary “trust fund” is theoretically drained.

I have no intention of funding, in full, current retirees benefits with my tax dollars only to know I will hit the finish line with a 30%+ reduction that will only worsen over time. My goal is to pay it forward to my kids and then do my best to never to be a burden to them. The SS (OASDI) benefits must be cut now to be in line with revenues. Raise taxes, lower benefits…your choice. But I’m not about to make the old whole so I can then subsequently see my generation go bankrupt in my latter years.

Perfect fit for a basic income. But it won’t come. Austerity as controlled poverty is a power(ful) tool.

• Impact Of Poverty Costs The UK £78 Billion A Year (G.)

Dealing with the effects of poverty costs the public purse £78bn a year, or £1,200 for every person in the UK, according to the first wide-ranging report into the impact of deprivation on Britain’s finances. The Joseph Rowntree Foundation (JRF) estimates that the impact and cost of poverty accounts for £1 in every £5 spent on public services. The biggest chunk of the £78bn figure comes from treating health conditions associated with poverty, which amounts to £29bn, while the costs for schools and police are also significant. A further £9bn is linked to the cost of benefits and lost tax revenues. The research, carried out for JRF by Heriot-Watt and Loughborough universities, is designed to highlight the economic case, on top of the social arguments, for tackling poverty in the UK.

The prime minister, Theresa May, has made cutting inequality a central pledge. Julia Unwin, the chief executive of the foundation, said: “It is unacceptable that in the 21st century, so many people in our country are being held back by poverty. But poverty doesn’t just hold individuals back, it holds back our economy too. “Taking real action to tackle the causes of poverty would bring down the huge £78bn yearly cost of dealing with its effects, and mean more money to create better public services and support the economy. UK poverty is a problem that can be solved if government, businesses, employers and individuals work together.”

“But did anyone tell you that Germany from 2009 onwards bailed out its failing banks with public money? Banks, that is, with holes in their balance sheets visible from the Moon.”

• Did Germany Just Blink? (DQ)

Put simply, the EU is a half-way house with too much democracy and nothing in the way of transfer union. “There are too many moving parts in the electoral politics of 28 nation states, and too many conceivable random-like events that could push political and economic developments in one direction or another, with impossible-to-predict consequences and timelines,” the agency added. The perfect case in point is Italy’s banking crisis. If the country’s struggling banks are not saved with a combination of public and private money — a process that, to all intents and purposes, began on Friday with the announcement of Monte dei Paschi’s suspension of the ECB’s stress test as well as a €5 billion capital expansion later this year — the resulting carnage could unleash not only a tsunami of financial contagion but also an unstoppable groundswell of political opposition to the EU.

For a taste of just how disastrous the political fallout would be for Italy’s embattled premier, Matteo Renzi, here’s an excerpt from a furious tirade given by Italian financial journalist Paolo Barnard on prime-time TV, addressing Renzi directly:

“You went to meet Mrs. Merkel to ask for a minor public funded bail-out of Italian banks and you got a sharp NO. But did anyone tell you that Germany from 2009 onwards bailed out its failing banks with public money? “Banks, that is, with holes in their balance sheets visible from the Moon.

Germany bailed them out to the tune of €704 billion. It was all paid for by European taxpayers’ money, public funds that is. “It was done through the EU Commission of Mr Barroso and by Mr Mario Draghi at the ECB. Didn’t you know that Mr Renzi? Couldn’t you have barked this right into Ms Merkel’s face?”

Barnard rounded off his rant with a rallying call for Italians to follow the UK’s example and demand an exit from the EU — a prospect that should be taken very seriously given that one of the manifesto pledges of Italy’s rising opposition party, the 5-Star Movement, is to call a referendum on Italy’s membership of the euro.

Ambrose has religion. He believes!

• US Shale Producers Weather Oil Price Storm (AEP)

Opec’s worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has failed to break the back of the US shale industry. The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is an illusive victory. North America’s hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.

