Nov 192017
 
 November 19, 2017  Posted by at 10:04 am Finance Tagged with: , , , , , , , , ,  


Wyland Stanley Pontiac coupe at San Francisco Palace of Fine Arts 1935

 

A Fiscal Disappointment – Tax Bill (Lebowitz)
Mt. Gox’s Bitcoin Customers Could Lose Again (R.)
The Coming Economic Downturn In Canada (MN)
How a Half-Educated Tech Elite Delivered Us Into Chaos (Naughton)
Europe Turns On Facebook, Google For Digital Tax Revamp (AFP)
When Unpaid Student Loan Bills Mean You Can No Longer Work (NYT)
Subways May Be the Latest Casualty of China’s Crackdown on Debt (BBG)
Upsurge In Big Earthquakes Predicted For 2018 As Earth Rotation Slows (G.)
Will Puerto Ricans Return Home After Hurricane María? (Conv.)
600 African Migrants Rescued Near Spain (AFP)
First Child Refugee From Greek Camps Comes To UK (G.)
Lesvos Authorities Going On Strike Over Rising Migrant Population (K.)
Over 50,000 Yemeni Children Expected To Die By The End Of 2017 (Ind.)

 

 

This is about much more than the Tax bill. It’s about how much growth you get per dollar in debt added. That is crucial.

A Fiscal Disappointment – Tax Bill (Lebowitz)

The Committee For A Responsible Budget penned after the passage of the tax bill: “The House approved debt-financed tax cuts based on predictions of magical economic growth that defy history and all credible analyses. Tax reform should grow the economy and not add to the debt. Unfortunately, lawmakers are assuming faster economic growth will pay for that debt increase when there is no evidence it will cover more than a fraction of the tax bill’s costs. The last time Congress added 10-figures worth of tax cuts to the debt in 2001, it blew a hole in the budget and helped erase our surpluses — despite claims that economic growth would cover the cost.The growth fairy did not appear then, and it would be unwise to assume she will this time around.” Read that again. Despite claiming to be “fiscally conservative,” what is so amazing is that Republicans are considering doing this when debt is at the highest level in history and climbing.

When the “Reagan” tax cuts of were passed, debt was less than 50% of GDP, inflation and interest rates were high and falling, and the economy was just recovering from back to back recessions. When the “Bush” tax cuts were passed, debt to GDP was only slightly higher than under Reagan but despite the tax cuts, the economy slid into a recession compounded by the “dot.com” bust. Currently, debt is 104% of GDP — higher than any time in history, the economy has been in a 9-year expansion at the lowest rate of growth on record, and interest rates and inflation are low with the Fed hiking rates and reducing monetary support. The situation currently is much more like Bush versus Reagan. Lastly, despite the continuing “talking points” that “tax cuts” spur economic growth and will pay for themselves over time….there is no evidence to support that claim.

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A curious tale.

Mt. Gox’s Bitcoin Customers Could Lose Again (R.)

When Mt. Gox, the world’s largest bitcoin trading exchange, collapsed in early 2014, more than 24,000 customers around the world lost access to hundreds of millions of dollars’ worth of cryptocurrency and cash. More than three years later, with the price of bitcoin skyrocketing to more than $7,000, not a single customer has recouped a single cent, crypto or otherwise. It’s not clear when they will. The failed exchange has become stuck in a morass of litigation – a Russian doll of bankruptcies in Japan and New Zealand, four in all, plus lawsuits in the United States and competing claims from creditors. And although the Mt. Gox bankruptcy trustee recovered digital currency now worth more than $1.6 billion, under Japanese law the exchange’s customers likely will recover only a fraction of that.

Kim Nilsson, a Swedish software developer who had more than a dozen bitcoins at Mt. Gox, isn’t optimistic of a payout soon. “It’s a legal twilight zone,” he says. “I wouldn’t be surprised if it took several years more.” There are few better examples of the dangers of investing in cryptocurrencies than Mt. Gox. As Reuters reported in September, cryptocurrency exchanges – where digital coins are bought, sold and stored – are largely unregulated and have become magnets for fraud and deception. At least 10 of them have closed, often after thefts, leaving customers without their funds. In all, more than 980,000 bitcoins have been stolen from exchanges since 2011 – two-thirds of those from Mt. Gox. Today, all of the stolen coins would be worth more than $6 billion, Reuters has calculated.

Mt. Gox is one of the few collapsed exchanges that ended up in bankruptcy court; some just vanished. But the problem for Mt. Gox’s thousands of creditors is that under Japanese bankruptcy law, their claims were valued at the market price of bitcoin in April 2014 just before the Tokyo District Court ordered the exchange be liquidated. At that time, one bitcoin was worth $483. On the basis of the April 2014 value, the claims ultimately approved were fixed at 45.6 billion Japanese yen, currently about $400 million. Based on the current price of bitcoin, Mt. Gox’s bankruptcy trustee is sitting on enough cash to repay creditors whose claims have been approved more than three times that amount, according to Reuters’ calculation. But that likely won’t happen, according to two Japanese bankruptcy attorneys.

In Japan, by law any funds left over in a bankrupt company’s estate after creditors have been paid go to shareholders. Mt. Gox is 88% owned by a Japanese company called Tibanne. And Mark Karpeles, a 32-year-old French software engineer and Mt. Gox’s former chief executive, owns 100% of Tibanne. Karpeles is currently on trial in Tokyo, accused of embezzling money from Mt. Gox and manipulating its data, as well as breach of trust. He has pleaded not guilty to the charges, some of which carry sentences of up to 10 years. He served nearly a year in jail following his arrest in August 2015.[..] In a three-hour interview, Karpeles told Reuters he doesn’t want the money. The main reason: He expects he would be inundated with lawsuits. He says he already is facing about a half dozen. “I don’t want to be the beneficiary of this,” he said. “I don’t really need money. I work, I get by.”

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Bubbles all around.

The Coming Economic Downturn In Canada (MN)

Given its natural resource-based economy, Canada is a boom and bust kind of place. This year, the country has enjoyed a significant boom. Thanks to a government stimulus program, rising corporate capital expenditures and consumer spending, Canada’s GDP growth has been nothing short of spectacular in 2017. According to Statistics Canada, the latest reading for year-over-year GDP growth is a healthy 3.5% (as of August 2017). While this is stronger than all major developed countries, growth is decelerating from its most recent peak in May 2017 (when GDP growth was an astounding 4.7%). A visual overview of historical GDP growth is shown below for reference:

Following the crude oil bust in the second quarter of 2014, Canadian growth rates cratered. While the country avoided a technical recession, the economic outlook was poor until early 2016. After crude oil returned to a bull market in the first quarter of 2016, the fortunes of the country turned. Given limited growth in 2015, the economy had no problem delivering 2%+ year-over-year growth rates in 2016. As a substantial stimulus program ramped up government spending in 2017, growth rates have continued to accelerate this year. While Canada has delivered exceptional growth in the last two years, the future outlook is much more challenging.

Beyond the issue of base effects (mathematically, year-over-year GDP growth will be much tougher next year), key sectors including the oil & gas industry and Canadian real estate look ripe for a downturn. As WTI crude strengthens beyond $55, crude oil is clearly in a bull market today. Looking at figures from the International Energy Agency, global demand growth continues to run ahead of supply growth. Thus the ongoing bull market is supported by fundamentals. Thanks to the impact of hurricanes and infrastructure bottlenecks in 2017, US shale hasn’t entirely fulfilled its role as the global ‘swing producer’ this year. The dynamics of supply growth versus demand growth are shown below:

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It’s a good thing this is getting addressed. It may well be too late though.

How a Half-Educated Tech Elite Delivered Us Into Chaos (Naughton)

One of the biggest puzzles about our current predicament with fake news and the weaponisation of social media is why the folks who built this technology are so taken aback by what has happened. Exhibit A is the founder of Facebook, Mark Zuckerberg, whose political education I recently chronicled. But he’s not alone. In fact I’d say he is quite representative of many of the biggest movers and shakers in the tech world. We have a burgeoning genre of “OMG, what have we done?” angst coming from former Facebook and Google employees who have begun to realise that the cool stuff they worked on might have had, well, antisocial consequences.

Put simply, what Google and Facebook have built is a pair of amazingly sophisticated, computer-driven engines for extracting users’ personal information and data trails, refining them for sale to advertisers in high-speed data-trading auctions that are entirely unregulated and opaque to everyone except the companies themselves. The purpose of this infrastructure was to enable companies to target people with carefully customised commercial messages and, as far as we know, they are pretty good at that. (Though some advertisers are beginning to wonder if these systems are quite as good as Google and Facebook claim.) And in doing this, Zuckerberg, Google co-founders Larry Page and Sergey Brin and co wrote themselves licences to print money and build insanely profitable companies.

It never seems to have occurred to them that their advertising engines could also be used to deliver precisely targeted ideological and political messages to voters. Hence the obvious question: how could such smart people be so stupid? The cynical answer is they knew about the potential dark side all along and didn’t care, because to acknowledge it might have undermined the aforementioned licences to print money. Which is another way of saying that most tech leaders are sociopaths. Personally I think that’s unlikely, although among their number are some very peculiar characters: one thinks, for example, of Paypal co-founder Peter Thiel – Trump’s favourite techie; and Travis Kalanick, the founder of Uber. So what else could explain the astonishing naivety of the tech crowd? My hunch is it has something to do with their educational backgrounds.

Take the Google co-founders. Sergey Brin studied mathematics and computer science. His partner, Larry Page, studied engineering and computer science. Zuckerberg dropped out of Harvard, where he was studying psychology and computer science, but seems to have been more interested in the latter. Now mathematics, engineering and computer science are wonderful disciplines – intellectually demanding and fulfilling. And they are economically vital for any advanced society. But mastering them teaches students very little about society or history – or indeed about human nature. As a consequence, the new masters of our universe are people who are essentially only half-educated. They have had no exposure to the humanities or the social sciences, the academic disciplines that aim to provide some understanding of how society works, of history and of the roles that beliefs, philosophies, laws, norms, religion and customs play in the evolution of human culture.

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It’s as much about the companies as it is about Europe’s own tax havens. The latter should be easier to tackle.

Europe Turns On Facebook, Google For Digital Tax Revamp (AFP)

They have revolutionised the way we live, but are US tech giants the new robber barons of the 21st century, banking billions in profit while short-changing the public by paying only a pittance in tax? With public coffers still strained years after the worst of the debt crisis, EU leaders have agreed to tackle the question, spurred on by French President Emmanuel Macron who has slammed the likes of Google, Facebook and Apple as the “freeloaders of the modern world”. As recently as March, five of the world’s top 10 valued companies were Silicon Valley behemoths: Apple, Google’s Alphabet, Microsoft, Amazon and Facebook. (Germany’s SAP was Europe’s biggest and 56th on the global list). But tax rules today are designed for yesterday’s economy when US multinationals -such as General Motors, IBM or McDonald’s- entered countries loudly, with new factories, jobs and more taxes for the taking.

These firms had what tax specialists call “permanent establishment”, when companies showed a clear physical presence measured and taxed through tangible, real world assets. But today in most EU nations, the US tech titans exist almost exclusively in the virtual world, their services piped through apps to smart phones and tablets from designers and data servers oceans away. Ghost-like, Silicon Valley has turned Europe’s economies upside down, but often with just a skeleton staff and some office space in markets with millions of users or customers. According to EU law, to operate across Europe, multinationals have almost total liberty to choose a home country of their choosing. Not surprisingly, they choose small, low tax nations such as Ireland, the Netherlands or Luxembourg. Thus, it is through Ireland that Facebook draws its wealth from millions of accounts across Europe.

There are 33 million accounts in France and 31 million in Germany, according to recent data. While users enjoy the platform, Facebook tracks likes, comments and page views and sells the data to companies who then target consumers. But unlike the economy of old, Facebook sells its data to French companies not from France but from a great, nation-less elsewhere, with no phone number, address or physical “presence” for a customer who probably cares little. It is in states like Ireland, whose official tax rate of 12.5% is the lowest in Europe, that the giants have parked their EU headquarters and book profits from revenues made across the bloc. Indeed, actual revenues from advertising are minimal in France and Germany, but at Facebook HQ Ireland they grew to 7.9 billion euros, even though the vast majority does not come from the tiny EU island-nation of a mere 2.5 million users.

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A crazy world.

When Unpaid Student Loan Bills Mean You Can No Longer Work (NYT)

Fall behind on your student loan payments, lose your job. Few people realize that the loans they take out to pay for their education could eventually derail their careers. But in 19 states, government agencies can seize state-issued professional licenses from residents who default on their educational debts. Another state, South Dakota, suspends driver’s licenses, making it nearly impossible for people to get to work. As debt levels rise, creditors are taking increasingly tough actions to chase people who fall behind on student loans. Going after professional licenses stands out as especially punitive. Firefighters, nurses, teachers, lawyers, massage therapists, barbers, psychologists and real estate brokers have all had their credentials suspended or revoked.

Determining the number of people who have lost their licenses is impossible because many state agencies and licensing boards don’t track the information. Public records requests by The New York Times identified at least 8,700 cases in which licenses were taken away or put at risk of suspension in recent years, although that tally almost certainly understates the true number. [..] With student debt levels soaring — the loans are now the largest source of household debt outside of mortgages — so are defaults. Lenders have always pursued delinquent borrowers: by filing lawsuits, garnishing their wages, putting liens on their property and seizing tax refunds. Blocking licenses is a more aggressive weapon, and states are using it on behalf of themselves and the federal government.

Proponents of the little-known state licensing laws say they are in taxpayers’ interest. Many student loans are backed by guarantees by the state or federal government, which foot the bills if borrowers default. Faced with losing their licenses, the reasoning goes, debtors will find the money. But critics from both parties say the laws shove some borrowers off a financial cliff.

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Politicians everywhere dream of big and grandiose projects.

Subways May Be the Latest Casualty of China’s Crackdown on Debt (BBG)

China’s frenzied construction of subway systems in cities all over the country may be easing, amid reports funding has been pulled for some projects as Beijing pushes to rein in debt levels. The National Development and Reform Commission, China’s top economic planning body, is revising a 2003 policy on subway development, Caixin reported on Saturday. The NDRC wants to “raise the bar” for approving local rail projects amid growing concern over a debt-driven infrastructure boom, the financial magazine said, citing sources that it didn’t identify. Population levels, as well as the economy and fiscal conditions of Chinese cities seeking permission for subway projects will be more closely scrutinized, Caixin said. Subway construction is a constant presence in China’s cities, with streets torn up to build the capacity needed to transport the swelling ranks of urban commuters.

Beijing alone has been testing three lines: a driverless subway, a maglev train, and a tram to be launched in the city’s western suburbs at the end of the year, the official Xinhua News Agency reported in September. But investment in the sector appears to be tapering off, just as China’s leaders make reining in financial risks a top priority. Fixed-asset investment in rail transportation has slowed almost to a standstill in 2017, increasing just 0.4% in January-October from a year earlier, statistics bureau data show. That’s down from 3.5% growth in the first four months of the year. Private rail transport investment – which makes up a tiny share of an industry that’s dominated by state-backed enterprises – slumped 58.6% January-October from a year earlier.

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Rotation slowing by a millisecond per day.

Upsurge In Big Earthquakes Predicted For 2018 As Earth Rotation Slows (G.)

Scientists have warned there could be a big increase in numbers of devastating earthquakes around the world next year. They believe variations in the speed of Earth’s rotation could trigger intense seismic activity, particularly in heavily populated tropical regions. Although such fluctuations in rotation are small – changing the length of the day by a millisecond – they could still be implicated in the release of vast amounts of underground energy, it is argued. The link between Earth’s rotation and seismic activity was highlighted last month in a paper by Roger Bilham of the University of Colorado in Boulder and Rebecca Bendick of the University of Montana in Missoula presented at the annual meeting of the Geological Society of America.

“The correlation between Earth’s rotation and earthquake activity is strong and suggests there is going to be an increase in numbers of intense earthquakes next year,” Bilham told the Observer last week. In their study, Bilham and Bendick looked at earthquakes of magnitude 7 and greater that had occurred since 1900. “Major earthquakes have been well recorded for more than a century and that gives us a good record to study,” said Bilham. They found five periods when there had been significantly higher numbers of large earthquakes compared with other times. “In these periods, there were between 25 to 30 intense earthquakes a year,” said Bilham. “The rest of the time the average figure was around 15 major earthquakes a year.”

The researchers searched to find correlations between these periods of intense seismic activity and other factors and discovered that when Earth’s rotation decreased slightly it was followed by periods of increased numbers of intense earthquakes. “The rotation of the Earth does change slightly – by a millisecond a day sometimes – and that can be measured very accurately by atomic clocks,” said Bilham. Bilham and Bendick found that there had been periods of around five years when Earth’s rotation slowed by such an amount several times over the past century and a half. Crucially, these periods were followed by periods when the numbers of intense earthquakes increased. “It is straightforward,” said Bilham. “The Earth is offering us a five-year heads-up on future earthquakes.”

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Many will not.

Will Puerto Ricans Return Home After Hurricane María? (Conv.)

Even before this year’s devastating hurricane season, the team of demographers I work with at Penn State and the Puerto Rico Institute of Statistics had predicted that the population of Puerto Rico would decline over the next few decades. Have Hurricanes Irma and María accelerated this trend? Slowing population decline is central to the economic recovery plan drafted by the Puerto Rican government in March of this year. If migration off the island accelerates, it is likely that the government of Puerto Rico will face even greater challenges in meeting that plan’s milestones. Preliminary data from the Puerto Rican Diaspora Study, which I recently concluded, can help shed light on how many Puerto Ricans who have fled the island might return home – and how many are gone for good.

In the two months since María made landfall, Puerto Ricans have left the island in even higher numbers than before. Recent commercial flight passenger data indicate that between Sept. 20, the day Hurricane María made landfall, and Nov. 7, approximately 100,000 people left Puerto Rico. That number exceeds the 89,000 people who left island during all of 2015 and increases by the day. Lack of access to power, drinking water and health care are pushing people out. Recent forecasts of migration out of Puerto Rico from the Center for Puerto Rican Studies at CUNY suggest that, because of Hurricane María, the island may lose up to 470,335 residents, or 14% of its current population, by 2020. This would represent a doubling of migration off the island compared to previous years.

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3,000 died this year.

600 African Migrants Rescued Near Spain (AFP)

Around 600 African migrants were rescued off the coast of Spain in 24 hours, a sea rescue patrol said Saturday. The Guardia Civil and Salvamento Maritimo rescue service added that operations to recover further migrants were still under way. Spain is the third busiest gateway for migrants arriving in Europe, but far behind Italy and Greece. However, the number of people arriving by sea in Spain has nearly tripled over the last year to 17,687. Many Africans undertaking the long route to Europe are choosing to avoid crossing danger-ridden Libya to get to Italy along the so-called central Mediterranean route, and choosing instead to get there via Morocco and Spain.

On Saturday, most of the migrants arrived in the south-eastern region of Murcia, where 431 people aboard 41 makeshift boats were discovered. Patrols found more than 110 people in the Alboran Sea, between Morocco and Spain’s Andalusian coast. Operations were also conducted in the Strait of Gibraltar, recovering 48 people on four makeshift boats. The rescues were carried out by the Navy, the Guardia Civil police and Salvamento Maritimo. According to the International Organization for Migration (IOM) close to 160,000 people have made the dangerous crossing to Europe this year and almost 3,000 more died or went missing while trying.

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An irreversibly harmed child who has been waiting for a year for Britain to fulfill an already made pledge.

First Child Refugee From Greek Camps Comes To UK (G.)

More than a year after the UK government pledged to transfer hundreds of child refugees from Greece, the first unaccompanied minor from the country will arrive in London this week. However the 15-year-old Syrian is described by experts as profoundly traumatised because of the delay and has recently attempted to take his own life. Fourteen months have elapsed since the boy was first identified by the Home Office as especially vulnerable and eligible for immediate transfer. It has also emerged that Hammersmith and Fulham council in west London told the Home Office a year ago that it had a place for the teenager, but officials did not act on the offer – a decision that charities say has caused “irreversible damage” to the child, who has lost contact with his family in Syria.

Giannoula Kefala, the council’s principal social worker, said: “From my perspective, the impasse and likely irreversible harm already caused to this extremely vulnerable child is unbearably disturbing.” Kefala said that last December she informed the Home Office of her intention to travel to Greece to assess the boy. “It is absolutely clear from my visit that the long delay has caused this child terrible harm, and that it has been apparent for a long time that the available resources in Greece cannot cater for this child’s needs. Recent hospital records make clear that the ongoing uncertainty is having a devastating impact.” The teenager is currently on heavy psychiatric medication, which worries his doctor but which is believed to be necessary to prevent a fatal outcome.

Until last Monday the youngster was being detained in a police cell with no access to medical professionals, and forced to sleep on a mattress on the floor. On 22 October, police said the boy, after repeated self-harming, had made a suicide attempt and was at “imminent risk of killing himself”. Kefala said she was concerned the boy could die.

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They live in summer tents. It’s been pouring with rain for days. The UNHCR has many rolls of plastic sheeting just lying around.

Lesvos Authorities Going On Strike Over Rising Migrant Population (K.)

With reception centers for migrants on the Aegean islands reaching breaking point, local authorities on Lesvos go on strike on Monday to draw attention to the problem. The island’s mayor, Spyros Galinos, called the general strike last week, noting that the rising migrant population “has fueled insecurity among citizens.” Authorities on Lesvos want the government to move migrants from seriously overcrowded facilities on the islands to the mainland. Around 16,000 migrants have been relocated to the mainland since October last year, but more transfers are needed as dozens continue to reach the islands daily even as the pace of returns to Turkey remains slow. Concerns are also growing about hundreds of migrants living in tents around the reception centers amid worsening weather conditions. The Interior Ministry has said that measures to deal with the winter months will be implemented in phases through the end of December.

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Please stop.

Over 50,000 Yemeni Children Expected To Die By The End Of 2017 (Ind.)

More than 50,000 children in Yemen are expected to die by the end of the year as a result of disease and starvation caused by the stalemated war in the country, Save the Children has warned. Seven million people are on the brink of famine in the country, which is in the grips of the largest cholera outbreak in modern history. An estimated 130 Yemeni children are dying every day and an estimated 400,000 children will need treatment for acute malnutrition this year, the charity said. “These deaths are as senseless as they are preventable,” said Tamer Kirolos, Save the Children’s country director for Yemen. “They mean more than a hundred mothers grieving for the death of a child, day after day.”

Eighteen-month-old Nadhira from the Bani Qais district of Hajja, northern Yemen, is suffering from severe acute malnutrition and respiratory diseases. Her mother saved the family’s income for three days to afford to take her to Hajja city for treatment, but her condition deteriorated once again after they were left unable to afford the medicine. “I worry about my family’s food and medicine when they get sick. I want my daughter to live: she’s my biggest concern now. I wish my daughter recovers from her sickness soon,” her mother Shaika said.

The charity has warned the death toll as a result of starvation and disease could be even higher, as the calculations were made before Saudi Arabia tightened a blockade on rebel-held parts of the country in response to a missile fired from rebel territory towards Riyadh international airport this month. The blockade has closed the major entry ports of Hodeidah and Saleef, as well as the airport in the capital Sanaa, which has severely hindered the access of food and aid.

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Nov 072017
 
 November 7, 2017  Posted by at 10:07 am Finance Tagged with: , , , , , , , , , ,  


Edward S. Curtis Zuni Girl with Jar c. 1903

 

Saudi Arabia’s Government Purge — And How Washington Corruption Enabled It (IC)
Saudi Arabia Accuses Lebanon Of ‘Declaring War,’ Egypt Calls For Calm (CNBC)
Oil Prices Surge On Saudi Purge (CNBC)
The Black Swan In Plain Sight – Debt Out The Wazoo (Stockman)
What Could Go Wrong? (Jim Kunstler)
Growing Homeless Camps Contrast With West Coast Tech Wealth (AP)
Profiting from Puerto Rico’s Pain (New Yorker)
Sacked Catalan President Condemns ‘Brutal Judicial Offensive’ (G.)
Bernie Sanders Warns Of ‘International Oligarchy’ – Paradise Papers (G.)
End These Offshore Games Or Our Democracy Will Die (G.)
Four False Viral Claims Spread by Journalists on Twitter in One Week (GG)
Growing Number of Greeks Unable To Pay Taxes (K.)
Greek Notaries Refuse To Carry Out Foreclosures (K.)
Hawking: AI Could Be ‘Worst Event In The History Of Our Civilization’ (CNBC)
The Charter of the Forest (Standing)

 

 

Reading a lot on Saudi. This is good by Ryan Grim. ” And make no mistake, MBS is a project of the UAE — an odd turn of events given the relative sizes of the two countries.”

Saudi Arabia’s Government Purge — And How Washington Corruption Enabled It (IC)

Whatever the official explanation, it is being read around the world as a power grab by the kingdom’s rising crown prince. “The sweeping campaign of arrests appears to be the latest move to consolidate the power of Crown Prince Mohammed bin Salman, the favorite son and top adviser of King Salman,” as the New York Times put it. “The king had decreed the creation of a powerful new anti-corruption committee, headed by the crown prince, only hours before the committee ordered the arrests. The men are being held in the Ritz-Carlton Riyadh. “There is no jail for royals,” a Saudi source noted. The move marks a moment of reckoning for Washington’s foreign policy establishment, which struck a bargain of sorts with Mohammed bin Salman, known as MBS, and Yousef Al Otaiba, the United Arab Emirates ambassador to the U.S. who has been MBS’s leading advocate in Washington.

The unspoken arrangement was clear: The UAE and Saudi Arabia would pump millions into Washington’s political ecosystem while mouthing a belief in “reform,” and Washington would pretend to believe that they meant it. MBS has won praise for some policies, like an openness to reconsidering Saudi Arabia’s ban on women drivers. Meanwhile, however, the 32-year-old MBS has been pursuing a dangerously impulsive and aggressive regional policy, which has included a heightening of tensions with Iran, a catastrophic war on Yemen, and a blockade of ostensible ally Qatar. Those regional policies have been disasters for the millions who have suffered the consequences, including the starving people of Yemen, as well as for Saudi Arabia, but MBS has dug in harder and harder. And his supporters in Washington have not blinked.

The platitudes about reform were also challenged by recent mass arrests of religious figures and repression of anything that has remotely approached less than full support of MBS. The latest purge comes just days after White House adviser Jared Kushner, a close ally of Otaiba, visited Riyadh, and just hours after a bizarre-even-for-Trump tweet. Whatever legitimate debate there was about MBS ended Saturday — his drive to consolidate power is now too obvious to ignore. And that puts denizens of Washington’s think tank world in a difficult spot, as they have come to rely heavily on the Saudi and UAE end of the bargain. As The Intercept reported earlier, one think tank alone, the Middle East Institute, got a massive $20 million commitment from the UAE. And make no mistake, MBS is a project of the UAE — an odd turn of events given the relative sizes of the two countries.

“Our relationship with them is based on strategic depth, shared interests, and most importantly the hope that we could influence them. Not the other way around,” Otaiba has said privately. For the past two years, Otaiba has introduced MBS around Washington and offered assurances of his commitment to modernizing and reforming Saudi Arabia, according to people who’ve spoken with him, confirmed by emails leaked by the group, Global Leaks. When confronted with damning headlines, Otaiba tends to acknowledge the reform project is a work in progress, but insists that it is progress nonetheless, and in MBS resides the best chance of the region.

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“The region cannot support more turmoil..”

Saudi Arabia Accuses Lebanon Of ‘Declaring War,’ Egypt Calls For Calm (CNBC)

Egyptian President Abdel Fattah al-Sisi called on Middle Eastern nations to maintain stability just as tensions were suddenly spiking between Lebanon and Saudi Arabia. “The stability of the region is very important and we all have to protect it … I am talking to all the parties in the region to preserve it,” Al-Sisi said in an interview with CNBC over the weekend that aired Tuesday morning. On Saturday, Lebanese Prime Minister Saad al-Hariri shocked the political establishment in Beirut by announcing his resignation. The leader said he was stepping down amid concerns of a potential assassination plot against him. Speaking from Riyadh, Hariri criticized Iran, and its Lebanese ally Hezbollah, for igniting conflict in the region.

Following the CNBC interview, Reuters reported that Saudi Arabia sharply escalated rhetoric in the region by declaring that Lebanon had — figuratively at least — declared “war” against it because of aggression from Hezbollah. Saudi Gulf Affairs Minister Thamer al-Sabhan said the government of Lebanon “would be dealt with as a government declaring war on Saudi Arabia,” Reuters reported. When asked whether the time had come for Egypt to consider its own measures against Hezbollah, Al-Sisi replied, “The subject is not about taking on or not taking on, the subject is about the status of the fragile stability in the region in light of the unrest facing the region.” “The region cannot support more turmoil,” he said.

