protectionism Archives - The Automatic Earth

Carstens’ comments on letters of credit are interesting. Non-US banks will need access to dollars, or trade stops. Not sure where Tyler got that quote.

• BIS Warns Of “Perfect Storm” For Global Economy (ZH)

Carstens highlighted the potential catalysts that could unleash the “perfect storm” he highlighted as the key risk resulting from the interaction of real and financial risks, namely: the trillions in outstanding dollar-denominated debt – whereby a dollar-shortage threatening to cripple international trade – and the growing risk of currency wars:

“Consider that non-US banks provide the bulk of dollar-denominated letters of credit, which in turn account for more than 80% of this source of trade finance. The Great Financial Crisis highlighted the fragility of this setup, since non-US banks depend on wholesale markets to obtain dollars. Ten years on, we should not forget how the dramatic fall in trade finance in late 2008 played a key part in globalising the crisis. Any dollar shortage among non-US banks could cripple international trade. On top of that, trade skirmishes can easily escalate into currency wars, although I hope that they will not.

As we saw earlier with Mexico, imposing tariffs on imports tends to weaken the target country’s currency. The depreciation could then be construed as a currency “manipulation” that seemingly justifies further protectionist measures. If currency wars break out, countries may put financial markets off-limits to foreign investors or, on the other side, deliberately cut back foreign investment, politicising capital flows. In addition, we must be mindful of long-observed knock-on effects from tighter US monetary conditions, given the large stock of dollar borrowing by non-banks outside the United States, which has now reached $11.5 trillion.”

His conclusion: “Policymakers in advanced economies should not shrug off the growing evidence that abrupt exchange rate depreciations reduce investment and economic growth in emerging market economies. This has implications for everybody, in that weaker economic activity reduces demand for exports from advanced economies.” “In the long term, protectionism will bring not gain but only pain,” Carstens said, echoing a familiar talking point of establishment economists. “Not just for the United States, but for us all.”

Yeah, well, so called free trade is their thing.

• BIS’s Carstens Warns Of Economic Risks Of Protectionism (R.)

Agustin Carstens, general manager of the Bank of International Settlements, on Saturday delivered a scathing critique of rising protectionism, a not-so-subtle rebuke to U.S. President Donald Trump’s use of tariffs and trade talks to wring concessions from China, Mexico and many other countries. Reversing globalization “could increase prices, raise unemployment and crimp growth,” Carstens, the former head of Mexico’s central bank, told fellow former and current central bankers at the Kansas City Federal Reserve Bank’s annual economic symposium here. Higher tariffs could drive up U.S. inflation and force the Fed to raise rates, driving up the dollar and hurting both U.S. exporters and emerging market economies in the process, Carstens said

Protectionism also threatens “to unsettle financial markets and put a drag on firms’ capital spending, as investors take fright and financial conditions tighten,” he said. The BIS released a research paper at the same time as Carstens’ speech that estimated revoking the North American Free Trade Agreement, as Trump has threatened, would mean a loss to GDP of $37 billion in Canada, $22 billion in Mexico, and $40 billion in the United States, with non-tariff trade barriers accounting for the lion’s share of the losses. Wages would also fall across North America, the research found.

It’s already a given. There’s no time left.

• No-Deal Brexit Thrusts UK Into ‘Legal Vacuum’ – Labour (G.)

Theresa May and the government would face a race against time to pass a slew of new laws, or risk creating an “unsustainable legal vacuum”, if Britain plunged out of the EU without a deal, Labour’s Keir Starmer has warned. Dominic Raab insisted last week that the government had the legislation in place to cope, if Britain is forced to leave in March 2019 without a withdrawal agreement. “Our laws will be on the statute book, the staff will be in place, the teams will be in post and our institutions will be ready for Brexit – deal, or no deal,” the Brexit secretary said. But Labour’s analysis suggests new legislation would have to be passed hastily in four key policy areas: • EU citizens’ rights. • Immigration rules for EU travellers entering Britain. • Criminals held under the European arrest warrant. • The Irish border.

The government has long promised an immigration bill – but has not yet even published a white paper. The home affairs select committee warned recently that “if there’s no deal, [the immigration system] is going to be completely chaotic as no one will know what the arrangements will be until the very last minute and there is going to be no time for anyone to plan at all”. The government has long promised an immigration bill – but has not yet even published a white paper. The home affairs select committee warned recently that “if there’s no deal, [the immigration system] is going to be completely chaotic as no one will know what the arrangements will be until the very last minute and there is going to be no time for anyone to plan at all”.

Several new regulators or other public bodies would also have to be created, including in medicines and aviation, Labour claims. The withdrawal bill gives ministers some powers to do this, but they are tightly curtailed. Starmer described last week’s release of 24 technical notices on how the government is preparing for a no deal as a “poorly executed PR stunt designed to convince Tory MPs to back the prime minister’s discredited Chequers proposal”. He said the government has “barely scratched the surface” of what would need to be done to prepare the UK for a no-deal scenario, and there was a serious risk of an “unsustainable legal vacuum”.

Britain and the military-industrial complex impoverish the population.

• Britain Prepares for War Against Russia (SCF)

The Brexit pantomime is taking place in an era in which it is recorded that “As benefits are cut and rents soar, Britain has seen a staggering rise in homelessness: the number of rough sleepers in England alone has more than doubled since 2010. Almost 1.2 million older people in Britain, as well as another one million disabled people, are living without the social care they need for basics such as eating, dressing and washing. It’s horrific: severely ill people forced to wait 14 hours to go to the toilet or wheelchair users who, with no assistant to help them cook, are now malnourished.” But this dreadful state of affairs means nothing to those who lack for nothing — which includes politicians of the governing Conservative Party who demand that more taxpayers’ money must be spent on military hardware.

The previous defence minister, Michael Fallon (who had to resign because he was found out to have indulged in some sexual shenanigans), told the BBC last year that “we will be adding to defence, there will be new equipment and the budget will grow every year” and the present one, Gavin Williamson (the man who said that Russia should “go away and shut up”), demanded in June that Britain increase its annual military spending by about $25 billion. The strange thing about agitating to spend more money on armaments is that, apart from an indubitable terrorist menace, there is no military threat whatever to Britain. On the other hand, there is a social crisis of the most serious magnitude.

As the New York Times reported in May, “the protracted campaign of budget cutting, started in 2010 by a government led by the Conservative Party, has . . . yielded a country that has grown accustomed to living with less, even as many measures of social well-being — crime rates, opioid addiction, infant mortality, childhood poverty and homelessness — point to a deteriorating quality of life.” But the government’s answer lies in buying missiles and whooshing new aircraft, and two aircraft carriers of incalculable expense and nuclear submarines that the BBC reports are to cost “£31 bn (including inflation), with a contingency of a further £10 bn, spread over 35 years…”

[..] So on August 18 the UK’s Daily Express newspaper, a sad wreck of its former self, and now competing with the Daily Mail in publicising ‘celebs’ and headlining articles of ultra-nationalist tripe, ran a piece headlined “Royal Navy’s £3bn warship launches to tackle ‘frightening’ Russians.” Just how it’s going to deter anyone is not explained, because it hasn’t any aircraft and won’t be operational until 2021. It cost over 4 billion dollars and its yet-to-arrive 36 F-35 aircraft will cost a minimum of 90 million dollars each. This is in a country where the Joseph Rowntree Foundation records that some 14 million people live in poverty – more than one in five of the population.

Payday loans are the lowest point in a society. If that doesn’t even work anymore….

• UK’s Biggest Payday Lender Wonga ‘On The Brink Of Collapse’ (G.)

Britain’s biggest payday lender, Wonga, is teetering on the brink of collapse following a surge of customer compensation claims in recent weeks that could cause it to call in administrators. The short-term loan provider has reportedly lined up accountancy firm Grant Thornton to handle a potential administration of the company should its board believe it is unable to avoid falling into insolvency. The report from Sky News said Wonga could appoint Grant Thornton as soon as this week. The flood of claims facing the company relate to loans taken out before 2014, when Wonga was the poster child for outrage in the payday lending industry that resulted in rules capping the cost of borrowing.

Campaigners claimed the firm and others in the industry fleeced consumers with high interest rates and targeted vulnerable customers with slick marketing. Wonga has shown signs of mounting difficulties in recent weeks. Earlier this month, it emerged the company received a £10m emergency cash injection from shareholders to save it from going bust. At the time, a spokesman said the firm was facing “a marked increase in claims related to legacy loans, driven principally by claims management company activity”. Should the company fall into administration, it would signal a remarkable fall from its previous status as one of the fastest-growing financial companies in the UK. The company was once touted for a stock exchange listing that could have valued it at more than $1bn (£780m) but was recently reported to be worth just $30m.

Don’t even remember when I first said BRI is a Chinese scheme to export overcapacity and make others pay for it. Others who, of course, will become debt slaves because of it.

• Malaysia’s Reaction Shows China Needs To Review Belt And Road Plan (SCMP)

Five years ago in September, during a visit to Kazakhstan, President Xi Jinping first proposed building the Silk Road Economic Belt, which included countries along the ancient Silk Road leading through Central Asia and the Middle East to Europe. In October that year, while visiting Indonesia, he followed up by suggesting a “21st Century Maritime Silk Road”, tracing the old trading routes that took Chinese merchants to Southeast Asia, Arabian countries and all the way to eastern Africa. Since then, Xi’s proposals – collectively known as the “Belt and Road Initiative” – have promised trillions of US dollars worth of investments in infrastructure to enhance connectivity and boost trade in more than 60 countries.

[..] From last month, state media have ramped up propaganda to mark the fifth anniversary of the grand plan and catalogue achievements ranging from China-built railways in Ethiopia to the China-owned Greek port of Piraeus. But the celebratory mood was somewhat marred by Malaysia’s decision last week to cancel two China-financed mega projects in the country, the US$20 billion East Coast Rail Link and two gas pipeline projects worth US$2.3 billion. Malaysian Prime Minister Mahathir Mohamad said his country could not afford those projects and they were not needed at the moment. Interestingly, Mahathir announced the decision even before leaving China, and said both Xi and Premier Li Keqiang understood the reasons behind the cancellations and accepted them.

The Chinese government put on a brave face in response, with a foreign ministry spokesman saying it was inevitable there would be problems or different points of views between any two countries. But Mahathir’s announcement has transcended bilateral cooperation, and should serve as a timely warning to the Chinese leadership about the importance and urgency with which they should conduct a comprehensive review of the belt and road strategy and recalibrate it by reining in its ambitious investment plans. Indeed, Mahathir’s decision is just the latest setback for the plan, as politicians and economists in an increasing number of countries that once courted Chinese investments have now publicly expressed fears that some of the projects are too costly and would saddle them with too much debt.

Volume is way down, as is price. Wyy the heavy hand now?

• China To Block More Than 120 Offshore Cryptocurrency Exchanges (SCMP)

China is poised to block more than 120 foreign cryptocurrency exchanges as part of the government’s broader crackdown on activities related to digital money, according to state media. Authorities will block access in China to 124 websites operated by offshore cryptocurrency exchanges that provide trading services to citizens on the mainland, the Shanghai Securities News, a newspaper affiliated with the country’s financial and markets regulators, reported on Thursday. It said authorities will also continue to monitor and shut down domestic websites related to cryptocurrency trades and initial coin offerings (ICOs), and ban payment services from accepting cryptocurrencies, including bitcoin.

The newspaper cited people close to the Leading Group of Internet Financial Risks Remediation, which was set up by China’s cabinet in 2016 and headed by Pan Gongsheng, a deputy governor of the People’s Bank of China – the country’s central bank. The report marks the latest effort by Beijing to intensity the clampdown on cryptocurrency activities because of concerns about financial instability. Censors recently shut down at least eight blockchain and cryptocurrency-focused online media outlets, some of which raised several million dollars in venture capital. These entities found their official public accounts on WeChat blocked on Tuesday evening, owing to violations against new regulations from China’s top internet watchdog.

I dealt with Lanny David a few days ago in Fixers. No surprise he turns out to lie about this too. I asked in that article if Cohen was sure he wanted him as his lawyer. He must be asking himself that now.

• Michael Cohen’s Attorney Backpedals On Trump-Russia Claims (ZH)

Lanny Davis – the attorney for Michael Cohen, has massively backpedaled on “confident assertions” that Cohen would share information with investigators that President Trump knew of Russian efforts to undermine Democratic nominee Hillary Clinton – a lifelong friend of Davis’. The Washington Post reported on Sunday that Davis said in an interview that he is “no longer certain about claims he made to reporters on background and on the record in recent weeks about what Cohen knows about Trump’s awareness of the Russian efforts.” “Davis told The Washington Post that he cannot confirm media reports that Cohen is prepared to tell special counsel Robert S. Mueller III that Trump had advance knowledge of the 2016 Trump Tower meeting” -WaPo

CNN reported in July that Cohen claimed to have witnessed Trump approving the meeting between Trump Jr. and Russian attorney Natalia Veselnitskaya, arranged by an associate of opposition research firm Fusion GPS. The day after CNN’s report, the Washington Post – using an “anonymous source” they now admit was Davis, peddled the same story that “Cohen had told associates that he witnessed an exchange in which Trump Jr. told his father about an upcoming gathering in which he expected to get information about Clinton,” however the Post didn’t say Trump Jr. told Sr. it was the Russians. “I should have been more clear — including with you — that I could not independently confirm what happened,” Davis said, adding perhaps the most difficult four words for an attorney to utter: “I regret my error.”

“..The New Deal programs were paid for by taxing the rich. Even in the 1950s, during the Eisenhower presidency, the top marginal rate was 91%..”

• Becoming Serfs (Chris Hedges)

We live in a new feudalism. We have been stripped of political power. Workers are trapped in menial jobs, forced into crippling debt and paid stagnant or declining wages. Chronic poverty and exploitative working conditions in many parts of the world, and increasingly in the United States, replicate the hell endured by industrial workers at the end of the 19th century. The complete capture of ruling institutions by corporations and their oligarchic elites, including the two dominant political parties, the courts and the press, means there is no mechanism left by which we can reform the system or protect ourselves from mounting abuse. We will revolt or become 21st-century serfs, forced to live in misery and brutally oppressed by militarized police and the most sophisticated security and surveillance system in human history while the ruling oligarchs continue to wallow in unimagined wealth and opulence.

“The new tax code is explosive excess,” the economist Richard Wolff said when we spoke in New York. “We’ve had 30 or 40 years where corporations paid less taxes than they ever did. They made more money than they ever did. They have been able to keep wages stagnant while the productivity of labor rose. This is the last moment historically they need another big gift, let alone at the expense of the very people whose wages have been stagnant. To give them a tax bust of this sort, basically reducing from 35% to 20%, is a 40% cut. This kind of crazy excess reminds you of the [kings] of France before the French Revolution when the level of excess reached an explosive social dimension. That’s where we are.”

When capitalism collapsed in the 1930s, the response of the working class was to form unions, strike and protest. The workers pitted power against power. They forced the oligarchs to respond with the New Deal, which created 12 million government-funded jobs, Social Security, the minimum wage and unemployment compensation. The country’s infrastructure was modernized and maintained. The Civilian Conservation Corps (CCC) alone employed 300,000 workers to form and maintain national parks. “The message of the organized working class was unequivocal,” Wolff said. “Either you help us through this Depression or there will be a revolution.” The New Deal programs were paid for by taxing the rich. Even in the 1950s, during the Eisenhower presidency, the top marginal rate was 91%.

True, but it won’t make any difference.

• Former Top Vatican Official Says Pope Should Resign Over Abuse Crisis (R.)

Pope Francis said on Sunday he would not respond to a former top Vatican official who accused him of having known for years of allegations of sex abuse by a prominent U.S. cardinal, calling on the pontiff to resign in an unprecedented broadside against the pope by a Church insider. Francis, speaking to reporters on the plane returning from a trip to Dublin, said dismissively that a statement containing the accusations “speaks for itself”. In a detailed 11-page bombshell statement given to conservative Roman Catholic media outlets during the pope’s visit to Ireland, Archbishop Carlo Maria Vigano accused a long list of current and past Vatican and U.S. Church officials of covering up the case of Cardinal Theodore McCarrick, who resigned last month in disgrace.

In remarkably blunt language, Vigano said alleged cover-ups in the Church were making it look like “a conspiracy of silence not so dissimilar from the one that prevails in the mafia”. “Pope Francis has repeatedly asked for total transparency in the Church,” wrote Vigano, who has criticized the pope before. “In this extremely dramatic moment for the universal Church, his extremely dramatic moment for the universal Church, he must acknowledge his mistakes and, in keeping with the proclaimed principle of zero tolerance, Pope Francis must be the first to set a good example for cardinals and bishops who covered up McCarrick’s abuses and resign along with all of them,” Vigano said.

Russia is getting very specific, as per the time, location, chemicals used etc.

• ‘Foreign Specialists’ May Stage Chemical Attack In Syria In 2 Days – Russia (RT)

“Foreign specialists” have arrived in Syria and may stage a chemical attack using chlorine in “the next two days,” the Russian Defense Ministry said. This will be filmed for international media to frame Damascus forces.
Defense Ministry Spokesman Major General Igor Konashenkov said the operation is planned to unfold in the village of Kafr Zita in Syria’s northwestern Hama Province in “the next two days.” Konashenkov said that “English-speaking specialists” are already in place to use “poisonous agents.” While a group of residents from the north has been transported to Kafr Zita and is currently being prepared “to take part in the staging of the attack” and be filmed suffering from supposed “‘chemical munitions’ and ‘barrel bombs’ launched by the Syrian government forces.”

The groups of residents will be used to assist “fake rescuers from the White Helmets.” They will be filmed apparently suffering from the effects of chemical weapons and then be shown in “the Middle Eastern and English-language media.” The defense ministry earlier warned that the US, UK, and France are preparing to use the planned attack as a pretext for airstrikes against Syria. The USS The Sullivans, an Arleigh Burke-class Aegis guided missile destroyer, was already deployed to the Persian Gulf a couple of days ago. On August 22, US National Security Adviser John Bolton stated that “if the Syrian regime uses chemical weapons, we will respond very strongly and they really ought to think about this a long time.”