Scott Sheffield, the outgoing chief of Pioneer Natural Resources, threw down the gauntlet last week – with some poetic licence – claiming that his pre-tax production costs in the Permian Basin of West Texas have fallen to $2.25 a barrel. “Definitely we can compete with anything that Saudi Arabia has. We have the best rock,” he said. Revolutionary improvements in drilling technology and data analytics that have changed the cost calculus faster than most thought possible. The “decline rate” of production over the first four months of each well was 90pc a decade ago for US frackers. This dropped to 31pc in 2012. It is now 18pc. Drillers have learned how to extract more. Mr Sheffield said the Permian is as bountiful as the giant Ghawar field in Saudi Arabia and can expand from 2m to 5m barrels a day even if the price of oil never rises above $55.

His company has cut production costs by 26pc over the last year alone. Pioneer is now so efficient that it already adding five new rigs despite today’s depressed prices in the low $40s, and it is not alone. The Baker Hughes count of North America oil rigs has risen for seven out of the last eight weeks to 374, and this understates the effect. Multi-pad drilling means that three wells are now routinely drilled from the same rig, and sometimes six or more. Average well productivity has risen fivefold in the Permian since early 2012. Consultants Wood Mackenzie estimated in a recent report that full-cycle break-even costs have fallen to $37 at Wolfcamp and Bone Spring in the Permian, and to $35 in the South Central Oklahoma Oil Province. The majority of US shale fields are now viable at $60.

Once again: demand.

• Growing Oil Glut Shows Investors There’s Nowhere to Go But Down (BBG)

Money managers have never been more certain that oil prices will drop. They increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings of Exxon Mobil and Chevron. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week. “The rise in supplies will add more downward pressure,” said Michael Corcelli, chief investment officer at Alexander Alternative Capital, a Miami-based hedge fund. “It will be a long time before we can drain the excess.”

Hedge funds pushed up their short position in West Texas Intermediate crude by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest increase in data going back to 2006. WTI dropped 3.9% to $42.92 a barrel in the report week, and traded at $41.75 at 12:20 p.m. Singapore time. WTI fell by 14% in July, the biggest monthly decline in a year. It’s down by 19% since early June, bringing it close to the 20% drop that would characterize a bear market.

U.S. crude supplies rose by 1.67 million barrels to 521.1 million in the week ended July 22, according to U.S. Energy Information Administration data. Stockpiles reached 543.4 million barrels in the week ended April 29, the highest since 1929. Gasoline inventories expanded for a third week to 241.5 million barrels, the most since April. “The flow is solidly bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It reflects a recognition that the market is, at least for the time being, oversupplied.”

Hinkley Point is about the worst British plan ever, and that’s saying something.

• Amid Britain Nuclear Debacle, China’s Xinhua Decries ‘Suspicion’ (R.)

China will not tolerate “unwanted accusations” about its investments in Britain, a country that cannot risk driving away other Chinese investors as it looks for post-Brexit trade deals, China’s official Xinhua news agency said on Monday. British Prime Minister Theresa May was concerned about the security implications of a planned Chinese investment in the Hinkley Point nuclear plant and intervened to delay the project, a former colleague and a source said on Saturday.The plan by France’s EDF to build two reactors with financial backing from a Chinese state-owned company was championed by May’s predecessor David Cameron as a sign of Britain’s openness to foreign investment.

But just hours before a signing ceremony was due to take place on Friday, May’s new government said it would review the project again, raising concern that Britain’s approach to infrastructure deals, energy supply and foreign investment may be changing. China General Nuclear Power, which would hold a stake of about a third in the project, said on Saturday it respected the decision of the new British government to take the time needed to familiarise itself with the program. Xinhua, in an English-language commentary, said China understood and respected Britain’s requirement for more time to think about the deal. “However, what China cannot understand is the ‘suspicious approach’ that comes from nowhere to Chinese investment in making the postponement,” it said.

The project will create thousands of jobs and create much needed energy following the closure of coal-fired power plants, Xinhua added, dismissing fears China would put “back-doors” into the project. “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out,” it said.

But please don’t think this means problems are over.

• Greece Eases Back On Capital Controls In Bid To Reverse Currency Flight (G.)