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What OPEC couldn’t do.

Oil Prices Surge On Saudi Purge (CNBC)

Oil prices surged to their highest levels since the summer of 2015 on Monday as a major political shakeup in Saudi Arabia underpinned a rally fueled by geopolitical risk, analysts said. Crude futures hit the new highs overnight after the powerful Saudi Crown Prince Mohammad bin Salman coordinated the arrest of several princes and ministers, ostensibly as part of crackdown on corruption. Prices pulled back in morning trade as the market digested a wealth of analysis on the Saudi purge, but futures suddenly shot higher at midday. International benchmark Brent crude oil topped $64 a barrel for the first time since June 2015. Meanwhile U.S. West Texas Intermediate crude broke above $57, a level the market has not seen since July 2015.

WTI finished Monday’s session $1.71 or 3.1 percent, higher at $57.35. Brent was trading up $2.04, or 3.3 percent, at $64.11 by 2:27 p.m. ET. Analysts cautioned against pinning the surge on any one headline, or even the Saudi arrests alone. Instead, they said a growing cloud of geopolitical uncertainty was unleashing animal spirits in an already bullish market. “You can grab all sorts of different headlines when you have a runaway market, and this is a runaway market right now,” said Tom Kloza, global head of energy analysis at Oil Price Information Service. In this kind of environment, “people throw caution to the wind, and this is like the grand finale of fireworks,” he said.

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More debt, fast.

The Black Swan In Plain Sight – Debt Out The Wazoo (Stockman)

The black swan in plain sight does emit the Donald’s orangish glow, but at the end of the day its true color is actually red. That is, monumental towers of rapidly rising debt loom everywhere on the planet. For the moment, the artificial cash flow from this unsustainable borrowing spree is keeping a simulacrum of growth and prosperity alive. Yet this whole outbreak of debt madness – represented by $225 trillion outstanding on a global basis – is careening toward a financial and economic dead end that will soon crush today’s fiscally profligate politicians and heedless financial punters, alike, in a devastating reset of bond yields. For our first case in point, the always excellent Wolf Richter published a great chart over the weekend on the exploding US public debt.

To say the least, it constitutes a clanging wake-up call amidst the absolute fantasy world that prevails on both ends of the Acela Corridor. That’s because during the mere 8 weeks since the public debt ceiling was suspended by the Donald’s end-run with Nancy and Chuckles in September, the national debt has spiked by $640 billion. That’s about $16 billion per Federal business day, and they are not done yet. The US Treasury will continue to borrow heavily until the current debt ceiling “suspension” expires on December 8 – at which time it will repair to the old game of divesting trusting funds and employing other gimmicks which circumvent the ceiling, while waiting for Congress to blink and raise the ceiling or authorize a new “temporary” suspension.

As Wolf pointed out, this pattern played out during the debt showdowns of 2013 and 2015, as well, when the resulting “temporary” suspension resulted in borrowing spikes of $464 billion and $650 billion, respectively. Accordingly, Washington has suspended it way into a $5.7 trillion increase in the public debt in just six years since October 2011. That is, during a period which supposedly constitutes the third longest business expansion in US history.

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“The “narrative” is firmest before its falseness is proved by the turn of events, and there are an awful lot of events out there waiting to present, like debutantes dressing for a winter ball.”

What Could Go Wrong? (Jim Kunstler)

The economy isn’t growing and can’t grow. The economy is a revenant of something that used to exist, an industrial economy that has rolled over and died and come back as a moldy ghoul feeding on the ghostly memories of itself. Stocks go up because the unprecedented low interest rates established by the Fed allow company CEOs to “lever-up” issuing bonds (i.e. borrow “money” from, cough cough, “investors”) and then use the borrowed “money” to buy back their own stock to raise the share value, so they can justify their companies’ boards-of-directors jacking up their salaries and bonuses — based on the ghost of the idea that higher stock prices represent the creation of more actual things of value (front-end-loaders, pepperoni sticks, oil drilling rigs).

The economy is actually contracting because we can’t afford the energy it takes to run the things we do — mostly just driving around — and unemployment is not historically low, it’s simply mis-represented by not including the tens of millions of people who have dropped out of the work force. And an epic wickedness combined with cowardice drives the old legacy news business to look the other way and concoct its good times “narrative.” If any of the reporters at The New York Times and The Wall Street Journal really understand the legerdemain at work in these “mysteries” of finance, they’re afraid to say. The companies they work for are dying, like so many other enterprises in the non-financial realm of the used-to-be economy, and they don’t want to be out of paycheck until the lights finally go out.

The “narrative” is firmest before its falseness is proved by the turn of events, and there are an awful lot of events out there waiting to present, like debutantes dressing for a winter ball. The debt ceiling… North Korea… Mueller… Hillarygate….the state pension funds….That so many agree the USA has entered a permanent plateau of exquisite prosperity is a sure sign of its imminent implosion. What could go wrong?

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All bubbles disrupt.

Growing Homeless Camps Contrast With West Coast Tech Wealth (AP)

SEATTLE — Housing prices are soaring here thanks to the tech industry, but the boom comes with a consequence: A surge in homelessness marked by 400 unauthorized tent camps in parks, under bridges, on freeway medians and along busy sidewalks. The liberal city is trying to figure out what to do. “I’ve got economically zero unemployment in my city, and I’ve got thousands of homeless people that actually are working and just can’t afford housing,” said Seattle City Councilman Mike O’Brien. “There’s nowhere for these folks to move to.” That struggle is not Seattle’s alone. A homeless crisis is rocking the entire West Coast, pushing abject poverty into the open like never before. Public health is at risk, several cities have declared states of emergency, and cities and counties are spending millions – in some cases billions – in a search for solutions.

San Diego now scrubs its sidewalks with bleach to counter a deadly hepatitis A outbreak. In Anaheim, 400 people sleep along a bike path in the shadow of Angel Stadium. Organizers in Portland lit incense at an outdoor food festival to cover up the stench of urine in a parking lot where vendors set up shop. Homelessness is not new on the West Coast. But interviews with local officials and those who serve the homeless in California, Oregon and Washington — coupled with an Associated Press review of preliminary homeless data — confirm it’s getting worse. People who were once able to get by, even if they suffered a setback, are now pushed to the streets because housing has become so expensive. All it takes is a prolonged illness, a lost job, a broken limb, a family crisis. What was once a blip in fortunes now seems a life sentence.

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“There is no European Union standing ready to bail out Puerto Rico.”

Profiting from Puerto Rico’s Pain (New Yorker)

In 2012, Cate Long was working at the news service Reuters, where she wrote a daily column on the municipal-bond market. Municipal bonds are typically a sleepy corner of investing. They are forms of debt issued by states, counties, or cities, usually to fund infrastructure projects, such as airports and highways, and they are generally considered a safe investment, paying relatively low levels of interest. Finding a compelling story about the municipal-bond market is not an easy task, so when Long came across a document related to an $800 million bond sale that Puerto Rico would be undertaking that spring, she decided to look at the numbers more closely. What she found was startling. “I sat down and read it for a couple of hours, and I said, ‘These people are going to default,’ ” she told me recently. “It was pretty obvious.”

In the column she wrote about her analysis, titled “Puerto Rico Is America’s Greece,” Long expressed concern about the island’s economic health, calling it “America’s own Third World country.” At the time, Puerto Rico’s per-capita income was just $15,203 (less than half that of Mississippi, the poorest of the fifty states), and 45% of its residents were living below the poverty line. Puerto Rico also had a “massive” amount of debt, and was issuing even more bonds, which mutual funds and individuals were eagerly buying up, in spite of the warning signs. In her article, Long seemed to charge almost everyone involved, borrowers and creditors alike, with disingenuousness, incompetence, or both. “As happened with Greece, bond investors continue to buy the debt assuming at some point the government will be bailed out by somebody, somewhere,” she wrote.

“Caution, bond investors: There is no European Union standing ready to bail out Puerto Rico.” The article sent shock waves through the investment community. Moody’s Investors Service, which provides credit ratings, asked Long to come to its offices and defend her findings. (Her defense was, essentially, “I’m looking at the numbers.”) Nevertheless, the island continued its unsustainable borrowing for years—and Wall Street investors kept lending it money. By 2017, five years after Long’s warning, Puerto Rico’s bond debt had soared to $74 billion, almost a third of which was held by hedge funds. Meanwhile, the government was struggling to provide basic services to residents.

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Guess: he won’t be back in Catalonia in time for the Dec 21 elections.

Sacked Catalan President Condemns ‘Brutal Judicial Offensive’ (G.)

The deposed Catalan president, Carles Puigdemont, has accused the Spanish authorities of conducting a “brutal judicial offensive” against members of his ousted government and said he was afraid they would not receive an unbiased hearing in Spanish courts. Writing in the Guardian, Puigdemont said it was a “colossal outrage” that he and 13 colleagues were being investigated over possible charges including sedition and rebellion in relation to their roles in last month’s declaration of independence. “Today, the leaders of this democratic project stand accused of rebellion and face the severest punishment possible under the Spanish penal code; the same as for cases of terrorism and murder: 30 years in prison,” he said.

Puigdemont said he doubted that he and his colleagues would get a “fair and independent hearing” and called for “scrutiny from abroad” to help bring the Catalan crisis to a political, rather than judicial, conclusion. He added: “The Spanish state must honour what was said so many times in the years of terrorism: end violence and we can talk about everything. We, the supporters of Catalan independence, have never opted for violence, on the contrary. But now we find it was all a lie that everything is up for discussion.” The former Catalan leader fled to Brussels with a handful of cabinet colleagues last week, hours before Spain’s attorney general announced he would be seeking to bring charges of rebellion, sedition and misuse of public funds against them.

On Thursday, a national court judge ordered the jailing of the eight Catalan politicians and, a day later, issued a European arrest warrant for Puigdemont and four of his allies. Late on Sunday, a Belgian judge granted the five conditional release. They will make their first appearance in court on 17 November when a judge will decide on whether to execute the arrest warrant. The conditions of release include a ban on them leaving Belgium until their appearance in the court of first instance in Brussels later this month. With the extradition process likely to take months rather than weeks, there is growing scope for Puigdemont’s presence in Belgium to cause the country’s coalition government serious difficulties.

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No kidding.

Bernie Sanders Warns Of ‘International Oligarchy’ – Paradise Papers (G.)

Bernie Sanders has warned that the world is rapidly becoming an “international oligarchy” controlled by a tiny number of billionaires, highlighted by the revelations in the Paradise Papers. In a statement to the Guardian in the wake of the massive leak of documents exposing the secrets of offshore investors, Sanders said that the enrichment of wealthy individuals and companies in tax havens was “the major issue of our time”. He said the Paradise Papers opened the door on a “major problem not just for the US but for governments throughout the world”. “The major issue of our time is the rapid movement toward international oligarchy in which a handful of billionaires own and control a significant part of the global economy. The Paradise Papers shows how these billionaires and multinational corporations get richer by hiding their wealth and profits and avoid paying their fair share of taxes,” the US senator from Vermont said.

Sanders, who came in a close second to Hillary Clinton in the race for the Democratic presidential nomination last year, pointed the finger of blame for the flourishing of offshore holdings on both Congress and the Trump administration. He told the Guardian that Republicans in Congress were responsible for providing “even more tax breaks to profitable corporations like Apple and Nike”. The same tax breaks, he said, were being seized upon by super-wealthy members of Trump’s cabinet “who avoid billions in US taxes by shifting American jobs and profits to offshore tax havens. We need to close these loopholes and demand a fair and progressive tax system.”

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“We must accept that Big Finance and runaway inequality are incompatible with either a functioning democracy or a sustainable economy.”

End These Offshore Games Or Our Democracy Will Die (G.)

Tax avoidance is now so systemic that the Queen’s own wealth managers apparently see nothing wrong with her receiving £82m a year from taxpayers while shunting £10m into the Caymans and elsewhere. Shuttling between tax havens is so commonplace that economist Gabriel Zucman describes it as an “elite sport” – a sport in which the loser each time is the rest of society, which sees its taxbase shrink. These papers are aptly named: they outline a model that is paradise for the super-rich and purgatory for the rest of us. The second myth of British politics is that austerity was the only correct response to the high-living of the New Labour boom. That was always opposed by some of us – now it is exploded with each new tax investigation.

Drawing in part on data from last year’s Panama Papers and the HSBC files leaked in 2015, Zucman recently co-published a study that found wealthy Britons have stashed about £300bn – equivalent to 15% of our GDP – in offshore tax havens. Three hundred billion quid would more than cover our entire education budget for the rest of this decade and into the 2020s. Or, if you prefer, it is the equivalent of £350m being paid into the NHS every week for the next 16 years. Instead, it is funnelled offshore and used to buy yachts and mansions and other baubles – tax efficiently, of course. The economics of David Cameron and George Osborne can be summed up simply: punish the poor, but reward the rich for fear they will flee offshore. To that end, they scrapped the 50p tax rate for millionaires, they drove down corporation tax to a record low, and cut sweetheart deals with companies such as Google who couldn’t be bothered to pay even that much.

The result is that London has more super-rich residents than any other city – yet however soft the kid gloves with which they are treated, our wealthiest 0.01% stick 30-40% of their wealth offshore. In high-tax Sweden, by contrast, the rich do not use havens half as much. The logic that has underpinned our tax system over this entire decade is rubbish. [..] Add the City of London to Britain’s crown dependencies such as Jersey and the Isle of Man, and overseas territories such as the Caymans, and Britain’s tax havens account for nearly a quarter of the entire offshore financial industry. According to Deutsche Bank, London itself receives about £1bn a month in what it calls “hidden capital flows”, much of it Russian. It ends up in Stucco-fronted houses and fine art.

Much of this could be changed, and quickly. Britain has previously ordered the Caymans and other overseas territories to decriminalise homosexuality and abolish the death penalty. It could do the same with tax transparency, in an Order of Council that, a Mayfair tax lawyer recently told me, need be no longer than two sides of A4. We could change the rules on Lords and Commons’ members’ interests so that all offshore holdings would have to be registered. These are the fixes, but a real solution is ultimately political. We must accept that Big Finance and runaway inequality are incompatible with either a functioning democracy or a sustainable economy. Britain either shrinks the City of London, or the City of London will swallow Britain.

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Lots of talk about this, with widely differing views.

Four False Viral Claims Spread by Journalists on Twitter in One Week (GG)

There is ample talk, particularly of late, about the threats posed by social media to democracy and political discourse. Yet one of the primary ways that democracy is degraded by platforms such as Facebook and Twitter is, for obvious reasons, typically ignored in such discussions: the way they are used by American journalists to endorse factually false claims that quickly spread and become viral, entrenched into narratives, and thus can never be adequately corrected. The design of Twitter, where many political journalists spend their time, is in large part responsible for this damage. Its space constraints mean that tweeted headlines or tiny summaries of reporting are often assumed to be true with no critical analysis of their accuracy, and are easily spread.

Claims from journalists that people want to believe are shared like wildfire, while less popular, subsequent corrections or nuanced debunking are easily ignored. Whatever one’s views are on the actual impact of Twitter Russian bots, surely the propensity of journalistic falsehoods to spread far and wide is at least as significant. Just in the last week alone, there have been four major factually false claims that have gone viral because journalists on Twitter endorsed and spread them: three about the controversy involving Donna Brazile and the DNC, and one about documents and emails published by WikiLeaks during the 2016 campaign. It’s well worth examining them, both to document what the actual truth is as well as to understand how often and easily this online journalistic misleading occurs:

Viral Falsehood #1: The Clinton/DNC agreement cited by Brazile only applied to the General Election, not the primary.

Viral Falsehood #2: Sanders signed the same agreement with the DNC that Clinton did.

Viral Falsehood #3: Brazile stupidly thought she could unilaterally remove Clinton as the nominee.

Viral Falsehood #4: Evidence has emerged proving that the content of WikiLeaks documents and emails was doctored.

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Deep deep deeper and down.

Growing Number of Greeks Unable To Pay Taxes (K.)

Almost half a million taxpayers were added to the long list of debtors to the state in the month of September, according to the latest data from the Independent Authority for Public Revenue. The authority’s figures are a reflection of citizens’ increasing inability to pay their taxes, with 410,000 not paying their second income tax installment and the ENFIA property tax in September. More specifically, 4,267,408 taxpayers owed money to the Greek state in September, up from 3,857,086 in August. Moreover, by the end of September, the amount of unpaid taxes since the beginning of the year came to 9.25 billion euros. What concerns the government is whether the 410,000 that couldn’t pay their taxes in September will join the Finance Ministry’s 12-month installment program, as the hole in tax revenues will only grow if they don’t.

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What good will kicking people out do?

Greek Notaries Refuse To Carry Out Foreclosures (K.)

The outlook for property foreclosures in Greece is unclear after notaries announced a boycott on auctions until the end of the year, citing abuse by protesters, though foreign creditors expect the first online auctions to take place this month. According to sources, Greece’s lenders have suggested that the responsibility for foreclosures be shifted from notaries to Greek courts or possibly to Justice Ministry officials. The latter model, which has been tried and tested in Germany and Spain, was first mooted last month during a visit to Athens by bailout monitors. The auditors made it clear that the resumption of foreclosures on the homes of overindebted Greeks, which have dragged during the crisis years due to strikes by lawyers and notaries and more recently due to anti-austerity protesters, is a prerequisite for the successful conclusion of Greece’s current bailout review.

In comments at Monday’s summit of eurozone finance ministers in Brussels, ECB President Mario Draghi indicated that the resumption of property auctions would help banks by reducing the large proportion of bad loans that they hold. Commenting, Greek Finance Ministry sources said Athens was committed to “not taking our foot off the gas in the implementation of reforms for the review.” One of the many conditions of the latest review is that Greece launch electronic foreclosures. The first is supposed to take place on November 29. However, it is unclear how that procedure will be carried out in view of the protracted walkout by Greek notaries.

In a joint statement on Monday, the associations representing notaries in Athens, Piraeus and the islands of the Aegean and the Dodecanese said they will not be conducting any property auctions through December 31. The decision was reached during a meeting on Saturday with a vote of 134 in favor and 132 against. The associations said the decision was aimed at initiating talks with the Justice Ministry in order to provide protection to notaries who have come under attack – often violent – by anti-establishment groups and protesters opposed to foreclosures. Notaries also want the Justice Ministry to be made responsible for electronic auctions, as well as to address any disputes that may arise from them.

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I don’t share his optimism.

Hawking: AI Could Be ‘Worst Event In The History Of Our Civilization’ (CNBC)

The emergence of artificial intelligence (AI) could be the “worst event in the history of our civilization” unless society finds a way to control its development, high-profile physicist Stephen Hawking said Monday. He made the comments during a talk at the Web Summit technology conference in Lisbon, Portugal, in which he said, “computers can, in theory, emulate human intelligence, and exceed it.” Hawking talked up the potential of AI to help undo damage done to the natural world, or eradicate poverty and disease, with every aspect of society being “transformed.” But he admitted the future was uncertain. “Success in creating effective AI, could be the biggest event in the history of our civilization. Or the worst. We just don’t know. So we cannot know if we will be infinitely helped by AI, or ignored by it and side-lined, or conceivably destroyed by it,” Hawking said during the speech.

“Unless we learn how to prepare for, and avoid, the potential risks, AI could be the worst event in the history of our civilization. It brings dangers, like powerful autonomous weapons, or new ways for the few to oppress the many. It could bring great disruption to our economy.” Hawking explained that to avoid this potential reality, creators of AI need to “employ best practice and effective management.” The scientist highlighted some of the legislative work being carried out in Europe, particularly proposals put forward by lawmakers earlier this year to establish new rules around AI and robotics. Members of the European Parliament said European Union-wide rules were needed on the matter. Such developments are giving Hawking hope.

“I am an optimist and I believe that we can create AI for the good of the world. That it can work in harmony with us. We simply need to be aware of the dangers, identify them, employ the best possible practice and management, and prepare for its consequences well in advance,” Hawking said.

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We want one!

The Charter of the Forest (Standing)

Eight hundred years ago this month, after the death of a detested king and the defeat of a French invasion in the Battle of Lincoln, one of the foundation stones of the British constitution was laid down. It was the Charter of the Forest, sealed in St Paul’s on November 6, 1217, alongside a shortened Charter of Liberties from 2 years earlier (which became the Magna Carta). The Charter of the Forest was the first environmental charter forced on any government. It was the first to assert the rights of the property-less, of the commoners, and of the commons. It also made a modest advance for feminism, as it coincided with recognition of the rights of widows to have access to means of subsistence and to refuse to be remarried. The Charter has the distinction of having been on the statute books for longer than any other piece of legislation.

It was repealed 754 years later, in 1971, by a Tory government. In 2015, while spending lavishly on celebrating the Magna Carta anniversary, the government was asked in a written question in the House of Lords whether it would be celebrating the Charter this year. A Minister of Justice, Lord Faulks, airily dismissed the idea, stating that it was unimportant, without international significance. Yet earlier this year the American Bar Association suggested the Charter of the Forest had been a foundation of the American Constitution and that it was more important now than ever before. They were right. It is scarcely surprising that the political Right want to ignore the Charter. It is about the economic rights of the property-less, limiting private property rights and rolling back the enclosure of land, returning vast expanses to the commons.

It was remarkably subversive Sadly, whereas every school child is taught about the Magna Carta, few hear of the Charter. Yet for hundreds of years the Charter led the Magna Carta. It had to be read out in every church in England four times a year. It inspired struggles against enclosure and the plunder of the commons by the monarchy, aristocracy and emerging capitalist class, famously influencing the Diggers and Levellers in the 17th century, and protests against enclosure in the 18th and 19th. At the heart of the Charter, which is hard to understand unless words that have faded from use are interpreted, is the concept of the commons and the need to protect them and to compensate commoners for their loss. It is scarcely surprising that a government that is privatising and commercialising the remaining commons should wish to ignore it.

In 1066, William the Conqueror not only distributed parts of the commons to his bandits but also turned large tracts of them into ‘royal forests’ – ie, his own hunting grounds. By the time of the Domesday Book in 1086, there were 25 such forests. William’s successors expanded and turned them into revenue-raising zones to help pay for their wars. By 1217, there were 143 royal forests. The Charter achieved a reversal, and forced the monarchy to recognise the right of free men and women to pursue their livelihoods in forests. The notion of forest was much broader than it is today, and included villages and areas with few trees, such as Dartmoor and Exmoor. The forest was where commoners lived and worked collaboratively.

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Oct 292017
 
 October 29, 2017  Posted by at 9:10 am Finance Tagged with: , , , , , , , , ,  


Springenberg Luther nails his theses to the church door

 

Trump Frustrated By Secrecy With JFK Files (AP)
Battle Hymns of the Republicans (G.)
Markets Await Trump’s Decision on Fed Chair (Rickards)
The Informant Cometh (Jim Kunstler)
In 2019, Central Bank Liquidity Finally Turns Negative (ZH)
All Hail British Banks: Self-absorbed, Short-termist And Spivvy (G.)
Sacked Catalonia Leader Calls For Opposition To Madrid’s Rule (R.)
Latin America and Caribbean No Longer US Backyard – Russia (TSur)
HUD Explores Temporarily Housing Puerto Ricans on US Mainland (BBG)
Barbuda PM Calls For Help From Britain To Rebuild Island (G.)
We Need A 21st-Century Martin Luther To Challenge The Church Of Tech (G.)

 

 

And released it all anyway. Still not besties with US Intelligence.

Trump Frustrated By Secrecy With JFK Files (AP)

Just before the release Thursday, Trump wrote in a memorandum that he had “no choice” but to agree to requests from the CIA and FBI to keep thousands of documents secret because of the possibility that releasing the information could still harm national security. Two aides said Trump was upset by what he perceived to be overly broad secrecy requests, adding that the agencies had been explicitly warned about his expectation that redactions be kept to a minimum. “The president and White House have been very clear with all agencies for weeks: They must be transparent and disclose all information possible,” White House Principal Deputy Press Secretary Raj Shah said Friday.

Late last week, Trump received his first official briefing on the release in an Oval Office meeting that included Chief of Staff John Kelly, White House Counsel Don McGahn and National Security Council legal adviser John Eisenberg. Trump made it clear he was unsatisfied with the pace of declassification. Trump’s tweets, an official said, were meant as a signal to the intelligence community to take seriously his threats to release the documents in their entirety. According to White House officials, Trump accepted that some of the records contained references to sensitive sources and methods used by the intelligence community and law enforcement and that declassification could harm American foreign policy interests. But after having the scope of the redactions presented to him, Trump told aides he did not believe them to be in the spirit of the law.

On Thursday, Trump’s top aides presented him with an alternative to simply acquiescing to the agency requests: He could temporarily allow the redactions while ordering the agencies to launch a new comprehensive examination of the records still withheld or redacted in part. Trump accepted the suggestion, ordering that agencies be “extremely circumspect” about keeping the remaining documents secret at the end of the 180-day assessment. “After strict consultation with General Kelly, the CIA and other agencies, I will be releasing ALL JFK files other than the names and addresses of any mentioned person who is still living,” Trump wrote in a Friday tweet. “I am doing this for reasons of full disclosure, transparency and in order to put any and all conspiracy theories to rest.”

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Is the swamp being drained?

Battle Hymns of the Republicans (G.)

The November election did not put an end to the Republican Party’s civil war – a chasm between the establishment in Washington and grassroots activists that deepened with the rise of the Tea Party movement of 2009. Trump has only amplified it. Flake, after all, was not alone in his scathing criticism of the president. All week, a feud between Trump and Bob Corker, the Republican chair of the Senate foreign relations committee, soared to new heights – or depths. It culminated in Corker issuing his own stunning rebuke of Trump. “When his term is over, the constant non-truth-telling, the name-calling, the debasement of our nation, will be what he will be remembered most for,” Corker told CNN. Corker announced his own retirement last month, joining the ranks of a small but growing number of Republicans who have come to see Trump’s presidency as a moment of reckoning.

On one side is Trump, the most unpopular president in modern US history, ushered in by a grassroots movement with Steve Bannon, the former White House chief strategist, at its helm. On the other is the old guard of Republican leaders, struggling to distance themselves from Trump’s toxicity and a party base that he increasingly drives with racially motivated nationalism. Critics like Flake, Corker and McCain subscribe to the views espoused by Republican presidents back to Ronald Reagan – a belief in limited government, moderate positions on immigration and trade – but Bannonites have waged war on “globalists” and used race and class to drive a wedge between the establishment and a rancorous base unmoored by the economic and cultural dislocation of the last 20 years.

The friction has prompted a battle for the soul of the Republican party. A strategist aligned with Bannon told the Guardian that Trump’s victory unleashed an insurgent movement that wants to overthrow the party establishment in Washington. “The strategy is to make everyone look over their shoulders,” the Bannon ally said, “so they understand that they are no longer in charge of the Republican party.” As reports of Flake’s retirement surfaced, another ally of Bannon swiftly celebrated the news by claiming “another scalp”. The departure of another moderate senator – at least, a moderate within the current Republican party – was the latest victory in Bannon’s mission to reshape the conservative movement.

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White House leaks say Powell will be next Fed head. Rickards expects Kevin Warsh. But yeah, Trump will be in Asia after November 3. What effect does that have on the Mueller thingy?

Markets Await Trump’s Decision on Fed Chair (Rickards)

President Trump is expected to nominate the next Federal Reserve chair within a matter of days. As I’ve explained before, Donald Trump has the opportunity to appoint a higher percentage of the Board of Governors of the Federal Reserve system at one time than any president since Woodrow Wilson. President Wilson signed the Federal Reserve Act during the creation of the Fed in 1913 when they had a vacant board. At that time, the law said the secretary of the Treasury and the comptroller of the currency were automatically on the Fed’s board of governors. But besides that, President Wilson selected all of the other participating members. Due to vacancies he inherited and key resignations, Trump now has the opportunity to fill more seats on the Fed’s Board of Governors than any president since then. That’s pretty amazing when you think about it.

To review, the Federal Reserve’s Board of Governors is made up of seven appointees. That means that they can make a majority decision with four votes. If you’re reading about the Fed, you might also see reference to “regional reserve bank presidents.” These are roles within the Federal Reserve System, but the real power is found on seven-member Board of Governors. Trump will own the Fed. Meaning, whatever the president wants monetary policy to be, he’ll get. In other words, Donald Trump will be able to shape the Fed’s majority. But the tricky part is figuring out how he plans to shape it… During the campaign season, Trump called China and other nations currency manipulators. That signaled he believed the dollar was too strong and wanted it to weaken. But then the North Korean nuclear crisis rose to the fore.

