Nov 152018
 November 15, 2018  Posted by at 3:31 pm Primers Tagged with: , , , , , , , , , ,  

Max Ernst Ubu Imperator 1923



Ilargi: This is part 3 of Alexander Aston’s view of how upheaval and collapse can lead to new insights, new bursts of creativity, in science, religion, society and the arts. Part 1 of Quantum, Jazz and Dada can be found here, part 2 is here.

Here’s Alexander:



Quantum, Jazz and Dada:
The Dynamic Symmetry of Destruction and Creativity


Human Development


Every breath is a sacrament, an affirmation of our connection with all other living things, a renewal of our link with our ancestors and a contribution to generations yet to come. Our breath is a part of life’s breath, the ocean of air that envelopes the earth.”
– David Suzuki


As human minds first started to emerge from the ocean and step onto the shores of Africa, they increasingly began to respond to their own presence. Hominids co-evolved through the complex social structures generated through the ecosystem engineering of tool using communities, forming a kind of “multicellular” cognition. The unique features of human cognitive evolution emerged from the dense feedback between brains, bodies, and their environments. As humans learn to engage with the material world around us we transform our collective developmental processes. “The structure of the brain reflects its history: as an evolving dynamic system, in which one part evolves out of another”. (20)

Tools made available whole new energetic niches for early hominins while sharing and cooperation increased group resiliency. This stimulated the growth of new neural structures capable of mediating the growing complexity of hominin interaction with the world. It is from these socio-cognitive ecologies that the phenomena we call history has emerged. What is clear from our deep past is that cooperative behaviour is overwhelmingly the dominant evolutionary characteristic of our species. Early Hominins that shared and reciprocated effectively created a broader distribution of resources that safeguarded against ecological change, thereby producing significant advantages in the face of adversity. In this sense, cooperative behaviour can be understood as a form of counteractive niche construction in which other members of the species provide a form of ecological storage to buffer against environmental variability.

The active structuring of relationships within a species creates unique adaptive landscapes that produce powerful and often novel forms of evolutionary feedback. Through interaction and cooperation, the social “body” itself becomes part of the ecological inheritance in which the organism develops. The greater the selective advantage afforded to cooperative behaviour the more complex the adaptive landscape becomes through collective behaviours and group size. Effective cooperation can help to ensure against the monopolisation of and exclusion from resources, enabling a more efficient circulation and distribution of resources through the social system.

Thus, the effectiveness of this strategy provides an advantage to those individuals more willing to engage in cooperative behaviour. What is critical about this is that it illuminates the idea that social organisation in of itself can be understood as a form of niche construction. Through socially structuring the material and energetic flows of their environments hominins created powerful feedback loops between social cognition and organisation. The ecological benefits of cooperative behaviours fuel their own expansion.

Human beings have developed such intense feedback between their environments, brains and bodies that we can engineer ecosystems and construct niches with very little impact upon our underlying genetics beyond what amounts to fine tuning. Nonetheless, human systems are still subject to the fundamental patterns from which they have emerged. In essence, humans “internalised” the logic of co-evolutionary ecologies, analogous to the way mammals localised thermal regulation. Our capacity to manipulate environmental structures and collectively adapt has led to unparalleled growth in organizational complexity throughout the course of human existence.

“The cultural transmission of knowledge and practices resulting from individual lifetime learning, when combined with the physical persistence of artefacts, yields yet another source of selection impacting feedback.” (21) In other words, the products of human activity become ecological entities shaping flows of energy, matter, and information in the environment. Our minds emerged in the wild, but over millennia we have engineered socio-technical ecosystems to shaping our development, our ways of knowing and being in the world. It is through the active structuring of energy-matter flows in our environment that we create the medium through which we think and act.

This interplay between material structure and flows of energy shape human engagement by encouraging and constraining interactive possibilities, and making new forms of meaning possible. It is in this sense that the most significant feature of human cognitive evolution is the feedback generated between the plasticity of the brain and the plasticity of the material environment. “Constant transformation of what is out there to be perceived facilitates further projections [that] over time… may construct a creative ecology of recursiveness and metacognition.” (22) Material culture allows us to engineer our ecosystems, forming “cognitive ecologies” that structure the contexts and possibilities of human development and interaction. (23) We grow from the world we help to create.



It is in these regards that the seeds of the next system must be sown in the dynamics of human development, social, emotional, intellectual and spiritual. The environments that we expose or subject ourselves to, shape how we think, relate and what we are capable of becoming. We must learn how to create healthy environments that support and empower human development in ways that are socially, economically and ecologically sustainable. Critical to this are intergenerational communities that allow us to observe and learn from the broad arc of human development, individual and collective. We also need educational processes that are truly dynamic. Experimental learning communities that are integrated into their societies are necessary. Yet, the most fundamental truth is that it will be co-operation that will be the single most critical trait that will lead to success. The more effective we are at sharing resources in mutual aid the more likely our systems will survive.

From Palaeolithic bands to the first city states and the contemporary global system, humans transform their environments, tapping new energetic resources and creating unique developmental pressures. As human social ecologies reach the limits of their growth or encounter novel conditions, people transform their energetic systems and their development. Human beings have gone from isolated bands to vast entanglements that dominate global ecology. Like atoms aggregating into stars and cells forming into bodies, minds have condensed into novel and dense relationships such as kinship networks, polities, religious communities, states and transnational empires. Diverse forms of human sociality have grown and withered countless times as unique cognitive ecologies,. The cosmos of identity and meaning that shaped our ancestors as they flourished, now erode in the elements, their ideas, knowledge and art forming the strata beneath our feet and the basis of our own understanding in the world.

Since the emergence of agriculture, elite groups have become extremely adept at dominating bottlenecks in the flows of complex systems, enabling them to reorganize social institutions around powerful monopolies and thereby establishing persistent, stratified political economies. Early states formed as identity cults with monopolies over specific behaviours and resources. In a sense, they were entropy-gathering mechanisms, domesticating and discipling human bodies in order to harness their energy and concentrate it in powerful cores. These hierarchical systems are effective at creating durable structures, yet their ability to create inertia also increases their fragility. The linear, overly centralised energy-matter flows of vertical control systems mean that they are only stable over a limited range of conditions as complexity increases. Not only do they often fail to adapt, but they are also powerful enough in the short term to fend off systemic changes, increasing the pressures upon the system as more energy is consumed to maintain stability.

This dynamic of inertia is where we stand at the end of the petroleum era with global institutions that developed around an immense energetic scaffolding of fossil fuels. These energetic throughputs have created powerful dominance hierarchies far beyond the scope of any previous social systems. The current “global” culture that has emerged from these processes comprises a unique way of understanding the world through developmental scaffolding afforded by industrial systems. “The assembling of ‘the economy’ [came] with the transition from a coal based energy system to a predominantly oil-base one… [a concept that] depended upon abundant and low-cost energy supplies, making post war Keynesian economics a form of ‘petroknowledge.’” (24)

Those at the core of the current system will resist changes because it is central to their very understanding of what the world is and how it functions. It is difficult for all humans to challenge and change the fundamental assumptions and logics of the systems in which we develop and create meaning, this all the more the case for the extremely privileged. Elites are at the centre of extremely dense and potent energetic flows that have developed into very powerful belief systems. It will doubtlessly require a great deal of energy and destruction to convince them of new possibilities. Such is the nature of all Ancien Régimes.


If we wish to create a new system, a healthier system for humanity, we must find ways of re-organising energetic flows from the ground up. There is no simple schema that can be imposed in such a process. Ecological design must emerge from its local context. The nature of sustainability will not be interchangeable across the globe. One of the critical things necessary for new, healthier systems to develop effectively is the decentralisation of production and consumption into locally stable configurations. There is no central authority with the sophistication necessary to impose a model or engineer a solution.

Down that path lay the horrors of the twentieth century. Rather, a new kind of society must emerge through negotiating the great diversity of human communities and their environments at multiple scales. What these social ecologies should share is a fundamental logic of co-evolutionary feedback, dynamic relational structures shaped by the flow and form of their environment. It is from those fundamental parameters that we can begin to organise new institutions. This requires engaging with the dynamics of the local environment and designing systems that harness and circulate energetic and material flows effectively.

The basis of our energetic systems is food production. It is critical that we begin to integrate our consumption with our ecosystems. There are many sophisticated techniques for bio intensive farming that have emerged over recent decades such as permaculture, hügelkultur, aquaponics and other experimental designs as well as extremely robust traditional practices across the world. Rethinking our systems from the ground up and engineering stable energetic feedback in our environments will allow us to reduce bottlenecks and increase local autonomy and resiliency. The more local the production of energy flows and their effective distribution in communities, the more they can create healthy developmental conditions as well as rapidly adapt to changing contexts.

This also can function as a way of creating counter power. Dominants (individual or institutional) will be less capable of creating differential access to resources and therefore dependency and power. Communities that harness their energy dynamics efficiently and effectively will have greater independence for they will be less susceptible to systemic coercion. Power, in a technical sense, is the expression of energetic capacity. The greater the autonomy of a community’s energetic capacity, the more power they can express in relation to the broader system. It is the counterbalance of power that creates stable feedback. Food autonomy is the cornerstone of this, from that foundation we must work to build counter economies, shaping new institutions around these energetic flows.

We must produce as much of our material needs from our immediate environment as possible. Recycle, reuse, repair while sustainably maintaining and harvesting local resources and reaching out to our broader communities for support in measured and considered ways. There are already many models and tools with which we can begin to design the institutions of a counter economy. DIY and maker spaces, cooperatives, social collectives, small businesses, sustainably powered micro-factories, all provide potential avenues for new networks of production and consumption. The point is to link up as many of these processes within our communities so that their synergy can start producing self-sustaining feedback.

Tools such as the P2P Foundation, Loomio, Opensource Ecology and countless other resources made available through digital culture allow us to design, implement and share in ways that can rapidly scale between local, regional and global, communities. Indeed, such resources opens the space for new forms of politics through consensus practices and highly refined, dynamically responsive voting structures. Through practice and participation we will learn how to create the next system as it emerges, co-evolving with it, creating it as it creates us. It is also critical that we do as much as possible to limit bottlenecks in informational networks.



It is only through communication and considered negotiation that we will be able to collectively adapt to the challenges that face us. The creation of alternative communication networks such as meshnets are extremely important, structurally distributed information flows ensure greater adaptability and coordination. This does not mean that we should not intersect with older or more traditional institutions. We should engage with those pre-existing structures that truly benefit our communities and learn how to transform and integrate them into new social configurations. We should also discover how to divert as many of the old systems energetic flows into new relationships, as long as such actions do not compromise our local systems.

Money is a powerful social technology by which we are undeniably dominated. Money mimics the dynamics of energy, acting as a kind of “fly-wheel” that facilitates the flow and storage of energetic capacity. “The flow of energy makes possible the circulation of money and the manipulation of money can control the flow of energy.” (25) In key ways, money is a cognitive artefact that humans use to store and express energetic capacity. Ultimately, it seems that if we want to have a materially grounded system of accountancy we should peg our currencies to measurable energetic flows. The creation of counter currencies, digital, local or otherwise, is one potentially fruitful avenue.

However, in our present circumstances, divestment from major banks into credit unions and other cooperative structures will help to ensure more democratic and local control over community wealth. Furthermore, the use of money to develop sustainable and shared resources is incredibly important. Investment into micro-grids, sustainable housing, community farms, consumer and producer cooperatives, tool libraries, time banks, transition towns and more, will all help to increase local resiliency. We must work to create configurations between such institutions that produce self-reinforcing dynamics. However, this does not mean that local communities will ever be fully disentangled from global flows of energy, only more resilient in the face of their disruption.

These dynamics must be mediated at local, regional and global scales. Indeed it would seem that one of the most potentially fruitful avenues for institutional frameworks would be to mimic the relational structure of the environment from ecosystems to biomes, ecotones and the biosphere. The communities and tools through which these processes are developing are far too numerous to detail. We should take heart that across the world communities are already developing solutions. Through observation, experimentation and communication we can begin to design feedback processes, positive and negative, that empower resilience and flexibility. The next system will emerge through communities working with the ecological flows in which they are embedded, developing new ways of articulating between the various scales of these processes. It will be a diverse kind of “Protestantism” rejecting and reorienting away from the demands of the current system as humanity searches for salvation.


Utopia and all that Jazz


“A map of the world that does not include Utopia is not worth even glancing at, for it leaves out the one country at which Humanity is always landing. And when Humanity lands there, it looks out, and, seeing a better country, sets sail. Progress is the realisation of Utopias.”
– Oscar Wilde


It was a song that encouraged soldiers to lay down their weapons and cross the lines on Christmas eve of 1914. Of all the things humans create, it is music that most closely resembles the reality of our universe, the dynamic symmetry of patterns in time. A tension between becoming and unbecoming shaping movement. Crescendo and dissolution, trough and peak. It has been over a century since that silent night, in which a fragile utopia emerged amidst the freshly dug trenches for Europe’s impending self-immolation.

What will we choose to sacrifice and create as the last of the industrial empires enter terminal decline? Across the globe connections are breaking and new spaces are being created, often with great violence. The demands of the old system exceed the Earth’s capacity and with every passing year, more and more people will be searching for new solutions. We must discover new ways to sing to one another and build our utopias not as end goals but as practices through which we can learn how to better take care of one another. We must create it together, in all our diversity, to give new meanings to the way we live.

It is our historical moment to be such a generation, to live amidst such immense forces of change. The high priests of our system fiercely deny this and demand ever more blood sacrifice from us to end the eclipse of their infinitely growing future. The very logic of their organization precipitates their extinction. However, if we embrace our position, balanced between destruction and creation, we can begin to create harmony amidst the crescendo of the old world. We live amongst dinosaurs. The meteor is coming. We must learn to be warm blooded, how to flower. Will our successional ecology be a golden age or a toxic one? The choice will be ours.

We must try to imagine and prefigure societies where human needs are met by systems of production sustainably embedded within ecological and thermodynamic processes. Imagine a world where children dive and play amongst the reefs formed by our submerged cities, their communities growing like gardens surrounded by vast tracts of wilderness, connected to new global networks. Perhaps they will ply the seas in ships that cast their sails into the stratosphere, transmit radio waves into space and still listen to the classic musicians of our times. Think of institutions where education and learning are free from linear economic narratives and embraced as one of the great joys and passions of the human mind.