Lowest incomes, highest taxes. That’s recovery. And there’s much more to come.

• Greece Tops Eurozone In Overtaxation (K.)

Greece has taken the lead among eurozone countries in the taxes-to-GDP ratio, rising from 13th place in 2008, before the country requested a bailout to stabilize its finances, to first place as of 2016. A tax-to-GDP ratio of over 27% is unprecedented in the country, at least since the restoration of democracy in 1974. At the same time, Greece set a record in terms of the speed with which the “taxation shock” was implemented, with the tax-to-GDP ratio jumping by 7 percentage points over eight years of bailouts.

Direct or indirect overtaxation has been the main driver for the reduction of the huge deficits Greece had to tackle at the beginning of the economic crisis. In 2008, taxes on production and imports accounted for 12.6% of GDP, while in 2017 the figure rose to 17.5%, according to data from the Hellenic Statistical Authority (ELSTAT). Taxes on income stood at 8.1% in 2008 and 10.2% in 2017. In social security contributions the ratio stood at 12.7% in 2008, reaching 14.6% in 2017.

Give it some time, and it’ll get as bad as Nauru. If Merkel and Juncker would have wanted to stop this, they’ve had plenty time. They didn’t and they don’t.

• Lesbos Refugees Pushed To ‘Absolute Breaking Point’, Warns Report (Ind.)

Thousands of refugees are living in perpetual fear and at risk of developing serious illnesses as the situation on the Greek island of Lesbos reaches “absolute breaking point”, new research shows. A report by Refugee Rights Europe warns that physical and mental health problems are rife on the island, as unsanitary conditions contribute to the spread of disease and growing desperation grips the men, women and children who are stuck there. Reports of violence and racially motivated attacks on refugees by police have also become commonplace, with nearly half of the 311 asylum seekers surveyed for the report saying they had been attacked by officers – usually with tear gas.

There are currently an estimated 8,000 refugee men, women and children on Lesbos, making it the largest host out of the Greek islands. A third come from Syria, 27% are from Afghanistan, 13% are Iraqi and the remaining are mainly from African countries. A series of accounts from asylum seekers in the report exposes the squalor and dangers they endure, including only having access to a shower once every few weeks and being unable to access medical care for their sick children. Respondents also reported being too afraid to leave their tents at night due to lack of security in the camps. Others expressed suicidal thoughts, with one refugee telling researchers: “I prefer to die than be here”.

Debt Rattle August 9 2018

Aug 092018

August 9, 2018 Posted by Raúl Ilargi Meijer at 9:21 am Finance Tagged with: Assange, Brexit, Canada, Mark Warner, protectionism, Russia, sanctions, Saudi, Tesla, Trump, yuan 14 Responses »

Eugène-Louis Boudin Laundresses on the Beach at Étretat 1892

• Behold The ‘Scariest Chart’ For The Stock Market (MW)

• US Senate Calls On Julian Assange To Testify (ZH)

• Senate Democrats Circulate Plans for Government Takeover of Internet (Reason)

• US To Impose Fresh Sanctions On Russia Over Salisbury Attack (Ind.)

• Russia Calls New US Sanctions Draconian, Rejects Poisoning Allegations (R.)

• Trump’s Sanctions Admit the End of US Military Dominance (Luongo)

• Saudi Arabia Is Selling Off Its Canadian Assets As Row Intensifies (CNBC)

• ‘Dark Cloud’ Of Trade War Hovers Over Chinese Yuan’s Globalization (CNBC)

• Trump Is Giving Protectionism a Bad Name (Moseley)

• SEC Questions Tesla Over Elon Musk’s Tweets (WSJ)

• Brexit And Housing Crisis Combining To Cause Exodus From London (Ind.)

Cycles, but distorted.

• Behold The ‘Scariest Chart’ For The Stock Market (MW)

A lot has changed since the stock market crash of 2000. Apple Inc. has gone from being just another computer brand to becoming the most valuable company in the world, Amazon.com Inc. went from being an e-book retailer to a byword for online shopping and Tesla’s Elon Musk has risen from obscurity to Twitter stardom. Yet some things never change and Doug Ramsey, chief investment officer at Leuthold Group, has been on a mini-campaign highlighting the parallels between 2000 and 2018. Among the numerous similarities is the elevated valuation of the S&P 500 then and now, which Ramsey illustrates in a chart that he has dubbed as the “scariest chart in our database.”

“Recall that the initial visit to present levels was followed by the S&P 500’s first-ever negative total return decade,” he said in a recent blog post. Price-to-sales ratio is one measure of a stocks value. It isn’t as popular as the price-to-earnings ratio, or P/E, but is viewed as less susceptible to manipulation since it is based on revenue. He also shared a chart which he claims is “unfit for a family-friendly publication” that shows how in terms of median price to sales ratio, the S&P 500 is twice as expensive as it was in 2000.

Senator Mark Warner (D-VA) pops up all over the place. Involved in killing off talks with Assange in spring 2017, a year later calls for Assange’s asylum to be revoked, then weeks later wants him to testify.

• US Senate Calls On Julian Assange To Testify (ZH)

Julian Assange has been asked to testify before the US Senate Intelligence Committee as part of their Russia investigation, according to a letter signed by Senators Richard Burr (R-NC) and Mark Warner (D-VA) posted by the official WikiLeaks Twitter account. The letter, delivered to Assange at the Ecuadorian embassy in London, reads in part “As part of the inquiry, the Committee requests that you make yourself available for a closed interview with bipartisan Committee staff at a mutually agreeable time and location.” Wikileaks’ says their legal team is “considering the offer but testimony must conform to a high ethical standard,” after which the whistleblower organization added a tweet linking to a list of 10 Democratic Senators who demanded in late June that Assange’s asylum be revoked in violation of international law:

[..] Last August, Congressman Dana Rohrabacher travelled to London with journalist Charles Johnson for a meeting with Assange, after which Rohrabacher said the WikiLeaks founder offered “firsthand” information proving that the Trump campaign did not collude with Russia, and which would refute the Russian hacking theory. After Trump denied knowledge of the potential deal, Rohrabacher raged at Trump’s Chief of Staff, John Kelly, for constructing a “wall” around President Trump by “people who do not want to expose this fraud.” And in January of 2017, Julian Assange’s legal team approached Clinton-linked D.C. lobbyist Adam Waldman to reach out and see if anyone in the Trump administration would negotiate with the WikiLeaks founder – only to have James Comey kill the deal.

Evidence is so last century.

• US To Impose Fresh Sanctions On Russia Over Salisbury Attack (Ind.)

The US government has said it will impose fresh sanctions on Russia after determining it used a nerve agent in the attack against a former Russian spy in Salisbury. The State Department said the sanctions will be imposed on Moscow because it used a chemical weapon in violation of international law in the attack on former Russian spy, Sergei Skripal, 67, and his daughter Yulia, 33. The pair were poisoned by a military-grade nerve agent called novichok in Salisbury, UK, in March. Following a 15-day Congressional notification period, the new US sanctions will take effect on or around 22 August, according to a statement.

[..] State Department spokesperson Heather Nauert said it had been determined Russia had “used chemical or biological weapons in violation of international law, or has used lethal chemical or biological weapons against its own nationals.” “Following the use of a Novichok nerve agent in an attempt to assassinate UK citizen Sergei Skripal and his daughter Yulia Skripal, the United States, on 6 August, 2018, determined under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) that the government of the Russian Federation has used chemical or biological weapons in violation of international law or has used lethal chemical or biological weapons against its own nationals,” a statement said.

The sanctions will cover sensitive national security goods, a senior State Department official said. There would, however, be exemptions for space flight activities and areas covering commercial passenger aviation safety, which would be allowed on a case by case basis, the official added. A second batch of “more draconian” sanctions would be imposed after 90 days unless Russia gives “reliable assurances” that it will no longer use chemical weapons and allow on-site inspections by the United Nations.

Russia should stop trying to deny anything, it makes no difference anyway.

• Russia Calls New US Sanctions Draconian, Rejects Poisoning Allegations (R.)

Russia’s embassy in the United States on Thursday called new U.S. sanctions draconian and said the reason for the new restrictions — allegations it poisoned a former spy and his daughter in Britain — were far-fetched. The United States on Wednesday announced it would impose fresh sanctions on Russia after Washington determined Moscow had used a nerve agent against a former Russian double agent, Sergei Skripal, and his daughter, Yulia, in Britain. Russia has repeatedly denied responsibility for the attack, and Russia’s embassy in Washington said in a statement that Washington’s findings against it in the case were not backed by evidence.

“On August 8, 2018 our Deputy Chief of Mission was informed in the State Department of new ‘draconian’ sanctions against Russia for far-fetched accusations of using the ‘Novichok’ nerve agent against a UK citizen,” the embassy said in a statement. “We grew accustomed to not hearing any facts or evidence.” The U.S. announcement fueled already worsening investor sentiment about the possible effect of more U.S. sanctions on Russian assets and the rouble slid by over 1 percent on Thursday against the dollar, a day after falling toward its lowest level in nearly two years. The Russian embassy said Moscow continued to advocate for an open and transparent investigation into the poisoning.

Talked about this a while ago. Unwinnable wars.

• Trump’s Sanctions Admit the End of US Military Dominance (Luongo)

On March 1st Russian President Vladimir Putin changed the geopolitical game. During his speech he unveiled new weapons which instantly made obsolete much of the U.S military’s physical arsenal. And the panic in Washington was palpable. Since that speech everything geopolitical has accelerated. The US government under Trump has shifted its strategies in response to this. No longer were we threatening North Korea with military invasion. No, Trump sat down with Kim Jong-un to negotiate peace. On Russia, Iran, China, Turkey, Venezuela and even Europe Trump’s war rhetoric has intensified. Trump is only talking about economic sanctions and tariffs, however, leveraging the dollar as his primary weapon to bring countries to heel.

There’s no hint of US invasion, no matter how much John Bolton whispers in his ear or Bibi Netanyahu bangs his shoe on the table. Why? Because US military dominance has always been enforced not by technology but by logistics. Those bases, while expensive, are also the real strength of the US military. They are a financial albatross which the ‘Axis of Resistance’ is using to win a war of attrition against US hegemony. And now, Putin’s new weapons rendered them obsolete in a moment’s time. Once fully deployed there will be no going back to the old world order. So, that’s why Trump talked to North Korea yesterday and why he will talk with Iran tomorrow.

Friends no more. There are large Jewish communities in Canada. Wonder what they think.

• Saudi Arabia Is Selling Off Its Canadian Assets As Row Intensifies (CNBC)

Saudi Arabia’s diplomatic spat with Canada looks set to escalate following a report that the Middle Eastern country has instructed its brokers to sell Canadian assets. Anger between the two countries erupted last week when Canadian officials urged Riyadh to “immediately release” women’s rights activists Samar Badawi and Nassima al-Sadah. Now the Financial Times has reported that the Saudi central bank and state pension funds have instructed third party asset managers to sell Canadian bonds, stocks and cash. The selling is said to have begun on Tuesday. In a sign of its rage, Saudi Arabia has already expelled the Canadian ambassador, frozen trade and investment between Riyadh and Ottawa and halted flights to and from Canada.

Saudi rulers have also stopped all medical treatment programs in Canada and are coordinating for the transfer of all Saudi patients currently receiving care in Canadian hospitals to be moved outside of the country. Canada’s Foreign Minister Chrystia Freeland said Monday that “Canada will always stand up for human rights in Canada and around the world, and women’s rights are human rights.” But on Wednesday, Saudi Arabia’s foreign minister said there was nothing to mediate between the two countries and that Canada knew what it needed to do to “fix its big mistake.”

Long as it doesn’t trade freely, forget it.

• ‘Dark Cloud’ Of Trade War Hovers Over Chinese Yuan’s Globalization (CNBC)

The Chinese yuan’s slide is creating challenging headwinds for Beijing’s push to promote its currency globally — a key element in the broader liberalization of the world’s second-largest economy. China wants its currency, also known as the renminbi, to play a leading role in global trade and finance in line with its economic clout. While Beijing has scored some significant milestones, the yuan has been declining, assailed by a weakening economy and a trade war with the United States. One major achievement was in 2016 when it joined the ranks of the dollar, euro, yen and British pound as part of the IMF’s Special Drawing Right (SDR), an international reserve asset.

But there have been bumps as well, most notably in 2015 when authorities suddenly devalued the currency after steadily nudging it higher for years, triggering a sell-off in global markets. The renminbi, or literally “people’s currency,” is now being buffeted by a new challenge as China’s economy is under pressure from U.S. President Donald Trump’s tariff assault. Analysts say its push to become a global currency is likely to suffer a setback. “Renminbi internationalization could be slowing down temporarily in the second half of this year,” Ken Cheung, senior Asia foreign exchange strategist at Mizuho Bank in Hong Kong, told CNBC, citing the disruption caused by the trade war.

This is much more about Africa, and the US pre-Trump, than it is about Trump himself.

• Trump Is Giving Protectionism a Bad Name (Moseley)

While it might not seem like it now, President Donald Trump is a gift to free market-oriented economists and policymakers. His clumsy approach to protectionism has ignited a trade war that inevitably will harm the U.S. economy. When the pendulum inexorably swings the other way after the Trump fiasco, free trade ideology will return with a vengeance. This is a potential tragedy for left-leaning policy analysts who have long been concerned about the excesses of neoliberalism and argued for a more measured use of tariffs to foster local economic development. As such, it critical that we distinguish between Trump’s right-wing nationalist embrace of tariffs and the more nuanced use of this tool to support infant industries.

As a development geographer and an Africanist scholar, I have long been critical of unfettered free trade because of its deleterious economic impacts on African countries. At the behest of the World Bank and the International Monetary Fund, the majority of African countries were essentially forced, because of conditional loan and debt-refinancing requirements, to undergo free market–oriented economic reforms from the early 1980s through the mid-2000s. One by one, these countries reduced tariff barriers, eliminated subsidies, cut back on government expenditures, and emphasized commodity exports. With the possible exception of Ghana, the economy of nearly every African country undertaking these reforms was devastated.

This is not to say that there was no economic growth for African countries during this period, as there certainly was during cyclical commodity booms. The problem is that the economies of these countries were essentially underdeveloped as they returned to a colonial model focused on producing a limited number of commodities such as oil, minerals, cotton, cacao, palm oil, and timber. Economic reforms destroyed the value-added activities that helped diversify these economies and provided higher wage employment, such as the textile, milling, and food processing industries. Worse yet, millions of African farmers and workers are now increasingly ensnared in a global commodity boom-and-bust cycle. Beyond that cycle, they are experiencing an even more worrying long-term trend of declining prices for commodities.

One of the consequences of the hollowing out of African economies has been the European migration crisis. While some of this migration is clearly connected to politics, war, and insecurity in the Middle East and Africa, a nontrivial portion is related to grim economic prospects in many African countries.

Predicted and predictable. It’s like if Trump can do stuff via twitter, can Musk do the same?

• SEC Questions Tesla Over Elon Musk’s Tweets (WSJ)

Securities regulators have inquired with Tesla Inc. about Chief Executive Elon Musk’s surprise announcement that he may take the company private and whether his claim was factual, people familiar with the matter said. The Securities and Exchange Commission has asked whether Musk’s unusual announcement on Tuesday was factual, the people said. The regulator also asked Tesla TSLA, -2.43% about why the disclosure was made on Twitter rather than in a regulatory filing, and whether the company believes the announcement complies with investor-protection rules, the people said. Musk on Tuesday proposed taking Tesla private at $420 a share, about 11% higher than the day’s closing stock price.

He called the funding “secured” for what would be the biggest-ever corporate buyout, but he hasn’t disclosed details. A group of Tesla board members on Wednesday said Musk spoke to them last week about taking the company private. The SEC’s inquiries, which originated from its San Francisco office, suggest Tesla could come under an enforcement investigation if regulators develop evidence that Musk’s statement was misleading or false. It wasn’t immediately clear on Wednesday whether the regulator had opened a formal enforcement investigation based on the answers it received from the company.

This is going to get so much worse. It’s only 7 months away, but no-one has actually woken up yet.

• Brexit And Housing Crisis Combining To Cause Exodus From London (Ind.)

A combination of unaffordable housing and Brexit has led to an “exodus” from London, with an increasing number of young people moving elsewhere to live and work, according to new research. Analysis by think tank Centre for London showed that job numbers in the capital reached 5.9 million at the end of June this year, up 1.9 per cent compared with the same month in 2017 – and the highest level since records began in 1996. However, the group warned that this was driven by a “significant growth” in the number of people moving away from London to rest of the UK, and a slowdown in international migration, suggesting that the city is become a less desirable place to live and work.

London recorded the slowest rate of population growth in over a decade, at almost half the rate of the previous year, the research revealed. A spokesperson for Centre for London said: “The continuing affordability crisis and the prospect of Brexit are dampening the city’s appeal, with the former seen as driving the rise in the number of people in their mid-twenties to thirties leaving the capital.” In July the average rent for London rose above £1,600 for the first time on record, according to the latest Homelet Rental Index, and while house price growth in London has slowed in recent months, the average price in the second quarter of this year was £468,845 – more than double the national average of £214,578.

Debt Rattle June 13 2018

Jun 132018

June 13, 2018 Posted by Raúl Ilargi Meijer at 8:49 am Finance Tagged with: capital flight, extinction, G7, Germany, hypocrisy, Italy, May, Monsanto, protectionism, Target2, Tesla, Trump 8 Responses »

John French Sloan South Beach Bathers 1908

• Capital Flight to Germany in Full Swing (Mish)

• The Big Italy Short Was Hiding In Plain Sight (R.)

• G7 Summit Highlights Western Leaders Hypocrisy (Lacalle)

• Donald Trump Was Right. The Rest Of The G7 Were Wrong (Monbiot)

• Centrists Very Concerned That Donald Fucking Trump Isn’t Hawkish Enough (CJ)

• May Heads Off Major Defeat After Last-Minute Climbdown To Rebels (Ind.)