Trump backed off his threats against China because China has the most economic influence over North Korea, and Trump wanted China to use that leverage to convince the North to back off its nuclear program. But China didn’t deliver as Trump had hoped, and a trade war with China is now likely. That’s especially true now. Chinese president Xi Jinping has solidified his hold on power after the Chinese Politburo re-appointed him yesterday. Xi had avoided rocking the boat in recent months while his position was uncertain. But now that his lock on power is secure, Xi can afford to be much more confrontational with Trump. Trump’s trade policy has led many to believe that Trump will appoint a lot of “doves” to the Board. But don’t be surprised if Trump goes with a hard-money board. In fact, that’s what I expect. These will be hard-money, strong-dollar people, contrary to a lot of expectations.

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The Fed’s credibility. And Mueller’s. And Comey’s.

The Informant Cometh (Jim Kunstler)

Now, it also happens that the deal for Tenex to buy Uranium One had to be approved by nine federal agencies and signed off on by Secretary of State Hillary Clinton, which she did shortly after her husband Bill Clinton was paid $500,000 to give a speech in Moscow sponsored by a Russian bank. The Clinton Foundation also received millions of dollars in “charitable” donations from parties with an interest in the Tenex / Uranium One deal. It happened, too, that the CEO of Uranium One at the time of the Tenex sale, Frank Guistra, was one of eleven board members of the Clinton Foundation. The informant remained undercover for the FBI for five years. None of the Clinton involvement was included in the previously mentioned federal bribery and racketeering prosecutions.

Meanwhile, the informant had signed a nondisclosure agreement with the Obama Justice Department, only just lifted last week. As of this morning, the story is absent from The New York Times, formerly the nation’s newspaper of record. The FBI’s credibility is at stake in this case. Robert Mueller, who was Director of the agency during the Tenex/Uranium One deal, with all its Clintonian-Russian undertones, is in the peculiar position now as special prosecutor for the Russian election “meddling” alleged to involve President Trump. Whatever that investigation has turned up is not known publicly yet, but the massive leaking from government employees that turned the story into roughly 80% of mainstream legacy news coverage the past year, has ceased — either because Mueller has imposed Draconian restraints on his own staff, or because there is nothing there.

The FBI has a lot to answer for in overlooking the Clinton connection to the Uranium One deal. The informant, soon to be attached to a name and a face, is coming in from the cold, to the warm, wainscoted chambers of the house and senate committees. I wonder if Mr. Trump, or his lawyers, will find grounds to attempt to dismiss Special Prosecutor Mueller, given what looks like Mueller’s compromised position vis-à-vis Trump’s election opponent, HRC. It’s hard to not see this thing going a long way — at the same time that financial markets and geopolitical matters are heading south. Keep your hats on.

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Once people start thinkng they’re actually going to do this, the effects will be felt way before 2019.

In 2019, Central Bank Liquidity Finally Turns Negative (ZH)

[..] the great Central Bank liquidity tide, which generated over $2 trillion in central bank purchasing power in 2017 alone – and which as Bank of America said last month is the only reason why stocks are at record highs, is now on its way out. This was a point first made by Deutsche Bank’s Alan Ruskin two weeks ago, who looked at the collapse in global vol, and concluded that “as we look at what could shake the panoply of low vol forces, it is the thaw in Central Bank policy as they retreat from emergency measures that is potentially most intriguing/worrying.

We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE ‘flow effect’ being more powerful than the vol depressant ‘stock effect’. To twist a phrase from another well know Chicago economist: Vol may not always and everywhere be a monetary phenomena – but this is the first place to look for economic catalysts over the coming year.” He showed this great receding tide of liquidity in the following chart projecting central bank “flows” over the next two years, and which showed that “by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.”

Shortly after, Fasanara Capital’s Francesco Filia used this core observation in his own bearish forecast, when he wrote that “the undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from ‘Peak Quantitative Easing’ to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets.”

Fast forward to today, when Bank of America’s Barnaby Martin is the latest analyst to pick up on this theme of great liquidity withdrawal. Looking at (and past) the ECB’s announcement, Martin writes that “as expected, Mario Draghi took a knife to the ECB’s quantitative easing programme yesterday. From January 2018, monthly asset purchases will decline from €60bn to €30bn, and continue for another 9m (and remain open ended). The ECB now joins an array of central banks across the globe that are either shrinking their balance sheets or heavily scaling back bond buying.” [..] However, as Ruskin and Filia warn, Martin underscores that it is the bigger point that is ignored by markets, namely that it is all about the “flow” of central bank purchases.

And in this context, the BofA strategist warns that it will take just over a year before the global liquidity tide not only reaches zero, but turns negative… some time in early 2019. Chart 1 shows year-over-year changes in global asset purchases by central banks (we also include China FX reserves here). Given this year’s slowdown in ECB and BoJ QE (the latter, in particular, is striking in USD terms), we are well past the peak in global asset buying by central banks. But with the Fed now embarking on balance sheet shrinkage, the start of 2019 should mark the point where year-over-year asset purchases finally turn negative – a trend change that will come after four straight years of expansion.

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Government and banks want one thing: keep housing prices high.

All Hail British Banks: Self-absorbed, Short-termist And Spivvy (G.)

It’s not only the government that is obsessed with lending to prop up property owners and developers – the banking sector is keen, too. The report sets out the way UK banks mostly lend abroad, with loans to UK businesses accounting for just 5% of total UK bank assets, compared with 11% in France, 12% in Germany and 14% on average across the rest of the eurozone. Property loans to businesses and individuals in the UK account for more than 78% of all loans to individuals and non-financial businesses – which means those outside the Square Mile. After stripping out real estate, loans to UK businesses account for just 3% of all banking assets. As a transmission mechanism for diverting the nation’s savings into worthwhile, productive businesses, the banks fail miserably. And the rest of the financial sector is just as bad.

The IPPR report accused hedge funds, proprietary traders (which use investment bank cash) and high-frequency traders – a group that collectively makes up 72% of trades in on the London market – of paying themselves depending on performance against rivals and over short timescales, “not long-term value creation”. This spivvy trading arena has the knock-on effect of making short-term demands on the boards of listed companies. Such is the pressure to avoid being caught in traders’ headlights that in a survey of more than 400 executives, some 75% said they “would sacrifice positive economic outcomes” if it helped smooth their profit figures from one quarter to the next. The report argues that this self-absorbed world of stock market trading needs to support longer-term investment in a way that also benefits savers and business owners.

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At least for now it’s peaceful. But Puidgemont seems to have weakened.

Sacked Catalonia Leader Calls For Opposition To Madrid’s Rule (R.)

Sacked Catalonian president Carles Puigdemont on Saturday called for peaceful “democratic opposition” to the central government’s takeover of the region following its unilateral declaration of independence from Spain. Puigdemont, whose regional government was dismissed by Spanish Prime Minister Mariano Rajoy on Friday, accused Madrid of “premeditated aggression” against the will of the Catalans. Rajoy removed Puigdemont, took over the administration of the autonomous region and called a new election after Catalonia’s parliament declared itself an independent nation on Friday. The bold if to all appearances futile action marked a potentially dangerous escalation of Spain’s worst political crisis in the four decades since its return to democracy.

“It’s very clear that the best form of defending the gains made up until now is democratic opposition to Article 155,” Puigdemont said in a brief statement he read out in the Catalan city of Girona, referring to the legal trigger for the takeover. But he was vague on precisely what steps the secessionists would take as the national authorities are already moving into Barcelona and other parts of Catalonia to enforce control. Spanish government spokesman Inigo Mendez de Vigo said it would welcome Puigdemont’s participation in the regional elections it has called for Dec. 21. “I‘m quite sure that if Puigdemont takes part in these elections, he can exercise this democratic opposition,” Mendez de Vigo told Reuters TV in an interview.

[..] Puigdemont signed the statement as President of Catalonia, demonstrating he did not accept his ousting. “We continue persevering in the only attitude that can make us winners. Without violence, without insults… and also respecting the protests of the Catalans who do not agree with what the parliamentary majority has decided,” he said.

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“All actors must respect international law instead of ignoring it and proclaiming themselves special states..”

Latin America and Caribbean No Longer US Backyard – Russia (TSur)

A Russian official said the region no longer can be treated inappropriately by the United States. The Russian Foreign Ministry has warned the United States that Latin American and the Caribbean are no longer its “backyard.” Foreign Affairs spokesperson Maria Zajarova said the region has tired of the United State’s attempt to control its people by political, social or military force. “The countries of Latin America and the Caribbean have long ceased to be the U.S. backyard,” Zajarova said. In addition, she said the region has had many opportunities to “put Washington in its place on the inappropriateness of its conduct regarding Latin America,” urging the United States to respect international law and the sovereignty of nations, in order to “avoid conflicts.”

“Each state has its objectives, but we should start from common game rules and, at the same time, respect national interests,” she said. “All actors must respect international law instead of ignoring it and proclaiming themselves special states, this is the only way of preserving our own interests, and interacting and avoiding conflicts,” Zajarova added. The Russian official said development in the region in economics, politics, and science has shown “such potential that they can’t be treated as if an older brother were addressing other members of the lesser developed family.” Russia recently said it hopes countries around the world “refrain from the policy of pressure and sanctions” against countries in the region such as is being done in Venezuela, calling the attempts “counterproductive.”

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No matter what they do, it must be massive.

HUD Explores Temporarily Housing Puerto Ricans on US Mainland (BBG)

The Trump administration is exploring ways to relocate tens of thousands of Puerto Ricans to the U.S. mainland for an extended period as parts of the territory remain devastated more than a month after Hurricane Maria. Officials at the U.S. Department of Housing and Urban Development late last week started to develop a plan to provide housing to some of Puerto Rico’s displaced population, according to people familiar with the matter. And given the shortage of available options on the island, the possibility of evacuating large numbers to the mainland has emerged as an option. Two of the people who spoke to HUD officials said using large commercial cruise liners had been suggested to move residents en masse.

The most recent push for a solution began after a meeting on Friday that included officials from HUD, the Federal Emergency Management Agency, the White House and others, according to the people. But it’s unclear if the White House or any agencies outside of HUD are coordinating with the housing agency, or if the ideas are only being developed within the department for now. Agency officials in the past two days have contacted executives in the housing industry, investment managers with ties to Puerto Rico, and others in an attempt to brainstorm potential solutions, said the people [..] Thousands of Puerto Rico residents have already fled to Florida and elsewhere since Maria struck as a Category Four storm on Sept. 20.

Much of the territory, including the outer islands of Vieques and Culebra, remains without electricity. Potable drinking water is scarce in some areas, and thousands of miles of roads are still closed. The evacuation idea is in the earliest stages, and given immense logistical challenges it may never come to pass. An orchestrated mass movement and temporary resettlement would require coordination between various parts of the government and a willingness by local communities to house any evacuees, at a substantial cost.

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Poorer nations offer help, the rich do not.

Barbuda PM Calls For Help From Britain To Rebuild Island (G.)

Independent islands in the Caribbean are fearful that their infrastructure will be left in ruins as countries such as the UK focus relief and aid efforts on their own overseas territories. Gaston Browne, prime minster of Antigua and Barbuda, said his country was being overlooked in relief efforts because it was an independent island and had a higher per capita income than some Caribbean countries. “Technically, the Queen is still our head of state, which means there should be some empathy,” he said. “But I think because we are independent, and they’re looking at some artificial per capita income criteria, we are being overlooked.” The island of Barbuda was devastated by Hurricane Irma in September, with 95% of all properties on the island destroyed. When it was feared Barbuda would be struck again by Hurricane Jose a few days later, all 2,000 residents were evacuated to the larger sister island of Antigua.

The evacuees are living with friends and family on Antigua, or in large shelters run by the government in technical colleges, churches and a cricket stadium. People have begun to return to the island for a few days at a time to start the clear-up, often sleeping in tents on their lawns. Barbuda still has no water or electricity. Browne praised developing countries that had offered help, naming Cuba, Venezuela and the Dominican Republic, as well as Qatar, China and India. Even the small Caribbean island of Dominica pledged $250,000 before Dominica itself was hit and devastated by Hurricane Maria, Browne said. “We reciprocated afterwards by pledging $300,000,” he added “Even among countries that were devastated, there is a form of human cooperation to help each other.”

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He’s actually written 95 theses.

We Need A 21st-Century Martin Luther To Challenge The Church Of Tech (G.)

A new power is loose in the world. It is nowhere and yet it’s everywhere. It knows everything about us – our movements, our thoughts, our desires, our fears, our secrets, who our friends are, our financial status, even how well we sleep at night. We tell it things that we would not whisper to another human being. It shapes our politics, stokes our appetites, loosens our tongues, heightens our moral panics, keeps us entertained (and therefore passive). We engage with it 150 times or more every day, and with every moment of contact we add to the unfathomable wealth of its priesthood. And we worship it because we are, somehow, mesmerised by it. In other words, we are all members of the Church of Technopoly, and what we worship is digital technology.

Most of us are so happy in our obeisance to this new power that we spend an average of 50 minutes on our daily devotion to Facebook alone without a flicker of concern. It makes us feel modern, connected, empowered, sophisticated and informed. Suppose, though, you were one of a minority who was becoming assailed by doubt – stumbling towards the conclusion that what you once thought of as liberating might actually be malign and dangerous. But yet everywhere you look you see only happy-clappy believers. How would you go about convincing the world that it was in the grip of a power that was deeply hypocritical and corrupt? Especially when that power apparently offers salvation and self-realisation for those who worship at its sites?

It would be a tough assignment. But take heart: there once was a man who had similar doubts about the dominant power of his time. His name was Martin Luther and 500 years ago on Tuesday he pinned a long screed on to the church door in Wittenberg, which was then a small and relatively obscure town in Saxony. The screed contained a list of 95 “theses” challenging the theology (and therefore the authority) of the then all-powerful Catholic church. This rebellious stunt by an obscure monk must have seemed at the time like a flea bite on an elephant. But it was the event that triggered a revolution in religious belief, undermined the authority of the Roman church, unleashed ferocious wars in Europe and shaped the world in which most of us (at least in the west) grew up. Some flea bite.

[..] Why not, I thought, compose 95 theses about what has happened to our world, and post them not on a church door but on a website? Its URL is 95theses.co.uk and it will go live on 31 October, the morning of the anniversary. The format is simple: each thesis is a proposition about the tech world and the ecosystem it has spawned, followed by a brief discussion and recommendations for further reading. The website will be followed in due course by an ebook and – who knows? – perhaps eventually by a printed book. But at its heart is Luther’s great idea – that a thesis is the beginning, not the end, of an argument.

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Oct 162017
 
 October 16, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , ,  


Marc Riboud Street seen from inside antique dealer’s shop, Beijing 1965

 

US Equities “At Most Offensive Level Of Overvaluation In History” (BI)
Yellen Doubles Down: “Valuations Are At High Levels Historically” (ZH)
Goldman Sachs: 88% Chance We’re Heading Into A Bear Market (BI)
The Mystery Of Weak Wage Growth (BI)
China Factory Prices Jump As Government Reduces Capacity (BBG)
China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)
Interest-only Loans Are A Huge Problem For The Australian Economy (Holden)
Revised Figures Reveal UK Is £490 Billion Poorer Than Previously Thought (FL)
How To Weather Brexit: Focus Less On Trade, More On Investment (Pettifor)
UK Financial Regulator Warns Of Growing Debt Among Young People (BBC)
How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders (Ellen Brown)
Catalan Leader Fails To Spell Out Independence Stance, Calls For Talks (R.)
Electricity Required For Single Bitcoin Trade Could Power Home For A Month (BI)
New Quantum Atomic Clock May Finally Reveal Nature of Dark Matter (USci)
Ai Weiwei On Art, Exile And Refugee Film ‘Human Flow’ (AFP)

 

 

John Hussman correcting Buffett.

US Equities “At Most Offensive Level Of Overvaluation In History” (BI)

Billionaire investor Warren Buffett made a lot of people feel better about historically stretched stock prices earlier this month. Speaking in an interview with CNBC on October 3, the chairman and CEO of Berkshire Hathaway said, “Valuations make sense with interest rates where they are.” The investment community breathed a sigh of relief. After all, Buffett is arguably the most successful stock investor in world history. An all-clear from him surely gives a green light for adding more equity exposure, right? Wrong, says John Hussman, the president of the Hussman Investment Trust and a former economics professor. In his mind, Buffett only gets half of the equation right. While Hussman acknowledges that low lending rates do, by nature, improve future cash flows, he argues that they must also be accompanied by strong growth — something that he notes the US is not currently enjoying.

To Hussman, the simple idea that “lower interest rates justify higher valuations” is one that gives people false confidence. “It’s an incomplete sentence ,” Hussman wrote in a recent blog post. “Unfortunately, the convenience of investing-by-slogan, rather than carefully thinking about finance and examining evidence, is currently leading investors into what is likely to be one of the worst disasters in the history of the U.S. stock market.” Hussman calculates that stock valuations are stretched 175% above their historic norms, and predicts the S&P 500 will see negative total returns over the next 10 to 12 years. Along the way, the benchmark index will experience an interim loss of more than 60%, he estimates. As touched on above, at the core of Hussman’s bearish argument is a lack of economic growth. He specifically points to slowing expansion in the US labor force, as shown by this chart:

“Put simply, if interest rates are low because growth rates are also low, no valuation premium is ‘justified,'” Hussman wrote. “The long-term rate of return on the security will be low anyway without any valuation premium at all. This observation has enormous implications for current U.S. stock market prospects.” So where does that leave the market at this very moment? In the very near term, Hussman’s neutral, citing the continued speculative impulses of investors. Still, he stresses that traders should be hedging and using other safety nets to protect against potential downside, which he says could materialize quickly. To say he’s less than warm and fuzzy about the stock market is an understatement. And when discussing price levels, he doesn’t exactly pull any punches, saying US equities are now “at the most offensive level of overvaluation in history” — even worse than in 1929 and 2000.

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People like Yellen focus on one activity: explain away the consequences of their blindly taken actions. They grope in the dark.

Yellen Doubles Down: “Valuations Are At High Levels Historically” (ZH)

On the heels of San Franciso Fed Governor John Williams’ warning that The Fed “doesn’t want there to be excesses in financial markets… ” Janet Yellen has reiterated her concerns that markets are a bit toppy… Market valuations “are at high level in historical terms” when assessed on metrics akin to price-earnings ratios, warned Fed Chair Janet Yellen in response to a question on an IMF panel in Washington, but was careful to add that “overall financial stability risks in the U.S. remain moderate.” “Prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment,” she said. “Broader financial stability risks depend on more than just asset prices and it may also be important just why asset valuations are high. So one factor that clearly comes into play is an environment of low interest rates and central bankers like many market participants have been adjusting our notions of what” interest rates are likely to be in the longer term.

So – to sum up – The Fed doesn’t want excesses… Yellen thinks stock valuations are stretched… but don’t worry coz rates are low (although we are dedicated to raising them) and financial stability (despite record high corporate leverage and record low spreads) is not a problem. Well… The market has almost never been this expensive… As Peter Boockvar warns: “Almost there. S&P 500 price to sales ratio is just 4% from March 2000 peak.”

Additionally, Draghi and Kuroda were also said they saw little evidence of frothiness in markets. Others in Washington were less sanguine… The market “feels as benign in 2017 as it felt in 2006,” said Jes Staley, the chief executive of Barclays Plc, referencing the eve of the crisis. Yellen also added in a subtle jab at Trump that while prospects for U.S. fiscal stimulus have buoyed sentiment but not yet had much impact on spending or investment… “It is a source of uncertainty,” Yellen says of fiscal policy changes, “we’ve taken,” as many households have, “a kind of wait-and-see attitude.” Of course, The Fed head being worried about stock valuations is a nothing-burger for the mainstream. Since Janet Yellen’s first warning in July 2014: “Equity market valuations appear stretched”

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So there.

Goldman Sachs: 88% Chance We’re Heading Into A Bear Market (BI)

Goldman Sachs has circulated a fascinating but scary research note to clients suggesting that the probability of stocks entering a bear market in the next 24 months currently stands at about 88%, based on the history of previous bear markets. The note is titled “Bear Necessities. Should we worry now?” It is an exhaustive, 87-page dive through macroeconomic data and stock market activity going all the way back to the early 20th Century. It was written in September by London-based Chief Global Equity Strategist Peter Oppenheimer, and European strategists Sharon Bell and Lilia Iehle Peytavin. Most of their data focus on the US S&P 500 index of stocks – the largest and most-followed of the share indices globally. The S&P is currently the second largest and longest bull run in history.

The index is also relatively expensive, the Goldman trio says. The aggregate valuation of the S&P 500 is now in its 88th percentile, as measured since 1976, according to Goldman’s calculations. The median stock is in the 99th percentile. The trio calculated a risk index based on the Shiller price-earnings ratio (the price of S&P 500 stocks divided by the average of 10 years of earnings, adjusted for inflation), the US ISM manufacturing index, unemployment (very low), the bond yield curve, and core inflation. The resultant “GS Bear Market Indicator” is currently flashing at 67%. The indicator typically hits highs right before a bear market in US stocks appears:

Historically, when the indicator is at 67%, there is an 88% chance of stocks falling into a bear market in two years’ time, the Goldman analysts say:

However, the chance of a bear growling into view in the near-term remains low — just 35%. Bear markets are triggered in three different ways, Oppenheimer et al argue: “Cyclical” bear markets are trigged by rising interest rates and recessions; “Event-driven” bears come from negative economic shocks like war or emerging market crises; “Structural” bears come from financial bubbles. Depending on your point of view, all three of those triggers are hovering on the horizon: The Fed and the Bank of England are both signalling interest rates will rise; US President Trump is threatening military action in North Korea; and plenty of people think the low-interest rate environment of the last 10 years has inflated asset bubbles in stocks, real estate and property in Europe, and private equity tech startup valuations.

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Those for whom this is a mystery are not fit for their jobs. If you export millions of jobs to Asia, take workers’ negotiating powers away and push them into crappy jobs with no benefits, only one outcome is possible.

The Mystery Of Weak Wage Growth (BI)

Many economists say they can’t figure out why US wage growth remains so meager nine years into the economic expansion, especially given a decline in the unemployment rate to a historically low 4.4%. A new study from the IMF might help them out. It finds that shifts in the labor market toward less stable, temporary or contract jobs, including odd hours and often no health insurance, likely play a substantial role in preventing wages from rising. That’s because job uncertainty makes it harder for workers to bargain for higher wages, giving employers a strong upper hand in any salary negotiation. The trend is happening not just in the United States but also in other rich economies, the Fund says. “Labor market developments in advanced economies point to a possible disconnect between unemployment and wages,” IMF staffers write in their latest World Economic Outlook report.

“Subdued nominal wage growth has occurred in a context of a higher rate of involuntary part-time employment, an increased share of temporary employment contracts, and a reduction in hours per worker,” the report adds. That’s not the only factor. The Great Recession of 2007 to 2009, which was a global phenomenon, set labor markets back years, and suppressed wages sharply as unemployment surged, peaking at 10% in the United States. The IMF suggests the policy reaction to that global downturn was underwhelming, particularly when it came to fiscal policies, which were restrictive both in the United States and Europe.

“Whereas in many economies headline unemployment is approaching ratios seen before the Great Recession, or has even dipped below those levels, nominal wage growth rates continue to grow at a distinctly slower pace,” the Fund said. “For some economies, this may reflect policy measures to slow wage growth and improve competitiveness in the aftermath of the global financial crisis and euro area sovereign debt crisis.” [..] “To the extent that declining unemployment rates partly reflect workers forced into part-time jobs, increases in such types of employment may overstate the tightening of the labor market,” the IMF said.

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It’s all for the Party Congress: close industries so air is cleaner, and let scarcity push producer prices higher. But wait till consumers feel those higher prices. It’s just, that is AFTER the Congress.

China Factory Prices Jump As Government Reduces Capacity (BBG)

China’s factory prices jumped more than estimated, as domestic demand remained resilient and the government continued to reduce excess industrial capacity. Consumer price gains matched projections. • The producer price index rose 6.9% in September from a year earlier. • The manufacturing PPI sub-index climbed 7.3%, the most in nine years • The consumer price index climbed 1.6%, versus a prior reading of 1.8%, the statistics bureau said Monday. Aggressive cuts to capacity in industries like steel and cement, coupled with resilient demand, have contributed to factory inflation that’s lasted longer than economists expected. The drive to cut pollution and boost firms’ efficiency will probably continue as the Communist Party begins its 19th Congress this week.

“The economy has pretty strong momentum now, monetary policy remained loose ahead of the 19th Party Congress, and the environmental cleanup has cut the supply of commodities,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong and the lone forecaster in Bloomberg’s survey to correctly predict the PPI reading. “But this is not sustainable. Deleveraging will be moving up on the agenda after the congress.” “Strong PPI shows that economic momentum is pretty robust in the second half,” said Liu Xuezhi, an analyst at Bank of Communications in Shanghai. “It was widely expected that factory-gate inflation could slow in the second half, but apparently it’s still quite resilient, which may lead to a more positive outlook.”

“China’s manufacturing industry, upstream in particular, continues to see decent demand,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking in Hong Kong. “This PPI figure foretells a decent growth number to be out later this week. We see GDP of 6.8% at the moment but should be prepared for an upside risk.”

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I don’t normally post 3-week-old articles, but this one (h/t Tyler) is just too good. The Chinese never borrowed much, but now they borrow more than anyone. Scary: “..a person without a flat has no future in Shenzhen.” It’ll keep the economy going until it doesn’t.

China’s Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis (SCMP)

Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy boomtown flats even though they cannot afford the repayments. Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s. Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years. City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop.

At the same time, property inflation has seen the real purchasing power of their money rapidly diminish. “Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said. “Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.” The rush of millions young middle-class Chinese like Mai into the property market has created a hysteria that eerily resembles the housing crisis that struck the United States a decade ago. Thanks to the easy credit that has spurred the housing boom, many young Chinese have abandoned the frugal traditions of earlier generations and now lead a lifestyle beyond their financial means.

The build-up of household and other debt in China has also sparked widespread concern about the health of the world’s second largest economy. The Chinese leadership headed by President Xi Jinping has taken a note of the problem and launched an unprecedented campaign in the second half of last year to curb home price rises in major cities by raising down payment requirements, disqualifying some buyers and squeezing the bank credit available for home buyers. The campaign is still deepening, with five more cities introducing rules last weekend that will freeze some property deals.

[..] Government policies are also protecting the interests of homeowners. City governments have squeezed land supply to keep land prices high and made secondary market trading less attractive, with new home buyers left to compete for a few new developments. Meanwhile, there is no property tax, which encourages homeowners to hold on to appreciating property assets. The result has been skyrocketing housing prices in Shenzhen, Beijing and Shanghai, where property prices can match those in Hong Kong or London. The lesson was that “if you don’t buy a flat today, you will never be able to afford it”, Wang, 29, said. [..] “The debts are huge to me,” Wang said. “But a person without a flat has no future in Shenzhen.”

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Half of one banker’s loan books are interest-only. Most are 40%. That is an insane amount of principal that is not being paid off.

Interest-only Loans Are A Huge Problem For The Australian Economy (Holden)

I’m not normally a fan of parliament hauling private sector executives before them and asking thorny questions. But when the Australian House of Representatives did so this week with the big banks it was both useful and instructive. And, to be perfectly frank, terrifying. Let’s start with Westpac CEO Brian Hartzer. First, he confirmed the little-known but startling fact that half of his A$400 billion home loan book consists of interest-only mortgages. Yep, half. Of A$400 billion. At one bank. Oh, and ANZ, CBA and NAB are all nearly at 40% interest-only. Hartzer went on to make the banal statement: “we don’t lend to people who can’t pay it back. It doesn’t make sense for us to do so.” So did it make sense for all those American mortgage lenders to lend to people on adjustable rates, teaser rates, low-doc loans, no-doc loans etc. before the global financial crisis?

Of course not. The point is that banks are not some benevolent, unitary actor taking care of their own money. There are top managers like Harzter acting on behalf of shareholders. Those top managers delegate authority to lower-level managers, who are given incentives to write lots of mortgages. And, as we know, the incentives of those who make the loans are not necessarily aligned with those of the shareholders. Those folks may well want to make loans to people who can’t pay them back as long as they get a big payday in the short term. ANZ CEO Shayne Elliot repeated Hartzer’s mantra, saying: “It’s not in our interest to lend money to people who can’t afford to repay.” Recall, this is the man who on ABC’s Four Corners said that home loans weren’t risky because they were all uncorrelated risks (the chances that one loan defaults does not affect the chances of others defaulting).