A world where Art, Philosophy and Science are acts of joy and play, where generations are conscientiously integrated into community learning environments. Vibrant and diverse cultures that grow from sustainably designed communities powered with solar steam engines, eco-farms, cooperative institutions and more. It is beyond our knowing. All that we are certain of is that it is our generation, our actions that will create the possibilities of the future. The next system must emerge as a dynamic scaffolding of energy, matter and minds through which we can nurture new institutions. The ultimate outcome is beyond our comprehension, however the old world is reaching a crescendo and it’s denouement will be in the hands of those with the sense of vision and endeavour necessary to create something truly revolutionary.


The Industrials came from the ancient imperial-merchant cultures of Eurasia. Even today their ingenuity and technical prowess is astonishing. Their sciences still form much of the foundations of our knowledge, their stories continue to shape our identities. They were complex and contradictory peoples, capable of breath taking beauty and savage cruelty. Often one is left baffled at what they seemed unable to comprehend in themselves and their world, creating their own tragedies and traumas as if by compulsion. Yet, inexorably, the world changed. It would have been hard to see then, the seemingly disconnected and separate events that have only crystallised into history over the centuries.

There were signs of the gathering transformations at the beginning of the twenty-first century. Though the violence and trauma of the period was extreme, developments such as the Global Justice Movement, Chiapas, Occupy, Rojava, Nuit Debout, Standing Rock, and countless other innovations great and small were part of a gathering wave of transformation and reconfiguration. It was not a seamless and smooth process and over time it would create unanticipated problems that they and their descendants were forced to negotiate. Yet we owe much to those last generations of the industrial age.

Amidst all their challenges and shortcomings, they learned to create something new, an inheritance they have bequeathed us all. It must have often been terrifying and difficult during those final days of empire. Yet, as their world began to fall apart they started to produce whole new forms of art and philosophy, new systems of meaning and relationship, reshaping their communities and setting in motion the birth of the world we know today. Despite the horrors of their age, they still managed to create something beautiful. It is their redemption. They worked to build a renaissance rather than flee an apocalypse…


“We know that there is no help for us but from one another, that no hand will save us if we do not reach out our hand. And the hand that you reach out is empty, as mine is. You have nothing. You possess nothing. You own nothing. You are free. All you have is what you are, and what you give.”
– Ursula K. Le Guin



20) Iain McGilchrist, The Master and His Emissary: The Divided Brain and the Making of the Western World. (New Haven: Yale University Press, 2009), 255.
21) Andy Clark, Supersizing the Mind Embodiment, Action, and Cognitive Extension, (Oxford; New York: Oxford University Press 2008), 259.
22) Lambros Malafouris, How Things Shape the Mind: A Theory of Material Engagement, (Cambridge: MIT Press 2013), 193.
23) Edwin Hutchins, ‘Cognitive Ecology’. Topics in Cognitive Science 2, no. 4 (October 2010): 705-15.
24) Timothy Mitchell, Carbon Democracy: Political Power in the Age of Oil. (London: Verso 2013), 139.
25) Howard T Odum, Environment, Power, and Society for the Twenty-First Century: The Hierarchy of Energy, (New York: Columbia University Press 2007), 41.



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Alexander Aston is a doctoral candidate in archaeology at the University of Oxford and is on the board of directors with the Centre for Cognitive Archaeology at the University of Colorado in Colorado Springs. He has prior degrees in philosophy and history. His work lays at the intersection of Cognitive Archaeology, Deep History and Natural Philosophy, examining the relationship between ecology, material culture and social cognition. Alexander grew up between Zimbabwe, Greece and the United States. He has worked as a stone mason, community organiser and collaborative artist focused on issues of sustainability, alternative education and economic justice for nearly two decades. He has helped to establish community collectives, free schools, participatory art projects, sustainability and education programs in several international projects.



Nov 112018
 November 11, 2018  Posted by at 3:42 pm Finance Tagged with: , , , , , , , , , ,  

Hannah Höch Cut with the Dada Kitchen Knife through the Last Weimar Beer-Belly Cultural Epoch in Germany 1919



Ilargi: This is part 2 of Alexander Aston’s view of how upheaval and collapse can lead to new insights, new bursts of creativity, in science, religion, society and the arts. Part 1 of Quantum, Jazz and Dada can be found here. Part 3 will follow soon. Check

Here’s Alexander:



Quantum, Jazz and Dada:
The Dynamic Symmetry of Destruction and Creativity


Energy, Ecology and Ecosystems


Erwin Schrodinger (1945) has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment – that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatim as a physical description of our economic process. A corollary of this statement is that an organism cannot live in a medium of its own waste products.”
– Herman Daly and Kenneth Townsend


The concept of energy is essentially an accounting process we have devised for describing the relationships of flow and transformation observed in the fundamental structure of the universe. It is an elegant concept, whether discussing the life of stars, the feeding of bodies or the intensity of industries, the movement of energy is remarkably consistent. In other words, it is very hard to lie about. It has one key characteristic in its movement through systems, the creation of feedback between material structures. Matter congeals from energy, planets and the basic chemical elements of life originate in novae, bronze is forged with fire and earth.

Positive feedback structures the growth of energetic systems and negative feedback shapes their stability. Stars and atmospheres remain balanced between gravity and the void, bodies respire, species co-evolve, ecological cycles persist. A self-similar pattern begins to becomes apparent in the flows of energy and matter through our universe. Cascading from singularity to the stars, flowing from hydrogen and radiated upon oceans; denser and denser, energy whirls and eddies into myriad forms, binding them together in increasingly complex configurations. Defined as the capacity to do work, there is a deceptive simplicity to our description of energy.

A universality that encompasses all activity, almost undermining the value of the concept due to the complexity of what it describes. Part of this problem is an epistemological one; our language renders a world of interacting objects. In this discourse, there is a tendency to think of “energy” as an entity, one more “object” in a milieu of discrete, bounded things. However, energy is not so much a “thing” as it is a way that “things” happen. Energy is process; indeed, it is the ability for process to exist.

Exchanges of energy are what create causal change over time due to the fundamental characteristic of entropy, the spontaneous, intrinsic characteristic of energy to move from an organized state to a disorganized one.. “It illuminates why anything – anything from the cooling of hot matter to the formulation of thought – happens at all.” (12) Process and change over time are “hardwired” into the universe. Yet this leaves us with one of the most profound questions of modern science. How, if the universe is wired for disorder, does a complex phenomenon arise that seems to run counter to entropy? (13)

The very existence of pattern is counterintuitive to a universe dominated by the processes of entropy, something made even more paradoxical by the observation that this entropic universe has, thus far, manifested increasingly complex forms of organization. As we look through deep time we repeatedly see the emergence of relatively rapid and powerful bursts of complexity, from the formation of stars to the emergence of life, the human brain, agriculture and industry. The general feature of this pattern of emergence is the energetic binding of material structures into new ecological relationships, shaped by positive and negative feedback.

Negative feedback ensures structural stability while positive feedback generates the disequilibria necessary for both growth and destruction. Unstable structures such as supernovae die out, creating not only space for more stable structures to form but also the materials that provide the structural components of new energetic relationships. Given enough time and space, energy density and material complexity would logically result from the repetition of such processes.

Systems help to stall the process of entropy by circulating energy flows before they dissipate. The more efficiently this is done the more stable the system. Efficiency in this sense is the way in which a system taps available energetic resource, how effectively a system circulates energy before dissipation, and the ratio of waste to energy consumed over time. All systems are bound together by a constant throughput of energy. Without these required energetic inputs systems will break down into the most stable configurations available. It is in this light that we begin to see how entropy, complexity and emergence are woven together.



Energy bonds together the constituent elements of a system into a process of relational development that orders a systems overall behaviour. Likewise, changes to the way energy flows through a system will produce new patterns of organization. More specifically, the greater the density of energetic feedback in a system the more complex its organization and intense its environmental influence becomes. “New configurations emerge quite suddenly as once independent entities are drawn into new and more ordered patterns, held together by an increasing throughput of free energy.” (14) New systems create new sources of energy and thus new differentials and gradients along which further complexity can develop.

Systems emerge through processes of positive feedback; the amplification of an effect by its own influence on the process which gives rise to it. A clear example of this is seen in the formation of a star. The gravitational pull from slightly denser clusters of hydrogen draw surrounding atoms into concentrated areas. The gravity created by this increasing mass causes more atoms to coalesce until the density of atoms is so great that nuclear fusion ignites. If the positive feedback is not checked the star will continue to accrete mass until it either goes nova or collapses into a black hole.

However, the star will stabilize into a durable system capable of regulating the energy flows if it forms a negative feedback loop by which the function of the system counterbalances itself in such a way as reduces change. In the case of a star, the heat and pressure caused by the gravitational compression of hydrogen causes its mass to expand. However, the expansion of the star into the vacuum of space causes its surface area to cool and compress thereby increasing heat and pressure. In a sense, stable stars respire, heating and cooling, expanding and compressing in space. The elements of complex systems are bound together by the energy flows from which they are constituted and changes to the way energy flows through systems can lead to reconfiguration, dissolution and novel emergences.

Earth’s ecosystems are its primary way of storing and circulating energetic capacity. Energetic flows bind organisms into the dynamic co-evolutionary relationships we call ecologies, or the complex adaptive systems that self-organize through the mutually reinforcing interactions between their constituent species. In other words, the presence of life reshapes and changes the conditions in which it arose, forcing it to continually adapt to its own presence. In a sense, evolution is the dynamic continuity of an organism transforming and mutating in the changing currents of energy over the course of billions of years.

Organisms greatly increase available energy by excreting metabolic waste (such as when anaerobic organisms oxygenated the biosphere), as energy dense packets for predation, or simply by decomposing. By increasing available energy in their surroundings they fuel the emergence of new forms of complexity. “Ecosystems converge in the way they handle energy” suggesting that “ecosystems and organisms organize similarly under energy flow” and the “expansion of the complex system is thermodynamically mandated.” (15) These complex adaptive systems are predicated upon the way energy flows through their biotic communities.

Due to the logic of selection through adaptive cycles, they tend to expand in complexity over time as the individual elements of the system compete and cooperate for better access to resources. The more effective a species is at harnessing available energy the more it shapes environmental and evolutionary dynamics in its surroundings. This in turn creates selective pressure amongst other organisms to adapt to these changing patterns resulting in co-evolutionary feedback. All organisms are “ecosystem engineers” to some degree or another, altering the flows of energy within ecosystems to meet their needs and shaping broader environmental pressures and relationships. (16)

For example, when beaver dams gather silt until they burst, flooding the lands downstream to create fertile meadows. In these regards, organisms are also niche constructors to varying degrees of intensity, shaping their environments as a form of “ecological inheritance.” (17) Selection is understood as a reciprocal process in which the creation of developmental ecologies selects for developmental plasticity. Persistent environmental alterations have downstream effects on the organisation of energy and matter in the environment, and therefore the evolutionary dynamics experienced by a host of organisms.

In other words, the organism, and the others that it impacts, become dependent upon constructing behaviours and engineered environments for survival. In these regards, humans can be understood as ecosystem engineers and niche constructors without parallel on Earth. However, humanity’s unique evolutionary dynamics lead us to create what might be termed “cognitive-developmental niches” or the, “problem solving resource and scaffold for individual development and lifetime learning.” (18) Through understanding the co-evolutionary feedback created between human cognition and the environments it is possible begin to design more sustainable and healthier processes.

Systems, cosmic, ecological, cognitive and social, all function through the dynamic feedback between matter and energy, something that we measure as information. When the growth of a complex systems begins to reach its energetic limits, it must either find a dynamic equilibrium between negative and positive feedback, intensify, or collapse. Understanding the dynamics of energetic feedback are key to designing effective solutions. The greatest transformations in the history of our societies are marked by the intensity with which humans have extracted and put energy to use. From hunting to farming, slavery to steam; like all organisms, human beings are shaped by the way in which they harness energy from their environments.


The greater the density of energetic flows, the more complex the human systems that emerge. Indeed, our history and “our relationship to the ecosystems we and our ancestors have inhabited is marked by scalar leaps in extractive capacity.” (19) Undeniably, the two most intensive reconfigurations and emergent dynamics yet experienced by the human species are the agricultural and industrial revolutions. Indeed, the magnitude of transformation that we face finds its closest parallel in these events. The human species must begin to reorganise the way in which energy is produced, stored and dissipated through their socio-technical ecosystems.

If such a reorganisation can be accomplished it will lead to a transformation of human developmental environments in what might thought of as kind of “eco” revolution, a move towards a more symbiotic integration with the energy-matter flows of the planet. Such a transformation can only be accomplished by observing the ecological dynamics of our environments and designing our institutions around them. In this way, we can design interventions that create feedback within diverse ecologies of humans, non-humans, technologies and institutions. In other words, we need to learn how to manage both growth and stability through feedback across a multitude of scales ranging from individuals to planetary ecology.

This means assessing the energetic and material flows that are available to our communities and their broader ecosystems in terms of efficient, sustainable use and distribution. Ecologies are the way in which the energetic capacity of the planet is organised and circulated through organic life. Their health and stability are the fundamental scaffolding upon which our societies are built. The idea of ecology is fundamentally one of relational and developmental systems. It has done much to breakdown our clockwork, factory inspired models and metaphors with their linear production processes.

It allows us to understand ourselves as caught up in complex predicaments, as opposed to merely complicated problems. Industrial societies have made this reality abundantly clear through the incomprehensibly vast changes they have wrought in their environments. Should humanity succeed, it will still be centuries before we will have ameliorated the damage to our global ecosystems. However, in creating stable feedback between environments, communities, institutions and technologies as part of an interdependent system, we can begin the process of such a recovery. It is through redesigning our developmental environments for dynamic equilibrium that the next system will coevolve with the planet.



12) P. W. Atkins, The Laws of Thermodynamics: A Very Short Introduction, (New York: Oxford University Press, 2010), xii.
13) “That’s the beauty of the system with the four fundamental forces chucked in, 1) gravity (for matter to coalesce), 2) electromagnetism (for light to be transmitted), 3) strong nuclear (for a nucleus to form from protons and neutrons, which then form atoms because electrons are needed to balance the charge) and 4) weak nuclear (which results in radioactive decay and various other interactions which lead to the chemical order we see today).” Personal correspondence from Dr. Vincent Hare
14) Christian, p. 45
15) Schneider and Sagan, p. 152
16) Alan Hastings, James E. Byers, Jeffrey A. Crooks, Kim Cuddington, Clive G. Jones, John G. Lambrinos, Theresa S. Talley, and William G. Wilson ‘Ecosystem Engineering in Space and Time.’ Ecology Letters 10, no. 2 (2007): 153-64.
17) Kevin N. Laland and Michael J. O’Brien. ‘Niche Construction Theory and Archaeology.’ Journal of Archaeological Method and Theory 17, no. 4 (2010): 303-22.
18) Karola Stotz, ‘Human Nature and Cognitive-developmental Niche Construction.’ Phenomenology and the Cognitive Sciences 9, no. 4 (2010): 483
19) Shryock, Andrew, Daniel Lord Smail, and Timothy K. Earle, eds. (Deep History: The Architecture of Past and Present. Berkeley: University of California Press, 2012), 247.