• Tesla To Cut 9% Of Staff In Profitability Drive (G.)

• Americans Just Paid Off A Ton Of Credit-Card Debt—But Here’s The Bad News (MW)

• India Farmers Sow Unapproved Monsanto Cotton Seeds, Risking Arrest (R.)

• One in Three British Mammal Species Could Be Gone Within A Decade (Ind.)

“The only door left open is door number 3.”

• Capital Flight to Germany in Full Swing (Mish)

I have commented on Target2 liabilities before. Perhaps a Mish-modified translation from the Welt article Imbalance in the Euro System Reaches a New Record will ring a bell. The central banks of Germany’s euro partners Italy, Spain and France owe the Bundesbank almost a trillion euros . This is a new high. – more than ever before. Tendency continues to rise. There is no security for this money. Read that last line again and again until it sinks in. Italy is €464.7 billion in the hole. Spain is €376.6 billion in the hole. Creditors owe Germany, the Netherlands, and Finland over €1.157 trillion. In May, Italian liabilities increased by almost 40 billion euros.

“Capital flight to Germany is in full swing,” says Hans-Werner Sinn, longtime head of the Ifo Institute and one of the most prominent economists in the Federal Republic. Originally, Target2 was designed to facilitate cross-border transactions within the eurozone. The system achieved this goal. From the point of view of critics, this means that the Deutsche Bundesbank provides long-term unsecured and non-interest-bearing loans to the central banks of other eurozone countries , especially the central banks of southern countries Italy, Spain and Portugal.

Target2 is a fundamental problem of the Eurozone. • The ECB guarantees these loans. • As long as they are guaranteed, then hells bells, why not make more loans? Germany will pay one way or another. Here are the possibilities. 1) Germany and the creditor nations forgive enough debt for Europe to grow. This is the transfer union solution. 2) Permanently high unemployment and slow growth in Spain, Greece, Italy, with stagnation elsewhere in Europe 3) Breakup of the eurozone. Those are the alternatives. Germany will not allow number 1. It is unreasonable to expect number 2 to last forever. The only door left open is door number 3.

Nothing about this needs to be invented.

• The Big Italy Short Was Hiding In Plain Sight (R.)

The marriage of politics and finance in Italy regularly produces strange offspring. But a suggestion, floated over the weekend in the country’s most-respected newspaper, of a James Bond-style plot by some big investors to sink Italian financial markets added a new twist. More curious was the theory’s abrupt disappearance by Monday. The episode highlights the degree to which Europe’s most chaos-resilient economy has entered a risky new paradigm with the arrival of the most populist government since the Italian Republic’s founding in 1946. On Saturday, Corriere della Sera, the Milanese voice of the establishment, published an article which speculated that some investors betting against Italian assets might have helped engineer a market crisis.

The trigger for the Italian panic was the May 15 publication by Huffington Post’s Italian website of a draft version of the new government’s “contract”, which included language pertaining to a possible exit from the single European currency. That document, HuffPo has said, arrived in an unmarked envelope. Markets went haywire over the prospect that the government cobbled together by the two parties who gained the most seats in the March election – the right-wing League and hard-to-label 5-Star Movement – would adopt an explicitly anti-euro platform. The difference between the yields on 10-year German and Italian government bonds surged to almost 320 basis points from just around 130 basis points before the draft appeared. Any bets against Italian sovereign credit would have produced a tidy profit.

Corriere has substantially revised the story. It no longer includes language that one hedge fund, Brevan Howard, considered defamatory. That firm’s AH Master Fund, run by Alan Howard, gained 37 percent in May, thanks in part to bets on the direction of Italian assets. On Tuesday, the newspaper appended an author’s note to the piece in which it said: “We never intended to accuse or suggest that there were any kind of offenses or improper conduct by Howard in trading or in his involvement in the case of documents filtered to the Huffington Post.” In a statement to Reuters Breakingviews, the author, Federico Fubini, defended the piece. “We have run a fact-based article whose substance remains.” The paper decided “to amend the text to avert a potentially time-consuming case in foreign courts.”

EU, China protectionism.

• G7 Summit Highlights Western Leaders Hypocrisy (Lacalle)

The G7 failure to come to terms on trade highlights the problem of governments trying to macromanage trade. And no, the failure to even agree to disagree cannot be blamed on President Trump and his new-found economic nationalism. The list of countries with the largest trade surplus with the United States is led by China, which exports $375 billion more than it imports. It is followed, very far away, by Mexico ($71 billion), Japan (69 billion), Germany (65 billion), Vietnam (38 billion), Ireland (38 billion) and Italy ($31 billion). Not surprisingly, the markets with most protectionist measures against the United States are China, the European Union, Japan, Mexico and India.

These facts explain much more about the failure of the G7 summit than any Manichean analysis on Trump, Trudeau, Macron, or any of the leaders gathered there. During the last twenty years, the world has carried out a widespread practice in governments’ disastrous idea of “sustaining” GDP with demand-side policies. Build excess capacity, subsidize it, and hope to export that excess to the United States. Especially China, Germany, and Japan have economies with high state interventionism and therefore very high excess capacity, in part due to a high personal savings rate. Steel and aluminum, like the automobile industry, are examples of building unnecessary capacity and subsidizing it, country by country, hoping it will be somebody else who closes its inefficient factories to be able to export more to that country.

In Germany, the influence of the automobile industry over the government is legendary. What isn’t are the relatively high tariffs American manufacturers face when exporting to Europe and the low tariffs America itself imposes on automobile imports. What is also ironic is that modern-day protectionism didn’t start with Trump. Barriers against global trade increased between 2009 and 2016. The World Trade Organization warned, year after year, since 2010, about the increase in protectionism. The Obama administration, faced with the exponential increase in its trade deficit, was the one that introduced the highest number of protectionist measures between 2009 and 2016. The only difference between Trump and Obama was that Obama didn’t publicize this much and the mainstream media didn’t complain.

True, these deals need a sunset clause.

• Donald Trump Was Right. The Rest Of The G7 Were Wrong (Monbiot)

He gets almost everything wrong. But last weekend Donald Trump got something right. To the horror of the other leaders of the rich world, he defended democracy against its detractors. Perhaps predictably, he has been universally condemned for it. His crime was to insist that the North American Free Trade Agreement (Nafta) should have a sunset clause. In other words, it should not remain valid indefinitely, but expire after five years, allowing its members either to renegotiate it or to walk away. To howls of execration from the world’s media, his insistence has torpedoed efforts to update the treaty.

In Rights of Man, published in 1791, Thomas Paine argued that: “Every age and generation must be as free to act for itself, in all cases, as the ages and generations which preceded it. The vanity and presumption of governing beyond the grave is the most ridiculous and insolent of all tyrannies.” This is widely accepted – in theory if not in practice – as a basic democratic principle. Even if the people of the US, Canada and Mexico had explicitly consented to Nafta in 1994, the idea that a decision made then should bind everyone in North America for all time is repulsive. So is the notion, championed by the Canadian and Mexican governments, that any slightly modified version of the deal agreed now should bind all future governments.

But the people of North America did not explicitly consent to Nafta. They were never asked to vote on the deal, and its bipartisan support ensured that there was little scope for dissent. The huge grassroots resistance in all three nations was ignored or maligned. The deal was fixed between political and commercial elites, and granted immortality. In seeking to update the treaty, governments in the three countries have candidly sought to thwart the will of the people. Their stated intention was to finish the job before Mexico’s presidential election in July. The leading candidate, Andrés Lopez Obrador, has expressed hostility to Nafta, so it had to be done before the people cast their vote. They might wonder why so many have lost faith in democracy.

[..] Trump was right to spike the Trans-Pacific Partnership. He is right to demand a sunset clause for Nafta. When this devious, hollow, self-interested man offers a better approximation of the people’s champion than any other leader, you know democracy is in trouble.

Caitlin again.

• Centrists Very Concerned That Donald Fucking Trump Isn’t Hawkish Enough (CJ)

[..] by far the most common concerns being expressed about the Singapore summit are based not on a fear of this administration making insufficiently aggressive demands of Pyongyang, but on pure ridiculous nonsense. “President Trump seems to have given away two or three of the major things that Kim Jong-Un wanted,” Schumer complained at the aforementioned press conference. “A meeting. The flags next to each other. Now a delay of exercises with South Korea, without getting anything in return.” Huh? A meeting? Flags next to each other? I can kinda-sorta-almost see into Schumer’s twisted reality tunnel when it comes to temporarily suspending military drills along the DPRK’s border as an act of good faith, but on what planet is having a meeting or putting two flags next to each other a win of any kind?

Well, going by the outcry I’m seeing from Twitter pundits, the concern appears to be that it “legitimizes” Kim Jong-Un. What exactly that means is hard to fathom in terms of actual, tangible reality, but for years that term has been passed around like it has as much relevance as war or starvation sanctions. This imaginary product of “legitimacy” is, according to influential mainstream political commentators, meant to be withheld from Kim until he gives up everything he has and grovels on his belly begging for it. This just shows you the power of narrative, where repeating some meaningless placeholder syllables over and over again can create the illusion that a purely mental construct is as relevant in peace negotiations as nuclear warheads.

It isn’t hard to see through for anyone who doesn’t have a vested interest in subscribing to that narrative, though, and Pyongyang certainly has no such interest. [..] There are many, many perfectly valid things to criticize the Trump administration for. Opening up peace talks with North Korea is not one of them, and anyone who says it is is not a friend of humanity. The fact that nobody on either side of the aisle seems to have their foot anywhere near the brake pedal when it comes to war should concern us all, and we need to do something about it.

Might as well stop the whole process right now.

• May Heads Off Major Defeat After Last-Minute Climbdown To Rebels (Ind.)

Rebel Conservatives have forced Theresa May into a climbdown, handing parliament greater control of Brexit if she fails to seal a deal. After the prime minister was threatened with what could have been a damaging commons defeat, she promised key concessions in dramatic last minute talks with pro-EU rebels. It is likely to mean her accepting a deadline by which she must secure a deal with Brussels, if she wants to stay in the driving seat for negotiations. Her ministers must now spell out the detail of her compromises within days, with Tory rebels warning a failure to do so would reignite the prospect of a major commons loss destabilising her leadership.

It followed a day which started with the resignation of a minister and passed into febrile commons debate that saw ministers bargaining openly with rebels in the chamber. Rebel MP Nicky Morgan told The Independent: “The whole point of what has come about is that we are going to have a process to this, something which does not simply allow us to drift into a hard Brexit.” The row was precipitated by the Lords last month passing a plan that would have given parliament the power to direct Ms May’s actions if she failed to seal a Brexit deal later this year. Ministers were demanding Tory MPs vote it out of existence in the Commons on Tuesday, but had also refused to consider a more palatable compromise proposed by the former Conservative attorney general Dominic Grieve.

It would have instead seen Ms May being tied into a strict timetable of having to set out her own proposals if she failed to seal a deal by November, and then gain parliamentary approval for them – the stronger powers for MPs to direct her action would only come into play if a deal had still not been reached by February.

What, no new loans?

• Tesla To Cut 9% Of Staff In Profitability Drive (G.)

Tesla is slashing thousands of jobs, its chief executive, Elon Musk, announced Tuesday, as the electronic car company attempts to hit production targets and reach profitability. Musk called the job cuts, which will affect about 9% of the company’s more than 40,000 employees, “difficult, but necessary” in a tweet that contained the email he had sent to employees announcing the layoffs. “What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable,” the billionaire entrepreneur wrote in the email.

The job cuts will be centered on salaried employees, not factory workers, Musk said, writing, “This will not affect our ability to reach Model 3 production targets in the coming months.” Tesla has been under intense pressure to prove that it can achieve mass production of the Model 3, its first mass market vehicle. The company has yet to reach Musk’s goal of producing 5,000 cars a week – originally promised for the end of 2017. At Tesla’s annual shareholder meeting on 5 June, Musk said he believed the company would hit the 5,000 cars-a-week goal by the end of June, and that he thought the company could be profitable later this year.

They paid off so much because they owe so much.

• Americans Just Paid Off A Ton Of Credit-Card Debt—But Here’s The Bad News (MW)

A lot of Americans paid big credit-card bills in the first quarter of 2018. And they still have a long way to go. Americans repaid $40.3 billion in credit card debt during the first quarter of 2018, according to a new analysis of data from the U.S. Census Bureau, Federal Reserve and credit agency TransUnion by the personal-finance website WalletHub. That’s the second-highest amount paid off in one quarter since the first quarter of 2009, when consumers paid off more than $44 billion. Now, the bad news: That doesn’t mean their debts are getting that much smaller. Americans ended 2017 with $91.6 billion in new credit-card debt, the largest annual amount since 2007 and 104% above the post-recession average.

Outstanding credit card debt is at the second-highest point since the end of 2008, the report said. In 2017, Americans hit a record high of $1.021 trillion in outstanding revolving debt (often categorized as credit-card debt). In April 2018, they still had more $1.030 trillion to pay off, according to the Federal Reserve. Consumers’ recent debt payoff “is not as dramatic as the dollar amount makes it seem,” said Nick Clements, the co-founder of personal finance company MagnifyMoney, who previously worked in the credit industry. The reason: The total amount of credit-card debt Americans have has also been growing.

How Monsanto sneaks in illegal seeds.

• India Farmers Sow Unapproved Monsanto Cotton Seeds, Risking Arrest (R.)

Many Indian farmers are openly sowing an unapproved variety of genetically modified (GM) cotton seeds developed by Monsanto, as the government sits on the sidelines for fear of antagonizing a big voting bloc ahead of an election next year. India approved the first GM cotton seed trait in 2002 and an upgraded variety in 2006, helping transform the country into the world’s top producer and second-largest exporter of the fiber. But newer traits are not available after Monsanto in 2016 withdrew an application seeking approval for the latest variety due to a royalty dispute with the government. The herbicide-tolerant variety, lab-altered to help farmers save costs on weed management, has, however, seeped into the country’s farms since then. Authorities say they are still investigating how that happened.

“I will only use these seeds or nothing at all,” said Rambhau Shinde, a farmer who has been cultivating cotton for nearly four decades in the western state of Maharashtra. The federal environment ministry said last year planting the seeds violated the Environment Protection Act, and farmers who did so were risking potential jail terms. But many farmers are desperate to boost their incomes after poor yields over the past few years and are willing to ignore the warnings. A government official in New Delhi, who deals with matters related to GM crops, said it was difficult to keep farmers away from something that they saw benefit in. “If you don’t allow them to plant legally, illegal planting will happen,” the official said, requesting anonymity, adding that Monsanto had yet to reapply for an approval to sell its latest variety of GM cotton in India.

Bats and cats and rats.

• One in Three British Mammal Species Could Be Gone Within A Decade (Ind.)

Populations of much-loved British mammals including hedgehogs and water voles have dropped by up to two-thirds over the past 20 years, and many more are threatened with imminent extinction. Even some apparently common creatures such as rabbits have been driven into decline by human pressures such as harmful farming activities and climate change. These findings come from a review carried out by the Mammal Society and Natural England, the first of its kind to be conducted in more than two decades. The country has undergone significant changes since the last analysis in 1995, and some of the species at risk then – including badgers and otters – have since made considerable recoveries.

However, pesticide use, invasive species and road deaths have all taken their toll, and the scientists behind the study have warned Britain is on “a precipice” and must take urgent action to save its mammals. “This is happening on our own doorstep so it falls upon all of us to try and do what we can to ensure that our threatened species do not go the way of the lynx, wolf and elk and disappear from our shores forever,” said Professor Fiona Mathews, chair of the Mammal Society. The review, which made use of data collected by members of the public as well as scientists over the course of decades, covered all 58 of the country’s land mammal species.

The scientists constructed the first ever “red list” for British mammals, and found 12 are threatened with extinction. This means animals like the wildcat, greater mouse-eared bat and even the black rat are likely to be gone forever from Britain’s shores within the next 10 years. However, they noted this is likely to be an underestimate, and the real number could be as high as one in three.

Debt Rattle March 7 2018

Mar 072018

March 7, 2018 Posted by Raúl Ilargi Meijer at 10:46 am Finance Tagged with: arctic, China, Cohn, globalism, Italy, Navarro, protectionism, tariffs, Toronto, trade war, Trump, Turkey 9 Responses »

Lewis Wickes Hine Italian family in the baggage room, Ellis Island, New York 1905

• Currency Investors Are Bracing for a Full-Blown Trade War (BBG)

• Trump Sticks With Tariff Plan, Warns EU On Trade (R.)

• Europe Renews Tariffs On Chinese Steel Pipes As High As 72% (ZH)

• US Considers Broad Curbs on Chinese Imports, Takeovers (BBG)

• With Cohn Gone, Peter Navarro Is Unleashed At White House (CNBC)

• It’s Not Bad Trade Deals, It’s Bad Money – Part 2 (Stockman)

• China Dramatically Boosts Spending On Internal Security (WSJ)

• Greater Toronto Home Sales Down 35% From February 2017 (CBC)

• Italy’s Populists Split The Country in Half (BBG)

• In The Alps, Traffickers Prey On Migrants And Rescuers Alike (AFP)

• Europe’s Recurring Financial Crisis Has Not, Repeat, Not Ended (F.)

• New Eurogroup Chief Warns Of Greek Vulnerability (K.)

• Why Turkey Wants to Invade the Greek Islands (Bulut)

• Arctic Has Warmest Winter On Record (AP)

For now, I doubt it.

• Currency Investors Are Bracing for a Full-Blown Trade War (BBG)

In foreign-exchange markets, investors aren’t waiting to find out if all the tariff threats being thrown around lead to a full-blown trade war. Some money managers have begun piling into traditional havens like the yen; others are trimming currency exposure altogether; and even those who’re betting not much will come from the row are hedging just in case. The concern is that Trump’s plan to impose steel and aluminum tariffs will trigger a wave of retaliatory levies that derail the worldwide economic expansion. The EU has already responded, preparing punitive steps on iconic U.S. goods should Trump go through with his threats.