That is a comment that is either staggeringly stupid or completely disingenuous. Messers Harzter and Elliot must take us all for suckers. They have made a huge amount of interest-only loans, at historically low interest rates, to buyers in a frothy housing market, who spend a large chunk of their income on interest payments. This certainly looks troubling. It may not be US sub-prime, but it could be ugly. Very ugly. To put it in context, there appears to be in the neighbourhood of A$1 trillion of interest-only loans on the books of Australian banks. I say “appears to be” because reporting requirements are so lax it’s hard to know for sure, except when CEOs cough up the ball, like this week. The big lesson of the US mortgage meltdown is that the risks on these mortgages are all correlated. If a few people aren’t paying back an interest-only loan, that is a fair predictor that others won’t pay back their loans either.

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From a “gated” Ambrose Evans-Pritchard article. Troubles grow fast.

Revised Figures Reveal UK Is £490 Billion Poorer Than Previously Thought (FL)

“Global banks and international bond strategists have been left stunned by revised ONS figures showing that Britain is £490bn poorer than had been assumed and no longer has any reserve of net foreign assets, depriving the country of its safety margin as Brexit talks reach a crucial juncture. A massive write-down in the UK balance of payments data shows that Britain’s stock of wealth – the net international investment position – has collapsed from a surplus of £469bn to a net deficit of £22bn. This transforms the outlook for sterling and the gilts markets. “Half a trillion pounds has gone missing. This is equivalent to 25pc of GDP,” said Mark Capleton, UK rates strategist at Bank of America. Making matters worse, foreign direct investment (FDI) by companies is plummeting. It fell from a £120bn surplus in the first half 2016 to a £25bn deficit over the same period of this year.”

The news comes on top of the OBR confessing to a miscalculation of their own last week in UK productivity potential. Not good news for the UK or pound so let’s see if it plays out as the session progresses.

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Too late? Won’t happen under Tories.

How To Weather Brexit: Focus Less On Trade, More On Investment (Pettifor)

“Strong and stable” seems of a world so far, far away. Yesterday’s Daily Mail headline “PM slaps treacherous Chancellor down” portrays a government in political chaos. Thanks to open, unresolved intra-Brexiteer warfare, ministers are unable to agree the basics of how to exit the European Union. This state of uncertainty intensifies just as the risks to British jobs and living standards are becoming starker and more potent. Ironically, just as we teeter towards the cliff, ONS data reveals that exports of goods to the EU grew over the last three months, while those to the rest of world fell back, a fact not devoid of dark humour. Yet while ministers appear obsessed by trade, net trade comprises only a small part of UK GDP. Surely, through the coming period of Brexit chaos, government priority must be to “take back control” and maintain and support the domestic economy.

This means a commitment to support not only investment technically defined as “capital” but also public investment in the health, education, and training of the British people. In that way, Britain will have some chance of weathering the storm. George Magnus highlighted the OBR’s acceptance that UK productivity growth is likely to stay much lower than previously assumed. This leads to the inevitable conclusion that—on present course—the ever-weaker economy will lead this government to continue to slash public revenues. Yet even this gloomy OBR data underestimates the dangers. For the OBR has not yet factored in the far greater damage that will flow from a chaotic, unplanned Brexit in less than 18 months.

[..] Investment in the UK has since 2007 been in the 14 – 18% range as a share of GDP. In 2016, the figure was 17%. France, by contrast, has annual investment of between 22 – 24% of GDP, and Germany around 19 – 21%. The UK in 2016 slumped to 116th place out of 141 countries in terms of capital investment as a percentage of GDP. In the EU, only Greece, Portugal, Lithuania and Cyprus were below us. Low levels of investment by the “timid mouse” that is the private sector is directly a function of low levels of aggregate demand. Firms can’t see future customers coming through the door, and are made timid by volatile financial conditions and political uncertainty. Weak demand and financial instability are exacerbated by low levels of public investment.

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More UK misery: “We should not think this is reckless borrowing, this is directed at essential living costs.”

UK Financial Regulator Warns Of Growing Debt Among Young People (BBC)

The chief executive of the Financial Conduct Authority has warned of a “pronounced” build up of debt among young people. In an interview with the BBC, Andrew Bailey said the young were having to borrow for basic living costs. The regulator also said he “did not like” some high cost lending schemes. He said consumers, and institutions that lend to them, should be aware that interest rates may rise in the future and that credit should be “affordable”. Action was being taken to curb long term credit card debt and high cost pay-day loans, Mr Bailey said. The regulator is also looking and charges in the rent-to-own sector which can leave people paying high levels of interest for buying white goods such as washing machines, he added.

“There is a pronounced build up of indebtedness amongst the younger age group,” Mr Bailey said. “We should not think this is reckless borrowing, this is directed at essential living costs. It is not credit in the classic sense, it is [about] the affordability of basic living in many cases.” [..] “There are particular concentrations [of debt] in society, and those concentrations are particularly exposed to some of the forms and practices of high cost debt which we are currently looking at very closely because there are things in there that we don’t like,” Mr Bailey said. “There has been a clear shift in the generational pattern of wealth and income, and that translates into a greater indebtedness at a younger age. “That reflects lower levels of real income, lower levels of asset ownership. There are quite different generational experiences,” he said.

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Haven’t seen anything from Ellen in a while. This makes a ton of sense. But Puerto Rico’s not the only place that needs it.

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders (Ellen Brown)

DWiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country. True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact it is currently in bankruptcy proceedings with its creditors. Which suggests its time for some more out-of-the-box thinking . . . . In July 2016, a solution to this conundrum was suggested by the notorious Goldman Sachs itself, when mom and pop investors holding the bonds of bankrupt Italian banks were in jeopardy. Imposing losses on retail bondholders had proven to be politically toxic, after one man committed suicide.

Some other solution had to be found. Italy’s non-performing loans (NPLs) then stood at 210bn, at a time when the ECB was buying 120bn per year of outstanding Italian government bonds as part of its QE program. The July 2016 Financial Times quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.” His solution: rather than buying Italian government bonds in its quantitative easing program, the ECB could simply buy the insolvent banks’ NPLs. Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.

Puerto Rico’s debt is only $73 billion, one third the Italian debt. The Fed has stopped its quantitative easing program, but in its last round (called “QE3”), it was buying $85 billion per month in securities. At that rate, it would have to fire up the digital printing presses for only one additional month to rescue the suffering Puerto Ricans without hurting bondholders at all. It could then just leave the bonds on its books, declaring a moratorium at least until Puerto Rico got back on its feet, and better yet, indefinitely. Shifting the debt burden of bankrupt institutions onto the books of the central bank is not a new or radical idea. UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says there is ample precedent for it. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical examples.

One was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.” For a second example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100% of their assets: But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.

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Set for confrontation. Combine with Brexit and Austria’s push to the right, and you get an EU with crumbling foundations.

Catalan Leader Fails To Spell Out Independence Stance, Calls For Talks (R.)

Catalan leader Carles Puigdemont failed to clarify on Monday whether he had declared Catalonia’s independence from Spain last week, paving the way for the central government to take control of the region and rule it directly. The wealthy region’s threatened to break away following a referendum in Oct. 1 that Spain’s Constitutional Court said was illegal. That plunged the country into its worst political crisis since an attempted military coup in 1981. Puigdemont made a symbolic declaration of independence on Tuesday, but suspended it seconds later and called for negotiations with Madrid on the region’s future. Spain’s Prime Minister Mariano Rajoy gave him until Monday 10:00 a.m. (0800 GMT) to clarify his position, and until Thursday to change his mind if he insisted on a split – and said Madrid would suspend Catalonia’s autonomy if he chose independence.

Rajoy had said Puigdemont should answer the formal requirement with a simple “Yes” or “No” and that any ambiguous response would be considered a confirmation that a declaration of independence had been made. Puigdemont did not directly answer the question in his letter to Rajoy, made public by local Catalan media. The Catalan leader said instead that the two should meet as soon as possible to open a dialogue over the next two months. “Our offer for dialogue is sincere and honest. During the next two months, our main objective is to have this dialogue and that all international, Spanish and Catalan institutions and personalities that have expressed the willingness to open a way for dialogue can explore it,” Puigdemont said in the letter.

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And this will go up as the blockchain grows.

Electricity Required For Single Bitcoin Trade Could Power Home For A Month (BI)

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING. Bitcoin trades use a lot of electricity as a means to make verifying trades expensive, therefore making fraudulent transactions costly and deterring those who would seek to misuse the currency. “By making sure that verifying transactions is a costly business, the integrity of the network can be preserved as long as benevolent nodes control a majority of computing power,” wrote ING senior economist Teunis Brosens. “Together, they will dominate the verification (mining) process. To make the verification (mining) costly, the verification algorithm requires a lot of processing power and thus electricity.”

Comparing the amount of energy used for a bitcoin transaction to running his home in the Netherlands, Brosens says: “This number needs some context. 200kWh is enough to run over 200 washing cycles. In fact, it’s enough to run my entire home over four weeks, which consumes about 45 kWh per week costing €39 of electricity (at current Dutch consumer prices).” Not only does Bitcoin use a vast amount of electricity to complete transactions, it uses an almost exponentially larger amount than more traditional forms of electronic payment. “Bitcoin’s energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy,” Brosens notes, pointing to the chart below:

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3-dimensional quantum clocks. Much of our electronic infrastructure already relies on atomic clocks.

New Quantum Atomic Clock May Finally Reveal Nature of Dark Matter (USci)

Physicists have created a quantum atomic clock that uses a new design to achieve unprecedented levels of accuracy and stability. Its broad range of potential applications could even stretch to research into dark matter. Scientists at the University of Colorado Boulder’s JILA (formerly the Joint Institute for Laboratory Astrophysics) have developed an incredibly precise quantum atomic clock based on a new three-dimensional design. The project has set a new record for quality factor, a metric used to gauge the precision of measurements. The clock packs atoms of strontium into a cube, achieving 1,000 times the density of prior one-dimensional clocks. The design marks the first time that scientists have been able to successfully utilize a so-called “quantum gas” for this purpose.

Previously, each atom in an atomic clock was treated as a separate particle, and so interactions between atoms could cause inaccuracies in the measurements taken. The “quantum many-body system” used in this project instead organizes atoms in a pattern, which forces them to avoid one another, no matter how many are introduced to the apparatus. A state of matter known as a degenerate Fermi gas — which refers to a gas comprised of Fermi particles — allows for all of the atoms to be quantized. [..] It’s been suggested that monitoring minor inconsistencies in the ticking of an atomic clock might offer insight into the presence of pockets of dark matter. Previous research has shown that a network of atomic clocks, or even a single highly-sensitive system, might register a change in the frequency of vibrating atoms or laser light in the clock if it passed through a dark matter field.

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Ai himself grew up in miserable conditions due to Mao.

Ai Weiwei On Art, Exile And Refugee Film ‘Human Flow’ (AFP)

In the most tender moments of “Human Flow,” Ai Weiwei’s epic documentary on the worldwide migrant crisis, he is seen hugging, cooking with and cutting the hair of refugees. An ordinary filmmaker might be accused of getting too close to his subject but, as far as the Chinese dissident and internationally renowned artist is concerned, he is the subject. “When I look at people being pushed away from their home because of war, because of all kinds of problems, because of environmental problems, famine, I don’t just have sympathy for them,” he tells AFP. “I do feel that they are part of me and I am part of them, even with very different social status.”

[..] “Human Flow,” his powerful expression of solidarity with refugees around the world, demonstrates the staggering scale of the refugee crisis and its profoundly personal human impact. Captured over a year in 23 countries, it follows a chain of human stories that stretches from Bangladesh and Afghanistan to Europe, Kenya and the US-Mexico border. Ai travels from teeming refugee camps to barbed-wire borders, witnessing refugees’ desperation and disillusionment as well as hope and courage. “I’m so far away from their culture, their religion or whatever the background. But with a human being, you look at him, you know what kind of person he is,” says Ai.

“I have this natural understanding about human beings. So I try to grab them with this kind of approach, a very intimate approach. They can touch me, cut my hair. I can cut their hair. I can cook in their camp.” “Human Flow” is far from Ai’s first work on the refugee crisis. Just last week he scattered over 300 outdoor works across New York as part of a new illustration of his empathy for refugees worldwide. Ai dismisses a common criticism that his work has little artistic merit and that he is more of a campaigner, telling AFP “a good artist should be an activist and a good activist should have the quality of an artist.”

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Oct 052017
 
 October 5, 2017  Posted by at 8:41 am Finance Tagged with: , , , , , , , , ,  


Juan Gris Guitar on a chair 1913

 

S&P 500 Poised To Lose $10 Trillion In Value (Pal.)
The Sum of All Fears: China Shadow Banking Hits $40 Trillion (DT)
EU Parliament Defends ‘Proportionate Force’ in Catalonia (RT)
Catalonia Chaos Begins to Squeeze Spain’s Financial Markets (DQ)
ECB To Banks: Set Aside More Cash For Bad Debt Amid €1 Trillion Problem (G.)
Investors Are Too Inured to Markets’ Repeated Records (DDMB)
Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds (Martens)
The Cost Of Not Understanding Sovereign Currencies (Bill Black)
Whose Bright Idea Was RussiaGate? (PCR)
Who Really Holds Power at the Fed (BBG)
Court Orders Trump Administration Reinstate Obama Emissions Rule (AP)
US Honeybee Queen Life Expectancy Halves In 10 Years (NatGeo)
Ancient Bristlecone Pine Forests Overwhelmed By Climate Change (LAT)
60% Of Global Biodiversity Loss Is Down To Meat-Based Diets (G.)
Are Space, Time, And Gravity All Just Illusions? (F.)

 

 

Just so you know.

S&P 500 Poised To Lose $10 Trillion In Value (Pal.)

The last two recessions were devastating for the S&P 500. The dot-com bubble during March 2000 to October 2002 saw the Index drop -49%, while the Global Credit Crisis from October 2007 to March 2009 saw an even greater drop of -57%. Since then, the S&P 500 has been on fire, gaining 250% and breaking record highs almost daily. As the old adage goes, “the bigger they are, the harder they fall”. If the S&P loses 57% in the next market crash, that would represent $10 trillion in value lost, and would take the Index down to 1,077. As the more cyclical sectors begin to decline, portfolio managers will begin to reallocate capital to more attractive sectors. As we noted in our previous write-up, Gold Stocks To Explode When The S&P Implodes, in the current bull market, the S&P is up 247%, while gold stocks are down -30%.

If the pattern holds, the succeeding bear market in the S&P will trigger a major gold rally, which we predict will continue into the next S&P bull. Portfolio managers will look for undervalued stocks in sectors considered safe havens. Gold stocks check all the boxes and a surge of capital will soon find its way into them. Using the materials sector as proxy to gold stocks, we saw in each of the last two bears the weighting of the sector increase. The total value drop was also less in terms of percentage compared to the overall market. We calculate inflows of $206 billion in 2000-2002, and $270 billion in 2007-2009. If the coming drop follows that of the recent recession, we can expect an inflow of at least $440 billion into gold stocks. That is a lot of money on the sidelines. And when it begins to pour in, gold stocks will explode.

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I’ve warned a thousand times on China’s shadow system. This is excellent from ‘Deep Throat’. As I’ve suggested, the shadow system is now bigger than the official one.

The Sum of All Fears: China Shadow Banking Hits $40 Trillion (DT)

Unfortunately, per the People’s Bank of China (PBOC), Shadow Bank lending has reversed course abruptly and skyrocketed since the 2015 McKinsey report. Nobody really knows how big China’s Shadow Bank ecosystem is, but the PBOC recently offered a rather shocking guess in their 2017 Financial Stability Report (pg.48). China’s Off-Balance-Sheet, un-regulated, “Shadow” loans have grown to nearly US $37 Trillion (RMB 252.3 Trillion) and have surpassed China’s US$34 Trillion, “On-Balance Sheet” bank assets as of the close of 2016. They also restated the 2015 numbers, increasing the 2015 figures to US$ 28 Trillion (RMB 189 Trillion), roughly doubling the 2015 figure.

Keep in mind, the PBOC estimating Non-Bank Shadow loans is a bit like the local Sheriff estimating “unreported financial crime”. He doesn’t have authority over the mechanics of the activity, lacks enforcement resources and therefore can’t do much about preventing the crime(s). Even if he had authority and resource, he’d have a hard time zeroing in on the metric….criminals generally don’t respond to surveys or self-report their schemes. Moreover, the Sheriff would have an incentive to under-estimate the problem and hope everything works out, since, at some point, someone is going to be held accountable. As history shows, and Chinese Bankers are well aware of this, financial scoundrels are normally exiled to horrific disgrace on a private tropical island with access to boatloads of Cayman Islands money…..so it goes.

Again, based solely on the usual, limited transparency inherent in PBOC reporting (good things are trumpeted and bad things are swept under the rug), a disclosure like this would indicate that the problem is potentially much larger than they are letting on. In the 2017 Financial Stability Report (an oxymoron if I’ve ever heard one) the PBOC restates the Shadow Bank Assets for 2014 and 2015 (as shown by the dotted line in the chart below). To my knowledge, no other major economy has ever experienced an acceleration anywhere near these levels of Non-Bank, Shadow debt relative to GDP, much less restated it in a gigantic “ooppps….our bad” buried in a couple of paragraphs in the bowels of a report. In China….they do things big. The bigger the better. The two Charts below, prepared by Capital Economics illustrate that we’ve apparently entered uncharted waters.

Although the fiercely independent citizens, politicians and bankers of Hong Kong and Singapore might disagree, we can generalize that the leverage in those economies (tall bars on the left of the chart) is inextricably linked to the Chinese financial system. If there were ever a potential “ground-zero” for a default-induced financial contagion Shang-Hong-apore would be it. Moreover, when we examine the PBOC/CE Charts above, it wouldn’t be much of a reach to conclude that Shadow/Non-Bank Credit has become an absolutely essential tool for keeping all of the financial balls in the air. [..] Jahangir Aziz and Haibin Zhu from JP Morgan said the debts of the state-owned entities (SOEs) have alone reached 90pc of GDP or $13.3 trillion. Nearly 60pc of new credit this year is being used to repay old loans. It takes four times as much new credit to generate a given amount of extra of GDP as it did a decade ago.

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The EU leadership doesn’t give a shit what Europeans think of them (they’re not elected). Wave bye bye.

EU Parliament Defends ‘Proportionate Force’ in Catalonia (RT)

EU member states have the right to use “proportionate” force to defend the rule of law, Frans Timmermans, European Commission First Vice President, said three days after hundreds were injured by Spanish police trying to stop an independence vote in Catalonia. “It is a duty for any government to uphold the rule of law, and this sometimes requires the proportionate use of force,” Timmermans told the European Parliament in Strasbourg during a debate on Catalonia. “Respect for the rule of law is not optional – it’s fundamental,” he said. An independence referendum was held in the relatively prosperous Spanish region of Catalonia on Sunday, despite Madrid labeling it “unconstitutional.” A brutal mass police crackdown during the vote saw over 800 people, including women and the elderly, injured in Barcelona and elsewhere across the region.

“If the law does not give you what you want, you can oppose the law, you can work to change the law, but you cannot ignore the law,” Timmermans said. For the EU, “it is fundamental that the constitutions of every one of our member states are upheld and respected,” he added. According to Timmermans, the Catalan regional government “has chosen to ignore the law in organizing the referendum of last Sunday.” The leader of the largest European Parliament group, the European People’s Party, Manfred Weber, has also decried the Catalan referendum as invalid during the debate. “Who leaves Spain, leaves the European Union,” including the eurozone and the single market, Webber warned the Catalan authorities.

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“..the Rajoy administration dispatched two military convoys to Barcelona today to beef up its coercive capabilities in the city..”

Catalonia Chaos Begins to Squeeze Spain’s Financial Markets (DQ)

Spain’s biggest political crisis of a generation, which has led to the complete breakdown of communication and understanding between its government in Madrid and the separatist region of Catalonia, is finally beginning to take its toll on the country’s financial markets. Spain’s benchmark index, the Ibex 35, slumped nearly 3% following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist. But it is the banks that have borne the brunt of the pain this week. On Monday, the first trading day after the independence referendum, they lost €4.84 billion in market value.

Over the past five trading days, shares of the two biggest Catalan-based banks, Caixabank and Banco de Sabadell, have plunged respectively, 9% and 13%. So tense is the situation that the CEOs of each bank felt compelled to release a statement today reassuring customers that they have all the means and tools necessary to protect their interests. Their contingency plans include the option of abandoning their base of operations in Catalonia and moving elsewhere — to Madrid in the case of Sabadell and Mallorca in the case of Caixabank. But it wasn’t just Catalan banks that were caught up in today’s rout. Important Spanish banks with somewhat less exposure to Catalonia also saw their shares plunge.

Santander, Spain’s only global systemically important bank, was down 3.8% on the day’s trading; BBVA, Spain’s second bank which has important operations in Catalonia after acquiring the failed saving bank Catalunya Caixa in 2015, fell 3.6%; and Bankia was also down 3.6%. Standard & Poor’s today put Catalonia’s credit rating — at B+/B, it’s already deep into junk — on review for a downgrade of one notch or more, “if we believed that escalating political tensions between Catalonia’s government and Spain’s central government could put in question the full and timely refinancing of Catalonia’s short-term debt instruments or undermine the effectiveness of the central government’s financial support to Catalonia.” The threat of default moves a step closer.

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$1 trillion and now they start counting?!

ECB To Banks: Set Aside More Cash For Bad Debt Amid €1 Trillion Problem (G.)

The ECB is attempting to put a lid on the near €1tn of bad debts stored in eurozone banks by asking lenders to be more prudent about the way they handle new customers falling behind on repayments. The Frankfurt-based institution issued guidance on Wednesday intended to stop a new pile of problem debts being built up inside eurozone banks by setting out how much cash it wanted lenders to set aside for bad debts incurred from January 2018. The measures are not applicable to the existing €1tn of bad debts, which are largely a legacy of Europe’s financial problems in the aftermath of the 2008 crash and languishing on the balance sheets of banks in countries such as Greece, Cyprus and Italy. The ECB wants lenders to set aside 100% of the value of an unsecured loan within two years and gives lenders seven years to put aside the full amount of a secured loan, such as a mortgage.

The aim is to set a formal guideline for how to tackle problem loans – known as non-performing loans (NPLs) – in contrast to the current situation where there are a variety of approaches across eurozone countries. Policymakers are concerned that bad debts inside banks not only weaken lenders but also make it difficult for them to grant more loans, which in turn can impede economic growth. But they are sensitive to announcing new measures that would make banks more cautious about issuing new loans or push up the cost of borrowing. Sharon Donnery, deputy governor of the Central Bank of Ireland, who presented the latest plan by the ECB to tackle bad debts, said: “We want to prevent a build-up of insufficiently covered NPLs in the future.” The new measures are not applicable to the existing stock of bad debts for which lenders have set aside 45% of the value of their problem loans, so if the new rules had been applied it could have led to multibillion-euro provisions for lenders.

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Who did that headline?

Investors Are Too Inured to Markets’ Repeated Records (DDMB)

After several boom-and-bust cycles it’s clear many investors have exhausted the term “bubble.” Instead, they will recall this cycle with another word: “record.” The question is: Will the memories be tinged with regret? The answer is an unequivocal “yes.” The stock market closes at a fresh high with such frequency it no longer triggers news flashes. The mirror image of these daily records is found in volatility, which has cascaded to record lows. The bond market, though, is where the real action has been since 2011. If the current pace of sales persists through the final quarter of this year, 2017 will mark the seventh consecutive year of record U.S. corporate bond issuance. In exchange, investors are extending issuers record lax lending terms and receiving near-record low returns. It is no longer uncommon for bonds to price at yields that are beneath an issuer’s leverage as gauged by debt as a multiple of earnings.

Moreover, three-quarters of loans sold into the $1 trillion leveraged loan market are of the “covenant-lite” variety, meaning they do not give investors protection against issuers loading themselves up with debt. Buyers have responded by pushing leveraged loan volumes up by more than half this year compared with 2016; issuance is on pace to surpass 2007’s record $534 billion. And while it isn’t at record lows, the yield spread over comparable Treasury bonds that investors receive for investment grade-rated credits has only been lower 20% of the time since 2000. In the case of high-yield credit, the spread has only been lower 14% of the time in the past 17 years.

The differentiating factor in the years 2004 through 2007, when spreads were at their tightest on record, is the relative dearth of securitization, a process by which pools of loans were divvied up into tranches engineered to disperse risk. Investors learned the hard way as the credit crisis unfolded that these “collateralized” vehicles did not perform as well as the underwriters advertised. And yet, while there’s no question the collateralized mortgage obligation, or CMO, hasn’t even flirted with a comeback, the same cannot be said of its cousin, the collateralized loan obligation. In September, CLO issuance volumes surpassed $82 billion, well past the $75 billion high end of what analysts had been forecasting for the full year. Volumes are running at twice last year’s pace and could easily surpass 2007’s record $89 billion level.

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Tax-free is not risk-free.

Puerto Rico’s Debt Is Quietly Sitting in Mom and Pop Mutual Funds (Martens)

There was likely a collective gasp at OppenheimerFunds Inc. yesterday when President Donald Trump made another of those market-moving pronouncements, telling Fox News that Puerto Rico’s debt would have to be wiped out. The President’s remarks suggested he thought the losers would be Wall Street banks. The President stated: “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” The reality is that a large percentage of Puerto Rico’s debt is held in tax-free municipal bonds and municipal bond mutual funds, owned not by Wall Street banks or tycoons, but by mom and pop investors seeking tax-free income.

(As a result of Congressional legislation, the interest on municipal bonds issued by the Commonwealth of Puerto Rico, its political subdivisions and public corporations, is not subject to Federal, state or local taxes. This has made the individual bonds and mutual funds particularly attractive in places like New York City and to residents of New York counties with high local taxes.) According to a semi-annual report made last month at the Securities and Exchange Commission, Oppenheimer Rochester Fund Municipals, a popular tax-free fund held by many New York investors, was sitting on a boatload of Puerto Rico municipal bonds as of June 30, 2017. The SEC filing shows over 100 different Puerto Rico bonds, issued by the Commonwealth and numerous other Puerto Rico issuers like the Puerto Rico Electric Power Authority and the Puerto Rico Sales Tax Financing Corp. (The fund, of course, holds a widely diversified portfolio of other bonds as well.)

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MMT.

The Cost Of Not Understanding Sovereign Currencies (Bill Black)

Jared Bernstein, Senior Fellow at the Centre on Budget and Policy Priorities and former chief economist to former Vice President Joe Biden, recently published an op ed in the New York Times entitled ‘Do Republicans Really Care About the Deficit?’. Republican elites, of course, have not really cared about federal budget deficits for decades. That is a good thing that Democrats should embrace in a bipartisan spirit. Bernstein, of course, is correct that the Republicans are hypocrites about federal budget deficits, pretending to care about them when the Democrats hold power and displaying their lack of any real care when Republicans hold power and the context is tax cuts for the wealthy.

Democrats display a similar hypocrisy. Even Democrats like Bernstein who know that the Republicans proposed expansion of the federal budget deficit through tax cuts is not a real economic problem are primed to attack Republican hypocrisy by falsely asserting that the Republican deficits would harm the Nation. Democrats should embrace honesty as the best policy and stop embracing the politically attractive pose of claiming to be the Party that “really cares” about the federal budget deficit. That politically attractive pose is not simply dishonest and financially illiterate, it is also a trap. The Republican and New Democrat deficit strategy is to force Democrats to make an endless series of “Sophie’s choices.” Choose which excellent program to kill in order to save (temporarily) another from the chopping block because we supposedly cannot afford to provide both.

Then repeat the process. The Republicans and New Democrats constantly, and falsely, claim that the federal government cannot afford to provide medical care availability that is routinely provided in most of Europe and Canada. It is a pure myth that the United States cannot afford to provide the safety net of Social Security, Medicare, and Medicaid. We need to start with first principles. In a nation with a sovereign currency like the United States, federal tax revenues do not fund federal expenditures. If that sentence, which is indisputably correct, strikes you as bizarre then it is a measure of the force of the propaganda you have been fed throughout your life. Today would be an excellent day to free yourself from the hold of that destructive lie.

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“There is nothing more reckless and irresponsible than convincing a nuclear power that you are going to attack. ”

Whose Bright Idea Was RussiaGate? (PCR)

The answer to the question in the title of this article is that Russiagate was created by CIA director John Brennan.The CIA started what is called Russiagate in order to prevent Trump from being able to normalize relations with Russia. The CIA and the military/security complex need an enemy in order to justify their huge budgets and unaccountable power. Russia has been assigned that role. The Democrats joined in as a way of attacking Trump. They hoped to have him tarnished as cooperating with Russia to steal the presidential election from Hillary and to have him impeached. I don’t think the Democrats have considered the consequence of further worsening the relations between the US and Russia.