Part 1 of Quantum, Jazz and Dada can be found here. Part 3 will follow soon. Check



Alexander Aston is a doctoral candidate in archaeology at the University of Oxford and is on the board of directors with the Centre for Cognitive Archaeology at the University of Colorado in Colorado Springs. He has prior degrees in philosophy and history. His work lays at the intersection of Cognitive Archaeology, Deep History and Natural Philosophy, examining the relationship between ecology, material culture and social cognition. Alexander grew up between Zimbabwe, Greece and the United States. He has worked as a stone mason, community organiser and collaborative artist focused on issues of sustainability, alternative education and economic justice for nearly two decades. He has helped to establish community collectives, free schools, participatory art projects, sustainability and education programs in several international projects.



Nov 092018
 November 9, 2018  Posted by at 3:41 pm Primers Tagged with: , , , , , , , , , ,  

Marcel Duchamp Nude descending a staircase 1912



Ilargi: Much to my surprise, I received a mail from an old friend. Alexander Aston last wrote for the Automatic Earth in 2014. But he hasn’t been idle. Alexander is presently finishing his doctorate in archeology at Oxford, after prior degrees in philosophy and history. And for this article, he’s been thinking about how upheaval and collapse tend to lead to new insights, new bursts of creativity, in science, religion, society and the arts. A view that’s -too- rarely contemplated. It’s so long I cut it into three parts. Please don’t miss any of them.

Here’s Alexander:



Quantum, Jazz and Dada:
The Dynamic Symmetry of Destruction and Creativity

Do not now seek the answers, which cannot be given to you because you would not be able to live them. And the point is, to live everything. Live the questions now. Perhaps you will then gradually, without noticing it, live along some distant day into the answer.”
– Rainer Maria Rilke




This paper is not about Quantum, Jazz and Dada per se, but rather a meditation on those radical bursts of human creativity that occur during historically destructive moments. Ultimately, my thesis is quite simple. Barring the possibility of extinction, humans are on the precipice of the most radical social reorganizations in the history of the species. In navigating this process of transformation, if we wish to create a world worth living in, it is necessary to understand the interactions between energy, ecosystems, cognitive development and social organization.

Without a grasp on the interdependence of these relationships there is no hope for shaping our world in a healthier manner. What is historically unquestionable is that periods of radical upheaval result in drastic reconfigurations of belief, meaning and knowledge. In the contemporary world, metaphysical and theoretical assumptions about the division of mind and matter, culture and nature, humans and environment all stem from a philosophical and scientific heritage that has divided form and flow. If we are to create something better out of the ongoing destruction of the current system we must radically rethink our understanding of energy, matter and the interdependence of humanity and the Earth.


Collapse Ain’t Nuthin New


At the beginning of the twentieth century the Industrial Empires and their world order collapsed, imploding into a cataclysm of brutality and desperation that persisted for decades. Czars and Kaisers, empires and vassals dissolved in the onslaught of history. The old order was left rotting in the trenches. Muddy altars to the gods of empire and industry that demanded a blood sacrifice beyond comprehension. In the wake of the destruction, new imperial orders and secular religions emerged in the search for control and stability, dominating and traumatising those that survived the slaughter. It is impossible to grasp fully the horror and devastation of the period.

The wars, depressions, epidemics, famines, revolutions and authoritarian regimes have become so normalised in our narratives that it is hard to grasp the magnitude of these events. It was a cascading systems failure of a scale and intensity without historical parallel in terms of the global scope and the speed at which it unfolded. There are few words for the early twentieth century collapse other than horrific. Yet, even as the tragedy unfolded, a profoundly creative dynamism emerged from the ashes. Like a successional ecology following a wildfire, scientific, artistic and social practices began to transform.

In the ruins physicists began to undermine radically the common pre-war belief that physics was an essentially complete science. Artists began to deconstruct the meaning of cultural institutions that could not account for such technological savagery, leading to the advent of post-modernism. As the global system reoriented it was the descendants of slaves, at the beating heart of American suffering, that catalysed the greatest musical renaissance in world history. Despite the tragedy, there is a kind of beautiful symmetry in the flourishing of Quantum, Jazz and Dada amidst the rubble and devastation of the war.

Destruction is part of the fecundity of life, the dynamism that creates the possibility for growth. Disruption and disintegration break the equilibrium of our systems and feed a creative evolution for more effective, resilient practices and forms of organisation. Peak and trough, complexity and entropy are bound together like a wave to the ocean. Life flourishes amongst dead and decomposing stars, extinctions produce radiations, ovulation leads to menstruation, death and renaissance produce one another. It is in this dynamic symmetry of creation and destruction that uncertainty produces physics, chaos creates art, and the persecuted compose music.

Much like our ancestors at the dawn of the twentieth century, we are on the precipice of immense changes. Indeed, we are already caught in the momentum of this wave. The complexity of the current system has begun to hit hard energetic boundaries, fracturing economic, political and social stability. For the first time in human evolution the species is confronting not only global resource limits but its own behaviour as a geological force. The energetic structure of the global system that has emerged over the past five centuries has begun to radically reorganise.

We are experiencing negative and positive feedback on a planetary scale and facing an ecological, evolutionary and geological transformation of an intensity that is unique in the existence of the biosphere. Extinctions, natural disasters, imperial wars, refugees, financial crises, Arab springs and Syrian deserts, all are systemically entangled with the transforming energy dynamics of our planetary system.

At one pole, we are experiencing the ecological effects of a thermodynamic expansion that has dispersed the fossilised energy of entire geologic ages into the atmosphere in mere centuries. We have amplified the thermal energy retained by the planet and the principle of entropy requires it to be dissipated. Energy that flows through storms, glaciers, and oceans. At the opposite pole, we confront resource depletion and contamination as we feed the energetic demands of the global economy. It is why we claw tar out of the earth in Alberta and drill into the earth miles off the coast of Brazil.




Certainly, no conceptual system can be imposed from the top down. To enforce such abstractions and simplifications on a dynamic reality would require overwhelming violence, as indeed it already does. One of the key insights of modern science is that complex systems are inherently non-linear. In other words, their interactions and emergent properties cannot be determined from initial conditions or inputs. “Our world is governed not only by nonlinear dynamics, which makes detailed prediction and control impossible, but also by nonlinear combinatorics, which implies that the number of possible mixtures of meshwork and hierarchy, of command and market, of centralisation and decentralisation, are immense and that we simply cannot predict what the emergent properties of the myriad combinations will be.” (1) The very nature of “complex adaptive systems” means that we cannot simply engineer solutions with determinate results. (2) This is humbling, it forces us to recognise the limits of our abilities to conceptualise and design systems.

It tells us that whatever comes next, whether for good or ill, is beyond our imaginations. We are akin to medieval peasants attempting to contemplate railroads and telegraphs. The only thing that we are assured of is our current system is undergoing a process of intense reorganisation. It is our burden and privilege to participate in this process. The coming years will take radical creativity and courage if we are to find new ways of living in this world that are balanced and humane. No genius, greater leader or collection thereof can solve this predicament. They cannot scale up to the task, the problems are too intricate, their instruments too blunt and their vision too limited. What we need is not some new ideology or five-year plan but an ethics of practice derived from the organisational dynamics of our world.

It should not be our goal to design and implement a system from the top down but rather to participate in a collective process of reconfiguration through applied practices and the distribution of knowledge, skills and resources. We can only discover how to do this through observation, experimentation and participatory engagement to create new learning environments and social relationships. The next system will not so much be designed as it will be cultivated by individuals, communities and societies seeking resilience and stability. However, our sciences do illuminate fundamental patterns that provide a guide to how we might create the conditions from which new, healthier systems can emerge.

To this end we must engage with three fundamental and interrelated dynamics; energy, ecology, and human development. In other words, we must consider how we produce the fundamental energetic capacity to create and maintain our systems and the ways in which they are integrated within their environments. In turn these elements must be understood in relation to how effectively they distribute available resources in terms of the physiological, psychological and social needs of human beings. In these regards, we must work with human developmental processes in order to create new learning environments that equip people to better articulate and shape these dynamics. Communities and institutions that successfully organise around these relationships will be the steam engines of the twenty-first century.


Entropy and Complexity


“Without birth and death, and without the perpetual transmutation of all the forms of life, the world would be static, rhythm-less, undancing, mummified.”
– Alan Watts


The “next system” will not develop in a context of expansion and growth, at least not initially, but through contraction and disruption. We must consider the dynamics of collapse or disentanglement and transformation that occur in complex adaptive systems so that we might effectively engage with these processes. The universe is an intricate dance of creation and destruction, a fractal of entropy and complexity. Complex adaptive systems emerge through the self-organising dynamics of energy and matter flows in a material and spatial medium.

Think of a murmuration of starlings and one can begin to conceptualise the patterning of relationships in space and time. The process we call history clearly reveals the self-organisation of human communities across multiple, emergent scales. The question is not if humans form complex adaptive systems but how? Ultimately, it is a question of social cognition and how it is that humans understand and understand with each other so as to form relationships that radically alter their ecosystems.

Complex Adaptive Systems are formed of interdependent relationships between “dynamic structures in which faster, smaller processes nest inside and interact with larger, slower ones.” (3) Organisms, ecosystems, and the biosphere interact, aligning and diverging, shaping one another through ongoing developmental processes. The stability and coherence of any self-organising dynamic can be understood emerge through a tension between resilience (the ability to “withstand disturbances and still continue to function”) and connectedness (the ability “within a system to moderate the influences of the outside world”). (4) A highly connected system may be less influenced by external variables; however, the rigidity of its connections only allows it to operate within a limited range of conditions.

Ultimately, the organisation of any system makes trade-offs between forms of high entropy coherence, and low entropy stability. The very nature of entropy ensures that all such systems transform over time, and these processes of change can be schematised into adaptive cycles of rapid growth, conservation, disruption and regeneration. During the conservation phase of a system the “growth rate slows as connectedness increases to the point of rigidity and resilience declines. The cost of efficiency is a loss of flexibility. Increasing dependence on existing structures… such a system is stable, but over a decreasing range of conditions.”

However, it is moments of cascading transformation that are the most dramatic. “The surprise is caused by cross-scale interactions or suites of novelty that ricochet through the system as it reorganizes around alternate sets of mutually reinforcing processes.” (5) Our global system is currently exiting a period of conservation and entering a period of systemic disruption in which “a disturbance that exceeds the systems’ resilience breaks apart its web of reinforcing interactions.” (6)

Such fractal adaptive cycles can be observed repeatedly throughout history, the Neolithic emerges as Pleistocene ecologies begin to break down, the Iron Age emerges from the Bronze Age collapse, the Iroquois Confederacy consolidates out of European epidemics. The examples are numerous beyond recounting; it is an ecological pattern fundamental to the organisation of complex systems. Indeed, it is the breakdown and reorganisation of systems that appears to be one of the key motors of complexity.

Consider for a moment the broad arc of “western” history since Rome. The Roman Imperial system materialized through the resources and slaves extracted from conquered territories. As the empire expanded it required increasing amounts of energy to ensure stability and coherence between the cores and peripheries. Overtime, the cost of maintaining the imperial infrastructure exceeded the energetic returns from further expansion. It is the law of diminishing returns. The growth required to fuel the Empire stalled, sending it into a long, tumultuous process of contraction and decline.

Halting and grinding across the centuries like a receding glacier, the system broke apart, shattering across the Mediterranean world. The very language of the empire fractured, and composed anew as people congregated around the villas and farms that germinated the manorial systems of the Middle Ages. As the crises deepened and intensified a Jewish cult of ostensibly twelve families at the outset, flourished in the cities, providing sustenance and basic care as a result of their cosmology. As plagues, famines and warfare swept through Roman communities in the Third Century AD, patriarchs and patricians fled to their country estates, leaving civil administrations immobilized.


As the old patronage systems broke down, the religion spread among the most marginal and vulnerable communities, providing stability by reorienting the basic organization and distribution of social resources around new spiritual practices. Christianity was born within a dying Rome, preserving its bones in the liturgies and communication networks that flowed along the old roads and into the agricultural fortresses of Feudalism. By the time of the High Middle Ages a robust, fractal like system in the throes of a wind and water powered industrial revolution had emerged. With the end of the Medieval Warm Period, famines, schism and conflicts began to erupt in Europe as the Mongols brought the greater part of Eurasia into a single imperial system.

The riders from the Steppe likely helped spread the plague that sent the European Middle Ages into terminal decline. The system initially reoriented around the Italian City States. Those communities that were the gateway of the epidemic also created the first quarantines and effective civil responses while church and aristocracy lay paralysed. As the epidemic burned out, these merchant powers could offer high wages for the scarce labour that survived, drawing people off the manors and into the cities. In turn, the Renaissance transformed into the holocausts of the Reformation and conquests of the Atlantic Empires which in turn produced the Enlightenment and industrialisation, leading to an age of revolutions that would ultimately founder in the trenches.

Breakdown and reorganisation is a critical dynamic driving the evolution of complex systems. Transformations that reconfigure energy-matter flows create ecological bottlenecks as well as new niches to occupy. The biosphere is a “complex thermodynamic system” in which selection occurs around access to available energy gradients. (7) Organisms seek out those sources of energy that sustain their biological function. It is, along with reproduction, the most intense arena of competition amongst biotic communities. The logic of evolution dictates that selective advantage will be conferred to any organism that is more effective at harnessing and sustaining energy flows within its ecology.

