Iceland has spent eight years locking down its financial markets to keep foreign investors in. Now some are complaining the island nation is trying to shove them out. A law passed May 22 by Iceland’s parliament offers the foreign holders of about $2.3 billion worth of krona-denominated government bonds a Hobson’s choice: Sell out in June at a below-market exchange rate, or have the money they receive when their bonds mature impounded indefinitely in low-interest bank accounts. Investors, including Boston-based mutual-fund companies Eaton Vance and Loomis Sayles, a unit of Natixis, don’t want to go. They say they will reject the government’s offer. “We would like to stay invested,” said Patrick Campbell, a global bond analyst at Eaton Vance.
The dispute is the result of a wholesale turnaround in Iceland’s relationship with foreign investors. The country became synonymous with financial alchemy after its banks ballooned by borrowing in bond markets and attracting foreign depositors with high interest rates. That system imploded in 2008 when depositors made a run on the banks just as their bonds fell due, causing the krona to sharply devalue against the euro. Yet a growing number of fund managers are now buying Icelandic government bonds, including those that were marooned on the island when it applied capital controls. The country is now one of the few offering a combination of high interest rates and strong economic growth prospects.
Eaton Vance and another holder of the legacy debt, also called “offshore” debt, hedge fund Autonomy Capital LP, have been courting the government for months to allow them to keep their cash on the island, even offering to swap their holdings into long-term bonds that they would pledge to hold on to.But the country isn’t interested. Instead, officials behind the law say they aim to keep the $16.7 billion economy of the island with a population of 327,386 from being swamped anew by the ebb and flow of offshore funds. “We don’t need the money,” said Mar Gudmundsson, governor of Iceland’s central bank. “These are remnants from the last boom and bust, and we are not going to repeat that mistake.”
Japanese Prime Minister Shinzo Abe plans to delay an increase in sales tax by two and a half years, a government official said on Sunday, as the economy sputters and Abe prepares for a national election. Abe told Finance Minister Taro Aso and the secretary general of his ruling Liberal Democratic Party, Sadakazu Tanigaki, on Saturday of his plan to propose delaying the tax hike for a second time, until October 2019, said the official, who was briefed on the meeting. The prime minister, who has promised to announce steps on Tuesday to spur economic growth and promote structural reform, is also expected to order an extra budget to fund stimulus measures, just two months into the fiscal year and on the heels of a supplementary budget to pay for recovery from recent earthquakes in southern Japan.
After chairing a summit of Group of Seven leaders on Friday, Abe said Japan would mobilize “all policy tools” – including the possibility of delaying the tax hike – to avoid what he called an economic crisis on the scale of the global financial crisis that followed the 2008 Lehman Brothers bankruptcy. “There is a risk of the global economy falling into crisis if appropriate policy responses are not made,” Abe told a news conference after the summit. To play its part, Japan “must reignite powerfully the engine of Abenomics,” he said, referring to his easy-money policies aimed at getting Japan out of two decades of deflation and fitful growth. Abe has long said he would proceed with a plan to raise the tax rate to 10% from 8% next April unless Japan faced a crisis on the magnitude of the Lehman shock.
He said the G7 “shares a strong sense of crisis” about the global outlook, with the most worrisome risk being a global contraction led by a slowdown in emerging economies like China. Other G7 leaders, however, appeared to differ with Abe on the risk of a global crisis, fuelling comment that Abe was using the G7 to justify delaying the painful tax hike.
This week, oil broke above the key $50 level for the first time since October 2015. Yet rather than interpret the move as a sign to buy, one top technician is warning investors not to chase the rally. “I think it’s all about risk-reward and there’s probably no more important chart right now than the oil chart,” Chris Verrone, a technician at Strategas Research Partners, told CNBC’s “Fast Money” this week. According to Verrone, it’s the steepness of the move that bothers him most. In the past 72 days, oil has moved 20% above its 200-day moving average. “It looks excessive to us, we think there’s a higher likelihood you come back and retest the 200 near 39, 40 bucks,” said Verrone.
Also troubling to Verrone is the fact that while crude has surged to new highs, energy stocks and the Mexican peso — both of which are closely tied to oil — have not made new highs in a month. Energy names have fallen since peaking on April 27, whereas crude has surged 12%. Since peaking back April 29, the peso’s gains are still lagging those in oil. They are up 8% and 33%, respectively, this year. Indeed, analysts at Bank of America Merrill Lynch warned this week that continued strength in the dollar could trigger a series of knock-on effects that may push crude off its new highs. The bank said a “black swan event” such as Saudi Arabia removing its currency peg could lead to a collapse of Brent crude to as deep as $25 per barrel, and it expects oil prices to average $46 per barrel this year. On Friday, crude ended the session above $49 per barrel.
As the politics of this election year heat up, the chances of Congress debating — let alone passing — either of the White House’s marque trade deals continue to melt away. Oh, there’s plenty of talk about the westward-looking Trans-Pacific Partnership and the Euro-centered Transatlantic Trade and Investment Partnership, or TPP and TTIP, respectively. Most of the yakking, however, flows from Obama Administration officials; nary a word trickles out of Congress. Worse than Capitol Hill silence is the vocal pounding free trade takes when any of Obama’s would-be successors talk trade.
Bernie Sanders, a Democrat by name but socialist by heart, makes it crystal clear that he would rather eat glass than back “free” trade. Hillary Clinton, who three years ago called the TPP “exciting,” “innovative” and “ambitious,” now sees it as an agreement that has “failed to provide the basic safety net support needed” for American workers. Take that as an “innovative” no. And the Donald? He’s against TPP because, as he noted in one Republican debate this spring, “It’s a deal that was designed for China to come in, as they always do, through the back door … ” China, however, is not part of the Trans-Pacific Partnership, so whatever Trump meant must have been more of a “suggestion” than a fact. Whatever.
[..] Big Ag’s big push for the pending trade deals is understandable, given the two changed realities of today’s election year politics. First, even as we lean on the EU to alter its biotech food rules, the U.S. Senate still can’t agree on how to write a biotech food labeling law here. Members know the tide has turned on labeling; 89 out of 100 Americans want it. Majority Republicans, however, don’t and they continue to search for a way to be anti-labeling without becoming anti-incumbents. Second, not one presidential contender sees free trade as a vote-winning issue. Taken together, it’s hard to see how any trade deal goes anywhere this year. After that, you have to take the word of Hillary or Bernie or Donald. Well, maybe not Donald. Or Hillary. Bernie’s solid, though.
Schrödinger’s cat is something many of us have heard of, but perhaps fewer actually understand. The idea was first dreamed up by an Austrian physicist, Erwin Schrödinger, who wanted to illustrate the mind-bending nature of quantum mechanics. He created a thought experiment in this world to illustrate the point, which would allow a cat to be both dead and alive in a box at the same time. Now, scientists have added another box. And another cat. And the first cat being dead and alive simultaneously in the first box, so this causes the second cat in the second box to also be dead and alive at the same time. Makes perfect quantum sense, right? “It’s understandable that people don’t understand it,” lead author Chen Wang of Yale University told The Washington Post.
“You can’t understand it using common sense. We can’t either.” But here’s the premise: A cat sits in a box. Alongside the cat, there’s poison. That poison will only be released upon the decay of a radioactive subatomic particle. According to quantum mechanics, and specifically the theory of “superposition,” these particles actually exist in all possible states at the same time – until, that is, someone takes a measurement. At that point, the particle falls into a single, known state. So, the particles could be decaying, and not decaying, simultaneously. As a consequence, the poison is being released – and not released. And so the cat is both dead and alive. Until someone opens the box, of course, and is observed. Then, the cat can’t be doing both things at once.
What Dr. Wang and his team have done is to add another dimension: the concept of “entanglement.” This proposes that two objects can be intimately linked, even if billions of light-years separate them, and any change that happens to one will happen to the other instantaneously, a relationship Einstein once described as “spooky action at a distance.” For our cat, this means, quite simply, that there’s a twin, in another box. And everything that happens to one, happens to the other. In Wang’s experiment, there were no cats, just light. He used two aluminum cavities, each with a wave of light bouncing around inside. The researchers induced such a state so that the light existed in two different wavelengths at the same time, in both boxes.
USA. Allensworth, California. 2014. Fence post. Allensworth has a population of 471 and 54% live below the poverty level. Matt Black/Magnum Photos
Last summer Matt Black left the Central Valley of California, where he lives, to travel 18,000 miles across the US on a road trip that took him through 30 states and 70 of the poorest towns in America. The startling image of a hand resting on a fence post against a barren backdrop was taken in the small town of Allensworth, California, where 54% of the population of 471 people live below the poverty level. “California always seemed special and unique in terms of how it symbolised promise and progress,” says Black, 45, during a break in shooting landscapes in Idaho, where he’s working on another stage of the same series, Geography of Poverty. “So it seemed somehow symbolic to begin there and travel east, but what has surprised me is the similarities I have encountered as I travelled from one community to another.
All these diverse communities are connected, not least in their powerlessness. In the mainstream media, poverty is often looked at in isolation, but it is an American problem. It seems to me that it goes unreported because it does not fit the way America sees itself.” As if to bear this out, Black tells me that the route he took was mapped out in advance using geotagged photographs found online alongside census information to identify the poorest areas. In each instance, the communities he visited were never more than a two-hour drive apart. “I was able to drive from California to the east coast and back without ever leaving these poor areas.” Black’s striking images are on show in a group exhibition, New Blood, at the Magnum Print Room in London…
USA. El Paso, Texas. 2015. El Paso has a population of 649,121 and 21.5% live below the poverty level. Matt Black/Magnum Photos
It’s been a busy winter in downtown Athens, where scaffolding, tarpaulins and dust have been symbols of hope: a mini construction boom heralding a tourist renaissance. Nine hotels are being built or restored around the city centre. Their arrival correlates with the huge upturn in holidaymakers visiting the Greek capital since a low point in late 2008, when Athens erupted into riots after the police killing of a teenage boy. “It’s a miracle, what’s been happening in Athens,” Greece’s tourism chief, Andreas Andreadis, told the Observer. “The tourist industry in Greece grew two to three times faster than in Spain, Portugal, Italy or France last year. This year we expect around 4.5 million visitors in Athens alone.”
For an economy stuck in depression-era recession, dependent on emergency bails and seemingly locked in a perpetual fiscal vice, tourism is vital. A record 23.5 million holidaymakers visited Greece in 2015 – generating €14.2bn in direct receipts, or 24% of GDP. In 2010, at the start of the country’s debt crisis – which has seen it struggle to avert default and remain in the euro – revenues from tourism were €10bn, or 15% of GDP. The Greek Tourism Confederation, Sete, is predicting another bumper season for an industry that has long been the single biggest contributor to the economy and job market. Arrivals could reach 25 million (27.5 million including cruise ship passengers), which is more than twice the country’s population. Economic recovery will depend on the sector to a great degree.
Andreadis said: “If we get 1.5 million more visitors it will produce an additional €800m in direct receipts. Such a positive kick that would come in the third and fourth quarters.” Much of the upsurge is linked to Greece’s safety record. Tourists are staying away from resort in Egypt, Tunisia, Turkey and elsewhere in the wake of high-profile attacks. Countries whose economies are also dependent on holidaymakers have suffered incalculable damage following a severe drop in arrivals. Travel advice from governments and fears of fresh violence are simply keeping tourists away. But other countries’ loss could be Greece’s gain. And it could not come at a better time: tourism provides one in five jobs in Greece, at a time when unemployment in the effectively bankrupt nation has hovered stubbornly around 25%. Youth unemployment stands at an astonishing 67%.
In the port-side café before the sun comes up, a group of men are talking. “In the beginning, when there were maybe 40 of them in the boats, all wet, we helped them. Now they’re too many. They steal chickens. They shit in the fields. They threw stones at a woman.” “Do you think it’s chance that they’re all coming here? The NGOs, the whatever they’re called, are making money off it. It’s a plan. A racket.” “Eventually they’ll set off a bomb and sink the island.” “Sink or float, what difference does it make? Are we happy, now we’re floating?” Chios, my grandfather’s island in the northeast Aegean Sea, has become an open-air prison for more than 2,000 refugees. Almost all of them arrived after the March 20 “statement” signed by the EU and Turkey, designed to stop the flow of people from Turkey to the Greek islands and then to mainland Europe.
The statement, which followed the unilateral closure by Central European countries of the western Balkans route, cut time and space like a guillotine, arbitrarily separating those who’d arrived before it from those who landed after, trapping more than 50,000 refugees and migrants in Greece. These late arrivals can’t leave the islands until their cases have been decided by the Greek asylum system, which is overloaded to the point of paralysis. The refugees are supposed to prove not only that they’re at risk in their home country but that they’d be at risk in Turkey, which the EU (but not Greece) considers a “safe third country,” if they want to have their asylum claim heard in Greece. Otherwise, they will be returned to Turkey.
Of the 8,500 women, children, and men who have landed on the islands since the agreement was signed, 400 have been returned so far, some to be detained for weeks without legal representation. About 200 have been granted asylum in Greece. The rest are rotting in overcrowded camps, “hot spots,” and locked detention centers, without information, adequate food, medical care, or security. And the boats from Turkey, though many fewer than before, continue to come in.
A flotilla of ships saved 668 people from boats in the Mediterranean Sea on Saturday, authorities in Italy said, bringing the week’s total of refugees plucked from the sea to 13,000 people. The rescues by the Italian coast guard and navy ships, aided by Irish and German vessels and humanitarian groups, are the latest by a multinational patrol south of the Italian island of Sicily. Warner spring weather has led to a surge of people attempting the perilous crossing from Africa to Europe. The Irish military said the vessel Le Roisin saved 123 people from a 12m-long (40-ft) rubber dinghy and recovered a male body. A German ship was involved in four separate rescue operations, the Italian coast guard said on Saturday evening.
Meanwhile, with shelters filling up in Sicily, the Italian navy vessel Vega headed toward Reggio Calabria, a southern Italian mainland port, bringing 135 survivors and 45 bodies from a rescue a day earlier. The Vega was due to dock on Sunday. Other survivors who arrived on Saturday in the Sicilian port of Pozzallo told authorities they had witnessed a fishing boat filled with“ hundreds” of people sink on Thursday, a Save The Children spokeswoman, Giovanna Di Benedetto, told The Associated Press by telephone from Sicily. According to survivors, two smugglers’ fishing boats and a dinghy set sail on Wednesday night from Libya’s coast. Di Benedetto said the survivors were among 500 or so aboard the one fishing boat that didn’t sink and the dinghy. “All of this must be verified, of course,” said Di Benedetto, but if the survivors’ accounts bear out, as many as 400 people could have drowned, with only a very few of those on the vessel that sank able to reach the other boats.
Migrants rescued from two boats in the Mediterranean this week told humanitarian workers in Italy that they saw another vessel carrying some 400 migrants sink, Save the Children said on Saturday. Three vessels carrying migrants already are confirmed to have sunk or capsized this week. More than 60 bodies are said to have been recovered, including those of three infants, and hundreds are believed to be missing. But the possible sinking of a fourth vessel on Thursday had not been reported, said Giovanna Di Benedetto, spokeswoman for Save the Children in Italy. That ship along with another fishing boat and a rubber boat left Sabratha in Libya late Wednesday night, according to interviews on Saturday with some of the more than 600 survivors from the two other vessels in the Sicilian port of Pozzallo.
They said the rubber boat had its own motor, but the smaller fishing boat, carrying some 400 migrants, did not. It was towed by the larger fishing vessel, which held about 500 others. Eventually the smaller boat began to take on water and, when the captain of the larger boat ordered the tow line cut, sank with most of its passengers, the survivors told Save the Children. Those aboard the other two vessels were not rescued until much later. “There were many women and children on board,” the survivors said, according to Di Benedetto. “We collected testimony from several of those rescued from both (the rubber and fishing) boats. They all say they saw the same thing.”
A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits. As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it “projects” it will become officially insolvent by 2025. In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark. Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.
Pension funds applying to lower promised benefits is a new development, albeit not unexpected (we warned of this mounting issue numerous times in the past). For many years there existed federal protections which shielded pensions from being cut, but that all changed in December 2014, when folded neatly into a $1.1 trillion government spending bill, was a proposal to allow multi employer pension plans to cut pension benefits so long as they are projected to run out of money in the next 10 to 20 years. Between rising benefit payouts as participants become eligible, the global financial crisis, and the current interest rate environment, it was certainly just a matter of time before these steps were taken to allow pension plans to cut benefits to stave off insolvency.
The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year. As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done. The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month, the PBGC projects that they will also be insolvent by 2025 – it appears there is something very foreboding about that particular year.
Since 2013, the federal reserve board has conducted a survey to “monitor the financial and economic status of American consumers.” Most of the data in the latest survey, frankly, are less than earth-shattering: 49% of part-time workers would prefer to work more hours at their current wage; 29% of Americans expect to earn a higher income in the coming year; 43% of homeowners who have owned their home for at least a year believe its value has increased. But the answer to one question was astonishing. The Fed asked respondents how they would pay for a $400 emergency. The answer: 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew? Well, I knew. I knew because I am in that 47%.
I know what it is like to have to juggle creditors to make it through a week. I know what it is like to have to swallow my pride and constantly dun people to pay me so that I can pay others. I know what it is like to have liens slapped on me and to have my bank account levied by creditors. I know what it is like to be down to my last $5—literally—while I wait for a paycheck to arrive, and I know what it is like to subsist for days on a diet of eggs. I know what it is like to dread going to the mailbox, because there will always be new bills to pay but seldom a check with which to pay them. I know what it is like to have to tell my daughter that I didn’t know if I would be able to pay for her wedding; it all depended on whether something good happened. And I know what it is like to have to borrow money from my adult daughters because my wife and I ran out of heating oil.
You wouldn’t know any of that to look at me. I like to think I appear reasonably prosperous. Nor would you know it to look at my résumé. I have had a passably good career as a writer—five books, hundreds of articles published, a number of awards and fellowships, and a small (very small) but respectable reputation. You wouldn’t even know it to look at my tax return. I am nowhere near rich, but I have typically made a solid middle- or even, at times, upper-middle-class income, which is about all a writer can expect, even a writer who also teaches and lectures and writes television scripts, as I do.
And you certainly wouldn’t know it to talk to me, because the last thing I would ever do—until now—is admit to financial insecurity or, as I think of it, “financial impotence,” because it has many of the characteristics of sexual impotence, not least of which is the desperate need to mask it and pretend everything is going swimmingly. In truth, it may be more embarrassing than sexual impotence. “You are more likely to hear from your buddy that he is on Viagra than that he has credit-card problems,” says Brad Klontz, a financial psychologist who teaches at Creighton University in Omaha, Nebraska, and ministers to individuals with financial issues. “Much more likely.”
“From a credit perspective, we’d be more comfortable with China slowing more than it is. We are getting less confident in the government’s commitment to structural reforms.”
Billionaire investor George Soros said China’s debt-fueled economy resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession. China’s March credit-growth figures should be viewed as a warning sign, Soros said at an Asia Society event in New York on Wednesday. The broadest measure of new credit in the world’s second-biggest economy was 2.34 trillion yuan ($362 billion) last month, far exceeding the median forecast of 1.4 trillion yuan in a Bloomberg survey and signaling the government is prioritizing growth over reining in debt. What’s happening in China “eerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth,” Soros said. “Most of money that banks are supplying is needed to keep bad debts and loss-making enterprises alive.”
Soros, who built a $24 billion fortune through savvy wagers on markets, has recently been involved in a war of words with the Chinese government. He said at the World Economic Forum in Davos that he’s been betting against Asian currencies because a hard landing in China is “practically unavoidable.” China’s state-run Xinhua news agency rebutted his assertion in an editorial, saying that he has made the same prediction several times in the past. China’s economy gathered pace in March as the surge in new credit helped the property sector rebound. Housing values in first-tier cities have soared, with new-home prices in Shenzhen rising 62 percent in a year. While China’s real estate is in a bubble, it may be able to feed itself for some time, similar to the U.S. in 2005 and 2006, Soros said.
China’s economy gathered pace in March as the surge in new credit helped the property sector rebound. Housing values in first-tier cities have soared, with new-home prices in Shenzhen rising 62 percent in a year. While China’s real estate is in a bubble, it may be able to feed itself for some time, similar to the U.S. in 2005 and 2006, Soros said. “Most of the damage occurred in later years,” Soros said. “It’s a parabolic cycle.” Andrew Colquhoun at Fitch Ratings, is also concerned about China’s resurgence in borrowing. Eventually, the very thing that has been driving the economic recovery could end up derailing it, because China is adding to a debt burden that’s already unsustainable, he said.
Fitch rates the nation’s sovereign debt at A+, the fifth-highest grade and a step lower than Standard & Poor’s and Moody’s Investors Service, which both cut their outlooks on China since March. “Whether we call it stabilization or not, I am not sure,” Colquhoun said in an interview in New York. “From a credit perspective, we’d be more comfortable with China slowing more than it is. We are getting less confident in the government’s commitment to structural reforms.”
The rest of the world’s steel producers may be pressuring Beijing to slash output and help reduce a global glut that is causing losses and costing jobs, but the opposite is happening in the steel towns of China. While the Chinese government points to reductions in steel making capacity it has engineered, a rapid rise in local prices this year has seen mills ramp up output. Even “zombie” mills, which stopped production but were not closed down, have been resurrected. Despite global overproduction, Chinese steel prices have risen by 77% this year from last year’s trough on some very specific local factors, including tighter supplies following plant shutdowns last year, restocking by consumers and a pick-up in seasonal demand following the Chinese New Year break.
Some mills also boosted output ahead of mandated cuts around a major horticultural show later this month in the Tangshan area. Local mills must at least halve their emissions on certain days during the exposition, due to run from April 29 to October. China, which accounts for half the world’s steel output and whose excess capacity is four times U.S. production levels, has said it has done more than enough to tackle overcapacity, and blames the glut on weak demand. But a survey by Chinese consultancy Custeel showed 68 blast furnaces with an estimated 50 million tonnes of capacity have resumed production. The capacity utilization rate among small Chinese mills has increased to 58% from 51% in January.
At large mills, it has risen to 87% from 84%, according to a separate survey by consultancy Mysteel. The rise in prices has thrown a lifeline to ‘zombie’ mills, like Shanxi Wenshui Haiwei Steel, which produces 3 million tonnes a year but which halted nearly all production in August. It now plans to resume production soon, a company official said. Another similar-sized company, Jiangsu Shente Steel, stopped production in December but then resumed in March as prices surged, a company official said. More than 40 million tonnes of capacity out of the 50-60 million tonnes that were shut last year are now back on, said Macquarie analyst Ian Roper. “Capacity cuts are off the cards given the price and margin rebound,” he said.
China will encourage ships flying its flag to take the Northwest Passage via the Arctic Ocean, a route opened up by global warming, to cut travel times between the Atlantic and Pacific oceans, a state-run newspaper said on Wednesday. China is increasingly active in the polar region, becoming one of the biggest mining investors in Greenland and agreeing to a free trade deal with Iceland. Shorter shipping routes across the Arctic Ocean would save Chinese companies time and money. For example, the journey from Shanghai to Hamburg via the Arctic route is 2,800 nautical miles shorter than going by the Suez Canal. China’s Maritime Safety Administration this month released a guide offering detailed route guidance from the northern coast of North America to the northern Pacific, the China Daily said.
“Once this route is commonly used, it will directly change global maritime transport and have a profound influence on international trade, the world economy, capital flow and resource exploitation,” ministry spokesman Liu Pengfei was quoted as saying. Chinese ships will sail through the Northwest Passage “in the future”, Liu added, without giving a time frame. Most of the Northwest Passage lies in waters that Canada claims as its own. Asked if China considered the passage an international waterway or Canadian waters, Chinese Foreign Ministry spokeswoman Hua Chunying said China noted Canada considered that the route crosses its waters, although some countries believed it was open to international navigation.
In Ottawa, a spokesman for Foreign Minister Stephane Dion said no automatic right of transit passage existed in the waterways of the Northwest Passage. “We welcome navigation that complies with our rules and regulations. Canada has an unfettered right to regulate internal waters,” Joseph Pickerill said by email.
Europe’s central bank took the unorthodox step of cutting interest rates below zero in 2014. Japan followed suit earlier this year, and has become home to more negative-yielding debt than anywhere else, leading Germany, France, the Netherlands and Belgium.
Crazy free money, no strings: “Banks are encouraged to extend credit to the real economy but are not penalized for not meeting their benchmark lending targets..”
Economists and analysts have been swooning over a new series of ultra-cheap, ultra-long bank loans announced by the ECB last month, which they believe might just kickstart the region’s fragile economy. “It’s massively positive,” Erik Nielsen, global chief economist at UniCredit, told CNBC via email regarding the new breed of “credit-easing” tactics announced by ECB President Mario Draghi. These targeted long-term refinancing operations, or TLTRO IIs, advance on a previous model announced by the central bank in 2011 and effectively give free money to the banks to lend to the real economy. They’re a series of four loans – conducted between June 2016 and March 2017 – and will have a fixed maturity of four years.
The interest rate will start at nothing, but could become as low as the current deposit rate, which is currently -0.40%, if banks meet their loan targets. This means the banks will be receiving cash for borrowing from the central bank. Banks will need to post collateral at the ECB but there’s no penalty if they fail to meet their loan targets. All that will happen is that the loans will be priced at zero for four years. Frederik Ducrozet, a euro zone economist with private Swiss-bank Pictet, called it “unconditional liquidity to banks at 0% cost, against collateral.” He said in a note last month that he expects it to lower bank funding costs, mitigate the adverse consequences of negative rates, strengthen the ECB’s forward guidance and improve the transmission of monetary policy.
Abhishek Singhania, a strategist at Deutsche Bank, added that the new LTROs “reduce the stigma” attached to their use compared to the previous model. “Banks are encouraged to extend credit to the real economy but are not penalized for not meeting their benchmark lending targets,” he said in a note last month.
Ambrose muses on Europe: “The EU is a strategic relic of a post-War order that no longer exists, and a clutter of vested interests that caused Europe to miss the IT revolution.”
[..] The Justice Secretary is right to dismiss Project Fear as craven and defeatist. A vote to leave the dysfunctional EU half-way house might well be a “galvanising, liberating, empowering moment of patriotic renewal”. The EU is a strategic relic of a post-War order that no longer exists, and a clutter of vested interests that caused Europe to miss the IT revolution. “We will have rejected the depressing and pessimistic vision that Britain is too small and weak, and the British people too hapless and pathetic, to manage their own affairs,” he said. The special pleading of the City should be viewed with a jaundiced eye. This is the same City that sought to stop the country upholding its treaty obligations to Belgium in 1914, and that funded the Nazi war machine even after Anschluss in 1938, lobbying for appeasement to protect its loans. It is morally disqualified from any opinion on statecraft or higher matters of sovereign self-government.
Mr Gove is right that the European Court has become a law unto itself, asserting a supremacy that does not exist in treaty law, and operating under a Roman jurisprudence at odds with the philosophy and practices of English Common Law. It has seized on the Charter of Fundamental Rights to extend its jurisdiction into anything it pleases. Do I laugh or cry as I think back to the drizzling Biarritz summit of October 2000 when the Europe minister of the day told this newspaper that the charter would have no more legal standing than “the Beano or the Sun”? What Mr Gove cannot claim with authority is that Britain will skip painlessly into a “free trade zone stretching from Iceland to Turkey that all European nations have access to, regardless of whether they are in or out of the euro or the EU”.
Nobody knows exactly how the EU will respond to Brexit, or how long it would take to slot in the Norwegian or Swiss arrangements, or under what terms. Nor do we know how quickly the US, China, India would reply to our pleas for bi-lateral deals. Over 100 trade agreements would have to be negotiated, and the world has other priorities. Brexit might set off an EU earthquake as Mr Gove says – akin to the collapse of the Berlin Wall in the words of France’s Marine Le Pen – but it would not resemble his children’s fairy tale. The more plausible outcome is a 1930s landscape of simmering nationalist movements with hard-nosed reflexes, and a further lurch toward authoritarian polities from Poland to Hungary and arguably Slovakia, and down to Romania where the Securitate never entirely lost its grip and Nicolae Ceausescu is back in fashion.
Pocket Putins will have a field day knowing that they can push the EU around. The real Vladimir Putin will be waiting for his moment of maximum mayhem to try his luck with “little green men” in Estonia or Latvia, calculating that nothing can stop him restoring the western borders of the Tsarist empire if he can test and subvert NATO’s Article 5 – the solidarity clause, one-for-all and all-for-one. A case can be made that the EU has gone so irretrievably wrong that Britain must withdraw to save its legal fabric and parliamentary tradition. If so, let us at least be honest about what we face. One might equally quote another British prime minster, with poetic licence: ‘I have nothing to offer but blood, toil, tears, and sweat’.
Greece could crash out of the eurozone as early as this summer if Britons vote to leave the European Union in the upcoming referendum, economists have predicted. The uncertainty following a ‘yes’ vote to Britain leaving the EU would put unsustainable pressure on Greece’s cash-strapped economy at a time when it is also struggling to cope with an influx of migrants escaping turmoil in the Middle East and Africa, according to a report from the Economist Intelligence Unit. The authors of the report say it is highly likely that Greece will be forced to leave the eurozone at some point within the next five years, but that if the UK votes to leave the EU in June, it could happen much sooner. Greece is already under a huge amount of pressure and a so-called Brexit could tip it over the edge.
The country has large debt payments due in mid-2016, while structural reforms recommended in Greece’s bail-out programme are “slow burners” and unlikely to deliver any significant growth in the short term. Greece’s true GDP contracted by 0.3pc last year, while unemployment stands at 24pc. The country’s overall debt-to-GDP ratio has hit 171pc. “While the region could probably handle a Brexit, Grexit or an escalation of the migrant crisis individually, it would be unlikely to navigate successfully a situation in which several of those crises came to a head simultaneously,” the report, entitled ‘Europe stretched to the limit’, said. “It is not impossible that this could happen as early as mid-2016, when the UK votes on whether or not to remain in the EU.”
Volkswagen and U.S. officials have reached a framework deal under which the automaker would offer to buy back almost 500,000 diesel cars that used sophisticated software to evade U.S. emission rules, two people briefed on the matter said on Wednesday. The German automaker is expected to tell a federal judge in San Francisco Thursday that it has agreed to offer to buy back up to 500,000 2.0-liter diesel vehicles sold in the United States that exceeded legally allowable emission levels, the people said. That would include versions of the Jetta sedan, the Golf compact and the Audi A3 sold since 2009. The buyback offer does not apply to the bigger, 80,000 3.0-liter diesel vehicles also found to have exceeded U.S. pollution limits, including Audi and Porsche SUV models, the people said.
U.S.-listed shares of Volkswagen rose nearly 6% to $30.95 following the news. VW in September admitted cheating on emissions tests for 11 million vehicles worldwide since 2009, damaging the automaker’s global image. As part of the settlement with U.S. authorities including the Environmental Protection Agency, Volkswagen has also agreed to a compensation fund for owners, a third person briefed on the terms said. The compensation fund is expected to represent more than $1 billion on top of the cost of buying back the vehicles, but it is not clear how much each owner might receive, the person said. Volkswagen may also offer to repair polluting diesel vehicles if U.S. regulators approve the proposed fix, the sources said.
Support for the transatlantic trade deal known as TTIP has fallen sharply in Germany and the United States, a survey showed on Thursday, days before Chancellor Angela Merkel and President Barack Obama meet to try to breathe new life into the pact. The survey, conducted by YouGov for the Bertelsmann Foundation, showed that only 17% of Germans believe the Transatlantic Trade and Investment Partnership is a good thing, down from 55% two years ago. In the United States, only 18% support the deal compared to 53% in 2014. Nearly half of U.S. respondents said they did not know enough about the agreement to voice an opinion. TTIP is expected to be at the top of the agenda when Merkel hosts Obama at a trade show in Hanover on Sunday and Monday.
Ahead of that meeting, German officials said they remained optimistic that a broad “political agreement” between Brussels and Washington could be clinched before Obama leaves office in January. The hope is that TTIP could then be finalised with Obama’s successor. But there have been abundant signs in recent weeks that European countries are growing impatient with the slow pace of the talks, which are due to resume in New York next week. On Wednesday, German Economy Minister Sigmar Gabriel described the negotiations as “frozen up” and questioned whether Washington really wanted a deal.
The day before, France’s trade minister threatened to halt the talks, citing a lack of progress. Deep public scepticism in Germany, Europe’s largest economy, has clouded the negotiations from the start. The Bertelsmann survey showed that many Germans fear the deal will lower standards for products, consumer protection and the labor market. It also pointed to a dramatic shift in how Germans view free trade in general. Only 56% see it positively, compared to 88% two years ago. “Support for trade agreements is fading in a country that views itself as the global export champion,” said Aart de Geus, chairman and chief executive of the Bertelsmann Foundation.
Bottom line: “..non-performing debt [..] stands at €360bn, according to the Bank of Italy. So is Atlante — with about €5bn of equity — really enough to keep the heavens in place?”