Gary Cohn’s resignation Tuesday drove home investors’ skittishness: the yen surged, while the peso and Canadian dollar sank. “Currencies can be very small but sharp objects, where a little exposure can have a large impact,” said Gene Tannuzzo, a portfolio manager at Columbia Threadneedle Investments. “So you could see more and more managers just not really stick their neck out as it relates to FX exposure.”

There will have to be negotiations.

• Trump Sticks With Tariff Plan, Warns EU On Trade (R.)

U.S. President Donald Trump reiterated on Tuesday his plan to slap big tariffs on imports of steel and aluminum, warning the EU it would get hit with a “big tax” for not treating the United States well when it comes to trade. “They make it almost impossible for us to do business with them and yet they send their cars and everything else back into the United States,” Trump said of the EU at a news conference with Swedish PM Stefan Lofven, whose country is an EU member. Trump said the EU was taking advantage of the United States on trade, adding: “They can do whatever they’d like, but if they do that, then we put a big tax of 25% on their cars – and believe me they won’t be doing it very long.”

Trump said on Friday he would impose a duty of 25% on imported steel and 10% on aluminum, a plan that sparked cries of foul from U.S. trading partners and warnings from U.S. lawmakers and businesses of the potential for a tit-for-tat trade war that could hurt the U.S. economy. Trump repeated his belief that the United States could win such a war, since it was running such a large trade deficit. “When we’re behind on every single country, trade wars aren’t so bad,” he told reporters at the White House. Lofven offered a warning of sorts to the U.S. president, saying: “I am convinced that increased tariffs hurt us all in the long run.”

What’s the phrase? Do as they do, not as they say?

• Europe Renews Tariffs On Chinese Steel Pipes As High As 72% (ZH)

As the world watches breathlessly if Trump will follow through with his threat to slap steel and aluminum import tariffs, Europe continues to quietly ratchet up its own trade war with China and nobody seems to mind. On Tuesday, as China was trying to define its future trade relations with the US, it was delivered a broadside from the European Commission after Brussels announced it had renewed tariffs on Chinese steel imports, some as high as 71.9%, saying producers in France, Spain and Sweden face a continued risk of imports from China at unfairly low prices. Ironically, that’s the same thing that Trump is saying. The original measures, imposed last April, saw Europe setting anti-dumping duties on imports of hot-rolled flat steel products from China at a higher rate than the preliminary tariffs already in place.

The European Commission explained it had set final duties of between 18.1% and 35.9% for five years for producers including Bengang Steel Plates, Handan Iron & Steel and Hesteel. This compared with lower provisional rates in place of 13.2 to 22.6%, following a complaint by EU producers ArcelorMittal, Tata Steel and ThyssenKrupp. Fast forward to today when Bloomberg reported that the European Commission reimposed for another five years the duties, which punish Chinese exporters including Huadi Steel for allegedly dumping pipes and tubes in Europe; the levies range from 48.3% to 71.9%, depending on the Chinese exporter.

“The repeal of the measures would in all likelihood result in a significant increase of Chinese dumped imports at prices undercutting the union industry prices,” the commission – the 28-nation EU’s executive arm in Brussels – said in the Official Journal; the five-year renewal will take effect on Wednesday. And even though China’s share of the EU market for stainless steel seamless pipes and tubes has been negligible, and hovering at around 2% since 2013, Brussels had no problem with pursuing what it thought was fair remedies, oblivious of the blowback. And now we turn our attention back to Washington, and whether Trump will do the same.

Perhaps most interesting: Cohn’s resignation weakens Wall Street’s voice.

• US Considers Broad Curbs on Chinese Imports, Takeovers (BBG)

The Trump administration is considering clamping down on Chinese investments in the U.S. and imposing tariffs on a broad range of its imports to punish Beijing for its alleged theft of intellectual property, according to people familiar with the matter. An announcement following an investigation by the U.S. Trade Representative’s office into China’s IP practices is expected in the coming weeks, potentially handing President Donald Trump further cause to impose trade restrictions. His announcement last week of tariffs on steel and aluminum imports has already ratcheted up global trade tensions – and led to the resignation Tuesday of his chief economic adviser Gary Cohn, who opposes such measures. Trump tweeted he’ll be making a decision on a replacement soon and that there are “many people wanting the job.”

The dollar fell and the yen – often a haven in turmoil – jumped as much as 0.6% to 105.46 per dollar, approaching a 16-month high set last week. Asian equities declined. The president is now fighting trade offensives on multiple fronts, from targeting strategic rival China to angering allies like Canada and the EU with threats to erect fresh barriers. While his counterparts have threatened retaliation, concrete action that would herald the start of an all-out trade war has yet to come. Liu He, President Xi Jinping’s top economic adviser who met with Cohn in Washington last week, told delegates at the National People’s Congress in Beijing that both sides had expressed a desire to avoid a trade war. Chinese officials – who have been studying curbs on U.S. products such as soybeans according to past reports – were otherwise largely quiet on the tariff question Wednesday.

Depends on who succeeds Cohn.

• With Cohn Gone, Peter Navarro Is Unleashed At White House (CNBC)

Peter Navarro suffered any number of humiliations in his first year in the White House, where the trade advisor was out of favor with President Donald Trump and his superiors for months. But nothing was more degrading than an order handed down by White House Chief of Staff John Kelly: Navarro had to copy his boss, Gary Cohn, on every single email he sent at the White House. “The chief wanted him under control,” a senior administration official told CNBC on Tuesday, referring to Kelly. But now the free-trading Cohn is stepping down as National Economic Council director, and Navarro’s brand of protectionist nationalism is in the ascendency. Presumably, there will be no one else at the White House looking over Navarro’s email now.

“Peter was quietly effective for nine months,” said an administration official. “He helped his reputation by keeping a low profile and being a model prisoner during his period of captivity. And when his opportunity came, he took it and he won.” Another administration official told CNBC that Cohn’s resignation is “a huge victory for the nationalists.” “Peter Navarro won the trade battle and now Gary’s given up,” that administration official said. “It literally reestablishes the intellectual framework and the personnel who were originally envisioned after Trump won the election. We can let Trump be Trump.” Navarro and Larry Kudlow, a prominent conservative and CNBC contributor, will likely be candidates for Cohn’s job. The second administration official played down the likelihood of Kudlow assuming the economic advisor role, however. Kudlow has been vocal in his opposition to the president’s planned tariffs on steel and aluminum.

Add China’s Monopoly money to that mix.

• It’s Not Bad Trade Deals, It’s Bad Money – Part 2 (Stockman)

In Part 1 we made it clear that the Donald is right about the horrific results of US trade since the 1970s, and that the Keynesian “free traders” of both the saltwater (Harvard) and freshwater (Chicago) schools of monetary central planning have their heads buried far deeper in the sand than does even the orange comb-over with his bombastic affection for 17th century mercantilism. The fact is, you do not get an $810 billion trade deficit and a 66% ratio of exports ($1.55 trillion) to imports ($2.36 trillion), as the US did in 2017, on a level playing field. And most especially, an honest free market would never generate an unbroken and deepening string of trade deficits over the last 43 years running, which cumulate to the staggering sum of $15 trillion.

Better than anything else, those baleful trade numbers explain why industrial America has been hollowed-out and off-shored, and why vast stretches of Flyover America have been left to flounder in economic malaise and decline. But two things are absolutely clear about the “why” of this $15 trillion calamity. To wit, it was not caused by some mysterious loss of capitalist enterprise and energy on America’s main street economy since 1975. Nor was it caused – contrary to the Donald’s simple-minded blather – by bad trade deals and stupid people at the USTR and Commerce Department. After all, American capitalism produced modest trade surpluses every year between 1895 and 1975. Yet it has not lost its mojo during the 43 years of massive trade deficits since then. In fact, the explosion of technological advance in Silicon Valley and on-line business enterprise from coast-to-coast suggests more nearly the opposite.

[..] What changed dramatically after 1975, however, is the monetary regime, and with it the regulator of both central bank policy and the resulting expansion rate of global credit. In a word, Tricky Dick’s ash-canning of the Bretton Woods gold exchange standard removed the essential flywheel that kept global trade balanced and sustainable. Thus, without a disciplinary mechanism independent of and external to the central banks, trade and current account imbalances among countries never needed to be “settled” via gains and losses in the reserve asset (gold or gold-linked dollars).

China’s behind a few decades, just in time for 1984.

• China Dramatically Boosts Spending On Internal Security (WSJ)

China has substantially increased spending on domestic security, official figures show, reflecting mounting concern about threats inside its borders as President Xi Jinping moves to acquire more power and reassert the authority of the Communist Party. Beijing’s budgets for internal and external security have grown faster than the economy as a whole for several years, but domestic security spending has grown far faster — to where it exceeds the national defense budget by roughly 20%. Across China, domestic security accounted for 6.1% of government spending in 2017, the Ministry of Finance said. That translates into 1.24 trillion yuan ($196 billion) and compares with 1.02 trillion yuan in central-government funding for the military.

The numbers, revealed in an annual budget report released this week, help illustrate the scale of a recent intensification of security and surveillance across China, particularly in Xinjiang and Tibet, minority-heavy areas on the country’s periphery. In Xinjiang the government has woven a web of surveillance, with checkpoints, high-definition cameras, facial scanners and street patrols; the region spent $9.1 billion on domestic security in 2017, a 92% increase from 2016, according to local government budget data.

Any questions?

• Greater Toronto Home Sales Down 35% From February 2017 (CBC)

The number of Toronto-area homes sold last month fell nearly 35% and the average selling price dropped more than 12% from historically high levels set last year, the Toronto Real Estate Board reported Tuesday. There was a total of 5,175 residential transactions through the board’s MLS system last month, down 34.9% compared to the 7,955 sales in February 2017. The region’s average selling price, covering all types of residential resales, was down 12.4% to $767,818 — still one of the most expensive in Canada. Detached houses — the most expensive of the major categories tracked by TREB — showed the biggest declines in both the number sold and sales price compared with last year.

The detached category had also been the driving force behind a spike in prices in the early months of 2017 that prompted the Liberal provincial government to introduce a package of measures last April to cool the market. That was followed by a financial stress test for buyers, which officially came into effect on Jan. 1 for federally regulated lenders, following an October announcement by the Office of the Superintendent of Financial Institutions. “When TREB released its outlook for 2018, the forecast anticipated a slow start to the year compared to the historically high sales count reported in the winter and early spring of 2017,” TREB president Tim Syrianos said Tuesday. “Prospective home buyers are still coming to terms with the psychological impact of the Fair Housing Plan, and some have also had to re-evaluate their plans due to the new OSFI-mandated mortgage stress test guidelines and generally higher borrowing costs.”

It really is north and south now, Italy’s age-old dividing line between rich and poor.

• Italy’s Populists Split The Country in Half (BBG)

Italy’s political map is a lot less colorful than it used to be. Whereas in previous elections the main parties had pockets of support across the peninsula, the March 4 vote resulted in a wave of anti-establishment Five Star yellow south of Rome and in the islands, and a sea of blue for the center-right coalition in the north, led by a strong showing on the part of the anti-immigrant League. “The South voted for the Five Star Movement and the North voted for the Lega, but both sides of the country expressed a vote of protest,” Luigi Zingales, professor at the University of Chicago’s Booth School, told Bloomberg TV.

The center-left, which used to dominate the central part of the country, was reduced to a few pockets in its former strongholds and to a handful of prosperous districts in the north. Big cities like Rome and Milan were small red dots isolated from the rest of their regions. The 2013 vote wasn’t so clear cut. It was Five Star’s first ever national election and it did well in Sicily and parts of the center and south, but the traditional parties still held on to some of their fiefdoms. Things went differently this time around. Five Star won every district in Sicily, Sardinia, Puglia, and Molise, and all but one in Campania. Large swathes of Tuscany and Emilia-Romagna and all of Umbria, which had voted left for generations, were won by the center-right.

What a sad world we live in. Or rather, what sad completely different worlds. Universes even.

• In The Alps, Traffickers Prey On Migrants And Rescuers Alike (AFP)

Five African migrants stumble through the snow, exhausted and numb, abandoned hours earlier by a smuggler who left them to make their own way down the mountain from Italy into France. They are among dozens who have been tricked in recent weeks into paying hundreds of euros to people traffickers who promised them a comfortable car ride across the border. The Montgenevre Pass isn’t steep, but the snow is deep, and the young men’s trainers and jeans do nothing to protect them against the biting minus 10ºC (14ºF) chill. If they get lost, it might take hours to cross – long enough to freeze to death. By the time members of the French volunteer group Tous Migrants (We Are All Migrants) come to their rescue in the black of night, the youths are broken.

[..] Thousands of young men from francophone west Africa have trudged across these mountains over the past two years, dreaming of jobs in France. In recent months, as news about the route filters back to Africa, the arrivals have gained pace. Since July, nearly 3,000 have passed through a modest shelter run by Tous Migrants [..] The smugglers, who are also French-speaking west Africans, charge up to €350 euros ($430) to sneak people into France. But once the group reaches the Italian border village of Claviere by train and bus, the car that is supposed to carry them on the last leg of their journey to Paris never materialises. The smugglers instead call the French volunteers to notify them that a group of Africans is heading their way – and then turn on their heels.

One more piece arguing Greece needs to ‘reform’ to recover. BS.

• Europe’s Recurring Financial Crisis Has Not, Repeat, Not Ended (F.)

It will happen again. Europe will go through another financial crisis, probably centered in Greece but not necessarily. It has had several already, because from the start few of the troubled countries have made the fundamental reforms needed to meet their obligations. Instead, the richer parts of the currency union, Germany in particular, have advanced funds on conditions of austerity that not only ignore the fundamentals but are otherwise counterproductive. The recipients pretend that they will abide by German conditions, and Berlin, to duck the disruption of a prolonged financial crisis, pretends to believe them. Rescue loans flow, and then, when another failure looms, the show repeats according to the same script. It will happen again.

The most resent run of this show was performed in spring of 2015. Greece, which had starred in the original pilot back in 2010, could not meet the payments due on its debt. German Finance Minister Wolfgang Schaeuble first lectured Greece on its spendthrift ways and then, according to script, said that Berlin would block any aid until Athens increases taxes and cuts spending sufficiently for its budget to run what is called a “primary surplus” (revenues less costs excluding the expense of debt service) equal to 3.5% of GDP. Greek Prime Minister Alexis Tsipras, also according to script, refused, pointing out, correctly too, that past such efforts have imposed unsupportable hardships on the Greek people. At the last moment, again according to script, he caved into Schaeuble’s demands. Berlin allowed Europe to extend the loan, and the crisis quieted as past crises have at this point of the show.

New lapdog.

• New Eurogroup Chief Warns Of Greek Vulnerability (K.)

Greece remains vulnerable to domestic and external shocks, the head of the Eurogroup, Mario Centeno, warned on Tuesday. The Portuguese finance minister also told the Athens-Macedonian News Agency that restoring its credibility in the credit market will be a gradual and not automatic process for this country. Centeno called on Athens to continue implementing the reforms of the bailout program even after its completion, adding that the eurozone will examine its strategy regarding the post-program framework later, along with the easing of Greece’s debt. The Portuguese official stopped short of making any pledges about the debt lightening, sticking to the letter of the Eurogroup decision.

Referring to the country’s access to the markets, Centeno stated that “if the conditions are fulfilled for the further easing of the debt at the end of the program, the Eurogroup – as has unequivocally been agreed – is ready to assist in this process.” He added that “all additional measures on the debt will have to be analyzed at a technical level. They will only be adopted if the two conditions are fulfilled: The program has to be completed successfully and the debt easing will have to be necessary for the Greek debt to be considered sustainable. This is why we need an integrated analysis by the institutional bodies; at the moment that has not come.”

Centeno said Greece is a “unique case in the eurozone,” implying that it is in this context that its exit from the bailout program will be examined. He added that “the end of the program will constitute a new political reality for Greece. Whatever the framework of monitoring agreed, Greece will regain control of its policies. Yet just as with every other European [Union] country, such policies will have to be compatible with the European framework.” He said he is not interested in Greek election results, but revealed that the EU is concerned about the political agenda in Greece: “I would just recommend to Greece to continue on its own reform agenda,” Centeno stated.

Erdogan plays to cheap nationalist sentiments. Which can be fired up much higher by shooting at something. Where’s NATO, US, Germany?

• Why Turkey Wants to Invade the Greek Islands (Bulut)

There is one issue on which Turkey’s ruling Justice and Development Party (AKP) and its main opposition, the Republican People’s Party (CHP), are in complete agreement: The conviction that the Greek islands are occupied Turkish territory and must be reconquered. So strong is this determination that the leaders of both parties have openly threatened to invade the Aegean. The only conflict on this issue between the two parties is in competing to prove which is more powerful and patriotic, and which possesses the courage to carry out the threat against Greece. While the CHP is accusing President Recep Tayyip Erdogan’s AKP party of enabling Greece to occupy Turkish lands, the AKP is attacking the CHP, Turkey’s founding party, for allowing Greece to take the islands through the 1924 Treaty of Lausanne, the 1932 Turkish-Italian Agreements, and the 1947 Paris Treaty, which recognized the islands of the Aegean as Greek territory.

In 2016, Erdogan said that Turkey “gave away” the islands that “used to be ours” and are “within shouting distance.” “There are still our mosques, our shrines there,” he said, referring to the Ottoman occupation of the islands. Two months earlier, at the “Conference on Turkey’s New Security Concept,” Erdogan declared: “Lausanne… has never been a sacred text. Of course, we will discuss it and struggle to have a better one.” Subsequently, pro-government media outlets published maps and photos of the islands in the Aegean, calling them the territory that “Erdogan says we gave away at Lausanne.”