In these regards, “selection” can understood “in terms of increasing energy flow through autocatalytic matter-energy loops. Selective advantage will go to those autocatalytic systems that best increase energy flow through their system, those that do so better than their competitors.” (8) Those forms of organisation that are the most flexible and efficient with their use of available resources are the most likely to adapt and succeed. One of the most dramatic examples of such processes are mass extinctions “because they remove incumbents… and unleash a scramble for post-extinction opportunities that can produce bursts of evolutionary novelty.” (9)

Periods of collapse reward forms of organisation that are the most adaptive to radically altering energy-matter flows. “After each mass extinction, the recovery included new species living off new gradients and new habitats. Here we can see a crucial pattern in which complexity declines after a major stress or disturbance and recovers, and often intensifies, during successional processes.

This dynamic of disruption and regeneration holds true across scales such as biosphere and ecosystem evolution. After a perturbation or stress, an “ecosystem rebuilds itself from the remaining species and their genetic material.” (10) These adaptive cycles algorithmically fuel the growth of complexity by selecting energetically efficient and resilient structures that form the baseline of future evolution. A perfect illustration of this is the radiation of endothermic mammals and broad-leafed angiosperms following the extinction of the dinosaurs. Endotherms have greater energetic density than exotherms.

However, though their energy requirements are higher, this was initially offset by the size of early mammals. Their internally self-regulating metabolisms allowed them to better survive in the reduced warmth of the post-meteorite environment. Similarly, with flowers and deciduous trees, their broad thin leaves allowed them to better photosynthesize in the reduced light of the nuclear winter, radiating as the coniferous canopies began to clear. A picture begins to emerge in which energy flows are organized into systems that undergo selection processes shaped by adaptive cycles.

The breakdown and reorganization of those systems has thus far resulted in the emergence of growing complexity, creating increasingly energy dense feedback in ecosystems over time in which “the level of complexity achieved by a living organism can be measured, roughly but quite objectively, by estimating the density of energy flows.” (11) It is why the energy density of ecosystems are far greater than that of stars, and why human brains far exceed both. To light, our world is dominated by institutional dinosaurs caught between the Scylla and Charybdis of resource depletion and climate change.

The future belongs to the “mammals”, those forms of organisation that can most effectively and efficiently harness the energy available in our transforming ecosystems. It is in the cycles of this process that growth occurs, the breakdown or disentanglement of systems create the possibility for new configurations and provides the raw materials from which new complexity emerges. This is how we must approach the next system, the creation of a new and resilient energetic ecology from the ground up as the old-world crumbles.



1) Manuel De Landa, A Thousand Years of Nonlinear History, (New York: Zone Books, 1997), 273.
2) Neil F. Johnson. Simply Complexity: A Clear Guide to Complexity Theory, (Oxford: Oneworld, 2009).
3) Lance H. Gunderson, and C. S Holling, Panarchy: Understanding Transformations in Human and Natural Systems, (Washington, DC: Island Press, 2002), 22.
4) Ibid., p. 17-19
5) Ibid., p. 47
6) Ibid., p. 6-8
7) Eric D. Schneider and Dorion Sagan, Into the Cool: Energy Flow, Thermodynamics, and Life, (Chicago: University of Chicago Press, 2006), 152.
8) Ibid., p. 254
9) David Jablonski and Paul D.Taylor, ed., Extinctions in the History of Life: The Evolutionary Role of Mass Extinction, (Cambridge: Cambridge University Press, 2004), 173.
10) Schneider and Sagan, p. 253
11) David Christian, Maps of Time: An Introduction to Big History, (Berkeley: University of California Press, 2011), 80.



Part 2 of Quantum, Jazz and Dada will follow soon. Check



Alexander Aston is a doctoral candidate in archaeology at the University of Oxford and is on the board of directors with the Centre for Cognitive Archaeology at the University of Colorado in Colorado Springs. He has prior degrees in philosophy and history. His work lays at the intersection of Cognitive Archaeology, Deep History and Natural Philosophy, examining the relationship between ecology, material culture and social cognition. Alexander grew up between Zimbabwe, Greece and the United States. He has worked as a stone mason, community organiser and collaborative artist focused on issues of sustainability, alternative education and economic justice for nearly two decades. He has helped to establish community collectives, free schools, participatory art projects, sustainability and education programs in several international projects.



Oct 242017
 October 24, 2017  Posted by at 9:10 am Finance Tagged with: , , , , , , , ,  

Bill Brandt After the celebration 1934


Everything We Think We Know About Chinese Finances is Wrong (Balding)
China’s Greatest Vulnerabilities (ZH)
Ray Dalio Explains Why 3 in 5 Americans Are Struggling (Fortune)
To Understand the Next 10 Years, Study Spain (Krieger)
HSBC Trader’s Conviction Will Rattle $5 Trillion FX Market (BBG)
The Family That Built an Empire of Pain (New Yorker)
America’s Forever Wars (NYT)
China Speeds Ahead Of US As Quantum Race Escalates (McC.)
EU On Brink Of Historic Decision On Pervasive Glyphosate Weedkiller (G.)
Hidden Danger of Ecological Collapse (CP)



As Xi Jinping is being written into the Chinese constitution(!), Christopher Balding comes with a long and excellent expose of China’s real debt situation. Makes one wonder what Xi will actually be remembered for.

Everything We Think We Know About Chinese Finances is Wrong (Balding)

China has long faced doubts about the veracity of its economic data and concerns about its rapidly rising level of indebtedness. While defaults and individual incidents raised questions about debt discrepancies, there was no systematic evidence that the financial system faced systemic misstatement. The People’s Bank of China changed that with a few sentences. By some estimate, the widely watched debt to GDP metric in China has already surpassed 300%. While this is level is worrying given financial stress associated with countries that reached similar levels, this is only half the story. There have long been suspicions that Chinese debt numbers are not entirely accurate but data that would demonstrate a systemic difference from data has never emerged.

However, every time a company collapsed, there would inevitably come out a mountain of undeclared debt. While this raised suspicions, there was never systematic evidence. The Financial Stability Board (FSB), formed after the 2008 Global Financial Crisis, aggregates data for major countries that includes a broader measure of assets by banks, insurance companies, and other major asset holders. According to their data, at the end of 2015, China financial system assets had already reached 401% of GDP.

[..] China itself, gave us evidence that its financial data is wildly off. The annual PBOC Financial Stability Report with little fanfare more than doubled its estimates of financial system assets. In a little noticed paragraph the PBOC noted that “the outstanding balance of the off-balance sheet of banking institutions….registered 253.52 trillion yuan.” [..] Nor does the PBOC provide many clues as to what these off balance assets are holding. They do note that roughly two-thirds of the 253 trillion is held as “financial asset services” which may mean everything from structured products sold to clients who believe the bank will stand behind the product, special purpose vehicles holding non-traditional assets, or certain types of financial flows. If we revise our earlier estimate of financial system assets to GDP based upon the new PBOC numbers, China’s position changes dramatically.

[..] If we take the FSB data, add in the new PBOC data, and estimate forward to 2016 Chinese financial system assets are equal to 833% of nominal GDP ahead of Japan at 657% and behind only international banking center United Kingdom at 1008%. This level of asset accumulation imposes real costs. Where as Japan and Europe have close to zero or negative interest rates, China has significantly higher. If we make the simple cheap assumption that these assets earn the short term interbank deposit rate of return of 3.5%, this would imply a financial servicing cost to the economy of 29% of nominal GDP. Conversely, Japan with financial assets of 657% of GDP but using the higher long term loan rates of 1% instead, would need only 6.6% of GDP to service its asset costs.

What makes this disclosure concerning is how extreme the numbers are. Even the FSB placed China among developed country financialization and well outside the range of other emerging markets. The new numbers place China on the extremity of all major economies behind only a major international banking center even in front of Japan who has run strongly expansionary monetary policy for years to try and push inflation. Many analysts have raised concerns about asset bubbles and debt growth in China but even the most bearish would have had trouble believing this level of financialization.

Read more …

Victor Shih from the Mercator Institute for China Studies has a few subtle points on China as well.

China’s Greatest Vulnerabilities (ZH)

[..] while some categories of shadow finance, including bill finance and non-loan trust credit, have actually declined in recent months (duly noted here), most other categories rose by double digits in percentage terms in the year and half between the end of 2015 and May 2017. Of note, credit held by funds, rose by 116%. So with credit soaring, Shih – like Goldman clients – asks “how much longer can this go on?” and answers that “the amount of interest that debtors in China must pay creditors provides clues on the costs of such a high debt level. If interest servicing exceeds incremental increase in nominal GDP, the debtor would need to pursue one of two courses of action to avoid a crisis. This ultimately goes to the question whether China has hit its “Minsky Moment” or is still in the Ponzi Finance stage, a discussion popularized by Morgan Stanley first in 2014.

Here are Shih’s observations: First, creditors can extend even more credit to the debtors so that interest payments are serviced with new credit. This mechanism renders China more of a Ponzi unit, which requires new credit to service interest payments. Alternatively, a rising share of income for households, firms, or government will go toward servicing interest. While the first dynamic would cause the acceleration of debt accumulation, the second dynamic is tantamount to a massive tax which will slow growth for an extended period. The problem with both approaches is that China as a whole is a Ponzi unit. And, as Shih calculates and as shown in the chart below, total interest payments from June of 2016 to June of 2017 exceeded incremental increase in nominal GDP by roughly 8 trillion RMB.

And since we have not see large-scale defaults in China, the new additional interest burden must have been financed in some way. Most likely, the Merics analysis notes, roughly this amount or more was capitalized as new loans, contributing to the rapid rise in total debt. As the chart above shows, this was not always the case. Prior to 2011, incremental nominal GDP roughly matched or even exceeded interest payments. The advent of high-yielding shadow banking led to the explosive growth in interest payments, and thus the need to capitalize interest payments, starting in 2012. This is a dynamic which will drive debt growth in China for years to come, or until the debt bubble ends.

So what ends the bubble? According to the Merics analysis, there are 4 possible channels for a financial crisis in China. First, it should be noted that despite the enormous debt load, a domestically triggered crisis is not likely in the next five years. Trouble is more likely to come from some combination of capital flight and sudden withdrawal of external credit.

Read more …

Are people finally waking up to what makes societies viable, and what destroys them?

Ray Dalio Explains Why 3 in 5 Americans Are Struggling (Fortune)

The founder of the world’s largest hedge fund has serious concerns about the U.S. economy. In a LinkedIn note published Monday, Ray Dalio, who founded Bridgewater Associates, said that average statistics about what’s going on in the economy mask deep divisions that could lead to “dangerous miscalculations.” To explain this divide, Dalio splits up the economy into two separate sections: the top 40% and the bottom 60%. He then runs through a number of different statistics showing that the economy for the bottom 60% of the population – or three in five Americans – is much less stable than that for those in the top bracket. For example, Dalio notes that, since 1980, real incomes have been flat or down for the average household in the bottom 60%.

Those in the top 40% also now have an average of 10 times as much wealth as households in the bottom 60% — an increase from six times as much in 1980. Other points include that only about one-third of people in the bottom 60% save any of their income and a similar number have retirement savings accounts. These three in five Americans have also seen an increasing rate of premature death and spend an average of four times less on education than those in the top 40%, Dalio wrote. Those without a college education see lower income rates and higher divorce rates. Dalio wrote that all of these concerns will likely intensify in the next five to 10 years, and that he believes policy makers need to take them into consideration. Dalio added that if he were running the Federal Reserve, he would “keep an eye on the economy of the bottom 60%.”

Read more …

Can’t stop decentralization.

To Understand the Next 10 Years, Study Spain (Krieger)

Some of you may be confused as to why a U.S. citizen living in Colorado has become so completely obsessed with what’s going on in Spain. Bear with me, there’s a method to my madness. I believe what’s currently happening in Spain represents a crucial microcosm for what we’ll see sweep across the entire planet over the next ten years. Some of you will want to have a discussion about who’s right and who’s wrong in this particular affair, but that’s besides the point. It doesn’t matter which side you favor, what matters is that Madrid/Catalonia is an example of the forces of centralization duking it out with forces of decentralization. Madrid represents the nation-state as we know it, with its leaders claiming Spain is forever indivisible according to the constitution.

Madrid has essentially proclaimed there’s no possible avenue to independence from a centralized Spain even if various regions decide in large number they wish to be independent. This sort of attitude will be seen as unacceptable and primitive by increasingly large numbers of humans in the years ahead. Catalonia should be seen as a canary in the coal mine. The forces of decentralization are rising, but entrenched centralized institutions and the bureaucrats running them will become increasingly terrified, panicked and oppressive. As I’ve discussed, this isn’t coming out of nowhere. Humanity’s current established centralized institutions and nation-states have become clownishly corrupt, merely existing to protect and enrich the powerful/connected as opposed to benefiting the population at large.

As such, legitimacy has been shattered and people have begun to demand a new way. Whether we see this with the rising popularity of Bitcoin, or the UK decision to leave the EU, evidence is everywhere and we’ve already passed the point of no return. This is precisely why EU leaders are rallying around Madrid. They’re scared to death and fear they might be next. They’re probably right.

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Maybe this is good, though one must wonder why the case wasn’t brought before a UK court.

HSBC Trader’s Conviction Will Rattle $5 Trillion FX Market (BBG)

Global currency traders and compliance officers who monitor them were put on high alert after a New York jury convicted a former HSBC executive of fraud for front-running a large client order. The verdict is a victory for U.S. prosecutors in their first attempt to hold individuals accountable since a global currency-rigging probe that led to banks paying more than $10 billion in penalties. Mark Johnson faces a maximum sentence of 20 years in prison, although he’s likely to get much less. Traders will almost certainly come under pressure to avoid conduct that could be seen as harming their clients and profiting unfairly at their expense, said Mayra Rodriguez Valladares, a former foreign-exchange analyst for the Federal Reserve Bank of New York.

“Front-running is a crime,” she said. “This should be a lesson to senior executives that they should invest in more training of ethics for traders and more in systems to detect irregularities.” The verdict is likely to echo worldwide. Although Johnson, HSBC’s global head of foreign exchange in 2011, was in New York at the time of the transaction, the trade was executed primarily in London, where Johnson’s co-defendant, Stuart Scott, was overseeing it. Scott, the bank’s former head of currency trading in Europe, remains in the U.K. as he fights extradition to the U.S. “This conviction will embolden the U.S. in other cases,” said Peter Henning, a law professor at Wayne State University in Detroit. “The U.S. authorities have shown they’re able to police global markets.”

“At its very essence,” he added, “this was a theft case.” Johnson, the first banker to go on trial following the investigation over foreign-exchange trading, was convicted of defrauding Cairn Energy Plc in what prosecutors said was a clear case of front-running the company’s $3.5 billion order. London-based HSBC wasn’t accused of wrongdoing, but the bank has been under investigation over currency trading and is in talks with the Justice Department and U.S. regulators to resolve the matters, according to a July 31 regulatory filing.