Public Russia bashing pre-dates Trump. It has been going on privately in neoconservative circles for years, but appeared publicly during the Obama regime when Russia blocked Washington’s plans to invade Syria and to bomb Iran. Russia bashing became more intense when Washington’s coup in Ukraine failed to deliver Crimea. Washington had intended for the new Ukrainian regime to evict the Russians from their naval base on the Black Sea. This goal was frustrated when Crimea voted to rejoin Russia. The neoconservative ideology of US world hegemony requires the principal goal of US foreign policy to be to prevent the rise of other countries that can serve as a restraint on US unilateralism. This is the main basis for the hostility of US foreign policy toward Russia, and of course there also is the material interests of the military/security complex.

Russia bashing is much larger than merely Russiagate. The danger lies in Washington convincing Russia that Washington is planning a surprise attack on Russia. With US and NATO bases on Russia’s borders, efforts to arm Ukraine and to include Ukraine and Georgia in NATO provide more evidence that Washington is surrounding Russia for attack. There is nothing more reckless and irresponsible than convincing a nuclear power that you are going to attack. Washington is fully aware that there was no Russian interference in the presidential election or in the state elections. The military/security complex, the neoconservatives, and the Democratic Party are merely using the accusations to serve their own agendas. These selfish agendas are a dire threat to life on earth.

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Lots of changes.

Who Really Holds Power at the Fed (BBG)

To the casual observer, the Federal Open Market Committee September meeting in Washington might have looked like any other. But when San Francisco’s John Williams, Minneapolis’s Neel Kashkari, and the other regional Fed presidents took their seats at the big oval table, an historical anomaly glared back from the other side. In a rare alignment of events, the five voting presidents outweighed Board of Governors voters, who include Federal Reserve Chair Janet Yellen. It’s a gap that opened up earlier this year and which looks poised to persist, at least for the near future. This matters. There are 12 Fed presidents, chosen for five-year terms by their regional boards. The seven governors are appointed by the U.S. president and confirmed by the Senate for staggered 14-year terms.

Because of the retirement of Daniel Tarullo, the governor informally tasked with heading financial regulation, the Fed board has been down to four voters since May, and with Vice Chairman Stanley Fischer leaving, it’s possible the number could be down to three by the next FOMC meeting. It looks likely that Randal Quarles, Trump’s first nominee, could be confirmed before that, holding the Governors steady at four. The regional contingent, meanwhile, remains near full force, with only the Richmond Fed currently looking for a new president. At a time when the current occupant of the Oval Office could choose at least four new governors, the power of the regional presidents amounts to a stabilizing backbone and bastion of independence in an era of transition at the Fed. Yellen, Lael Brainard, and Jerome Powell are the holdouts on the board in Washington, and President Trump isn’t expected to reappoint Yellen when her term ends in February.

Thus it could fall to the Fed’s arcane system, born of populist angst, to protect monetary policy from massive upheaval. The current state of affairs underscores how this uniquely American setup, erected in stages beginning in the years before World War I, remains relevant a century later, even though many of the functional duties of the world’s most powerful central bank have changed. “The regional banks are a bizarre set of entities,” says Aaron Klein, a Brookings Institution fellow who studies the central bank. “In some ways the mission of the regional system is to bring in diverse viewpoints that challenge the political board.”

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“Prior to the rule, an estimated $100m in taxpayer-owned natural gas was wasted each year from oil and gas wells operating on public lands in New Mexico..”

Court Orders Trump Administration Reinstate Obama Emissions Rule (AP)

Rebuffing the Trump administration, a federal judge on Wednesday ordered the Interior Department to reinstate an Obama-era regulation aimed at restricting harmful methane emissions from oil and gas production on federal lands. The order by a judge in San Francisco came as the Interior Department moved to delay the rule until 2019, saying it was too burdensome to industry. The action followed an earlier effort by the department to postpone part of the rule set to take effect next year. US Magistrate Judge Elizabeth Laporte of the northern district of California said the department had failed to give a “reasoned explanation” for the changes and had not offered details why an earlier analysis by the Obama administration was faulty. She ordered the entire rule reinstated immediately.

The rule, finalized last November, forces energy companies to capture methane that’s burnt off or “flared” at drilling sites on public lands during production because it pollutes the environment. An estimated $330m a year in methane is wasted through leaks or intentional releases on federal lands, enough to power about 5m homes a year. Methane, the primary component of natural gas, is a leading contributor to global warming. It is far more potent at trapping heat than carbon dioxide but does not stay in the air as long. [..] Democratic senator Tom Udall from New Mexico said the methane rule provides badly needed revenue to states such as New Mexico for public education and other services.

Prior to the rule, an estimated $100m in taxpayer-owned natural gas was wasted each year from oil and gas wells operating on public lands in New Mexico, Udall said, adding that the rule has helped to reduce dangerous air pollution across the west, including a methane cloud the size of Delaware that hangs over the Four Corners region of New Mexico, Utah, Arizona and Colorado.

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What Happens If the Honeybees Disappear?

US Honeybee Queen Life Expectancy Halves In 10 Years (NatGeo)

A honeybee queen, when all is right in her world, should live for two to three years. But in the United States, beekeepers have seen that life span drop by more than half over the past decade, and researchers are trying to determine why. It’s one of many questions surrounding the mystery of honeybee mortality, a disturbing phenomenon that’s linked to a mix of factors, including parasites, pesticides, and habitat loss. Aside from making a delicious natural sweetener, honeybees—which are not native to the U.S.—also provide a crucial service to agriculture: pollination. From apples to almonds, many crops would suffer without honeybees. And while about 90% of beekeepers in this country are hobbyists, the majority of hives belong to large-scale, commercial operations, says North Carolina State University entomologist David Tarpy.

Colony collapse in general could be devastating to food production. So scientists are looking for alternatives. Most honeybees in the U.S. today are of Italian heritage and vulnerable to a pest called the varroa mite. But Russian bees are more resistant to it, and backyard beekeepers have had success with them. The problem, says Tarpy, is that Russian honeybees don’t make as much honey as their Italian counterparts and “aren’t as amenable” to the migratory nature of pollinating large-scale farms. Another option, says wildlife biologist Sam Droege of the U.S. Geological Survey, is to embrace the thousands of North American wild bee species, which are excellent pollinators, rarely sting, and are typically the size of a grain of rice. The drawback for some people is that none of the wild bee species produce honey. But, says Droege, “we can always get honey from other countries.”

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I’ve always been in awe of 5000 year old trees. They ‘saw’ the pyramids being built.

Ancient Bristlecone Pine Forests Overwhelmed By Climate Change (LAT)

For thousands of years, wind-whipped, twisted bristlecone pines have been clinging to existence on the arid, stony crests of eastern California’s White Mountains, in conditions inhospitable to most other life. Their growth rings provide a year-by-year account of the struggle to survive: It’s a tortuous cycle of dying off almost entirely, leaving only a few strips of bark that then continue to grow diagonally skyward or sideways along the ground. But the world’s oldest trees may never have experienced temperature increases as rapid as those of recent decades. The climatic changes have triggered a struggle for dominance, in very slow motion, between the ancient bristlecones and the younger limber pines that have been able to charge up-slope as conditions become warmer and wetter.

Scientists know that bristlecone pines will remain standing for centuries to come. But how will they cope with the intrusion of limber pines competing for sunlight, moisture, nutrients and room to grow? Which plants and animals will be first to adapt to niches in the increasingly diverse forests at elevations above 11,000 feet? [..] average ambient temperatures have risen nearly 2 degrees Fahrenheit in the last century, altering the precarious balance of life in the region long dominated by ancient bristlecone pines — regarded as symbols of longevity, strength and perseverance. “Whenever conditions change, there are winners and losers. And in this case, we won’t know the ultimate outcome for several thousand years,” Smithers said. “But some bristlecone pine forests could face a reduction in range if they’re crowded out … by limber pines moving into their turf.”

Bristlecone pines — named for their bottlebrush-like branches with short needles — are found in other parts of the semiarid Great Basin, which extends from California’s Sierra Nevada east to the Rockies. But the ones found in the White Mountains are the oldest. The slow growers are only about 25 feet tall and expand about 1 inch in diameter every 100 years. One of the oldest of the bunch is Methuselah, at about 4,768 years old. Its precise location is carefully guarded to avert vandalism.

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Animal feed.

60% Of Global Biodiversity Loss Is Down To Meat-Based Diets (G.)

The ongoing global appetite for meat is having a devastating impact on the environment driven by the production of crop-based feed for animals, a new report has warned. The vast scale of growing crops such as soy to rear chickens, pigs and other animals puts an enormous strain on natural resources leading to the wide-scale loss of land and species, according to the study from the conservation charity WWF. Intensive and industrial animal farming also results in less nutritious food, it reveals, highlighting that six intensively reared chickens today have the same amount of omega-3 as found in just one chicken in the 1970s.

The study entitled Appetite for Destruction launches on Thursday at the 2017 Extinction and Livestock Conference in London, in conjunction with Compassion in World Farming (CIFW), and warns of the vast amount of land needed to grow the crops used for animal feed and cites some of the world’s most vulnerable areas such as the Amazon, Congo Basin and the Himalayas. The report and conference come against a backdrop of alarming revelations of industrial farming. Last week a Guardian/ITV investigation showed chicken factory staff in the UK changing crucial food safety information. Protein-rich soy is now produced in such huge quantities that the average European consumes approximately 61kg each year, largely indirectly by eating animal products such as chicken, pork, salmon, cheese, milk and eggs.

In 2010, the British livestock industry needed an area the size of Yorkshire to produce the soy used in feed. But if global demand for meat grows as expected, the report says, soy production would need to increase by nearly 80% by 2050. “The world is consuming more animal protein than it needs and this is having a devastating effect on wildlife,” said Duncan Williamson, WWF food policy manager. “A staggering 60% of global biodiversity loss is down to the food we eat. We know a lot of people are aware that a meat-based diet has an impact on water and land, as well as causing greenhouse gas emissions, but few know the biggest issue of all comes from the crop-based feed the animals eat.”

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Author Ethan Siegel ends up being disappointed.

Are Space, Time, And Gravity All Just Illusions? (F.)

The Universe, as we know it, has a fundamental flaw staring us right in our faces, letting us know that our knowledge is incomplete. The four fundamental forces are described by two different and mutually incompatible frameworks: General Relativity for gravitation, and Quantum Field Theory for the electromagnetic and nuclear forces. Einstein’s theory on its own is just fine, describing how matter-and-energy relate to the curvature of space-and-time. Quantum field theories on their own are fine as well, describing how particles interact and experience forces. But where gravitational fields are strongest, and on the smallest of scales, we have no way of describing nature. The physics of our greatest theories breaks down. Under conventional circumstances, quantum field theory calculations are done in flat space, where spacetime isn’t curved.

We can do them in the curved space described by Einstein’s theory of gravity as well, although the calculations are far more difficult. This semi-classical approach gets us far, but it doesn’t get us everywhere. In particular, there are a few strong-field situations where we simply cannot obtain sensible answers using our current theories: • What happens to the gravitational field of an electron when it passes through a double slit? • What happens to the information of the particles that form a black hole, if the black hole’s eventual state is thermal radiation? • And what is the behavior of a gravitational field/force at and around a singularity? These questions all go unanswered without a quantum theory of gravity. The assumption we normally make is that there is a quantum theory of gravity, and we just haven’t found it yet.

Perhaps it’s string theory; perhaps it’s an alternative approach like loop quantum gravity, causal dynamical triangulations, or asymptotic safety. But since 2009, a new, exciting, and assumption-challenging approach has taken the scene by storm: the idea that gravity itself isn’t a real, fundamental force, but an illusory, emergent one. Pioneered by Erik Verlinde, the idea is that gravity emerges from a more fundamental phenomenon in the Universe, and that phenomenon is entropy. Sound waves emerge from molecular interactions; atoms emerge from quarks, gluons and electrons and the strong and electromagnetic interactions; planetary systems emerge from gravitation in General Relativity. But in the idea of entropic gravity — as well as some other scenarios (like qbits) — gravitation or even space and time themselves might emerge from other entities in a similar fashion.

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Oct 042017
 
 October 4, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  


Pablo Picasso Vue de Notre-Dame de Paris 1945

 

Why Greece Took The Fall For A European Banking Crisis (Ren.)
The Fed is a Slave to the S&P 500 (Albert Edwards)
Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)
Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)
White House To Request $29 Billion For Hurricane Relief (R.)
White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)
IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)
IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)
A Debt Bomb Is Growing Down Under (Satyajit Das)
The End of Empire (Chris Hedges)
‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)
King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)
Spain Rules Out Mediator In Catalan Crisis (Pol.)
Goodbye – And Good Riddance – To Livestock Farming (G.)

 

 

“If Greece continues to participate in the EU, democracy is doomed”

Claire Connelly’s damning version of the events. Please read the whole thing.

Why Greece Took The Fall For A European Banking Crisis (Ren.)

The Greek financial crisis was actually a French and German banking crisis for which Greece took the fall, the result of decades of irresponsible spending and lending. When Greece joined the Euro it went on a spending spree, building roads, airports, new subway systems, infrastructure and a state-of-the-art military arsenal all built and provided by German companies. Companies which, incidentally, have been accused of bribing Greek politicians to secure military and civilian government contracts. Siemens allegedly paid €100 million to Greek officials to secure a contract to upgrade Athens’s telecommunications infrastructure for the 2004 Olympic Games. The Euro was designed to limit competition between the industries of member nations while shifting deficits and surpluses around the continent. Greece’s deficits are Germany’s surplus, and so on.

Had Greece still been using the Drachma, it had a chance of keeping its deficits in check, because it could decide on its own how to set interest rates and tax currency, but when replaced with the Euro, French and German loans caused its deficits to explode and it had no option but to accept the terms of its creditors, even though they knew the debt had no chance of being repaid. Banks – having been bankrupted by the 2008 Global Financial Crisis – stopped lending, and Greece, unable to rollover its debt, became insolvent. As a result, the three French banks which had issued loans to its European nations faced peripheral losses twice the size of its economy. More to the point, the French and German banks didn’t want the debts to be repaid. But they also didn’t want countries like Italy, Spain, Portugal and Ireland to default.

France’s top three banks had loaned €627 billion to Italy, Spain and Portugal and €102 billion to Greece and were staring down a 30 to 1 leverage ratio, meaning that if it lost only 3.33% of its loans to defaults, its capital would be wiped out and banking regulators would be forced to shut the banks down. And if Greece defaulted on its debt, the banks were concerned Spain, Italy, Portugal and Ireland would follow, resulting in a 19% loss of French debt assets, far and above the 3% that would lead to its insolvency. The three French banks needed a €562 billion bailout, but unlike the US which can shift its losses to its central bank, the Federal Reserve, France a) had no such central bank to shift its losses to, having dismantled it in favour of the European Central Bank, and b) the ECB was prohibited upon its formation to shift bad debts onto its books.

Likewise, Germany’s banks also went bust and required a €406 billion bailout – which it received – but it was barely enough to cover its US-based toxic derivative trades which led to the crisis in the first place, let alone what they had leant to their European neighbours. The banks came back begging, mere months after being cut a €406 billion cheque by the German government. “Greece’s bankruptcy would force the French state to borrow six time its total annual tax revenues just to hand it over to three idiotic banks,” former Greek finance minister, Yanis Varoufakis wrote in his expose of the ‘bailout’ negotiations, Adults In The Room. Had the markets found out this secret, interest rates would have skyrocketed and €1.29 trillion of French government debt would have gone bad and the country bankrupted, and the EU with it.

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Edwards likes Kevin Warsh, frontrunner for Fed chief….

The Fed is a Slave to the S&P 500 (Albert Edwards)

I was the first speaker and afterward I enjoyed listening to every other speaker at the two-day event. Most notable of the outside economics speakers were Paul Volcker, Larry Summers, and most significantly for me, ex Fed-Governor Kevin Warsh. Much to my own regret, I had never familiarised myself with the views of Governor Warsh, who was at the Fed from 2006-11, and played a key role in navigating the Fed through the crisis. He got a rousing reception from the BCA audience as he talked a lot of sense – in particular on how the Yellen Fed has lost its way and current policy is deeply flawed. He explained that the Fed has been “captured” by a groupthink of academics led by the ‘Secular Stagnation’ ideas of his friend, Larry Summers.

Rather than admitting they are wrong, this group, who failed to predict the current economic malaise, have constructed this theory to explain why ever more stimulus is required. In particular, Warsh warned that the Fed had become the slave of the S&P. Summers’ relaxed view on the debt build-up, particularly visible in the corporate sector, is in sharp contrast with our own view that this looks set to wreck the US economy. The problem with Summers’ analysis in my view is that it is the higher debt that is being used to push up asset values (via share buybacks), just as it did during the housing bubble in 2005-7. And by pushing asset values well beyond fundamentals you build debt structures on false asset values, which only become apparent when the asset bubble bursts. And am I in any way reassured that the Fed sees no bubbles? No, I am not. These dudes will never identify an asset bubble – at least before the event!

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… bur Warsh might endanger easy money policies, and make the dollar stronger.

Trump Gets Final List Of Fed Candidates, Yellen Gets The Cold Shoulder (ZH)

[..] we can cross out economist Glenn Hubbard and U.S. Bancorp Chairman Richard Davis, both of whom have been floated as possible candidates, although Trump has no intention of interviewing them. A potential wildcard is Stanford economist John Taylor, a favorite of fiscal conservatives, who is also said to be under consideration. It has also been previously reported that Trump has spoken to Yellen, Cohn, Warsh and Powell about the Fed post, although there is no frontrunner at the moment. According to Bloomberg, “the latest developments show that Trump is closer to making a final selection than previously known.” Last Friday, Trump said that he is “two or three weeks away from announcing his nominee” for the post overseeing the nation’s central bank.

Meanwhile, speaking at the Vanity Fair New Establishment Summit on Tuesday in Los Angeles, Jeffrey Gundlach – who accurately predicted Trump’s presidency – predicted that Neel Kashkari would be picked as next Fed chair. “I actually have a very non-consensus point of view. I think it’s going to be Neel Kashkari… He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.” The Bond King said that Trump needs someone who will keep rates low in order to keep his populist reputation and help his base voters and that’s why he’ll pick Kashkari. “A stronger dollar is not good for achieving that agenda,” he said. Gundlach also is confident that Yellen would not get reappointed: “I think there is no chance that she wants to be chairwoman, nor do I think the president wants her to be,” said the manager of $109 billion.

Judging by the latest PredictIt odds, if Gundlach is right, and if he is willing to bet some money on it, he could make a killing, as Kashkari does not even have a contract. As to the current ranking, Warsh remains in top spot with 38% odds, although following today’s Politico news, Powell surged to second place with 31% odds, and now following the Bloomberg report, John Taylor finds himself in third spot with 20% odds, above both Gary Cohn in 4th and Janet Yellen who has tumbled to 5th with just 13% odds of being reappointed.

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“I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Wonder how it would be done. And what does it mean for Texas, Florida debt?

Trump Says Puerto Rico’s Debt Will Have To Be Wiped Out (BBG)

President Donald Trump suggested that the government debt accumulated by bankrupt Puerto Rico would need to be wiped clean to help the island recover from the devastation caused by Hurricane Maria. “We are going to work something out. We have to look at their whole debt structure,” Trump said during an interview on Fox News Tuesday. “You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be – you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.” Puerto Rico is dealing with an immediate humanitarian disaster made worse by the long-term debt crisis that led it to declare a form of bankruptcy this year.

The island’s government for decades had been plagued by budget deficits caused by wasteful spending, and borrowed $74 billion. Much of that went to operations. The commonwealth’s budget is under the control of a federally appointed oversight board, a panel that the U.S. Congress created to wield broad sway over the territory’s finances. The panel approves the island’s budget and is meant to help make unpalatable decisions such as closing schools and cracking down on tax evasion. Trump paid a four-and-a-half-hour visit to the island earlier Tuesday, greeting local officials and offering consolation to residents who have been without power and, in many cases, drinking water since the storm struck on Sept. 20. Some in Puerto Rico’s government already are estimating reconstruction costs will be as high as $60 billion.

Prices of the U.S. territory’s bonds have plunged to record lows, signaling investors expect that there will be even less money available to repay its $74 billion of debt. Puerto Rico has little financial ability to navigate the disaster on its own, leaving the recovery heavily dependent on how much aid comes from Washington. It began defaulting on its debts two years ago, seeking to avoid draconian budget cuts officials said would deal another blow to an already shrinking economy. With nearly half of its 3.4 million residents living in poverty, the government filed for bankruptcy protection in May.

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Are they going to fight over this?

White House To Request $29 Billion For Hurricane Relief (R.)

The White House is preparing a $29 billion disaster aid request to send to the U.S. Congress after hurricanes hit Puerto Rico, Texas and Florida, a White House official said on Tuesday. The request is expected to come on Wednesday. It will combine nearly $13 billion in new relief for hurricane victims with $16 billion for the government-backed flood insurance program, the White House official told Reuters. The White House wants Congress to forgive $16 billion of the debt that the National Flood Insurance Program, which insures about 5 million homes and businesses, has racked up.

The request comes as the program is close to running out of money, congressional aides said. The program had racked up nearly $25 billion in debt before this season’s major hurricanes. The Trump administration is also proposing more than a dozen reforms including new means testing and an extreme-loss repetition provision, aides said. Some homes insured under the program have gotten payments repeatedly from the program after multiple storms. The flood insurance money is aimed primarily for areas impacted by Hurricanes Harvey and Irma, which struck Texas and Florida, aides said.

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Don’t think the GOP will like this.

White House: A Tax Plan That Doesn’t Add To The Deficit Won’t Spur Growth (BBG)

The White House is showing “softness” on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul. The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts. Corker, who insists he won’t vote for a tax bill that adds a penny to the deficit, said in an interview that he’s concerned about the early signals from the White House. On Friday – two days after the tax framework was rolled out – National Economic Council Director Gary Cohn said that ending the state and local tax break was negotiable.

“That’s the easiest one,” said Corker, a Tennessee Republican. “Some of the others are actually more offensive and produce lesser amounts of money.” The budget rules that Senate leaders plan to use to pass the legislation require that any changes that boost the federal deficit would have to expire in time. But the nine-page framework released Wednesday provided few details on revenue raisers. It calls for eliminating deductions, but doesn’t specify them. By showing its willingness to negotiate on one such deduction, the White House appears to be charting a rocky path. “As a general matter in tax reform you have to acknowledge that you cannot negotiate with everybody’s single pay-for,” said Doug Holtz-Eakin, who runs the American Action Forum, a conservative group that’s working with GOP leaders on taxes. “If you do that for everything, you don’t get tax reform.”

Ending the state and local deduction, which Trump’s aides proposed in April, faces resistance from Republican lawmakers in high-tax states like New York and New Jersey. The same day Cohn commented on the state tax break, tax-writing chiefs Senator Orrin Hatch and Representative Kevin Brady dismissed a study that found ending personal exemptions, another one of the few offsets set forth, could raise taxes for some middle-class families. Their response: The committees haven’t made decisions about which tax breaks to end. Asked if the state tax break and personal exemptions were negotiable, Brady reiterated Monday the bill is a work-in-progress. “We’re continuing to work on the final design of the tax reform plan that we’ll have ready after the budget is completed,” he said.

White House Budget Director Mick Mulvaney is signaling similar flexibility, saying on CNN Sunday that decisions about deductions remain up in the air as “the bill is not finished yet.” He took it a step further on Fox News Sunday, by adding that a tax plan that doesn’t add to the deficit won’t spur growth. “I’ve been very candid about this. We need to have new deficits because of that. We need to have the growth,” Mulvaney said. “If we simply look at this as being deficit-neutral, you’re never going to get the type of tax reform and tax reductions that you need to get to sustain 3% economic growth.”

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Just-in-time politics.

IMF Warns That Using Consumer Debt To Fuel Growth Risks Crisis (G.)

The IMF has issued a warning to governments that rely on debt-fuelled consumer spending to boost economic growth, telling them they run the risk of another major financial collapse. In a report before the IMF’s annual meeting in Washington next week, it said analysis of consumer spending and levels of household debt showed that economies benefited in the first two to three years when households raised their levels of borrowing, but then risks began to mount. Once growth becomes dependent on household debt, it can be a matter of two to three years before a financial crash, the IMF said in its annual report on the global financial system. The study follows a series of warnings about rising levels of household debt in the UK from financial regulators and debt charities.

In a blogpost accompanying the report, one of the authors, Nico Valckx, warned: “Debt greases the wheels of the economy. It allows individuals to make big investments today – like buying a house or going to college – by pledging some of their future earnings. That’s all fine in theory. But as the global financial crisis showed, rapid growth in household debt – especially mortgages – can be dangerous.” He added: “Higher debt is associated with significantly higher unemployment up to four years ahead. And a one percentage point increase in debt raises the odds of a future banking crisis by about one percentage point. That’s a significant increase, when you consider that the probability of a crisis is 3.5%, even without any increase in debt.”

Earlier this year the IMF cut its forecast for the UK’s GDP growth in 2017 by 0.3 percentage points to 1.7% and it is expected to reduce its prediction further next week when its global outlook is published. The uncertainty created by the Brexit vote and negotiations to leave are likely to be blamed, along with a reliance on consumer spending, which has slowed this year. The Bank of England, which regulates the banking sector, said last month that the UK’s banks could incur £30bn of losses on their lending on credit cards, personal loans and for car finance if interest rates and unemployment rose sharply. The debt charity Stepchange has warned that 6.5 million people have used credit to pay for basic items such as food after a change in their circumstances. And MPs have called for an independent commission to examine the effects of rising household debt levels in the UK.

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Same IMF report, specifically for Australia.

IMF Warns That Australia’s Household Debt Hangover Will Hurt (Aus.)

Rapid growth in household debt works as a short-term sugar hit to the economy but leaves a long hangover with reduced growth, higher unemployment and the risk of a banking crisis, the International Monetary Fund has warned. The fund identifies Australia as one of the countries most exposed, with household debts rising to more than 100% of GDP compared with an advanced- country average of 63%. “In the short term, an increase in the household debt-to-GDP ratio is typically associated with higher economic growth and lower unemployment, but the effects are reversed in three to five years, the IMF says in its latest review of global financial stability. Moreover, higher growth in household debt is associated with a greater probability of banking crises.

Reserve Bank governor Philip Lowe yesterday repeated his concern that housing debt has been outpacing the slow growth in household incomes and is now limiting growth in household spending. “Slow growth in real wages and high levels of household debt are likely to constrain growth in household spending,” he said. Announcing that the bank was keeping its benchmark cash rate at the record low of 1.5%, where it has now been sitting since August 2016, he said risks in the housing market were being contained by banking regulator the Australian Prudential Regulation Authority, which had tightened supervision of real estate lending.

The IMF’s research shows that on average, a 5 percentage point rise in household debt to GDP over a three-year period foreshadows weaker growth in GDP, which would be 1.25 percentage points lower in three years’ time. Reserve Bank statistics on household balance sheets show that total debts have risen from 123% of GDP to 137% over the past five years, or a 14 percentage point increase.

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And Das has some more on the land of Oz.

A Debt Bomb Is Growing Down Under (Satyajit Das)

Australia’s record of 26 years without a recession flatters to deceive. The gaudy numbers mask serious flaws in the country’s economic model. First and most obviously, the Australian economy is still far too dependent on “houses and holes.” During part of the typical business cycle, national income and prosperity are driven by exports of commodities – primarily iron ore, liquefied natural gas and coal – that come out of holes in the ground. At other times, low interest rates and easy credit boost house prices, propping up economic activity. These two forces have combined with one of the highest population growth rates in the developed world (around 1.5% annually, driven mostly by immigration) to prop up headline growth. Yet a significant portion of housing activity is speculative. Going by measures such as price-to-rent or price-to-disposable income, Australia’s property market looks substantially overvalued.

Meanwhile, GDP per capita has been largely stagnant since 2008. Australia’s manufacturing industry, once a significant employer and an important part of the economy, has increasingly been hollowed out. The country’s cost structure is high. Improvements in productivity have, as elsewhere, been lackluster. Infrastructure is aging and unable to cope with the demands of a rising population, especially in major cities. Australia stands at 21st place in the 2017 Global Competitiveness Report. It ranks 15th in the World Bank’s ease of doing business list. Attempts to diversify the economy have had mixed results. Tourism and service exports, mainly of education and health services, have expanded significantly. But they’re nowhere near replacing the revenues brought in by mineral exports.