More than a year after they were imposed, capital controls in Greece will be substantially eased on Monday in a bid to lure back billions of euros spirited out of the country, or stuffed under mattresses, at the height of the eurozone crisis. The relaxation of restrictions, whose announcement sent shockwaves through markets and the single currency, is aimed squarely at boosting banking confidence in the eurozone’s weakest member. The Greek finance ministry estimates around €3bn-€4bn could soon be returned to a system depleted of more than €30bn in deposits in the run-up to Athens sealing a third bailout to save it from economic collapse last summer.

“The objective is to re-attract money back to the banking system which in turn will create more confidence in it,” said Prof George Pagoulatos who teaches European politics and economy at Athens University. “And there are several billion that can be returned. People just need to feel safe.” As such the loosening of measures initially seen as an aberration in the 19-strong bloc is being viewed as a test case: of the faith Greeks have in economic recovery and the ability of their leftist-led government to oversee it. New deposits will not be subject to capital controls; limits on withdrawals of money brought in from abroad will also be higher; and ATM withdrawals will be raised to €840 every two weeks in a reversal of the policy that allowed depositors to take out no more than €420 every week.

[..] From 2008, the year before the country’s debt crisis erupted, until the end of 2015, an estimated 244,700 small- and medium-sized businesses have closed with many more expected to declare bankruptcy this year. The latest move, which follows easing of transactions abroad, is directed at small entrepreneurs, for years the lifeline of the Greek economy, and individual depositors. But while economists are calling the easing of restrictions a significant step to normalisation, Greek finances are far from repaired. Challenges for the prime minister, Alexis Tsipras, are expected to peak – along with social discontent – in the autumn when his fragile two-party coalition is forced to meet more milestones and creditor demands, starting with the potentially explosive issue of labour reform. Further disbursement of aid – €2.8bn – will depend exclusively on the painful measures being passed.

The Great Deflation.

• Building a Progressive International (YV)

Politics in the advanced economies of the West is in the throes of a political shakeup unseen since the 1930s. The Great Deflation now gripping both sides of the Atlantic is reviving political forces that had lain dormant since the end of World War II. Passion is returning to politics, but not in the manner many of us had hoped it would. The right has become animated by an anti-establishment fervor that was, until recently, the preserve of the left. In the United States, Donald Trump, the Republican presidential nominee, is taking Hillary Clinton, his Democratic opponent, to task – quite credibly – for her close ties to Wall Street, eagerness to invade foreign lands, and readiness to embrace free-trade agreements that have undermined millions of workers’ living standards.

In the United Kingdom, Brexit has cast ardent Thatcherites in the role of enthusiastic defenders of the National Health Service. This shift is not unprecedented. The populist right has traditionally adopted quasi-leftist rhetoric in times of deflation. Anyone who can stomach revisiting the speeches of leading fascists and Nazis of the 1920s and 1930s will find appeals – Benito Mussolini’s paeans to social security or Joseph Goebbels’ stinging criticism of the financial sector – that seem, at first glance, indistinguishable from progressive goals.
What we are experiencing today is the natural repercussion of the implosion of centrist politics, owing to a crisis of global capitalism in which a financial crash led to a Great Recession and then to today’s Great Deflation.

The right is simply repeating its old trick of drawing upon the righteous anger and frustrated aspirations of the victims to advance its own repugnant agenda. It all began with the death of the international monetary system established at Bretton Woods in 1944, which had forged a post-war political consensus based on a “mixed” economy, limits on inequality, and strong financial regulation. That “golden era” ended with the so-called Nixon shock in 1971, when America lost the surpluses that, recycled internationally, kept global capitalism stable.

What a crazy story.

• India Rescues 10,000 Starving Workers In Saudi Arabia (Sky)

The Indian government has come to the rescue of more than 10,000 of their starving citizens in Saudi Arabia. Some 16,000 kg of food was distributed on Saturday night by the consulate to penniless workers who’ve lost their jobs and not been paid. The issue came to light when a man tweeted India’s foreign minister Sushma Swaraj saying around 800 Indians had not eaten for three days in Jeddah, asking her to intervene. Investigations found that there were thousands starving across Saudi Arabia and Kuwait. Ms Swaraj instructed the consulate to make sure no unemployed worker is to go without food, and is said to have monitored the situation on an hourly basis.