Atlante, a new private initiative backed by the Italian government, is designed to stop the sky falling in. The fund, which takes its name from the mythological titan who held up the heavens, will buy shares in Italian lenders in a bid to edge the sector away from a fully-fledged crisis. Last week’s announcement of the fund, which can also buy non-performing loans, led to a welcome boost for Italian banks. An index for the sector gained 10% over the week — its best performance since the summer of 2012, though it remains heavily down on the year. But Italian banks have made €200bn of loans to borrowers now deemed insolvent, of which €85bn has not been written down on their balance sheets. A broader measure of non-performing debt, which includes loans unlikely to be repaid in full, stands at €360bn, according to the Bank of Italy.
So is Atlante — with about €5bn of equity — really enough to keep the heavens in place? The Italian government has been placed in a highly unusual position. It has become much harder to directly bail out its financial institutions, as other European countries did during the crisis. Meanwhile, a new European-wide approach to bank failure, which involves imposing losses on bondholders, is politically fraught in Italy, where large numbers of bonds have been sold to retail customers. The new fund also comes in the context of an extremely weak start to the year for global markets. “In this market it is impossible for anyone to raise any capital,” says Sebastiano Pirro, an analyst at Algebris, adding that, since November last year, “the markets have been shut for Italian banks”.
The government has been forced into an array of subtle interventions to provide support. Earlier this year, details emerged of a scheme for non-performing loans to be securitised — a process where assets are packaged together and sold as bond-like products of different levels, or tranches, of risk. The government planned to offer a guarantee on the most senior tranches — those with a triple B, or “investment grade” rating.
Six years ago, Saudi and American officials agreed on a record $60 billion arms deal. The United States would sell scores of F-15 fighters, Apache attack helicopters and other advanced weaponry to the oil-rich kingdom. The arms, both sides hoped, would fortify the Saudis against their aggressive arch-rival in the region, Iran. But as President Barack Obama makes his final visit to Riyadh this week, Saudi Arabia’s military capabilities remain a work in progress – and the gap in perceptions between Washington and Riyadh has widened dramatically. The biggest stumble has come in Yemen. Frustrated by Obama’s nuclear deal with Iran and the U.S. pullback from the region, Riyadh launched an Arab military intervention last year to confront perceived Iranian expansionism in its southern neighbour.
The conflict pits a coalition of Arab and Muslim nations led by the Saudis against Houthi rebels allied to Iran and forces loyal to a former Yemeni president. A tentative ceasefire is holding as the United Nations prepares for peace talks in Kuwait, proof, the Saudis say, of the intervention’s success. But while Saudi Arabia has the third-largest defence budget in the world behind the United States and China, its military performance in Yemen has been mixed, current and former U.S. officials said. The kingdom’s armed forces have often appeared unprepared and prone to mistakes. U.N. investigators say that air strikes by the Saudi-led coalition are responsible for two thirds of the 3,200 civilians who have died in Yemen, or approximately 2,000 deaths. They said that Saudi forces have killed twice as many civilians as other forces in Yemen.
On the ground, Saudi-led forces have often struggled to achieve their goals, making slow headway in areas where support for Iran-allied Houthi rebels runs strong. And along the Saudi border, the Houthis and allied forces loyal to former Yemeni president Ali Abdullah Saleh have attacked almost daily since July, killing hundreds of Saudi troops. Instead of being the centrepiece of a more assertive Saudi regional strategy, the Yemen intervention has called into question Riyadh’s military influence, said one former senior Obama administration official. “There’s a long way to go. Efforts to create an effective pan-Arab military force have been disappointing.”
Behind the scenes, the West has been enmeshed in the conflict. Between 50 and 60 U.S. military personnel have provided coordination and support to the Saudi-led coalition, a U.S. official told Reuters. And six to 10 Americans have worked directly inside the Saudi air operations centre in Riyadh. Britain and France, Riyadh’s other main defence suppliers, have also provided military assistance. Last year, the Obama administration had the U.S. military send precision-guided munitions from its own stocks to replenish dwindling Saudi-led coalition supplies, a source close to the Saudi government said. Administration officials argued that even more Yemeni civilians would die if the Saudis had to use bombs with less precise guidance systems.
More than half of the US population lives amid potentially dangerous air pollution, with national efforts to improve air quality at risk of being reversed, a new report has warned. A total of 166 million Americans live in areas that have unhealthy levels of of either ozone or particle pollution, according to the American Lung Association, raising their risk of lung cancer, asthma attacks, heart disease, reproductive problems and other ailments. The association’s 17th annual “state of the air” report found that there has been a gradual improvement in air quality in recent years but warned progress has been too slow and could even be reversed by efforts in Congress to water down the Clean Air Act. Climate change is also a looming air pollution challenge, with the report charting an increase in short-term spikes in particle pollution.
Many of these day-long jumps in soot and smoke have come from a worsening wildfire situation across the US, especially in areas experiencing prolonged dry conditions. Six of the 10 worst US cities for short-term pollution are in California, which has been in the grip of an historic drought. Bakersfield, California, was named the most polluted city for both short-term and year-round particle pollution, while Los Angeles-Long Beach was the worst for ozone pollution. Small particles that escape from the burning of coal and from vehicle tail pipes can bury themselves deep in people’s lungs, causing various health problems. Ozone and other harmful gases can also be expelled from these sources, triggering asthma attacks and even premature death.
Can Brussels survive such failure? More urgently, can Greece survive the fallout? Because it’s Greece that will suffer first, and most, if the EU pact with the devil falls through.
European diplomats are agonising over their politically perilous promise to grant visa-free travel to 80m Turks, amid strong warnings from Ankara that the EU migration deal will fold without a positive visa decision by June. The EU’s month-old deal to return migrants from Greece to Turkey has dramatically cut flows across the Aegean, easing what had been an acute migration crisis. But the pact rests on sweeteners for Ankara that the EU is struggling to deliver – above all, giving Turkish citizens short-term travel rights to Europe’s Schengen area. Germany, France and other countries nervous of a political backlash over Muslim migration have started exploring options to make the concession more politically palatable, including through safeguard clauses, extra conditions or watered-down terms.
The political calculations are further complicated by looming EU visa decisions for Ukraine, Georgia and Kosovo. Several senior European diplomats say ideas considered include a broad emergency brake, allowing the EU to suspend the visa deal under certain circumstances; limiting the visa privileges to Turkish executives and students; or opting for an unconventional visa-waiver treaty with Turkey, which would allow more rigorous, US-style checks on visitors. Selim Yenel, Turkey’s ambassador to the EU, called the efforts to water down the terms “totally unacceptable”, saying: “They cannot and should not change the rules of the game.” One senior EU official said the search for alternatives reflected “growing panic” in Berlin and Paris over the looming need to deliver the pledge.
The various options, the official added, were “a political smokescreen” to muster support in the Bundestag and European Parliament, which must also vote on the measures. The Turkish visa issue has even flared in Britain’s EU referendum campaign, forcing David Cameron, the prime minister, to clarify on Wednesday that Turks could not automatically come to the UK if they were granted visa rights to the 26-member Schengen area. The matter could come to a head within weeks. Brussels says Turkey is making good progress in fulfilling 72 required “benchmarks” to win the visa concessions and will issue a report on May 4. This is expected to say that Turkey is on course to meet the criteria by early June, passing the political dilemma to the EU member states and European Parliament.
One ambassador in Brussels said it looked ever more likely that several states would try to block visas for Turkey – a possibility that Mr Yenel also appears to anticipate. “They are probably getting cold feet since we are fulfilling the benchmarks,” he told the Financial Times. “We expect them to stick to what was agreed, otherwise how can we continue to trust the EU? We delivered on our side of the bargain. Now it is their turn.” Signs of Brussels backtracking have already prompted angry Turkish responses. “The EU needs Turkey more than Turkey needs the EU,” President Recep Tayyip Erdogan said recently. Meanwhile, Ahmet Davutoglu, Turkey’s prime minister, has warned that “no one can expect Turkey to adhere to its commitments” if the June deadline was not respected.
The much-derided Schengen Area is on the brink of collapse after furious Hungary launched a rebellion against open borders. The country’s prime minister Viktor Orban is also angry at mandatory migrant quotas enforced by the European Union. He is now touring Europe’s capital cities, where he is rallying support for a new plan with greater protection for individual states, dubbed “Schengen 2.0.” Currently, EU countries are forced to comply with orders from Brussels to accept and settle a specified number of migrants. Orban has described these quotas as “wrong-headed” and is now leading a group of other countries determined to re-take control of their borders. “The EU cannot create a system in which it lets in migrants and then prescribes mandatory resettlement quotas for every member state.”
Orban also promised a referendum in Hungary on whether the country should accept these orders, warning that some of the settled migrants were unlikely to integrate, leading to social friction. He said: “If we do not stop Brussels with a referendum, they will indeed impose on us masses of people, with whom we do not wish to live together.” Other countries may follow suit in opposing these plans and hold their own referendums, taking the power from Brussels and putting it back in the hands of their residents. Slovakia and the Czech Republic have both threatened to take legal action against the EU’s orders to take in migrants. Czech Prime Minister Bohuslav Sobotka said on Sunday: “I expect the line of opposition will be wider. Let us talk about legal action against the proposal when it is necessary.”
The action plan, which will be shared with the Czech Republic, Slovakia and Poland as well as the prime ministers of several other unspecified countries, is just the latest nail in the Schengen coffin. Last week, 2,000 soldiers in Switzerland’s tank battalion were told to postpone their summer holidays in order to be ready to rush to the border with Italy to block migrants making their way from Sicily. Austria has also begun sealing off its southern border, introducing checks on the vital Brenner Cross motorway and pledging the implementation of €1m worth of border patrols and security improvements. Brussel’s most senior bureaucrat admitted yesterday that confidence in the EU was dropping rapidly across the continent. In an astonishing confession of failure, European Commission President Jean-Claude Juncker said: “We are no longer respected in our countries when we emphasise the need to give priority to the EU.”
A team of our Automatic Earth-sponsored friends at the Social Kitchen prepares 1000s of meals for refugees daily at Elliniko. Your contributions are still as welcome as they are necessary.
Five mayors of Athens’s coastal suburbs warned Wednesday of the “enormous” health risks posed by a nearby camp housing over 4,000 migrants and refugees. “The conditions are out of control and present enormous risks to the public health,” the mayors complained in a letter to Prime Minister Alexis Tsipras, in reference to the camp at Elliniko, the site of Athens’s old airport. A total of 4,153 people, including many families, have been held there for the last month in miserable conditions. “The number of people is much higher than the capacity of the place and there are serious hygiene problems,” local mayor Dionyssis Hatzidakis told AFP.
He and his four fellow mayors from the area cited a document from Greece’s disease prevention center KEELPNO warning of the “the danger of disease contagion due to unacceptable housing conditions” at the site which they say has no more than 40 chemical toilets. Since the migrants’ favored route through the Balkans to the rest of Europe was shut down in February, numbers have been building up in Greece, with 46,000 Syrians and other nationalities now stuck in the country. Thousands of these have been transferred from the islands they arrived at to temporary centers such as the one at Elliniko, until more suitable reception centers can be set up.
The five mayors also voiced their disquiet at the “tensions and daily violent incidents between the refugees or migrants,” calling on the interior minister to boost police numbers in the area. “We are launching an appeal for help to protect the public health and security of both the refugees and the local population,” they said in their letter. Their intervention came the day after 17-year-old Afghan woman living in Elliniko with her parents died after six days in an Athens hospital. Her death was linked to a pre-existing heart condition exacerbated by the difficult journey to Greece, the doctor who treated her was quoted as saying in the Ethnos daily. Greek island officials on Tuesday began letting migrants leave detention centers where they have been held, as Human Rights Watch heaped criticism on a wave of EU-sanctioned expulsions to ease the crisis.
Recent reports have documented the growing rates of impoverishment in the U.S., and new information surfacing in the past 12 months shows that the trend is continuing, and probably worsening. Congress should be filled with guilt — and shame — for failing to deal with the enormous wealth disparities that are turning our country into the equivalent of a 3rd-world nation.
Half of Americans Make Less than a Living Wage According to the Social Security Administration, over half of Americans make less than $30,000 per year. That’s less than an appropriate average living wage of $16.87 per hour, as calculated by Alliance for a Just Society (AJS), and it’s not enough — even with two full-time workers — to attain an “adequate but modest living standard” for a family of four, which at the median is over $60,000, according to the Economic Policy Institute. AJS also found that there are 7 job seekers for every job opening that pays enough ($15/hr) for a single adult to make ends meet.
Half of Americans Have No Savings A study by Go Banking Rates reveals that nearly 50% of Americans have no savings. Over 70% of us have less than $1,000. Pew Research supports this finding with survey results that show nearly half of American households spending more than they earn. The lack of savings is particularly evident with young adults, who went from a five-percent savings rate before the recession to a negative savings rate today. Emmanuel Saez and Gabriel Zucman summarize: “Since the bottom half of the distribution always owns close to zero wealth on net, the bottom 90% wealth share is the same as the share of wealth owned by top 50-90% families.”
Nearly Two-Thirds of Americans Can’t Afford to Fix Their Cars The Wall Street Journal reported on a Bankrate study, which found 62% of Americans without the available funds for a $500 brake job. A Federal Reserve survey found that nearly half of respondents could not cover a $400 emergency expense. It’s continually getting worse, even at upper-middle-class levels. The Wall Street Journal recently reported on a JP Morgan study’s conclusion that “the bottom 80% of households by income lack sufficient savings to cover the type of volatility observed in income and spending.” Pew Research shows the dramatic shrinking of the middle class, defined as “adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars.” Market watchers rave about ‘strong’ and even ‘blockbuster’ job reports.
But any upbeat news about the unemployment rate should be balanced against the fact that nine of the ten fastest growing occupations don’t require a college degree. Jobs gained since the recession are paying 23% less than jobs lost. Low-wage jobs (under $14 per hour) made up just 1/5 of the jobs lost to the recession, but accounted for nearly 3/5 of the jobs regained in the first three years of the recovery. Furthermore, the official 5% unemployment rate is nearly 10% when short-term discouraged workers are included, and 23% when long-term discouraged workers are included. People are falling fast from the ranks of middle-class living. Between 2007 and 2013 median wealth dropped a shocking 40%, leaving the poorest half with debt-driven negative wealth. Members of Congress, comfortably nestled in bed with millionaire friends and corporate lobbyists, are in denial about the true state of the American middle class. The once-vibrant middle of America has dropped to lower-middle, and it is still falling.
Americans are living right on the edge — at least when it comes to financial planning. Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for personal finance website GOBankingRates.com. “It’s worrisome that such a large%age of Americans have so little set aside in a savings account,” says Cameron Huddleston, a personal finance analyst for the site. “They likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends and family, or even their retirement accounts to cover unexpected expenses.”
This is supported by a similar survey of 1,000 adults carried out earlier this year by personal finance site Bankrate.com, which also found that 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). And among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Of course, paltry savings-account rates don’t encourage people to save either.
In the latest survey, 29% said they have savings above $1,000 and, of those who do have money in their savings account, the most common balance is $10,000 or more (14%), followed by 5% of adults surveyed who have saved between $5,000 and just shy of $10,000; 10% say they have saved $1,000 to just shy of $5,000. Just 9% of people say they keep only enough money in their savings accounts to meet the minimum balance requirements and avoid fees. But minimum balance requirements can vary widely and be hard to meet for some consumers. They can vary anywhere between $300 a month and $1,500 a month at some major banks.
Some age groups are less likely to have savings than others. Some 31% of Generation X — who are roughly aged 35 to 54 for the purpose of this survey — while being older and presumably more experienced with money than their younger cohorts, actually report a savings account balance of zero, which is the highest%age of all age groups. Around 29% of millennials — aged 18 to 34 — and 28% of baby boomers — aged 55 to 64 — said they have no money in their savings account. Baby boomers (17%) and seniors aged 65 and up (20%) have the most money saved of any age group while less than 10% of millennials and approximately 16% of Generation X have $10,000 or more saved.
Our point yesterday was that the Fed and its Wall Street fellow travelers are about to get mugged by the oncoming battering rams of global deflation and domestic recession. When the bust comes, these foolish Keynesian proponents of everything is awesome will be caught like deer in the headlights. That’s because they view the world through a forecasting model that is an obsolete relic – one which essentially assumes a closed US economy and that balance sheets don’t matter. By contrast, we think balance sheets and the unfolding collapse of the global credit bubble matter above all else. Accordingly, what lies ahead is not history repeating itself in some timeless Keynesian economic cycle, but the last twenty years of madcap central bank money printing repudiating itself.
Ironically, the gravamen of the indictment against the “all is awesome” case is that this time is different – radically, irreversibly and dangerously so. High powered central bank credit has exploded from $2 trillion to $21 trillion since the mid-1990’s, and that has turned the global economy inside out. Under any kind of sane and sound monetary regime, and based on any semblance of prior history and doctrine, the combined balance sheets of the world’s central banks would total perhaps $5 trillion at present (5% annual growth since 1994). The massive expansion beyond that is what has fueled the mother of all financial and economic bubbles. Owing to this giant monetary aberration, the roughly $50 trillion rise of global GDP during that period was not driven by the mobilization of honest capital, profitable investment and production-based gains in income and wealth.
It was fueled, instead, by the greatest credit explosion ever imagined – $185 trillion over the course of two decades. As a consequence, household consumption around the world became bloated by one-time takedowns of higher leverage and inflated incomes from booming production and investment. Likewise, the GDP accounts were drastically ballooned by a spree of malinvestment that was enabled by cheap credit, not the rational probability of sustainable profits. In short, trillions of reported global GDP – especially in the Red Ponzi of China and its EM supply chain – represents false prosperity; the income being spent and recorded in the official accounts is merely the feedback loop of the central bank driven credit machine.
Oil speculators are buying options contracts that will only pay out if crude drops to as low as $15 a barrel next year, the latest sign some investors expect an even deeper slump in energy prices. The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut. “We view the oversupply as continuing well into next year,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand.
The bearish outlook has prompted investors to buy put options – which give them the right to sell at a predetermined price and time – at strike prices of $30, $25, $20 and even $15 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing. West Texas Intermediate, the U.S. benchmark, is currently trading at about $36 a barrel. The data, which only cover options deals that have been put through the U.S. exchange or cleared, is viewed as a proxy for the overall market and volumes have increased this week as oil plunged. Investors can buy options contracts in the bilateral, over-the-counter market too. Investors have bought increasing volumes of put options that will pay out if the price of WTI drops to $20 to $30 a barrel next year, the data show. The largest open interest across options contracts – both bullish and bearish – for December 2016 is for puts at $30 a barrel.
US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector. OPEC on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest. In its World Oil Outlook it said energy efficiency, carbon taxes and slower economic growth would affect demand. Crude oil’s price on Tuesday hit an 11-year low below $36, piling further pressure on banks that have large loans to energy companies or significant exposure to oil on their trading books.
The US Federal Reserve subjects banks with at least $50bn in assets, including the US arms of foreign banks, to an annual stress test, that is designed to ensure they could keep trading through a deep recession and a big shock to the financial system. Today’s oil prices are about 55% below their level when the Fed set last year’s stress test scenarios in October 2014. That test included looking at how banks’ trading books would fare if there was a one-off 68% fall in oil prices sometime before the end of 2017. Banks’ loan books were not tested against falls in oil prices. Banks including Wells Fargo have recently spoken about the dangers of low oil prices that could make exploration companies and oil producers unable to pay their loans.
There are now five times as many oil and gas loans in danger of default to the oil and gas sector as there were a year ago, a trio of US regulators warned in November. Michael Alix, who leads PwC’s financial services risk consulting team in New York, warned the price of oil would weigh much more heavily on the assessors when drawing up next year’s bank stress tests. “It would test those institutions [banks] for both the direct effects [of oil price falls] on their oil or commodity trading business but importantly the indirect effects [of] lending to energy companies, lending in areas of the country that are more dependent on energy companies and energy-related revenues.”
The Grinch nearly stole Christmas in the oil patch this year. Thanks to the lowest crude and natural gas prices in more than a decade, Norwegian oil and natural gas producer Statoil cut its holiday party budget by about 40% from 2014. KBR Inc. and Marathon Oil opted for smaller affairs with less swank. One Houston hotel said its seasonal party business is down 25% from 2014. Pricey wine and champagne are off the menu. The industry has shed more than 250,000 jobs and idled more than 1,000 rigs as crude prices fell by more than half since last year. Oil services, drilling and supply companies are bearing the brunt of the downturn and account for more than three quarters of the layoffs, according to industry consultant Graves & Co. “You can’t have a $2 million Christmas party while at the same time laying off half your workforce,” said Jordan Lewis at Sullivan Group, a Houston event planning company.
Independent power generators have also been stung by cheap electricity amid declining gas prices. The heating and power plant fuel slid recently to the lowest level since 1999, and is heading for the biggest annual drop since 2006 as the lack of demand leaves stockpiles at a seasonal record. The commodity rout and the layoffs that followed have dampened holiday festivities. Several hundred Statoil employees were invited earlier this month to Minute Maid Park, where Major League Baseball’s Houston Astros play, for a party that featured scaled back entertainment and décor, spokesman Peter Symons said. At the Houston-based oil and gas construction firm KBR, management canceled this year’s companywide party. Instead, individual departments were encouraged to hold their own gatherings from potlucks to group socials, spokeswoman Brenna Hapes said.
The drastic slide in global crude prices is expected to force Saudi Arabia, the world’s leading oil exporter, to slash spending and cut back on the billions of dollars it spends on generous benefits for its citizens in next year’s budget. The oil-rich kingdom spent hundreds of billions of dollars at home in the past decade to bolster its economy and dole out subsidies that provide cheap energy and food for its 30 million people, as it enjoyed years of high crude prices. But the price of oil has fallen by more than half since the middle of last year, forcing the government to dip into reserves, reassess its spending plans and look for ways to diversify sources of revenue. “I’m worried that prices would go up,” said a man waiting for his SUV to be filled in a gas station in northern Riyadh this week.
“There is a lot of talk but I think the government has put this into account,” he said, adding that he expects the increase in prices to be small. Saudi Arabia exports about seven million barrels of oil a day and those revenues make up around 90% of the government’s fiscal revenues, and around 40% of the country’s overall gross domestic product. Saudi Arabia sees the need to cut output to boost prices but so far has been reluctant to do it alone. Officials say that preserving the country’s share of the global market is more important. The 2016 budget, expected to be unveiled in the coming days, will be the first major opportunity for the government to publicly outline a strategy to cope with a prolonged period of cheap oil and soothe the nerves of both the public and investors in the Middle East’s largest economy.
It isn’t clear whether ambitious and sensitive policy changes—such as privatizations and the cutting of energy subsidies—will be included. But even if energy subsidies are cut, the government is unlikely to immediately target consumers, who have become accustomed to some of the lowest gas prices in the world. Any reduction would risk a backlash from the public. “My expectation is that it will start gradually, and that it will target non-consumers first,” said Fahad Alturki, chief economist at Riyadh-based firm Jadwa Investment, of potential subsidy cutbacks. “We won’t see a radical change….The change will be gradual, with a clear road map—and it may not be part of the budget.”
Ambrose is the posterchild for techno-happy. The thinking is that all it takes is for a lot of money to be thrown at the topic. Mind you, the projection is for the number of cars to double in 25 years. That is a disaster no matter what powers the cars. The magic word is ‘grid-connected vehicles’, but that grid would then have to expand, what, 4-fold?
OPEC remains defiant. Global reliance on oil and gas will continue unchanged for another quarter century. Fossil fuels will make up 78pc of the world’s energy in 2040, barely less than today. There will be no meaningful advances in technology. Rivals will sputter and mostly waste money. The old energy order is preserved in aspic. Emissions of CO2 will carry on rising as if nothing significant had been agreed in a solemn and binding accord by 190 countries at the Paris climate summit. OPEC’s World Oil Outlook released today is a remarkable document, the apologia of a pre-modern vested interest that refuses to see the writing on the wall. The underlying message is that the COP21 deal is of no relevance to the oil industry. Pledges by world leaders to drastically alter the trajectory of greenhouse gas emissions before 2040 – let alone to reach total “decarbonisation” by 2070 – are simply ignored.
Global demand for crude oil will rise by 18m barrels a day (b/d) to 110m by 2040. The cartel has shaved its long-term forecast slightly by 1m b/d, but this is in part due to weaker economic growth. One is tempted to compare this myopia to the reflexive certainties of the 16th Century papacy, even as Erasmus published in Praise of Folly, and Luther nailed his 95 Theses to the door of Wittenberg’s Castle Church. The 407-page report swats aside electric vehicles with impatience. The fleet of cars in the world will rise from 1bn to 2.1bn over the next 25 years – topping 400m in China – and 94pc will still run on petrol and diesel. “Without a technology breakthrough, battery electric vehicles are not expected to gain significant market share in the foreseeable future,” it said. Electric cars cost too much. Their range is too short. The batteries are defective in hot or cold conditions.
OPEC says battery costs may fall by 30-50pc over the next quarter century but doubts that this will be enough to make much difference, due to “consumer resistance”. This is a brave call given that Apple and Google have thrown their vast resources into the race for plug-in vehicles, and Tesla’s Model 3s will be on the market by 2017 for around $35,000. Ford has just announced that it will invest $4.5bn in electric and hybrid cars, with 13 models for sale by 2020. Volkswagen is to unveil its “completely new concept car” next month, promising a new era of “affordable long-distance electromobility.” The OPEC report is equally dismissive of Toyota’s decision to bet its future on hydrogen fuel cars, starting with the Mirai as a loss-leader. One should have thought that a decision by the world’s biggest car company to end all production of petrol and diesel cars by 2050 might be a wake-up call.
Goldman Sachs expects ‘grid-connected vehicles’ to capture 22pc of the global market within a decade, with sales of 25m a year, and by then – it says – the auto giants will think twice before investing any more money in the internal combustion engine. Once critical mass is reached, it is not hard to imagine a wholesale shift to electrification in the 2030s. Goldman is betting that battery costs will fall by 60pc over the next five years, driven by economies of scale as much as by technology. The driving range will increase by 70pc. This is another world from OPEC’s forecast.
Kazakhstan’s $55 billion sovereign-wealth fund helped pull the country through the global financial crisis and offered funding for the country’s bid to host the 2022 Winter Olympics. But the collapse in oil prices has hit Kazakhstan and its fund, Samruk-Kazyna JSC, hard. In October, the fund borrowed $1.5 billion in its first syndicated loan to help a cash-strapped subsidiary saddled with a troubled oil-field investment. “Our oil company lost lots of its revenues,” says the fund’s chief executive, Umirzak Shukeyev. “Currently, we are trying to adjust to the situation.” Funds like Samruk are at a critical juncture. For years, sovereign-wealth funds—financial vehicles owned by governments—swelled in size and number, fueled by rising oil prices and leaders’ aspirations to increase economic growth, invest abroad and boost political influence.
A new wave of sovereign funds came from African countries like Ghana and Angola. Asian nations joined in with funds like 1Malaysia Development Bhd., or 1MDB. The world’s sovereign-wealth funds together have assets of $7.2 trillion, according to the Sovereign Wealth Fund Institute, which studies them. That is twice their size in 2007, and more than is managed by all the world’s hedge funds and private-equity funds combined, according to JP Morgan. The number of funds tracked by the Institute of International Finance is up 44% to 79 since the end of 2007. Nearly 60% of sovereign-wealth-fund assets are in funds dependent on energy exports. Now, some funds are shrinking or are being tapped by governments as oil revenues fall.
That is forcing them to borrow or sell investments, potentially pressuring global markets just as other investors are pulling back from risk. Saudi Arabia’s central bank, which functions in some ways like a sovereign-wealth fund as it holds significant reserves that are invested widely, has sold billions in assets this year. Norway says it plans to tap its fund, the world’s largest, for the first time in 2016. The stress from low energy prices comes at a sensitive time. At least two funds are embroiled in controversy. 1MDB, which amassed $11 billion in debt, is the subject of at least nine investigations at home and abroad. One of its main financial backers was an Abu Dhabi fund. The head of South Korea’s fund stepped down in the wake of a public outcry over his plan to invest in the Los Angeles Dodgers baseball team.
Adnan Mazarei, deputy director of the IMF’s Middle East and Central Asia Department, says the worry is sovereign-wealth funds will be forced to sell during a period of already turbulent markets. “A withdrawal of assets by sovereign-wealth funds against the background of liquidity concerns could lead to large price movements,” he says. “Nobody knows how much or when but the concern is there.”
China will continue to actively destock its massive property inventory over concerns that the ailing housing market could derail the economy.Along with cutting overcapacity and tackling debt, destocking will be a major task in 2016, according to a statement released on Monday after the Central Economic Work Conference, which mapped out economic work for next year.Attendees of the meeting agreed that rural residents that move to urban areas should be allowed to register as residents, which would encourage them to buy homes in the city. Property developers have been advised to reduce home prices, according to the statement.”Obsolete restrictive measures [in the property market] will be revoked,” said the statement, without specifying which “restrictive measures” it was referring to.
To rein in house prices, China has been trying to curb real estate speculation, with policies such as “home purchase restriction” that only allows registered residents to buy houses. It is believed the restrictive policies mainly affected the property markets in third- and fourth-tier cities, which saw the most supply glut. The property market took a downturn in 2014 due to weak demand and a supply glut. This cooling continued into 2015, with sales and prices falling, and investment slowing. Property investment’s GDP contribution in the first three quarters of this year hit a 15-year low of 0.04%. The property market is vital to steel and cement manufacturers, as well as furniture producers; its poor performance would breed financial risks.
GDP growth during the January-September period eased to 6.9%, down from 7.4% posted for the whole of 2014. Policymakers believe the housing inventory will be lessened as long as rural residents are encouraged to buy. Nearly 55% of the population live in cities but less than 40% are registered to do so. There are around 300 million migrant workers but most are denied “hukou” (official residence status). In addition to housing rights, a hukou gives the holder equal employment rights and social security services, and their children are allowed to be enrolled in city schools. Starting next year, China will roll out policy to transform 100 million farmers into registered urban residents, according to Xu Shaoshi, head of the National Development and Reform Commission, on Tuesday. No deadline for completion was specified.
Be that way: “Should you in any way present the accusation that my client manipulated its emissions data, we will act against you with all necessary sustainability and hold you responsible for any economic damage that my client suffers as a result.”
The environmental group Deutsche Umwelthilfe (DUH) and German state broadcaster ZDF presented the results of nitric oxide tests they had conducted on two Mercedes and BMW diesel models. They appeared to show similar discrepancies between “test mode” and road conditions that hit Volkswagen earlier this year, triggering one of the biggest scandals in German automobile history. In response to the report released on December 15, a law firm representing Daimler, which owns Mercedes, sent a letter to the DUH that read, “Should you in any way present the accusation that my client manipulated its emissions data, we will act against you with all necessary sustainability and hold you responsible for any economic damage that my client suffers as a result.”
In defiance of another threat by the Schertz law firm, the DUH published the threatening letter in full on its website. “We have been massively threatened two more times, demanding that we take down the letter – we have told them we won’t,” DUH chairman Jürgen Resch told DW on Wednesday. “For me it’s a very serious issue, because in 34 years of full-time work in environmental protection, and dealing with businesses, I have never experienced a business using media law to try and keep a communication – and a threatening letter at that – secret. “How are we supposed to do our work as a consumer and environmental protection organization when industry forbids us from making public certain threats it makes?” an outraged Resch added. “I think the threat itself is borderline legal coercion.”
In a short documentary broadcast on December 15, ZDF tested three diesel cars – a Mercedes C200 CDI from 2011, a BMW 320d from 2009, and a VW Passat 2.0 Blue Motion from 2011 – and showed that all three produced more nitric oxide on the road than they did in an official laboratory test. “The measurement results show that the cars behave differently on the test dynamometer than when they are driven on the road,” said the laboratory at the University of Applied Sciences in Bern, Switzerland, which carried out the tests. The discrepancies researchers found were not small – while all three cars kept comfortably below the European Union’s legal nitric oxide limit (180 milligrams per kilometer) in the lab, they all went well over the standard on the road, where the BMW recorded 428 mg/km (2.8 times its lab result), the Mercedes hit 420 mg/km (2.7 times its lab result), and the VW Passat reached 471 mg/km (3.7 times its lab result).
Australia approved the expansion of a shipping terminal close to the Great Barrier Reef on Tuesday, drawing criticism from environmentalists who say an area of outstanding natural beauty is threatened by the decision. Environment Minister Greg Hunt said he would allow the extension the Abbot Point terminal—used to ship coal to markets in Asia—with 30 conditions to help protect the environment, including a requirement that dredge material be dumped on land instead of in water near the World Heritage-listed reef. The expanded port will serve one of the world’s largest coal mines that is being developed by Adani Group in Queensland, a state in eastern Australia where the Great Barrier Reef Marine Park is also located.
The Indian conglomerate aims to use the port to ship as much as 60 million tons of thermal coal annually to its power plants in India. “The port area is at least 20 kilometers from any coral reef and no coral reef will be impacted,” said a spokeswoman for Mr. Hunt, adding: “All dredge material will be placed onshore on existing industrial land.” The government of Queensland, which receives an estimated 6 billion Australian dollars (US$4.3 billion) a year from reef tourism, has yet to approve the expansion, but isn’t expected to block it with the government hoping to unlock a new wave of resource projects. The extension of Abbot Point will lead to the dredging of more than 1 million cubic meters of mud and rock nearby to the reef.