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An absolutely crazy story. 145 Americans die every day from opioid overdoses.

The Family That Built an Empire of Pain (New Yorker)

According to Forbes, the Sacklers are now one of America’s richest families, with a collective net worth of thirteen billion dollars—more than the Rockefellers or the Mellons. The bulk of the Sacklers’ fortune has been accumulated only in recent decades, yet the source of their wealth is to most people as obscure as that of the robber barons. While the Sacklers are interviewed regularly on the subject of their generosity, they almost never speak publicly about the family business, Purdue Pharma—a privately held company, based in Stamford, Connecticut, that developed the prescription painkiller OxyContin. Upon its release, in 1995, OxyContin was hailed as a medical breakthrough, a long-lasting narcotic that could help patients suffering from moderate to severe pain. The drug became a blockbuster, and has reportedly generated some thirty-five billion dollars in revenue for Purdue.

But OxyContin is a controversial drug. Its sole active ingredient is oxycodone, a chemical cousin of heroin which is up to twice as powerful as morphine. In the past, doctors had been reluctant to prescribe strong opioids—as synthetic drugs derived from opium are known—except for acute cancer pain and end-of-life palliative care, because of a long-standing, and well-founded, fear about the addictive properties of these drugs. “Few drugs are as dangerous as the opioids,” David Kessler, the former commissioner of the Food and Drug Administration, told me. Purdue launched OxyContin with a marketing campaign that attempted to counter this attitude and change the prescribing habits of doctors. The company funded research and paid doctors to make the case that concerns about opioid addiction were overblown, and that OxyContin could safely treat an ever-wider range of maladies.

Sales representatives marketed OxyContin as a product “to start with and to stay with.” Millions of patients found the drug to be a vital salve for excruciating pain. But many others grew so hooked on it that, between doses, they experienced debilitating withdrawal. Since 1999, two hundred thousand Americans have died from overdoses related to OxyContin and other prescription opioids. Many addicts, finding prescription painkillers too expensive or too difficult to obtain, have turned to heroin. According to the American Society of Addiction Medicine, four out of five people who try heroin today started with prescription painkillers. The most recent figures from the Centers for Disease Control and Prevention suggest that a hundred and forty-five Americans now die every day from opioid overdoses.

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They’re everywhere.

America’s Forever Wars (NYT)

The United States has been at war continuously since the attacks of 9/11 and now has just over 240,000 active-duty and reserve troops in at least 172 countries and territories. While the number of men and women deployed overseas has shrunk considerably over the past 60 years, the military’s reach has not. American forces are actively engaged not only in the conflicts in Afghanistan, Iraq, Syria and Yemen that have dominated the news, but also in Niger and Somalia, both recently the scene of deadly attacks, as well as Jordan, Thailand and elsewhere.

An additional 37,813 troops serve on presumably secret assignment in places listed simply as “unknown.” The Pentagon provided no further explanation. There are traditional deployments in Japan (39,980 troops) and South Korea (23,591) to defend against North Korea and China, if needed, along with 36,034 troops in Germany, 8,286 in Britain and 1,364 in Turkey — all NATO allies. There are 6,524 troops in Bahrain and 3,055 in Qatar, where the United States has naval bases.

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A quantum computer would turn the world upside down.

China Speeds Ahead Of US As Quantum Race Escalates (McC.)

U.S. and other Western scientists voice awe, and even alarm, at China’s quickening advances and spending on quantum communications and computing, revolutionary technologies that could give a huge military and commercial advantage to the nation that conquers them. The concerns echo – although to a lesser degree – the shock in the West six decades ago when the Soviets launched the Sputnik satellite, sparking a space race. In quick succession, China in recent months has utilized a quantum satellite to transmit ultra-secure data, inaugurated a 1,243-mile quantum link between Shanghai and Beijing, and announced a $10 billion quantum computing center. “To me, what is alarming is the level of coordination of what they’ve done,” said Christopher Monroe, a physicist and pioneer in quantum communication at the University of Maryland.

Perhaps more than the accomplishments of the Chinese scientists, it is the resources that China is pouring into the research into how atoms, photons and other basic molecular matter can harness, process and transmit information. “It doesn’t necessarily mean that their scientists are better,” said Martin Laforest, a physicist and senior manager at the Institute for Quantum Computing at the University of Waterloo in Ontario, Canada. “It’s just that when they say, ‘We need a billion dollars to do this,’ bam, the money comes.” The engineering hurdles that China has cleared for quantum communication means that the United States will lag in that area for years.

But building a functioning quantum computer sets forth different kinds of challenges than mastering quantum communication, and may involve creating materials and processes that do not yet exist. Once thought to be decades off, scientists now presume a quantum computer may be built in a decade or less. The stakes are so high that advances by the U.S. government remain secret. “We don’t know exactly where the United States is. I fervently hope that a lot of this work is taking place in a classified setting,” said R. Paul Stimers, a lawyer at K&L Gates, a Washington law firm, who specializes in emerging technologies. “It is a race.”

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“..its residues were recently found in 45% of Europe’s topsoil – and in the urine of three quarters of Germans tested, at five times the legal limit for drinking water.”

Seems a simple case. But it is not.

EU On Brink Of Historic Decision On Pervasive Glyphosate Weedkiller (G.)

A pivotal EU vote this week could revoke the licence for the most widely used herbicide in human history, with fateful consequences for global agriculture and its regulation. Glyphosate is a weedkiller so pervasive that its residues were recently found in 45% of Europe’s topsoil – and in the urine of three quarters of Germans tested, at five times the legal limit for drinking water. Since 1974, almost enough of the enzyme-blocking herbicide has been sprayed to cover every cultivable acre of the planet. Its residues have been found in biscuits, crackers, crisps, breakfast cereals and in 60% of breads sold in the UK. But environmentalists claim that glyphosate is so non-selective that it can even kill large trees and is destructive to wild and semi-natural habitats, and to biodiversity.

The CEO of the Sustainable Food Trust, Patrick Holden, has said that a ban “could be the beginning of the end of herbicide use in agriculture as we know it, leading to a new chapter of innovation and diversity”. But industry officials warn of farmers in open revolt, environmental degradation and crops rotting in the fields if glyphosate is banned. Alarm at glyphosate’s ubiquity has grown since a 2015 study by the World Health Organisation’s IARC cancer agency found that it was “probably carcinogenic to humans”. More than a million people have petitioned Brussels for a moratorium. On Tuesday, MEPs will vote on a ban of the chemical by 2020 in a signal to the EU’s deadlocked expert committee, which is due to vote on a new lease the next day.

Anca Paduraru, an EC spokeswoman, said that a decision was needed before 15 December or “for sure the European commission will be taken to court by Monsanto and other industry and agricultural trade representatives for failing to act. We have received letters from Monsanto and others saying this.” France is resisting a new 10-year licence. Spain is in favour. Germany is in coalition talks and likely to abstain. The UK would normally push for a new lease of the licence but is less engaged due to Brexit. There may not be a qualified majority for any outcome.

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And the EU dithers on glyphosate. Tragic species.

Hidden Danger of Ecological Collapse (CP)

Is human society, en mass, committing suicide? The answer could be yes, humankind is committing harakari in the wide-open spaces for all to see, but nobody has noticed. Until now, as insect losses forewarn of impending ecosystem collapse. Loss of insects is certain to have deleterious effects on ecosystem functionality, as insects play a central role in a variety of processes, including pollination, herbivory and detrivory, nutrient cycling, and providing a food source for higher trophic levels such as birds, amphibians, and mammals. Harkening back to the Sixties, a strikingly similar issue was identified in Rachel Carson’s famous book Silent Spring (1962), the most important environmental book of the 20th century that exposed human poisoning of the biosphere through wholesale deployment of myriad chemicals aimed at pest control.

Carson’s fictional idyllic American town enriched with beautiful plant and animal life suddenly experienced a “strange blight,” leaving a swathe of inexplicable illnesses, birds found dead, farm animals unable to reproduce, and fruitless apple trees, a strange lifelessness. She wrote: “A grim specter has crept upon us to silence the voices of spring.” Today, scientists do not know the specific causes but speculate it could be simply that there is no food for insects; alternatively, the issue could be, specifically as well as more likely, exposure to chemical pesticides or maybe a combination, meaning too little food/too much pesticide. Not only that, flower-rich grasslands, the natural habitat for insects, have declined by 97% since early-mid 20th century whilst industrial pesticides literally cover the world.

Rachel Carson would be floored. That’s a sure-fire guaranteed formula for a tragic ending. Nature doesn’t have a snowball’s chance in hell.

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Sep 152017
 September 15, 2017  Posted by at 9:16 am Finance Tagged with: , , , , , , , , , ,  

Juan Gris Portrait of the artist’s mother 1912


Fed To Take Historic Leap Into The Unknown (MW)
Janet Yellen’s Right-Hand Man Is Hanging Up His Boots (BI)
97 Million American Workers Are Living Paycheck To Paycheck (ZH)
“Markets Are Wrong” (Hugh Hendry)
Japanese Told To Find Shelter After North Korea ‘Fires New Missile’ (Y.)
JPMorgan Is In A Bubble And Not Bitcoin – Max Keiser (RT)
Why Europe Will Miss The Disruptive Brits (Gardner)
Brexit’s Irish Question (Fintan O’Toole)
IMF Is Set On Asset Quality Review For Greek Banks (K.)
Greece Sells Its Railway Company To Italian State Operator (AP)
Greek Oil Spill Forces Closure Of Athens Beaches (G.)
100% Wishful Thinking: the Green-Energy Cornucopia (Cox)
China Takes The Lead In Building Quantum Data Security Networks (Axios)



No. The Fed took that leap in 2008. Bernanke himself talked about uncharted territory. Which is where they’ve been ever since. They literally don’t know what they’re doing.

Fed To Take Historic Leap Into The Unknown (MW)

The Federal Reserve is set to take a leap into the unknown next week by beginning to sell some of the roughly $3.7 trillion of bonds and mortgage securities it amassed during the financial crisis. The Fed will meet on Tuesday and Wednesday and is widely expected at the end of the meeting to announce it plans to allow the run-off of its massive balance sheet beginning sometime in October. Fed Chairwoman Janet Yellen will hold a press conference afterwards to explain the decision. “It will be an historic day” for the Fed, said Lewis Alexander, chief U.S. economist at Nomura Securities, one the central bank has long thought about but was unsure when it would come. And still the final destination is unknown. “We are heading for a place that is very different from where we are now. It will take years to get there and figure out where we are,” Alexander said.

Trying to keep financial markets calm, the Fed is not celebrating this turning point. Officials have openly admitting they have designed the first steps to be so small it will be like watching paint dry. But economists have no doubt that bond yields will eventually move higher. “The Fed is just hoping desperately it has been transparent enough so that the adjustment will be orderly,” said Jim Glassman, head economist for the commercial bank at J.P. Morgan Chase. The central bank is trying to avoid a repeat “taper tantrum,” the swift run up of nearly 1 percentage point on the yield of the 10-year Treasury in 2013 after then-Chairman Ben Bernanke discussed the tapering of bond purchases for the first time. Fed officials have known they would have to reverse course eventually. Hawks and doves agree the policy is not sustainable over the medium term because it potentially adds too much stimulus to a healthy economy.

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I don’t get how or why people can praise a man whose entire career has been one long litany of either wrong or intentionally bad decisions and policies. He was the teacher to all those central bankers who made all those decisions that the entire world will still be paying for many years from now. Fisher is the one outstanding symbol of everything that’s wrong in the shady area where finance touches politics.

Janet Yellen’s Right-Hand Man Is Hanging Up His Boots (BI)

Federal Reserve Vice Chair Stanley Fischer announced last week he was resigning for personal reasons before the end of his term, opening yet another seat in the central bank’s powerful board for President Donald Trump to fill. The departure of Fischer, 73, represents a big loss of institutional knowledge and gravitas for the Fed at a time when many American institutions are sorely lacking in technocratic expertise. Fischer is considered the leader of a generation of prominent academic and professional economics, in part because he taught many of them at MIT. “He is often referred to as the dean of central bankers, having taught most central bankers including former Fed Chairman Ben Bernanke and ECB president Mario Draghi,” Shawn Baldwin, the chairman of AIA Group, wrote in a LinkedIn post. “Fischer’s departure creates a vacuum not easily filled, adding to the uncertainty in monetary policy.”

Larry Summers, the Harvard economist and former Treasury secretary, dubbed Fischer’s resignation “the end of an era.” Fischer, who was born in Zambia and later studied in London, started his career as an academic but became a policymaker at the World Bank and later the International Monetary Fund, where he rose to the role of first deputy managing director. Fischer then spent three years at Citigroup as a vice chairman before moving to Israel in 2005 to become the head of its central bank. Fischer returned to the US as Fed vice chairman in 2014. His term was not set to end until June 2018. “The Fed and the international monetary system will be weaker for his departure from official responsibility,” Summers wrote in a blog post. “Stan’s has been a singular career,” he said. “As an MIT professor he coauthored, with his close friend Rudi Dornbusch, the macro textbook that defined the basics of the field for a generation.

With Olivier Blanchard,” the former IMF chief economist, “he wrote the treatise that defined the state of the art for graduate students. His lectures were models of lucid exposition and balanced judgment. My view of monetary economics was shaped by my experience auditing his class in the Fall of 1978.” Not everyone is complimentary about the arc of Fischer’s career. To some, he represents the kind of establishment economics that led to financial instability and income inequality in many parts of the world. During his time at the IMF, Fischer became the face of austerity measures gone wrong. Many of his and the IMF’s recommendations for drastic spending cuts during the Asian financial crisis of the late 1990s have since been widely discredited as having made matters worse.

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And that’s just the workers. Not their dependents. Or the unemployed.

97 Million American Workers Are Living Paycheck To Paycheck (ZH)

As we’ve noted time and time again, the number of Americans scraping by with almost no money in their savings account (if they even have a savings account) is staggeringly high – and growing. As the Motley Fool pointed out in a recent post, the St. Louis Federal Reserve, the personal saving rate in June 2017 was a measly 3.8%, or $3.80 for every $100 they earn. With the median household income in the US at just north of $50,000, that would amount to about $4,000 a year. And that’s when they’re saving money. Another study from GoBankingRates found that 69% of Americans surveyed had less than $1,000 in savings. And about one-third had no money in reserve.