She tweeted: “Large number of Indians have lost their jobs in Saudi Arabia and Kuwait. The employers have not paid wages, closed down their factories. “The number of Indian workers facing food crisis in Saudi Arabia is over ten thousand.” Many workers in Saudi Arabia and Kuwait have been living in inhumane conditions after losing their jobs. Hundreds have been laid off without being paid their wages. Indian newspapers reported that one firm – the Saudi Oger company – did not pay wages for seven months. Of its 50,000 employees, 4,000 were Indians. India’s Consul General Mohammad Noor Rehman Sheikh, told a news agency: “For the last seven months these Indian workers of Saudi Oger were not getting their salaries and the company had also stopped providing food to these workers.”

[..] India’s junior foreign minister VK Singh has been tasked to travel to Saudi Arabia to put in place an evacuation process which is due to begin soon. He had successfully led the evacuation of a large number of Indians from war-torn Yemen and most recently from South Sudan. There are more than three million Indians living and working in Saudi Arabia and more than 800,000 in Kuwait. Falling oil prices have hit the economy of Saudi Arabia and other Gulf countries.

Debt Rattle June 23 2016

Jun 232016

June 23, 2016 Posted by Raúl Ilargi Meijer at 8:48 am Finance Tagged with: bond waiver, Brexit, cartel, Erdogan, Frontex, poverty, Silk Road, Tesla 4 Responses »

Harris&Ewing Horse and Motor Oil, Washington, DC 1918

• World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)

• Who Is The “European Movement”? (Werner)

• Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)

• IMF Warns The US Over High Poverty (BBC)

• China’s Xi Lauds New Silk Road (R.)

• Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)

• Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)

• ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)

• European Commission To Freeze Payments To Greece (NE)

• Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)

• EU Approves Common Border Agency (WSJ)

Won’t be sleeping peacefully.

• World’s Central Bankers Will Be Holed Up In Basel For Brexit Fallout (BBG)

Bank of Japan Governor Haruhiko Kuroda will be in Switzerland as the results are announced of the U.K.’s June 23 vote on whether to remain in the European Union. Kuroda will be traveling from June 23 to June 28 to attend meetings of the Bank for International Settlements, where other central bankers also will gather, the BOJ said Wednesday. Given the travel time between Europe and Japan, Kuroda would be unable to chair an emergency meeting if the central bank decides to hold one Friday Tokyo time in the event the U.K. votes to leave the EU. “This raises the likelihood of the BOJ not taking drastic measures right after the results come out,” said Daiju Aoki, an economist at UBS in Tokyo.

“Kuroda probably sees the benefit of being with other central bankers where they could talk about coordinated action.” In a press conference June 16, Kuroda declined to comment about whether he’d convene an emergency meeting after the Brexit vote and said the central bank was in touch with counterparts including the Bank of England amid Brexit concerns he said had had an impact in the bond market. The BOJ can hold an emergency meeting without the governor, according to the bank’s rules. In May 2010, then-Deputy Governor Hirohide Yamaguchi led an emergency gathering in the absence of Governor Masaaki Shirakawa, who was traveling in Europe.

A comprehensive overview of things EU for those who can still stomach more.

• Who Is The “European Movement”? (Werner)

Prime Minister David Cameron, together with the heads of the IMF, the OECD and various EU agencies have given dire warnings that economic growth will drop, the fiscal position will deteriorate, the currency will weaken and UK exports will decline precipitously. George Osborne, the chancellor of the exchequer has threatened to cut pensions if pensioners dare to vote for exit. But what are the facts? I have been trained in international and monetary economics at the London School of Economics and have a doctorate from the University of Oxford in economics. I have studied such issues for several decades. I have also recently tested, using advanced quantitative techniques, the question of the size of impact on GDP from entry to or exit from the EU or the eurozone.

The conclusion is that this makes no difference to economic growth, and everyone who claims the opposite is not guided by the facts. The reason is that economic growth and national income are almost entirely determined by a factor that is decided at home, namely the amount of bank credit created for productive purposes. This has sadly been very small in the UK in recent decades, thus much greater economic growth is possible as soon as steps are taken to boost bank credit for productive purposes – irrespective of whether the UK stays in the EU or not (although Brexit will make it much easier to take such policy steps).