Borders between Greece and Turkey after 1923 Lausanne Treaty

Ilargi: This may seem extreme, but original plans proposed by the -rejected- 1920 Sèvres Treaty went even further, giving Greece large parts of mainland Turkey as well. This was negotiated after the Ottoman empire lost WWI. The discussions also included claims to the likes of Palestine, Syria and Lebanon. Both treaties were negotiated -and signed- by the Ottoman Empire and the Allied French Republic, British Empire, Kingdom of Italy, Empire of Japan and the Kingdom of Romania. Somewhat ironially, the Kingdom of Greece was the only party not to sign Sèvres. Which was also heavily contested by Kemal Atatürk in Turkey. Wiki: ‘Atatürk led Turkish nationalists to defeat the combined armies of the signatories of the Treaty’ in the Turkish Independence War (1919-1923)

Borders between Greece and Turkey proposed by -rejected- 1920 Sèvres Treaty

We read this. And then we all get in our cars.

• Arctic Has Warmest Winter On Record (AP)

The Arctic [..] experienced its warmest winter on record. Sea ice hit record lows for the time of year, new US weather data revealed on Tuesday. “It’s just crazy, crazy stuff,” said Mark Serreze, director of the National Snow and Ice Data Center in Boulder, Colorado, who has been studying the Arctic since 1982. “These heat waves – I’ve never seen anything like this.” Experts say what’s happening is unprecedented, part of a global warming-driven cycle that probably played a role in the recent strong, icy storms in Europe and the north-eastern US. The land weather station closest to the North Pole, at the tip of Greenland, spent more than 60 hours above freezing in February.

Before this year, scientists had seen the temperature there rise above freezing in February only twice before, and then extremely briefly. Last month’s record-high temperatures have been more like those typical of May, said Ruth Mottram, a climate scientist at the Danish Meteorological Institute. Of nearly three dozen different Arctic weather stations, 15 of them were at least 10F (5.6C) above normal for the winter. “The extended warmth really has staggered all of us,” Mottram said. In February, Arctic sea ice covered 5.4m square miles, about 62,000 square miles smaller than last year’s record low, the ice data center reported, and it was 521,000 square miles below the 30-year normal.

Debt Rattle August 26 2017

Aug 262017

August 26, 2017 Posted by Raúl Ilargi Meijer at 7:40 am Finance Tagged with: debt colony, Draghi, Greece, IMF, inflation, meltdown, protectionism, recovery, savings, Yellen 6 Responses »

Vincent van Gogh Self-Portrait with Straw Hat Aug-Sep 1887

• Draghi Warns Of Serious Risk To Global Economy From Rising Protectionism (CNBC)

• Yellen and Draghi Both Defend Post-Crisis Financial Regulation (BBG)

• Central Banks’ Pursuit Of Inflation Has Turned Sisyphean (CNBC)

• IMF: We See A Broad-Based Global Recovery (CNBC)

• Rickards: September Meltdown Ahead (DR)

• Negative Interest Rates Have Come To America (Black)

• Adults Take Over at Uber, Cost Cutting Starts (WS)

• Sears Revenues to Hit Zero in 3 Years. But Bankruptcy First (WS)

• Health-Care Costs Could Eat Up Your Retirement Savings (BBG)

• Schaeuble Defends Tough Line On Greek Reforms (K.)

• Minister: Young Greeks Fleeing A ‘Debt Colony’ (K.)

Only globalization can save you. In other news: all your base are belong to us.

• Draghi Warns Of Serious Risk To Global Economy From Rising Protectionism (CNBC)

European Central Bank President Mario Draghi said protectionist policies pose a “serious risk” for growth in the global economy. At a gathering of central bankers, economists and others in Jackson Hole, Wyoming, on Friday, Draghi said the global economy is firming up. He told the audience in a speech that “a turn towards protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy.” The comments come at a time when President Donald Trump is taking a hard look at the U.S.’s trade agreements around the world, pushing to reduce trade deficits and make conditions more favorable for American manufacturers.

Trump also came to office promising American business leaders he would break down regulations, which he said have constrained economic growth. The financial industry in particular seems poised to benefit if Obama-era regulations on banks and Wall Street get dismantled or diluted. On Friday, Draghi, a former Goldman Sachs executive, said “there is never a good time for lax regulation” especially because it can create incentives that lead to higher risk-taking. “By contrast, the stronger regulatory regime that we have now has enabled economies to endure a long period of low interest rates without any significant side-effects on financial stability, which has been crucial for stabilizing demand and inflation worldwide,” Draghi said. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis.”

MO: make a godawful mess, then switch to being sensible.

• Yellen and Draghi Both Defend Post-Crisis Financial Regulation (BBG)

The world’s two most powerful central bankers on Friday delivered back-to-back warnings against dismantling tough post-crisis financial rules that the Trump administration blames for stifling U.S. growth. ECB President Mario Draghi, speaking at the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, said it was a particularly dangerous time to loosen regulation given that central banks are still supporting their economies with accommodative monetary policies. That warning followed earlier remarks by Fed Chair Janet Yellen, who offered a broad defense of the steps taken since the 2008 financial-market meltdown and urged that any rollback of post-crisis rules be “modest.” The combined effect was “a subtle shot across the bow of those who seek deregulation,” said Michael Gapen, chief U.S. economist at Barclays in New York.

The complementary speeches come at what may be the tail end of Yellen’s tenure at the Fed’s helm. President Donald Trump is not expected to reappoint her when her leadership term expires in February, according to economists surveyed by Bloomberg. Gapen said that by delivering overlapping messages, Yellen and Draghi could help amplify their points, but “in practice that’s not the agenda the Trump administration is likely to seek.” In a talk aimed broadly at defending the merits of globalization, Draghi said it’s crucial to make sure open policies on trade and global finance should be safeguarded with regulations designed to make globalization fair, safe and equitable. “We have only recently witnessed the dangers of financial openness combined with insufficient regulation,” Draghi said, referring to the global financial crisis of 2008-09.

Any reversal of the regulatory response to that crisis, he added, “would call into question whether the lessons of the crisis have indeed been learnt – and thus whether financial integration can still be considered safe.” That point was all the more important given that central banks are continuing to provide stimulus to their economies. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis,” Draghi said.

Blind as bats.

• Central Banks’ Pursuit Of Inflation Has Turned Sisyphean (CNBC)

Central banks globally have spent years fruitlessly trying to awaken long-dormant inflation, and some analysts say it’s time to stop trying. Anemic inflation has become a bugaboo for global central banks, with frequent mentions in the meeting minutes. It’s been a speed bump in the U.S. Federal Reserve’s path toward normalizing interest rates, with members voting at the July meeting to keep the current target rate in a 1% to 1.25% range. Minutes from that July decision show some policymakers were pushing for caution on rate hikes due to low inflation. The Fed’s target is for 2% inflation, and its preferred measure of inflation is at about 1.5%. It’s not limited to the U.S. by any stretch: Japan’s colossal struggle to goad inflation to life has been a stalemate at best. Since the Bank of Japan launched a massive quantitative easing program in 2013, the country has exited deflation.

But even the September 2016, introduction of a “yield-curve control” policy, seen by markets as essentially a “whatever it takes” stance on boosting inflation, hasn’t seemed to move the needle much. Japan’s core consumer price index, which includes oil products and excludes fresh food, rose 0.5% year-on-year in July, Reuters reported on Friday. That compared with the BOJ’s goal for inflation to meet or exceed its target of 2% “in a stable manner.” It also was oddly jarring compared with Japan’s economy growing a better-than-expected annualized 4% year-on-year in the April-to-June quarter. Some analysts have said the persistently low inflation was a signal that central banks shouldn’t be using inflation to guide monetary policy. “If we’ve got growth at trend, which most places appear to have, if we’ve got the unemployment rate at full employment, which most places appear to have, then we shouldn’t even worry about what inflation is doing,” Rob Carnell, head of research for Asia at ING, said recently.

The future’s are so bright you just got to wear shades.

• IMF: We See A Broad-Based Global Recovery (CNBC)

The global economy is doing well, the chief economist for the International Monetary Fund told CNBC on Friday. The IMF’s new forecast on the world’s economy is expected in about five weeks, Maury Obstfeld said. And while he wouldn’t divulge what that may be, he did say the organization “certainly” isn’t going to lower the number from its last projection. In July, the IMF forecast global economic growth of 3.5% for 2017 and 2.5% for 2018. “We see broad-based recovery. The importance is that it’s really broad-based in a way that it hasn’t been in a decade,” Obstfeld said in a “Closing Bell” interview from the sidelines of the Federal Reserve’s symposium in Jackson Hole, Wyoming.

That doesn’t mean there won’t be concerns ahead. While there are not any immediate downside risks, there are longer-term ones, he noted. “One risk is just continuing tepid growth. What we’re seeing now is a cyclical upswing, but potential growth remains slow,” Obstfeld said. “That brings with it political tensions which we’ve seen spilling over into protectionist rhetoric, for example.” Earlier Friday, ECB Mario Draghi told the audience at Jackson Hole that protectionist policies pose a “serious risk” for growth in the global economy. The comments come at a time when President Donald Trump has been scrutinizing U.S. trade agreements around the world in a push to reduce trade deficits and boost conditions for American manufacturers.

Ice-9.

• Rickards: September Meltdown Ahead (DR)

Jim Rickards joined Alex Stanczyk at the Physical Gold Fund to discuss current destabilizing factors that could drastically impact investors. During the first part of their conversation the economic expert delved into gold positioning for the future, the expanding threats from North Korea and liquidity in global markets. To begin Rickards’ was prompted on his latest analysis over North Korea and the international threat the country poses going forward. The currency wars expert urged, “The fact is, the threats from North Korea, even if not to the mainland, still threaten U.S territory. There are a lot of Americans living there. As this escalation continues in sequence the problem is not new.” “The threat of North Korea has been going on for decades and has escalated since the mid 1990’s. Bill Clinton and George W. Bush both offered sanctions relief for the country in exchange for program reductions.

The Obama administration essentially did nothing for eight years. I do think the Trump administration at least deserves credit for clarity.” “Trump has identified that he is not willing to negotiate to arrive at negotiations. They have indicated to North Korea that if the regime wishes to come to the table what the White House must see is a verified cessation of weapons programs. In exchange they could offer potential sanctions relief and even the possibility of integrating the North Korean economy into the global economy. The North Koreans are actually very rich in natural resources and could be a commodity driven exporter.” “The U.S is not going to be bullied. It will continue to operate in South Korea with joint military exercises. One by one the North Koreans have come to understand missile technology and it seems like they are within the final steps toward miniaturization of weapons.”

[..] The author of Road to Ruin highlighted the severity of the debt ceiling and what it means for the economy. Rickards went on, “There are two really big, but separate, deadlines converging on September 29th. The first is the debt ceiling. This has to deal with the borrowing authority of the U.S Treasury and to be able to pay the bills of the government.” “That authority includes the money to cover social security, medicare, medicaid, military and all of the operations within the budget. Until it is authorized, the Treasury is essentially running on fumes. They are running out of cash. They need Congress to authorize an increase in the debt ceiling so they can borrow money so they can pay for their bills. The problem is that Congress is not functional right now.”

[..] Rickards then turned to warn how liquidity can be frozen by governments. “In October 1987, the major U.S stock market, and in particular the Dow Jones, fell 22% in one day. That kind of a drop would be 4,000 Dow points. When I explain that move to investors they typically respond that there are measures in place to freeze the market and stop such a loss.” “My immediate reaction is, which makes you feel more concerned; thousand point drops, or a closed exchange? At least with a significant point drop you can still get out at a price. If you shut the market down, that’s Ice-9. My thesis is that if you shut down one market the demand for liquidity then just moves to another market, requiring another sector shutdown.”

“..in principle there’s nothing wrong with paying a bank a reasonable fee to safeguard your money. But that’s not what banks do.”

• Negative Interest Rates Have Come To America (Black)

Negative interest rates are particularly prominent in Europe. Starting back in 2014, the European Central Bank (ECB) slashed its main interest rate to below zero. One bizarre effect of this policy is that some banks have passed on these negative interest rates to their retail depositors. This trend has persisted across Europe, Japan, and many other parts of the world. Yet at least Americans were able to breathe a sigh of relief that negative interest rates hadn’t crossed the Atlantic. Well, that’s not entirely true. Recently I was reading through Bank of America’s most recent annual report; it’s filled with some shocking facts about the -real- level of wealth in the Land of the Free… which I’ll tell you more about next week. But here’s one of the things that caught my eye: Bank of America has $592.4 billion in deposits from retail customers, i.e. regular folks who bank at BOA.

And according to its annual report, BOA paid its retail depositors an average interest rate of 0.04% last year. Seriously. That’s a tiny, laughable amount of interest. But hey, at least it’s positive. That 0.04% average rate means the bank paid its retail depositors a total of $236 million in interest. Yet at the same time, Bank of America charged those very same retail depositors $4.1 BILLION in fees. So in total, small depositors forked over a net sum of $3.8+ billion to Bank of America last year for the privilege of holding their money at the bank. Based on the bank’s total consumer deposits of $592.4 billion, it’s as if the bank had charged its customers a negative interest rate of 0.64%. What’s the point? It’s one thing to pay fees to a bank that will safeguard your capital and act in the most conservative way possible.

People pay fees to storage companies to safeguard their wine collections, baseball card collections, all sorts of stuff. We even pay fees for safety deposit boxes to store important documents. So in principle there’s nothing wrong with paying a bank a reasonable fee to safeguard your money. But that’s not what banks do.

It’s time for competition.

• Adults Take Over at Uber, Cost Cutting Starts (WS)

[..] now the adults have taken over at Uber. And money has become an objective. A 14-member executive committee is running the show since there’s no CEO, no CFO, no number two behind the CFO, and no COO. A gaggle of other executives and managers left or were shoved out in the wake of scandals, chaos, and lawsuits. And the adults have decided to bring the expenses down. One of the steps is to unload Uptown Station. According to the San Francisco Business Times: The possible sale of Uptown Station means Uber can move the asset and development costs off its books, which could put it in a better financial position. That was a key motivator for exploring the sale, spokesperson MoMo Zhou told the Business Times. Uber was looking “to strengthen our financial position so we can better serve riders and drivers in the long term,” she said.

So they’re starting to concentrate their efforts and prioritize their spending where it matters: riders and drivers. In March already, Uber had decided to scale down its move to Uptown Station. Instead of migrating 2,500 to 3,000 employees into the building, it said it would move just a few hundred, and lease out the remaining space. Uber has booming sales – in Q2, “adjusted net revenue” soared by 118% year-over-year to $1.75 billion – but it also has booming expenses and losses, and sooner or later something has to give. In 2016, it booked an “adjusted” loss of $3.2 billion (not including interest, tax, employee stock compensation expenses, and other items). In the first two quarters of 2017, it booked an “adjusted” loss of $1.4 billion: $4.6 billion in “adjusted” losses in six quarters. It has $6.6 billion in cash. At this pace, it’ll be gone quickly.

Uber is now trying to cut its losses and reach profitability, a “person with knowledge of the matter” told the Business Times. And given the chaos surrounding Uber, it might be a better idea to concentrate employees in one place rather than scattering them all over the landscape. This comes after the adults have also decided to shut down Uber’s subprime auto leasing program that was started two years ago. “Xchange Leasing” put their badly paid drivers with subprime credit into new vehicles they couldn’t afford. The leases allowed drivers to put “unlimited miles” on their cars without consequences and return the cars after 30 days with two weeks’ notice. No one in the car business would ever offer this kind of lease. But the folks at Uber simply didn’t need to do the math. Uber invested $600 million in this program. Now the adults found out they’re losing $9,000 per car. With 40,000 cars in the fleet, it adds up in a hurry. So they decided to shut down that program.

Sears is toast.

• Sears Revenues to Hit Zero in 3 Years. But Bankruptcy First (WS)

In its fiscal year 2017, it already closed about 180 stores and expects to shutter an additional 150 stores in the third quarter. Those closings had been announced previously. But in its earnings release, it announced the closing of 28 more Kmart stores “later this year.” Liquidation sales will begin as early as August 31, it said. The rest of the plunge was caused by same-store sales (sales at stores open longer than one year) which dropped 11.5%. “Softness in store traffic” the company called it. But the trend is falling off a cliff: In Q2 2016, same-store sales had dropped “only” 5.2%. Now they’re plunging at more than double that rate. Despite the ceaseless corporate rhetoric of operational improvements, this baby is going down the tubes at an ever faster speed. How does that $4.37 billion in revenues stack up? They’re down by nearly two-thirds from Q2 2007. This is what the accelerating revenue shrinkage looks like:

[..] Over the past three years, the momentum of the revenue decline has accelerated sharply. Q2 revenues have plummeted from $8.0 billion in 2014 to $4.37 billion in 2017. A decline of $3.6 billion, or 45% in three years. This chart shows Q2 revenues from 2014 to 2017, with the trend line (purple) extended until it hits zero. This is the same track that Q1 revenues are on. As I’d postulated three months ago, at this rate, revenues of the once largest retailer in the US will be zero in three years, or by 2020. Zero is the inevitable result of a hedge-fund strategy of asset-stripping and cost-cutting at a retailer that had already been struggling before the takeover, and that now finds itself embroiled without effective online strategy in the American brick-and-mortar retail meltdown. But revenues won’t drop to zero. Sears won’t last that long.

But who actually has the required $275,000? And what happens to those who don’t have it?

• Health-Care Costs Could Eat Up Your Retirement Savings (BBG)

In a perfect world, the largest expenses in retirement would be for fun things like travel and entertainment. In the real world, retiree health-care costs can take an unconscionably big bite out of savings. A 65-year-old couple retiring this year will need $275,000 to cover health-care costs throughout retirement, Fidelity Investments said in its annual cost estimate, out this morning. That stunning number is about 6% higher than it was last year. Costs would be about half that amount for a single person, though women would pay a bit more than men since they live longer. You might think that number looks high. At 65, you’re eligible for Medicare, after all. But monthly Medicare premiums for Part B (which covers doctor’s visits, surgeries, and more) and Part D (drug coverage) make up 35% of Fidelity’s estimate.