Environmentalists have been equally critical of Adani’s plans to build its Carmichael coal mine and associated infrastructure in the region—because of the potential impact on a native Australian lizard and another vulnerable species. Pro-environment groups said the federal government’s approval of the port expansion wouldn’t only harm wildlife, but also run counter to Australia’s pledge at the Paris global climate conference this month to work toward curbing emissions from fossil fuels such as coal, among the country’s top exports. “The Abbot Point area to be dredged is home to dolphins and dugongs which rely on the sea grass there for food,” said Shani Tager, a Greenpeace campaigner. “It’s also a habitat for endangered marine life like turtles and giant manta rays, and is in the path of migrating humpback whales. “It’s reckless and pointless to gouge away at a pristine habitat to build a port for a coal mine nobody needs,” she added.
A Japanese court has cleared the way for Kansai Electric Power to restart two of its nuclear reactors early next year. The Fukui District Court on Thursday removed an injunction preventing the operation of Kansai Electric’s Takahama No. 3 and No. 4 nuclear reactors, Tadashi Matsuda, a representative for the citizen’s group that initiated the case, said by phone. The court also rejected a demand by local residents to block the resumption of reactor operations at Kansai Electric’s Ohi plant. The ruling was earlier reported by broadcaster NHK. “We think that today’s decisions are a result of the understanding that safety at Takahama and Ohi is guaranteed,” Kansai Electric said in a statement. Residents of Fukui who oppose the restarts plan to appeal the ruling to a higher court, according to Matsuda.
Kansai Electric, the utility most dependent on nuclear power before the March 2011 Fukushima disaster, aims to restart Takahama No. 3 in late January or February, according to a company presentation last month. It is slated to be the third Japanese reactor to restart under post-Fukushima safety rules. Firing up both units will boost Kansai Electric’s profits by as much as 12.5 billion yen ($104 million) a month, according to Syusaku Nishikawa, a Tokyo-based analyst at Daiwa Securities. The two reactors at the Takahama facility, about 60 kilometers (37 miles) north of Kyoto, were commissioned in 1985 and have a combined capacity of 1,740 megawatts.
Operations of the units were suspended in the aftermath of the massive earthquake and tsunami in March 2011 that caused a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi facility. The units received restart approval from the Nuclear Regulatory Authority in February, though court challenges stopped them from resuming operation. On Tuesday, Fukui prefecture Governor Issei Nishikawa granted his approval for the restarts. While not enshrined in law, local government approval is traditionally sought by Japanese utilities before they return the plants to service.
You see, the Ukraine produces over half of its electricity using nuclear power plants. 19 nuclear reactors are in operation, with 2 more supposedly under construction. And this is in a country whose economy is in free-fall and is set to approach that of Mali or Burundi! The nuclear fuel for these reactors was being supplied by Russia. An effort to replace the Russian supplier with Westinghouse failed because of quality issues leading to an accident. What is a bankrupt Ukraine, which just stiffed Russia on billions of sovereign debt, going to do when the time comes to refuel those 19 reactors? Good question! But an even better question is, Will they even make it that far? You see, it has become known that these nuclear installations have been skimping on preventive maintenance, due to lack of funds.
Now, you are probably already aware of this, but let me spell it out just in case: a nuclear reactor is not one of those things that you run until it breaks, and then call a mechanic once it does. It’s not a “if it ain’t broke, I can’t fix it” sort of scenario. It’s more of a “you missed a tune-up so I ain’t going near it” scenario. And the way to keep it from breaking is to replace all the bits that are listed on the replacement schedule no later than the dates indicated on that schedule. It’s either that or the thing goes “Ka-boom!” and everyone’s hair falls out. How close is Ukraine to a major nuclear accident? Well, it turns out, very close: just recently one was narrowly avoided when some Ukro-Nazis blew up electric transmission lines supplying Crimea, triggering a blackout that lasted many days.
The Russians scrambled and ran a transmission line from the Russian mainland, so now Crimea is lit up again. But while that was happening, the Southern Ukrainian, with its 4 energy blocks, lost its connection to the grid, and it was only the very swift, expert actions taken by the staff there that averted a nuclear accident. I hope that you know this already, but, just in case, let me spell it out again. One of the worst things that can happen to a nuclear reactor is loss of electricity supply. Yes, nuclear power stations make electricity—some of the time—but they must be supplied with electricity all the time to avoid a meltdown. This is what happened at Fukushima Daiichi, which dusted the ground with radionuclides as far as Tokyo and is still leaking radioactive juice into the Pacific.
And so the nightmare scenario for the Ukraine is a simple one. Temperature drops below freezing and stays there for a couple of weeks. Coal and natural gas supplies run down; thermal power plants shut down; the electric grid fails; circulator pumps at the 19 nuclear reactors (which, by the way, probably haven’t been overhauled as recently as they should have been) stop pumping; meltdown!
The unprecedented crisis that has been squeezing the country since 2009 has seen domestic banks shrink to half the size they were seven years ago. According to data compiled by Kathimerini, some 50,000 jobs have been lost in the sector since 2008, of which 25,000 are in Greece and 25,000 abroad. The total number of branches has been reduced by 3,500 to 4,200 from 7,715 at the end of 2008. Local lenders have also halted operations at 1,700 branches in Greece as well as 2,175 cash machines. The number of branches in Greece has dropped by 42.3%, employees by 36% and ATMs by 28.7%. There are 49.3% fewer branches abroad and 51.7% fewer employees.
The storm within the banking system and the domestic economy is best reflected in the level of deposits and loans: The total deposits of €240 billion six years ago have now been cut in half to €120 billion. The sum of outstanding loans may be 35% less than in 2009 in theory, at €204 billion, but in reality the reduction is far greater, as €100 billion of that €204 billion is not being serviced. Therefore the real picture of the banking system shows deposits of 120 billion and serviced loans of less than €110 billion, meaning that the credit sector has halved since end-2008. Bank officials say that contraction was inevitable given the 25% decline of GDP from 2009 to 2015, with forecasts pointing to a greater recession in 2016.
Greek Prime Minister Alexis Tsipras has pledged there will be no further cuts to pensions adding that social security reform is necessary for the completion of the nation’s bailout program review by foreign creditors. “This red line is non-negotiable: we will not reduce main pensions for a 12th time,” Tsipras told his cabinet on Wednesday. Tsipras said the bailout agreement did not mandate fresh cuts to pensions. “What the agreement calls for is cuts in spending; it does not say that these will come by reducing pensions,” he said.
Previous cuts, Tsipras said, had brought Greek pensions down by an average 45%. However, they had failed to ensure the sustainability of the country’s social security system. The government is trying to build a viable system without disrupting social cohesion, the leftist PM said. Tsipras said that pension reform is the final prerequisite for wrapping up the assessment of the Greek program so that talks on debt relief can proceed. “The goal is to complete the first review as soon as possible while keeping in place a safety net for the weakest,” he said.
Donald Trump, judging by polls as of December 21, 2015, is the most likely candidate to be the next president of the US. Trump is popular not so much for his stance on issues as for the fact that he is not another Washington politican, and he is respected for not backing down and apologizing when he makes strong statements for which he is criticized. What people see in Trump is strength and leadership. This is what is unusual about a political candidate, and it is this strength to which voters are responding. The corrupt American political establishment has issued a “get Trump” command to its presstitute media. Media whore George Stephanopoulos, a loyal follower of orders, went after Trump on national television. But Trump made mincemeat of the whore.
Stephanopoulos tried to go after Trump because the world’s favorite leader, President Putin of Russia, said complimentary things about Trump, and Trump replied in kind. According to Stephanopoulos, “Putin has murdered journalists,” and Trump should be ashamed of praising a murderer of journalists. Trump asked Stephanopoulos for evidence, and Stephanopoulos didn’t have any. In other words, Stephanopoulos confirmed Trump’s statement that American politicians just make things up and rely on the presstitutes to support invented “facts” as if they are true. Trump made reference to Washington’s many murders. Stephanopoulos wanted to know what journalists Washington had murdered. Trump responded with Washington’s murders and dislocation of millions of peoples who are now overrunning Europe as refugees from Washington’s wars.
B ut Trumps advisors were not sufficiently competent to have armed him with the story of Washington’s murder of Al Jazerra’s reporters. Here is a report from Al Jazeera, a far more trustworthy news organization than the US print and TV media:
“On April 8, 2003, during the US-led invasion of Iraq, Al Jazeera correspondent Tareq Ayoub was killed when a US warplane bombed Al Jazeera’s headquarters in Baghdad. “The invasion and subsequent nine-year occupation of Iraq claimed the lives of a record number of journalists. It was undisputedly the deadliest war for journalists in recorded history.
“Disturbingly, more journalists were murdered in targeted killings in Iraq than died in combat-related circumstances, according to the group Committee to Protect Journalists. “CPJ research shows that “at least 150 journalists and 54 media support workers were killed in Iraq from the US-led invasion in March 2003 to the declared end of the war in December 2011.” “’The media were not welcome by the US military,’” Soazig Dollet, who runs the Middle East and North Africa desk of Reporters Without Borders told Al Jazeera. ‘That is really obvious.’”
A political candidate with a competent staff would have immediately fired back at Stephanopoulos with the facts of Washington’s murder of journalists and compared these facts with the purely propagandistic accusations against Putin which have no basis whatsoever in fact. The problem with Trump is the issues on which the public is not carefully judging him. I don’t blame the public. It is refreshing to have a billionaire who can’t be bought expose the insubstantialality of all the Democratic and Repulican candidates for president. A collection of total zeros. Unlike Washington, Putin supports the sovereignty of countries. He does not believe that the US or any country has the right to overthrow governments and install a puppet or vassal. Recently Putin said: “I hope no person is insane enough on planet earth who would dare to use nuclear weapons.”
The Turkish coast guard launched a search and rescue mission after at least nine migrants drowned off the nation’s coast. Eleven people remain missing and 21 have been rescued, the coast guard said Thursday. There was no information on their country of origin. The International Organization for Migration released a report this week saying more than a million migrants had entered Europe this year. The figures show that the vast majority – 971,289 – have come by sea over the Mediterranean. Another 34,215 have crossed from Turkey into Bulgaria and Greece by land. Among those traveling by sea, 3,695 are known to have drowned or remain missing as they attempted to cross the sea on unseaworthy boats, according to IOM figures. That’s a rate of more than 10 deaths each day this year.
I made a new best friend this week. Constantinos Polychronopoulos, Kostas for short, is an inspirational man. And a dynamo and magnet all in one at the same time. He’s a source for hope and change and dignity for literally countless people around him in the city of Athens.
Kostas’ story goes a bit like this, as far as I have been able to gather (he speaks two words of English, but when I went to see him, my friend and photographer and interpreter Dimitri was with me, a good thing):
Kostas lost his job as a marketing specialist in a big firm in Athens early on when the financial crisis broke. Gradually, he had no choice but to move back in with his mother and was forced to share her ever more meagre pension. He must have been close to 45 at the time, he’s 50 now.
Then one day in 2011, as he tells it, he saw two kids fighting over some food they found in a dumpster (yes, that is Athens, even back then). The next day, he decided to go to a farmer’s market and ask the stall keepers for leftover food. Right then and there, he started to cook a meal with what they gave him, and to give it away to anyone who wanted to eat, to share.
His main motto still is: Free Food For All! He will not tolerate discrimination of any kind. And he always eats along with the people he feeds. We share!
Kostas now cooks ‘in the street’, and I mean that literally, every day. In the beginning, he was arrested multiple times on health related charges etc, but he successfully defended his case saying there was no law against cooking food in the street and giving it away.
Today, his statement reads:
The idea of Society Kitchen “The Other Human”
In an action of solidarity and a manifestation of love towards our fellow men, with the hope to awaken consciousness and for there to be other similar actions form other individuals and from groups.
These actions are not philanthropic or charity.
We cook “live”, we eat together and we live together.
A lunch with our fellow men on the street.
Join us to make each day more beautiful.
These days, he feeds over 300 people every day. Athens is the city of homeless people. And they’re not winos or people with mental issues, as we know from North American and European cities, though some of them inevitably are.
In Athens, they’re the people who not long ago had good jobs and good prospects, and often families to raise, and who now find themselves with nothing left. Many many people have moved (back) in with parents or family or friends, but not all have that choice. And even if they do, there is no future anywhere to be seen.
A big thing for Mr. Polychronopoulos (I love that say that name) is that he’s able to provide them with a goal in life, with something useful to do, so maybe one day they can go back into a normal functioning society, instead of only sinking ever deeper into a bottomless hole.
Today, these are the people that Kostas can count on to be his volunteers. He now has 3 crews cooking meals outside, in squares and streets, every day in various places in the city. There are a few spots where he’ll be every Tuesday, or every Thursday, but the rest are all different places all the time. Because the need is everywhere.
The food he cooks is all donated. By individuals, supermarkets, restaurants, wherever he can get it. A huge task all in itself. But he and his people get it done, 24/7. Kostas is not a big fan of soupkitchens, because since Athens never had a need for them, they have no cooking facilities and instead get catered to by professional enterprises who work for profit and in his eyes provide poor quality.
That’s not to say they’re not desperately needed, mind you, he simply feels there’s a better way to do it. To get the perspective, there are easily over 100,000 people in Athens alone who need to be fed every day. Half the population of Greece, some 6 million people, live on or below the edge of poverty.
I don’t know about you, but it feels to me like these people have already been told they don’t belong to Europe, no matter what proposals and negotiations are flying over the table. They are effectively living in the third word. Or perhaps even a fourth world.
Dimitri and I went to see Kostas on Wednesday in a sort of apartment building where his organization -that’s what it’s become by now-, named O Allos Anthropos, The Other Human, rents a space where homeless people can go for a meal, or to take a shower, or even, and I must admit I wouldn’t have thought of that, to let their children enjoy a real playroom:
There are clothes being donated -though I understand any and all donations become harder to come by even if ever more people want to donate, everyone simply has less and less-:
There’s a computer where everyone who walks in can go look for job applications -there are few, though it’s no exception to find people with university degrees here-, and of course there’s a kitchen:
Obviously, there’s the proverbial me and him -and furry cuteness- picture:
And the receipt:
As you may be able to decipher between all that Greek, I donated €500 to Kostas and his organization. I thought it good to be careful with your money (I always will), but now I think I should give him more. I can hardly think of anyone more deserving, or anyone who I’d trust more to make sure it’s used in the best possible way. And he insisted on seeing me again anyway before I go.
Which brings me to the next point. I have a ticket out of here on Thursday. So time is becoming an issue. I could get an extension, but I think I’d rather come back. Also because Nicole is in Europe now, and it would be nice to bring her along. Don’t worry, we cover our own travel costs, not a penny of the money you donated to the AE for Athens Fund goes to anyone or anything but the appropriate organizations in the city. Word. Cross my heart.
But there are other snags. For one, the euro may not be legal tender here much longer. I don’t think that’s a big risk, but it’s there. Also, ATMs may stop working altogether a few days from now (Monday?). And ironically, while apparently huge amounts of bank cards are being issued in the city, the organizations we donate to plead for cash euros. Because everything has become a cash economy. It’s hard to know what to do from one day to the next.
So I will have to see what is going to happen. I’m due to visit another clinic on Monday. I have the meeting with Kostas on Tuesday. Dimitri and I are looking hard for an organization that helps refugees, and that we like. Kostas wants to steer clear of all NGOs and government help, and that seems like a good idea. But it has to be possible. There are 1000s of refugess arriving in Greece every day, and €1000 is nothing in that respect.
As you may see, this occupies a lot of my time by now, But I also have to keep The Automatic Earth running. And see some daylight from time to time. Oh, and boy, this city is hot!
After my article on the clinic Wednesday, more money rolled in. You guys are truly something else. The total donations for the AE Fund for Athens have now gone over $8000 US!!! That’s still well over €7000. So I have some big decisions, and big responsibilities, by now. And I will live up to them as best I can. Look, the clinics will need money, and badly, at any given point in time, and for a long time to come. Kostas can and will only do good with anything we give him.
So it’s not that big a problem, but the idea of course is to spread the good around. I’m looking at organizations that take care of children. Very important too. I have a phone number for a lady who runs a private initiative for street kids. There’s so many of them… Will call her tomorrow.
Please keep donating, the need is immense, and may get even bigger as the negotiations over Greek budget cuts wrangle on. And even if the Troika decided to give the government another $100 billion, which I strongly doubt, next to nothing would go to where it’s needed most, it would all go to pay off debt, and your money would be much more efficient in helping where it counts.
I’ve been here for two weeks now, and I’ve found it takes time to find the proper ‘targets’ -and I refuse to waste any of your donations-. But we’re closing in on those targets, so by all means don’t stop now. I’ll always keep you posted on where every single dollar went. Your generosity has turned this into a mission for me.
By the way, a commenter at AE said this after my last AE Fund post, and I’m sorry if that still wasn‘t clear enough:
For those who crave more specific instructions: In the left column of this site, towards the top of the page, there is a section for making donations. If you would like to donate to the Greek cause use this section…BUT MAKE SURE YOUR DONATION AMOUNT ENDS WITH .99. Donations ending with any other decimal values will go to the AE site itself.
Most people already got that, as I can see from what comes in, but it may be good to repeat it once more.
And to quote myself from a while ago: Let’s leave the political ramifications alone for the moment, I deal with that on an almost daily basis here at the Automatic Earth already. Let’s for a moment focus on the more immediate. Let’s see what we can do here and now.
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Thank you from a city under siege.
You wouldn’t know that, by the way, from the number of tourists, but ironic as it may be, they’re probably the only thing that keeps this city, and the country, barely alive. Double irony: I can take as much out of an ATM as I like, though not all at once, (which allows me to make cash donations..), while my Greek friends are limited to €60 a day.
So the tourists empty the ATMs, bringing the moment that much closer that the Greeks themselves can’t get any anymore. There even seems to be an app now where people can check which ATMs still have cash in them, and which don’t.
Let’s try and help them through these crazy times as best we can. And we can.
The first sign of trouble on the New York Stock Exchange was a color – a sickly yellow. On the hand-held computers on the cavernous trading floor, that color meant one thing: the Big Board was down. What began Wednesday morning with a seemingly workaday software glitch soon escalated into one of the most startling computer outages in Wall Street history – and, for the Big Board, a race against the clock. At the 9:30 a.m. opening bell, traders’ orders for some stocks weren’t reaching the proper destinations for processing. Techies were frantic to fix the problem. At about 9:32 a.m., they succeeded. Two hours later, boom. One floor trader started shouting, “My handheld’s down! My handheld’s not working!”
He and other traders hurried over to a ramp on the trading floor where NYSE executives usually meet with them to explain any problems. Not today. Three hours later, still nothing. Everyone was just standing around. “The order flow wasn’t being entered into the display books on the trading floor,” said Pete Costa, president of Empire Executions, who’s worked at the exchange for 34 years. “As soon as that happened, the exchange shut down to understand what was going on.” Every computer screen “went this pukey, canary yellow color,” Costa said. “That means the stock has stopped trading.”
Seven thousand orders were sent but never executed, he said. The system had to be rebooted. That took about 45 minutes. The big concern was getting the exchange up and running as soon as possible. The 4 p.m. closing bell loomed. That’s when the NYSE sets stock prices that indexes and mutual funds use to calculate their values. “My initial reaction was, ‘That’s OK, I hope they can reopen for the close,’” said Jamie Selway at Investment Technology. At the open and before the close, orders can be routed to other exchanges, he said. But at the close, the world needs the NYSE.
Since the last week of June, the Chinese government has intervened in the country’s stock markets nearly every day to stop their steep slide. But the harder Chinese authorities try, the more it looks like they are losing control. The Shanghai Composite Index fell 5.9% on Wednesday and is down nearly one-third from its peak on June 12. Since then, $3.5 trillion in value has been erased from companies in the benchmark index—or nearly five times the size of Apple Inc. China’s bond market and currency also began to get hit Wednesday as worries deepened that a contagion from stock-market losses could further trammel the country’s slowing economy. It felt even more ominous because Chinese officials had rushed out another raft of emergency measures earlier Wednesday to reassure the market.
The moves only heightened what is turning into an epidemic of anxiety among Chinese investors and a crisis of confidence in their leaders. Stocks were volatile early Thursday. “The more the government intervenes, the more scared I am,” said Li Jun, who runs a fishing and restaurant business in the eastern city of Nanjing. He has spent about 3 million yuan, roughly $500,000, on stocks, using borrowed money for about one-third of the total. Mr. Li has sold some of his investments every time the market “popped up a little” following a rescue announcement by the Chinese government. “I have no faith” in its ability to halt the losses, he says. Wednesday’s drop left the Shanghai index down 32% from its peak and at its lowest level since March.
The latest drastic step by Beijing is a six-month ban on stock sales by controlling shareholders and executives who own more than 5% of a company’s shares. Any violation of the rule, announced Wednesday night, would be “treated seriously,” China’s securities regulator said. Early Thursday, China’s central bank said it has provided “ample liquidity” to a company owned by the country’s top securities regulator. The company is lending the funds to securities firms, which then will use the money to buy stocks. The Chinese government has been praised for driving decades of economic growth and keeping the economy strong during the global financial crisis.
In recent years, Chinese authorities have struggled with rising debt levels and the need to reform the economy away from government-driven infrastructure programs and toward consumer spending. As it fought slower growth and a weakening real-estate market, the government turned its attention to the country’s languishing stock markets. But Beijing’s inability to stop the recent decline has rattled investors who have long been used to seeing the government use its power to control markets. “Beijing’s latest bid to calm the market has had the opposite effect,” said Bernard Aw, market analyst at IG Group. “The panic is spreading, and authorities appear to be grasping at straws to hold back the tide.”
In China, the invisible hand of the market sometimes needs help from the iron fist of the state. That’s certainly true after a meltdown vaporized $3.5 trillion in the value of shares traded on the Shanghai and Shenzhen exchanges. President Xi Jinping’s government isn’t being subtle in its campaign to reflate the bubble it had a big role in creating. The government has suspended initial public offerings and eased rules on margin loans, even allowing investors to use their homes as collateral to borrow money to buy stocks. On June 27, the People’s Bank of China cut its benchmark interest rate and the amount of reserves certain banks are required to hold. Days later, it offered financial support to a group of 21 brokerages that have pledged to buy 120 billion yuan ($19.3 billion) worth of shares and hold them for a year.
On July 8, China’s securities regulator banned major company shareholders (those with stakes exceeding 5%), corporate executives, and directors from selling their shares for six months. So far, the government’s moves have had little impact. Since peaking on June 12, the Shanghai Composite Index has fallen almost 32%, dropping more than 5% on some days. The selling pressure in China has been so severe that on July 8, about 1,300 companies halted trading in their stocks on mainland exchanges, freezing $2.6 trillion worth of shares, or 40% of the stock market capitalization. On July 7, Hong Kong followed the mainland exchanges into bear market territory.
The stock market rout, the worst mainland market slump since 1992, has been an embarrassment to Xi and Premier Li Keqiang, who have vowed to push through more than 300 reforms aimed at reducing state intervention and letting market forces play a bigger role in China’s $10 trillion economy. As Chinese stocks made a 150% run from July 2014 through June 12, state-controlled media both urged individual investors to buy and characterized the stock boom as an affirmation of Xi’s policies. “This is a real testing moment for the leadership,” says Zhao Xijun, deputy dean of Renmin University’s School of Finance. “The evaporation of fortunes of more than 80 million individual investors would pose unthinkable social problems for the country.”
Since the Shanghai Composite index dropped from a 52-week high around 5,178 on June 12, it’s been downhill all the way. In just three weeks, stocks listed on mainland China’s most prominent exchange tumbled 30% from their seven-year highs. The even more speculative ChiNext Index has lost 42% of its value over 21 days. Investors and traders who piled into Chinese shares over the past year, causing Shanghai to rise 150% and other markets to catapult even more dramatically, faced margin calls on their highly leveraged positions and started selling with both hands and both feet. It was the biggest rout in this volatile market since 1992, and it prompted the Chinese government to take strong measures.
Last week, the Bank of China cut short-term interest rates for the fourth time this year. Regulators relaxed margin requirements and cracked down on short sellers, while state-run media tried to calm jittery investors with happy talk. That did little to stanch the hemorrhage. Over this past weekend, government authorities and “private” Chinese brokerages and companies announced even more dramatic moves to prop up stocks: • Brokerages and mutual-fund companies said they would buy billions of dollars’ worth of Shanghai shares. • A state-owned investment firm said it would buy China-based ETFs. • 28 companies said they would put planned initial public offerings on hold, as IPOs had been the focus of the most intense speculation. • Regulators also increased the kinds of assets that can be used as collateral to buy stocks, to include — are you ready for this? — people’s homes. I’m not making this up.
The goal: Show retail investors that the all-powerful Chinese government had their backs and that the “Beijing Put” was alive and well. Except it wasn’t. Shanghai opened up a strong 8.5% on Monday, despite Greece’s resounding “no” vote in Sunday’s referendum. But shares slipped throughout the trading day and closed up only 2.5%. On Tuesday, Shanghai slipped 1.3%, and on Wednesday plunged 5.9%. That was a clear sign that the government had taken its best shot and failed. Which means that the most likely direction for Shanghai, Shenzhen and other mainland exchanges is down, down, down. Morgan Stanley, which made a good “sell” call on China weeks ago, now expects Shanghai to fall as low as 3,250 by mid-2016. Citigroup analysts told clients the selloff has a “long way to go.” I agree, but I think it could go much, much lower.
China’s market downfall has been dramatic and painful for the investors involved. But so far there has been little immediate impact on the rest of the world, because China tightly limits foreign investment in mainland stocks. China’s stock markets are, for the most part, a mom and pop affair—about 80% of the trading that happens in Shanghai and Shenzhen is done by Chinese individuals. They represent at most 14% of the total Chinese population. But there’s little doubt the effects of this downturn will be felt globally—it just may take some time. After all, Chinese investors have lost more about $3.4 trillion in equity value from the markets mid-June peak until the July 7 close. And although the government is supporting state-owned companies in the markets, other companies have seen their market value plummet.
As of July 8, about half of the stocks that traded in Shanghai and Shenzhen have voluntarily halted trading indefinitely—which potentially puts the brakes on everything from corporate expansion plans and spending to the pay their executives take home. And they’re merely suspending stock losses that these companies will have to take eventually. How far could global contagion spread, and where could it go? Here are some trouble spots to watch. Tanking markets are putting foreign banks that have been active in China for years in a tough spot. China’s state media pounced on Morgan Stanley for urging investors to steer clear of Chinese stocks in a June 26 note. Rumors are flying that short-selling “foreign crocodiles” and “foreign devils” are to blame.
Never mind that foreign investors own less than 1% of mainland stocks, according to BofA/Merrill Lynch. Or that the few foreign investors Beijing allows to trade A-shares aren’t even allowed to sell short; or that the Shanghai-Hong Kong Stock Connect caps the number of securities (paywall) that can be sold short to a teeny percentage. More than creating a temporary headache for Morgan Stanley, the accusations could be used to keep the bank off of lucrative China-related business with state-owned companies for years to come—even though it was the right call on mainland stocks. Others including Bank of America and Credit Suisse identified China’s market as a bubble as well. Foreign banks have lent over $1 trillion to Chinese public and private companies as well, with the majority of that concentrated in Hong Kong, UK, US and Japanese lenders.
The renminbi—one of the world’s most tightly controlled currencies—may be hit by significant weakness, with predictions that Beijing will stand down from its traditional interventionist stance. “We’re looking for about 5-10% depreciation over the next one year even though it might be stable over the next few months,” Adarsh Sinha, head of Asia Pacific G10 FX strategy at BofAML Global Research, told CNBC. “History tells us that whenever China is facing any economic volatility, they always keep the currency as flat as a pancake. However, the tricky thing for China is that their capital account is gradually opening up, which makes it difficult for them to credibly stabilize the renminbi now.”
Further monetary easing is widely expected as part of Beijing’s toolkit to halt the panic-selling in mainland stocks, and economists widely agree that will place severe downward pressure on the onshore renminbi (CNY). But if China wishes to gain MSCI status and internationalize the yuan, it cannot continue intervening in currency markets as it’s done in the past, experts say. “Government intervention steps contradict intentions to allow market forces to determine the allocation of resources. Herein was the first major test of embracing market discipline,” said Jeremy Stevens, international economist at Standard Bank in a note, referring to the impact of intervention on Beijing’s international ambitions.
The CNY has traded in a narrow range around 6.2 per dollar in recent sessions but the offshore yuan (CNH), traded outside the mainland, has hit fresh three-month lows against the greenback this week. That said, the CNH is a more freely floating currency so it’s much harder for the PBoC to intervene compared to the onshore yuan.
Iron ore prices have plunged to a fresh six-year low as the commodity gets caught up in the fallout from China’s massive sharemarket plunge, with steel now reportedly cheaper per tonne than cabbage. Iron ore prices in China plummeted more than 10% to $US44.59 a tonne on Wednesday night, their lowest level since May 2009. At that price, most Australian miners would be producing at a loss, with the exception of low-cost giants Rio Tinto and BHP Billiton. Miners have already been under pressure on the stock market: Fortescue Metals slumped more than 6% on Wednesday, while BHP and Rio each lost more than 3%. Iron ore prices hit a low of $US47 a tonne in April this year before recovering to rise above $US64 a tonne in June.
IG Markets strategist Evan Lucas said that the price of steel – of which iron ore is a key ingredient – in China was so weak it was “now cheaper per tonne than cabbage”. While copper jumped as the US dollar slipped, oil prices were also on the slide, with US benchmark West Texas Intermediate falling 68 cents to US$51.65 a barrel on Wednesday, its fifth day of losses. Many agricultural commodity prices were also weaker, including cotton and wheat. The slide in iron ore comes as China’s share market remains in freefall, even in the face of the government’s extraordinary efforts to calm investors.
For a world so confident that central banks can solve almost all economic ills, the dramas unfolding in Greece and China are sobering. “Whatever it takes,” Mario Draghi’s 2012 assertion about what the ECB would do to save the euro, best captures the all-powerful, self-aware central bank activism that’s cosseted world markets since the banking and credit collapse hit eight years ago. From the United States to Europe and Asia, financial markets have been cowed, then calmed and are now coddled by the limitless power of central banks to print new money to ward off systemic shocks and deflation. But even if you believe central banks will do whatever it takes – to save the euro, stop the recession, create jobs, boost inflation, prop up the stock market and so on – it doesn’t necessarily mean it will always work.
Draghi himself merely pleaded for faith on that score three years ago when he added, “Believe me, it will be enough.” Critically, given the direction of events in Athens, his celebrated epigraph was preceded by “Within our mandate…” And so the prospect of the ECB potentially presiding over, some say precipitating, the first national exit from a supposedly unbreakable currency union will inspire a rethink of the limits of Draghi’s phrase for all central banks. Of course, the ECB does not want to push Greece out of the euro. But ‘whatever it takes’ may just not be enough to preserve the integrity of the 19-nation bloc if the ECB’s mandate prevents it from endlessly funneling emergency funding to insolvent Greek banks. And as long as the Greek government is at loggerheads with its creditors, the central bank can’t wave a magic wand of monetary support without breaking its own rules.
Some large Greek banks may have to be shut and taken over by stronger rivals as part of a restructuring of the sector that would follow any bailout of the country, European officials have told Reuters. European leaders will gather on Sunday in a last-ditch attempt to salvage agreement with Greece after months of acrimonious negotiations that have taken the country to the brink of leaving the euro. But regardless of whether or not fresh funds are now unlocked for the government, some Greek banks, damaged by political and economic havoc, may have to be closed and merged with stronger rivals, officials, who asked not to be named, told Reuters.
One official said that Greece’s four big banks – National Bank of Greece, Eurobank, Piraeus and Alpha Bank – could be reduced to just two, a measure that would doubtless encounter fierce resistance in Athens. A second person said that although mergers of banks were necessary, this could happen over the longer term. “The Greek economy is in ruins. That means the banks need a restart,” said the first person, adding that prompt action was necessary following any bailout between Athens and the euro zone. “Cyprus could be a role model.” “You have a tiny bit of time … you would do restructuring straight away.”
Greece’s financial system has been at the heart of the current crisis, hemorrhaging deposits as relations between the radical left-wing government of Prime Minister Alexis Tsipras and creditors worsened. After Athens defaulted on debt owed to the IMF last month, the ECB froze emergency funding for the banks, precipitating their temporary closure and a €60 daily limit on withdrawals from cash machines. A decision by Greek voters last week to reject bailout terms offered by the country’s international creditors prompted the ECB to maintain its cap, meaning that the banks will run out of cash soon.
The major financial problem tearing economies apart over the past century has stemmed more from official inter-governmental debt than private-sector debt. That is why the global economy today faces a similar breakdown to the Depression years of 1929-31, when it became apparent that the volume of official inter-government debts could not be paid. The Versailles Treaty had imposed impossibly high reparations demands on Germany, and the United States imposed equally destructive requirements on the Allies to use their reparations receipts to pay back World War I arms debts to the U.S. Government. Legal procedures are well established to cope with corporate and personal bankruptcy. Courts write down personal and business debts either under “debtor in control” procedures or foreclosure, and creditors take a loss on loans that go bad. Personal bankruptcy permits individuals to make a fresh start with a Clean Slate.