Second, a debt bomb is growing Down Under. Australia’s total non-financial debt is over 250% of GDP, up around 50% since 2010. Household debt is currently over 120% of GDP, among the highest proportions in the world. The ratio of household debt to income has nearly quintupled since the 1980s, reaching an all-time high of 194%. Stagnant real incomes have contributed to the problem, as have high home prices and the associated mortgage debt. Despite record-low interest rates, around 12% of income is now devoted to servicing all this debt. That’s a third more than in 1989-90, when interest rates neared 20%.

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“..a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too.”

The End of Empire (Chris Hedges)

The American empire is coming to an end. The U.S. economy is being drained by wars in the Middle East and vast military expansion around the globe. It is burdened by growing deficits, along with the devastating effects of deindustrialization and global trade agreements. Our democracy has been captured and destroyed by corporations that steadily demand more tax cuts, more deregulation and impunity from prosecution for massive acts of financial fraud, all the while looting trillions from the U.S. treasury in the form of bailouts. The nation has lost the power and respect needed to induce allies in Europe, Latin America, Asia and Africa to do its bidding. Add to this the mounting destruction caused by climate change and you have a recipe for an emerging dystopia.

Overseeing this descent at the highest levels of the federal and state governments is a motley collection of imbeciles, con artists, thieves, opportunists and warmongering generals. And to be clear, I am speaking about Democrats, too. The empire will limp along, steadily losing influence until the dollar is dropped as the world’s reserve currency, plunging the United States into a crippling depression and instantly forcing a massive contraction of its military machine. Short of a sudden and widespread popular revolt, which does not seem likely, the death spiral appears unstoppable, meaning the United States as we know it will no longer exist within a decade or, at most, two.

The global vacuum we leave behind will be filled by China, already establishing itself as an economic and military juggernaut, or perhaps there will be a multipolar world carved up among Russia, China, India, Brazil, Turkey, South Africa and a few other states. Or maybe the void will be filled, as the historian Alfred W. McCoy writes in his book “In the Shadows of the American Century: The Rise and Decline of US Global Power,” by “a coalition of transnational corporations, multilateral military forces like NATO, and an international financial leadership self-selected at Davos and Bilderberg” that will “forge a supranational nexus to supersede any nation or empire.”

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“We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

‘What In God’s Name Were You Thinking?’ Senators Grill Wells Fargo CEO (MW)

The chief executive of Wells Fargo & Co. on Tuesday faced senators unimpressed with the bank’s claims of progress in rectifying a massive scandal that lasted years and ensnared millions of customers. “My task is to make sure nothing like this happens again at Wells,” CEO Tim Sloan, a former CFO who was elevated after the ouster of John Stumpf last fall, told the Senate Banking Committee. Sloan outlined steps Wells had taken to address the management structure that incentivized opening accounts for customers fraudulently, and to make affected customers whole. But most legislators said those actions – and Sloan’s testimony – fell far short. The hearing marked one year since regulators settled with Wells over the opening of 2 million phony accounts – and since then, additional wrongdoing has emerged.

In July, the New York Times broke the news that Wells had charged hundreds of thousands of customers for auto insurance they didn’t request or require – a practice that in many cases resulted in overdrawn accounts, fees, and car repossessions. Just days later, the bank told regulators that the number of unauthorized accounts should be revised much higher, to 3.5 million. On Tuesday, Sloan was asked whether the actual count of fraudulent accounts could be even higher than that. He told legislators that he was confident 3.5 million would be the final tally—and more than one noted that Stumpf had said the same thing, a year before. But many senators, it seemed, hadn’t even made peace with the revelations already reported.

“What in God’s name were you thinking?” said Senator John Kennedy, a Louisiana Republican. “I’m not against large, I’m against dumb. I’m against a business practice which has Wells Fargo first and customers second,” he added. Senator Elizabeth Warren, the populist Massachusetts Democrat, was even more blunt. “At best you were incompetent, at worst you were complicit. And either way you should be fired,” she told Sloan. Warren has previously called for removal of the entire board of directors, and urged Federal Reserve Chairwoman Janet Yellen to oust the board in her capacity as a regulator, if Wells doesn’t do it voluntarily. Yellen has said that the bank’s actions were “egregious and unacceptable” and has hinted at further penalties or enforcement actions.

“Why shouldn’t the OCC (Office of the Comptroller of the Currency) simply revoke your charter?” Brian Schatz, a Hawaii Democrat, asked Sloan. “We serve one out of every three Americans, we have 270,000 team members,” Sloan began, before Schatz cut him off. “So you’re too big?” Schatz asked.

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The King represents the old Franco interests. He’s being used to turn Spaniards against Catalans.

King Felipe: Catalonia Authorities Have ‘Scorned’ All Spaniards (G.)

King Felipe of Spain has accused the Catalan authorities of attempting to break “the unity of Spain” and warned that their push for independence could risk the country’s social and economic stability. In a rare and strongly worded television address on Tuesday evening, he said the Catalan government’s behaviour had “eroded the harmony and co-existence within Catalan society itself, managing, unfortunately, to divide it”. Speaking two days after the regional government’s unilateral independence referendum, in which 90% of participants opted to secede from Spain, he described Catalan society as “fractured” but said Spain would remain united. The king made no mention of the violence that marred the referendum when Spanish police officers raided polling stations, beat would-be voters and fired rubber bullets at crowds.

Instead, he focused on the actions of the government of the Catalan president, Carles Puigdemont. “These authorities have scorned the attachments and feelings of solidarity that have united and will unite all Spaniards,” he said. “Their irresponsible conduct could even jeopardise the economic and social stability of Catalonia and all of Spain. He described the regional government actions as “an unacceptable attempt” to take over Catalan institutions, adding that they had placed themselves outside both democracy and the law. “They have tried to break the unity of Spain and its national sovereignty, which is the right of all Spaniards to democratically decide their lives together,” he said.

“Given all that – and faced with this extremely grave situation, which requires the firm commitment of all to the common interest – it is the responsibility of the legitimate state powers to ensure constitutional order and the normal functioning of the institution, the validity of the rule of law and the self-government of Catalonia, based on the constitution and its statute of autonomy.”

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The EU is making mistakes that will threaten its existence.

Spain Rules Out Mediator In Catalan Crisis (Pol.)

The Spanish government Tuesday dismissed calls to bring in a mediator between Madrid and the government of Catalonia in the wake of Sunday’s controversial independence vote. Spanish European Affairs Minister Jorge Toledo told POLITICO that no third-party mediator would be acceptable to Madrid, and that any dialogue must be bilateral. “You can change the law, you can oppose it, but you cannot disobey it,” Toledo said. The comments are a further sign of Madrid’s opposition to providing any sort of encouragement or reward to Catalan separatists as a result of Sunday’s violent clashes, which they blame on the Catalan government.

The European Commission Monday called for “all relevant players to now move very swiftly from confrontation to dialogue.” European Council President Donald Tusk on Monday “appealed for finding ways to avoid further escalation and use of force.” Ahead of Sunday’s vote Amadeu Altafaj, Catalonia’s representative in Brussels, told POLITICO’s EU Confidential podcast that he welcomed the idea of a third-party mediator and that “ideally it would have happened some time ago.”

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It’s World Animal Day.

Goodbye – And Good Riddance – To Livestock Farming (G.)

What will future generations, looking back on our age, see as its monstrosities? We think of slavery, the subjugation of women, judicial torture, the murder of heretics, imperial conquest and genocide, the first world war and the rise of fascism, and ask ourselves how people could have failed to see the horror of what they did. What madness of our times will revolt our descendants? There are plenty to choose from. But one of them, I believe, will be the mass incarceration of animals, to enable us to eat their flesh or eggs or drink their milk. While we call ourselves animal lovers, and lavish kindness on our dogs and cats, we inflict brutal deprivations on billions of animals that are just as capable of suffering. The hypocrisy is so rank that future generations will marvel at how we could have failed to see it.

The shift will occur with the advent of cheap artificial meat. Technological change has often helped to catalyse ethical change. The $300m deal China signed last month to buy lab-grown meat marks the beginning of the end of livestock farming. But it won’t happen quickly: the great suffering is likely to continue for many years. The answer, we are told by celebrity chefs and food writers, is to keep livestock outdoors: eat free-range beef or lamb, not battery pork. But all this does is to swap one disaster – mass cruelty – for another: mass destruction. Almost all forms of animal farming cause environmental damage, but none more so than keeping them outdoors. The reason is inefficiency. Grazing is not just slightly inefficient, it is stupendously wasteful. Roughly twice as much of the world’s surface is used for grazing as for growing crops, yet animals fed entirely on pasture produce just one gram out of the 81g of protein consumed per person per day.

A paper in Science of the Total Environment reports that “livestock production is the single largest driver of habitat loss”. Grazing livestock are a fully automated system for ecological destruction: you need only release them on to the land and they do the rest, browsing out tree seedlings, simplifying complex ecosystems. Their keepers augment this assault by slaughtering large predators. In the UK, for example, sheep supply around 1% of our diet in terms of calories. Yet they occupy around 4m hectares of the uplands. This is more or less equivalent to all the land under crops in this country, and more than twice the area of the built environment (1.7m hectares). The rich mosaic of rainforest and other habitats that once covered our hills has been erased, the wildlife reduced to a handful of hardy species. The damage caused is out of all proportion to the meat produced.

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Oct 032017
 
 October 3, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , ,  


Fan Ho Obsession 1964

 

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)
The Pricing of Risk is Kaput (WS)
Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)
What You Are Not Being Told About The Economy – Steve Keen (RT)
An Accountant Smells a Rat in Our Global Credit Bubble (WS)
26 Recession-Free Years Hide a Darker Picture for Australia (BBG) >
Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)
Fall of the Great Pumpkin (Jim Kunstler)
Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)
Catalonia Set For General Strike Over Independence Poll Violence (AFP)
100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

 

 

 

 

A point I made again recentlly “It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.”

Who Will Be There To Buy When Everyone Wants To Sell? – Howard Marks (FuW)

It would be a dangerous bet to say interest rates are going to stay low forever, but I don’t see many people taking that bet. And you see, even if interest rates were to stay where they are, that would argue for P/E ratios to stay where they are. And if they do, then stocks will only appreciate at the same rate as earnings, which is not really fast; there would be no multiple expansion. This market is not built on some euphoric view of the future, but mainly on the unwillingness to accept zero or negative returns on cash and safe instruments. It’s based on the view that there is no alternative: people are afraid to be out of the market. But then again, a perceived lack of alternatives is not a good argument for chasing yield and taking big risks. That’s why I think this is the time to turn cautious.

It’s not smart, but people think that’s what they have to do now. You remember Chuck Prince, the CEO of Citigroup, who in July of 2007 said «when the liquidity dries up, this will end badly, but as long as the music is playing, you have to dance?» What does that even mean? People always say they’ll stay in the market, thinking it has further to go, but if it starts to turn down they will get out. Maybe that’s what people are thinking in today’s stock market: «It will continue to go up, but I will get out in time.» People overestimate their ability to get out in time. Who will be there to buy when everyone wants to sell? That’s wishful thinking.

[..] I see a lot of worries. One example: What’s going to happen when central banks start unwinding their balance sheets? We have no clue. There is no historical precedent for the measures they used to stimulate the economies in the past years, so we don’t know what will happen when they unwind them. If QE was stimulative, won’t the unwinding of it be the opposite of stimulative? I don’t know where the money came from for the QE programs, and I don’t know where the money will go to next. We don’t know what it will mean for interest rates and inflation.

Another worry is the low economic growth, combined with politics. All these right-wing populist movements – what are the implications of that? This is not imaginary. Where will the person with a low education level get a job in ten or twenty years, when all the cars are self-driving and all the stores have no clerks? I don’t know what the solution is. But I see a lack of political leadership around the world. Another worry concerns our pension systems. In the US and in other countries, defined benefit systems are hundreds of billions of dollars in the red. What’s going to happen to the people who expect to get their promised retirement payments? But today, nobody’s talking about the problems in our pension systems.

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“..when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.”

The Pricing of Risk is Kaput (WS)

US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it’s still in denial of the Fed’s monetary tightening: Four rate hikes since it started this cycle, and the QE unwind has commenced as of today. But it cannot hold a candle to the Draghi-engineered negative-yield absurdity still unfolding in the Eurozone. The average yield of junk bonds denominated in euros hit a new all-time record low at the close on Friday of 2.30%. Let that sink in a moment. These euro corporate bonds are rated below investment grade. Companies, unlike the US, cannot print their own money to prevent default.

There is little liquidity in the junk bond market, and selling these bonds when push comes to shove can be hard or impossible. The reason they’re called “junk” is because of their high risk of default. And yet, prices of these junk bonds have been inflated by the ECB’s policies to such a degree that their yield, which falls as prices rise, is now lower than that of 10-year US Treasury securities that are considered the most liquid securities with the least credit risk out there. The average yield of the euro junk bonds is based on a basket of below-investment-grade corporate bonds denominated in euros. Issuers include junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

They include the riskiest bonds. Plenty of them will default. Losses will be painful. Investors know this. It’s not a secret. But they don’t mind. They’re institutional investors plowing other people’s money into these bonds, and they don’t need to mind, but they have to buy these bonds because that’s their job. This chart, based on BofA Merrill Lynch Euro High Yield Index Effective Yield via the St. Louis Fed, shows that the average euro junk bond yield is on the way to what? Zero?

During the peak of the Financial Crisis, the average junk bond yield hit 25%. During the dog days of the euro debt crisis in the summer of 2012, when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%. The yield dropped below 5% in October 2013, for the first time ever. This juxtaposition of the already low 10-year US Treasury yield and the even lower euro junk bond yield creates one of the most fascinating WTF-charts for our amusement at central-bank absurdist policies – and we’d be laughing at these bond investors gone nuts, if it weren’t so serious:

.. this is Draghi’s ultimate accomplishment in his nutty bailiwick: The total destruction of the market’s risk-pricing mechanism at the expense of other people’s money – this includes pension funds and life insurance companies that play a large role in Europe’s private pension system. They have to buy corporate bonds. Their beneficiaries that paid into the systems will have to bear the costs in future years. And then there’s the comforting thought that when markets can no longer price risks, they cannot price anything at all because the price of risk underlies all prices in the financial markets.

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“..when we had the taper tantrum they hadn’t even done anything yet, they’d just threatened to taper..”

Art Cashin: “I’ve Never Seen Anything Like Today’s Market Before” (ZH)

Market veteran Art Cashin, the head of NYSE floor operations for UBS, made an interesting observation earlier today just minutes before the close, as US stocks headed for another record finish after shrugging off the worst mass shooting in US history. Asked by CNBC’s Kelly Evans to explain how US stocks have continued to outperform while the 10-year Treasury yield has remained anchored below 2.5%, Cashin acknowledged that, during a career that’s spanned more than six decades, he’s never seen anything like today’s market. “I’ve been doing this for over 50 years and I’ve never seen anything like it so it is rather odd.” And given global stocks’ strong performance this year, with markets weathering a series of political crises, natural disasters, terror attacks and other nominally destabilizing events (with a little help from central banks, of course) – Cashin says the outlook isn’t as dire as some would believe.

“Right now, Europe’s doing all right emerging markets are okay, and maybe they’re not going to take away the punchbowl that quickly – so we’ll see,” Cashin said. In September, the Fed suggested that while it would likely raise interest rates more quickly than previously believed during the coming quarters, median forecasts for the Fed funds rate in 2019, as well as the longer-run median target, declined compared with a set of forecasts released in July. Looking ahead to the fourth quarter, the most pressing questions that investors should be asking themselves is ‘is this the quarter where tapering – or the expectation of further tapering – finally triggers a market correction.

“What’s really going to be interesting to watch in this final quarter, is will there be an impact of quantitative tightening. As Peter Boockvar points out…it’s only going to be a token amount. But when we had the taper tantrum they hadn’t even done anything yet they’d just threatened to taper. When asked what it would take to spark a meaningful correction in stocks, Cashin said he expects investors will take notice once the 10-year yield climbs above 3%. “I think we’ve got to get a bit higher. Probably up around 3% you start to get everybody’s attention and you’ll start to hear that in the conversation more and more.”

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Are you rational? Economics is not.

What You Are Not Being Told About The Economy – Steve Keen (RT)

As Karl Marx’s ‘Das Kapital’ turns 150 and the global financial crisis enters its tenth year, we ask why it is that we are still no closer to creating an economy that actually works. Perhaps more importantly, why do mainstream economists continue to miss the fundamental drivers of financial instability? Host Ross Ashcroft talks about what’s next for the global economy with Professor Steve Keen, an economist who correctly predicted the financial crisis and the author of ‘Debunking Economics.’

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“Economists can’t see it. They can’t model money and credit. ”

An Accountant Smells a Rat in Our Global Credit Bubble (WS)

Twenty years ago Doug Noland was so worried about imbalances surrounding the dot.com boom that he began to title his weekly reports “The Credit Bubble Bulletin. Years later, he warned the world about the impending 2008 crisis. However a coming implosion, he says, could be the biggest yet. “We are in a global finance bubble, which I call the grand-daddy of all bubbles,” said Noland. “Economists can’t see it. They can’t model money and credit. However, to those outside the system, the facts are increasingly clear.” Noland points to inflating real estate, bond and equity prices as key causes for concern. According to the Federal Reserve’s September Z.1 Flow of Funds report, the value of US equities jumped $1.5 trillion during the second quarter to $42.2 trillion, a record 219% of GDP.

Noland may be right. A report by the International Institute of Finance released in June estimated that global government, business and personal debts totaled $217 trillion earlier this year. That’s more than three times (327%) higher than global economic output. Adding to the complexity is the fact that not all debts are fully recorded. For example, according to a World Economic Forum study, the world’s six largest pension saving systems – the US, UK, Japan, Netherlands, Canada and Australia – are expected to experience a $224 trillion funding shortfall by 2050. Noland’s warnings come during a time of exceptional public trust in governments, central banks, regulators and other institutions. Market volatility is trending at near record lows. In June, Federal Reserve Chair Janet Yellen spoke for many when she said that she did not see a financial crisis occurring “in our lifetimes.”

So why would Noland, who during his day job runs a tactical short book at McAlvany Wealth Management, see things that government, academic, and central bank economists don’t? One possibility is because Noland, who studied accounting and finance in college and began his career as a CPA at Price Waterhouse, is not an economist. He is thus not burdened with the “dismal science’s” limitations. Although Noland eventually completed an MBA and some doctoral studies, he was never forced to buy into the econometrics groupthink that plagues the profession. Noland is thus free to incorporate historical, financial, geographical and other data into his analyses. Another possible reason is that Noland (unlike almost all professional economists who missed both major market implosions/recessions of the last two decades) doesn’t hide it when he makes a bad call.

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But Australians won’t believe it until it hits them in the head.

26 Recession-Free Years Hide a Darker Picture for Australia (BBG)

The global crown for the longest stretch of uninterrupted economic growth is within sight for Australia. But it’s limping to the line as policy paralysis weighs on the nation’s prospects. Twenty-six years without recession have put Australia within two years of overtaking the Netherlands’ record growth streak and government, central bank and economist forecasts all suggest it’ll take the mantle. After all, the economy has a head start with 2.5% growth virtually baked in – 1.5% from population gains that are among the developed world’s quickest and 1% from resource exports feeding Asia’s giant economies. Yet the reliance on rapid immigration is straining infrastructure, while mining profits fuel riches for stakeholders but do little for the vast majority of Australians living in major cities.

Meantime, wages are barely growing, households carry some of the world’s heaviest debt loads, and productivity gains from the economic reforms of the 1980s and early 1990s have petered out. There’s been no major economic reform since the turn of the century, with just about every attempt reversed or cannibalized by toxic politics. And the impact is starting to show. Just when the economy needs growth drivers outside of mining, a slide in global rankings for innovation and education suggest living standards could decline. The miracle economy that shrugged off the global recession is turning mediocre. “Now that we don’t have the benefit of the mining boom, there’s nothing really that replaces it in terms of driving economic activity,” said Jeremy Lawson, chief economist at Aberdeen Standard Investments in Edinburgh and a former Reserve Bank of Australia economist.

“The really big task of governments over the next 5 to 10 years is to deal with these big structural issues that Australia is facing. Potential growth is relatively weak.” A decade of political infighting has seen the nation change prime ministers five times since 2007 and sidelined substantive policy debate. Meanwhile, attempts at reform have been held hostage by populists and single-issue parties who’ve harnessed voter frustration with mainstream politicians to take the balance of power in parliament’s upper house. That political dysfunction is threatening the nation’s prospects. A policy vacuum around energy has seen electricity prices surge to among the highest in the world, despite Australia holding some of the largest coal and gas reserves on the planet.

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“The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years. ”

Russia’s Rush For Gold Sees Record Reserves For Putin Era (II)

Vladimir Putin is doing his part to keep the upswing in gold alive. Since the Russian president went on a geopolitical offensive in Ukraine in 2014, the haven asset had its first annual gain in four years in 2016 and is on track for another in 2017. A beneficiary of economic and political perils from North Korea to Brexit, it’s among the top-performing commodities this year. Meanwhile, the Bank of Russia has more than doubled the pace of gold purchases, bringing the share of bullion in its international reserves to the highest of Mr Putin’s 17 years in power, according to World Gold Council data. In the second quarter alone, it accounted for 38pc of all gold purchased by central banks. The gold rush is allowing the Bank of Russia to continue growing its reserves while abstaining from purchases of foreign currency for more than two years.

It’s one of a handful of central banks to keep the faith as global demand for the precious metal fell to a two-year low in the second quarter. But what may matter most is that gold is as geopolitics-proof an investment as any in the age of sanctions and a deepening rift with the US. “Gold is an asset that is independent of any government and, in effect, given what is usually held in reserves, any Western government,” said Matthew Turner, metals analyst at Macquarie Group in London. “This might appeal given Russia has faced financial sanctions.” Besides being the largest official buyer of gold, Russia is also among the world’s three biggest producers, with the central bank purchasing from domestic miners through commercial banks and not in the open market. Since starting to accelerate bullion purchases in 2007, Russia’s holdings have more than quadrupled to 1,556 tonnes at the end of June, just behind China and more than Turkey, India and Mexico combined, bringing its share in Russia’s $427bn (€361bn) reserves to near 17pc.

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“Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.”

Fall of the Great Pumpkin (Jim Kunstler)

Welcome to the witching month when America’s entropy-fueled death-wish expresses itself with as much Halloween jollity and merriment as the old Christmas spirit of yore. The outdoor displays alone take on a Babylonian scale, thanks to the plastic factories of China. I saw a half-life-size T-Rex skeleton for sale at a garden shop last week surrounded by an entire crew of moldering corpse Pirates of the Caribbean in full costume ho-ho-ho-ing among the jack-o-lanterns. What homeowner in this sore-beset floundering economy of three-job gig-workers can shell out four thousand bucks to decorate his lawn like the set of a zombie movie? The overnight news sure took on that Halloween tang as the nation woke up to what is probably a national record for a civilian mad-shooter incident.

So far, fifty dead and two hundred wounded at the Las Vegas at the Route 91 Harvest Festival (one up in fatalities from last year’s Florida Pulse nightclub massacre, and way more injured this time). The incident will live in infamy for maybe a day and a half in the US media. Stand by today as there will be calls far and wide, by personas masquerading as political leaders, for measures to make sure something like this never happens again. That’s rich, isn’t it? Meanwhile, the same six a.m. headlines declared that S &P futures were up in the overnight markets. Nothing can faze this mad bull, apparently. Except maybe the $90 trillion combined derivatives books of CitiBank, JP Morgan, and Goldman Sachs, who have gone back whole hog into manufacturing the same kind of hallucinatory collateralized debt obligations (giant sacks of non-performing loans) that gave Wall Street a heart attack in the fall of 2008.

Europe’s quaint doings must seem dull compared to the suicidal potlatch of life in the USA, but, believe me, it’s a big deal when the Spanish authorities start cracking the heads of Catalonian grandmothers for nothing more than casting a ballot. The video scenes of mayhem at the Barcelona polls looked like something out of the 1968 Prague uprising. And now that the Catalonia secession referendum passed with a 90% “yes” vote, it’s hard to imagine that a good deal more violent mischief will not follow. So far, the European Union stands dumbly on the sidelines. (For details, read the excellent Raul Ilargi Meijer column on today’s TheAutomaticEarth.)

[..] Finally — well, who know what else may pop up now — there is the matter of Puerto Rico. Halloween there is not like New England, with our nippy fall mornings, steaming mugs of hot cider, and quickening fall color. It will remain 90-degrees-plus down there in the fetid, stinking ruins, with lots of still-standing water, broken communications, shattered supply lines, and very little electricity. FEMA and the US Military may be doing all they can now, but they must be on watch for the ominous blossoming of tropical disease epidemics. The story there is far from over. Trump travels there this week. That may be exactly the moment that the Deep State moves to take him down.

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Catalonia wants to talk. But it will no longer accept many of the things it would have before Sunday.

Spain’s Crisis Deepens as Catalonia Secession Clock Ticks Down (BBG)

In Madrid, Barcelona, Bilbao and beyond, the question is the same: Now what? Sunday’s vote for independence in Catalonia, one of Spain’s most populous and prosperous regions, has thrust the country into its gravest political crisis since the days of the dictator Francisco Franco. Few see an easy way out. The results of the referendum give Prime Minister Mariano Rajoy stark choices – try to deal a blow to the independence movement by suspending Catalonia’s semi-autonomous status, or meet the secessionists halfway and start talks with Catalan President Carles Puigdemont. Puigdemont said the vote, rejected by the central government as illegal, justifies a unilateral declaration of independence. That could come by the end of the week, if the regional parliament agrees.

The European Union refused to recognize the rebel region’s bid, but Spanish bonds and stocks fell Monday as the risks of a breakaway rose. The clash puts Rajoy in a tight corner. Head of a minority government that relies on support from regional parties to rule, he has pledged to protect Spain’s territorial integrity. His main ally in parliament, Ciudadanos party leader Albert Rivera, called on the prime minister to invoke a never-before-used article of the 1978 constitution and pull Catalonia’s special regional standing, which gives it certain administrative powers. “It’s the moment to act with calm but with firmness,” said Rivera, who is Catalan, after meeting with Rajoy on Monday. Rivera said an independence declaration may be 72 hours away and suggested invoking Article 155 would cut off any attempt to make such a move.

But Pedro Sanchez, head of the main Socialist opposition party, said after his own meeting with Rajoy that the central government should hold talks with the secessionists. While Sanchez made no mention of Article 155 in the statement he issued, socialists in Catalonia said the party wouldn’t support the prime minister taking that step. That means Rajoy will have little political cover if he opts to suspend Catalan self-government – the most powerful card he has left. The crisis has already caused him problems: Last week, he had to withdraw plans to present his 2018 budget after allies in the Basque PNV party withheld their support as they criticized his position on Catalonia.

Read more …

The Guardia Civil will have to leave Catalonia at some point. And what then?

Catalonia Set For General Strike Over Independence Poll Violence (AFP)

Large numbers of Catalans are expected to observe a general strike on Tuesday to condemn police violence at a banned weekend referendum on independence, as Madrid comes under growing international pressure to resolve its worst political crisis in decades. Flights and train services could be disrupted as well as port operations, after unions called for the stoppage to “vigorously condemn” the police response to the poll, in which Catalonia’s leader said 90% of voters backed independence from Spain. Barcelona’s public universities are expected to join the strike, as is the contemporary art museum, football club FC Barcelona and the Sagrada Familia, the basilica designed by Antoni Gaudi and one of the city’s most popular tourist sites. “I am convinced that this strike will be widely followed,” Catalan leader Carles Puigdemont said ahead of the protest.

The central government has vowed to stop the wealthy northeastern region, which accounts for a fifth of Spain’s GDP, breaking away from Spain and has dismissed Sunday’s poll as unconstitutional and a “farce”. Violent scenes played out in towns and cities across the region on Sunday as riot police moved in on polling stations to stop people from casting their ballots, in some cases charging with batons and firing rubber bullets to disperse crowds. UN rights chief Zeid Ra’ad Al Hussein said he was “very disturbed” by the unrest while EU President Donald Tusk urged Madrid to avoid “further use of violence”. The European Parliament will hold a special debate on Wednesday on the issue. “We call on all relevant players to now move very swiftly from confrontation to dialogue. Violence can never be an instrument in politics,” European Commission spokesman Margaritis Schinas said, breaking weeks of virtual EU silence on the Catalan issue.

Read more …

“Florida Gov. Rick Scott has declared a state of emergency in Florida..”