The other 65% is the cost-sharing, in and out of Medicare, in co-payments and deductibles, as well as out-of-pocket payments for prescription drugs. And that doesn’t include dental care—or nursing-home and long-term care costs. Retirees can buy supplemental, or Medigap, insurance to cover some of the things Medicare doesn’t, but those premiums would lead back to the same basic estimate, said Adam Stavisky, senior vice president for Fidelity Benefits Consulting. The 6% jump in Fidelity’s estimate mirrors the average annual 5.5% inflation rate for medical care that HealthView Services, which makes health-care cost projection software, estimates for the next decade. A recent report from the company drilled into which health-care costs will grow the fastest.

It estimates a long-term inflation rate of 7.2% for Medigap premiums and 8% for Medicare Part D. For out-of-pocket costs, the company estimates inflation rates of 3.7% for prescription drugs, 5% in dental, hearing, and vision services, 3% for hospitals, and 3.4% for doctor’s visits and tests. Cost-of-living-adjustments on Social Security payments, meanwhile, are expected to grow by 2.6%, according to the HealthView Services report.

“One day they will build a statue in my honor in Greece in a show of gratitude..”

• Schaeuble Defends Tough Line On Greek Reforms (K.)

As Prime Minister Alexis Tsipras prepares to present a positive narrative at next month’s Thessaloniki International Fair about how the country is turning a corner ahead of the next review by international creditors in the fall, German Finance Minister Wolfgang Schaeuble has reportedly suggested that Athens should be grateful to him for his tough stance on economic reform and austerity. “One day they will build a statue in my honor in Greece in a show of gratitude for the pressure that I imposed in order for necessary reforms to be carried out,” the outspoken minister was quoted as saying by German newspaper Handelsblatt. According to the same newspaper, Schaeuble aims to turn the European Stability Mechanism into a European version of the IMF, one of Greece’s creditors.

The concept is that of a European monetary fund that would help eurozone states in financial crisis but subject to strict terms, such as those that underpinned the IMF’s support to Greece and other countries in recent years. Other ideas, such as the possibility of introducing growth-inducing measures in such countries, were reportedly rejected by Schaeuble. French President Emmanuel Macron meanwhile has suggested that the eurozone should have its own central budget which it could tap if necessary to support member-states in financial difficulty. He is also said to back the idea of a eurozone finance minister, another idea opposed by Berlin. Macron is due in Athens in the first week of September for an official visit that government sources hope will bolster Tsipras’s positive narrative while there are also signs that French firms might confirm their interest in investing in the Thessaloniki Port Authority.

When you’re bled dry of your young and their energy, you’re not going to recover.

• Minister: Young Greeks Fleeing A ‘Debt Colony’ (K.)

In comments to Skai TV on Friday, Deputy Education Minister Costas Zouraris said he understood why large numbers of young Greeks are abandoning the country for better employment opportunities abroad, noting that Greece is “a debt colony” that is “slightly worse” than India. “For now, it’s understandable that kids are saying they want to leave,” Zouraris told Skai. “Let’s hope they return because we are, as you know, bankrupt and a debt colony.” He added that the Greek state has invested about 1 million euros in its top graduates who are now leaving the country. “We are now giving this as a gift to foreign countries for a few years,” he said.

Debt Rattle August 14 2017

Aug 142017

August 14, 2017 Posted by Raúl Ilargi Meijer at 8:59 am Finance Tagged with: Aleppo, antibiotics, chaos, conspiracy, elephants, protectionism, refugees, rollercoaster 1 Response »

August Strindberg Alpine Landscape I 1894

• Multiple Contraction : Stock Market Warning Siren is Blaring (WS)

• Is The Euro Crisis Really Over? (Lacalle)

• US Is The Real Trade Protectionist – China State Media (CNBC)

• Fourth Turning: “It’s Going To Be A Rollercoaster Ride” (ZH)

• Conspiracy or Chaos? (Jim Quinn)

• Forget GDP – There’s More To Britain’s Wealth Than Its Bank Balance (Baggini)

• Factory Farming, Antibiotics Use In Asia Creating Global Health Risks (G.)

• More NGOs Follow MSF In Suspending Mediterranean Migrant Rescues (R.)

• Syrian Refugees Can Return To Aleppo… And Do So In Their 100,000s (RT)

• Do Elephants Have Souls? (NA)

Creative accounting is subject to inherent limits.

• Multiple Contraction : Stock Market Warning Siren is Blaring (WS)

“Adjusted” earnings growth is 10.2% year-over-year in the second quarter, according to FactSet, based on the 91% of the companies in the S&P 500 that have reported results. The energy sector was a key driver, with 332% “adjusted” earnings growth from the oil-bust levels of a year ago. The sectors with double-digit earnings growth: information technology (14.7%), utilities (10.8%), and financials (10.3%). The rest were single digit. Earnings in the consumer discretionary sector declined. Revenues grew 5.1%, also led by the energy sector. At the beginning of Q2 last year, the WTI grade of crude oil traded at $35 a barrel. In Q2 this year, WTI ranged from $42 to $53 a barrel.

So the Wall-Street hype machine is cranking at maximum RPM to propagate the great news that earnings are soaring, and that this is the reason why stocks should also be soaring, and forget everything else. The hype machine carefully avoids showing the bigger picture which is dismal for earnings and ludicrous for stock valuations. Aggregate earnings per share (EPS) for the S&P 500 companies on a trailing 12-months basis rose for the second quarter in a row. That’s the foundation of the Wall Street hype. But here’s the thing with these EPS: they’re now back where they had been in… May 2014. Yep. More than three years of earnings stagnation. No growth whatsoever, even for “adjusted” earnings. In fact, on a trailing 12-month basis, aggregate EPS of the S&P 500 companies are down about 5% from their peak in Q4 2014.

And yet, over the same three-plus years of total earnings stagnation, the S&P 500 index has soared 34%. This chart shows those “adjusted” earnings per share for the S&P 500 companies (black line) and the S&P 500 index (blue line). I marked August 2012 as the point five years ago, and May 2014. And these are not earnings under the Generally Accepted Accounting Principles (GAAP). FactSet uses “adjusted” earnings for its analyses. These are the earnings with the bad stuff “adjusted” out of them by management to manipulate earnings into the most favorable light. Not all companies report “adjusted” earnings. Some only report GAAP earnings and live with the consequences. But others put adjusted earnings into the foreground, and that’s what Wall Street dishes up.

[..] This is the peculiar situation of today: On average, these companies have stagnating earnings per share propped up by “adjusting” these earnings and by financial engineering. The price-earnings multiple (P/E ratio) for stagnating companies should be low. In January 2012, the P/E ratio for the companies in the S&P 500 index was 14.9. And that was high. As of Friday, the aggregate P/E ratio is 24.3:

Brussels keeps Europe from recovering. A continent of zombies.

• Is The Euro Crisis Really Over? (Lacalle)

This week we have read that Brussels has certified “the end of the crisis”. In an uncomfortably triumphant statement, the group welcomed the fact that Europe had emerged from the crisis and returned to growth “thanks to the decisive action of the European Union”. Really? Thanks to the “decisive action” of the European Union the “economy is back in shape”? It is true that the communique says that “much remains to be done to overcome the legacy of the crisis years”, but if we can say something about the European crisis is that the “decisive” action of the European Union has not helped to end the crisis, but has perpetuated and silenced it. The European economy is not “in shape”.

According to the Bank of International Settlements and Merrill Lynch, Europe has more zombie companies today than before the crisis, 9% of large listed non-financial corporations are considered walking dead, ie generating operating profits that do not cover their financial costs, in spite of all-time low-interest rates and an unprecedented monetary stimulus. And that is among the big companies, where the business results of the Eurostoxx remain below 2008. If we go to SMEs, the European Union has higher rates of bankruptcies and losses than in 2008, yet the tax burden on companies has increased. In fact, if anything can be said of the European business fabric is that it has been devastated by taxes.

The European Union has continued to hamper the high-productivity sectors to support the so-called national champions and zombies, that large amount of low-value added conglomerates, ridden by high debt and poor margins. While the United States saw the astronomical takeoff of technology giants and corporate profits growing at double digit rates, the EU decided to put obstacles to growth, and today, in the Eurostoxx 100, we have the same collection of dinosaurs that we had a decade ago. European banks, at the end of 2016, had more than €1 trillion in non-performing loans, a figure that represents 5.1% of total loans compared to 1.5% in the US or Japan. Europe has gone from financial crisis to financial crisis, and recently we have had new episodes in Italy, Spain and Portugal.

Theory: Xi will not put up a real fight if he’s not certain he can win (Deng Xiao Ping’s stance on US).

• US Is The Real Trade Protectionist – China State Media (CNBC)

Trump is expected to issue the so-called Section 301 investigation under the 1974 Trade Act later on Monday to investigate Chinese trade practices that force U.S. firms operating in China to turn over intellectual property, multiple outlets reported. China will retaliate in such a case, said the Communist Party-linked Global Times, which is known for its nationalist slant. “The Trump administration should have second thoughts about putting pressure on China on trade and avoid a full-blown trade war,” said the newspaper, adding that the Beijing “should make use of the WTO mechanism to sue the U.S. for trade protectionism.” “The trade policies of the Trump administration have been widely criticized. Although filing a lawsuit with the WTO is time-consuming, it is highly likely that China would win,” it said.

The latest news about a U.S. probe into Chinese trade practices could lead to steep tariffs and comes as Trump is pressing for China’s cooperation in reining in North Korea’s nuclear program. “The U.S. now is walking softly and carrying a huge stick in regards to what it wants. Here, this is tactically nothing more than ‘We need your support with North Korea,’ part and parcel, that’s it. The symbolism of this is just politics and game play,” Frank Troise, managing director at SoHo Capital, told CNBC’s “The Rundown.” China has repeatedly said the two issues were not related, with the Global Times calling the link “illogical” in its Sunday night editorial. Commentaries in state media normally provide insight into government thinking beyond typically thin official statements.

Neil Howe is an interesting voice, and that’s only partly because Steve Bannon likes his work.

• Fourth Turning: “It’s Going To Be A Rollercoaster Ride” (ZH)

[..] .. although 9/11 changed America’s attitude towards the rest of the world, I think that the stock market boom and celebrity circus that’s here in the United States really hadn’t changed very much. And I don’t think you really had a shift, a fundamental shift, in America’s perception of themselves as a people, as their own country, to a fundamental degree until 2008. Also, 2001, as we explained to many people at the time, was simply too early. Every turning starts when each generation is beginning to move into a new phase of life. Back in 2001 boomers were not yet retiring, millennials were still—maybe the first one of them was barely graduating from high school.

So, this was not what we expected. 2008 really did coincide with the generational maturity of the turning, so to speak. And I think that, in terms of the basic shift in our efficacy of the social system, I think 2008 was a bigger change.” The crisis also ushered in an era where central banks exhibit total control of markets, which has created an “artificial quality,” Howe said. “The economic emergency that occurred in 2008-2009 really catapulted us into by far the biggest economic emergency we’ve been in since the early 1930s. And, arguably, we are still living out the consequences of that with complete change in central bank policy, monetary policy, with sustaining these record low interest rates and arguable very high valuations in financial markets—almost anything pushed by that—and people still wondering how we’re going to get out from under that.

The constant discussion is when are central banks going to pull back on their balance sheets and actually go back to the old normal? So, I think there is the sense, even in this the booming markets that we see today, that there is this artificial quality: people think that there’s something wrong about this. We have not re-righted where we were. We are not letting price discovery and actual markets function the way they did before then. So, I do believe that 2008 was the beginning of a whole new regime. And I also believe that the political dysfunction, the sense of political dysfunction—created during the two turns of the Obama presidency and, obviously, also into the Trump presidency—of government completely grinding to a halt is going to have some very powerful repercussions in the years shortly to come.”

Anarchy in the UK.

• Conspiracy or Chaos? (Jim Quinn)

Alan Moore, the renowned graphic novel writer, and author of the dystopian classic V for Vendetta, politically identifies as an anarchist. His view that all political states are an outgrowth of anarchy, with the biggest gang taking control and dictating how things will be run, is manifested in V for Vendetta. As an anarchist, you can understand why he is doubtful of conspiracy theories and an all-powerful entity controlling the world. He believes in a chaotic world competing gangs position themselves to gain power and control.

“We live in a badly developed anarchist situation in which the biggest gang has taken over and have declared that it is not an anarchist situation – that it is a capitalist or a communist situation. But I tend to think that anarchy is the most natural form of politics for a human being to actually practice.”- Alan Moore

The Guy Fawkes mask from V for Vendetta has been adopted by anarchist groups around the world, including: Anonymous, WikiLeaks, and the Occupy protestors. Moore’s positive view of the Occupy movement was based on his belief ordinary people had the right to reclaim what had been taken from them by criminal bankers. The initial impetus for the Occupy protests was the destruction of Main Street USA by Wall Street sociopaths, who not only escaped prosecution for their crimes, but were bailed out by the taxpayers they had pillaged and further enriched as captured politicians enabled them to get even bigger. Millions were evicted from their homes and lost their jobs. Middle class families have seen their real income continue to stagnate, while bankers, corporate executives, and politicians have reaped billions in bonuses, stock gains, and payoffs, provided by central bankers in their back pocket.

“I can’t think of any reason why as a population we should be expected to stand by and see a gross reduction in the living standards of ourselves and our kids, possibly for generations, when the people who have got us into this have been rewarded for it – they’ve certainly not been punished in any way because they’re too big to fail. I think that the Occupy movement is, in one sense, the public saying that they should be the ones to decide who’s too big to fail. As an anarchist, I believe that power should be given to the people whose lives this is actually affecting.” – Alan Moore

Basic argument: technological growth beats economic growth. But why argue this using social housing and libraries?

• Forget GDP – There’s More To Britain’s Wealth Than Its Bank Balance (Baggini)

How is this possible? Because “a lot of improvements in standard of living come not through what we normally consider as growth, but through technological improvements”. This is a concrete example of real growth without what is normally understood by economic growth. If we can grasp this, we can see why the argument about whether indefinite growth is environmentally sustainable is bogus. Orthodox economics says that it is essential if the world’s worst-off are to escape their poverty. Critics argue for zero or even negative growth, claiming that this is the only way to ensure we don’t deplete the planet’s resources. Both are wrong. Real wealth is created not just by exploiting more resources and increasing society’s cash pot but by exploiting the same or fewer resources better.

The whole question of GDP growth is a red herring if we are interested in real wealth. What matters is that we do more with the resources we have. Building a better future depends on seeing this clearly. Take the need to reduce inequality, which many now accept is urgent. To do this it is assumed we need to reduce the income gap between rich and poor. But real equality is increased simply by making it possible for the less well-off to do more with the money they have. Social housing was, and could again be, an example of that. Take two people, one of whom earns £30k a year and the other £15k. To close the real wealth gap between the two does not necessarily require increasing the income of the latter. Providing them with a decent council flat at low rent effectively allows their disposable income to equalise.

The basic principle here is that what matters most is giving people the resources they need to live better, which doesn’t necessarily require giving them more cash. This has in effect been the principle behind all sorts of socially levelling initiatives. Local authorities didn’t give local people free books, they gave them the use of libraries. They didn’t give them cars, they gave them bus passes. We need to relearn the wisdom of these policies, and update them for the modern age. In an era where car ownership is not rare, what about low-cost car clubs? Why shouldn’t more people be able to borrow laptops and tablets from libraries as well as books and DVDs?

“Half of all antibiotics globally are now consumed in China alone.”

• Factory Farming, Antibiotics Use In Asia Creating Global Health Risks (G.)

The use of antibiotics in factory farms in Asia is set to more than double in just over a decade, with potentially damaging effects on antibiotic resistance around the world. Factory farming of poultry in Asia is also increasing the threat of bird flu spreading beyond the region, with more deadly strains taking hold, according to a new report from a network of financial investors. Use of antibiotics in poultry and pig farms will increase by more than 120% in Asiaby 2030, based on current trends. Half of all antibiotics globally are now consumed in China alone. The Chinese meat and animal feed producers New Hope Group and Wen’s Group are now among the 10 biggest animal feed manufacturers in the world. The growth of Asian meat production in intensive units is also producing a rise in greenhouse gas emissions from the food chain, with emissions likely to rise by more than 360m tonnes, the equivalent of running 100 coal-fired power plants for a year.

There are knock-on impacts such as deforestation, as China’s need for animal feed is responsible for more than a third of Brazil’s soybean production. The report, Factory Farming in Asia: Assessing Investment Risks, comes three years after a meat scandal in China, in which suppliers to McDonalds, KFC and others were found to be using dirty meat and products past their sell-by date. It also comes in the midst of a growing food scandal in Europe, which has required the recall of millions of eggs tainted with harmful chemicals, and as concerns have been aired over the impact of Brexit on imports of farm products to the UK. Asian food companies have rapidly expanded their meat production in response to growing populations and the tastes of the rising middle class, but this expansion has come to the detriment of food safety.

They’re being shot at. And the Italian Foreign Minister calls that “a welcome readjustment” and a “positive process”.

• More NGOs Follow MSF In Suspending Mediterranean Migrant Rescues (R.)

Two more aid groups have suspended migrant rescues in the Mediterranean, joining Doctors Without Borders, because they felt threatened by the Libyan coastguard. Save the Children and Germany’s Sea Eye said on Sunday their crews could no longer work safely because of the hostile stance of the Libyan authorities. Doctors Without Borders – or Medecins sans Frontieres – cited the same concern when it said on Saturday it would halt Mediterranean operations. “We leave a deadly gap in the Mediterranean,” Sea Eye’s founder Michael Busch Heuer warned on Facebook, adding that Libya had issued an “explicit threat” against non-government organisations operating in the area around its coast. Libyan coastguard boats have repeatedly clashed with NGO vessels on the edge of Libyan waters, sometimes opening fire.