It is much harder to write down debts owed to or guaranteed by governments. U.S. student loan debt cannot be written off, but remains a lingering burden to prevent graduates from earning enough take-home pay (after debt service and FICA Social Security tax withholding is taken out of their paychecks) to get married, start families and buy homes of their own. Only the banks get bailed out, now that they have become in effect the economy’s central planners. Most of all, there is no legal framework for writing down debts owed to the IMF, the ECB, or to European and American creditor governments. Since the 1960s entire nations have been subjected to austerity and economic shrinkage that makes it less and less possible to extricate themselves from debt. Governments are unforgiving, and the IMF and ECB act on behalf of banks and bondholders – and are ideologically captured by anti-labor, anti-government financial warriors.
The result is not the “free market economy” it pretends to be, nor is it the rule of economically rational law. A genuine market economy would recognize financial reality and write down debts in keeping with their ability to be paid. But inter-government debt overrides markets and refuses to acknowledge the need for a Clean Slate. Today’s guiding theory – backed by monetarist junk economics – is that debts of any size can be paid, simply by reducing labor’s wages and living standards, plus by selling off a nation’s public domain – its land, oil and gas reserves, minerals and water distribution, roads and transport systems, power plants and sewage systems, and public infrastructure of all forms.
Imposed by the monopoly of inter-governmental financial institutions – the IMF, ECB, U.S. Treasury, and so forth – creditor financial leverage has become the 21st century’s new mode of warfare. It is as devastating as military war in its effect on population: rising suicide rates, shorter lifespans, and emigration of the age-cohort that always have been the major casualties of war, young adults. Instead of being drafted into the army to fight foreign foes, they are driven from their homes to find work abroad. What used to be a rural exodus from the land to the cities from the 17th century onward is now a “debtor exodus” from countries whose governments owe unpayably high sums to creditor governments and to the banks and bondholders on whose behalf they impose their policy.
Nearly 4 million citizens, or more than one in every three, were deemed to be living in poverty or suffering from social exclusion in 2013, with the poverty line set at 4,068 euros per person per year, according to the Hellenic Statistical Authority (ELSTAT). The data released on Wednesday showed that the share of the population living in poverty reached 22.1%, compared with 23.1% in 2012 and 19.7% in 2008. The share of the people at risk of poverty or social exclusion came to 36% in 2013, against 35.7% in 2012 and 27.6% in 2008.
The average annual income per person amounted to 8,879 euros in 2013, and the average disposable income of households in Greece reached 17,270 euros. In total, the number of households at risk of poverty stood at 888,452, out of a total of 4,266,745, or 2,384,035 people out of a total population of 10,785,312 two years ago. The ELSTAT survey also showed that the wealthiest 20% of the population had an annual income 6.5 times higher than the poorest 20% in 2013, compared to 6.6 times higher in 2012.
Last week in Greece, two mass demonstrations were held outside Greek Parliament. NO vote supporters turned out en masse for a rally on Tuesday and the next day saw a demonstration led by the YES camp. Despite the comparable attendance at both rallies, the NO demonstration – according to official figures – was broadcast by all 6 of the nationwide television stations’ major news programs for a cumulative 8 minutes and 33 seconds. YES supporters fared far better, with 47 minutes and 32 seconds of on-air time dedicated to their rally. But the propaganda problem doesn’t just boil down to numbers. Greece’s biggest television station, MEGA Channel, broadcast a report claiming that the capital controls had created mile-long lines outside the banks.
The station cited exaggerated figures and used pictures that, it was later discovered, had been taken years ago in South Africa. When a guest on MEGA asked the anchorwoman “why do you only broadcast the YES viewpoint?” she replied “is it really our fault if all factions in Greece favor a YES?” The results of the referendum, which indicate that every region of the country no matter how small registered a majority NO vote, should provide her with answer enough. From the beginning of the crisis right up to today, the mainstream media in Greece have ‘sold’ austerity’s formula to the nation’s citizens. At the parliamentary investigations committee it was revealed that major journalists had been travelling to the U.S. for IMF seminars.
In 2011, Wikileaks published Top Secret wire messages from the American embassy in Athens regarding monitoring of the country’s media outlets. According to these messages, the embassy was even interfering in how talk shows were edited, in the interest of projecting a more favorable image of the United States abroad. Yannis Pretenteris, until last year Greece’s most popular newscaster, even admitted in his book that he knowingly lied to the Greek people every evening, but that he did so to help save the country. Since the crisis began 3,000 journalists have lost their jobs. This has created a climate of fear and uncertainty in the workplace, and has only led to a hardening of the official line. Simply put, whoever opposes the interests of the media company loses his or her job.
It’s now clear, or should be clear, that the Greek program was doomed to failure without major debt relief; no matter how hard the Greeks tried, austerity would shrink GDP faster than it reduced debt relative to the baseline, so that the debt situation was bound to worsen even as the attempt to balance the budget imposed vast suffering. And there was no good, or even non-terrible, answer given Greece’s membership in the euro. But there’s a broader lesson from Greece that is relevant to all of us — and it’s not the usual one about mending our free-spending ways lest we become Greece, Greece I tell you. What we learn, instead, is that fiscal austerity plus hard money is a deeply toxic mix.
The fiscal austerity depresses the economy, and pushes it toward deflation; if it’s accompanied by hard money (in Greece’s case the euro, but a fixed exchange rate, a gold standard, or any kind of obsessive fear of inflation would do the trick), the result is not just a depression and deflation, but quite likely a failure even to reduce the debt ratio. For comparison, look at everyone’s favorite example of successful austerity, Canada in the 1990s. Canada came in with gross debt of roughly 100% of GDP, roughly comparable to Greece on the eve of the financial crisis. It then proceeded to do a pretty big fiscal adjustment — 6% of GDP according to the IMF’s measure of the structural balance, which is about a third of what Greece has done but comparable to other European debtors. But unemployment fell steadily.
What was Canada’s secret? The answer was, easy money and a large currency depreciation. These offset the drag from austerity, allowing growth to continue. So, how does this play into U.S. policy debates? Well, Republicans love to warn that America might turn into Greece any day now. But look at the policy mix that is now de facto GOP orthodoxy: sharp cuts in government spending (maybe offset by tax cuts for the rich, but these won’t provide much stimulus), combined with a monetary policy obsessed with fears of dollar “debasement”. That is, the conservative side of the US political spectrum, while holding up Greece as a cautionary tale, is actually demanding that we emulate the policy mix that turned Greek debt into a complete disaster.
ECB President Mario Draghi suggested the Greek debt crisis is getting increasingly hard to fix, speaking hours before the ECB maintained its freeze on extra aid for the country’s banks. Landing in Rome on Wednesday after late-night talks in Brussels, Draghi was asked by Italian journalists if he would really be able “to close the dossier on Greece,” Il Sole 24 Ore and Corriere della Sera reported. “I don’t know,” he’s cited as saying. “This time it’s really difficult.”Draghi’s remarks hint at the impasse faced by euro-area policy makers as they await a detailed economic package from Greek Prime Minister Alexis Tsipras before Thursday’s midnight deadline. Without evidence of a bailout plan, Draghi and his colleagues on the Governing Council refrained from increasing Emergency Liquidity Assistance for Greek banks from the current total of almost €89 billion.
ECB Governing Council member Jens Weidmann, the head of Germany’s Bundesbank, said on Thursday that the ECB shouldn’t expand that credit line unless Greece is in a rescue program. “The Eurosystem should not increase the liquidity provision, and capital controls need to stay in force until an appropriate support package has been agreed by all parties and the solvency of both the Greek government and the Greek banking system has been ensured,” he said. “ELA is no longer being used to finance capital flight. This certainly represents a step forward, and shifts the responsibility to where it belongs: with the governments and parliaments.”
Weidmann also said that any short-term assistance to Greece must come from fiscal policy makers rather than central bankers. Euro-area officials have informally discussed an arrangement whereby the ECB maintains liquidity to Greek lenders in return for a guarantee for the loans, according to people familiar with the matter. One alternative for Greece was given little credence by Draghi on Wednesday, when he was asked by the Italian journalists if Russian President Vladimir Putin might call Tsipras and offer aid. “I do not think that will happen,” Draghi said, according to Il Sole. “It doesn’t seem like a real risk. Also, they don’t have money even for themselves.”
The IMF has only one legitimate purpose that I can figure out: To continually write position papers and articles silly enough to keep bloggers loaded with material for rebuttal. The Wall Street Journal provides a case in point with IMF: U.S. Economy at Risk of Stalling Next Year if Fed Raises Rates Prematurely.
“The Federal Reserve risks stalling the U.S. economy by raising interest rates too early, the IMF warned Tuesday as it detailed its call for the central bank to delay a move until 2016.”
The idea that a single rate hike or two would sink the economy now but not in 2016 is of course ridiculous. The IMF’s primary concern is the rising US dollar.
If investors continue to plow into dollar assets, particularly given weaknesses in Europe, China and other emerging markets, “growth could be significantly debilitated,” the fund warned. The IMF estimates each 5% appreciation of the dollar could cut a half-percentage point off U.S. growth.
The IMF wants a weaker dollar for the US and a weaker euro for Europe. How’s that supposed to happen? The IMF is also worried about China. Does it want a weaker yuan too? The problem should be obvious, but obviously it isn’t, so I will spell it out: It’s mathematically impossible for every currency to depreciate against each other simultaneously. The IMF is worried about the loss of credibility if the Fed hikes now and has to reverse later.
“Both the European Central Bank and Sweden’s Riksbank were forced into rate reversals in 2011, and the Bank of Japan seesawed through rate moves in the 1990s and 2000, fund economists noted. Such an about-face puts the Fed’s all-important credibility at stake, the IMF said.”
In reality, there is not a central bank on the planet that has any credibility. Bubble after bubble is the norm. The Fed failed to predict the dotcom bust, the housing boom, the housing bust, or the great recession. The Fed has no credibility to lose. But the Fed does have good company. The credibility of the IMF is nonexistent as well. The number of global GDP downgrades by the IMF is staggering. Heck, for years on end the IMF could not even get Greece correct. Greece missed countless IMF GDP estimates. At long last, the IMF admits what any person with half a brain knew half a decade ago: Greece Will Need Debt Restructuring.
“Greece is in a situation of acute crisis, which needs to be addressed seriously and promptly,” Ms Lagarde said. Getting out of that crisis would take both reforms by Athens and a “debt restructuring”, she said.
That’s actually the first solid statement by Lagarde in years that I agree with. The irony is the eurozone ministers, Germany, and the creditors don’t want to go along with it.
“Since the month of December, 200 thousand citizens have added their signatures to ask for a popular law that would set up a referendum about whether we stay in the Euro, or more precisely whether we’d like to have a national sovereign currency. A referendum that should have been held BEFORE we went into the Euro, but the decision was taken by the governments without any consultation with the citizens. In recent years, so much has been said about the need to exit the Euro, we have heard proclamations during the election campaigns, in political meetings, on the TV talk shows, but before now there’s never been a solid proposal like this one. It is possible to hold a referendum about whether to stay in the Euro.
It can be done with a constitutional law – like the one in 1989 when the people of Italy were called upon to make a decision about whether to give a mandate to the European Parliament to set up a project for a European Constitution to then submit to the member states of the community for ratification. That was to set up a union of people and yet the only thing you managed to do was to create a currency union. The EU has failed. It’s no good hiding the fact. It’s useless to pretend nothing has happened and to continue to illude ourselves that everything is going well. The Europe of those that dreamed it up, a community of people, with solidarity between states, with equality of rights and duties – all that has failed.
The entry into the Euro, the hegemony of the banks and of the world of finance have transformed the “community” into a “union”, it has been transformed into a banking union rather than a union of people. The propoganda that you have promoted in the last few years – that the Euro and the single currency are essential, that without the Euro our economy would have had a disaster, – that has failed. The economy has suffered a disaster – and that has happened with the Euro …. And a lot of people are starting to notice this. Not just Greece, but also Austria, but that’s not been reported by European or Italian media, in a single week, they have collected nearly 300,000 signatures in support of a popular petition not just about an exit from the Euro – but even from the European Union.
The world is entering a kind of no man’s land, in between the realms of insane denial and utterly obvious crisis. Europe is now destabilizing amid the Greek soap opera (an event that I predicted in January would occur in 2015); China’s stock market bubble is bursting; and the U.S. dollar’s world reserve status is about to be decimated by the global shift toward the International Monetary Fund’s basket currency reserve system. I’m afraid I’m going to have to say this because I don’t know if anyone else will admit it: Alternative economic analysts were right, and the mainstream choir was either terribly wrong or disgustingly dishonest. However, as most of us in the liberty movement are well aware, being right is not necessarily a solution to disaster.
At the forefront of alternative economics and constitutional vigilance are the people doing the real work in the movement: the preppers. These are the activists taking concrete action in the tangible world (as opposed to the ethereal laziness of the intellectual world) first to make themselves as independent as possible from the mainstream grid, thereby removing themselves as a potential refugee or looter in the event of national crisis. Second, they are the people mastering valuable and necessary skills that will allow them to rebuild any collapsed social and financial system. Third, they are the people most capable of defending our inherent freedoms and the principles of our founding culture, and they are the only people organizing locally for mutual aid and security. The fact of the matter is preppers are free, and almost everyone else is a slave — a slave to dependency, a slave to doubt, a slave to ignorance, a slave to fear and, thus, a slave to petty establishment authority.
During the Great Depression, the vast majority of American citizens were rural, farm-oriented people with survival skills far beyond the modern American. “Prepping” in those days was ingrained in our society, rather than marginalized and labeled “fringe.” Today, the numbers are reversed, with a dwindling number of farm-experienced Americans and a vast wasteland of urban and suburban citizens — many with few, if any, legitimate skill sets. During the Great Depression, millions of people died of starvation and general poverty, despite the incredible number of people with rural survival knowledge. What do you think would happen to our effeminate; metrosexual; iPhone-addicted; lisping; limp-wristed; self-obsessed; Twitter-, texting-, video game-addled; La-Z-Boy-riding; overgrown-child culture in the event that another economic crisis even remotely similar were to occur? Yes, most of them would die, probably in a horrible fashion.
[..] The first call came through after four days, on 30 August. The Moas team quickly found itself involved in the simultaneous rescue of two migrant boats, including a wooden fishing vessel with 350 people – many of them families from Syria – that was slowly sinking. By the end of the rescue, water was flooding onto the main deck of the fishing boat, and many of the migrants were in the sea. So many small children were rescued that the Phoenix almost ran out of baby formula. “That was a shock for most of the crew,” Catrambone recalled. “We were a bit overwhelmed with the thought that this was really happening. These children and mothers were at the hands of the sea, at the hands of death.” The Phoenix rescued 1,462 people in 10 weeks and helped a further 1,500 onto Italian navy vessels.
The Phoenix operates in international waters that start just 12 nautical miles from the shores of Libya – now one of the world’s most violent places, where two separate governments have only tenuous control over their territories. An American consultant hired to advise on security fretted that the ship’s unarmed crew was too close to Libyan waters, but Catrambone decided he was overreacting – after long periods working in Iraq and Afghanistan (and a narrow brush with death during a missile strike in Israel), Catrambone felt he knew how to calibrate risk; the success of his own business, he says, is based in part on the tendency of others to exaggerate danger. “We are not afraid to go where others are [afraid],” he told me. “We don’t need a military convoy to take us.”
While Catrambone joined the speedboat crew on rescue missions, Regina and her daughter Maria Luisa helped care for the migrants when they arrived on the Phoenix. One night Maria Luisa found herself talking to a fellow 18-year-old – a cultured, English-speaking Syrian girl named Rasha, who was travelling on her own after both her parents were killed. “I looked at her and I looked at me, and I said: ‘What if I was Rasha? What if I had to see people being killed by snipers every day, seeing my parents killed right before my eyes?’
I would want to leave,” she explained. “She was so brave. She travels, she gets on a boat. And she says: ‘Either I am going to make it, or I am going to die trying.’” The more the rescues went on, and the more stories they heard, the deeper the family and crew found themselves bound to the mission. “You might not get on the Phoenix as a humanitarian,” Catrambone said. “But you are one when you get off.”
The UN refugee agency says it will struggle to provide basic supplies to a wave of refugees in the Greek islands if Greece’s banking system fails in the coming days. Greece’s islands have in recent weeks overtaken Italy as the primary entry point for refugees to Europe, with nearly 80,000 arriving this year from Turkey – a rate six times the equivalent figure from 2014, according to the UN. More than 9,000 have arrived in the past week alone, and a UN refugee agency spokeswoman on the island of Lesbos, which has taken in around half of the arrivals, says the organisation’s ability to give them items as basic as bottles of water and sleeping mats is at risk.
Speaking from Lesbos, the UN’s Laura Padoan said: “The precarious financial situation means that if we can’t access cash readily, it could threaten our programmes because we pay our suppliers through Greek accounts … We do depend on having ready cash. A lot of programmes depend on cash purchases of Greek goods.” The Greek government has been overwhelmed by the unprecedented wave of refugees on its eastern islands, many of which lie just a few miles from the Turkish coast, allowing refugees largely from the war-torn countries of Syria, Iraq and Afghanistan to risk the short journey in rubber boats. As many as 19 are feared to have drowned in recent days.
Greek officials are struggling to process the refugees in a timely manner, meaning they are unable to quickly reach the mainland and further stretch resources on the islands. Some islanders have set up their own makeshift camps for migrants. The government’s own camps are vastly overcrowded – with around 5,000 refugees squeezed into squalid conditions at the Kara Tepe camp on Lesbos. In at least some camps, the government has been unable to pay local caterers to provide food to the refugees, forcing the army to step in to provide emergency food at one camp on Samos island on Tuesday. In the Greek parliament this week, migration minister Tasia Christodoulopoulou admitted the situation could lead to “imminent riots by people demanding food”.
In the past few years, the job market has vastly improved and home prices have rebounded — yet Americans are becoming even more irresponsible when it comes to saving for emergencies. According to a survey of 1,000 adults released by Bankrate.com on Tuesday, nearly one in three (29%) American adults (that’s roughly 70 million) have no emergency savings at all – the highest percentage since Bankrate began doing this survey five years ago. What’s more, only 22% of Americans have at least six months of emergency savings (that’s what advisers recommend) – the lowest level since Bankrate began doing the survey. These findings mirror others – all of which paint an abysmal picture of Americans’ ability to withstand an emergency. For example, a survey released in March by national nonprofit NeighborWorks America also found that roughly one third (34%) of Americans don’t have emergency savings.
Greg McBride, the chief financial analyst for Bankrate.com, says these low savings reflect that households haven’t seen their incomes ramp up and thus “household budgets are tight.” Plus, he adds “people don’t pay themselves first – they wait until the end of the month to save what’s left over and then nothing is left over.” The problem with this lack of savings is that emergencies can and do happen, and when they do, you may be forced into an expensive solution like credit cards or personal loans – and in extreme cases having to declare bankruptcy. Indeed, half of Americans had experienced an unforeseen expense in the past year, according to a 2014 survey by American Express; of those, 44% had a health care-related unforeseen expense and 46% had one related to their car – both of which tend to be things you can’t avoid paying.
Thus, advisers recommend that most Americans have at least six months worth of income in their emergency fund — and more if they have children or other dependents. To build this up, “start an automatic transfer to a savings account and set a task to revisit and increase the amount in a month,” says Robert Schmansky, the founder and a financial adviser at Clear Financial Advisors. “See how much you can increase the amount until it becomes noticeable and then stop.” Scott Cole, the founder of Cole Financial Planning, says to put the money in an FDIC-insured, high-yield savings account. Schmansky says that you want this account to be separate from your checking account “to prevent frivolous withdrawals.” He adds that while it’s important to find a good rate, it’s “equally important” that the money is accessible and the bank has “a long history of paying higher than market rates” as “too many banks in the past that started out as high yield payers dropped those rates after some time.”
Marine Le Pen, a frontrunner in France’s 2017 presidential election, says a Greek exit from the euro is inevitable. And if it’s up to her, France won’t be far behind. “We’ve won a few months’ respite but the problem will come back,” Le Pen said of Greece in an interview at her National Front party headquarters in Nanterre, near Paris, on Tuesday. “Today we’re talking about Grexit, tomorrow it will be Brexit, and the day after tomorrow it will be Frexit.” Le Pen, 46, is leading first-round presidential election polls in France, ahead of President Francois Hollande, ex-leader Nicolas Sarkozy and Prime Minister Manuel Valls. She’s the only one of the four calling for France to exit the euro, banking on people’s exasperation with the Greek crisis and Britain’s proposed referendum on the European Union to win over voters.
“I’ll be Madame Frexit if the European Union doesn’t give us back our monetary, legislative, territorial and budget sovereignty,” Le Pen said. She’s calling for an orderly breakup of the common currency, with France and Germany sitting around the table to dismantle the 15-year-old monetary union. Since she took over from her father as head of the National Front in 2011, Marine Le Pen has done her best to push the anti-immigration party into the French political mainstream. She came third in the 2012 presidential race and currently has two members in the country’s National Assembly for the first time since 1997. The combination of tepid economic growth and high unemployment at home, together with hundreds of thousands of African and Middle Eastern immigrants seeking jobs or asylum in Europe, has given Le Pen increased traction.
Even German Chancellor Angela Merkel has expressed concern about the level of support Le Pen will receive in 2017 and how that power might weigh on French economic policy. “She knows perfectly well that if France leaves, there’s no more euro,” Le Pen said. Although Le Pen hasn’t given a full, detailed plan of how she would lead her country out of the euro, she says she doesn’t believe France would be shut out of the borrowing market or rejected by investors as a result.
The Delphi Conference on the European/Russian crisis created by Washington issued a declaration repudiating the EU attack on the Greek nation. The Delphi Declaration asks the European peoples, especially the Germans, to do the right thing and object to the plunder of Greece by the One%. This appeal to good will is likely to fall on deaf ears even though the pillage of Greece will create a precedent that can then be applied to Italy, Spain, France, and even Germany.
THE DELPHI DECLARATION: European governments, European institutions and the IMF, acting in close alliance, if not under direct control of big international banks and other financial institutions, are now exercising a maximum of pressure, including open threats, blackmailing and a slander and terror communication campaign against the recently elected Greek government and against the Greek people. They are asking from the elected government of Greece to continue the “bail-out” program and the supposed “reforms” imposed on this country in May 2010, in theory to “help” and “save” it.
As a result of this program, Greece has experienced by far the biggest economic, social and political catastrophe in the history of Western Europe since 1945.It has lost 27% of its GDP, more than the material losses of France or Germany during the 1st World War. The living standards have fallen sharply, the social welfare system all but destroyed, Greeks have seen social rights won during one century of struggles taken back. Whole social strata were completely destroyed, more and more Greeks are falling from their balconies to end a life of misery and desperation, every talented person who can leaves from the country. Democracy, under the rule of a “Troika”, acting as collective economic assassin, a kind of Kafka’s “Court”, has been transformed into a sheer formality in the very same country where it was born!
Greeks are experiencing now the same feeling of insecurity about all basic conditions of its life, that French have experienced in 1940, Germans in 1945, Soviets in 1991. In the same time, the two problems which this program was supposed to address, the Greek sovereign debt and competitiveness of the Greek economy have, both, sharply deteriorated. Now, European institutions and governments are refusing even the most reasonable, elementary, minor concession to the Athens government, they refuse even the slightest face-saving formula, if it could be. They want a total surrender of SYRIZA, they want its humiliation, its destruction. By denying to the Greek people any peaceful and democratic way out of its social and national tragedy, they are pushing Greece into chaos, if not civil war.
By the way, even now, an undeclared social civil war of “low intensity” is waged inside this country, especially against the unprotected, the ill, the young and the very old, the weaker and the unlucky. Is this the Europe we want our children to live? We want to express our total, unconditional solidarity with the struggle of the Greek people for its dignity, its national and social salvation, for its liberation from the unacceptable neocolonial rule “Troika” is trying to impose on a European country. We denounce the illegal and unacceptable agreements successive Greek governments have been obliged, under threat and blackmail, to sign, in violation of all European treaties, of the Charter of UN and of the Greek constitution.
Greece’s parliament will have only a few days to pass all the economic reforms Athens promises its creditors to unlock desperately need bailout aid, putting intense pressue on prime minister Alexis Tsipras to build domestic political support for controversial concessions. Berlin has insisted on full and immediate legislative approval of measures that may be agreed at a meeting of eurozone finance ministers on Wednesday even though officials now concede a deal may come too late for Athens to meet a €1.5bn debt repayment to the IMF due on June 30. People briefed on Berlin’s thinking said months of fraught negotiations since the radical anti-austerity government came to power have undermined trust in Greece’s ability to fuflill its promises.
German officials want Greek parliamentary approval before an extension of its bailout programme is presented to the Bundestag before it expires on Tuesday. Greek authorities have already begun preparations for a hasty and potentially rancorous parliamentary debate over the weekend amidst growing signs Mr Tsipras’ new reform plan – which would be presented to eurozone leaders on Thursday — faces fierce resistance at home. A handful of more radical members of Mr Tsipras’ governing Syriza party have already vowed to mutiny over the proposal, and thousands of Greek pensioners took to the streets of Athens on Tuesday evening to decry the plans. “We have nothing, no money, we cannot live like this anymore,” shouted Thomas Yanakakis, 63, with tears in his eyes. “Enough is enough. Everyone must take to the streets now to stop this.”
The real question is why Europe is forcing Greece to do any more austerity at all. It’s already done so much that, before this latest showdown, it actually had a budget surplus before interest payments. And that’s all it should shoot for, really: the point at which it doesn’t need any more bailouts from Europe. Anything more than that, though, would just inflict unnecessary — and self-defeating! — harm to the economy. When interest rates are zero, like they are now, budget cuts of 3% of GDP would, by Paul Krugman’s calculation, make the economy shrink something like 7.5%. So even though you have less debt, your debt burden isn’t much better since you have less money to pay it back.
There’s only one reason to make Greece do more austerity, and it makes no sense at all. That’s to try to make it pay back what it owes. Indeed, one European official said that the entire point of this was that they “want to get our money back some day.” The problem, though, is everybody knows Greece will never do that. Its debt should have been written down in 2010, but it wasn’t because it was “bailed out” to the extent that it was given money to then give to French and German banks. The longer Europe pretends this new debt will be paid back, the longer Greece’s depression will go on. Now, it’s true that Europe has lowered the interest rates and extended the maturities on Greece’s debt so far out that, for now at least, it’s like a lot of it doesn’t exist.
But eventually it will, and at that point they’ll either need to extend-and-pretend some more or hope that Greece has returned to growth. Until then, Greece will be stuck in its economic Groundhog Day. It keeps trying to resist these pointless budget cuts that just keep it in a perpetual state of high unemployment, but then gives in at the last minute. On second thought, history is just repeating itself as tragedy over and over again.
Margarita sits cross-legged on a shiny parquet floor in a small Athens apartment, surrounded by piles of cardboard boxes. Within them are her family’s possessions. “I never expected to set up house in my late parents’ place,” the 42-year-old says. Her husband George, a banker made redundant three years ago, is overseeing workers installing security shutters in the two-bedroom, one-balcony space, while her 16-year-old daughter Christina brews coffee in a cramped kitchen. The Athenian family, who asked for their surname not to be used, moved to a downtown residential district from a villa in the northern suburbs to avoid defaulting on their mortgage. “We restructured it twice, thanks to my old colleagues at the bank but we still couldn’t keep up with the payments,” says George, now a struggling investment consultant.
“Things were looking pretty bleak but then we found a tenant so we could move out.” The family still owes a year’s worth of school fees at the private international school their daughter attended, which George admits is not a priority. He is no longer embarrassed by his inability to pay, he says, because so many other parents are in the same situation. Such strategic defaults have become a way of life among Greece’s formerly affluent middle-class. Many borrowed heavily as local banks competed to offer consumer loans at accessible interest rates after Greece joined the euro in 2001. When the crisis struck they resisted changes to their lifestyle, convinced that it was only a blip on a continuous upward path to income levels matching those of Italy and Spain.
But they have since been forced to make harsh adjustments. With their own savings depleted and the country’s immediate future so uncertain — will Greece default on its debts and leave the euro? — many have simply stopped making payments altogether, virtually freezing economic activity. Tax revenues for May, for example, fell €1bn short of the budget target, with so many Greek citizens balking at filing returns. That has put more pressure on the country’s leftwing government as it desperately scrapes up cash to pay wages and salaries and foreign creditors. The government, itself, has contributed to the chain of non-payment by freezing payments due to suppliers. That has had a knock-on effect, stifling the small businesses that dominate the economy and building up a mountain of arrears that will take months, if not years, to settle.
Business-to-business payments have almost been paused, one Athens businessman says. “They are just rolling over postdated cheques”. For Greek banks, mortgage loans left unserviced by strategic defaulters have become a particular headache, especially since the Syriza-led government says it is committed to protecting low-income homeowners from foreclosures on their properties “There’s a real issue of moral hazard… Around 70% of restructured mortgage loans aren’t being serviced because people think foreclosures will only be applied to big villa owners”, one banker said.
Unlike most eurozone members, Greece’s welfare system is relatively weak, with effectively no social housing or rent assistance programs, while the jobless only receive benefits and state health coverage for up to one year. Families are left to provide the safety net. Pensioner Assimina Griva, who helps run a community center for the retired in a hillside suburb of Athens, illustrates what many Greeks live. With her monthly pension of €600 she gives financial assistance to her son, who was laid off from the steel industry and otherwise depends on his wife’s salary of €400. “I help my child, and I keep €100 for the whole month,” says Griva. The problem, experts agree, is that the system is speeding toward insolvency.
State spending on pensions has risen from 11.7% of GDP before the financial crisis to 16.2% as the economy shrank. The average in the European Union is about 12%. The burden on the state is set to grow dramatically as the number of pensioners — currently 2.6 million out of a total population of 11 million — is set to keep rising. Greece has the sixth oldest population in the world, according to United Nations data. Over 20% of Greeks are aged 65 and over, a share the EU statistics agency expects to jump to 33% in 2060. Added to that is the impact of the financial crisis. High unemployment, undeclared labor, and arrears from struggling businesses have hammered state revenues.
A 2012 write-down of Greece’s privately-held national debt saw pension funds’ reserves lose more than half their value, as they were required by law to buy government bonds. “The pension system in Greece is not sustainable. But how could it be?” Finance Minister Yanis Varoufakis said at a business conference in Berlin this month. “We want to reform it … (But) pensions have already been cut by 40%. Forty%! Is cutting further a reform? I don’t think it is a reform. Any butcher can take a clever and start chopping things down. We need surgery.”
For Greece, the small concessions the creditors now seem prepared to make on pensions and tax increases on the poor will at least allow Alexis Tsipras to save face with his electorate and overcome the difficulty of getting the proposals through his parliament. But he will also have seen off the threat of capital controls being imposed to stop any further outflow of money from Greece and a humiliating take-it-or-leave-it message from the creditors should the ECB have pulled the plug and stopped providing emergency liquidity assistance to the beleaguered Greek banking system. Yet the reality is also that the extra austerity will now be tougher for Greece to bear and the cost of restoring the economy will be much greater.
Just as the rest of the eurozone is showing small signs of recovery the Greek economy has gone back into recession, with GDP falling by 0.4% in the last three months of 2014 and by 0.2% in the first three months of 2015. The signs are that the decline has continued, with unemployment rising again to 26%. Many companies have gone out of business as activity stalled during the uncertainty surrounding the negotiations and banks’ non-performing loans now account for some 35% of their total lending. As a result, the effort required to restore health to the economy will be much greater. It is hard to imagine it now, but strong tourist receipts last year brought the first rise in Greek GDP after a five-year decline in which the economy had slid by 25% under the IMF-inspired austerity programme.
The recent reversal has wiped out much of that progress. Years of austerity loom. More bailout money, but also more hardship and no – or very slow – growth. In itself that is not a recipe for social and political tranquillity. The creditor institutions, the old troika of the IMF, the ECB and the European commission, will be as visible as ever. So actually, not much advance on the status quo of the last few years. This gets us back to the perennial elephant in the room whenever Greece is discussed. The truth is, there won’t be sustainable growth again until the huge debt overhang (180% of GDP) is dealt with decisively. Greece would need to grow by at least 4% a year to service its current debt. If forced down that road, nothing can be seen ahead for the Greek people but continuous belt-tightening and misery.
One of the insights gleaned during the Great Depression was that it does not make a lot of sense for governments to try to balance budgets during a severe downturn, because tax increases and spending cuts reduce demand. That deepens the slump, leaving an even bigger hole in the public finances. In Greece, though, it as if the clock has been turned back to the pre-FDR days when Herbert Hoover was US president. Weak growth means that Athens continues to miss the deficit targets the troika sets for it. The troika responds by insisting on additional savings to put the budget back on track. Paul Krugman posted a chart last week based on IMF data that illustrates what happened to the underlying public finances of the eurozone members in 2014.
This measure of budgetary discipline looks at the primary budget surplus – the gap between revenues and spending excluding debt interest payments – adjusted for the state of the economic cycle. Measured in this way, Greece ran a surplus of more than 5% of GDP last year, comfortably higher than any other eurozone country. It is, however, not enough for the troika. In order to avoid a debt default and a run on its banks that would threaten its continued membership of the single currency, Greece has now had to table proposals that will suck an additional €8bn out of the economy in the next 18 months. Consumer spending will be hit by an increase in VAT and higher pension contributions, while investment will be dampened by a one-off levy and an increase in corporation tax.