We should also remember that a much smaller economy like Norway – thought more dependent on international trade – fared extremely well after its people rejected EU membership in a referendum in 1995 (which happened against the dire warnings and threats from its cross-party elites, most of its media and the united chorus of the heads of international organisations). Besides, Japan, Korea, Taiwan and China never needed EU membership to move from developing economy status to top industrialised nations within about half a century. The argument of dire economic consequences of Brexit is bogus.

10 years late. We called it Hongcouver by then.

• Vancouver Proposes Tax on Empty Homes If Province Fails to Act (BBG)

Vancouver, home of Canada’s priciest housing market, is proposing a tax on empty homes to help address an “unprecedented” low vacancy rate as residents struggle to find affordable housing. Vancouver’s preferred option is to have the provincial government of British Columbia create a new tax for empty or under-occupied residential homes, Mayor Gregor Robertson said in a statement Wednesday. Failing that, the city plans to impose a business tax on empty homes held as investment properties. The city wants a response from the province by Aug. 1.

“Vancouver housing is first and foremost for homes, not a commodity to make money with,” Robertson said. “We need a tax on empty homes to encourage the best use of all our housing, and help boost our rental supply at a time when there’s almost no vacancy.” Prices in Vancouver are the highest in Canada, topping C$1.5 million ($1.2 million) for a detached home in May, a 37% rise over the prior year, according to that city’s real estate board. At 0.6%, the current vacancy rate means there are only 330 purpose-built rental apartments available at a given time, Robertson said. That’s in a municipal region of about 2.5 million people.

Lagarde’s just a lot of emptiness.

• IMF Warns The US Over High Poverty (BBC)

The US has been warned about its high poverty rate in the International Monetary Fund’s annual assessment of the economy. The fund said about one in seven people were living in poverty and that it needed to be tackled urgently. It recommended raising the minimum wage and offering paid maternity leave to women to encourage them to work. The report also cut the country’s growth forecast for 2016 to 2.2% from a previous prediction of 2.4%. Slower global growth and weaker consumer spending were blamed. US economic growth slowed to an annual pace of 0.5% during the first three months of the year, down sharply from 1.4% in the last three months of 2015.

But the stronger labour market meant that overall “the US economy is in good shape”, said the IMF’s managing director Christine Lagarde. May’s unemployment figures showed the rate at an eight-year low of 4.7%. However Ms Lagarde warned that “not only does poverty create significant social strains, it also eats into labour force participation, and undermines the ability to invest in education and improve health outcomes”. “Our assessment is that, if left unchecked, these four forces – participation, productivity, polarisation and poverty – will corrode the underpinnings of growth and hold back gains in US living standards,” she added.

All the things monopoly money can buy.

• China’s Xi Lauds New Silk Road (R.)

Chinese companies invested nearly $15 billion in countries participating in Beijing’s new Silk Road initiative last year, up one-fifth from 2014, President Xi Jinping said in Uzbekistan, lauding a scheme that is one of his key foreign policy. Under the program, announced by Xi in 2013, and also known as the “One Belt, One Road” program, China aims to invest in infrastructure projects including railways and power grids in central, west and southern Asia, as well as Africa and Europe. China has dedicated $40 billion to a Silk Road Fund and the idea was the driving force behind the establishment of the $50 billion Asian Infrastructure Investment Bank.

In comments carried by state media late on Wednesday, Xi said China’s trade with countries participating in the new Silk Road exceeded $1 trillion in 2015, accounting for a quarter of its total foreign trade. “The Belt and Road Initiative’s primary planning and deployment has been completed and is now stepping onto the stage of taking root and intensive cultivation for sustained development,” Xi told the Uzbek parliament. Regions like the Balkans and Central Asia are key to the project, the government has said. Xi’s trip to Uzbekistan followed trips to Serbia and Poland. The initiative envisages the revival of the ancient Silk Road routes from China to Europe to open new trade markets for its firms as the domestic market slows.