The coastguard has defended such actions, saying the shooting was to assert control over rescue operations. “In general, we do not reject (NGO) presence, but we demand from them more cooperation with the state of Libya … they should show more respect to the Libyan sovereignty,” coastguard spokesman Ayoub Qassem told Reuters on Sunday. Tension has also been growing for weeks between aid groups and the Italian government, which has suggested some NGOs are facilitating people smuggling, while Italy is trying to enhance the role of the Libyan coastguard in blocking migrant departures. This month, Italy began a naval mission in Libyan waters to provide technical and operational support to its coastguard, despite opposition from factions in eastern Libya that oppose the U.N.-backed government based in Tripoli.

[..] Italian Foreign Minister Angelino Alfano said in a newspaper interview on Sunday that Libya’s growing role in controlling its waters was curbing people trafficking and producing a welcome “readjustment” in the Mediterranean. MSF’s decision to halt its rescue operations was part of this positive process, he told the newspaper La Stampa.

There’s propaganda and then there’s reality. You decide who you believe.

• Syrian Refugees Can Return To Aleppo… And Do So In Their 100,000s (RT)

Aleppo, a city retaken by Damascus from rebels in December last year, has become a major destination for displaced Syrian returning home in 2017 as numbers of returnees to Syria spills over 600,000, according to the UN. Over the first seven months of 2017, over 600,000 displaced Syrians returned home, the International Organization for Migration (IOM) said Friday, citing its own figures as well as those of the UN Migration Agency and partners on the ground. The returnees are overwhelmingly internally-displaced people, but 16% returned to Syria from other nations, primarily Turkey. The number almost matched that recorded in the whole of 2016. An estimated 67% of returnees went to government-controlled Aleppo Governorate, with the provincial capital itself being the primary destination.

Among other places where refugees went in significant numbers, according to ICO, is Al-Hasakah Governorate, the north-eastern province dominated by Kurds. The city of Aleppo – the largest in Syria prior to the conflict – was retaken by the government army last year, aided by Russia, with hostilities ending in mid-December. For years before that, it was divided between two parts, held respectively by government forces and by a disjointed collection of militant groups, including hardcore jihadists. The battle for the city ended with a ceasefire deal, which allowed remaining rebel forces and their families leave Aleppo and go to Idlib governorate, which currently remains a rebel stronghold.

Earlier an increasing number of refugees returning to their homes in Syria was reported by the UN Refugee Agency (UNHCR), which said more than 440,000 internally-displaced persons and 31,000 refugees in other countries had done so over the first six months of 2016. Aleppo and other government-controlled governorates like Hama, Homs and Damascus were mentioned as destinations for the returnees. [..] The situation is far from rosy of course, according to IOM. The number of people forced to leave their homes in 2017 still outweighs that of returnees, with over 808,000 people estimated to be displaced. Around 10% of those who returned in 2016 and 2017 have ended up fleeing their homes again. Almost 20% of the returnees have no secure supply of food and access to water and health services is a problem for some 60%, a testament to the damage the Syrian war has taken on its civilian infrastructure.

Love it. Absolute must read, the whole article. Very rich.

• Do Elephants Have Souls? (NA)

The birth of an elephant is a spectacular occasion. Grandmothers, aunts, sisters, and cousins crowd around the new arrival and its dazed mother, trumpeting and stamping and waving their trunks to welcome the floppy baby who has so recently arrived from out of the void, bursting through the border of existence to take its place in an unbroken line stretching back to the dawn of life. After almost two years in the womb and a few minutes to stretch its legs, the calf can begin to stumble around. But its trunk, an evolutionarily unique inheritance of up to 150,000 muscles with the dexterity to pick up a pin and the strength to uproot a tree, will be a mystery to it at first, with little apparent use except to sometimes suck upon like human babies do their thumbs.

Over time, with practice and guidance, it will find the potential in this appendage flailing off its face to breathe, drink, caress, thwack, probe, lift, haul, wrap, spray, sense, blast, stroke, smell, nudge, collect, bathe, toot, wave, and perform countless other functions that a person would rely on a combination of eyes, nose, hands, and strong machinery to do. Once the calf is weaned from its mother’s milk at five or whenever its next sibling is born, it will spend up to 16 hours a day eating 5% of its entire weight in leaves, grass, brush, bark, and basically any other kind of vegetation. It will only process about 40% of the nutrients in this food, however; the waste it leaves behind helps fertilize plant growth and provide accessible nutrition on the ground to smaller animals, thus making the elephant a keystone species in its habitat. From 250 pounds at birth, it will continue to grow throughout its life, to up to 7 tons for a male of the largest species or 4 tons for a female.

Of the many types of elephants and mammoths that used to roam the earth, one born today will belong to one of three surviving species: Elephas maximus in Asia, Loxodonta africana (savanna elephant) or Loxodonta cyclotis (forest elephant) in Africa. There are about 500,000 African elephants alive now (about a third of them the more reticent, less studied L. cyclotis), and only 40,000 – 50,000 Asian elephants remaining. The Swedish Elephant Encyclopedia database currently lists just under 5,000 (most of them E. maximus) living in captivity worldwide, in half as many locations — meaning that the average number of elephants per holding is less than two; many of them live without a single companion of their kind.

For the freeborn, if it is a cow, the “allomothers” who welcomed her into the world will be with her for life — a matriarchal clan led by the oldest and biggest. She in turn will be an enthusiastic caretaker and playmate to her younger cousins and siblings. When she is twelve or fourteen, she will go into heat (“estrus”) for the first time, a bewildering occurrence during which her mother will stand by and show her what to do and which male to accept. If she conceives, she will have a calf twenty-two months later, crucially aided in birthing and raising it by the more experienced older ladies. She may have another every four to five years into her fifties or sixties, but not all will survive.

Debt Rattle April 21 2017

Apr 212017

April 21, 2017 Posted by Raúl Ilargi Meijer at 8:47 am Finance Tagged with: Assange, Brexit, EU, Fed, France, Mediterranean, protectionism, Toronto, Trump, Wikileaks 2 Responses »

Fred Stein Nadinola 1944

• Trump Signals Provide Comfort to Central Bankers, Finance Ministers (WSJ)

• Protectionism Is More Than a Political Statement (Grant)

• Fed Intensifies Balance-Sheet Discussions With Market Players (BBG)

• Paul Tudor Jones Says U.S. Stocks Should ‘Terrify’ Janet Yellen (BBG)

• China’s Stocks Refuse to Drop More Than 1% (BBG)

• Toronto To Impose 15% Tax On Foreign Home Buyers (G.)

• Why Not a Probe of ‘Israel-gate’? (Robert Parry)

• Arresting Julian Assange Is A Priority, Says US Attorney General (G.)

• German Chancellery Investigated In Probe Into WikiLeaks Sources (R.)

• Coffee and Thin Liquidity on Traders’ Menus for French Vote (BBG)

• EU leader: UK Would Be Welcomed Back If Voters Overturn Brexit (G.)

• Britain Must Pay EU Divorce Bill In Euros (AFP)

• Austria Calls For Closure Of Mediterranean Migrant Route (Pol.)

The system closes ranks.

• Trump Signals Provide Comfort to Central Bankers, Finance Ministers (WSJ)

The Trump administration appears unlikely to upend seven decades of global financial cooperation by scorning the IMF and World Bank, a source of comfort to central bankers and finance ministers gathering this week in Washington. In recent days, the new administration has shown signs the U.S. is taking a more traditional approach to economic diplomacy and the use of “soft power” than early administration rhetoric suggested. President Donald Trump, after meeting with NATO’s chief earlier this month, praised the alliance and reaffirmed Washington’s commitment to it. Nikki Haley, U.S. ambassador to the United Nations, has been leveraging the institution to advance Mr. Trump’s foreign-policy agenda. Other signals of the shift that are being seen by some officials at the meetings included the administration’s relatively modest proposed changes to NAFTA and its about-face last week on censuring China for its currency policy.

Meantime, Treasury Secretary Steven Mnuchin has reaffirmed the role of the IMF in promoting global economic growth and stability, saying at a gathering of global-finance chiefs last month that multilateral institutions can be “very important” to projecting U.S. interests abroad. Indeed, the U.S. signed off on an official communiqué by the Group of 20 largest economies that reaffirmed commitment to an international financial system “with a strong…and adequately resourced IMF at its center.” “There’re a number of things that global institutions can do to help strengthen global growth for all,” a senior Treasury official said ahead of the semiannual meetings in Washington this week of the World Bank and IMF’s member countries.

[..] The IMF has been criticized in the past for being too lax on China, especially when its exchange rate was estimated to have been up to 40% undervalued and its trade surplus topping 10% of GDP. The IMF has since stepped up its public censure of some Beijing policies, such as a bank lending boom that could endanger financial stability in the world’s second largest economy. The IMF is also planning to ramp up its warnings toward another Washington target—Germany—which maintains the world’s largest trade surplus. In particular. “Germany, with its aging population, should have, and can legitimately aim to have, a degree of surplus,” Ms. Lagarde said this week in a briefing with European press. “But not to the extent we see at the moment: 4% would perhaps be justified, but 8% is not.”

France, Italy and Greece: Europe’s risk spots. US Treasuries and the dollar look inviting.

• Protectionism Is More Than a Political Statement (Grant)

Yet again, Greece is another crisis in progress, as the nation has a $7 billion debt payment to make in July and nowhere near the cash on hand to pay it. The official debt-to-GDP figure is 183%, according to EU data, but it is a nonsensical number. The ECB lends money to the Greek banks and the banks lend money to the country. This is the epicenter of the rigged scheme. If you take the total public debt and add in the debt of Greek banks, then the total debt to GDP ratio is 302%, based on my calculations. One more time bomb ticking as the International Monetary Fund will not lend any new money to Greece, in my opinion, with the U.S. representatives on the IMF now reporting to the Trump administration.

It is not the size of the country that matters but the size of the debt, and a $560 billion public and bank debt load is no small figure. Since it is virtually impossible in many European countries to forgive the debt, given their political constraints, the “breakpoint” may finally be arriving. This means Greece will be leaving the EU, one way or another, and defaulting on its debts. Now, you can hold whatever view you like on these situations. You can ascribe to the “muddle through” theory or the “kick the can” theory. But what you cannot do is pretend that there are not significant risks facing the EU. We have these three “risk situations” in progress, and then we have Brexit under way, and it is my opinion that the EU is coming apart at the seams.

Many large financial institutions are looking aghast at the U.S. Treasury market. Virtually every leading bank has been predicting a return to a 3.00% yield for the benchmark 10-year note, and they have all been wrong – again. In fact, this is probably the biggest “pain trade” so far this year. Many people blame a “short squeeze” for the recent drop in yields on Treasuries. That is only part of the reason. The other has been the flow of capital, which is headed out of Europe and into the United States. “Protectionism” is more than a political statement. Asian money managers are exiting Europe, and the European money managers are exiting Europe, and the relative safety of the U.S. bond markets is providing a haven from European risk. This is a sound strategy, in my opinion. “Buy American, Sell American and Trade American” is where I want to be at the present time.

The same market players who live off, and are propped up by, Fed largesse. Insane.

• Fed Intensifies Balance-Sheet Discussions With Market Players (BBG)

Federal Reserve staff, widening their outreach to investors in anticipation of a critical turning point in monetary policy, are seeking bond fund manager feedback on how the central bank should tailor and communicate its exit from record holdings of Treasuries and mortgage-backed securities. Fed officials are intent on shrinking their crisis-era $4.48 trillion balance sheet in a way that isn’t disruptive and doesn’t usurp the federal funds rate as the main policy tool. To do that, they need to find the right communication and assess market expectations on the size of shrinkage, which is why conversations with fund managers have picked up recently. “All indications suggest that conversations around the balance sheet have accelerated,” said Carl Tannenbaum at Northern Trust Company. “The consideration of everything from design of the program to communication seems to have intensified.”

Most U.S. central bankers agreed that they would begin phasing out their reinvestment of maturing Treasury and MBS securities in their portfolio “later this year,” according to minutes of the March meeting. They also agreed the strategy should be “gradual and predictable,” according to the minutes.Fed staff routinely seek feedback from investors and bond dealers to get a fix on sentiment and expectations. The New York Fed confirmed the discussions and said it is part of regular market monitoring. The Fed is getting closer to disclosing its plan, and conversations have become more intense. “They are gauging what’s the extent of weak hands in the market that will dump these assets,” said Ed Al-Hussainy, a senior analyst on the Columbia Threadneedle Investment’s global rates and currency team. “They are calling all the asset managers. It is not part of the regular survey.”

“..years of low interest rates have bloated stock valuations to a level not seen since 2000..”

• Paul Tudor Jones Says U.S. Stocks Should ‘Terrify’ Janet Yellen (BBG)

Billionaire investor Paul Tudor Jones has a message for Janet Yellen and investors: Be very afraid. The legendary macro trader says that years of low interest rates have bloated stock valuations to a level not seen since 2000, right before the Nasdaq tumbled 75% over two-plus years. That measure – the value of the stock market relative to the size of the economy – should be “terrifying” to a central banker, Jones said earlier this month at a closed-door Goldman Sachs Asset Management conference, according to people who heard him. Jones is voicing what many hedge fund and other money managers are privately warning investors: Stocks are trading at unsustainable levels. A few traders are more explicit, predicting a sizable market tumble by the end of the year.

Last week, Guggenheim Partner’s Scott Minerd said he expected a “significant correction” this summer or early fall. Philip Yang, a macro manager who has run Willowbridge Associates since 1988, sees a stock plunge of between 20 and 40%, according to people familiar with his thinking. Even Larry Fink, whose BlackRock oversees $5.4 trillion mostly betting on rising markets, acknowledged this week that stocks could fall between 5 and 10% if corporate earnings disappoint. Their views aren’t widespread. They’ve seen the carnage suffered by a few money managers who have been waving caution flags for awhile now, as the eight-year equity rally marched on.

But the nervousness feels a bit more urgent now. U.S. stocks sit about 2% below the all-time high set on March 1. The S&P 500 index is trading at about 22 times earnings, the highest multiple in almost a decade, goosed by a post-election surge. Managers expecting the worst each have a pet harbinger of doom. Seth Klarman, who runs the $30 billion Baupost Group, told investors in a letter last week that corporate insiders have been heavy sellers of their company shares. To him, that’s “a sign that those who know their companies the best believe valuations have become full or excessive.”

Market vs government.

• China’s Stocks Refuse to Drop More Than 1% (BBG)

In a Chinese stock market where superstition and government intervention often count for more than economic fundamentals, unusual trading patterns are par for the course. But even by China’s standards, the latest market anomaly to grab the attention of local investors stands out. The Shanghai Composite Index, notorious for its wild swings over the past two years, has gone 85 trading days without a loss of more than 1% on a closing basis, the longest stretch since the market’s infancy in 1992. On 13 days during the streak, the index recovered from intraday declines exceeding 1% to close above that threshold. The phenomenon has been especially stark recently, with the gauge erasing about half of its 1.6% drop in the final 90 minutes of trading on Wednesday.

For some investors, it’s a sign that state-directed funds are putting a floor under daily market swings – a development that presents short-term buying opportunities when the Shanghai Composite dips more than 1% during intraday trading. The theory may have merit: China’s securities regulator has this year sought to stabilize the stock market by limiting the extent of declines in the Shanghai Composite, according to people familiar with the strategy, who asked not to be identified discussing a matter that hasn’t been disclosed publicly. “There is room for arbitrage in the short term,” said Zhang Haidong, a money manager at Jinkuang Investment Management in Shanghai. The Shanghai Composite rose less than 0.1% on Thursday, rebounding from an intraday loss of as much as 0.7%.

And no imagination either. Just copying others.

• Toronto To Impose 15% Tax On Foreign Home Buyers (G.)

Foreigners who buy homes in Toronto and its surrounding area now face an additional 15% tax – echoing a recent measure adopted in Vancouver – as part of a slew of measures aimed at tempering a heated housing market that ranks as one of Canada’s most expensive. The tax – part of proposed legislation unveiled on Thursday by the Ontario provincial government – will be levied on houses purchased in the Golden Horseshoe, an area that stretches from the Niagara region and the Greater Toronto Area to Peterborough. It will apply to all residential purchases made by those who are not citizens or permanent residents of Canada, as well as foreign corporations. Once the legislation passes, the tax would be applied retroactively to purchases made as of 21 April. “When young people can’t afford their own apartment or can’t imagine ever owning their own home, we know we have a problem,” said Kathleen Wynne, the Ontario premier.

“And when the rising cost of housing is making more and more people insecure about their future, and about their quality of life in Ontario, we know we have to act.” Amid two years of double-digit gains and mounting fears of a housing bubble, her government has consistently fended off calls to intervene. The pressure ramped up earlier this month, after figures showed the average price of homes in the Greater Toronto Area soared 33% in the past year, pushing the cost of a detached home to an average of C$1.21m. “There is a need for interventions right now in order to calm what’s going on,” said Wynne. The tax would be revenue neutral, she added, aimed squarely at tempering demand. “In some ways, we have to realise this is a good problem to have … [It] is the unwanted consequences of a strong economy with a promising future.”

“..many U.S. pols grovel before the Israeli government seeking a sign of favor from Prime Minister Netanyahu, almost like Medieval kings courting the blessings of the Pope at the Vatican.”

• Why Not a Probe of ‘Israel-gate’? (Robert Parry)

The other day, I asked a longtime Democratic Party insider who is working on the Russia-gate investigation which country interfered more in U.S. politics, Russia or Israel. Without a moment’s hesitation, he replied, “Israel, of course.” Which underscores my concern about the hysteria raging across Official Washington about “Russian meddling” in the 2016 presidential campaign: There is no proportionality applied to the question of foreign interference in U.S. politics. If there were, we would have a far more substantive investigation of Israel-gate. The problem is that if anyone mentions the truth about Israel’s clout, the person is immediately smeared as “anti-Semitic” and targeted by Israel’s extraordinarily sophisticated lobby and its many media/political allies for vilification and marginalization.