Greece has a number of severe economic problems. It suffers from a lack of demand, and a five-year slump has pushed it into deflation. Falling prices have added to the real, inflation-adjusted burden of the government’s debt, which currently stands at 175% of GDP. A fresh dose of austerity will make all these problems worse. One way for Greece to get out of its mess would be for it to leave the euro, devalue its currency and renege on all or part of its debt. That is not an option if it stays in the single currency, which the public wants. Another way out would be for the creditors to cut Greece some slack. That would involve immediate debt relief and more realistic targets. The troika, though, will continue with policies that have failed before in the hope that they will succeed this time. Einstein had a definition for this – insanity.
“..the single currency’s most troublesome state will remain inside the euro as long as Greek nuisance value (GNV), both political and economic, is held to be lower inside the system (I) than it would be outside (O)..”
Acres of column inches have been expended on Greece and the future. Here are eight succinct truths to guide observers through the next few days.
1. There will be no quick and easy end to the Greek affair. Unstable disequilibria can last a long time. For four centuries, Greece was part of the Ottoman Empire. Tonight’s unhappy meeting of eurozone leaders will not be the last time they gather to consider an intractable imbroglio.
2. Greece holds a lot of the cards. No doubt some kind of deal will be done to prevent — for the moment at least — full-scale ejection from the euro EURUSD, +0.3761% bloc.
As I wrote four months ago, the single currency’s most troublesome state will remain inside the euro as long as Greek nuisance value (GNV), both political and economic, is held to be lower inside the system (I) than it would be outside (O). For the time being, GNV-I is — just — less than GNV-O. All sorts of Greek maneuvering — whether talks with President Vladimir Putin or speculation about a Greek exit bringing down the euro “house of cards” — are useful ploys to stoke up European fears of GNV-O.
3. The funds that are now leaving Greek banks to the tune of €1 billion a day, whether being taken abroad or simply kept under the mattress, are all effectively liabilities of the European Central Bank, to be paid ultimately (if things go wrong) by European taxpayers. The ECB, as an unelected body run by technocrats, cannot by itself pull the plug on Greece and declare the banks insolvent. The Greek government has no great wish to bring in exchange controls (although soon it may be forced to) since withdrawn euros represent a negotiating tool against its creditors and a store of value that many Greeks can use to hedge against a return of the drachma.
4. The IMF is unlikely to get its money back on time. An internal IMF assessment two years ago ruled that the Fund’s exceptional loan to Greece in 2010 was made on far-too-optimistic assumptions about the country’s debt sustainability and ability to carry out adjustment, breaching the IMF’s own rules. U.S. taxpayers will lose money. So please forget any idea that Congress will agree on IMF governance and voting reforms any time in the next few years.
5. Angela Merkel, the German chancellor, will be a big loser. The pressure is on her to hold the euro area together and maintain Germany’s European credentials without damaging the pocketbooks of German taxpayers and turning the euro into an overt transfer union. This is an impossible task. Her biggest adversaries are likely to be within her own coalition with the Social Democratic Party, which, however unfairly, will publicly blame her for any unsavory outcome. Shaming Merkel over Greek debt may be unscrupulous, but if it delivers the SPD a chance of winning the 2017 election, then the party will seize it.
6. Karl Otto Pöhl, the former Bundesbank president who died in December, was right when he said, a few days after the May 2010 bailout, that it was decided to save (roughly in that order) rich Greeks, and French and German banks. The Bundesbank’s qualms over the ECB’s purchases of the bonds of Greece and other peripheral countries, publicly though impotently voiced at the time, were never likely to derail the action. But we will hear more of them now that taxpayers in Germany and other creditor countries start to weigh up the bill.
Draghi and his posse of financial dimwits have created what amounts to a hideous financial scam – a disgrace to any notion of central banking which existed before 2008. Had he not announced he would massively monetize euro sovereign debt in July 2012, Greece would have been bankrupt long ago, and the peripheral borrowers like Italy, Spain and Portugal would have had their day of fiscal reckoning, too. The eurozone would have blown sky high, and the ECB would be no more. Likewise, were not the ECB now supplying $125 billion of funding to the Greek banking system—or actually more than its current level of fast vanishing deposits – the latter would have crashed and burned months ago, thereby triggering a crisis which would have eventually destroyed the euro.
Ironically, the angel of mercy now hovers in the form of Greece’s intrepid prime minister, Alexis Tsipras. Too be sure, his left-wing statist economics is a complete abomination that would cause the Greek people catastrophic suffering if were ever to be implemented. But he is absolutely correct on the matter of political self-governance: “We have no right to bury the European democracy in the land where it was born.” That’s the essence of the issue. If Greece’s democracy is to survive, it must be cut loose from the destructive regime of superstate dictation from Brussels and monetary falsification from Frankfurt. Ironically, going back to the Drachma would put Greece’s politicians right were they were before they were betrayed by the false monetary regime of eurozone central banking.
They would be forced to run a primary surplus because they would not be able to borrow on world markets after a massive default on the debt forced upon them by the eurozone, ECB and IMF. But the mix of taxing the rich, cutting the pensioners, catching the tax cheats, selling state assets, shrinking the bureaucracy and squeezing the crony capitalist leeches which feed on the Greek state would be up to them, not the inspectors and pompous bureaucrats from the IMF and European superstate. More importantly, faced with a honest bond market and real bond vigilantes, the Greek state would rediscover the requisites of sustainable fiscal governance. If they should ever again choose to run large fiscal deficits in the future, they would have to deal with an altogether different kind of committee. Namely, the pricing committee of their bond underwriters syndicate.
If the bond vigilantes needed a 15% yield to buy the state’s debt based on the facts and fiscal prospects at hand, there would not ensue months and years of can-kicking, phony restructuring plans and promises and endless PR maneuvers and leaks to the financial press. Greece’s politicians would be required to either hit the bid or cut the pension checks the very next day. Tsipras is now confronted with this kind of hard choice in an altogether different venue. If he sells out Greece one more time to the paymasters of his country’s crushing debt, it will be only a matter of time before another Greek prime minister will be forced to walk the same plank on which he now totters. By doing what’s right for Greek democracy, by contrast, he would prove to be an angel of mercy. There is no way that the euro and ECB could survive a Greexit, nor could worlwide Keynesian central banking survive the blow of their demise.
Gripped by the prospect of default in Greece? You may be looking in the wrong direction. The southern European nation may have the world’s highest debt burden, equal to 175% of its economy or gross domestic product, but according to credit rating agencies that does not make Greece the riskiest borrower for bond investors. That title is held by Ukraine, presently engaged in fighting a war with pro-Russian separatists as well as battling creditors over $15bn of debt the country says it cannot afford to service. The difference between Greece and Ukraine is reflected in the prices at which the sovereign debt of the two countries trades. Prices for Greek bonds have crashed over the past year as investors took fright at the political success of the anti-austerity Syriza party, yet they remain above 50 cents in the euro – considered a benchmark default level.
Ukraine’s equivalent bonds trade below 50 cents in the dollar, suggesting a far higher risk of a default. Indeed, this week, Ukraine was declared a “credit event”, triggering insurance payouts in the credit derivatives market. According to credit rating agency Standard & Poor’s, default is all but certain. All told, 11 countries, including Greece, are currently at serious risk of defaulting according to global credit rating agency Moody’s. Around the world the euphoric credit boom in emerging markets driven by low interest rates in the US, Europe and Japan now appears vulnerable, piling on the pressure for borrowers. A weakening trend in EM sovereign credit that began in 2013 has continued this year thanks to the slowdown in Chinese economic growth, weakness in commodity prices and higher US dollar borrowing costs, according to UBS.
(June 9): I believe the illogical movement in 10yr Treasury yields reflects the fact the Fed is losing control of its tight grip on the bond market and longer term interest rates. Note that German bunds have also experienced a similar spike up in interest rates and volatilty. In the context of my view that there was a derivatives accident somewhere in the global banking system in the last two weeks, it could well have been an OTC interest rate swap bomb that detonated. As of the latest OCC quarterly report on bank derivatives activity (Q4 2014), JP Morgan held $63.7 trillion notional amount of derivatives, $40 trillion of which were various interest rate derivatives.
If you look at the ratio of interest rate derivatives to total holdings for the top 4 U.S. banks, they all own roughly same proportion of interest rate derivatives as % of total holdings. Deutsche Bank is reported to have about a $73 trillion derivatives book. If we assume that ratio of interest rate derivatives is likely similar to JP Morgan’s, it means that DB’s potential derivatives exposure to interest rates is around $46 trillion. Interestingly, the price of the 10yr moved abruptly higher after the Fed ended QE. This is the opposite of what many of us would have expected. It wasn’t until early February that 10yr bond price began to decline (yields move higher). The 10yr bond price also crashed through its 200 day moving average – an ominous technical signal. Both of these events happened within the last week.
Again, I believe that this action in the bond market is pointing to the fact that the Fed is losing control of the markets. I also believe that the catalyst for this loss of control is a big derivatives accident of some sort in the last two weeks. Another clear indication that something has melted down “behind the scenes” recently is an ominous market call by self-made hedge fund billionaire Paul Singer, founder and CEO of Elliott Management. In his latest letter to investors, released the last week of May, he stated that the best trade in a generation is to short “long term claims on paper money.
Investors risk falling into liquidity traps as they seek to boost yields depressed by the ECB’s €1.1 trillion bond-buying program, according to Pimco. The search for yield has caused investors to buy riskier and less frequently traded bonds, which may be hard to sell quickly, said Mike Amey at Pimco, which oversees about $1.59 trillion of assets. Overall bond trading has slumped since the global financial crisis because banks have cut inventories to preserve capital in response to tighter regulations. “If you want to find some yield-enhancing assets, then make sure you’re paid for tighter liquidity,” said Amey, a speaker at Euromoney’s Global Borrowers & Investors Forum in London, which starts Tuesday. “If you’re going to take a liquidity premium, be prepared to hold the asset for years.”
One measure of bond-market liquidity is down 10% in the past year and 90% since 2006, RBS said in March. In the U.S., less than 5% of the market changes hands each month, down from about 20% in 2007, according to a November report by the Bank for International Settlements. “My biggest worry for the market going forward is liquidity,” said Kris Kowal at DuPont Capital Management, which oversees $30.8 billion of assets. Investors are “trading illiquidity for a bit more yield, and I don’t think that’s the right approach at this stage in Europe’s economic cycle.”
Structured securities and loans are among the most illiquid assets, said Wilmington, Delaware-based Kowal, who is also speaking at the Euromoney conference. Investors who need liquidity should hold cash or highly traded government bonds, Amey said. The ECB’s quantitative easing will continue to provide liquidity for the time being, said David Zahn, head of European fixed income at Franklin Templeton Investments, which manages about $890 billion of assets. Still, he is ensuring that his funds have enough liquidity to meet redemptions and to act on new opportunities.
A proposed deal between the United States and European Union is a “corporatist scam”, Ukip’s MP has said. Douglas Carswell said that TTIP, which stands for the Transatlantic Trade and Investment Partnership, was not what its proponents made it out to be. “Ukip [is] making clear we are the most staunchly free trade party in the UK,” he tweeted. “TTIP is not free trade. It’s a corporatist scam.” Tellingly, the message was retweeted by Conservative MP Zac Goldsmith, a leading contender for his party’s nomination for Mayor of London. TTIP’s proponents say it is a free trade deal that would benefit both the United States and European Union.
One controversial aspect of drafts of the deal would be to establish a quasi-judicial trade court to which the two blocs would be subject. This could allow large corporations to ‘sue’ national governments for enacting any policy that potentially harmed their profits. Critics say that this would erode democracy and increase corporate power. The deal is also controversial because of the secret way in which it is been negotiated, with press and campaigners relying heavily on leaks to determine its direction. A Ukip spokesperson told the Independent that the party feared the destruction of public services by the deal.
“Ukip is a party that believes that free trade between people is the surest way to greater prosperity,” he said. “However the TTIP agreement is not a free trade deal, but one that favours big multinational corporates over the interests of smaller businesses, and most importantly the democratic right of people to set policy through elections. “TTIP as it currently stands could hand the NHS lock, stock, and barrel to huge corporations against the wishes of the British people.”
While much of the world focused last week on whether or not the Federal Reserve was going to raise interest rates, or whether the Greek debt crisis would bring Europe to a crisis, the Permanent Court of Arbitration in The Hague awarded a $50 billion judgment to shareholders of the former oil company Yukos in their case against the Russian government. The governments of Belgium and France moved immediately to freeze Russian state assets in their countries, naturally provoking the anger of the Russian government.[..] The US government is desperately trying to cling to the notion of a unipolar world, with the United States at its center dictating foreign affairs and monetary policy while its client states dutifully carry out instructions.
But the world order is not unipolar, and the existence of Russia and China is a stark reminder of that. For decades, the United States has benefited as the creator and defender of the world’s reserve currency, the dollar. This has enabled Americans to live beyond their means as foreign goods are imported to the US while increasingly-worthless dollars are sent abroad. But is it any wonder after 70-plus years of a depreciating dollar that the rest of the world is rebelling against this massive transfer of wealth? The Europeans tried to form their own competitor to the dollar, and the resulting euro is collapsing around them as you read this.
But the European Union was never considered much of a threat by the United States, existing as it does within Washington’s orbit. Russia and China, on the other hand, pose a far more credible threat to the dollar, as they have both the means and the motivation to form a gold-backed alternative monetary system to compete against the dollar. That is what the US government fears, and that is why President Obama and his Western allies are risking a cataclysmic war by goading Russia with these politically-motivated asset seizures. Having run out of carrots, the US is resorting to the stick. The US government knows that Russia will not blithely accept Washington’s dictates, yet it still reacts like a petulant child flying into a tantrum whenever Russia dares to exert its sovereignty.
The existence of a country that won’t kowtow to Washington’s demands is an unforgivable sin, to be punished with economic sanctions, attempting to freeze Russia out of world financial markets; veiled threats to strip Russia’s hosting of the 2018 World Cup; and now the seizure of Russian state assets. Thus far the Russian response has been incredibly restrained, but that may not last forever. Continued economic pressure from the West may very well necessitate a Sino-Russian monetary arrangement that will eventually dethrone the dollar. The end result of this needless bullying by the United States will hasten the one thing Washington fears the most: a world monetary system in which the US has no say and the dollar is relegated to playing second fiddle.
Today, 23 June 2015, WikiLeaks began publishing “Espionnage Élysée”, a collection of TOP SECRET intelligence reports and technical documents from the US National Security Agency (NSA) concerning targeting and signals intelligence intercepts of the communications of high-level officials from successive French governments over the last ten years. The top secret documents derive from directly targeted NSA surveillance of the communications of French Presidents Francois Hollande (2012–present), Nicolas Sarkozy (2007–2012), and Jacques Chirac (1995–2007), as well as French cabinet ministers and the French Ambassador to the United States.
The documents also contain the “selectors” from the target list, detailing the cell phone numbers of numerous officials in the Elysee up to and including the direct cell phone of the President. Prominent within the top secret cache of documents are intelligence summaries of conversations between French government officials concerning some of the most pressing issues facing France and the international community, including the global financial crisis, the Greek debt crisis, the leadership and future of the European Union, the relationship between the Hollande administration and the German government of Angela Merkel, French efforts to determine the make-up of the executive staff of the United Nations, French involvement in the conflict in Palestine and a dispute between the French and US governments over US spying on France.
A founding member state of the European Union and one of the five permanent members of the UN Security Council, France is formally a close ally of the United States, and plays a key role in a number of US-associated international institutions, including the Group of 7 (G7), NATO and the World Trade Organization (WTO). The revelation of the extent of US spying against French leaders and diplomats echoes a previous disclosure in the German press concerning US spying on the communications of German Chancellor Angela Merkel and other German officials. That disclosure provoked a political scandal in Germany, eventuating in an official inquiry into German intelligence co-operation with the United States, which is still ongoing.
French President Francois Hollande has called a high-level emergency meeting for 9 a.m. on Wednesday after WikiLeaks reported that the U.S. had spied on him and two of his predecessors. The meeting with the defense, interior, foreign and justice ministers will “evaluate the nature” of the report posted on the WikiLeaks website, said an official in Hollande’s office who asked not to be identified. WikiLeaks, which has published unauthorized documents since it started in 2006, reported that the NSA spied on Hollande, Nicolas Sarkozy and Jacques Chirac from 2006 to 2012, listening in on discussions about the euro debt crisis and French relations with German Chancellor Angela Merkel, including secret meetings of French government ministers about the possibility of Greece leaving the euro area.
The NSA also eavesdropped on French complaints about U.S. spying, WikiLeaks said. “We are not targeting and will not target the communications of President Hollande,” said Ned Price, a spokesman for the U.S. National Security Council, which advises the White House on its foreign policy. “We do not conduct any foreign intelligence surveillance activities unless there is a specific and validated national security purpose.” Sarkozy’s office didn’t respond to requests for comment. Agence France-Presse reported that his office had said the spying as reported was “unacceptable in general, and certainly between allies.” WikiLeaks has been releasing documents about U.S. wiretapping since 2010, detailing how the NSA spied on world leaders including Brazilian President Dilma Rousseff.
Emerging markets and commodity suppliers have grappled with reduced demand from China as a property downturn weighed on the world’s second-largest economy. U.S., Japanese and German exporters did better, supplying capital goods like machines that China still demanded. That may soon change, according to a study of global exposure to China by UBS Group AG economists Donna Kwok, Wang Tao and Jennifer Zhong. “As the multiyear Chinese property downshift continues to unfold beyond this year, we may see a longer-term decline in China’s appetite for foreign industrial imports,” the analysts wrote in a report June 22. “Commodity, reprocessing, and developed country exporters alike should brace themselves for the impact of weakening China demand this year, irrespective of whether U.S. or EU imports pick up.”
That’s not good news for a world economy increasingly reliant on China. China quadrupled the number of countries to which it was the biggest export market in the decade to 2014, the UBS analysts wrote. In the same period, the U.S. almost halved the number of countries for which it held the same title. In terms of exports as a share of GDP, nearly all countries UBS covers saw their China exposure rise; some doubled – Japan, South Korea, U.S., Brazil, Canada, Chile – while some tripled – Germany, the EU – and some even quadrupled, like Australia. For commodity exporters including South Africa, Australia, Indonesia and Brazil, the impact of a slowing China has been predictably negative.
Shell is fighting to prevent the public release of an audit of their Arctic drilling operations. Last week, in response to Greenpeace’s Freedom of Information Act (FOIA) request, Shell argued to government regulators that the entire document is “confidential business information” and should be kept from public disclosure. The problem is that – in order to comment on Shell’s Exploration Plan – the public should have had access to this document months ago. The deadline for that passed on 1 May yet the government department in charge – Bureau of Safety and Environmental Enforcement (BSEE) – has had the first part of Shell’s audit since November 2014. With Shell’s fleet already heading north to Alaska the failure to disclose is becoming more serious every day.
After Shell’s disastrous 2012 attempt at drilling in the Arctic Ocean — which ended with one of their drilling rigs beached on an Alaskan island and eight felony charges related to violations on the other rig — Secretary of the Interior Ken Salazar ordered a review of Shell’s operations to find out what went wrong, including an audit of Shell’s Safety and Environmental Management Systems (SEMS). The audit was designed to ensure “that the management and oversight shortcomings identified with respect to all aspects of the company’s 2012 operation have been addressed and that the company’s management structure and systems are appropriately tailored to Shell’s Arctic exploration program” – before the firm was to drill again in the Arctic.
The audit was meant to be a full third party assessment – but Shell paid for the audit and was allowed to handpick the auditor (Houston-based Endeavor Management). A SEMS audit assesses the management and operational systems put in place on offshore oil rigs to protect worker safety and the environment, such as analysing potential hazards and operating procedures. The auditor will typically review documents and systems as well as conduct interviews and site visits. It was also disclosed that the audit would be split into two parts. Stage 1 would take place in Shell’s Anchorage, AK office, and Stage 2 would take place on board the drillship Noble Discoverer once it was operating in the waters of the Alaskan Outer Continental Shelf.
The in-office portion of the audit was completed in 2014 and the audit report was provided to BSEE towards the end of that year. However, this document has never been made public and Greenpeace submitted a FOIA request for its release. Despite the promise that the audit would be a requirement “before” Shell was allowed to return to the Arctic, Stage 2 has yet to be completed and will presumably happen this summer while Shell is drilling.
Russia surpassed Saudi Arabia to become China’s top crude supplier as the fight for market share in the world’s second-largest oil consumer intensifies. China imported a record 3.92 million metric tons from its northern neighbor in May, according to data emailed by the Beijing-based General Administration of Customs. That’s equivalent to 927,000 barrels a day, a 20% increase from the previous month. Saudi sales slumped 42% from April to 3.05 million tons. China is becoming a key market for global oil exporters as surging output from shale fields from Texas to North Dakota allows the U.S., the biggest crude consumer, to rely less on overseas supplies. The Asian nation will account for more than 11% of world demand this year, the Paris-based International Energy Agency predicted this month.
“This is a clear sign of how spoilt Asia is for choice these days, with Middle Eastern crude now having to compete with oil from other regions,” Amrita Sen at Energy Aspects said in an e-mail. “Russia is increasingly looking east and the various deals made between Rosneft and China are likely to see more Russian crude head to China permanently.” Russia is China’s top crude supplier for the first time since October 2005 as it seeks new markets for its crude amid western sanctions over its dispute with Ukraine. Rosneft in 2013 agreed to supply 365 million tons over 25 years to China National under a $270 billion deal. The same year, the company agreed an $85 billion, 10-year deal with China Petrochemical. Russia isn’t the only crude shipper to overtake Saudi Arabia last month. Angola sold 3.26 million tons to China, 14% more from April, rising two places to take second spot.
In last month’s article Where are the Unicorns?, I discussed the fact that the commercial cellulosic ethanol plants that were announced with great fanfare over the past couple of years are obviously running at a small fraction of their nameplate capacity. In fact, April was a record month for cellulosic ethanol production according to the EPA’s database that tracks this information, but that meant that at least 8 months into the learning curves for these plants actual production for that month was only about 6% of nameplate capacity. May’s numbers are now in, and the situation has gotten worse. After reporting 288,685 gallons of cellulosic ethanol in April, May’s numbers only amounted to 114,018 gallons.
This is only about 2.4% of the nameplate capacity of the announced commercial cellulosic ethanol plants. If we use year-to-date numbers, the annualized capacity is still less than 3% of nameplate capacity for facilities that cost hundreds of millions of dollars to build. Let that soak in. POET alone spent $275 million, with U.S. taxpayers footing more than $100 million of that bill. Abengoa reportedly received $229 million from taxpayers for its project. For this (plus however much that was spent by INEOS), the combined plants are running at an annualized capacity of 1.7 million gallons of ethanol, which would sell on the spot market today for $2.6 million.
We can conclude from this that the three companies with announced commercial cellulosic ethanol facilities – INEOS, POET, and Abengoa – are finding the going much tougher than expected. I believe that the costs to produce their cellulosic ethanol are higher than the price they will receive for the ethanol. This is the sort of monthly cash drain that led to the shutdown of everyone else that ever tried to produce cellulosic ethanol commercially.
Some countries with high public debt levels might be able to “just live with it,” because cutting back carries its own risks, three IMF officials said in a paper that disputes decades of dogma about the benefits of austerity. The euro zone and other advanced economies have struggled with ballooning debt in the wake of the 2007-09 global financial crisis. Some have faced pressure to satisfy markets through fast fiscal consolidation. The IMF has already cautioned that cutting back on spending or raising taxes too quickly after the crisis could hurt growth. Now, IMF economists Jonathan Ostry, Atish Ghosh and Raphael Espinoza take that advice a step further, arguing that countries able to fund themselves in markets at reasonable costs should avoid the harmful economic impact of austerity.
“A radical solution for high debt is to do nothing at all,” they write in a blog accompanying a Staff Discussion Note, which does not represent the IMF’s official position, but could help shape its policies. “Debt is bad for growth … but it does not follow that paying down debt is good for growth. This is a case where the cure may be worse than the disease: paying down the debt would require further distorting the economy, with a corresponding toll on investment and growth.” Instead, countries can wait for their debt ratios to fall through higher economic growth or a boost in tax revenues over time. The austerity debate has become a hot political topic in countries such as the United Kingdom and Greece as voters protest the pain of budget cuts.
Greece’s Syriza government swept to power in January promising an end to austerity, but now faces pressure for more cuts in exchange for cash from international lenders. The IMF economists did not mention many specific countries, but cited a 2014 chart from Moody’s Analytics that put most advanced economies, including the United States, United Kingdom and Germany, solidly in the “green zone” of ample fiscal space, meaning there is no rush to cut back debt. France, Spain, Ireland should be cautious about debt, while Portugal faces “significant risk.” Japan, Italy, Greece and Cyprus face “grave risk,” meaning they must cut back, according to the chart.
No commentary necessary on this piece originally posted on the Wall Street Journal by Jon Hilsenrath (the same ad hoc, trial ballooning Fed mouthpiece whose work as it relates to the Federal Reserve has to be precleared by the Federal Reserve itself as we first reported five years ago). And no, to our best knowledge, this is not the WSJ transforming into the Onion.
from HILSENRATH’S TAKE: A LETTER TO STINGY AMERICAN CONSUMERS
Dear American Consumer,
This is The Wall Street Journal. We’re writing to ask if something is bothering you. The sun shined in April and you didn’t spend much money. The Commerce Department here in Washington says your spending didn’t increase at all adjusted for inflation last month compared to March. You appear to have mostly stayed home and watched television in December, January and February as well. We thought you would be out of your winter doldrums by now, but we don’t see much evidence that this is the case. You have been saving more too. You socked away 5.6% of your income in April after taxes, even more than in March. This saving is not like you. What’s up?
We know you experienced a terrible shock when Lehman Brothers collapsed in 2008 and your employer responded by firing you. We know stock prices collapsed and that was shocking too. We also know you shouldn’t have taken out that large second mortgage during the housing boom to fix up your kitchen with granite countertops. You’ve been working very hard to pay off this debt and we admire your fortitude. But these shocks seem like a long time ago to us in a newsroom. Is that still what’s holding you back? Do you know the American economy is counting on you? We can’t count on the rest of the world to spend money on our stuff. The rest of the world is in an even worse mood than you are. You should feel lucky you’re not a Greek consumer. And China, well they’re truly struggling there just to reach the very modest goal of 7% growth.
The Federal Reserve is counting on you too. Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates. We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.
Please let us know the problem. You can reach us at any of the emails below. Sincerely,
The Wall Street Journal’s Central Bank Team -By Jon Hilsenrath
It looks like Goldman Sachs doesn’t agree with Carl Icahn on at least one big issue: share buybacks. While the billionaire activist investor has continued to push Apple to purchase more of its stock, Goldman has published a note recommending companies stop spending their cash on buying back their overpriced shares and instead use those overpriced shares to buy other companies’ equity. As the bank puts it, “U.S. equity valuations look expensive on most metrics,” with the typical stock in the S&P 500 now trading at a price equal to more than 18 times forward earnings.
In the note, “What managements should do with their cash (M&A) and what they will do (buybacks),” Goldman strategists led by David Kostin argue that the current price to earnings (P/E) expansion phase has lasted 43 months and will likely end when the Federal Reserve starts raising interest rates, which the bank now expects will happen in September. As a firm, you would much rather buy back your stock when it’s trading at lower P/E multiples and get a better price. But as it turns out, corporate managers (much like investors) are pretty bad at timing the stock market. Using history as a guide, the last time buybacks were this high was in 2007, right before equities crashed during the financial crisis, Goldman notes.
Exhibiting poor market timing, buybacks peaked in 2007 (34% of cash spent) and troughed in 2009 (13%). Firms should focus on M&A rather than pursue buybacks at a time when P/E multiples are so high.
However, Goldman doesn’t expect companies to listen to its advice. The temptation to give investors what they seem to want is just too much.
We forecast buybacks will surge by 18% in 2015 exceeding $600 billion and accounting for nearly 30% of total cash spending. We recognize activist investors often advocate for firms to return excess cash to shareholders via buybacks.Tactically, repurchases may lift share prices in the near term, but in our view it is a questionable use of cash at the current time when the P/E multiple of the market is so high. In our view, acquisitions – particularly in the form of stock deals – represent a more compelling strategic use of cash than buybacks given the current stretched valuation of US equities.
Companies in the S&P 500 have so far spent a whopping $2 trillion repurchasing their shares over the past five years.
The Governmental Accounting Standards Board is implementing new rules that require governments, for the first time, to report unfunded pension liabilities on their 2015 balance sheets. This sticker shock should create new urgency for meaningful pension reform. A recent study put the unfunded pension liability for all state and local governments at $4.7 trillion. For too long, pension fund officials and politicians have increased payouts and low-balled contributions. As a result, they now have insufficient funds to pay the promised benefits. Accounting gimmicks have hidden the true cost from the public, who are now on the hook to make up the difference between pension promises and assets.
Illinois and New York have unfunded pension debts north of $300 billion each, while New Jersey, Ohio and Texas exceed $200 billion apiece. But nowhere is the problem worse than in California, which accounts for $550 billion to $750 billion of the total, depending on the calculation. The Golden State reveals the damage from long-term financial mismanagement of pension systems. For example, Ventura County’s pension costs have gone from $45 million in 2004 to $162 million in 2013. Overall from 2008 through 2012, California local governments’ pension spending increased 17% while tax revenue grew only 4%. As a result, a larger share of budgets goes to pensions, crowding out spending on core services such as police.
In San Jose, the police department budget increased nearly 50% from 2002 through 2012, yet staffing fell 20%. More money has been consumed by police pensions, leaving less money to hire and retain officers. In Oakland, police officers were given the option in 2010 to contribute 9% of their salary into their pensions and save 80 police jobs, or keep paying nothing into their pensions and see 80 jobs eliminated. The police union voted to continue paying nothing. Now the department refuses to respond to 44 different crimes because of the staffing cutbacks. Any pension system that forces this trade-off is immoral by threatening life and property.
Skyrocketing pension costs also crowd out other quality-of-life services. Public libraries, parks and recreation centers are shortening their hours or closing. Potholes go unfilled, sidewalks unrepaired and trees untrimmed. A new pension rate hike for California’s local governments will cost the city of Sacramento $12 million more a year – the equivalent of cutting 34 police officers, 30 firefighters and 38 other employees. California’s vested rights doctrine locks local governments into pension benefits for life on the day they hire an employee. They cannot modify pensions, forcing them to cut core services or declare bankruptcy, as happened in Vallejo, Stockton and San Bernardino.
“Europe’s economic crisis was an opportunity to show financial markets that the euro is to Greece as the dollar is to, say, West Virginia. Whatever happens next, we now know different.”
With both sides said to be drawing up final proposals, and a definitive debt crunch thought to be imminent, the months of brinkmanship over Greece may at last be drawing to a close. But who knows, really? You might think making this shambles any worse would challenge even these principals. I don’t know. I think they’re up to it. Whatever happens, take a moment to reflect on the damage already done during the stalemate — damage that will persist even if the brink isn’t crossed, and a deal is done to avoid a Greek default plus exit from the euro system. First, Greece’s economic situation, which was bad to begin with, has deteriorated further. Savers have been withdrawing deposits from Greek banks. Investors have hammered the stock market.
Under these conditions, few businesses choose to invest or expand. Despite cheap oil and a weaker euro, the Greek economy has fallen back into recession. Second, as a result, the country’s bad fiscal situation is now worse. Whatever fiscal targets are eventually agreed to — assuming that happens — will be harder to meet. A deal sufficient, four months ago, to stabilize Greece’s public finances and restore growth might no longer work. Greece already has two failed bailout programs to its name. The stalemate makes the failure of the next program, if there is one, more likely. Third, the world has learned that exit from the euro system is not just thinkable but has actually been advocated, as a kind of disciplinary measure, by officials in Germany and other countries.
It’s widely understood that if Greece leaves the euro system or is forced out, attention will turn, sooner or later, to the question of who’s next. Every serious economic setback will raise that question. Less widely understood is that much of this damage to the euro zone’s foundations has already been done, and is irreversible. Once you think the unthinkable — debate the pros and cons, start to plan for it — there’s no going back.
In his celebrated (if belated) intervention in 2012, ECB President Mario Draghi said he would do whatever it took to keep the euro system intact; Europe’s economy rallied. Whatever happens this week or next regarding Greece, Europe’s leaders have reneged on that promise: They might do whatever it takes, but they’ll need to think about it first. Europe’s economic crisis was an opportunity to show financial markets that the euro is to Greece as the dollar is to, say, West Virginia (no disrespect to that fine state). Whatever happens next, we now know different.
The impasse over Greece’s future lingered as both sides worked on rival proposals for the conditions of a financial lifeline with debt payments looming. Greek Prime Minister Alexis Tsipras said his government submitted a new plan, while officials from the country’s creditors were said to be finalizing what would be a final offer to avoid the country defaulting. While the euro rallied on optimism over a deal, Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said institutions are still far from any agreement. “As long as it doesn’t meet economic conditions, we can’t come to an agreement,” he told RTL television. “It’s not right to think that we can meet half way.”