Considering that the US economy is 70% based on consumption, Americans are probably over-consuming rather than saving. The Federal Reserve recently released data showing that aggregate credit card debt had hit an all-time high of $1.027 trillion, eclipsing the previous high that was set before the Great Recession. Add in another trillion of auto-loan debt and $1.4 trillion in student-loan debt, and the aggregate debt pile is not only larger than ever before – it’s growing at its fastest rate in decades. And in what’s perhaps the most troubling statistic highlighted by Motley Fool, a recent survey by CareerBuilder and The Harris Poll found that 78% of full-time US workers – nearly 100 million Americans – are now living paycheck to paycheck, up from 75% in 2016.

The survey suggested that only 19% of workers save more than $501 monthly, while at the other end of the spectrum, 56% were saving less than $100 a month, including 26% who saved nothing monthly. Fewer than one-third of respondents admitted to following a budget. Meanwhile, about half of respondents said they wouldn’t give up their internet, phone or car to save money. Maybe once the Federal Reserve has succeeded in “normalizing” interest rates, spendthrift Americans will have more of an incentive to save, while also making it more expensive to pay down debt – a powerful disincentive. Now, if only the central bank could find a way to revive stagnant wages…

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Hendry has fallen prey to the central bankers. And shut his hedge fund.

“Markets Are Wrong” (Hugh Hendry)

What if I was to tell you I wasn’t bearish on anything? Is that something you would be interested in? It wasn’t supposed to be like this and it is especially frustrating as nothing much has gone wrong with the economy over the summer. If anything we feel more convinced that our thesis of a healing global economy is understated: for the first time in an age all parts of the world are enjoying synchronised economic momentum and I can’t see it ending for some time. It’s just that our substantial risk book became strongly correlated over the short term to the maelstrom of President Trump and the daily news bombs emanating from the Korean Peninsula; that and the increasing regulatory burden which makes it almost impossible to manage small pools of capital today. Like I said, it wasn’t supposed to be like this…

But let me bow out by sharing my team’s views. For the implications of a sustained bout of economic growth are good for you. It’s good because it should continue to underwrite a continuation in the positive performance of global equities. I would stay long. It’s also good because I can’t see interest rates rising abruptly to interrupt the upward path of equities. And commodities have already acknowledged the upturn in the fortunes of the global economy and are likely to trend higher still. That’s a lot of good news. But it is bad news for me because funds like mine are required to demonstrate negative correlation with risk assets (when they go up like this I go down…), avoid large drawdowns and post consistent high risk adjusted returns. Oh, and I forgot, macro fund clients don’t like us investing in the stock market for the understandable fear that we concentrate their already considerable risk undertaking.

That proved to be an almighty puzzle for a fund like mine that has been proclaiming the stock market as a “safe-ish” bet ever since 2013. Let me explain the “markets are wrong and we boom now” argument. To begin with, and for the sake of clarity, I think we have to carefully go back and deconstruct the volatile engagement between capital markets and central banks for the last ten years for an understanding of where we stand today. The first die was cast by the central bankers in early 2009: having stared into the abyss of a deflationary spiral in 2008 the Fed and the BoE announced a radical new policy of bond purchases named Quantitative Easing. The bond market hated the idea as it was expected to cause a severe inflation problem.

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Just yesterday I was telling a friend they would soon fire the next.

Japanese Told To Find Shelter After North Korea ‘Fires New Missile’ (Y.)

North Korea has fired a ballistic missile directly over Japan. US Secretary of State Rex Tillerson branded the launch ‘reckless’ and called on China and Russia to take ‘direct action’ against Kim Jong-un, while Seoul responded to the test by launching the missiles of its own. The test sparked panic in Japan, where residents were immediately told to take shelter as the missile passed directly overhead – the second time Pyongyang has done so in the past few weeks. It flew over Hokkaido in northern Japan and fell into the Pacific Ocean, sparking a nationwide alert. South Korea said the missile probably reached an altitude of 770km and travelled 3,700km and called an urgent National Security Council meeting.

The North’s launch comes a day after it threatened to sink Japan and reduce the United States to “ashes and darkness” for supporting a U.N. Security Council resolution imposing new sanctions against it for its nuclear test on September 3. The severe sanctions include limits on imports of crude oil and a ban on exports of textiles – which is the country’s second biggest export, worth more than $700m a year. The North previously launched a ballistic missile from Sunan on August 29, which flew over Japan’s Hokkaido island and landed in the Pacific waters

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Max is very crypto. But bitcoin et al had big overnight losses.

JPMorgan Is In A Bubble And Not Bitcoin – Max Keiser (RT)

“JP Morgan, along with the entire finance sector, has been subsidized by the Federal Reserve’s corrupt practice of ‘financial repression’ that moves hundreds of billions from savers and pensioners, and workers, into JP Morgan and Jamie Dimon’s pocket. Jamie’s compensation is tied directly to manipulating JP Morgan’s stock and option prices, thanks to the Fed’s conflicted, corrupt, cozy malfeasance,” [..] “The US dollar, bond markets, and many property markets are in bubbles. Bitcoin and gold are the only financial assets not in bubbles.

To say bitcoin is fraudulent would be like saying gold is fraudulent. Some might say this, but no rational person would agree,” he said. “As the bubbles in fiat money, bonds and stocks pop, capital will flow into bitcoin, gold, and silver. At some point, when his customers start leaving JPMorgan and move to more bitcoin-focused options, Jamie will be forced to capitulate, or get replaced,”[..] “Bitcoin makes banks, essentially price gouging intermediaries and socially unacceptable leeches, obsolete. Bankers rightfully fear for their jobs as bitcoin replaces them,”

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Nigel Gardner is a former European Commission spokesman.

Why Europe Will Miss The Disruptive Brits (Gardner)

The UK’s constant digging-in of heels has allowed other governments to steer clear of negotiating clashes, safe in the knowledge that Britain and its Eurosceptic media would do the blocking of unpopular measures for them. Take the seemingly trivial example from 2013, of rules about how olive oil could be served in restaurants. “There was a daft proposal that it couldn’t be served in bowls or glass jugs at the table, but only in sealed sachets,” recalls a senior Dutch official. “We didn’t have to do anything – the Brits and their tabloids did the heavy lifting for us, and the proposal was withdrawn … Every time the European Commission proposes something, we know we can rely on the British to kick and shout so it’s blocked. With Brexit, that’s no longer going to be possible.”

Even that opt-out over the 48-hour week for which the UK fought its lonely battle is now – 20 years later – quietly being used by 15 other member states. So which country may end up replacing Britain as Europe’s new troublemaker-in-chief? Poland and Hungary are the obvious candidates because, across a whole range of areas, from civil liberties to media freedoms, the two countries find themselves at odds with the EU. As one senior EU official put it: “They are simply not in line with fundamental EU policies. As new member states they should be enthusiastic, but it’s the opposite.” Beata Szydlo, for example, tells us a lot about what the EU will look like after 2019 when Britain is supposed to exit. The Polish prime minister’s intemperate language at a recent European summit was previously the kind of thing the EU’s top brass expected only from the British.

She would not accept “blackmail from a leader with an approval rating of 4%” she raged against France’s then president François Hollande. Poland is now facing EU legal action over judicial reforms which Brussels says would undermine Polish democracy. Ironically, we may need to look to a more unlikely quarter to find Europe’s true new bad boy. Because post-Brexit, the Germans will end up being much more unpopular. “Without Britain,” one EU official told me, “they will have to assume the role they are historically reluctant to play.”

Indeed, the eurozone crisis provided a foretaste of how this could play out. With Britain outside the single currency, all the anger was directed against Germany and its chancellor, Angela Merkel, when things went wrong. Pictures of Merkel with a Hitler moustache were everywhere in the Greek press. And the old joke about Merkel arriving at Athens airport – the one where the border guard asks “Occupation?” and Merkel replies, “No, just visiting” – took on new life. Expect much more of this.

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He might as well have called it Brexit’s British Question.

Brexit’s Irish Question (Fintan O’Toole)

Brexit is, in a sense, a misnomer. There are five distinct parts of the UK: Scotland, Wales, Northern Ireland, the global metropolis that is Greater London, and what the veteran campaigner for democratic reform Anthony Barnett, in his excellent new book The Lure of Greatness, calls England-without-London. In three of these parts—Scotland, Northern Ireland, and London—Brexit was soundly rejected in last year’s referendum. Wales voted narrowly in favor of Brexit. But in England-without-London Brexit was triumphant, winning by almost 11%. It was moreover a classic nationalist revolt in that the support for Brexit in non-metropolitan England cut across the supposedly rigid divides of North and South, rich and poor. Every single region of England-without-London voted to leave the EU, from the Cotswolds to Cumbria, from the green and pleasant hills to the scarred old mining valleys.

This was a genuine nationalist uprising, a nation transcending social class and geographical divisions to rally behind the cry of “Take back control.” But the nation in question is not Britain, it is England. The problem with this English nationalism is not that it exists. It has a very long history (one has only to read Shakespeare) and indeed England can be seen as one of the first movers in the formation of the modern nation-state. The English have as much right to a collective political identity as the Irish or the Scots (and indeed as the Germans or the French) have. But for centuries, English nationalism has been buried in two larger constructs: the United Kingdom and the British Empire. These interments were entirely voluntary. The gradual construction of the UK, with the inclusion first of Scotland and then of Ireland, gave England stability and control in its own part of the world and allowed it to dominate much of the rest of the world through the empire.

Britishness didn’t threaten Englishness; it amplified it. Now, the empire is gone and the UK is slipping out of England’s control. Britain’s pretensions to be a global military power petered out in the sands of Iraq and Afghanistan: the British army was effectively defeated in both Basra and Helmand and had to be rescued by its American allies. The claim on Northern Ireland has been ceded, and Scotland, though not yet ready for independence, increasingly looks and sounds like another country. In retrospect, it is not surprising that the reaction to these developments has created a reversion to an English, rather than a British, allegiance. In the 2011 census, 32.4 million people (57.7% of the population of England and Wales) chose “English” as their sole identity, while just 10.7 million people (19.1%) associated themselves with a British identity only.

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The torture never stops.

IMF Is Set On Asset Quality Review For Greek Banks (K.)

Greece looks set for another difficult series of negotiations with its international creditors in the third review of its third bailout program, as IMF spokesman Gerry Rice made it clear on Thursday that the issue of the asset quality review of Greek banks (AQR) “will form part of the review.” He also said the Fund may demand new measures for next year, stressing that the programs evolve and conditions change. Citing the IMF report dated July 20 – when the Fund approved its participation in the Greek program “in principle” – Rice left no doubt as to whether the AQR would be discussed, branding it an important matter. This will likely cause friction with the European Central Bank, which has scheduled its own stress tests for the banks in 2018.

Sources in Frankfurt have noted that only if the Greek government asks for an AQR will the ECB authorize it. However, Athens, as a senior Finance Ministry official has said, has no such intention. Greek banks are obviously against any such project that would upset their operations, and had hoped that the IMF would eventually decide against raising the issue. In July the IMF had estimated that local lenders would need at least 10 billion euros in additional capital, raising the prospects of another recapitalization. Rice said on Thursday that the Fund is cooperating with the ECB and other European institutions on all issues, but added that “the stability of the credit system is of great significance for the program.”

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For €45 million? An entire railway national company? How much is the kitchen sink?

Greece Sells Its Railway Company To Italian State Operator (AP)

Greece has agreed to sell its railways company to Italy’s own state-owned operator for 45 million euros ($54 million) as part of its privatization drive. The country’s Asset Development Fund said Thursday that the sale of Trainose to Ferrovie Dello Stato Italiane completed a four-year process. Greece has pledged to carry out an ambitious privatization program as part of its international bailout, under which it has received billions of euros in emergency loans in return for overhauling its economy. Many of the privatizations have been met with resistance from unions. No trains were running on Thursday as the railway workers’ union called a 24-hour strike to protest the company’s sale.

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An awful mess in more ways than one.

Greek Oil Spill Forces Closure Of Athens Beaches (G.)

An emergency operation is under way to clean up an oil spill from a sunken tanker that has blackened popular beaches and bays in Athens’ Argo-Saronic gulf. What had been thought a containable spill is being described by officials as an ecological disaster after thick tar and oil pollution drifted toward residential coastal areas. By Thursday, four days after the 45-year-old Agia Zoni II sank off Salamína island, mayors in suburbs south of the capital were forced to close beaches, citing public health risks. “This is a major environmental disaster,” said the mayor of Salamína, Isidora Nannou-Papathanassiou. “Clearly the danger [of pollution] was not properly gauged, the currents have moved the spill.” The vessel sank while at anchor in the early hours of Sunday. It was carrying 2,500 tonnes of fuel oil and marine gas when it went down in mild weather.

It has emerged that only two of its 11-strong crew – the captain and chief engineer – were on board when it began to take on water. Both men have since been charged with negligence but freed on bail. The company operating the small, Greek-flagged vessel insisted it was seaworthy. Merchant marine officials said initial emphasis had been placed on sealing the vessel’s cargo holds to stop further leakage. The merchant marine minister, Panagiotis Kouroumblis, who has brought in help from abroad including an anti-pollution truck to collect the oil, ruled out further seepage on Tuesday, saying the ship’s hull had been secured. Late on Wednesday, however, the ministry’s general secretary, Dionysis Kalamatianos, raised the possibility that oil was still leaking from the vessel, telling Skai TV that efforts to seal it were “almost complete”.

The contradictory statements sparked accusations that authorities had not only underestimated the scale of the spill, but also lost valuable time in tackling it. The slick extends for miles, and some officials said the cleanup could last four months – much longer than the 20 days Kouroumblis estimated. In the Athens suburb of Glyfada, where floating dams have been set up and chemicals used to dissolve the spillage, the mayor, Giorgos Papanikolaou, said 28 tonnes of fuel had been removed from one beach alone. Images of of dead and oil-coated turtles and birds underscored the economic and environmental impact, and experts estimated it could take years before the affected area fully recovered.

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The only good alternative energy is the one you don’t use.

100% Wishful Thinking: the Green-Energy Cornucopia (Cox)

At the People’s Climate March back last spring, all along that vast river of people, the atmosphere was electric. But electricity was also the focus of too many of the signs and banners. Yes, here and there were solid “System Change, Not Climate Change” – themed signs and banners. But the bulk of slogans on display asserted or implied that ending the climate emergency and avoiding climatic catastrophes like those that would occur a few months later—hurricanes Harvey and Irma and the mega-wildfires in the U.S. West—will be a simple matter of getting Donald Trump out of office and converting to 100-percent renewable energy.