Musk has easy access to the green bubble.

• Tesla: Incessant Cash Burn, Looming Competition No Trillion-Dollar Formula (WSJ)

Visions of a future dominated by electric cars have long powered Tesla Motors’ stock price. Sooner or later, the reality of corporate finance is likely to intervene. Tesla’s offer to acquire solar-energy company SolarCity brings this issue to the forefront. Though details on the financial benefits of the proposed tie-up are scant, Tesla CEO Elon Musk was his usual bold self on a conference call with analysts on Wednesday. He said the proposed deal could help Tesla become the world’s first company with a trillion-dollar market capitalization. That would require a more than 30-fold increase from today’s value. Yet that boast may not be the most jarring one Mr. Musk has offered of late.

Powered by the new Model 3 mass-market sedan, Tesla aims to deliver 500,000 vehicles in 2018, Mr. Musk said last month. That target is two years ahead of the previous goal. Tesla forecasts 80,000 to 90,000 deliveries this year. In a world of slow growth and cautious corporate management teams, bold ambition is a central part of Tesla’s appeal to investors. But reaching for the stars has proven expensive. Tesla’s core business has burned more than $3 billion in cash over the past six quarters. Capital needs are expected to further intensify over the coming years. No surprise there; automobile manufacturing is a low-return, capital-intensive business.

The SolarCity transaction could further pressure Tesla’s financial profile. Mr. Musk said Wednesday that Tesla would be willing to provide a bridge loan to SolarCity before the deal closes if needed, although he thought such a scenario to be unlikely. Still, even the possibility of such a loan should raise eyebrows. Mr. Musk said he expects SolarCity to be cash-flow positive within three to six months. That could be the case in a given quarter, but analysts at Barclays forecast 2016 free cash flow at negative-$1.8 billion. As for Tesla, Barclays expects the auto maker to burn $2.1 billion without much improvement over the coming two years. The combined company could burn as much as $3.4 billion in 2018, before factoring in the financial impact of the merger.

Always funny how close shameful and shameless are in the English language.

• Tesla Bid For Solarcity ‘Shameful’: Jim Chanos (BBC)

Tesla’s bid to buy struggling solar energy firm SolarCity has been called “shameful” by financier Jim Chanos. Mr Chanos, who is betting against the shares of both firms, described the bid as a “shameful example of corporate governance at its worst”. Tesla made a $2.8bn (1.9bn) offer for SolarCity on Tuesday. Tesla’s chief executive Elon Musk said the deal, which will be paid for in Telsa shares, was a “no brainer”. The two firms have close ties. Mr Musk owns 22% of SolarCity and sits on the company’s board. SolarCity’s chief executive Lyndon Rive and Mr Musk are cousins. “As a combined automotive and power storage and power generation company, the potential is there for Tesla to be a trillion-dollar market cap company,” Mr Musk said.

Mr Chanos has taken short positions in both Tesla and SolarCity. When investors take short positions they borrow shares of a company, sell those shares and try to buy them back at a lower price. Mr Chanos said SolarCity was “headed toward financial distress,” and neither company could handle the burden of a tie-up. “[SolarCity] is burning hundreds of millions in cash every quarter, a burden that now Tesla shareholders will have to bear, at a total cost of over $8bn,” he said.

Why now?

• ECB Restores Bond Waiver, Lets Greek Banks Tap Cheap Credit (AP)

The ECB has restored a key waiver that will let Greek banks tap emergency central bank credit, one step toward putting the country’s financial institutions back on their feet. The decision announced Wednesday permits Greek government bonds to be used by banks as collateral to get cheap money from the ECB — even though those bonds are rated too low under the usual rules. Greek banks were shattered by the country’s financial and debt crisis which has led to three bailouts since 2010. They have been relying on more expensive financing from the Greek national central bank to do business. The ECB restored the waiver after the Greek government got a €7.5 billion installment on its latest bailout, ensuring the government can pay its bills for now.

Still a very corrupt country. And not given the time to do something about it; ‘reform’ has eaten that away.