So, the open secret of Israeli influence is studiously ignored, even as presidential candidates prostrate themselves before the annual conference of the American Israel Public Affairs Committee. Hillary Clinton and Donald Trump both appeared before AIPAC in 2016, with Clinton promising to take the U.S.-Israeli relationship “to the next level” – whatever that meant – and Trump vowing not to “pander” and then pandering like crazy. Congress is no different. It has given Israel’s controversial Prime Minister Benjamin Netanyahu a record-tying three invitations to address joint sessions of Congress (matching the number of times British Prime Minister Winston Churchill appeared). We then witnessed the Republicans and Democrats competing to see how often their members could bounce up and down and who could cheer Netanyahu the loudest, even when the Israeli prime minister was instructing the Congress to follow his position on Iran rather than President Obama’s.

Israeli officials and AIPAC also coordinate their strategies to maximize political influence, which is derived in large part by who gets the lobby’s largesse and who doesn’t. On the rare occasion when members of Congress step out of line – and take a stand that offends Israeli leaders – they can expect a well-funded opponent in their next race, a tactic that dates back decades. [..] .. there have been fewer and fewer members of Congress or other American politicians who have dared to speak out, judging that – when it comes to the Israeli lobby – discretion is the better part of valor. Today, many U.S. pols grovel before the Israeli government seeking a sign of favor from Prime Minister Netanyahu, almost like Medieval kings courting the blessings of the Pope at the Vatican.

This comes two days after the Intercept published an interview with Assange, who among other things said:“In fact, the reason Pompeo is launching this attack is because he understands we are exposing in this series all sorts of illegal actions by the CIA, so he’s trying to get ahead of the publicity curve and create a pre-emptive defense..”

• Arresting Julian Assange Is A Priority, Says US Attorney General (G.)

The arrest of WikiLeaks founder Julian Assange is now a “priority” for the US, attorney general Jeff Sessions has said. Hours later it was reported by CNN that authorities have prepared charges against Assange, who is currently holed up at the Ecuadorian embassy in London. Donald Trump lavished praise on the anti-secrecy website during the presidential election campaign – “I love WikiLeaks,” he once told a rally – but his administration has struck a different tone. Asked whether it was a priority for the justice department to arrest Assange “once and for all”, Sessions told a press conference in El Paso, Texas on Thursday: “We are going to step up our effort and already are stepping up our efforts on all leaks. This is a matter that’s gone beyond anything I’m aware of. We have professionals that have been in the security business of the United States for many years that are shocked by the number of leaks and some of them are quite serious.”

He added: “So yes, it is a priority. We’ve already begun to step up our efforts and whenever a case can be made, we will seek to put some people in jail.” Citing unnamed officials, CNN reported that prosecutors have struggled with whether the Australian is protected from prosecution from the first amendment, but now believe they have found a path forward. A spokesman for the justice department declined to comment. Barry Pollack, Assange’s lawyer, denied any knowledge of imminent prosecution. “We’ve had no communication with the Department of Justice and they have not indicated to me that they have brought any charges against Mr Assange,” he told CNN. “They’ve been unwilling to have any discussion at all, despite our repeated requests, that they let us know what Mr Assange’s status is in any pending investigations. There’s no reason why Wikileaks should be treated differently from any other publisher.”

US authorities has been investigating Assange and WikiLeaks since at least 2010 when it released, in cooperation with publications including the Guardian, more than a quarter of a million classified cables from US embassies leaked by US army whistleblower Chelsea Manning.

And no protest from Berlin?

• German Chancellery Investigated In Probe Into WikiLeaks Sources (R.)

Berlin’s chief public prosecutor has extended an investigation into the release of a trove of documents by WikiLeaks to include the chancellery as well as the Bundestag lower house of parliament, broadcaster NDR said on Thursday. Last December, WikiLeaks released the confidential documents, which German security agencies had submitted to a parliamentary committee investigating the extent to which German spies helped the U.S. National Security Agency (NSA) to spy in Europe. The extension of the investigation to include the chancellery did not necessarily mean the Berlin public prosecutor had firm suspicions that individuals at Chancellor Angela Merkel’s office were involved in the leak, NDR said.

Government sources told Reuters that the chancellery had agreed several weeks ago to the investigation “against unknown” persons, to allow the inquiry to proceed. There were no firm suspicions against chancellery officials, the sources added. Surveillance is a sensitive issue in Germany where East Germany’s Stasi secret police and the Nazi era Gestapo kept a close watch on the population. Merkel told the parliamentary committee in February that she did not know how closely Germany’s spies cooperated with their U.S. counterparts until 2015, well after an uproar over reports of U.S. bugging of her cellphone.

Plenty nerves on Monday morning. And that’s just for round 1.

• Coffee and Thin Liquidity on Traders’ Menus for French Vote (BBG)

It may not be cafe au lait, but traders are likely to need plenty of coffee to sustain them through the first round of the French election. Ten thousand miles away in Melbourne, IG’s trading crew are due at their desks before dawn on Monday to deal with any fallout, while back in Europe, Societe Generale will be staffed overnight, according to a person familiar with their plans who asked not to be named because they aren’t authorized to speak publicly. Staff at HSBC will work extended hours, a spokeswoman said, Tradition is asking more voice brokers to come in on Sunday, while London-based Caxton FX is providing its night owls with pizzas. Other analysts and investors will be nervously watching from home, ready to dash to the office should French voters spring a surprise.

With the first predictions from France due at 8 p.m. Sunday in Paris, currency markets – which open one hour later – will give traders an early chance to react. At IG in Australia a “fully-manned” team will be on deck as the results roll in, according to Chris Weston, the firm’s chief market strategist. “Political events have a significant ability to alter volatility, more than any other event,” he said. Shifts in opinion polls have bolstered the focus on Sunday’s first round, which decides which of the top candidates progress to the run-off vote. The campaign has turned into a four-way race, with anti-euro candidate Marine Le Pen and independent Emmanuel Macron running just ahead of Republican Francois Fillon and the Communist-backed Jean-Luc Melenchon.

While polls show that either Macron or Fillon – considered the more market-friendly candidates – would be favored against the less-centrist opponents in a run-off, it’s the outside prospect of a Le Pen-Melenchon one-two that will keep traders sweating on Sunday. That’s reflected in the options market, which reflects the first round of French elections as posing the greater risk.

UK democracy couldn’t take a Brexit overturn.

• EU leader: UK Would Be Welcomed Back If Voters Overturn Brexit (G.)

The president of the European parliament has said Britain would be welcomed back with open arms if voters changed their minds about Brexit on 8 June, challenging Theresa May’s claim that “there is no turning back” after article 50. Speaking after a meeting with the prime minister in Downing Street, Antonio Tajani insisted that her triggering of the departure process last month could be reversed easily by the remaining EU members if there was a change of UK government after the general election, and that it would not even require a court case. “If the UK, after the election, wants to withdraw [article 50], then the procedure is very clear,” he said in an interview. “If the UK wanted to stay, everybody would be in favour. I would be very happy.”

He also threatened to veto any Brexit deal if it did not guarantee in full the existing rights of EU citizens in Britain and said this protection would forever be subject to the jurisdiction of the European court of justice (ECJ). Both are potential sticking points for May, who has promised to end free movement of EU citizens and rid Britain forever of interference by the ECJ, but the European parliament must ratify any Brexit deal agreed by negotiators before it can be completed. Lawyers are divided on whether the UK can unilaterally change its mind about leaving and are bringing a test case to establish the legal reversibility of article 50, but the parliament president spelled out a process by which a simple political decision by other member states would be sufficient. “If tomorrow, the new UK government decides to change its position, it is possible to do,” said Tajani. “The final decision is for the 27 member states, but everybody will be in favour if the UK [decides to reverse article 50].”

Says who?

• Britain Must Pay EU Divorce Bill In Euros (AFP)

Britain may be leaving the EU but it will still have to settle the divorce bill in euros, not pounds, according to an EU document on the upcoming negotiations Thursday. “An orderly withdrawal of the United Kingdom from the Union requires settling the financial obligations undertaken before the withdrawal date,” said the European Commission document seen by AFP. “The agreement should define the precise way in which these obligations will be calculated … the obligations should be defined in euro,” it added. The document did not say how much the Brexit settlement might cost but EU officials have previously said it could be as much as €60 billion, sparking howls of outrage in London which puts the figure nearer €20 billion.

Titled “Non Paper on key elements likely to feature in the draft negotiating directives,” the document was drawn up for the European Commission which will conduct the Brexit negotiations with Britain. It covers in more detail the same ground outlined last month by EU president Donald Tusk in response to Prime Minister Theresa May’s official March 29 notification that Britain was leaving the bloc.

A sea route. And a landlocked country. Nuff said.

• Austria Calls For Closure Of Mediterranean Migrant Route (Pol.)

Austrian Interior Minister Wolfgang Sobotka has called for the immediate closure of the Mediterranean route used by refugees seeking asylum in Western European countries, local media reported Wednesday. Closing the route “is the only way to end the tragic and senseless dying in the Mediterranean,” Sobotka said. Asked about the potential of a barrier being erected at the Brenner Pass on the border between Italy and Austria, Sobotka said: “In the event of a sudden influx, we are equipped and able to ramp up border management within hours.” According to U.N. aid agencies, nearly 9,000 migrants were rescued in the Mediterranean over the Easter weekend.

As weather conditions improve, more migrants are expected to make their way to Europe. “A rescue in the open sea cannot be a ticket to Europe, because it gives organized crime every argument to persuade people to escape for economic reasons,” Sobotka said. Last summer, Austria advocated for the closure of the Western Balkan route used by migrants coming from the Middle East seeking their way to Western European countries. Austrian Defense Minister Hans Peter Doskozil last February said Vienna planned to increase cooperation with 15 countries along the Balkan route to keep migrants from reaching northern Europe, claiming the EU is not adequately protecting its external borders.

Not Nearly Enough Growth To Keep Growing

Feb 182017

February 18, 2017 Posted by Raúl Ilargi Meijer at 4:01 pm Finance Tagged with: austerity, Brexit, China, debt, energy, EROEI, Growth, protectionism, Trump 8 Responses »

Jackson Pollock Shooting Star 1947

It’s amusing to see how views start to converge, at the same time that it’s tiresome to see how long that takes. It’s a good thing that more and more people ‘discover’ how and why austerity, especially in Europe, is such a losing and damaging strategy. It’s just a shame that this happens only after the horses have left the barn and the cows have come home, been fed, bathed, put on lipstick and gone back out to pasture again. Along the same lines, it’s beneficial that the recognition that for a long time economic growth has not been what ‘we’ think it should be, is spreading.

But we lost so much time that we could have used to adapt to the consequences. The stronger parties in all this, the governments, companies, richer individuals, may be wrong, but they have no reason to correct their wrongs: the system appears to work fine for them. They actually make good money because all corrections, all policies and all efforts to hide the negative effects of the gross ‘mistakes’, honest or not, made in economic and political circles are geared towards making them ‘whole’.

The faith in the absurd notion of trickle down ‘economics’ allows them to siphon off future resources from the lower rungs of society, towards themselves in the present. It will take a while for the lower rungs to figure this out. The St. Louis Fed laid it out so clearly this week that I wrote to Nicole saying ‘We’ve been vindicated by the Fed itself.’ That is, the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s.

Intriguing questions: was America at its richest right before or right after Nixon took the country off the gold standard in 1971? And whichever of the two one would argue for, why did he do it smack in the middle of peak wealth? Did he cause the downfall or was it already happening?

As per the St. Louis Fed report: “Real GDP growth fell and leveled off in the mid-1970s, then started falling again in the mid-2000s”. What happened during that 30-year period was that we started printing and borrowing with abandon, making both those activities much easier while we did, until the debt load overwhelmed even our widest fantasies ten years ago. And we’ve never recovered from that, if that was not obvious yet. Nor will we.

As the first graph below shows, there was still growth post-Gold Standard but the rate of growth fell and then “leveled off”, only to fall more after, to a point where Real GDP per Capita is presently 0.5% or so -little more than a margin error-. How one would want to combine that with talk of an economic recovery is hard to see. In fact, such talk should be under serious scrutiny by now.

Still, the numbers remain positive, you say. Yes, that’s true. But there’s a caveat, roughly similar to the one regarding energy and the return on it. Where we used to pump oil and get 100 times the energy in return that we needed to pump it, that ratio (EROEI) is now down to 10:1 or less. Alternative energy sources do little better, if at all. Whereas to run a complex society, let alone one like ours that must become more complex as we go along – or die-, we would need somewhere along the lines of a 20:1 to even 30:1 EROEI rate.

Another place where a similar caveat can be found is the amount of dollars it takes to produce a dollar of real growth. That amount has been increasing, and fast, to the point where it takes over $10 to create $1 or growth in the US and Europe, and China too moves towards such numbers.

Both our energy systems and our financial systems are examples of what happens when what we should perhaps call the rate of ‘productivity’ (rather than growth) falls below a critical mass: it becomes impossible to maintain, even keep alive, a society as complex as ours, which requires an increase in complexity to survive. In other words: a Real GDP per Capita growth rate of 0.5% is not enough to stand still, just like oil EROEI of 5:1 is not; there is growth, but not -nearly- enough to keep growing.

One does not get the impression that the St. Louis Fed economists who wrote the report are aware of this -though the title is suggestive enough-, they seem to lean towards the eternal desire for a recovery, but they did write it nonetheless. Do note the sharp drop that coincides with the 1973 oil crisis. We never ‘recovered’.

Why Does Economic Growth Keep Slowing Down?

The U.S. economy expanded by 1.6% in 2016, as measured by real GDP. Real GDP has averaged 2.1% growth per year since the end of the last recession, which is significantly smaller than the average over the postwar period (about 3% per year). These lower growth rates could in part be explained by a slowdown in productivity growth and a decline in factor utilization. However, demographic factors and attitudes toward the labor market may also have played significant roles.

The figure below shows a measure of long-run trends in economic activity. It displays the average annual growth rate over the preceding 40 quarters (10 years) for the period 1955 through 2016. (Hence, the first observation in the graph is the first quarter of 1965, and the last is the fourth quarter of 2016.)

Long-run growth rates were high until the mid-1970s. Then, they quickly declined and leveled off at around 3% per year for the following three decades. In the second half of the 2000s, around the last recession, growth contracted again sharply and has been declining ever since. The 10-year average growth rate as of the fourth quarter of 2016 was only 1.3% per year. Total output grows because the economy is more productive and capital is accumulated, but also because the population increases over time.

The same dynamics (or lack thereof) are reflected in a recent piece by Chris Hamilton, in which he argues that global growth -as expressed by growth in energy consumption- has largely been non-existent for years, other than in China. Moreover, China has added a stunning amount of debt to achieve that growth, and since its population growth is about to stagnate -and then turn negative-, this was pretty much all she wrote.

Global Growth is All About China…Nothing but China

Since 2000, China has been the nearly singular force for growth in global energy consumption and economic activity. However, this article will make it plain and simple why China is exiting the spotlight and unfortunately, for global economic growth, there is no one else to take center stage. To put things into perspective I’ll show this using four very inter-related variables…(1) total energy consumption, (2) core population (25-54yr/olds) size and growth, (3) GDP (flawed as it is), and (4) debt. First off, the chart below shows total global energy consumption (all fossil fuels, nuclear, hydro, renewable, etc…data from US EIA) from 1980 through 2014, and the change per period. The growth in global energy consumption from ’00-’08 was astounding and an absolute aberration, nearly 50% greater than any previous period.

[..] here is the money chart, pointing out that the growth in energy consumption (by period) has shifted away from “the world” squarely to China. From 2008 through 2014 (most recent data available), 2/3rds or 66% of global energy consumption growth was China. Also very noteworthy is that India nor Africa have taken any more relevance, from a growth perspective, over time. The fate of global economic growth rests solely upon China’s shoulders.

China’s core population is essentially peaking this year and beginning a decades long decline (not unlike the world. The chart below shows total Chinese core population peaking, energy consumption stalling, and debt skyrocketing.

The chart below shows China’s core population (annual change) again against total debt, GDP, and energy consumption. The reliance on debt creation as the core population growth decelerated is really hard not to see. This shrinking base of consumption will destroy the meme that a surging Chinese middle class will drive domestic and global consumption…but I expect this misconception will continue to be peddled for some time.

• China of ’85-’00 grew on population and demographic trends.

• China of ’00-’15 grew despite decelerating population growth but on accelerating debt growth…this growth in China kept global growth alive.

• China of ’15-’30 will not grow, will not drive the global economy and absent Chinese growth…the world economy is set to begin an indefinite period of secular contraction. China ceased accumulating US Treasury debt as of July of 2011 and continues to sell while busy accumulating gold since 2011.

Unfortunately, neither quasi-democracies nor quasi-communist states have any politically acceptable solutions to this problem of structural decelerating growth and eventual outright contraction…but that won’t keep them from meddling to stall the inevitable global restructuring.

I can only hope that these data will convince more people that all the times I’ve said that growth is over, it was true. And perhaps even make them think about what follows from there: that when growth is gone, so is all centralization, including globalization, other than by force. This will change the world a lot, and unfortunately not always in peaceful ways.

What seems to have started (but was in the air long before) with Brexit and Trump, is merely a first indication of what’s to come. People will not accept that important decisions that affect them directly are taken by anonymous ‘actors’ somewhere far away, unless this promises and delivers them very concrete and tangible benefits. In fact, many have lost all faith in the whole idea, and that’s why we have Trump and Brexit in the first place.

This turn inward -protectionism if you will-, in the UK, US and many other places, is an inevitable development that follows from declining growth and soaring debt. Entire societies will have to be re-built from the ground up, and people will want to do that themselves, not have it dictated by strangers. At the same time, of course, those who profit most from centralization want that to continue. They can’t, but they will try, and hard.

Equally important, people who wish to try and save existing ‘central institutions’ for less selfish and more peaceful reasons should think twice, because they will fail too. It’s centralization itself that is failing, and the demise of the structures that represent it is but a consequence of that. We will see local structures being built, and only after that possibly -and hopefully- connect to each other. This is a big change, and therefore a big challenge.