After four months of antagonism and extended deadlines, there’s evidence now of greater urgency in efforts to break the deadlock and decide Greece’s fate. At the same time, there were mixed messages over how final any offer might be and whether any agreement can be reached in coming days. While Greece says it can make a debt repayment to the IMF on Friday, it’s the smallest of four totaling almost €1.6 billion this month. The timing coincides with the expiration of a euro-region bailout by the end of June. The deputy parliamentary leader of German Chancellor Angela Merkel’s party, Ralph Brinkhaus, described the negotiating situation as “very confused.”
Greek Prime Minister Alexis Tsipras will meet European Commission President Jean-Claude Juncker Wednesday for make-or-break bailout talks with a deadline looming for Athens to make a critical repayment. Greece and its international creditors have exchanged proposals to reach a deal to unlock €7.2 billion to help Athens make Friday’s repayment, but months of fractious talks have been deadlocked over creditors’ insistence that Athens undertake greater reforms which Greece’s anti-austerity government has refused to match. Meanwhile there are fears that Greece could default, possibly setting off a chain reaction that could end with a messy exit from the eurozone.
Jeroen Dijsselbloem, the head of the Eurogroup which is comprised of the eurozone’s 19 members, has said he was unimpressed with progress made in the debt talks, after Athens claimed its plan was a «realistic» one. His remarks come with Tsipras due to meet Juncker in Brussels on Wednesday evening, a government source said. Tsipras on Tuesday raised hope of a breakthrough, with the leader of Greece’s left-wing Syriza government telling reporters: «We have made concessions because a negotiation demands concessions, we know these concessions will be difficult.” In Brussels, the European Union called the exchange of documents a positive step, but stopped short of saying a deal was imminent.
“Many documents are being exchanged between the institutions and the Greek authorities… The fact that documents are being exchanged is a good sign,» European Commission spokeswoman Annika Breidthardt said. Asked about the possibility of a deal, she added: «We’re not there yet.”
The Greek Prime Minister is expected to come under pressure on Wednesday to reach a much-needed deal with the country’s international creditors, who have reportedly drafted an agreement – although Greece denies that it has seen the proposals yet. On Tuesday, the Troika drafted the broad lines of an agreement to put to the Greek government, according to Reuters, in a bid to resolve months of tense negotiations over Greek reforms and debt. It comes after the German and French leaders, Angela Merkel and Francois Hollande, held emergency talks with the creditors on Monday night and urged them to find a solution. A Greek government official told CNBC Wednesday that Greece hadn’t yet seen the proposals, however.
“They have not submitted the text and this is what has surprised us. We think it is very odd,” the official, who did not want to be named due to the sensitive nature of the ongoing discussions, told CNBC. The source confirmed that Prime Minister Alexis Tsipras was due to travel to Brussels to meet with the Commission’s President, Jean-Claude Juncker, later in the day. “We’re going to use this evening’s meeting as a basis to discuss our own proposals, which are full and concrete plans and include a final review of our existing bailout program,” the official added. “We have very good ideas about a growth plan and have a set of proposals that will take any thoughts of a ‘Grexit’ (a Greek exit from the euro zone) off the table.”
Any offer of a deal from creditors puts the ball firmly in Greece’s court, although the consequences of it rejecting an agreement could be dire. Athens faces a €300 million payment to the IMF on Friday, but there are doubts that the country can honor the debt without further financial aid. In something of a pre-emptive strike, Greece submitted its own reform proposals to its European counterparts earlier this week, but they were deemed – not for the first time – “insufficient.” Michael Hewson, chief market analyst at CMC Markets, said Wednesday that given the tense negotiations between Greece and its lenders over the last four months, a quick agreement was unlikely.
“.. local governments have borrowed as much as $4 trillion, mostly through shadowy off-balance-sheet financing vehicles; around $300 billion of that debt matures this year.”
Chinese Premier Li Keqiang says that rebalancing China’s economy will be as painful as “taking a knife to one’s own flesh.” That may not be much of an exaggeration. The news on China’s economy is bad. Growth has slowed to a little over 5% (quarter on quarter, at an annual rate); prices are falling; consumer confidence is weak; corporate and local-government debts remain dangerously high. Even now, a well-managed exit from the country’s credit binge may be possible, but an entirely painless one is not. Trying too hard to delay the inevitable will end up making things worse. What scares the government most is the prospect of a wave of corporate and municipal defaults.
According to Mizuho Securities Asia, local governments have borrowed as much as $4 trillion, mostly through shadowy off-balance-sheet financing vehicles; around $300 billion of that debt matures this year. Plunging property prices and declining land sales – as well as slower manufacturing investment as companies focus on paying down debt – are worsening the problem by squeezing demand and holding back growth. Several economists expect China to have difficulty meeting its target of 7% growth in gross domestic product this year. Slower growth will make it even harder for local governments to make their payments. Beijing is leading an effort to restructure the borrowing and make it more transparent – but the plan envisioned won’t cover all the debts coming due this year.
China’s State Council recently admitted as much, telling banks to roll over some of the obligations. The directive was understandable; even so, forcing banks to prop up local governments means throwing good money after bad. The problem isn’t solved, and the day of reckoning, when it comes, will be worse. Meanwhile, applying much the same logic, the government has talked up a stock market that now looks wildly inflated. Since last summer, it has been urging households to invest, and official reassurance follows every market setback. Even after a 6.5% plunge on May 28, the Shanghai Composite is still up 127% over the past year, despite the slowing economy and falling profits. On the tech-heavy Shenzhen Composite Index, price-to-earnings ratios in excess of 100 aren’t uncommon.
Many observers assume that China is on a path to become the next Japan – a major economy mired in a multiyear deflationary funk that deflates its global clout. And it’s certainly true that the way that Beijing has been downplaying its debt problems is eerily reminiscent of Tokyo’s public relations strategy from the 1990s. But take a closer look at China’s situation, and you’ll realize a better analogy is South Korea. China’s expanding effort to pile debt risks on individual investors is straight out of Seoul’s playbook. South Korea’s economy crashed in 1997 under the weight of debts compiled by the country’s family-owned conglomerates. The government’s strategy for dealing with the fallout consisted of shifting the debt burden to consumers.
With a blizzard of tax incentives and savvy PR, Korea shrouded the idea of amassing household debt to boost growth in patriotic terms. That push still haunts Korea. Today, the country’s household debt as a ratio of gross domestic product is 81%. That far exceeds the ratios in U.S., Germany and, at least for the moment, China. As a result, Korea has been particularly susceptible to downturns in the global economy, which is why the country is now veering toward deflation. Is China repeating Korea’s mistakes? Granted, the specific of Beijing’s economic strategy vary greatly and China’s $9.2 trillion economy is seven times bigger than Korea’s. But the Chinese government’s efforts to prod households to buy stocks and assume greater financial risks are highly reminiscent of Korean policy.
Beijing has been encouraging everyone in the country, from the richest princelings to the poorest of peasants, to buy stocks. And China’s markets have been booming as a result: Over the past 12 months, the Shanghai exchange is up 141%, and the Shenzhen exchange is up 188%. Margin trading, which has fueled these rallies, seems to have jumped another 45% in May, to a total of $484 billion. [..] But who will suffer when stocks inevitably swoon? Beijing is making a risky bet, by assuming Chinese savers will be capable of dealing with the burden of a stock market downturn. This strategy is morally questionable – it’s another instance of Chinese savers being set up to take the fall for government policy, as they were during the hyperinflation of the 1940s, and in modern times, when they faced strict limits on deposit rates.
Moreover, it would be far easier for Beijing to bail out a handful banks and dispose of bad loans that are concentrated at a few dozen companies, than deal with debts that are distributed to households across the country. Increasingly, there are signs that a reckoning will soon be in the offing. On May 28 alone, Shanghai lost $550 billion in market value – a reminder stocks can’t surge 10% a week forever, not even in China. Why would the government want to risk the possibility hundreds of millions of aggrieved day traders heading onto the streets with protest banners?
If one sentence sums up the farce that the hyper-speculative ponzifest that is the 500% club in China it is “Hanergy Group was basically using the listed company as a means to produce collateral in the form of shares that it could then pledge to secure financing.” While the stock has been cut in half, lenders remain mired in opacity as they try to figure out, as Bloomberg reports, which of Chinese billionaire Li Hejun’s many creditors risk losing every yuan they put into his company? Shenzhen and CHINEXT indices are lower out of the gate today after a 14% and 18% surge in the last 2 days as a group of 11 lenders (ranging from large banks to small asset managers) ask for a meeting to discuss various loans with various Hanergy entities… and whatever they find in Hanergy is bound to have been repeated manifold across China’s manic markets.
As investors grow a little weary of “the opacity about parent finances and billings,” in Hanergy and across numerous other names we are sure. As Bloomberg reports, a plethora of Chinese lenders are exposed to Hanergy Thin Film and its parent company, including Industrial and Commercial Bank of China, which is owed tens of millions of dollars.
“The interesting thing with Hanergy is that so much is happening with the parent company that investors know nothing about,” said Charles Yonts, an analyst with CLSA Asia-Pacific Markets in Hong Kong. “The opacity about parent finances and billings is extraordinary.” A Bloomberg examination of debt held by Hanergy Thin Film and its closely held parent, Hanergy Holding Group Ltd., show Li has tapped a variety of financing sources since the Hong Kong unit’s stock started surging last year. They include policy-bank lending, short-term loans from online lenders with interest rates of more than 10% and partnerships with local governments.
Oil companies that have pumped trillions of barrels of crude from the ground are now saying the future is in their other main product: natural gas, a fuel they’re promoting as the logical successor to coal. With almost 200 nations set to hammer out a binding pact on carbon emissions in December, fossil-fuel companies led by Shell and Tota say they’re refocusing on gas as a cleaner alternative to the cheap coal that now dominates electricity generation worldwide. That’s sparked a war of words between the two industries and raised concern that Big Oil is more interested in grabbing market share than fighting global warming “Total is gas, and gas is good,” Chief Executive Officer Patrick Pouyanne said Monday, in advance of this week’s World Gas Conference in Paris.
His remarks echoed comments two weeks earlier by Shell CEO Ben Van Beurden, who said his company has changed from “an oil-and-gas company to a gas-and-oil company.” Shell began producing more gas than oil in 2013 and Total the following year. Exxon Mobil ’s output rose to about 47% of total production last year from 39% six years ago. Companies are pushing sales in China, India and Europe. Coal from producers led by Glencore and BHP Billiton produces about 40% of the world’s electricity. Shell, Total, BP and other oil companies said Monday in a joint statement that they’re banding together to promote gas as more climate friendly than coal. “The enemy is coal,” Pouyanne said Monday. He vowed to pull out of coal mining and said Total may also halt coal trading in Europe.
A key strategy for gas producers to push this agenda is asking governments to levy a price on carbon emissions from power plants. That creates an economic incentive to switch from coal, the top source of greenhouse gases, to cleaner options. BP CEO Bob Dudley called for a carbon price at the company’s shareholder meeting April 16, while Exxon head Rex Tillerson on May 27 reiterated support for a carbon tax if consensus emerges in the U.S. Even without carbon pricing, gas has been displacing coal in the U.S., Tillerson said in Paris today. “Natural gas use in the U.S. has reduced carbon dioxide emissions to levels not seen since the 1990s,” he said in a speech. “And the U.S. has no comprehensive cost of carbon policy.”
A dearth of investment by governments and business has left the global economy vulnerable to a renewed slowdown, a leading thinktank has warned as it slashed its forecasts for the United States. The Organisation for Economic Cooperation and Development (OECD) said the recovery since the global financial crisis had been unusually weak, costing jobs, raising inequality and knocking living standards. In its latest outlook, it saw global growth gradually strengthening but not until late 2016 will it return to the average pace of pre-crisis years. The Paris-based thinktank noted a slowdown for many advanced economies in the opening months of 2015 and singled out a sharp dip for the US, the world’s biggest economy.
It cut its projection for US economic growth to 2% this year from a forecast of 3.1% made in March. For 2016, US growth is seen at 2.8%, down from the previous 3% forecast. The OECD is cautious, despite hoping that the weakness in the first quarter of this year was down to temporary factors, such as unusually harsh weather in the US. “The world economy is muddling through with a B-minus average, but if homework is not done and with less-than-average luck, a failing grade is all too possible,” said OECD chief economist Catherine Mann. “On the other hand, how to get the A is known and within reach,” she added, highlighting the need for more investment.
On the upside, the OECD expected growth to be shared more evenly across regions of the world and says labour markets continue to heal in advanced economies while risks of deflation have receded. “Yet, we give the global economy only the barely-passing grade of B-,” said Mann. The dissatisfaction is not just down to an “inauspicious” starting point after a weak first quarter, she added.
Of all the financial threats facing Americans of retirement age — outliving savings, falling for scams, paying for long-term care — housing isn’t supposed to be one. But after a home-price collapse, the worst recession since the 1930s and some calamitous decisions to turn homes into cash machines, millions of them are straining to make house payments. The consequences can be severe. Retirees who use retirement money to pay housing costs can face disaster if their health deteriorates or their savings run short. They’re more likely to need help from the government, charities or their children. Or they must keep working deep into retirement.
“It’s a big problem coming off the housing bubble,” says Cary Sternberg, who advises seniors on housing issues in The Villages, a Florida retirement community. “A growing number of seniors are struggling with what to do about their home and their mortgage and their retirement.” The baby boom generation was already facing a retirement crunch: Over the past two decades, employers have largely eliminated traditional pensions, forcing workers to manage their retirement savings. Many boomers didn’t save enough, invested badly or raided their retirement accounts. The Consumer Financial Protection Bureau’s Office for Older Americans says 30% of homeowners 65 and older (6.5 million people) were paying a mortgage in 2013, up from 22% in 2001.
Federal Reserve numbers show the share of people 75 and older carrying home loans jumped from 8% in 2001 to 21% in 2011. What’s more, the median mortgage held by Americans 65 and older has more than doubled since 2001 — to $88,000 from $43,400, the financial protection bureau says. In markets hit hardest by the housing bust, a substantial share of older Americans are stuck with mortgages that exceed their home’s value. In Atlanta, it’s 23% of homeowners 50 and older, according to the real-estate research firm Zillow. In Las Vegas, it’s 26%.
Prime Minister Tony Abbott doesn’t understand the housing market, doesn’t care about housing affordability, and is therefore poorly versed on the issues facing Australia’s non-mining sector. The housing market and the business sector are intrinsically and unavoidably linked. Neither operates in a vacuum; developments – good and bad – in one market inevitably spill over into the other. The business sector, for example, pays our wages, which many of us obviously use to pay down our mortgages. Meanwhile, land prices are a considerable cost for most businesses – they need floor space to sell their goods or new land to build or expand a factory. If you are prime minister of a country you need to understand how this works.
It’s basic economics and yet there is clear evidence that Abbott simply doesn’t get it. His comments yesterday on the property market and housing affordability were a case in point. “As someone who, along with the bank, owns a house in Sydney I do hope our housing prices are increasing,” Abbott said during question time yesterday. “I do want housing to be affordable, but nevertheless I also want house prices to be modestly increasing.” I am sure that many readers will agree with this sentiment. But Abbott is charged with acting in the public interest; that is the standard by which he is judged. Unfortunately, rising house prices – particularly the type of growth experienced in Sydney – are neither in the public interest nor in the broader interest of Australian businesses.
High land prices are a crippling barrier for many Australian corporations. It’s a key reason – along with high wages – why Australian manufacturing continues to retreat. It hurts shopkeepers and department stores; any business that requires a physical location to operate is hampered by elevated land prices. High land prices make it difficult to produce a sufficient quantity to get fixed costs down to competitive levels. Unfortunately, it’s too costly to buy new land and build a new factory, which means too many Australian businesses fall short of their potential.
WikiLeaks announced an effort Tuesday to crowd-source a $100,000 reward for the remaining chapters of the Trans-Pacific Partnership trade deal, after the organization published three draft chapters of the deal in recent years. “The transparency clock has run out on the TPP. No more secrecy. No more excuses. Let’s open the TPP once and for all,” WikiLeaks founder Julian Assange said in a statement.
Critics say that the deal being negotiated by the United States and other Pacific Rim countries would hurt American workers and the economy, while proponents argue that it would help the United States establish a stronger economic foothold in the region with regard to China. The three chapters that WikiLeaks has already published include sections on intellectual property rights, published in November 2013, the environment, published in January 2014, and investment, published this March. The $100,000 reward marks the beginning of a new program for the organization, in which users can pledge funding to get the chapters they want the most.
If there is a Pulitzer Booby Prize for stupidity, waste no time in awarding it to The New York Times’ Monday feature, The Unrealized Horrors of Population Explosion. The former “newspaper of record” wants us to assume now that the sky’s the limit for human activity on the planet earth. Problemo cancelled. The article and accompanying video was actually prepared by a staff of 23 journalists. Give the Times another award for rounding up so many credentialed idiots for one job. Apart from just dumping on Stanford U. biologist Paul Ehrlich, author of The Population Bomb (1968), this foolish “crisis report” strenuously overlooks virtually every blossoming fiasco around the world. This must be what comes of viewing the world through your cell phone.
One main contention in the story is that the problem of feeding an exponentially growing population was already solved by the plant scientist Norman Borlaug’s “Green Revolution,” which gave the world hybridized high-yielding grain crops. Wrong. The “Green Revolution” was much more about converting fossil fuels into food. What happens to the hypothetically even larger world population when that’s not possible anymore? And did any of the 23 journalists notice that the world now has enormous additional problems with water depletion and soil degradation? Or that reckless genetic modification is now required to keep the grain production stats up?
No, they didn’t notice because the Times is firmly in the camp of techno-narcissism, the belief that the diminishing returns, unanticipated consequences, and over-investments in technology can be “solved” by layering on more technology — an idea whose first cousin is the wish to solve global over-indebtedness by generating more debt. Anyone seeking to understand why the public conversation about our pressing problems is so dumb, seek no further than this article, which explains it all. Climate change, for instance, is only mentioned once in passing, as though it was just another trashy celebrity sighted at a “hot” new restaurant in the Meatpacking District. Also left out of the picture are the particulars of peak oil (laughed at regularly by the Times, which proclaimed the US “Saudi America” some time back), degradation of the ocean and the stock of creatures that live there, loss of forests, the political instability of whole regions that can’t support exploded populations, and the desperate migrations of people fleeing these desolate zones.
A long time ago—almost a quarter of a century—I worked in a research lab, designing measurement and data acquisition electronics for high energy physics experiments. In the interest of providing motivation for what follows, I will say a few words about the job. It was interesting work, and it gave me a chance to rub shoulders (and drink beer) with some of the most intelligent people on the planet (though far too fixated on subatomic particles). The work itself was interesting too: it required a great deal of creativity because the cutting edge in electronics was nowhere near sharp enough for our purposes, and we spent our time coming up with strange new ways of combining commercially available components that made them perform better than one had the right to expect.
But most of my time went into the care and feeding of an arcane and temperamental Computer Aided Design system that had been donated to the university, and, for all I know, is probably still there, bedeviling generations of graduate students. With grad students just about our only visitors, the atmosphere of the lab was rather monastic, with the days spent twiddling knobs, pushing buttons and scribbling in lab notebooks. And so I was quite pleased when one day an unexpected visitor showed up. I was busy doing something quite tedious: looking up integrated circuit pin-outs in semiconductor manufacturer’s databooks and manually keying them into the CAD system—a task that no longer exists, thanks to the internet.
The visitor was a young man, earnest, well-spoken and nervous. He was carrying something wrapped in a black trash bag, which turned out to be a boombox. These portable stereos that incorporated an AM/FM radio and a cassette tape player were all the rage in those days. He proceeded to tell me that he strongly suspected that the CIA was eavesdropping on his conversations by means of a bug placed inside this unit, and he wanted me to see if it was broadcasting on any frequency and to take it apart and inspect it for any suspicious-looking hardware.
Prices in British shops have moved into their third year of decline as a result of widespread supermarket discounting and cheaper fresh food , according to new industry figures. The British Retail Consortium (BRC) said shop prices in May were down 1.9% on last year’s levels, unchanged from April’s rate of decline and the 25th straight month of deflation. The fall will reinforce expectations that the broader official measure of inflation in the UK will remain low for some months to come after turning negative in April. The BRC found food prices again fell 0.9% in May while non-food deflation held at 2.5%.
Within those categories, fresh food fell at a record pace of 1.9% thanks to meat, milk, cheese and eggs all being cheaper than a year ago, according to the BRC report with market research company Nielsen. Comparable records began in December 2006. The latest BRC-Nielsen Shop Price Index shows prices fell 1.9% in May from a year ago. It was the 25th consecutive month of falling shop prices. Falling non-food prices are now in their third year and food prices have been in deflationary territory for five straight months. “Retailers continue to use price cuts and promotions to stimulate sales which is helping to maintain shop price deflation, and we see little evidence to suggest that prices will rise in the near future,” said Mike Watkins, Nielsen’s head of retailer and business insight.
He predicted that discounting will help keep the official consumer price index (CPI) measure of inflation low for some time. “With many food retailers still using price cuts to attract new shoppers, this is lowering the cost of the weekly shop and so the overall CPI figure in the UK. Deflation and price led competition will continue to be a key driver of sales growth for some time yet,” added Watkins.
Thousands of children in the UK, many of them British, are living in dangerous, squalid conditions well below the poverty line as a result of rapid changes to government immigration and benefit policies, a report by the Centre on Migration, Policy and Society at the University of Oxford warned on Wednesday. Children are the “collateral damage” of “a dysfunctional system in which they are the ultimate losers” according to the authors of the Compas report, which estimates that 3,391 families and 5,900 children were supported under local authorities’ Section 17 Children Act 1989 duties in 2012/13. Two thirds of families who were supported by local authorities for up to two years or more – at a cost of £28m for the year – were waiting for a decision from the Home Office; of the cases looked at by the study, 52% were granted leave to remain.
Charities seeing an increase in the numbers forced into destitution – with some families living on as little as £1 per person per day – argue it is only a matter of time before a tragedy on the scale of Victoria Climbié occurs to a child from a family who has “no recourse to public funds” (NRPF), a criterion for many attempting to regulate their immigration status. Victoria Climbié, an eight-year-old, was tortured and murdered by her guardians in 2000. Her death led to a public inquiry and produced major changes in child protection policies in the United Kingdom. NRPF families – including those on visas, overstayers and those applying for British citizenship who cannot work or claim benefits – were being abandoned by the Home Office while their status applications were being processed, leaving cash-strapped local authorities struggling to cope with the burden of caring for children whom they had a legal obligation to protect from destitution.
“There is a real tension between the desire to keep these people out of the welfare state and the legal obligation that falls on local authorities,” said co-author Jonathan Price. “There is a question to be asked about the long-term impact on children of living on subsistence rates that are well below welfare rates.” The report, funded by the Nuffield Foundation, found that support from local authorities varied wildly. Families were grateful for any support they received, but subsistence payments “in all cases were well below support for destitute asylum seekers and hard case support rates”, said the report. One authority provided £23.30 per child per week and nothing for parents: for a family with two parents and one child, a little over £1 per person per day.
This September, the world’s leaders will converge on the United Nations to declare a new set of Sustainable Development Goals for planetary progress over the next 15 years. Their first target will be to “eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day.” That’s a heady vision, one already embraced both by U.S. President Obama and Jim Kim, president of the World Bank—the organization that set the $1.25 poverty line back in 2005. There’s just one problem: According to the World Bank, extreme poverty isn’t what it used to be. It turns out that the technique the bank has used in the past to set the extreme poverty line essentially guarantees we won’t wipe out extreme poverty by 2030—or ever.
To save face, the World Bank’s economists are likely to change the method to one that creates a definition of extreme poverty that can be eradicated. But in doing so, they’ll set a poverty line that will move further and further away from anyone’s actual idea of what it is to be poor. Ask people what level of income would make them poor and they tend to come up with a number that’s relative to their income. In the U.S., people are surveyed as to the amount of income necessary for a family of four to “get along.” In 1950, the answer was $48 a week, or around 75% of household mean income that year. More than half a century later in 2007, the average answer was $1,000 a week—or around 77% of mean income. Given that most people define poverty using a relative approach, it isn’t surprising that most governments tend to come up with national poverty lines that are explicitly or implicitly relative to average incomes.
The U.S. is an exception: It has a poverty line that is explicitly absolute—you are poor if your income is lower than the cost of a food basket, plus an allowance for nonfood expenditures like rent. This standard was set in the 1960s and has been updated only to reflect inflation. As a proportion of U.S. median household income, the poverty line has fallen from one-half to below one-quarter since 1963. But the European Union uses a poverty line that is explicitly relative—you are poor if you live in a household with an income that is below 60% of mean household income. And it turns out that while most developing countries purport to use an absolute poverty line, in practice they implement a relative approach.
Most commonly, the poverty line is officially set using a basket of goods meant to reflect basic needs. But as countries get richer, the basic needs bundle gets more generous. Food costs start to include meat and fish alongside grains and vegetables, for example. And nonfood costs add utilities and transport alongside rent. That’s why China doubled its (supposedly absolute) poverty line in 2011 after years of strong economic growth. And it’s why there is a strong positive relationship between GDP per capita and the value of the poverty line across countries.
From southern Europe to the far north, matters are shifting, sometimes slowly, sometimes faster. There are moments when it seems all that goes on is the negotiations over the Greek dire financial situation and its bailout conditions, but even there nothing stands still. The Financial Times ran a story claiming Greece is about to default on is debt(s), and many a pundit jumped on that, but there was nothing new there. Of course they are considering such options, but they are looking at many others as well. That doesn’t prove anything, though.
Yanis Varoufakis’ publisher, Public Affairs Books, posted a promo for an upcoming book by the Greek Finance Minister, due out only in 2016, mind you, that reveals a few things that haven’t gotten much attention to date. It’s good to keep in mind that most of the book will have been written before Yanis joined the new Greek government on January 26, and not see it as a reaction to the negotiations that have played out after that date.
Varoufakis simply analyzes the structure of the EU and the eurozone, as well as the peculiar place the ECB has in both. Some may find what he writes provocative, but that’s beside the point. It’s not as if Europe is beyond analysis; indeed, such analysis is long overdue.
Indeed, it may well be the lack of it, and the idea in Brussels that it is exempt from scrutiny, even as institutions such as the ECB build billion dollar edifices as the Greek population goes hungry, that could be its downfall. It may be better to be critical and make necessary changes than to be hardheaded and precipitate your own downfall. Here’s the blurb for the book:
“The strong do as they can and the weak suffer what they must.” —Thucydides
The fate of the global economy hangs in the balance, and Europe is doing its utmost to undermine it, to destabilize America, and to spawn new forms of authoritarianism. Europe has dragged the world into hideous morasses twice in the last one hundred years… it can do it again. Yanis Varoufakis, the newly elected Finance Minister of Greece, has a front-row seat, and shows the Eurozone to be a house of cards destined to fall without a radical change in direction. And, if the EU falls apart, he argues, the global economy will not be far behind.
Varoufakis shows how, once America abandoned Europe in 1971 from the dollar zone, Europe’s leaders decided to create a monetary union of 18 nations without control of their own money, without democratic accountability, and without a government to support the Central Bank.
This bizarre economic super-power was equipped with none of the shock absorbers necessary to contain a financial crisis, while its design ensured that, when it came, the crisis would be massive. When disaster hit in 2009, Europe turned against itself, humiliating millions of innocent citizens, driving populations to despair, and buttressing a form of bigotry unseen since WWII.
In the epic battle for Europe’s integrity and soul, the forces of reason and humanism will have to face down the new forms of authoritarianism. Europe’s crisis is pregnant with radically regressive forces that have the capacity to cause a humanitarian bloodbath while extinguishing the hope for shared prosperity for generations to come. The principle of the greatest austerity for the European economies suffering the greatest recessions would be quaint if it were not also the harbinger of misanthropy and racism.
Here, Varoufakis offers concrete policies that the rest of the world can take part in to intervene and help save Europe from impending catastrophe, and presents the ultimate case against austerity. With passionate, informative, and at times humorous prose, he warns that the implosion of an admittedly crisis-ridden and deeply irrational European capitalism should be avoided at all cost. Europe, he argues, is too important to be left to the Europeans.
How dire the situation is in Greece becomes obvious from the following article by documentary film maker Constantin Xekalos, posted on Beppe Grillo’s site. It makes you wonder how Europe dare let this happen. How it could possibly have insisted prior to the January elections that the Greeks should vote for the incumbent government, and how someone like Eurogroup head Dijsselbloem could ever have had the gall to point to “all the progress we’ve made”.
Greece is a social disaster zone. 3 million people are without guaranteed healthcare, 600,000 children are living under the breadline and more than half of them are unable to meet their daily nutritional needs. 90% of families living in the poorer areas rely on food banks and feeding schemes for survival, and unemployment is approaching 30%, with youth unemployment approaching 60%. These are not just numbers, they are real people. In order to show their faces and tell their stories, writer and documentary film maker from Crete and now living in Florence, Constantin Xekalos, decided to make a documentary film entitled: “Greece, the Euro’s greatest success “. In today’s Passaparola he talks about this documentary film and about the suffering of the Greek people that he has encountered in his personal experience. Today it is all happening, but is Italy next?
The healthcare tragedy in Greece When we made this documentary it was said that 1/3 of the Greek population, (more than 3 million people,) were without any guaranteed healthcare. In the interim that number has grown. They have been abandoned. If you go to a hospital, obviously a public one, they will treat you and they will accept you if it is an emergency, but if you are admitted, you then have to pay. If you are unable to pay, they send the bill to the Receiver of Revenue’s office and they take it from there. If you have no money, they start with foreclosure, even your home , even if it is your only home!
This is crime against society that is totally unacceptable. In an advanced and so-called democratic Country that is part of the western world, things like this are totally inconceivable, absurd and unacceptable. I repeat, this is crime against society that we absolutely cannot accept! If you are ill, democracy guarantees the treatment you need, otherwise it should be called by some other name. When a child is not guaranteed the nutrition he/she needs, a mere helpless child, or elderly people that are no longer able to look after themselves, then that is no longer democracy. Some of the older Greeks were telling me that when the Germans were there during the occupation in the Second World War, the people lived exactly like they are living now.
The Greeks are dying of hunger 90% of Greek families living in the poorer areas are obliged to rely on food banks and feeding schemes in order to survive. Unfortunately there are many in this situation. We toured a number of Athens’ districts and in each and every district there is a square where good people, people who care about others and truly have a sense of community have rolled up their sleeves and, with the help of the Church, are providing meals for those who would otherwise have nothing to eat. Every district has its own square. I saw children passing out because of lack of food, but are too embarrassed to admit it. We simply cannot accept this kind of thing. It’s a crime when children go without food to eat. I will shout that from the rooftops until I burst and I hope that they lay charges against me: it is a crime when a child cannot get enough to eat!
The disappearance of the Greek middle-class Many good people found themselves unemployed from one day to the next, not through any fault of their own and not by choice, not lazy people as they would have us believe. They want to work but at this point there simply are no jobs any more. The social fabric is gone, there is no more middle-class, it is virtually nonexistent. All there is is an ever-shrinking oligarchy of very wealthy people and then the rest of the people who are becoming ever poorer. Very real poverty! Currently, and here I’m talking about the latest data from a month ago now, someone who does indeed find a job has to accept a salary of €300 a month . Take into account that Athens is a very expensive city to live in, even more so than Florence. I happen to live in Florence so this is just by way of example, but I was horrified at the thought. How on earth do these people manage to live? There is no way that they can live decently, there is no longer any dignity and therefore they cannot be free: they are destroying your soul as well as you body!
Over 50% of young people are unemployed Youth unemployment is now standing somewhere between 50% and 60% . The young people do whatever they can, they accept any kind of position, even things that not right and unfair, simply because necessity forces them to accept job offers that should not even be made. I saw jobs offered at €100 a month . This sort of thing is now happening here in Italy as well.
What all this will eventually lead to, inevitably so, becomes clear from the following. Anti-euro, anti-immigrant, anti-bailout and down the line anti anything to do with the failed European project. In Finland, of all places, the anti-euro party looks certain to get into the next government. Finland’s economy is in tatters, despite its AAA rating, and people increasingly choose to see the world through blinders.
The anti-euro The Finns party, which eight years ago got just 4% of the vote, is now dressing itself up for Cabinet seats as Finnish voters are set to oust the government after four years of economic failure. The Finns, whose support is based on equal parts of anti-euro, anti-immigrant and anti-establishment sentiment, have captured voters on the back of the euro-area’s economic crisis and a home-grown collapse of key industries. In the 2011 election, during the height of the euro crisis, it shocked the traditional parties by winning 19% of the vote. “We can’t be ignored, because a strong majority government won’t be possible without us,” Timo Soini, the party leader, said [..]
The country is struggling to emerge from a three-year recession after key industries such as its papermakers have buckled amid slumping demand and Nokia Oyj lost in the smartphone war, cutting thousands of jobs. The government has raised taxes and lowered spending, adding to unpopularity, and on top of that have been bailout costs for Greece and Portugal, among others, which have eroded finances for Finland, still top-rated at Fitch Ratings and Moody’s Investors Service. “Our stance will be very tight, no matter what,” Soini said. “Nothing is forcing Finland to participate in these bailout policies. If we don’t want to take part, we can refuse.”