100,000s Of Puerto Ricans To Flee To Florida, New York (ZH)

As mayors of cities with large Puerto Rican populations continue to advocate for federal assistance to help with the resettlement of hundreds of thousands of Puerto Ricans who are expected to temporarily seek shelter with friends and families in the US, Florida Gov. Rick Scott has declared a state of emergency in Florida, allowing state agencies to take extraordinary measures to assist families that will soon be arriving in droves to cities like Orlando and Miami, both of which feature large Puerto Rican populations. The Orlando Sentinel reports that Scott announced that disaster relief centers will be set up at Orlando International Airport and in Miami to help those seeking refuge in Florida. “Puerto Rico is absolutely devastated and so many families have lost everything,” Scott said in a released statement.

“Our goal is to make sure that while [Puerto Rican] Governor [Ricardo] Rosselló is working to rebuild Puerto Rico, any families displaced by Maria that come to Florida are welcomed and offered every available resource from the state.” The relief center at OIA, and two others at Miami International Airport and the Port of Miami, open Tuesday, according to a release from Scott’s office, just days after Puerto Rican airports reopened following the devastation caused by Hurricane Maria. [..] Scott’s emergency order will allow state agencies broad autonomy to waive regulations and do whatever is necessary to help Puerto Ricans. Importantly, it could also help bring more federal funding to help the state cope with aid efforts.

State lawmakers have said they expect at least 100,000 Puerto Ricans to flee to Florida because of Maria, forcing the state to step up its education, housing and job-placement offerings. It’s expected that some of those displaced by the storm could resettle permanently, as the reconstruction effort in Puerto Rico is expected to take months, if not years. State Rep. Carlos Guillermo Smith, D-Orlando, said the Legislature should hold a special session, as he estimates hundreds of thousands of Puerto Ricans are coming to Florida. The 2018 regular session starts in January. “FL needs 2 deal w/humanitarian crisis + over 100K Boricuas who’ll seek refuge here right now, not in Jan.,” he tweeted.

We now wait to hear from New York Gov. Andrew Cuomo and New York City Mayor Bill De Blasio. NYC officials have said more than 100,000 Puerto Ricans could arrive in NYC alone.

Read more …

 

 

 

Oct 012017
 
 October 1, 2017  Posted by at 2:02 pm Finance Tagged with: , , , , , , , ,  


Catalunya October 1 2017

 

I’ve seen a lot of videos and photos of the Catalonia attempt to hold a referendum today (Tyler has a “nice” series of them), and what struck me most of all, apart from the senseless violence police forces were seen to engage in, is the lack of violence on the side of protesters.

So when I see the Interior Ministry claim that 11 policemen were injured, That is hard to take serious. Not that the Catalans had no reason to resist or even fight back. That hundreds of protesters, including scores of grandma’s, are injured is obvious from watching the videos. Since rubber bullets were used in large numbers, fatal injuries are quite possible.

Policemen hitting peaceful older ladies till they bleed is shocking, and we are all shocked. Many of us will be surprised too, but we shouldn’t be. Spain is still the land of Franco, and his followers continue to exert great influence in politics, police and military. And it’s not just them: one video from Madrid showed people singing a fascist theme from the Franco era.

 

 

That’s the shape the EU knowingly accepted Spain as a member in, and that shape has hardly changed since. The total silence from Brussels, and from all its capitals, speaks volumes. Belgian PM Michel said earlier today that he doesn’t want to talk about other countries’ politics, and that’s more than I’ve seen anyone else say. It’s of course a piece of gross cowardly nonsense, both Michel’s statement and the silence from all others.

Because this very much concerns the EU. As Julian Assange tweeted “Dear @JunckerEU. Is this “respect for human dignity, freedom and democracy”? Activate article 7 and suspend Spain from the European Union for its clear violation of Article 2.” (Article 7 of the European Union Treaty: “Suspension of any Member State that uses military force on its own population.”) Sure, technically the Guardia Civil is not military, but are Juncker, Michel and above all Merkel really going to try and hide behind that?

Assange also re-tweeted this: “Claude Taylor Breaking: contact with Ecuadorian Govt says they plan on removing Julian Assange from their Embassy in London. Expect his arrest to follow.” Assange’s reaction: “DC based ex-White House claims I’m to be arrested for reporting on Spain’s censorship & arrests in Catalonia. Dirty.”

But that should not be a surprise either. We know from the example of Greece, and the treatment of refugees, what the morals of Europe’s ‘leaders’ are. Their morals are bankrupt. In that sense, they fit in seamlessly with those of Mariano Rajoy’s governing PP party in Spain.

 

 

Still, this is not why people want to be part of the EU. So unless very strong statements come from the various capitals, and very soon, given that they’re already way too late, the EU as a whole will find itself in such a deep crisis it might as well pack its bags and go home. Wherever home may be for these career politicians.

If you’re void of any and all ethics and morals, which is what that silence shouts out very loudly, you can’t lay any claim at all to the right to make decisions for anyone at all. That is true for Rajoy and his party, and it’s just as true for all other deadly silent European leaders.

And this is by no means over, it hasn’t started yet. Here’s a map of close vs open polling stations in Catalonia, via Assange. ‘Nuff said. What will Rajoy’s next move be? Locking up everyone? The entire Catalan governing party that organized the referendum? Make no mistake: the Spanish military have long threatened they would destroy Catalonia before allowing it independence.

 


Catalan polling stations. Green=open. Red=closed

 

Philosopher Anna M. Hennessey, who has lived in both Spain and in Catalonia, put it this way:

Franco was victorious and did not lose his war, as Hitler and Mussolini lost theirs, but this must not mean that we should let the dictator’s toxic ideological infrastructure persist any further into the twenty-first century. Supporting Catalonia is a necessary step in putting an end to fascism in Europe.

When Fascism Won’t Die: Why We Need to Support Catalonia

People in the United States, especially those from the 1980s onward, know little of Spain’s Civil War (1936-1939) and the long dictatorship that followed. This knowledge is helpful in understanding the situation in Spain and Catalonia right now. The judge (Ismael Moreno) who is set to decide on sedition charges against Catalan activists for attempting to hold a democratic referendum on October 1st, for example, has roots that are deeply connected to Francisco Franco (1892-1975), the military leader who initiated the Civil War, won it, and then went on to rule as Head of State and dictator in Spain for almost forty years.

Franco is a major figure of twentieth-century fascism in Europe. A purge of Francoist government officials never took place when the dictatorship ended in the 1970s, and this leadership has had a lasting impact on how Spain’s government makes its decisions about Catalonia, a region traumatized during and after the war due to its resistance to Franco’s regime. The lingering effects of Franco’s legacy are at this point well-documented and need to be a part of the discourse that surrounds what is quickly unraveling in Barcelona.

[..] Like the Spanish government, the Spanish police force was never purged of its Francoist ties following the dictatorship. It is a deeply corrupt institution [..] Manuel Fraga Iribarne, one of Franco’s ministers during the dictatorship, founded Prime Minister Mariano Rajoy’s Popular Party. The party is currently enmeshed in a corruption scandal of its own. Spain’s royal family is similarly linked to Franco and has also been brought to trial for its own set of corruption charges. It is impossible to ignore the fascist bedrock upon which modern Spain is founded, or to ignore the reality that this foundation has to do with the way Spain treats Catalonia.

And so we can see the dream of a united Europe die. At least one that most people will feel comfortable living in. And if you can’t achieve that, why have a union to begin with? Democracy in Europe is dying in Brussels, it’s dying in Greece and the Mediterranean, and it died today in the streets of Barcelona and other Catalan locations.

Are all Europeans simply going to sit back and wait till it dies where they live, too? My bet is they will only do that until they no longer see the EU as economically beneficial to them. And as of today, because of Catalunya, economics will no longer be the only consideration. Because Spain will not be thrown out, not even suspended. There will be lots of empty strong words, but not all Europeans are all that stupid.

Barcelona mayor Ada Colau has called for Rajoy to resign, but she knows as well as anyone that that will not be enough, and it won’t change a thing. Rajoy is merely one representative of a fascist system that is the underbelly of Spain, waiting for its opportunity to raise its ugly head. It’s found that opportunity today, and the whole world is silent. Well, the ‘leaders’ are.

 

And while we’re talking disaster, I can’t help myself from briefly addressing Puerto Rico. The anti-Trump echo chamber is louder than ever, and it’s getting absurd. I can’t see what part of it is Trump’s doing, and what is due to other sources, but it simply seems not true that help is not moving forward. In a destruction as complete as Puerto Rico, there are limits to what can be done in a limited amount of time.

All the criticism of Trump at some point becomes criticism of other people involved as well. The mayor of San Juan gets lauded as a hero in certain circles, but is she really? How about the US military, how about FEMA? They look to be doing a good job, and FEMA seems to have learned a lot from Katrina 12 years ago.

Again, I don’t know how much of that is Trump, but if I may be cynical, he’s smart enough to know how his response could or would be used against him, so he would be really thick if he let the situation get worse than it should be. Earlier today Cate Long, an expert on Puerto Rico due to its debt fiasco, and hence with a lot of contacts there, tweeted:

“Federal govt has leapfrogged Puerto Rico govt & made direct connection with 78 municipalities. Central to powerful supply chain & relief.”

While the Huffington Post, not exactly Trump cheerleaders, posted this:

US Military On Puerto Rico: “The Problem Is Distribution”

Speaking today exclusively and live from Puerto Rico, is Puerto Rican born and raised, Colonel Michael A. Valle (”Torch”), Commander, 101st Air and Space Operations Group, and Director of the Joint Air Component Coordination Element, 1st Air Force, responsible for Hurricane Maria relief efforts in the U.S. commonwealth with a population of more than 3 million.

Since the ‘apocalyptic’ Cat 4 storm tore into the spine of Puerto Rico on September 20, Col. Valle has been both duty and blood bound to help. Col. Valle is a firsthand witness of the U.S. Department of Defense (DoD) response supporting FEMA in Puerto Rico, and as a Puerto Rican himself with family members living in the devastation, his passion for the people is second to none. “It’s just not true,” Col. Valle says of the major disconnect today between the perception of a lack of response from Washington verses what is really going on on the ground.

[..] some truck drivers from outside the island have been brought in, and more are coming, however it’s not a fix-all. “We get more and more offers to help, but there is no where to stay, we can’t take any more bodies, there’s no where to put them.” Col. Valle says, adding that their “air mobility” is good, and reiterating that getting more supplies or manpower is not the issue. When asked three times what else Washington can do to help, or anyone for that matter, three times Col. Valle answered, “It’s going to take time.”

Maybe it’s time to exit your echo chamber?

 

 

Oct 012017
 
 October 1, 2017  Posted by at 8:41 am Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle October 1 2017


Edward Hopper Nighthawks 1942

 

US Military On Puerto Rico: “The Problem Is Distribution” (HP)
When Fascism Won’t Die: Why We Need to Support Catalonia (CP)
David Stockman: Stocks Are Heading For 40-70% Plunge (CNBC)
The Financialization of America… and Its Discontents
The US Economy is Failing (Paul Craig Roberts)
Debt-Slave Industry Frets over Impact of Mass Credit Freezes (WS)
Hong Kong Economy Most At Risk Of Financial Crisis – Nomura (BBG)
S&P Says China’s Debt Will Grow 77% by 2021 (BBG)
China Cuts Reserve Requirements To Boost Lending To Small Firms (R.)
Fukushima Potentially Leaking Radioactive Water For 5 Months (RT)

 

 

An appeal from Puerto Rico via Nicole:

Hurricane Maria destroyed many of Puerto Rico’s local seed and organic food-producing farm crops. Please, if you can, send me seeds. Even fruit seed for the tropics – I can plant them quickly. I will hand them out to those in need – as well as start flats in order to jumpstart their crops. Thank you!

Mara Nieves
PO BOX 9020931
Old San Juan, PR
00901-0931

 

 

Just dumping another 10,000 people on the island is not the (whole) answer. Too many people criticize too easily. Time to leave the echo chamber. If HuffPo can do it, so can you.

“As a Puerto Rican, I can tell you that the problem has nothing to do with the U.S. military, FEMA, or the DoD.”

US Military On Puerto Rico: “The Problem Is Distribution” (HuffPo)

Speaking today exclusively and live from Puerto Rico, is Puerto Rican born and raised, Colonel Michael A. Valle (”Torch”), Commander, 101st Air and Space Operations Group, and Director of the Joint Air Component Coordination Element, 1st Air Force, responsible for Hurricane Maria relief efforts in the U.S. commonwealth with a population of more than 3 million. Since the ‘apocalyptic’ Cat 4 storm tore into the spine of Puerto Rico on September 20, Col. Valle has been both duty and blood bound to help. Col. Valle is a firsthand witness of the U.S. Department of Defense (DoD) response supporting FEMA in Puerto Rico, and as a Puerto Rican himself with family members living in the devastation, his passion for the people is second to none. “It’s just not true,” Col. Valle says of the major disconnect today between the perception of a lack of response from Washington verses what is really going on on the ground.

“I have family here. My parents’ home is here. My uncles, aunts, cousins, are all here. As a Puerto Rican, I can tell you that the problem has nothing to do with the U.S. military, FEMA, or the DoD.” “The aid is getting to Puerto Rico. The problem is distribution. The federal government has sent us a lot of help; moving those supplies, in particular, fuel, is the issue right now,” says Col. Valle. Until power can be restored, generators are critical for hospitals and shelter facilities and more. But, and it’s a big but, they can’t get the fuel to run the generators. They have the generators, water, food, medicine, and fuel on the ground, yet the supplies are not moving across the island as quickly as they’re needed.

“It’s a lack of drivers for the transport trucks, the 18 wheelers. Supplies we have. Trucks we have. There are ships full of supplies, backed up in the ports, waiting to have a vehicle to unload into. However, only 20% of the truck drivers show up to work. These are private citizens in Puerto Rico, paid by companies that are contracted by the government,” says Col. Valle. Put another way, 80% of truck drivers do not show up to work, and yet again, it’s important to understand why. “There should be zero blame on the drivers. They can’t get to work, the infrastructure is destroyed, they can’t get fuel themselves, and they can’t call us for help because there’s no communication. The will of the people of Puerto Rico is off the charts. The truck drivers have families to take care of, many of them have no food or water. They have to take care of their family’s needs before they go off to work, and once they do go, they can’t call home,” explains Col. Valle.

[..] some truck drivers from outside the island have been brought in, and more are coming, however it’s not a fix-all. “We get more and more offers to help, but there is no where to stay, we can’t take any more bodies, there’s no where to put them.” Col. Valle says, adding that their “air mobility” is good, and reiterating that getting more supplies or manpower is not the issue. When asked three times what else Washington can do to help, or anyone for that matter, three times Col. Valle answered, “It’s going to take time.”

Read more …

The footage this morning from Catalonia is horrifying.

When Fascism Won’t Die: Why We Need to Support Catalonia (CP)

People in the United States, especially those from the 1980s onward, know little of Spain’s Civil War (1936-1939) and the long dictatorship that followed. This knowledge is helpful in understanding the situation in Spain and Catalonia right now. The judge (Ismael Moreno) who is set to decide on sedition charges against Catalan activists for attempting to hold a democratic referendum on October 1st, for example, has roots that are deeply connected to Francisco Franco (1892-1975), the military leader who initiated the Civil War, won it, and then went on to rule as Head of State and dictator in Spain for almost forty years. Franco is a major figure of twentieth-century fascism in Europe. A purge of Francoist government officials never took place when the dictatorship ended in the 1970s, and this leadership has had a lasting impact on how Spain’s government makes its decisions about Catalonia, a region traumatized during and after the war due to its resistance to Franco’s regime.

The lingering effects of Franco’s legacy are at this point well-documented and need to be a part of the discourse that surrounds what is quickly unraveling in Barcelona. Over the past week, Spain’s military body, the Guardia Civil, has forcibly taken control of the Mossos d’Esquadra, Catalonia’s own police force. It has also detained government officials, closed multiple websites, and ordered seven hundred Catalan mayors to appear in court. Ominously, Spanish police from all over the country have traveled up to Barcelona or are en route to the Catalan capital, holing up in three giant cruise ships, two anchored in the city’s port, one in the port of nearby Tarragona. They are doing this at a time when Spain is on high alert for terrorist attacks, removing their police forces from numerous regions that could be in danger of attack, including Madrid, in preparation to stop Catalan people from putting pieces of paper into voting boxes.

Like the Spanish government, the Spanish police force was never purged of its Francoist ties following the dictatorship. It is a deeply corrupt institution [..] Manuel Fraga Iribarne, one of Franco’s ministers during the dictatorship, founded Prime Minister Mariano Rajoy’s Popular Party. The party is currently enmeshed in a corruption scandal of its own. Spain’s royal family is similarly linked to Franco and has also been brought to trial for its own set of corruption charges. It is impossible to ignore the fascist bedrock upon which modern Spain is founded, or to ignore the reality that this foundation has to do with the way Spain treats Catalonia.

Read more …

No tax reform, says Stockman.

David Stockman: Stocks Are Heading For 40-70% Plunge (CNBC)

David Stockman is warning about the Trump administration’s tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the Reagan administration’s director of the Office of Management and Budget, isn’t stepping away from his thesis that the 8 1/2-year-old rally is in serious danger. “There is a correction every seven to eight years, and they tend to be anywhere from 40 to 70%,” Stockman said recently on CNBC’s “Futures Now.” “If you have to work for a living, get out of the casino because it’s a dangerous place.” He’s made similar calls, but they haven’t materialized. In June, Stockman told CNBC the S&P 500 could easily fall to 1,600, which at the time represented a 34% drop. This week, the index was trading at record levels above 2,500. Stockman puts a big portion of the blame on the Federal Reserve, and its ultra-loose monetary policy.

“This is a bubble created by the Fed,” he said. “We’re heading for higher yields. We are heading for a huge reset of pricing in the risk markets that’s been based on ultra-cheap yields that the central banks of the world created that are now going to go away because they’re telling you that they’re done.” At the height of the 2007-2009 financial crisis, the S&P 500 Index plummeted as much as 58%. It happened in March 2009. “This market at 24 times GAAP earnings, 21 times operating earnings, 100 months into a business expansion with the kind of troubles you have in Washington, central banks [are] going to the sidelines,” he said. “There’s very little reward, and there’s a heck of a lot of risk.” Stockman argued that President Donald Trump’s business-friendly tax reform bill, which was unveiled Wednesday, won’t prevent a damaging sell-off.

He previously said Wall Street is “delusional” for believing it will even be passed. “This is a fiscal disaster that when they [Wall Street] begin to look at it, they’ll see it’s not even remotely paid for. This bill will go down for the count,” said Stockman. He said White House economic advisor Gary Cohn and Treasury Secretary Steve Mnuchin “totally failed to provide any detail, any leadership, any plan. Both of them ought to be fired because they let down the president in a major, major way.” And, it’s not just Washington dysfunction and Fed policy that could ultimately make Stockman’s long-held bearish prediction a reality. He says there will be a catalyst, but it’s unknown exactly what it will be. “You get a black swan in the old days, or maybe you get an orange swan now, the one in the Oval Office who can’t seem to stop tweeting and distracting the whole process from accomplishing anything,” Stockman said of President Donald Trump.

Read more …

Koyaanisqatsi. “..capital and profits flow to the scarcities created by asymmetric access to information, leverage and cheap credit — the engines of financialization.”

The Financialization of America… and Its Discontents

Labor’s share of the national income is in freefall as a direct result of the optimization of financialization. The Achilles Heel of our socio-economic system is the secular stagnation of earned income, i.e. wages and salaries. Stagnating wages undermine every aspect of our economy: consumption, credit, taxation and perhaps most importantly, the unspoken social contract that the benefits of productivity and increasing wealth will be distributed widely, if not fairly. This chart shows that labor’s declining share of the national income is not a recent problem, but a 45-year trend: despite occasional counter-trend blips, labor (earnings from labor/ employment) has seen its share of the economy plummet regardless of the political or economic environment.

Given the gravity of the consequences of this trend, mainstream economists have been struggling to explain it, as a means of eventually reversing it. The explanations include automation, globalization/offshoring, the high cost of housing, a decline of corporate competition (i.e. the dominance of cartels and quasi-monopolies), a failure of our educational complex to keep pace, stagnating gains in productivity, and so on. Each of these dynamics may well exacerbate the trend, but they all dodge the dominant driver of wage stagnation and rise income-wealth inequality: our economy is optimized for financialization, not labor/earned income. What does our economy is optimized for financialization mean? It means that capital and profits flow to the scarcities created by asymmetric access to information, leverage and cheap credit — the engines of financialization.

Financialization funnels the economy’s rewards to those with access to opaque financial processes and information flows, cheap central bank credit and private banking leverage. Together, these enable financiers and corporations to get the borrowed capital needed to acquire and consolidate the productive assets of the economy, and commoditize those productive assets, i.e. turn them into financial instruments that can be bought and sold on the global marketplace. Labor’s share of the national income is in freefall as a direct result of the optimization of financialization. Meanwhile, the official policy goal of the Federal Reserve and other central banks is to generate 3% inflation annually. Put another way: the central banks want to lower the purchasing power of their currencies by 33% every decade.

In other words, those with fixed incomes that don’t keep pace with inflation will have lost a third of their income after a decade of central bank-engineered inflation. But in an economy in which wages for 95% of households are stagnant for structural reasons, pushing inflation higher is destabilizing. There is a core structural problem with engineering 3% annual inflation. Those whose income doesn’t keep pace are gradually impoverished, while those who can notch gains above 3% gradually garner the lion’s share of the national income and wealth.

Read more …

“Unless Robots pay payroll taxes, the financing for Social Security and Medicare will collapse. And it goes on down from there.”

The US Economy is Failing (Paul Craig Roberts)

Americans carry on by accumulating debt and becoming debt slaves. Many can only make the minimum payment on their credit card and thus accumulate debt. The Federal Reserve’s policy has exploded the prices of financial assets. The result is that the bulk of the population lacks discretionary income, and those with financial assets are wealthy until values adjust to reality. As an economist I cannot identify in history any economy whose affairs have been so badly managed and prospects so severely damaged as the economy of the United States of America. In the short/intermediate run policies that damage the prospects for the American work force benefit what is called the One Percent as jobs offshoring reduces corporate costs and financialization transfers remaining discretionary income in interest and fees to the financial sector.

But as consumer discretionary incomes disappear and debt burdens rise, aggregate demand falters, and there is nothing left to drive the economy. What we are witnessing in the United States is the first country to reverse the development process and to go backward by giving up industry, manufacturing, and tradable professional skill jobs. The labor force is becoming Third World with lowly paid domestic service jobs taking the place of high-productivity, high-value added jobs. The initial response was to put wives and mothers into the work force, but now even many two-earner families experience stagnant or falling material living standards. New university graduates are faced with substantial debts without jobs capable of producing sufficient income to pay off the debts.

Now the US is on a course of travelling backward at a faster rate. Robots are to take over more and more jobs, displacing more people. Robots don’t buy houses, furniture, appliances, cars, clothes, food, entertainment, medical services, etc. Unless Robots pay payroll taxes, the financing for Social Security and Medicare will collapse. And it goes on down from there. Consumer spending simply dries up, so who purcheses the goods and services supplied by robots? To find such important considerations absent in public debate suggests that the United States will continue on the country’s de-industrialization, de-manufacturing trajectory.

Read more …

Tricks to keep credit flowing.

Debt-Slave Industry Frets over Impact of Mass Credit Freezes (WS)

“Let’s face it, 143 million frauds won’t be perpetrated right away; it will take some time to filter through,” Steve Bowman, chief credit and risk officer at GM Financial, the auto-lending subsidiary of General Motors, told Reuters. He was talking about the consequences of the Equifax hack during which the most crucial personal data, including Social Security numbers, of 143 million American consumers along with equivalent data of Canadian and British consumers, had been stolen. These consumers have all at once become very vulnerable to all kinds of fraud, including identity theft – where a fraudster borrows money in their name. The day Equifax disclosed the hack, I urged affected consumers to put a credit freeze on their credit data at the three major credit bureaus — Equifax, TransUnion, and Experian — to protect themselves against these frauds.

Soon, the largest media outlets and state attorneys general urged consumers to do the same thing. Financial advisors are recommending it. Even Wells Fargo jumped on the credit freeze bandwagon. As a result, consumers have flooded the websites of the three credit bureaus to request credit freezes in such numbers that the sites slowed down, timed out, or went down entirely for periods of time. This credit freeze frenzy is scaring the credit industry – not just the credit bureaus, but also lenders and companies that rely on easy credit to sell their wares, such as automakers and department stores with instant credit cards. With a credit freeze in place, those consumers cannot be approved for new credit until they lift the credit freeze, which can take up to three business days. The time and extra hoops to jump through before applying for a new loan might deter consumers from buying that car at the spur of the moment.

No one knows how this is going to turn out – and how it will impact the debt-based consumer economy. But fears are mounting. If just 10% of 324 million folks in the US put a credit freeze on their data, the credit industry will feel the impact painfully. Hence the efforts to contain the fallout. On Wednesday, an apology by the interim CEO of Equifax, Paulino do Rego Barros Jr. – he succeeded CEO Richard Smith, who’d been sacked – concluded with tidbits of a service Equifax is hoping to roll out by January 31. It would allow “all consumers the option of controlling access to their personal credit data.” It would allow them to “easily lock and unlock access to their Equifax credit files.” This is going to be “simple,” and “free for life.”

This “credit lock” or whatever Equifax wants to call it is not a “credit freeze.” TransUnion is offering a similar service. Credit freezes are covered by state law, and credit bureaus have to conform to state law. With these “credit locks” credit bureaus can do whatever they want to, and consumers will have to read the fine print to figure out what that is and how well a “credit lock” will protect them. But those credit locks offer the credit industry a huge advantage over a credit freeze: They can be designed to be lifted instantly. And this is a sign of how frazzled the credit industry, including the lenders, are becoming, about the credit freezes.

Read more …

Interesting methodology.

Hong Kong Economy Most At Risk Of Financial Crisis – Nomura (BBG)

Hong Kong is the economy most at risk of suffering a financial crisis, with China the second most vulnerable, according to the latest update of an early warning system devised by Nomura. The findings don’t mean there will be a crisis. “It’s not a purely scientific approach that is very precise,” Singapore-based analyst Rob Subbaraman said by phone on Friday. “It doesn’t mean that indicators are always accurate or that because they have worked in the past they will work in the future.” Subbaraman developed the system along with fellow analyst Michael Loo using data going back to the early 1990s. The findings show that emerging markets are more prone than developed markets, and that Asia ex-Japan is the region that is most at risk.

The analysts selected five indicators that flash a signal of a financial crisis happening in the next 12 quarters when they breach set thresholds:
* Corporate and household credit to GDP
* The corporate and household debt-service ratio
* The real effective exchange rate
* Real — or adjusted for inflation — property prices
* Real equity prices

The latest update covers the 12 quarters up to and including the first three months of this year. As there are five indicators, each of the countries studied can have a maximum of 60 signals. Hong Kong has the most signals, 52 — higher than during the 1997 Asian financial crisis. China’s total fell to 40 from 41 in the previous update that covered the period up to the fourth quarter of 2016. “Hong Kong looks to be well in the danger zone,” Subbaraman and Loo wrote in the note. They described the decline in China’s total — the first drop since its number of flashing indicators started a steep ascent from zero in the first quarter of 2013 — as encouraging. “Nonetheless, China is still in the danger zone and without further efforts to drain its credit and property excesses, it will be difficult to arrest the trend slowdown in growth.”

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Chinese reality. Shadow banks and local government financing vehicles.

S&P Says China’s Debt Will Grow 77% by 2021 (BBG)

China’s total debt could rise 77% to $46 trillion by 2021, and its push to rein in heavy corporate borrowing has had “only tentative results so far,” S&P Global Ratings said. While the pace of debt expansion is slowing, it still exceeds economic growth, implying that high credit risks could still “incrementally increase,” the rating company said in a report Friday. “Recent intensification of government efforts to rein in corporate leverage could stabilize the trend of financial risks over the next few years,” credit analyst Christopher Lee wrote. “But we still foresee that credit growth will remain at levels that will gradually increase financial stress.” S&P last week cut China’s sovereign credit rating for the first time since 1999, citing the risks from soaring debt, and revised its outlook to stable from negative.

The Finance Ministry responded that the analysis ignores the country’s sound economic fundamentals and that the government is fully capable of maintaining financial stability. In a separate report Friday, S&P said China’s push to rein in corporate borrowing likely hasn’t produced lasting results because it lacks specific targets and time frames for cuts. Corporate debt, including local government financing vehicles, rose 5% last year to $14.5 trillion and is the highest among large economies at 134% of GDP, S&P said. State-owned enterprises are the heaviest borrowers, S&P said, adding that a focus on maintaining stability contributes to cautious policy making and a bias toward a status quo that prioritizes economic growth.