The sunshiny placards and cheery banners promising an energy cornucopia were inspired by academic studies published in the past few years purporting to show how America and the world could meet 100% of future energy demand with solar, wind, and other “green” generation. The biggest attention-getters have been a pair of reports published in 2015 by a team led by Mark Jacobson of Stanford University, but there have been many others. A growing body of research has debunked overblown claims of a green-energy bonanza. Nevertheless, Al Gore, Bill McKibben (who recently expressed hope that Harvey’s attack on the petroleum industry in Texas will send a “wakeup call” for a 100-percent renewable energy surge), and other luminaries in the mainstream climate movement have been invigorated by reports like Jacobson’s and have embraced the 100-percent dream.

And that vision is merging with a broader, even more spurious claim that has become especially popular in the Trump era: the private sector, we are told, has now taken the lead on climate, and market forces will inevitably achieve the 100-percent renewable dream and solve the climate crisis on their own. [..] America does need to convert to fully renewable energy as quickly as possible. The “100-percent renewable for 100% of demand” goal is the problem. Scenarios that make that promise, along with the studies that dissect them, lead me to conclude that, at least in affluent countries, it would be better instead to transform society so that it operates on far less end-use energy while assuring sufficiency for all. That would bring a 100%-renewable energy system within closer reach and avoid the outrageous technological feats and gambles required by high-energy dogma. It would also have the advantage of being possible.

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Quantum is per definition unbreakable. The CIA is not going to like it.

China Takes The Lead In Building Quantum Data Security Networks (Axios)

For decades, physicists have looked to use the behavior of particles of light to securely send information. The basic science underlying quantum cryptography has been determined over the past 40 years, but a slew of papers published this summer by physicist Jian-Wei Pan establishes China as the early leader in deploying the technology on a global scale. Why it matters: Networks using quantum keys theoretically allow for very private communications and safe transactions — because if attacked, the key would be altered and the parties would know it wasn’t secure. That would be valuable for financial transactions or voting that involves transmitting information between two points. But beyond a handful of field tests, there hasn’t been a commitment to develop the technology at this scale until now.

How it works: Two people who want to communicate would share a number key encoded in a string of single photons (particles of light) that can be used to encrypt and decrypt a message. It’s secure because if someone tries to intercept the message, the photons would be physically altered and the key would no longer work, but the data would be secure. The vision: Optical fibers carry photons short distances on the ground (anything more than about 200 kilometers and the fiber absorbs the photon signal). So researchers want to pair them with satellites that can relay the signal and then drop it back down to a receiver on Earth. That goes on and on, ultimately carrying the information around the globe to the intended receiver. What they did: China built a 2,000-km fiber optic network between Beijing and Shanghai and launched a satellite last year — both dedicated to basic research on quantum satellite communications. So far, they’ve used it to:

• Send photons from the satellite to telescopes 1,200 km apart on the ground that acted as receivers. • Transmit quantum-encoded information from the ground to the satellite. • Distribute an actual quantum key string of photons from the satellite to the ground. • Shared the key between two ground receivers — during the day. (That’s key because light from the sun, moon and cities on Earth can drown out the photon signal. The current satellite only operates at night.) “They all together prove that a number of different concepts relevant for the quantum internet really do work in a space setting,” says Anton Zeilinger, a quantum physicist at the University of Vienna who was Pan’s advisor.

The bottom line: China’s achievements are more technological than scientific, but they represent a true advance in the development and deployment of these technologies, says Ray Newell of Los Alamos National Laboratory. He points out that many of the fundamental science and technologies for quantum key distribution were invented in the United States. (Satellite-based quantum key distribution was invented at Los Alamos, which holds the original patent for the technology.) Other countries possess the knowledge to build these systems, but China is the first to make a major investment. “In China, the decision to build it was done at the beginning, and then they went through with a lot of manpower and money,” says Norbert Lutkenhaus from the University of Waterloo.

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Oct 262014
 October 26, 2014  Posted by at 12:12 pm Finance Tagged with: , , , , , , , ,  

John Vachon Beer signs on truck, Little Falls, Minnesota Oct 1940

25 European Banks Fail Stress Test (NY Times)
Testing Europe’s Stress Tests (Bloomberg)
Europe Stess Tests Tests Could Trigger A Near-Term Crisis (MarketWatch)
America Stems Flow Of Funds As China Stalls And Eurozone Retreats (Observer)
Don’t Buy A Home (MarketWatch)
Brazilians Vote for Leader as Polls Show Nation Divided (Bloomberg)
Ukraine Votes in Wartime Ballot Set to Back Pro-EU Forces (Bloomberg)
Stagnant Paychecks for US Workers Underlies Voter Discontent (Bloomberg)
Record Number Of Britons In Low-Paid Jobs (Guardian)
Nearly A Third Of British Voters Prepared To Support Ukip (Observer)
1 Million Italians Rally in Rome to Protest Labor Rules Change (Bloomberg)
IMF Sets 0.05% Floor on Interest Rate on Special Drawing Right (Bloomberg)
China State Economist Sees 2015 Growth Slowest in Over 2 Decades (Bloomberg)
MH-17: The Untold Story (RT)
You’re Powered By Quantum Mechanics. No, Really… (Observer)
Nurse Held at N.J. Airport Calls US Reaction to Ebola ‘Disorganized’ (Bloomberg)

As expected. 9 banks in Italy alone is a big number.

25 European Banks Fail Stress Test (NY Times)

Banks in Europe are €25 billion, or about $31.7 billion, short of the money they would need to survive a financial or economic crisis, the European Central Bank said on Sunday. That conclusion was a result of a yearlong audit of eurozone lenders that is potentially a turning point for the region’s battered economy. The E.C.B. said that 25 banks in the eurozone showed shortfalls in their own money, or capital, after a review devised to uncover hidden problems and to test their ability to withstand a sharp recession or other crisis. The review looked at banks’ books through the end of 2013. Of the 25 banks, 13 have still not raised enough capital to make up the shortfall, the central bank said. The highly anticipated assessment of European banks was intended to remove a cloud of mistrust that has impeded lending in countries like Italy and Greece and left the eurozone struggling to avoid lapsing back into recession. By exposing a relatively small number of sick banks — of the 130 under review — the central bank aims to make it easier for the healthier ones to raise money that they can lend to customers.

Italy had by far the largest number of banks that failed the review, with nine, of which four must raise more capital. Monte dei Paschi di Siena, whose troubles were well known, must raise €2.1 billion, the central bank said, the largest of any individual bank covered by the review. Greece’s banking system was also hard hit, with three banks found short of capital. One, Piraeus Bank, has since raised enough capital to satisfy regulators. The other two are Eurobank, which must raise €1.76 billion, and National Bank of Greece, which must raise €930 million. The overall capital shortfall for the banks under review was in the middle of analyst estimates. However, the review also uncovered €136 billion in troubled loans that banks had not previously reported. In addition, banks had overvalued their other holdings by €48 billion, the E.C.B. said.

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Stress tests may have failed 25 banks, but they’re not nearly strict enough.

Testing Europe’s Stress Tests (Bloomberg)

On Sunday, the European Central Bank will publish the results of stress tests designed to restore much-needed confidence in the euro area’s financial system. To succeed, the ECB must convince investors that it has truly forced banks to recognize their losses and raise enough capital to be healthy. What would a really tough stress test look like? Research by economists at Switzerland’s Center for Risk Management at Lausanne offers an indication. By simulating the way the market value of banks’ equity tends to behave in times of stress, they estimate how much capital banks would need to raise in a severe crisis. The answer, as of Oct. 17, for just 37 of the roughly 130 banks included in the ECB’s exercise: €487 billion ($616 billion). Deutsche Bank, three big French banks and ING Groep NV of the Netherlands are among those with the largest estimated shortfalls. Here’s a breakdown by bank:

And here’s a breakdown by country, as a percentage of gross domestic product:

The economists’ approach, based on a model developed at New York University, isn’t perfect. It could, for example, overestimate capital needs if the quality of banks’ management and assets has improved in ways that the market has yet to recognize. And, because crises are rare, the modelers had scant historical data with which to build estimates of how banks might fare in future disasters. That said, this relatively simple model has some important advantages over the ECB’s much more labor-intensive stress tests. The Swiss group’s approach is free of the political considerations that constrain the ECB, which can’t be too harsh for fear of reigniting the European financial crisis. In addition, the model implicitly includes crucial contagion effects, such as forced asset sales and credit freezes, that the ECB’s exercise ignores.

A bit of back-testing suggests that the economists’ approach works relatively well. The NYU model’s projection for the largest U.S. banks’ stressed capital needs before the 2008 crisis, for example, comes pretty close to the roughly $400 billion that the banks actually had to raise. If the ECB’s number is a lot smaller than the figure the model comes up with — as early indications suggest it will be — that won’t be a good sign.

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If only these tests were credible.

Europe Stess Tests Tests Could Trigger A Near-Term Crisis (MarketWatch)

The European Central Bank is preparing a diagnosis of the eurozone’s banking. woes. Unfortunately, it has no power to write a prescription. In fact, the Sunday release of the results of new stress tests and the ECB’s Asset Quality Review could do more near-term harm than good, says Carl Weinberg, chief economist at High Frequency Economics. ECB President Mario Draghi’s 2012 pledge to do “whatever it takes” to preserve the euro and the ECB’s subsequent creation of a never-yet-utilized emergency bond-buying program put the debt crisis on the back burner. European stocks outperformed in the second half of last year as investors and commentators cheered a temporary pickup in growth. But the crucial area of lending across the eurozone remains lackluster. Many banks are nursing bruised balance sheets, and the degree to which lenders are hurting is likely to become more evident with this latest batch of tests.

Overall industrial and economic output remain below pre-crisis levels and unemployment across much of southern Europe remains at levels, unfathomable in the U.S., even during the worst of the Great Recession. The region is stumbling back toward recession, led by a German slowdown. Now, discussions of Europe’s long-running economic woes regularly use the term “depression,” Weinberg has been using the dreaded D-word for years. There isn’t a single accepted definition of a depression, but economists have usually described the phenomenon as one in that lasts several years and is characterized by a large rise in unemployment, falling credit and a big drop in economic output. The eurozone’s current woes appear to tick all those boxes. When it comes to the stress tests, the hope is that a more rigorous review led by the ECB will reassure investors that the region’s banking sector is in relatively solid shape. Of course, to be credible, some banks will have to fail, which will require them to scramble to shore up capital.

Bloomberg, citing a draft communique on Friday, reported that the ECB was set to fail 25 lenders. Weinberg worries that the tests could trigger a near-term crisis. The problem isn’t that the banks are being scrutinized, it’s that there’s no credible plan to fill in capital shortfalls and allow the banks to repair themselves via retained earnings. There is, for example, no equivalent to the controversial but successful Troubled Asset Relief Program, or TARP, that saw U.S. taxpayers effectively take temporary stakes in crippled banks that were eventually bought back from the Treasury. “If the AQR would get banks recapitalized and make them better able to lend, I would be delighted and that would be the end of this six-year-going-on-seven-year depression,” Weinberg said in an interview. Instead, the exercise is “nothing more than an evaluation.”

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Emerging markets set to stop emerging.

America Stems Flow Of Funds As China Stalls And Eurozone Retreats (Observer)

There is growing unease as the US central bank prepares to turn off its printing presses. Over five years the Federal Reserve has pumped almost $4.5 trillion into the US economy, in a desperate effort to counter the effects of recession and the collapse of hundreds of banks following the financial crash. Next week the Federal Reserve chief Janet Yellen will allocate the last tranche of new money, having wound down from a regular $85bn of quantitative easing (QE) a month to a final $15bn. Some analysts believe the decision to stop the extra spending is a reflection of the US economy’s robust recovery. Falling unemployment, a return to health across the banking sector and consistently strong manufacturing growth all conjure thoughts of a return to pre-recession normality. Given the huge amounts of money that poured into the US stock market last year, triggering a rise in the S&P 500 of almost 30%, most investors thought the same. But they have proved more cautious in 2014, restricting the S&P 500 to a 6% increase so far.

Disturbed by the lack of similar action in Brussels and in Frankfurt – home of the European Central Bank – investors fear that the eurozone is sliding ever closer to recession. They are also worried about a sharp slowdown in China, following moves by the ruling People’s party to tackle escalating state sector debts. Wild price swings in global stock markets earlier this month were a signal that investors remain ready to pull their funds at a moment’s notice. In this febrile atmosphere, the Fed’s next move could be crucial. Yellen appears ready to maintain the $4.5tn cache of bonds and mortgage-backed securities that make up the bulk of the Fed’s balance sheet. As the bonds mature, she will buy new ones to keep the balance steady. But she may be edging away from raising interest rates from 0.25%, a move pencilled in by many economists for February.

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Best advice there is.

Don’t Buy A Home (MarketWatch)

After an extended drought of credit available to consumers, it’s going to get easier to buy a home. The Federal Housing Finance Agency this week polished off a new set of guidelines that will allow government backing of loans that it had shunned since the mortgage crisis. And in a surprise move, the guidelines include a provision to consider some mortgages without down payments. And Mel Watt, the FHFA director, said earlier this week that Fannie Mae and Freddie Mac are planning to guarantee some loans with down payments of as little as 3%. That should help underwater homeowners. Let’s begin by saying that’s not necessarily a bad thing. There are instances where loans should be available to borrowers without the means to place a down payment. It’s just that I can’t think of any.

The FHFA and the Obama administration are both worried about the amount of credit available to the average American. It’s an epidemic problem. About a third of housing sales were to cash buyers in the first quarter, according to the National Association of Realtors. As I’ve written before, this is extraordinarily high, indicative of a housing market that favors the wealthy. So by lowering the standards of what types of loans are acceptable to the big mortgage giants, it’s obvious that the FHFA’s effort is about encouraging banks to provide more loans. The government is essentially saying: “Go ahead and lend; we’ll hold the paper.” But in trying to ease credit and turn a mythic housing recovery into a real one, the FHFA may be overreaching. That’s because you know exactly who’s going to be taking out those loans: people who can’t afford them. And because there will always be some people who believe that because they can borrow, they can afford these loans, you know how this new policy is going to play out.

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Dark economic days ahead in Brazil no matter who wins. A stronger dollar and higher rates will hit it like a sledgehammer.