Soini’s recipe for fixing the economy includes encouraging exports, backing entrepreneurship, investing in road infrastructure and cutting red tape. The party seeks to balance public finances through budget cuts of as much as €3 billion and higher taxes for the wealthy. The euro-skeptic group will probably join a three-party coalition. Polls predict more than 50 seats out of 200 for the opposition Center Party.
The Center Party backed bailouts and loans for Greece, Portugal and Ireland while in government in 2010 and 2011 and was then ousted. It has since opposed further help, alongside The Finns party. The Center Party and us will have a majority within the government, if it keeps the stance it has had,” Soini said. His group isn’t currently pushing for Finland to exit the euro. Still, “Finland should under no circumstances declare it will always and forever stay,” he said.
The party first negotiated joining government after the 2011 elections, after catapulting to third place with 39 lawmakers. Its opposition to euro-area bailouts in the height of the crisis meant the door to government was closed. In 2007, its five seats didn’t qualify for an invitation to join talks to form a ruling coalition. “We’ve grown, we’ve moved forward, we’ve stabilized,” Soini said. “It’s a key goal for us to consolidate our backing and be one of the big parties, so that we’re not just a one-vote wonder.”
Of course, there are worse options than the True Finns. You can get from anti-immigrant to downright extreme right wing, where Greece may be headed if Europe doesn’t adapt to Syriza’s view of what the eurozone might be.
The prevailing views amongst Europe’s richer nations, and its domestic banking sectors, don’t look promising. And when the European project crashes to a halt, things are not going be pretty. The wisest thing for Brussels to do may well be to try and dismantle itself as peacefully as it can. But Brussels is far too loaded with people seeking to hold on to the power they have gathered.
Still, there’s no denying they have held sway over rapidly deteriorating conditions on the ground (though they will prefer to lay the blame elsewhere), which will down the line lead to their own downfall. They better listen to Yanis now.
“In many states, offenders are expected to finance the justice system, including court costs, room and board while incarcerated, probation supervision and drug-treatment programs.”
In America, you’re presumed innocent until proven guilty. Unless you’re poor, that is. Increasingly, it’s a crime to be poor, and the punishment is often further impoverishment. Fifty years ago, Chuck Berry sang about a brown-eyed handsome man who was “arrested for the crime of unemployment.” Little has changed since then. For poor people, even minor scrapes with the law can have major consequences, including prison time, probation, endless debt and permanent joblessness. For people of means, those same legal problems are a nuisance, but they aren’t life-changing events. More cities and states have realized that poverty can be a profit center.
Not for poor people, of course, but for government treasuries and for private companies hired to handle the influx into the criminal justice system of people whose only crime was the inability to pay a traffic ticket or a misdemeanor fine. Cash-strapped cities like Ferguson, Mo., count on fines and court-imposed fees to balance their budgets, and that reliance on the revenue from petty violations was cited by the Justice Department as a contributing factor in Ferguson’s high rates of traffic stops and arrests for minor crimes and misdemeanors. In many states, offenders are expected to finance the justice system, including court costs, room and board while incarcerated, probation supervision and drug-treatment programs.
For anyone living paycheck to paycheck, even a $100 fine can be a challenge, and paying off the debt to the court and to the privatized probation company can be impossible, especially if the arrest has led to the loss of a job or a driver’s license. Just being arrested can be devastating: Half a million people are languishing in jail awaiting trial because they can’t afford to pay the bail. People who are let out of prison are often said to have “paid their debt to society.” But in most cases, they haven’t paid their debt for the costs of their imprisonment and probation. More than 80% of people let out of prison leave owing money, according to an investigation by NPR and the Brennan Center for Justice. Those of us who live sheltered middle-class lives often wonder why anyone would run away from the police or resist arrest.
Running away can cost you your life, as what happened to Walter Scott. Why would he risk being shot in the back by a police officer? Perhaps he feared that an arrest for a minor traffic violation (the tail light on his car was out) would lead to a downward spiral of fines, jail time and permanent joblessness, as it has for others. According to relatives, Scott was behind on his child-support payments, and he may have feared that he’d be jailed for his failure to pay. Which, of course, would have cost him his job and any chance he and his family had of a future. So he ran, and he died.
U.S. states, still grappling with the lingering effects of the longest recession since the 1930s, are even more vulnerable to another fiscal shock. The governments have a little more than half the reserves they’d stashed away before the 18-month recession that ended in June 2009, according to a report last month by Pew Charitable Trusts. New Jersey, Pennsylvania, Illinois and Arkansas have saved the least. Skimpier rainy-day funds have implications for the national economy, which is in its sixth year of expansion. States would have to cut spending or raise revenue by a combined $21 billion in the event of a recession, exacerbating economic weakness, Moody’s found in a stress test of state finances. Reserves take on added importance for governments balancing obligatory pension and health-care costs with swings in tax collections, said Daniel White at Moody’s.
“What the Great Recession has shown is that things have fundamentally changed in terms of the way that state fiscal conditions are determined,” White said. “They need to be much more prepared for very volatile fiscal conditions than they had been in the past.” Investors are monitoring states’ fiscal balances after seeing how reserves helped some governments weather the recession, said John Donaldson at Haverford Trust. California won credit upgrades and saw borrowing costs shrink after voters in November agreed to bolster rainy-day funds. With Fitch Ratings lifting California to A+ in February, its fifth-highest level, the state has its highest marks from the three biggest rating companies since at least 2009.
Bond buyers demand about 0.3 percentage point of extra yield to own 10-year California munis instead of benchmark debt, close to the lowest spread since 2007, data compiled by Bloomberg show. “We’re looking for stability and credit quality,” said Richard Ciccarone at Merritt Research. “A rainy-day fund is a symbol of conservative financial management.” States were unprepared for the last recession. In 2009, budget gaps totaled $117 billion, about twice the level of reserves, according to Pew, a research group. With more of a cushion, they would’ve cut fewer jobs, White said. The governments employ about 5.1 million nonfarm workers, about 140,000 fewer than the 2008 peak, Bureau of Labor Statistics data show.
As if watching your paycheck stagnate for the last couple years hasn’t been bad enough, Federal Reserve researchers are out with more (potentially) bad news: Unless we get some big shifts in global economic forces, your wages could be weak for a while. Longer-term changes including soft productivity growth and labor’s declining share of income are at the heart of the problem, Filippo Occhino and Timothy Stehulak at the Cleveland Fed find. These two macroeconomic shifts, which result from broad themes such as globalization and technology, are felt all the way down to the U.S. worker. Productivity is important because it fosters faster economic growth without generating higher inflation. Companies can pay their workers more while still seeing their earnings increase.
Labor productivity — measured as the amount of goods or services produced by an employee in one hour — has averaged 1.5% growth in the 10 years ended 2014. That compares with 3.6% from the second quarter of 1997 to the end of 2003 — the salad days of American productivity. Gains in productivity have been slow to come by as companies hold off on investing in new capital equipment. Some economists such as Robert Gordon have argued that the U.S. is doomed to stagnant growth, with the low-hanging fruit of big technological innovations, such as the steam engine, all picked.
Another factor keeping wage growth depressed is labor’s declining share of income, the Fed authors note. While it’s been on the downtrend for years, “the evolution of the technology used to produce goods and services, increased globalization and trade openness, and developments in labor market institutions and policies” have exacerbated it since 2000, likely holding down wage growth, they wrote. The faster decrease since then has shaved 0.4 percentage point each year from average real wage growth, compared to the period before 2000.
Central bank financial repression results in the systematic and severe mispricing of financial assets. And that has sweeping consequences far beyond the munificent windfalls it bestows on the thin slice of mankind that frequents the casinos of Wall Street, London, Tokyo and Shanghai. The fact is, the prices of money, debt, equity, traded commodities and all their derivatives comprise a vast and instantaneous signaling system that cascades through every nook and cranny of the real economy. When these signals are systematically falsified by a few dozen central bankers they cause hundreds of millions of ordinary businessmen, workers, investors and entrepreneurs to alter their economic calculus. And not in a good way. False signals lead to mistakes, excesses, losses and waste.
They ultimately reduce economic efficiency and productivity and lower the rate of economic growth and real wealth gains. Since the Greenspan age of financial repression incepted in the late 1980s, for example, the returns to savings have been obliterated while the rewards for speculation have soared. That’s important because only savings from current production and income generate additional primary capital that can foster future wealth. By contrast, leveraged speculation merely causes existing financial assets to be re-priced and a temporary redistribution of paper wealth from the cautious to the gamblers. In an honest free market, in fact, there is no excess return to leveraged speculation at all.
Natural market makers arbitrage out the spread between the costs of carry and the returns to carried assets such as long-dated futures contracts, term debt and various and sundry forms of equity and other risk assets. A relative handful of market makers can make a decent living arbing an honest market, but the mass of investors can not speculate their way to wealth. The latter can happen only when the central bank has its big fat thumb on the financial scales, pressing the cost of carry – that is, leveraged financial gambling – toward the zero bound.
People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren’t spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there’s still a “global savings glut.” Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending. The U.S. personal savings rate—5.8% in February—is the highest since 2012. “After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow,” Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.
There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great—that’s money in someone else’s pocket. If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development. But if no one’s in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called U.S. Consumers: Still Shopping, Not Dropping.
While noting a “deceleration” in consumer spending, they wrote, “we think that concerns about the outlook for the consumer are overstated.” Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017. Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn’t set off many alarm bells. “Consumer spending is starting to look more and more like a coiled spring,” says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren’t retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.
China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country. What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook. “China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”
The China Steel Profitability Index compiled by Bloomberg Intelligence barely rose in March, a time after the annual Lunar New Year when demand would usually surge, and so far this month has resumed its decline. Steel use this year is down 3.4%, after slumping as much as 4% in 2014, according to BI. It had steadily risen for more than a decade. Prices for commodities from iron ore to coal are sinking as China’s leadership tries to steer the economy away from debt-fueled property investment and smokestack industries, embracing services and domestic-led consumption. At the same time, President Xi Jinping is stepping up efforts to combat pollution, further squeezing industry. Deteriorating economic data has led traders and analysts to speculate that China’s central bank will act to revive growth.
The bank has said it will keep an “appropriate balance between loosening and tightening” of interest rates. It has cut interest rates twice since November and lowered lenders’ reserve-requirement ratios once. Economists are forecasting 7% growth in China for this year, in line with government targets and down from 7.4% in 2014, according to the median of 59 estimates compiled by Bloomberg. That’s about half the last decade’s peak rate of 14.2% in 2007. The slowing steel and metals activity suggests the outlook could be grimmer. “There is a big fear this is going to get worse before it gets better,” Hoffman said in an interview. “It’s as bad as the data looks, if not worse.”
IMF Managing Director Christine Lagarde says the world could be in for a “bumpy ride” when the Federal Reserve starts raising interest rates, with overpriced markets and emerging economies likely to take the biggest hits. While risks to the global economy have decreased over the last six months, threats to the world’s financial system have actually risen, Lagarde said on Thursday ahead of next week’s spring meetings of the IMF and World Bank in Washington. A long period of low interest rates in the U.S. and other advanced economies has fostered a higher risk tolerance among investors, “which can lead to overpricing” and could pose “solvency challenges” for life insurers and defined-benefit pension fund, she said.
Lagarde, 59, warned that “liquidity can evaporate quickly if everyone rushes for the exit at the same time – which could, for example, make for a bumpy ride when the Federal Reserve begins to raise short-term rates,” she said the text of a speech at the Atlantic Council in Washington. The turbulence could be especially rough for commodity-exporting emerging economies, which may find themselves caught between falling prices for their goods and a stronger dollar, which increases the burden of dollar-dominated debt, she said. Lagarde’s warning comes as Fed policy makers led by Chair Janet Yellen consider when to raise their benchmark lending rate amid a strengthening labor market, which has pushed U.S. unemployment to the lowest level since May 2008.
The dollar has appreciated 19% over the last year as the U.S. economy has strengthened. The risk is that a surging greenback and higher interest rates will make it harder to service U.S.-denominated debt held outside the country by non-bank borrowers. This debt is estimated at $9 trillion by the Bank for International Settlements. Lagarde urged policy makers to take steps to ensure that markets have enough liquidity, improve prudential policies for non-banks, and follow through on regulatory reforms such as shielding “too-big-to-fail” institutions.
The Lenape tribe got a better deal on the sale of Manhattan island than New York City’s pension funds have been getting from Wall Street, according to a new analysis by the city comptroller’s office. The analysis concluded that, over the past 10 years, the five pension funds have paid more than $2 billion in fees to money managers and have received virtually nothing in return, Comptroller Scott M. Stringer said in an interview on Wednesday. “We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.” Until now, Mr. Stringer said, the pension funds have reported the performance of many of their investments before taking the fees paid to money managers into account.
After factoring in those fees, his staff found that they had dragged the overall returns $2.5 billion below expectations over the last 10 years. “When you do the math on what we pay Wall Street to actively manage our funds, it’s shocking to realize that fees have not only wiped out any benefit to the funds, but have in fact cost taxpayers billions of dollars in lost returns,” Mr. Stringer said. Why the trustees of the funds — Mr. Stringer included — would not have performed those calculations in the past is not clear. Mr. Stringer, who was a trustee of one of the funds when he was Manhattan borough president before being elected comptroller, said the returns on investments in publicly traded assets, mostly stocks and bonds, have traditionally been reported without taking fees into account.
The fees have been disclosed only in footnotes to the funds’ quarterly statements, he said. The stakes in this arena are huge. The city’s pension system is the fourth largest in the country, with total assets of nearly $160 billion. It holds retirement funds for about 715,000 city employees, including teachers, police officers and firefighters. Most of the funds’ money – more than 80% – is invested in plain vanilla assets like domestic and foreign stocks and bonds. The managers of those “public asset classes” are usually paid based on the amount of money they manage, not the returns they achieve. Over the last 10 years, the return on those “public asset classes” has surpassed expectations by more than $2 billion, according to the comptroller’s analysis. But nearly all of that extra gain — about 97% — has been eaten up by management fees, leaving just $40 million for the retirees, it found.
One could argue that China’s long path to Piraeus, Greece, began on April 27, 1961. It’s the day Mao Zedong founded the communist state’s first freight company, the China Ocean Shipping Company (COSCO). The Great Leap Forward, Mao’s plan for industrialization, had proven to be a disaster at the time, leaving millions dead or starving. With Cosco, China had its eyes on overseas markets. Almost 54 years later, the company is steering toward a major prize in Greece. After lengthy wavering, the Greek government – comprised of Prime Minister Alexis Tsipras, his far-left Syriza party and the right-wing populist Independent Greeks – has announced it will be selling the majority of its share in Athens’ Piraeus Port Authority. So far, Cosco is the most promising bidder.
Throughout, Fu Cheng Qui, or “Captain Fu,” as the chief executive of Cosco’s Piraeus subsidiary is called by those who know him, will be closely monitoring the bidding process. Fu has already been in Piraeus for a long time with the company, and he is determined to stay. He has placed the bid on behalf of his company and has little doubt it will be accepted. In his position, 65-year-old Fu is the guardian of China’s gateway to Europe. He may soon control the container piers, cruise-ship terminals and ferry quays of Greece’s biggest port. “The government has changed four times since I have been in Greece,” Fu says. “They all always talk a lot. But what counts? Actions count. Actions! Only actions!”
On the way to the cargo port, a small sign indicates a fork in the road – with one route leading to OLP and the other to PCT. Each to a different world. Pier I belongs to the primarily Greek state-owned OLP port authority. These days, though, most trucks take the other route, to PCT, to pier II and pier III, which is run by Piraeus Container Terminal, a subsidiary of Cosco. “Just look,” Fu says as he steps up to the window. Then the show begins. On Pier II, 11 container gantry cranes are in constant, powerful movement. All are new and made in China. Trucks move across the ground at an interval of only minutes.
In an interview with Bloomberg TV at the Institute for New Economic Thinking earlier today, Greek Finance Minister Yanis Varoufakis said he is confident that an agreement will be reached later this month. He identified three pre-conditions for such a deal.
• “Prioritize deep reforms that will deal with the malignancy of the Greek social economy, of the Greek state.”
• “Deal with the ill effects of a five-year catastrophic recession.”
• “A resolution of long term, sustainable fiscal plan that involves three elements. One has to do with appropriate primary surpluses, so we need primary surplus. We never are going to fall back into primary deficits again, but at the same time this should not be excessive because it will crush the private sector. We need a sensible policy for crowding in private investment and that must involve a package of public investment..from some kind of European authority or institution that will help with the process of crowding in private investment..and a rationalization on the different slices of the Greek debt without any haircuts for anyone but in a way that maximizes the amount of value that our creditors will get back from the Greek state.”
He ended the interview by saying that compromises are to be expected, but he is not ready to be compromised. “We wouldn’t be fit for the purpose if we were not prepared to take the political costs which are necessary to stabilize Greece and lead it to growth, but let me be very precise on this, we are prepared to make all sorts of compromises, we are not prepared to be compromised.”
Greek Finance Minister Yanis Varoufakis said his country isn’t looking outside Europe to resolve its financial crisis, adding that he’s confident of reaching an agreement with European partners this month. Asked about a meeting between Prime Minster Alexis Tsipras and Russian President Vladimir Putin Wednesday, Varoufakis denied any links with talks Greece is holding with euro-area governments that are the country’s creditors. “We should be very clear: our bailout fallout needs to be dealt with in the European family,” Varoufakis said in an interview with Bloomberg Television in Paris. “This government is not seeking an extra-European solution to a European problem.”
Greece, Europe’s most-indebted state, is negotiating with euro-area countries and the IMF on the terms of its €240 billion rescue. The standoff, which has left Greece dependent upon ECB loans, risks leading to a default within weeks and the country’s potential exit from the euro area. The ECB approved a €1.2 billion increase in the emergency funds available to Greek lenders Thursday, a person familiar with the decision said. The Governing Council raised the cap on Emergency Liquidity Assistance provided by the Bank of Greece to €73.2 billion in a telephone conference, said the person who asked not to be named because the decision is confidential.
Greek officials said this week they are targeting an April 24 meeting of euro-area finance ministers as a deadline for approving new money. A looming cash crunch in the summer, when the ECB needs to be repaid, means a new bailout deal will be needed before then.
“I am very confident,” Varoufakis said, when asked about the talks. “The negotiations are proceeding quite well. It is in our mutual interest to strike a deal by the 24th and I’m sure we will.”
Greece met a loan payment of €459 million to the IMF on Thursday, according to reports, as the EU discusses whether the country has reformed enough to merit a further cash injection. “The payment order has been given,” a finance ministry source told AFP. But no one is quite sure where the money came from – a consequence of the opaque Greek finance system. There are few trained accountants in the country and they do not adhere to international accounting standards, so records are thin and many citizens do not pay tax. Poor accounting standards are blamed by some for the uncertain numbers that have come out of Greece regarding the country’s debt.
Athens is aware of the tax problem. It promised to hire tourists and cleaners as part time tax inspectors in a recent round of reforms drawn up to meet EU criteria for further cash. The latest IMF payment was ordered at the same time as Greek Prime Minister Alex Tsipras met Putin in Moscow to discuss co-operation between the two orthodox Catholic nations. While both parties denied that Greece had financial aid had been requested, the two sides are said to have talked about extending a Turkish natural gas pipeline through Greece and relief from Russian sanctions on European food produce. Russian investment in key Greek infrastructure, including the port of Thessaloniki, is also in discussion.
Greek finance minister Yanis Varoufakis said during a visit to Washington this week that Greece would meet the April 9 payment and every other until the debts are cleared. He still has some way to go – next month, Athens owes a further €950 million to the IMF. Over €2 billion euros in six- and three-month treasury bills are also due to mature on April 14 and 17 – though they should roll on to the next maturity without incurring further cost. This week Athens raised another €1.14 billion in six-month Treasury bills and announced a further sale of €625 million next week. The country is dependent on such short terms bonds to raise cash, but the takers are mostly domestic investors because Greece is shut out of international debt markets.
Companies doing business in Russia have been on a roller coaster ride for the last year. The combination of Western sanctions, a weakened currency and continued geopolitical uncertainty have threatened even the most robust of balance sheets. Yet amid these headline-grabbing harbingers of new challenges in Russia’s business environment, one seems to have gone largely overlooked: last September, Russian lawmakers passed unprecedented changes to their country’s corporate legislation. The aim was to update business legal frameworks and to extend additional protections to minority corporate stakeholders, but it remains uncertain whether the law will have the desired effect. The sweeping changes generally affect the rules for how companies and their stakeholders interact. They also overhaul the different classes of legal entities that are permitted to do business. Some highlights:
• All Russian legal entities are reclassified. Previously, entities were conceptually seen as either for-profit and “commercial” or “non-commercial,” today all organizations are split between the “unitary” and “corporate” categories. A “unitary” organization’s founder does not directly participate in the business’s affairs or ownership, while the founder of a “corporate” entity retains the right to remain a shareholder or manager.
• The rules for joint stock companies have changed. Companies were previously classified as open or closed, according to whether new shareholders could legally enter the company’s ownership structure. Now they are classified as public or non-public. The option to publicly trade their securities or shares distinguishes the former, who must accordingly include the word “public” in their name. All other corporation types, including the non-trading joint stock companies, are non-public by default and face no need to alter their names. Notably, the obsolescent open and closed joint stock companies do not have to reclassify themselves by the new guidelines until they have to alter their charter documents, but must comply with the new rules regardless.
Investors looking for a bottom in oil prices argue that a deal to curb Iran’s nuclear program and ease sanctions against the country won’t flood the market with more unwanted crude. But one analyst thinks Iran’s return to the market would continue to keep a lid on prices. Oil futures plunged Wednesday as U.S. crude inventories rose yet again. But oil had rallied earlier this week on ideas that fears Iran would soon be able to dump more supply on the market had been overdone. After all, a final deal isn’t due until June 30—and that deadline could easily slip. Moreover, Iran’s degraded infrastructure is likely to keep a lid on production even if a deal is struck, analysts said.
Of course, the likelihood of a deal remains up for debate. Iran’s supreme leader declared Thursday that there was no guarantee of a final agreement, saying world powers couldn’t be trusted to negotiate in good faith. Vikas Dwivedi, a Houston-based oil and gas strategist at Macquarie Capital, sounds far from convinced that a return to the market by Iran would be taken in stride. Making a pun on a 1982 New Wave hit, Dwivedi wrote a note this week entitled “Iran Not So Far Away, Dwivedi argues that Iran would be able to ramp up production significantly in the weeks after the final approval of a deal. But the real pressure, he says, might come from how Arab Gulf producers respond.
Dwivedi says Iran would be able to grow production and exports by 300,000 to 400,000 barrels a day within weeks of a final deal, but that the need for substantial capital upgrades to Iran’s reservoirs means it would take another six to nine months to ramp up production by the 1 million barrels a day needed to recapture the level of output seen before the sanctions.. Meanwhile, Arab Gulf members of OPEC would probably prove themselves unwilling to cede market share to accommodate rising Iranian output, Dwivedi writes. That means OPEC 2015 production could reach 32 million barrels a day or higher versus a previous call of 28.2 million, Dwivedi said. OPEC supply rose to 30.63 million barrels a day in March, according to a Reuters survey.
The City is slathering with excitement at Shell’s £47bn bid for BG group. Its shareholders are less than impressed. The problem for them is that the price represents a 50 per cent premium to where BG shares languished prior to the deal’s announcement. To make it pay, Shell really needs the oil price to move up to $90, and quickly. The question its investors have to ask themselves is whether Shell could pick up something like BG’s portfolio, the opportunity it represents and the earnings stream it generates, with its existing assets and resources. Even if they think it can, and such an outcome won’t be quick, they still have to ask if they’d be happy for someone else to have BG, the profits of which will at least help to power the generous dividend Shell pays them. A dividend that represents a welter burden to their company.
What is certain is that this will not be the last mega-deal to be done in the energy sector, as its giants seek cheaper alternatives to risking cash they’re not earning on exploration. It likely won’t be the biggest either. BG’s most likely suitor was long rumoured to be Exxon, the American giant, which represents the most likely threat to this deal’s completion. But Exxon may have it’s eyes cast in the direction of an even bigger B in the form of BP. BG’s drift had become sufficiently aimless that its board felt the need to risk shareholders ire by offering an appalling £25m with nary a condition attached to lure Helge Lund from Norway’s Statoil. He’s now going to sail off into the sunset in a boat filled with cash.
BP’s board might wish it had only that to worry about. For the US lawyers ranged against it, the Deepwater Horizon disaster is the gift that keeps on giving. The company is more than half owned by Americans, it is run by one (Bob Dudley), and it has substantial operations in the country. But they still insist on referring to it as “British” Petroleum across the Atlantic. The logic of putting it formally into American hands via the mega-deal to end all mega-deals with Exxon is that it could take an awful lot of feet from off its neck.
Five creditors that own about $10 billion of Ukraine’s bonds are working on a debt-restructuring deal that won’t involve a reduction to their principal holdings as the government seeks to change the terms of its external debt. The committee is working on a plan that “provides Ukraine with the necessary financial liquidity support,” the group said in a statement released by Blackstone. Franklin Templeton, Ukraine’s biggest bondholder with about $7 billion of the nation’s debt, hired Blackstone to represent the creditor group in mid-March, according to Blackstone. Ukraine needs to reach an agreement with creditors by the end of May to save $15.3 billion over four years as a condition for receiving the next tranche of a $17.5 billion IMF loan.
“For sure, the creditors will try to achieve” a deal with no principal reduction, “but realistically it is not viable,” Michael Ganske at Rogge in London, said. “Ukraine’s debt-to-GDP is much too high and the economy is shrinking.” Public-sector debt is set to rise to 94% of gross domestic product this year, according to the IMF, after a yearlong conflict with pro-Russian separatists in the nation’s east crippled its economy. Output shrank 7 to 10% in the first quarter, Finance Minister Natalie Jaresko said on March 24. The country is seeking to restructure at least $21.7 billion, data compiled by Bloomberg News. A price of about 40 cents signals creditors will face writedowns to their principal holdings of about 20%, Bank of America said in March.
Buying a house on the city’s outskirts can save Aucklanders up to $50,000 each year in mortgage repayments, despite the added commuting costs, new figures reveal. The research, carried out by real estate firm Bayleys, factored in the cost of mortgage repayments as well as the cost of travel from the respective areas. Lower house prices in outlying suburbs – like Papakura, New Lynn, Sunnyvale and Manukau – meant even with transport costs homeowners were still paying significantly less than those in city-fringe suburbs. Bayleys calculated the first-year mortgage repayment costs for different suburbs based on median house prices from the Real Estate Institute of New Zealand (REINZ) and the ANZ variable rate of 6.74%.
It found the annual cost of servicing a mortgage for a median priced Orakei or Remuera home ($1.35 million) was $84,060 in the first year. In Pukekohe, where the median price of a home is $500,000, the annual mortgage repayment in the first year would be $31,128. Even factoring in the $4032 annual cost of commuting from Pukekohe to the CBD by train on the At Hop card system – as well as the $768 public transport cost from Orakei to the city – living in the southern suburb was about $50,000 cheaper. Bayleys Research manager Ian Little said even if a Pukekohe resident commuted by car and chose to park in the central city, it was still cheaper.
New Zealand’s government is unlikely to return its budget to surplus this year as it promised ahead of an election in 2014, Finance Minister Bill English said. “Lower inflation, while good for consumers, is making it less likely that the final accounts in October will show a surplus for the whole year,” English said in a statement Friday. The budget showed a NZ$269 million ($203 million) deficit in the eight months ended Feb. 28, the Treasury Department said earlier Friday. Prime Minister John Key won a third term last year, campaigning on his economic management and pledging to post the nation’s first budget surplus in seven years in the 12 months ending June 30, 2015.
In May last year, English projected a surplus of NZ$372 million for 2014-15. The Treasury in December said low inflation, which curbs nominal economic growth and tax revenue, suggested the budget would remain in deficit. English, who delivers his next annual budget May 21, previously said that the Treasury forecasts may be proved wrong by the time the full-year financial statements are prepared in October. Consumer prices rose 0.8% in the fourth quarter from a year earlier and were down 0.2% from the prior three-month period – the first quarterly decline in three years. The central bank last month forecast annual inflation would fall to zero in the first quarter.
Japan will promise to cut its greenhouse gas emissions by 20% from 2013 levels ahead of a global summit on climate change this year, a report said Thursday, despite uncertainty over post-Fukushima energy policy. The government will likely announce the new target at the G7 summit in June in Germany, the leading business daily Nikkei reported, citing unnamed government sources. In a separate report, Kyodo News said Tokyo will set a target of cutting gas emissions “by at least 20% by 2030, from 2005 levels.” Japan is one of the few leading polluters that has not yet declared a target on emission cuts, as the world works towards a new framework for combating climate change, to be finalised at December’s COP 21 gathering in Paris.
A total of 33 countries – including the no.2 emitter the United States, the no.3 emitter the European Union, and Russia, ranked fifth – submitted their reduction goals to the UN secretariat by the end of last month. The US has pledged to reduce greenhouse gas emissions by 26-28% over 2005 levels within the next decade, while the EU said it will cut its pollution by 40% by 2030 from 1990 levels. Russia said it could drive down emissions by up to 30% compared to 1990 levels, subject to conditions. In earlier rounds of climate talks, Tokyo pledged it would reduce its greenhouse gas output by 25% by 2020 from 1990 levels. But that target was slashed to a 3.8% cut from 2005 levels in the aftermath of the 2011 Fukushima nuclear disaster, which led to idling of the country’s entire nuclear stable.
For people who court danger in foreign lands, Chris Catrambone is a good guy to know. Originally from Louisiana, he made his first $10 million before age 30 investigating insurance claims and lining up medical care for injured workers in some of the world’s most violent places, especially contractors of U.S.-owned companies operating in Iraq and Afghanistan. In 2008, at 27, he moved his two-year-old multinational company, the Tangiers Group, to Malta, the island nation in the central Mediterranean that’s been vital to various empires for more than two millennia, and where moorings are as common as parking spots. Tangiers Group’s portfolio includes travel insurance, up-to-date CIA World Factbook-type reports on emerging markets, and hospitalization and evacuations for expats.
In the summer of 2013, with his wife, Regina, and stepdaughter, Maria Luisa, Catrambone chartered a yacht for a trip to the coast of Tunisia with a stop on the Italian island of Lampedusa, a popular vacation spot. It’s also a landing point used by migrants trying to enter Europe illegally. As the Catrambones left the harbor, Regina spotted a parka floating on the waves. It struck her as incongruous—a winter coat being carried by the warm tide—and she asked their captain about it. He replied that it had almost certainly belonged to one of the thousands who’ve attempted a water crossing to Lampedusa from Libya in inflatable dinghies—one who didn’t make it. “Lampedusa has a beach called Rabbit Beach, and every year it’s rated as one of the top beaches in the world, so of course we wanted to visit it,” Chris says.
“But then we learned that there are bodies of refugees literally washing ashore on this most beautiful beach. So what, you’re going to have a nice swim in the same water where these people are dying? Is that right?” That afternoon, and well into the night, he and Regina discussed what Pope Francis, on his first visit outside the Vatican, had described as “the globalization of indifference” to the plight of refugees at sea. “Papa Francesco said that everyone that could help, should do it, [and] with his own skills,” says Regina, who speaks English as well as her native Italian. “So we start to think, what are our capabilities? We have a good background in helping people in trouble.”
1) Mortgages – Mortgages will be converted into the new currency the day we exit the Euro. For anyone with a variable interest rate, this will still remain linked to the Euribor and thus it will remain stable. In relation to mortgages, Italians will benefit.
2) Inflation – Just think that the goods (home, car, telephone) that we want to buy will come down in price. If we don’t spend, the economy stagnates. This is what is happening today with deflation. A low level of inflation is thus necessary to keep the economy going. On the other hand, it mustn’t be too high to avoid devaluing our ability to spend. This won’t happen because Italian products will become more competitive than foreign products and the products that we are obliged to import from abroad (for example: crude oil) have a limited impact on the final price (for example: in the last year the value of the Euro has fallen by about 25% in relation to the dollar, but the high level of customs duties on petrol, has meant that the effect has not been apparent).
3) Current account – Your current account in Euro will be converted into the new currency. But, just even today, you can have a different currency in your bank account. You will still be able to do that after the exit from the Euro. So you could have dollars, Euro, pounds sterling, francs or a new currency.
4) Government bonds – 95% of Italian State bonds will be converted into the new currency (given that 95% are issued in accordance with Italian legislation and so they would inherit the national currency). The State will pay out on them and will issue them in the new currency. Given the low yields and the high risk that we already see right now, Italian State bonds are not a good buy for an Italian citizen.
5) Transition from the Euro to the lira – There’ll probably be a 1 to 1 conversion with the new currency and it will then probably devalue a bit. The effect on prices will probably be that they stay the same as today but they will be given in the new currency.
6) Increase in the price of petrol – The price of petrol is a false problem as most of the price (64%) is paid in taxes. International prices of crude oil and the exchange rate only relate to 26% of the price. If we also consider that the price of crude oil is at a record low right now, an exit from the Euro will surely be no problem from this point of view.