SOEs produce a fifth of economic output while taking out 40% of the bank loans, and they’re less profitable than private counterparts with double the overall debt leverage ratio, S&P said. “Without bold actions, China’s corporate deleveraging aims won’t be met in the next one to two years,” Lee wrote. “China allows moral hazards to persist by providing implicit or even direct support to highly indebted SOEs.

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Caution to the wind!

China Cuts Reserve Requirements To Boost Lending To Small Firms (R.)

China’s central bank on Saturday cut the amount of cash that some banks must hold as reserves for the first time since February 2016 in a bid to encourage more lending to struggling smaller firms and energize its lackluster private sector. The People’s Bank of China (PBOC) said on its website that it would cut the reserve requirement ratio (RRR) for some banks that meet certain requirements for lending to small business and the agricultural sector. The PBOC said the move was made to support the development of “inclusive” financial services. The reserve requirement rate will be cut a further 50 bps to 150 bps from the benchmark RRR rate for banks that meet certain requirements for lending to the targeted sectors, the PBOC said. China’s cabinet had in late September flagged a possible move, saying the government will take a number of measures, including tax exemptions and targeted reserve requirement ratio cuts to encourage banks to support small businesses.

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Slow death.

Fukushima Potentially Leaking Radioactive Water For 5 Months (RT)

The Fukushima nuclear power plant may have been leaking radioactive water since April, its owner has admitted. Tokyo Electric Power Company said on Thursday that a problem with monitoring equipment means it can’t be sure if radiation-contaminated water leaked from the reactor buildings damaged in the 2011 nuclear disaster which was sparked by an earthquake and tsunami, the Japan Times reports. The company said there were errors on the settings of six indicators monitoring groundwater levels of wells around reactor buildings 1-4 at the Fukushima Daiichi Nuclear power station. The indicators weren’t showing accurate water levels, and the actual levels were about 70 centimeters lower than that which the equipment showed. In May, groundwater at one of the wells sank below the contaminated water inside, NHK reports, which possibly caused the radioactive water to leak into the soil.

The company said it is investigating, and that no abnormal increase of radioactivity has shown up in samples. The problem with the six wells in question was discovered this week when the company was preparing another well nearby. The 2011 Fukushima nuclear disaster occurred when three of the plant’s reactors experienced fuel meltdowns and three units were damaged by hydrogen explosions as a result of the earthquake and subsequent tsunami. TEPCO has kept groundwater levels in wells higher than the contaminated water levels inside the plant, usually a meter higher. It also installed water-level indicators, which have now been revealed to be inaccurate. Last week, the company was ordered to pay damages of 376 million yen ($3.36 million) to 42 plaintiffs for the nuclear disaster in the second case a court has which has seen rulings against the company.

The suit, one of about 30 class actions brought against the plant, was brought by residents forced to flee their homes when three reactor cores melted, knocking off the cooling systems and sending radioactive material into the air. The case examined whether the government and TEPCO could have foreseen the tsunami. A government earthquake assessment made public in 2002 predicted a 20% chance of a magnitude 8 earthquake affecting the area within 30 years. The 2011 quake was a magnitude 9. The case argued that the disaster was preventable as emergency generators could have been placed at a location higher than the plant, which stands 10 meters above sea level. The court found the state wasn’t liable, but another case in March found both TEPCO and the government liable.

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Sep 302017
 
 September 30, 2017  Posted by at 8:45 am Finance Tagged with: , , , , , , , ,  


Vincent van Gogh Boulevard de Clichy, Paris 1887

 

Trump’s 1,500-word Airball (Stockman)
Puerto Rico Supply Failure Stops Food, Water Reaching Desperate Residents (G.)
Abenomics: Bat-Shit-Crazy (Muir)
Congress Can Give Every American A Pony (Kelton)
Homeowners Face Double Whammy Of Interest Rates And Slumped Market (Ind.)
ECB Wants to Weed Out Smaller Banks to Cut Competition (DQ)
VW’s Dieselgate Bill Hits $30 Billion After Another Charge (R.)
Could Ryanair’s ‘Pilotgate’ Spell The End Of Cheap Flights? (Ind.)
Citizens United No More (Jim Kunstler)
The Slimy Business of Russia-gate (Robert Parry)
Catalan Government Says Millions Will Turn Out For Referendum (G.)
Aid Programs Are Designed To Keep Countries In Poverty (Ren.)

 

 

The White House should consult with Stockman. He’s been there. This is going nowhere good. “..after nine months of work these geniuses have come up with $6 trillion of easy to propose tax rate cuts and virtually no plan whatsoever to pay for them..”

Trump’s 1,500-word Airball (Stockman)

The Donald’s strong point isn’t his grasp of policy detail. The nine page bare-bones outline released yesterday is nothing more than an aspirational air ball that lacks virtually every policy detail needed to assess its impact and to price out its cost. It promises to shrink the code to three rates (12%, 25%, 35%), for example. But it doesn’t say boo about where the brackets begin and end compared to current law. Needless to say, a taxpayer with $50,000 of taxable income who is on the 15% marginal bracket today might wish to know whether he is in the new 12% or the new 25% bracket proposed by the White House. After all, it could change his tax bill by several thousand dollars. Similarly, to help pay for upwards of $6 trillion of tax cuts over the next decade, it proposes to eliminate “most” itemized deductions. These “payfors” would in theory increase revenues by about $3 trillion.

Then again, the plan explicitly excludes the two biggest deductions – the charitable deduction and mortgage deduction – which together account for $1.3 trillion of that total. And it doesn’t name a single item among the hundreds of deductions that account for another $1 trillion of current law revenue loss. They’re just mystery meat to be stealthily extracted during committee meetings after Congressman have run the gauntlet of lobbyists prowling the halls outside. Stated differently, after nine months of work these geniuses have come up with $6 trillion of easy to propose tax rate cuts and virtually no plan whatsoever to pay for them. In fact, this latest nine pages of puffery contains just 1,500 words – including obligatory quotes from the Donald and page titles. I hate to get picky, but the Donald’s team has been on the job for 250 days now. And all they came up with amounts to just three words each per day in office.

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Blaming Puerto Rico on Trump as well is cheap and easy. The Jones Act must go, but Congress has left it intact. So have successive presidents.

Puerto Rico Supply Failure Stops Food, Water Reaching Desperate Residents (G.)

Nine days after Hurricane Maria struck Puerto Rico, thousands of containers of food, water and medicine are stuck in ports and warehouses on the island, as logistical problems continue to stop desperately needed supplies from reaching millions of Americans. In many parts of the US territory, food, medicine and drinking water are scarce, and amid a growing humanitarian crisis, local researchers have suggested the death toll could be much higher than the 16 deaths reported so far. On Thursday, the White House temporarily waived the Jones Act – the 1920 legislation which had prevented foreign ships from delivering supplies from US ports to Puerto Rico. But the breakdown of the island’s supply chain has left many concerned that the move will not be enough to get goods to the people who need them most.

Yennifer Álvarez, a spokesperson for Puerto Rico’s governor, said about 9,500 shipping containers filled with cargo were at the port of San Juan on Thursday morning as the government struggled to find truckers who could deliver supplies across the island. The delivery issue is aggravated by an intense shortage of gasoline. About half of Puerto Rico’s 1,100 gas stations are out of action; at those that are open, people have been queuing for up to nine hours to buy fuel for vehicles or the generators which have become essential since the island is still without electricity. Rafael Álvarez, vice-president of Méndez & Co, a food distribution company based in San Juan, said he was worried that if fuel was not efficiently distributed soon, people might get desperate. “I really hope things are worse today than they are going to be tomorrow,” he said.

“People are getting very anxious with the heat and the lack of easily accessible drinkable water.” Because of Puerto Rico’s crippling economic crisis, few people had the money to afford more than a week’s worth of emergency supplies, said Alvarez. But if fuel was readily available, Alvarez said, goods could be efficiently delivered around the island and generators would reliably function, resolving many of the territory’s most pressing concerns. Alvarez’s warehouse is at 100% capacity with shelf-stable products including cereals, granola bars and pasta sauce. Yet although the goods are ready to move to local grocery stores, only around 25% of his normal distribution fleet is available, because of the shortage of fuel or damage inflicted by the storm. And few stores are open because they need diesel to power their generators.

“The food industry is really intact except for diesel fuel,” Alvarez said. “We need diesel fuel to operate.” Federal and state officials have said there is enough diesel on the island, but it too has been difficult to distribute. “You know, the gas and fuel issue is not a matter of how much do we have – it’s a matter of how we can distribute it,” Puerto Rico’s governor, Ricardo Rosselló, told NPR.

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“And just like that, Abeconomics was born. Since then the Bank of Japan balance sheet has swelled from 30% of GDP to 95%!”

Abenomics: Bat-Shit-Crazy (Muir)

Between 1999 and 2012, the Bank of Japan increased their balance sheet threefold, raising it from 10% of GDP to 30%. Many a pundit screamed about Japan’s irresponsible monetary policy, but then the 2008 Great Financial Crisis hit, and suddenly the BoJ’s policies didn’t seem that extreme. The Fed embarked on a massive quantitative easing program, followed by most of the rest of the developed world. Next thing you knew, the Bank of Japan’s bloated balance sheet seemed like just one of many. Post GFC, the rate at which these other Central Banks were expanding their balance sheet put extreme stress on the Japanese economy as the BoJ’s relatively tame quantitative easing policy was overwhelmed by the rest of the world. Global deflation was exported to Japan. And just when things couldn’t get worse, Japan was hit by the tsunami/nuclear disaster.

Paradoxically, this caused a spike in the USDJPY rate down to 75, with the Yen hitting an all-time high value against the US dollar. This proved the final straw for the Japanese people, and Prime Minister Abe was elected on a platform of breaking the back of deflation through innovative extreme policies. And just like that, Abeconomics was born. Since then the Bank of Japan balance sheet has swelled from 30% of GDP to 95%! It’s too easy to take this for granted. The blue tickets just seem to keep coming, and coming, and coming. Pretty soon, it all seems so normal. But it isn’t. Not even close. This is bat-shit-crazy monetary expansion. Forget about arguing whether it is appropriate or needed. It doesn’t matter. The markets don’t give a hoot about your opinion. Nor does the BoJ. Heck, they barely even care what Yellen or Trump thinks.

They are going to do what they think best for their people, and that means inflating the shit out of their currency. What I find amazing is how complacent the markets have become about all of this. Sure when Abeconomics first came to pass there were tons of worrisome hedge fund presentations about the inevitability of disaster. But since then Kyle Bass and all the other Japan skeptics have moved on to China, or to the most recent hedge-fund-herding-theme-of-the-day. Yet at one point a few years back a reporter asked Kyle if he could put on one trade for the next decade and couldn’t touch it, what would it be? Bass answered gold denominated in Yen. I have this sneaking suspicion our favourite Texas hedge fund manager’s call was way more prescient than even he imagines (I just hope Kyle hasn’t taken it all off to bet on the China collapse.)

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At the very least the topic warrants a serious discussion. Just saying Stephanie’s crazy is not that.

Congress Can Give Every American A Pony (Kelton)

In her new book, Hillary Clinton mocks Sen. Bernie Sanders’ populist agenda. BERNIE: I think America should get a pony. HILLARY: How will you pay for the pony? You might find Clinton’s question intuitively reasonable. If you promise to fight for big things, then you should draw a detailed road map to the treasure chest that will fund them all. After all, the money has to come from somewhere. But what if I told you that your intuition was all wrong? What if it turned out that the government really could give everyone a pony — and a chicken and car? That is, so long as we could breed enough ponies and chickens and manufacture enough cars. The cars and the food have to come from somewhere; the money is conjured out of thin air, more or less.

When Clinton asks where the money will come from, she’s ordering the government’s fiscal operations like so:
1. Government collects money from us in the form of taxes (T)
2. Government figures out how much it wants to spend and then borrows any additional money it needs (B)
3. Government spends the money it has collected (S)

Since none of us learned any differently, most of us accept the idea that taxes and borrowing precede spending – TABS. And because the government has to “find the money” before it can spend in this sequence, everyone wants to know who’s picking up the tab. There’s just one catch. The big secret in Washington is that the federal government abandoned TABS back when it dropped the gold standard. Here’s how things really work:
1. Congress approves the spending and the money gets spent (S)
2. Government collects some of that money in the form of taxes (T)
3. If 1 > 2, Treasury allows the difference to be swapped for government bonds (B)

In other words, the government spends money and then collects some money back as people pay their taxes and buy bonds. Spending precedes taxing and borrowing – STAB. It takes votes and vocal interest groups, not tax revenue, to start the ball rolling. If you need proof that STAB is the law of the land, look no further than the Senate’s recent $700-billion defense authorization. Without raising a dime from the rest of us, the Senate quietly approved an $80-billion annual increase, or more than enough money to make 4-year public colleges and universities tuition-free. And just where did the government get the money to do that? It authorized it into existence.

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The future inside all housing bubbles. And there are more of those than anyone acknowledges.

Homeowners Face Double Whammy Of Interest Rates And Slumped Market (Ind.)

Homeowners are facing a twin blow of increased mortgage payments and a slowing housing market, with London prices falling for the first time in eight years. Across the UK the average price of a home increased at its slowest slowest pace in more than four years in September, Nationwide said on Friday. The news came shortly after Bank of England governor Mark Carney gave his clearest signal yet that the central bank’s Monetary Policy Committee would raise its benchmark interest rate from 0.25%. “What we have said, that if the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat,” he told BBC Radio 4’s Today Programme, on Friday. A rate hike would mean more expensive home loans for homeowners who have grown used to ultra-low interest rates.

The MPC meets on 2 November to make its decision and a rate rise would be the first in more than a decade. Any increase is expected to be small but would place additional strain on households already stretched amid higher inflation and weak wage growth. A 0.25% rise would mean a person with a £200,000 mortgage on the average UK variable rate of 4.6% would pay an extra £28.72 per month. An increase of 1% would add an extra £117.10 to payments, though this scenario is not expected to become a reality in the short term. Higher payments could prove painful for homeowners, especially as the housing market begins to stutter. London house prices fell 0.6% in the year to September, Nationwide said – the first annual drop since the aftermath of the financial crisis in 2009. It was the first time since 2005 that London was the worst performing region in the country.

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Centralization is dead.

ECB Wants to Weed Out Smaller Banks to Cut Competition (DQ)

The biggest financial problem in Europe these days is that it is “over-banked,” according to Daniele Nouy, Chair of the ECB’s Supervisory Board, and thus in charge of the Single Supervisory Mechanism, which regulates the largest 130 European banks. In a speech bizarrely titled “Too Much of a Good Thing: The Need for Consolidation in the European Banking Sector,” Nouy blamed fierce competition for squeezing profits for many of Europe’s banks while steadfastly ignoring the much larger role in the profit squeeze played by the ECB’s negative-interest-rate policy. ECB President Mario Draghi agrees. The profits of the largest 10 European banks rose by only 5% in the first half of 2017, compared to 19% for the US banks, which benefited from higher interest rates, stronger capital markets, better capitalization, and larger market shares, according to a new report by Ernst and Young.

In its latest annual health check of European banks, Bain Capital found that 31 institutions, or 28% of the 111 financial institutions they assessed, are in the “high-risk” quadrant. Location seemed to be a far more important factor than size. Banks in Italy, Greece, Portugal and Spain have become “a breed apart in continued distress,” the report said, adding: “Every single bank that has failed in the past decade and for which there are financial statements available…fell into this quadrant before their demise.” Scandinavian, Belgian, and Dutch banks figured prominently among the 38% of the banks that attained the strongest position, outperforming on virtually all financial indicators. By contrast, many German and UK banks fell into the second category, that of “weaker business model.” In fact, virtually all the large German names fit into this category as their profitability and efficiency languish at levels comparable with their Greek counterparts.

They include Deutsche Bank, which in the midst of its third revamp in so many years, just reported its worst revenues in three and a half years. Deutsche Bank is far from alone. The dismal reality is that nine long years after the global financial crisis began, many systemic European banks pose as big a risk to the financial system, if not bigger, as they did back then. The only major difference is that now they’re hooked on Draghi’s myriad monetary welfare schemes (LTRO, TLTRO I and II…), which have managed to keep them afloat even as the ECB’s monetary policy puts a massive squeeze on their lending margins by driving interest rates to unfathomably low levels. But rather than raising interest rates — a scary thought given how major Eurozone economies like Italy and Spain have come to depend on QE to keep servicing their public debt — the ECB plans to reduce competition in the banking sector by weeding out smaller banks.

It’s a process that is already well under way, as Nouy explained in her speech: “Since 2008, the number of banks in the euro area has declined by about 20%, to around 5,000. And the number of bank employees has fallen by about 300,000, to 1.9 million. Total assets of the euro area banking sector peaked in 2012 at about 340% of GDP. Since then, they have fallen back to about 280% of GDP.” But this is not about shrinking the size of the banking sector; it’s about shrinking the number of players within it and in the process creating trans-European banking giants. To achieve that goal, all Europe needs are “brave banks” that are willing to conquer new territory: “Cross-border mergers would do more than just help the banking sector to shrink. They would also deepen integration. And this would take us closer to our goal of a truly European banking sector.”

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Time for Merkel to stop cozying up to carmakers.

VW’s Dieselgate Bill Hits $30 Billion After Another Charge (R.)

Volkswagenis taking another $3 billion charge to fix diesel engines in the United States, lifting the total bill for its emissions test cheating scandal to around $30 billion. Shares in the German carmaker fell as much as 3% on Friday, as traders and analysts expressed dismay the company was still booking charges two years after the scandal broke. “This is yet another unexpected and unwelcome announcement from VW, not only from an earnings and cash flow perspective but also with respect to the credibility of management,” said Evercore ISI analyst Arndt Ellinghorst. Europe’s biggest automaker admitted in September 2015 it had used illegal software to cheat U.S. diesel emissions tests, sparking the biggest business crisis in its 80 year history. Before Friday, it had set aside 22.6 billion euros ($26.7 billion) to cover costs such as fines and vehicle refits.

On Friday, it said hardware fixes were proving tougher than expected, as it booked an additional 2.5 billion euro provision. “We have to do more with the hardware,” a VW spokesman said, adding U.S. customers were having to wait longer for their cars to be repaired. The news relates to the program to buy back or fix up to 475,000 2 liter diesel cars. In Europe, where only a software update is required for the 8.5 million affected cars, besides a minor component integration for about 3 million of those, fixes are running smoothly, the spokesman added. The additional provision will be reflected in third-quarter results due on Oct. 27, VW said. Ellinghorst, who has an “outperform” rating on VW shares, expects the company to report third-quarter group earnings before tax and interest of €4.04 billion. “You have to ask if this is a bottomless pit,” said one Frankfurt-based trader of the U.S. charges.

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Something needs to stop it.

Could Ryanair’s ‘Pilotgate’ Spell The End Of Cheap Flights? (Ind.)

Ryanair has apologised to 800,000 passengers for cancelling their flights because of a pilot shortage, and then misleading them about their rights. But an obligation to meet travellers’ out-of-pocket expenses has raised fears that airlines’ costs – and fares – could soar because of demands for recompense. Airlines who cancel flights appear to have an open-ended liability for out-of-pocket expenses, which could include anything from tickets for an FC Barcelona Champions’ League football match to lost wages. The payments are additional to EU requirements to cover hotel rooms and meals connected with flight disruption. Costs could feed through to more expensive tickets – which, with supply reduced because of mass cancellations by Ryanair, are already rising.

[..] The Civil Aviation Authority (CAA) had demanded a statement from Ryanair explaining its obligations under European passengers’ rights rules. The airline complied shortly before the 5pm deadline. The statement explains in unprecedented detail the options open to passengers whose flights are cancelled: a Ryanair flight, if one is available on the same route on the same or next day; a Ryanair flight from a nearby airport; a flight on one of Ryanair’s seven “disruption partner airlines”, including easyJet, Jet2, Aer Lingus and Norwegian; or “comparable alternative transport” by air, rail or road. Europe’s biggest budget airline also promises to “reimburse any reasonable out-of-pocket expenses incurred by customers as a result of these flight cancellations”.

Passengers who have already accepted a refund or alternative Ryanair flight are able to reconsider, while those who have booked on a rival airline can claim the difference in fare paid. The improved offer to passengers could double Ryanair’s previous estimate of €50m in extra costs because of the debacle. This represents less than 5% of its expected full-year profit. But the obligation to refund “any reasonable out-of-pocket expenses” could add significantly more. “This could open the floodgates to claims,” said one senior aviation executive.

[..] The move came two weeks after Ryanair began to cancel hundreds of flights at very short notice, having “messed up” rostering of pilots. It initially cancelled a tranche of 2,100 departures until the end of October, saying that its winter programme would be unaffected. But on 27 September Ryanair said it would ground 25 of its jets this winter – representing one-16th of its fleet – and cut 18,000 flights from the schedules. By giving more than two weeks’ notice of cancellations, the airline avoided the obligation to pay cash compensation. Affected passengers were emailed with two options: a refund, or re-booking on a different Ryanair flight. The option to fly on a rival airline at Ryanair’s expense was not mentioned – an omission that infuriated the CAA’s chief executive, Andrew Haines.

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“..Okefenokee Swamp of identity politics and Russia paranoia..”

Citizens United No More (Jim Kunstler)

I have an idea for the political party out of power, the Democrats, sunk in its special Okefenokee Swamp of identity politics and Russia paranoia: make an effort to legislate the Citizens United calamity out of existence. Who knows, a handful of Republicans may be shamed into going along with it. [..] corporations have not always been what they are deemed to be today. They evolved with the increasingly complex activities of industrial economies. Along the way — in Great Britain first, actually — they were deemed to exist as the equivalent of legal persons, to establish that the liabilities of the company were separate and distinct from those of its owners. In the USA, forming a corporation usually required an act of legislation until the late 19th century.

After that, they merely had to register with the states. Then congress had to sort out the additional problems of giant “trusts” and holding companies (hence, anti-trust laws, now generally ignored). In short, the definition of what a corporation is and what it has a right to do is in a pretty constant state of change as economies evolve. [..] This homework assignment should be given to the Democratic members of congress, since they are otherwise preoccupied only with hunting for Russian gremlins and discovering new sexual abnormalities to protect and defend.

The crux of the argument is that corporations cannot be said to be entirely and altogether the equivalent of persons for all legal purposes. In law, corporations have duties, obligations, and responsibilities to their shareholders first, and only after that to the public interest or the common good, and only then by pretty strict legal prescription. It may be assumed that the interests of corporations and their shareholders are in opposition to, and in conflict with, the public interest. And insofar as elections are fundamentally matters of the public interest, corporations must be prohibited from efforts to influence the outcome of elections.

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“.. we are now in a phase of Russia-gate in which NGO “scholars” produce deeply biased reports and their nonsense is treated as front-page news..”

The Slimy Business of Russia-gate (Robert Parry)

The “Field of Dreams” slogan for America’s NGOs should be: “If you pay for it, we will come.” And right now, tens of millions of dollars are flowing to non-governmental organizations if they will buttress the thesis of Russian “meddling” in the U.S. democratic process no matter how sloppy the “research” or how absurd the “findings.” And, if you think the pillars of the U.S. mainstream media – The Washington Post, The New York Times, CNN and others – will apply some quality controls, you haven’t been paying attention for the past year or so. The MSM is just as unethical as the NGOs are. So, we are now in a phase of Russia-gate in which NGO “scholars” produce deeply biased reports and their nonsense is treated as front-page news and items for serious discussion across the MSM.

Yet, there’s even an implicit confession about how pathetic some of this “scholarship” is in the hazy phrasing that gets applied to the “findings,” although the weasel words will slip past most unsuspecting Americans and will be dropped for more definitive language when the narrative is summarized in the next day’s newspaper or in a cable-news “crawl.” For example, a Times front-page story on Thursday reported that “a network of Twitter accounts suspected of links to Russia seized on both sides of the [NFL players kneeling during the National Anthem] issue with hashtags, such as #boycottnfl, #standforouranthem and #takeaknee.” The story, which fits neatly into the current U.S. propaganda meme that the Russian government somehow is undermining American democracy by stirring up dissent inside the U.S., quickly spread to other news outlets and became the latest “proof” of a Russian “war” against America.

However, before we empty the nuclear silos and exterminate life on the planet, we might take a second to look at the Times phrasing: “a network of Twitter accounts suspected of links to Russia.” The vague wording doesn’t even say the Russian government was involved but rather presents an unsupported claim that some Twitter accounts are “suspected” of being part of some “network” and that this “network” may have some ill-defined connection – or “links” – to “Russia,” a country of 144 million people. It’s like the old game of “six degrees of separation” from Kevin Bacon. Yes, perhaps we are all “linked” to Kevin Bacon somehow but that doesn’t prove that we know Kevin Bacon or are part of a Kevin Bacon “network” that is executing a grand conspiracy to sow discontent by taking opposite sides of issues and then tweeting.

Read more …

What will Barcelona look like on Monday morning?

Catalan Government Says Millions Will Turn Out For Referendum (G.)

The Catalan government has laid out its plans for the referendum on independence from Spain, claiming that more than 7,200 people will staff 2,315 polling stations across the region to stage a vote that has triggered the country’s worst territorial crisis since its return to democracy four decades ago. On Friday afternoon, the pro-independence regional government unveiled plastic ballot boxes and predicted that 60% of Catalonia’s 5.3 million eligible voters would head to the polls on Sunday in defiance of the Spanish government, the police and the courts. “Catalans will be able to vote,” said the region’s vice-president, Oriol Junqueras. “Even if someone attacks a polling station, Catalans will still be able to vote.” Junqueras gave no further details but called on people to behave responsibly and to ignore the “provocations of those who want to stop the vote”.

His words were echoed by the Catalan president, Carles Puigdemont, who told Reuters: “I don’t believe there will be anyone who will use violence or who will want to provoke violence that will tarnish the irreproachable image of the Catalan independence movement as pacifist.” On Friday afternoon, a large convoy of tractors driven by Catalan farmers and flying independence flags rolled into Barcelona to show support for the vote and to protest against moves to halt it. Both the Spanish government and the country’s constitutional court have declared the vote illegal. Over the past 10 days, the authorities have stepped up their efforts to stop the referendum, arresting 14 senior Catalan government officials, shutting down referendum websites, and seizing millions of ballot papers. Spain’s interior ministry has deployed thousands of extra police officers to the region and the infrastructure ministry announced on Friday that the airspace over Barcelona would be closed to helicopters and light aircraft until Monday.

Read more …

Nothing new.

Aid Programs Are Designed To Keep Countries In Poverty (Ren.)

The income gap between rich countries and poor countries is not diminishing. It has been increasing dramatically, and not only during colonialism. Since the 1960s, the income gap between north and south has tripled. “There’s something fundamentally wrong and it won’t be changed with a bit of aid here in there,” Hickel says. “We need to fundamentally restructure the global economy and make it fair.” Hickel’s central thesis is that there is nothing natural about poverty. His book examines structurally determined behaviour, designed in fact, to deliver the poverty outcomes we witness around the world. “One of the dominant understandings out there that I seek to question in the book is the idea that rich countries are giving aid to poor countries in any meaningful quantity,” he says.

“In fact there is a lot of aid given – it’s about $130 billion per year transferred from rich countries to poor countries. That’s an enormous amount of money.” Some of the money comes in the form of charity. A lot of it in the form of loans, with debt strings – and conditions – attached. “A lot of the aid that’s given comes with conditions attached that the recipients of the aid have to implement certain economic policies, or have to votes with the donor country in UN agreements and so on,” says Hickel. “There’s no free lunch.” “But even if we assume that there was a free lunch, that $130 billion dollars are really being transferred for free from rich countries the poor countries, even that is misleading because in fact vastly more than that amount flows in the opposite direction – from poor countries to rich countries – for all sorts of reasons.

“The biggest one is probably illicit financial flows, most of which are in the form of tax evasion by major multinational companies operating in the global south, headquartered often in rich countries that are effectively stealing wealth, their profits from global south countries and stashing them away in tax havens because of rules written by the WTO that make this practice possible.” The World Trade Organisation basically governs the rules of global trade, for the most part, centrally. It is a very anti-democratic institution, where the vast majority of bargaining power has long been in the hands of a handful of countries which get to determine rules that end up serving their interests. “That’s one of the reasons that we see these financial flows in such magnitude,” says Hickel.

“These financial flows outstrip the aid budget by a factor of 10. So for every dollar of aid that poor countries receive, they lose 10 dollars to multinational tax havens. Another one is debt service. Poor countries pay $200 billion per year in debt service to banks in rich countries. “And that’s just the interest payments on debts, many of which have been paid-off already many times over, some of which are accumulated by legitimate dictators. That’s a direct cash transfusion from from poor to rich. That outstrips the aid budget by a factor or two.”

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