• European Commission To Freeze Payments To Greece (NE)

The European Commission will stop all payments of the European Regional Development Fund/Cohesion fund to Greece for the 2014-2020 programmes. This is confirmed by an internal letter obtained by New Europe signed by Walter Deffaa, Director-General for Regional Development. The reason for the Commission’s pause is an investigation of the Greek competition authority, which concerns possible manipulation of tendering procedures for major infrastructure projects. While the letter was circulated internally on June 17, it is expected that the decision will not be announced until after the European Commission President, Jean-Claude Juncker, has concluded his trip to the Greek capital, but possibly before the competition authority will examine the case on July 21.

The European Commission did not immediately respond to New Europe on whether the President had discussed the issue with Greek Prime Minister Alexis Tsipras, or as to the amount of money that would be affected by this decision. According to the letter, the Greek authorities working on the case have “already identified companies participating in the cartel as all major constructions companies and large foreign companies present in Greece.” The cartel was allegedly active for over 27 years from 1989, to this year, in the domain of road construction, railroads, metro, and concession projects. The Director-General confirms that some of these projects “will certainly have been co-financed by EU funds”.

We’ll file this under entertainment…

• Erdogan Says Referendum Might Be Held On Turkey’s Negotiations With EU (TM)

President Recep Tayyip Erdogan has said that Turkey might hold a referendum on whether to end or continue negotiations with European Union (EU). Erdogan commented on Turkey’s EU accession negotiations during a graduation ceremony of Fatih Sultan Mehmet Foundation University on Wednesday. “Just like United Kingdom, we could also ask our people whether to continue or end negotiations with EU”, Erdogan said.

“Turkey is not after visa-free travel or the shipping back [to Turkish territory of migrants who arrive in Greece]. However, you are after Turkey right now. You are thinking about what would happen if Turkey was to open the gates and let the refugees pass. You are losing your temper because Erdoan throws off your mask and reveals your true, ugly face. That’s why you are thinking of ways to get rid of Erdogan. Europe, you do not want us only because the majority of our people are Muslims”, Erdogan added.

Erdogan’s remarks came after European Commission President Jean-Claude Juncker said that the only person standing in the way of Turkey’s visa-free travel to EU was Erdogan. “If Turks cannot travel to EU without a visa right now, that is because they have not fulfilled the necessary criteria. If Erdogan breaks the deal, he has to explain his people why they can’t travel to EU [without a visa]”, Juncker said.

Foreign armed ‘soldiers’ operating in another country’s sovereign territory. Is that what people want?

• EU Approves Common Border Agency (WSJ)

The European Union on Wednesday agreed on setting up a common external border agency and coast guard to be deployed in countries struggling with a massive influx of migrants. The plan was originally put forward in December and has been pushed by Germany and France in response to the migration crisis that saw over one million asylum seekers arrive via Greece last year, and the threat from Islamic State terrorists mingling with the stream of refugees. Sovereignty concerns raised by some EU governments have been addressed in a compromise whereby a majority of governments would have to approve any deployment of EU border guards, including the country where the external border is deemed too porous and an intervention needed.

If an EU country which belongs to the Schengen border-free area refuses to accept such a deployment, and its failure to protect the common border is considered to endanger the border-free area, other countries can erect borders to isolate themselves from it. The U.K. and Ireland won’t be part of the new agency, as they are not part of the Schengen area. The compromise deal, approved Wednesday by the bloc’s 28 ambassadors, still requires the formal adoption by EU governments and the European Parliament, but EU officials say this is a formality that will likely happen in the coming weeks. The European Border and Coast Guard will build on an existing EU agency—Frontex—which is based in Warsaw and currently only has limited powers when it comes to patrolling land and sea borders—a national prerogative.

The new agency will also comprise a network of national authorities responsible for border management and will have a reserve pool of 1,500 border guards to be deployed in emergency cases within a week. But setting up the pool of 1,500 will take time and resources, as EU countries aren’t equally motivated to see this project come to life, EU officials say. In previous years, EU countries were slow in dispatching border guards to Greece and Italy, whose governments requested EU assistance for search and rescue missions at sea or for patrolling the land border between Greece and Turkey. This is partly because some EU countries need the guards back home and also because polyglot border guards are rare.

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