7) Imports: increase in the prices of imported products – This problem, that is particularly important for technology products, can only be resolved by investing in innovation after the destruction of companies like Olivetti and the downsizing of Telecom Italia. Innovation is the only way to develop the country. Staying in the Euro is not going to help. Throughout history, we have exported and traded with the countries nearest to us, but not because they have the Euro, simply because they are the closest and the geographic location has made it easier to trade with them ever since the time of the Roman Empire.
However, the value of exports going into the countries using the Euro, has being going down ever since we joined the Euro. Just in 2007, those accounted for 60%, and today that’s now down to less than 50%. The only areas where the value of our exports is growing is outside the Euro zone as can be seen from research into Italian exports: “emerging markets currently represent the biggest proportion of our exports, while the importance of the Euro area has seen a significant fall“.
Teachers say they are seeing “Victorian conditions” with pupils arriving at school hungry and not wearing the right clothes needed for the weather. The NASUWT teachers’ union says schools and teachers are increasingly having to deal with the consequences of poor housing and poverty. Teachers reported bringing in their own food to school to give to children. The Conservatives said the number of children in poverty had fallen by 300,000 under the coalition government. The Liberal Democrats said they had helped families by introducing free school meals for all infant children. Tristram Hunt, Labour’s shadow education secretary, warned of the “quiet indignity of poverty that can wreak havoc with a child’s confidence”. He said poverty was one of the “biggest barriers” to pupils achieving in school.
Claims about poverty in the school-age population will be heard at the NASUWT teachers’ union annual conference in Cardiff. The union asked members for their experiences and received almost 2,500 responses. It was not a representative sample of teachers, but among those replying more than two in three reported seeing pupils come to school hungry. “Children in 2015 should not be hungry and coming to school with no socks on and no coats – some children are living in Victorian conditions – in the inner cities,” said one unnamed teacher. Almost one in four of the teachers who responded said they had brought in food for pupils who were hungry, and an even higher proportion had seen the school feeding pupils.
More than three in four had seen pupils arriving at school with “inappropriate clothing” such as no socks or coats in bad weather. Similar numbers claimed that a bad diet meant that pupils were unable to concentrate on their work. More children were being sent home with letters about unpaid school meals and pupils who were sick were still being sent to school because parents could not afford to take time off work, claimed teachers. The comments from the survey suggest teachers felt that they were having to cope with the wider problems linked to family hardship, such as children living in temporary accommodation or relying on food banks.
The decade-long surge in foreign-currency reserves held by the world’s central banks is coming to an end. Global reserves declined to $11.6 trillion in March from a record $12.03 trillion in August 2014, halting a five-fold increase that began in 2004, according to data compiled by Bloomberg. While the drop may be overstated because the strengthening dollar reduced the value of other reserve currencies such as the euro, it still underlines a shift after central banks – with most of them located in developing nations like China and Russia – added an average $824 billion to reserves each year over past the decade. Beyond being emblematic of the dollar’s return to its role as the world’s undisputed dominant currency, the drop in reserves has several potential implications for global markets.
It could make it harder for emerging-market countries to boost their money supply and shore up faltering economic growth; it could add to declines in the euro; and it could damp demand for U.S. Treasury bonds. “It’s a big challenge for emerging markets,” Stephen Jen, a former IMF economist, said. They “now need more stimulus. The seed has been sowed for future volatility,” he said. Stripping out the effect from foreign-exchange fluctuations, Credit Suisse estimates that developing countries, which hold about two-thirds of global reserves, spent a net $54 billion of this stash in the fourth quarter, the most since the global financial crisis in 2008. China, the world’s largest reserve holder, together with commodity producers contributed to most of the declines, as central banks sold dollars to offset capital outflows and shore up their currencies.
A Bloomberg gauge of emerging-market currencies has lost 15% against the dollar over the past year. China cut its stockpile to $3.8 trillion in December from a peak of $4 trillion in June, central bank data show. Russia’s supply tumbled 25% over the past year to $361 billion in March, while Saudi Arabia, the third-largest holder after China and Japan, has burned through $10 billion in reserves since August to $721 billion. The trend is likely to continue as oil prices stay low and growth in emerging markets remains weak, reducing the dollar inflows that central banks used to build reserves, according to Deutsche Bank.
Such a development is detrimental to the euro, which had benefited from purchases in recent years by central banks seeking to diversify their reserves, according to George Saravelos at Deutsche Bank. The euro’s share of global reserves dropped to 22% in 2014, the lowest since 2002, while the dollar’s rose to a five-year high of 63%, the International Monetary Fund reported March 31. “The Middle East and China stand out as two regions that are likely to face ongoing pressures to run down reserves over the next few years,” Saravelos wrote in a note. The central banks there “need to sell euros,” he said.
Whenever buyers and sellers get together, opportunities to fleece the other guy arise. The history of markets is, in part, the history of lying, cheating and stealing — and of the effort down the years to fight commercial crime. In fact, the evolution of the modern economy owes more than you might think to these outlaws. That’s the theme of “Forging Capitalism: Rogues, Swindlers, Frauds, and the Rise of Modern Finance” by Ian Klaus. It’s a history of financial crimes in the 19th and early 20th centuries that traces a recurring sequence: new markets, new ways to cheat, new ways to transact and secure trust. As Klaus says, criminals helped build modern capitalism. And what a cast of characters.
Thomas Cochrane is my own favorite. (He was the model for Jack Aubrey in Patrick O’Brian’s “Master and Commander” novels.) Cochrane was an aristocrat and naval hero. At the height of his fame in 1814 he was put on trial for fraud. An associate had spread false rumors of Napoleon’s death, driving up the price of British government debt, and allowing Cochrane to avoid heavy losses on his investments. Cochrane complained (with good reason, in fact) that the trial was rigged, but he was found guilty and sent to prison. The story is fascinating in its own right, and the book points to its larger meaning. Cochrane, in a way, was convicted of conduct unbecoming a man of his position. Playing the markets, let alone cheating, was something a man of his status wasn’t supposed to do.
Trust resided in social standing. As the turbulent century went on, capitalism moved its frontier outward in every sense: It found new opportunities overseas; financial innovation accelerated; and buyers and sellers were ever more likely to be strangers, operating at a distance through intermediaries. These new kinds of transaction required new ways of securing trust. Social status diminished as a guarantee of good faith. In its place came, first, reputation (based on an established record of honest dealing) then verification (based on public and private records that vouched for the parties’ honesty). Successive scams and scandals pushed this evolution of trust along.
Gregor MacGregor and the mythical South American colony of Poyais (“the quintessential fraud of Britain’s first modern investment bubble,” Klaus calls it); Beaumont Smith and an exchequer bill forging operation of remarkable scope and duration; Walter Watts, insurance clerk, theatrical entrepreneur and fraudster; Harry Marks, journalist, newspaper proprietor and puffer of worthless stocks. On and on, these notorious figures altered the way the public thought about commercial trust, and spurred the changes that enabled the public to keep on trusting nonetheless.
The worsening Greek debt crisis has reanimated talk within the ruling Syriza party of a snap general election if discussions with creditors fail, as the country faces a Thursday deadline to repay a €450m loan to the IMF. The Greek finance minister, Yanis Varoufakis, was scheduled to hold informal talks with the IMF’s managing director, Christine Lagarde, in Washington DC on Sunday, while warnings of early elections underscored the political unrest in Athens. The slow pace of negotiations with creditors and worsening state of the Greek economy brought a warning from the far-left Syriza of snap polls being held before the summer – just months after winning power. “If we are not satisfied [with the outcome] we will go to the people,” Kostas Chrysogonos, a prominent Syriza MEP told local media at the weekend.
“We have a popular mandate to bring about a better result,” he said of the talks aimed at concluding a reform-for-cash programme to keep the crisis-hit country afloat. “If, ultimately, creditors insist on following an inflexible line … then the electoral body will have to assume its responsibilities.” Varoufakis’ unexpected meeting with the IMF chief has been arranged as senior government officials repeated assurances that Greece was not about to to default on its debt repayments. The deputy finance minister, Dimitris Mardas, said the IMF payment would be made and civil service wages would be paid. “There is money for the payment of salaries, pensions and whatever else is needed in the next week.”
The prospect of renewed political strife in Greece coincided with mounting dissent within Syriza over the extent to which it should roll back on pre-electoral reforms. The anti-austerity government led by Alexis Tsipras has found itself increasingly cornered with creditors – the so-called troika – refusing to endorse proposed reforms under an extension of its €240bn bailout. Militants led by energy minister Panagiotis Lafazanis have ratcheted up the pressure by rejecting any notion of making necessary concessions starting with privatisations.
On Sunday, Lafazanis denounced Greece’s international creditors for treating the country with “unbelievable prejudice and as a colony”. Raising the prospect of a deal with Russia, he said, “A Greek-Russian agreement would help our country greatly in negotiations with lenders.” Despite assertions over the weekend that Sunday’s talks were part of the negotiation process, Athens is believed to harbour hopes that the IMF – which has proved to be a more conciliatory partner than either the EU or ECB in negotiations – will agree to cut the government some slack when Varoufakis discusses the reform programme with Lagarde. On Friday, Syriza’s parliamentary spokesman, Nikos Filis, also piled on the pressure saying Tsipras’ leftist-led coalition would prefer to pay salaries and pensions than bondholders if forced to make a choice.
“The combination of a better-than-expected tax collection in March, the postponement of some budget expenditures and internal borrowing from some state entities and other sources made it possible for the government to pay both creditors and pensioners and civil servants last month.”
The Greek state may be able to service its debt and pay pensions and salaries to civil servants in April. However, the limited progress in negotiations between the government and the official creditors on the conclusion of the economic policy program increases uncertainty, reduces credit availability and adversely affects domestic demand despite less austerity. The economic damage has increased the risk of recession. The combination of a better-than-expected tax collection in March, the postponement of some budget expenditures and internal borrowing from some state entities and other sources made it possible for the government to pay both creditors and pensioners and civil servants last month. Greece paid an estimated €2.5 billion to the IMF and other creditors in March without including T-bills.
Assuming tax revenues remain on track and more general government entities lend part of their cash reserves to the state, we would expect Greece to be able to meet its obligations to creditors in April but it will face a tougher hurdle in May. It is reminded the state owes about 458 million euros to the IMF on April 9 and has to find an additional €700 million or so for T-bills maturing on April 14 which are held by international investors and most likely will not be rolled over. It will also have to pay €194 million to private bondholders on April 17 and €80 million to the ECB on April 20, according to Bank of America Merrill Lynch (BofA). Deputy Finance Minister Dimitris Mardas, who is in charge of the General Accounting Office, assured recently that the state will make the payment to the IMF on time and pay wages to some civil servants in the middle of the month.
This contrasts with leaks in the press, citing other government officials’ warnings that Greece would run out of money on April 9. Although no one disputes that the central government is in a tough financial position, some abroad suspect these warnings are also part of a Greek strategy to get some funding from the EU via the EFSF or indirectly from the ECB. Even if Greece is able to overcome this hurdle in April, it will have to pass another test in early May, assuming it has not reached an agreement with its creditors by then. It will have to pay €200 million to the IMF on May 1 and an additional €763 million on May 12, according to a recent report by BofA.
Of course, the country has shown that it intends to honor its obligations so far and could be able to continue doing so in the rest of April and even May to the extent that it is able to mobilize the cash reserves of state entities, collect more revenues than targeted in the adjustment program and postpone expenditures to suppliers and others for the future, building arrears.
This will take until at least June. “According to IMF protocol, Greece would be afforded a 30-day grace period..” They’ll pay on April 9. The next payments are May 1 and 12. Add 30 days to that. That’s when payments to other creditors are due.
The Greek government faces another crucial deadline in its interminable bail-out drama this week, as fears mount that the country could become the first developed nation to ever default on its international obligations. After a harrowing March, cash-strapped Athens now faces a €448m payment to the IMF on Thursday. But with public sector wages and pensions to pay out, a cacophony of voices on Syriza’s Left have vowed to prioritise domestic obligations unless creditors finally unlock the remainder of its €240bn bail-out programme. “We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” a senior Greek official told The Telegraph last week.
The rhetoric is a far cry from February, when Greece’s finance minister pledged his government would “squeeze blood out of a stone” to meet its obligations to the Fund. Yanis Varoufakis will now spend Easter Sunday with IMF director Christine Lagarde in a bid to gain some leeway on the country’s reforms-for-cash programme. Greece owes €9.7bn to the IMF this year. Missing its latest installment in order to pay out its social security bill on April 14, would see the country fall into an arrears process, unprecedented for a developed world debtor. Although no nation has ever officially defaulted on its obligations in the post-Bretton Woods era, Greece would join an ignominious list of war-torn nations and international pariahs who have failed to pay back the Fund on time.
What happens after April 9? Missing Thursday’s payment would not immediately trigger a default however. According to IMF protocol, Greece would be afforded a 30-day grace period, during which it would be urged to pay back the money as soon as possible, and before Ms Lagarde notifies her executive board of the late payment. Following this hiatus, a technical default could be declared a month later, when “a complaint regarding the member’s overdue obligations is issued by the Managing Director to the Executive Board”. In the interim, Greece may well stump up the cash having spooked creditors and the markets of the possibility of a fatal breach of the sanctity of monetary union. Should no money be forthcoming however, the arrears process may well extend indefinitely. Greece’s IMF burden would also start piling up, with the government due to pay another €963m by May 12.
Mr. Varoufakis, from the moment he became finance minister this year, has gone out of his way to cultivate ties with Ms. Lagarde and has said that paying the fund was a priority for Greece. Over the last month, however, the economic situation in Greece has worsened greatly. Deposits worth about €25 billion have been withdrawn from Greek banks, some of which are now on life support with the European Central Bank. The government’s tax collections are also suffering as companies and consumers fret over the prospect that Greece might be forced to abandon the euro. Now, with Europe refusing to permit Greece access to temporary lines of liquidity — such as letting its banks issue more short-term treasury notes — Greece is running out of cash.
Which means that if it were to pay the fund €458 million this Thursday, there might not be enough left in the coffers to pay pensions and public sector wages the next week, some Greek officials say. Mr. Varoufakis, who came to power on a platform of ending the policy of putting the needs of Greece’s creditors above its suffering citizens, was to make the case to Ms. Lagarde that his government could not meet all of its commitments. “This government has made strong statements that they will meet their commitments,” said a person who was involved in the negotiations but was not authorized to speak publicly. The problem is, this person said, Greek officials have made commitments to their own people as well. “They are being pushed to the wall.”
There is some wiggle room. Even if Greece does not pay up on Thursday, it will not be in technical default as there is a 30-day grace period that could allow the government to pay its pension and wage obligations and strike a broader deal so that its creditors could disburse the needed funds. Mr. Varoufakis is also planning to meet with officials in the United States Treasury on Monday in the hope that the United States, as the dominant voice at the I.M.F., might pressure fund officials, and Europe as well, to cut Greece some slack. The United States has been quietly critical of Europe’s harsh stance toward Greece, warning of the consequences that a Greek default and exit from the euro would have on financial markets.
Greek Finance Minister Yanis Varoufakis said Greece will pay all its creditors, including the upcoming International Monetary Fund installment, as he was exiting a meeting with IMF managing director Cristine Lagarde in Washington, DC on Sunday April 5. Greece faces a deadline to repay a €450m loan to the International Monetary Fund on April 9th, and many sources had speculated that the crisis-hit country won’t be able to pay the installment. “Greece was a founding member of Bretton Woods institutions,” the Greek Finance Chief noted to reporters outside the IMF. Christine Lagarde made the following statement after the meeting: “Minister Varoufakis and I exchanged views on current developments and we both agreed that effective cooperation is in everyone’s interest. We noted that continuing uncertainty is not in Greece’s interest and I welcomed confirmation by the Minister that payment owing to the Fund would be forthcoming on April 9th.”
“I expressed my appreciation for the Minister’s commitment to improve the technical teams’ ability to work with the authorities to conduct the necessary due diligence in Athens, and to enhance the policy discussions with the teams in Brussels, both of which will resume promptly on Monday. I reiterated that the Fund remains committed to work together with the authorities to help Greece return to a sustainable path of growth and employment.” The Greek finance minister traveled to Washington, DC to hold an informal discussion on the Greek government’s reform program with the IMF’s managing director, Christine Lagarde. The Varoufakis-Lagarde meeting started at 6.15 pm on Sunday and lasted for two hours. The Greek Finance minister is also scheduled to meet with President Obama’s top economic and national security adviser Caroline Atkinson on Monday.
A study out this week in Brazil estimates just how much the country lost to this ugly Petrobras oil scandal. The price tag: R$87 billion ($27.1 billion) that is expected to have been lost in GDP this year because of Petrobras’ corrupt, little ways. All told, that comes out to a little more than 1% of Brazil’s GDP burned up in scandal. Brazil’s GDP is about $2.2 trillion. The study was done by the Getulio Vargas Foundation. It based its estimates on Petrobras planned reduction in investments this year, which will hit oil and gas service firms, construction, engineering and consumer spending. Layoffs in construction will likely take at least R$13.6 billion from federal coffers this year. Two construction companies that colluded with Petrobras in the scandal, OAS and Galvao, have both filed for bankruptcy.
Construction companies are expected to reduce GDP by another R$10 billion, with the Foundation estimating a massive blood-letting in the job market, well into the thousands. Petrobras has yet to release earnings due to its third party auditors fearing repercussions if it signs off on phony accounts. So far, the market has April 30 as the date to discover just what Petrobras earned last year. But that can be delayed because shareholder lawsuits in New York have forced the Securities and Exchange Commission to review the earnings data before it is released to the market. The SEC will have their final say. At least three law firms have filed class action suits against the Brazilian oil giant. New York law firm Pomerantz is lead counsel on the case. Earnings will not include losses accrued from the scandal, the local Estado de Sao Paulo newspaper reported this week.
The newspaper also said that changes to the way auditors and regulators are reviewing Petrobras’ books might work in the oil firm’s favor. Last year, Deloitte said that Petrobras inflated its assets to the tune of R$88.6 billion. That number is expected to decline by at least half. Petrobras’ ex-CEO Maria Gracas Foster and her auditing firm PricewaterhouseCoopers are part of the shareholder lawsuit along with Brazilian bank Itau Unibanco. Estimates are for Brazil’s economy to contract by around 0.5% this year. “Brazil’s problems are all domestic and you can trace it to Petrobras,” says economist Alex Wolf at Standard Life Investments. “Consumer sentiment is down, unemployment is up slightly and investment is still down. We think Brazil is one of the most vulnerable emerging markets around.”
“It’s a stark reversal from five years ago when a wave of European and US oil-services companies eagerly flocked to Brazil to build plants and set up offices.”
When Italian oil services company Saipem spent $300 million at the start of the decade in Brazil, it joined a long list of foreign companies jockeying for business with Petrobras. Now it’s struggling to get paid. Saipem is one of at least five European companies that spoke about late payments, delivery delays or other difficulties in Brazil during fourth-quarter earnings calls. While day-to-day operations are functioning, Petrobras partners are also facing decision-making obstacles that are inhibiting planning, said officials at partners Galp Energia, BG Group and Repsol who asked not to be named. It’s a stark reversal from five years ago when a wave of European and US oil-services companies eagerly flocked to Brazil to build plants and set up offices.
Back then, Petrobras was ramping up investments to more than $100 million a day after making the Western Hemisphere’s biggest crude finds in decades. Today, Petrobras is slashing spending as oil prices plunge and it’s all but locked out of credit markets because of a sweeping corruption scandal. “Brazil’s a big market,” Terje Soerensen, CEO of Norwegian Siem Offshore, said in a telephone interview. “When that stops, it affects the entire industry.” Siem doesn’t know if the four to six vessels it had marked for Brazilian contracts will be needed now, Soerensen said. Saipem executives said in a February 16 earnings call that some payments from Petrobras were late. Norway’s Aker CEO Luis Araujo said in a March 17 interview that the company was asked to delay equipment deliveries.
Vallourec, a French oil-pipeline maker, and Alfa Laval, a Swedish oil industry engineering firm, also cited a difficult business environment in February conference calls. US oilfield-service providers Halliburton and Schlumberger echoed similar concerns. Halliburton sees activity continuing to decline in Brazil, President Jeff Miller said in a conference call earlier this year. The spending cuts Petrobras has announced will create “challenges” this year, Schlumberger CEO Paal Kibsgaard said.
Hirotoshi Ogura, a self-described “factory geek”, is Daikin Industries’ master of doing more with less – and part of the reason Japan’s recovery remains stuck in the slow lane. As Japan heads into the season of peak demand for room air-conditioners, Ogura and other Daikin managers have been tasked with figuring out how to boost output by some 20% at a plant in western Japan that six years ago the company had almost given up on as unprofitable. The wrinkle: they have no budget for new capital investment at the 45-year-old Kusatsu plant.
The still-evolving workaround shown to a recent visitor involves home-made robots for ferrying parts, experimental systems using gravity rather than electricity to power parts of the line, more temporary workers on seasonal contracts and dozens of steps to chip away at the 1.63 hours it takes to make a typical new air conditioner. “We can do a lot without spending anything,” says Ogura, a 33-year Daikin veteran who joined the company just after high school. “Anything we need, we first try to build ourselves.” Like Daikin, a number of Japanese manufacturers are shifting production back to Japan from China and elsewhere to take advantage of a weaker yen.
Rival Panasonic has pulled back some production of room air-conditioners, Sharp has brought back production of some refrigerators, and Canon has repatriated some output of high-end copiers, according to a list compiled by Nomura. But even as output recovers, Japanese companies remain cautious about new capital investment in factories and equipment. The trend is especially pronounced for smaller firms down the supply chain. After increasing capital spending by 6% in the just-completed fiscal year, small manufacturers plan a 14% decrease in the current year, according to the Bank of Japan’s quarterly survey released this week. Big manufacturers like Daikin plan a 5% increase, but overall investment remains 10% below pre-crisis 2007 levels.
Ben Bernanke has recently started blogging (and tweeting), and his opening topics were why interest rates are so low around the world, and a critique of Larry Summers’ “secular stagnation” explanation for this phenomenon, and for persistent low growth since the financial crisis. Summers then replied to Bernanke’s argument, and a debate was on. So who is right: Bernanke who argues that the cause is a “global savings glut”, or Summers who argues that the cause is a slowdown in population growth, combined with a dearth of profitable investment opportunities, not only now but for the foreseeable future? I’d argue both of them, and neither simultaneously—both, because they can both point to empirical data that support their case; neither, because they are only putting forward explanations that are consistent with their largely shared view of how the economy works.
And the extent to which they are the product of a single way of thinking about the world simply cannot be exaggerated. It goes well beyond merely belonging to the same school of thought within economics (the “Neoclassical School” as opposed to the “Austrian”, “Post Keynesian”, “Marxist” etc.), or even the same sect within this school (“New Keynesian” as opposed to “New Classical”). Far beyond. They did their graduate training in the same economics department at the Massachusetts Institute of Technology (MIT). They attended the same macroeconomics class: Stanley Fisher’s course in monetary economics at MIT for graduate students (was it the same year—does anybody know?) Some of their fellow Fisher alumni included Ken Rogoff and Olivier Blanchard.
And that’s not all—far from it. Paul Samuelson (MIT) was overwhelming the intellectual architect of what most people these days think is Keynesian economics. Paul Samuelson is Larry Summers’ uncle. Samuelson’s “Foundations of Economic Analysis” was the core of the MIT approach to economics, and it became the model for economics textbooks around the world. Gregory Mankiw’s (PhD, MIT) market-dominating text today is a pale echo of Samuelson’s original. This group has been notably dismissive of other approaches to doing economics. Krugman (PhD MIT) leads the pack here, deriding views that are outside this mindset.
If I were describing a group of thoroughbred horses, alarm bells would already be ringing about a dangerous level of in-breeding. Sensible advice would be proffered about the need to inject new blood into this dangerously limited breeding pool. But the issue would only be of importance to the horseracing community. Instead I am talking about a set of individuals whose ideas have had enormous influence upon both the development of economic thought and the formation of economic policy around the globe for the last four decades. The fact that so much of the dominant approach to thinking about the economy emanates, not merely from such a limited perspective, but from such a limited and interconnected pool of people, should be serious cause for alarm – especially given how the world has fared under the influence of this thoroughbred group.
With Greece on the verge of either getting kicked out of Europe or suffer through yet another government overhaul, one which many suggest may usher the “last” option for Greece, the ultra nationalist, neo-Nazi Golden Dawn party into governance, some wonder if it is not Europe’s ulterior intention to force a populist shift toward right wing, nationalist parties (perhaps best observed in France where Marine le Pen’s dramatic rise to power has left many dazed and confused) one which will lead to social instability and shortly thereafter, war (because in a world in which every Keynesian voodoo trick to revive the economy has failed, war is the last remaining outcome).
So while we await to see if Europe’s turn to ultra right wing movements accelerates in the coming months, we just learned of a very disturbing development in just as insolvent Ukraine, where moments ago the website of the local Ministry of Defense reported that Dmytro Yarosh, leader of Ukraine’s “Right Sector” political party, whose political ideology has been described as nationalist, ultranationalist, neofascist, right-wing, or far right, was just appointed as Advisor to Chief of General Staff. From the Ukraine ministry of defense:
Dmytro Yarosh appointed as Advisor to Chief of General Staff – Dmytro Yarosh, leader of ‘Pravyi Sector’ (Right Sector) political party, appointed as Advisor to Chief of General Staff. Yesterday, Colonel General Viktor Muzhenko, Chief of General Staff, and Dmytro Yarosh agreed the format of cooperation between ‘Pravyi Sector’ and the Ukrainian Armed Forces. Colonel General Viktor Muzhenko stressed the Ukrainian army had become one of the strongest armies of Europe; the Ukrainian soldiers proved they knew how to fight and appreciated the contribution of volunteer battalions to defense of Ukraine and said: “We understand the needs of changes and increase of efficiency at all the army levels. We also consider various models of formation of the army reserve.
We are developing the reforms and will implement them. We gathered all the patriots and defenders of Ukraine under single leadership. The enemy understands our unity and that its attempts end in failure. We have one goal and the united Ukraine. The Army becomes stronger each week”. Dmytro Yarosh underlined the unity was the key precondition for further successful fighting and demonstrated the readiness to establish the cooperation and integration of volunteer battalions to the Ukrainian Armed Forces. ‘Pravyi Sector’ is ready to be subordinated to military leaders in issues related to defense of state from the external enemy.
In other words, the leader of Ukraine’s Neo-Nazis will, as a local “patriot and defender of Ukraine” be advising, i.e., fighting for, what little remains of Ukraine’s army. Sadly the parallels with Europe of the 1920s and 1930s, not to mention the decade just following, grow more visible with every passing day.
Alexander Zakharchenko and Igor Plotnitsky, the elected leaders of Donetsk and Luhansk, called for an end to Kyiv’s embargo on government services in eastern Ukraine on Saturday. In an open letter to Chancellor Angela Merkel and President Francois Hollande, they asked the leaders who helped negotiate the ceasefire in Ukraine to use their “influence to encourage Ukrainian offices to begin paying out welfare services to Donbass residents once again.” The government in Kyiv placed an embargo on social services to the country’s eastern residents in November following what it deemed illegal elections that gave power to Zakharchenko and Plotnitsky.
Although the EU, the US and the UN also condemned the polls, the UN warned in December that Kyiv’s embargo might be a violation of its obligations to citizens in the rebel-held territory. “The fate for many [in those areas] may well be life-threatening,” the Office of the UN High Commissioner for Human Rights said.” Kyiv had not only ceased paying out pensions, but had also relocated hospitals, schools and prisons, leaving a what the UNHCHR described as a “severe protection gap.”
The open letter to Merkel and Hollande also pointed to numerous violations of a ceasefire, which was implemented in February. Both Kyiv and Donbass have blamed each other for not upholding the truce. Over the weekend, three soldiers were killed by a landmine near Donetsk. Those were the first deaths reported since Monday, when one soldier was killed. Fighting in the region has claimed roughly 6,000 lives since last spring.
Saudi Arabia has rejected Russia’s amendments to a Security Council draft resolution which would see an all-inclusive arms embargo on all parties in the Yemeni conflict, as it continues to spiral out of control with civilian death toll climbing up. “There is little point in putting an embargo on the whole country. It doesn’t make sense to punish everybody else for the behavior of one party that has been the aggressor in this situation,”Saudi Arabia’s representative to the UN Abdallah Al-Mouallimi said after a closed emergency UN Security Council meeting on Saturday. Al-Mouallimi added that he “hopes” Russia won’t resort to its veto power in case the all-inclusive embargo clause is not added into the draft submitted by the Gulf Cooperation Council that urges an arms embargo only on the Houthis.
At the same time, Riyadh agreed with Moscow’s calls for need of “humanitarian pauses” in the Saudi-led coalition’s air campaign in Yemen – though saying that Saudi Arabia already cooperates fully in this regard. “We always provided the necessary facilities for humanitarian assistance to be delivered,” Al-Mouallimi told reporter heading out of the meeting. “We have cooperated fully with all requests for evacuation.” Moscow convened an emergency meeting on a draft resolution demanding “regular and obligatory” breaks in air assaults against Houthi rebels, in which many civilians keep dying in increasing numbers. The Russian-proposed draft circulated on Saturday demanded “rapid, safe and unhindered humanitarian access to ensure that humanitarian assistance reaches people in need.”
The current council president and Jordan’s Ambassador Dina Kawar said that the council members “need time” to consider the Russian draft resolution, adding that the talks would continue. “We hope that by Monday we can come up with something,” Kawar said. The 15-member council is considering the possibly of merging the Russian and Gulf Cooperation Council proposed drafts into one. The Security Council meeting coincided with the call from the International Committee of the Red Cross for a “humanitarian pause.” The NGO urged to break hostilities for at least 24 hours. “We urgently need an immediate halt to the fighting, to allow families in the worst affected areas, such as Aden, to venture out to get food and water, or to seek medical care,” said Robert Mardini, head of the ICRC’s operations in the Near and Middle East.
Refiners are poised to make gasoline at a record pace this year, keeping the biggest U.S. crude glut in more than 80 years from overflowing storage. They’re enjoying the best margins in two years as they finish seasonal maintenance of their plants before the summer driving season. They’ll increase output to meet consumer demand and they’ve added more than 100,000 barrels a day of capacity since last summer, when they processed the most oil on record. Booming crude production expanded inventories this year by 86 million barrels to 471 million, the highest level since 1930. Analysts from BofA to Goldman Sachs have said storage space may run out. What looks like an oversupply to banks is turning into an all-you-can-eat buffet for those making gasoline and diesel fuel.
“A lot of the excess crude we’ve been sitting on is going to get chewed up quickly,” Sam Davis at Wood Mackenzie, said in Houston April 2. “We’re going to move from a stock build to a stock draw.” Goldman Sachs and Bank of America have said storage builds are increasing the risk of breaching storage capacity, sending prices tumbling. West Texas Intermediate, the U.S. benchmark, already has lost more than half its value since June as growing U.S. shale production led to a global oversupply. Inventories surged as U.S. output rose 71% over the past five years as drillers used techniques like horizontal drilling and hydraulic fracturing to tap previously inaccessible oil in shale rock layers.
In Cushing, Oklahoma, the delivery point for WTI futures, supplies have more than tripled since early October to a record 58.9 million barrels. Last July, refiners processed 16.5 million barrels of crude a day, the highest level in monthly Energy Department data going back to 1961. Refining margins in March have averaged $28.09 a barrel, the most since March 2013. Refiners typically schedule maintenance shutdowns in the spring and fall, reducing oil demand during that time. U.S. refiners increased crude runs by an average 1.1 million barrels a day in April through July over the past five years. During that period, U.S. crude inventories have fallen an average of 24.7 million barrels from the end of May through September.
Nuclear waste dumps can be imposed on local communities without their support under a new law rushed through in the final hours of parliament. Under the latest rules, the long search for a place to store Britain’s stockpile of 50 years’ worth of the most radioactive waste from power stations, weapons and medical use can be ended by bypassing local planning. Since last week, the sites are now officially considered “nationally significant infrastructure projects” and so will be chosen by the secretary of state for energy. He or she would get advice from the planning inspectorate, but would not be bound by the recommendation. Local councils and communities can object to details of the development but cannot stop it altogether.
The move went barely noticed as it was passed late on the day before parliament was prorogued for the general election, but has alarmed local objectors and anti-nuclear campaigners. Friends of the Earth’s planning advisor, Naomi Luhde-Thompson, said: “Communities will be rightly concerned about any attempts to foist a radioactive waste dump on them. We urgently need a long-term management plan for the radioactive waste we’ve already created, but decisions mustn’t be taken away from local people who have to live with the impacts.” Objectors worry that ministers are desperate to find a solution to the current radioactive waste problem to win public support to build a new generation of nuclear power stations.
Zac Goldsmith, one of the few government MPs who broke ranks to vote against the move, criticised the lack of public debate about such a “big” change. “Effectively it strips local authorities of the ability to stop waste being dumped in their communities,” he said. “If there had been a debate, there could have been a different outcome: most of the MPs who voted probably didn’t know what they were voting for.”