Brazilians Vote for Leader as Polls Show Nation Divided (Bloomberg)

Brazilians vote today in a national election that pits President Dilma Rousseff, who says she wants to protect social gains achieved during 12 years of her Workers’ Party rule, against challenger Aecio Neves, who says the incumbent has driven the economy into recession. Voting stations open at 8 a.m. today and close at 5 p.m. in each of Brazil’s three time zones. Some opinion polls published yesterday showed Rousseff statically tied with Neves of the Brazilian Social Democracy Party, while others indicated either the incumbent or challenger with the lead.

Neves proposes to cut spending, slow inflation to target and attract more private investment, while keeping social welfare programs such as cash transfers to the poor and low-cost housing. While the economy in 2014 slipped into recession for the first time since 2009, Rousseff has gone on the attack, saying Neves’s policies jeopardize record-low unemployment and programs that lifted 35 million people out of poverty. “Brazil’s consumer-led consumption model has run its course and needs to be replaced with one based on investment and quality public services,” said Paulo Sotero, director of the Brazil Institute at the Washington-based Woodrow Wilson International Center for Scholars. “Those who benefited from that model, and they weren’t few, feel that change could put at risk those advances.”

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If Ukraine if serious about not letting Luhansk and Donetsk secede, how can it hold elections that do not include the regions, and still pretend to derive legitimacy from them?

Ukraine Votes in Wartime Ballot Set to Back Pro-EU Forces (Bloomberg)

Ukrainians voted today in an election that’s being shaped by their nation’s conflict with pro-Russian insurgents and Vladimir Putin’s land grab in Crimea. Polling stations opened at 8 a.m. and will close at 8 p.m., after which exit polls are due. Backing for billionaire President Petro Poroshenko’s party and the Popular Front of his Prime Minister Arseniy Yatsenyuk tops 40%, while the Regions Party of deposed leader Viktor Yanukovych isn’t running. Poroshenko wants to build a coalition with other pro-European parties. “We’re likely to see a fairly stable majority” in an alliance led by Poroshenko’s bloc, Yuriy Yakymenko, an analyst at the Kiev-based Razumkov Center for Economic and Political Studies, which has tracked Ukrainian elections for two decades, said last week by phone. “

Lawmakers will unite behind plans for Ukraine’s future accession to the European Union.” The snap vote will vanquish the legislature elected under Russian-backed Yanukovych as Poroshenko seeks support to end the war, tackle the deepest recession in five years and revive the world’s worst-performing currency. Ukraine’s crisis has fixed the nation on a pro-EU trajectory and driven a wedge between Russia and its former Cold War foes.

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It’s not as if they have any real alternatives to vote for. Both parties will squeeze them dry.

Stagnant Paychecks for US Workers Underlies Voter Discontent (Bloomberg)

Eleven days before midterm elections comes fresh evidence of why voters are unhappy: even those with a full-time job are probably making less than they did before the recession. The typical American worker’s weekly earnings, adjusted for inflation, were lower during the July through September quarter than in the third quarter of 2007, the last such measurement before the recession started, Labor Department data released yesterday showed. Even as the unemployment rate dropped to 5.9% in September from a peak of 10% and a soaring stock market brought financial gains for the wealthy, there has been only sluggish improvement in the living standards of middle-class Americans during President Barack Obama’s administration.

The Labor Department said median usual pay for Americans employed full-time was $790 per week in the third quarter. That’s about a dollar less per week than in the third quarter of 2007, using the department’s adjustment for inflation. There’s been no net gain for those workers since 1999. The Labor Department pay data captures the experience of ordinary American full-time workers. Unlike some other income data reported by the government, it excludes the impact of joblessness, public assistance, investment income and workers forced to take part-time jobs because they cannot find full-time employment. In September, 7.1 million Americans worked part-time for economic reasons, down from a peak of 9.2 million in March 2010, though still higher than the 4.5 million who did so in November 2007, on the eve of the recession.

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Combine this with the next article.

Record Number Of Britons In Low-Paid Jobs (Guardian)

A record 5 million workers are now in low-paid jobs, according to a new report, sparking calls for government action to help tackle the problem. The Resolution Foundation said the numbers earning less than two thirds of median hourly pay – equivalent to £7.69 an hour – increased by 250,000 last year to reach 5.2 million. The increase partly reflected growth in employment, but there was also a reverse in the previous year’s slight fall in low-paid work, said the thinktank. The report said there was a serious problem of people being stuck in low-paid jobs, with almost one in four minimum wage employees still on that rate for the last five years. Workers in Britain are more likely to be low paid than those in comparable economies such as Germany and Australia, said the Resolution Foundation.

The thinktank’s chief economist, Matthew Whittaker, said: “While recent months have brought much welcome news on the number of people moving into employment, the squeeze on real earnings continues. While low pay is likely to be better than no pay at all, it’s troubling that the number of low-paid workers across Britain reached a record high last year. “Being low paid – and getting stuck there for years on end – creates not only immediate financial pressures, but can permanently affect people’s career prospects. A growing rump of low-paid jobs also presents a financial headache for the government because it fails to boost the tax take and raises the benefits bill for working people.

“All political parties have expressed an ambition to tackle low pay. Yet the proportion of low-paid workers has barely moved in the last 20 years. A focus on raising the minimum wage can certainly help the very lowest paid workers in Britain, but we need a broader low-pay strategy in order to lift larger numbers out of working poverty. “Economic growth alone won’t solve our low-pay problem. We need to look more closely at the kind of jobs being created, the industries that are growing and the ability of people to move from one job or sector to the other, if we’re really going to get to grips with low pay in Britain today.”

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Combine his with the preceeding article.

Nearly A Third Of British Voters Prepared To Support Ukip (Observer)

The phenomenal rise in support for Ukip is underlined by a new Opinium/Observer poll which shows almost one-third of voters would be prepared to back Nigel Farage’s party if they believed it could win in their own constituency. While the survey, which puts the Conservatives and Labour neck-and-neck on 33%, shows a substantial boost for the Tories (up five points on a fortnight ago), the rise of Ukip will be deeply alarming to the main parties. With just over three weeks to go before a crucial byelection in the normally safe Tory seat of Rochester and Strood, which Ukip threatens to seize, the poll puts Ukip on 18% of the national vote, with the Lib Dems on 6% and the Greens on 4%.

If the Ukip candidate Mark Reckless, who defected from the Tories last month, wins the byelection, the Conservatives fear there could be a rush of defections as MPs conclude that their chances of re-election are higher under Ukip colours. When asked to respond to the statement “I would vote for Ukip if I thought they could win in the constituency I live in”, 31% of voters said they agreed. This includes 33% of Tory voters, 25% of Liberal Democrats and 18% of Labour supporters. Voters were equally divided on whether a vote for Ukip was a wasted one, with 40% saying it was, and 37% saying it was not.

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Renzi wants IMF-style reforms.

1 Million Italians Rally in Rome to Protest Labor Rules Change (Bloomberg)

Italians staged a massive rally in Rome to protest Prime Minister Matteo Renzi’s proposed overhaul of labor market rules. Italian television RAI said several hundred thousand people took part in the demonstration, while news agency Ansa cited CGIL union organizers as saying the number was closer to 1 million. Many of the protesters carried red balloons and waved red union banners under bright sunny skies. CGIL chief Susanna Camusso told the demonstrators the union is ready to continue its protest “with all necessary means” including a general strike. She shouted to the cheering crowd at the end of her speech in Piazza San Giovanni “onward to work, to the struggle!”

CGIL called the rally to protest Renzi’s Jobs Act, which includes measures to ease firing rules and make the labor market more flexible. Renzi has said that the plan is a way to attract investments at a time when youth unemployment was at a record high 44.2% in August. His proposals, which were approved by the Senate in a confidence vote this month, will have to be passed by the Chamber of Deputies. The Rome demonstration follows a separate 24-hour strike that disrupted air and ground transport in the country’s biggest cities yesterday. More disruptions are expected Nov. 14, when Alitalia’s staff and Easyjet’s flight attendants will go on strike, according to a statement posted on the Italian Transport Ministry’s website.

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Special Drawing Rights should be abolished. So should the IMF itself.

IMF Sets 0.05% Floor on Interest Rate on Special Drawing Right (Bloomberg)

The International Monetary Fund is setting a 0.05% floor on the interest rate used to determine borrowing costs for some of its loans. The executive board modified rules today to make the change, according to a statement today in Washington. The IMF’s Special Drawing Right, based on a basket of the dollar, yen, euro and pound, is the fund’s unit of account that serves as a supplemental reserve asset and was designed to improve global liquidity. The SDR interest rate was quoted on the IMF website at 0.03% today compared with 0.13% in April and more than 3% in August 2008, before central banks slashed borrowing costs to zero to boost growth in the aftermath of the financial crisis. The rate will be 0.05% on Oct. 27, the IMF said.

The board also approved changing the rounding convention for calculating the SDR rate to three decimal points from two, the statement said. The SDR interest rate is used to calculate interest charged to member nations for non-concessional loans and SDR allocations, and the rate paid to members for SDR holdings. It is calculated from a weighted average of the short-term money market rates of the SDR basket currencies. A floor will prevent the SDR rate from going negative, in the event that money market interest rates on some of the currencies in the underlying basket themselves go negative, an IMF official told reporters on condition of anonymity. The fund has no legal basis for charging a negative rate on SDRs.

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China is not growing anywhere near 7% anymore, but it may take years before that is admitted.

China State Economist Sees 2015 Growth Slowest in Over 2 Decades (Bloomberg)

China’s economic growth is expected to be at 7% in 2015 unless the central government imposes stronger-than-expected stimulus measures, according to Fan Jianping, chief economist at a state research institute. A decrease in exports and property development, two “engines” fueling China to be the world’s second-largest economy, will be the main cause of a slowing of growth, Fan, who works at the State Information Center under the National Development and Reform Commission, told an industry conference today. Fan’s forecast is in line with a median estimate of 51 analysts in a Bloomberg News survey as Chinese leaders have signaled they will tolerate a weaker expansion, leaving the economy heading for the slowest full-year growth since 1990. Chinese leaders will set a gross domestic product growth target of about 7% for 2015, according to 13 of 22 analysts polled by Bloomberg.

“I don’t rule out that we will see on-year expansion lower than 7% in some single quarters next year,” Fan said. He said his forecast was based on his agency’s research, which uses China’s industrial production as a key indicator to the economic growth. Fan’s remarks may cool down an improved sentiment in Chinese economy as GDP expanded by a better-than-forecast 7.3% in the third quarter from a year earlier. While the government has relaxed home-purchase controls and pumped liquidity to lenders, the economy also got support from a pickup in exports in September. “In at least six months, economic growth is unlikely to pick up remarkably,” Fan said in Shanghai. GDP expansion in three months from October is seen at 7.2 to 7.3%, which will lead the full-year growth to about 7.3% as reading in the fourth quarter has bigger weighting, he said. China set 2014 GDP growth target at 7.5%.

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RT video seeking to make the case for a second plane – a Ukraine figher jet – near MH17.

MH-17: The Untold Story (RT)

Three months after Malaysia Airlines Flight MH17 was violently brought down from the skies over Ukraine, there are still no definitive answers to what caused the tragedy. Civil conflict in the area prevented international experts from conducting a full and thorough investigation. The wreckage should have been collected and scrupulously re-assembled to identify all the damage, but this standard investigative procedure was never carried out. Until that’s done, evidence can only be gleaned from pictures of the debris, the flight recorders or black boxes and eye-witnesses’ testimonies. This may be enough to help build a picture of what really happened to the aircraft, whether a rocket fired from the ground or gunfire from a military jet.

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As we’ve known for 100 years.

You’re Powered By Quantum Mechanics. No, Really… (Observer)

Every year, around about this time, thousands of European robins escape the oncoming harsh Scandinavian winter and head south to the warmer Mediterranean coasts. How they find their way unerringly on this 2,000-mile journey is one of the true wonders of the natural world. For unlike many other species of migratory birds, marine animals and even insects, they do not rely on landmarks, ocean currents, the position of the sun or a built-in star map. Instead, they are among a select group of animals that use a remarkable navigation sense – remarkable for two reasons. The first is that they are able to detect tiny variations in the direction of the Earth’s magnetic field – astonishing in itself, given that this magnetic field is 100 times weaker than even that of a measly fridge magnet. The second is that robins seem to be able to “see” the Earth’s magnetic field via a process that even Albert Einstein referred to as “spooky”. The birds’ in-built compass appears to make use of one of the strangest features of quantum mechanics.

Over the past few years, the European robin, and its quantum “sixth sense”, has emerged as the pin-up for a new field of research, one that brings together the wonderfully complex and messy living world and the counterintuitive, ethereal but strangely orderly world of atoms and elementary particles in a collision of disciplines that is as astonishing and unexpected as it is exciting. Welcome to the new science of quantum biology. Most people have probably heard of quantum mechanics, even if they don’t really know what it is about. Certainly, the idea that it is a baffling and difficult scientific theory understood by just a tiny minority of smart physicists and chemists has become part of popular culture. Quantum mechanics describes a reality on the tiniest scales that is, famously, very weird indeed; a world in which particles can exist in two or more places at once, spread themselves out like ghostly waves, tunnel through impenetrable barriers and even possess instantaneous connections that stretch across vast distances.

But despite this bizarre description of the basic building blocks of the universe, quantum mechanics has been part of all our lives for a century. Its mathematical formulation was completed in the mid-1920s and has given us a remarkably complete account of the world of atoms and their even smaller constituents, the fundamental particles that make up our physical reality. For example, the ability of quantum mechanics to describe the way that electrons arrange themselves within atoms underpins the whole of chemistry, material science and electronics; and is at the very heart of most of the technological advances of the past half-century. Without the success of the equations of quantum mechanics in describing how electrons move through materials such as semiconductors we would not have developed the silicon transistor and, later, the microchip and the modern computer.

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Every single step takes in the US with regards to ebola seems ‘confused’. Or should that read ‘complacent’?

Nurse Held at N.J. Airport Calls US Reaction to Ebola ‘Disorganized’ (Bloomberg)

A nurse who tested negative for Ebola said officials at Newark Airport in New Jersey appeared confused and disorganized, and gave her only a granola bar to eat while she was detained for more than six hours after arriving from Sierra Leone. In a first-person account in the Dallas Morning News, Kaci Hickox criticized the treatment she received after returning from a monthlong assignment with Doctors Without Borders in the country, one of three West African nations at the center of the current outbreak. “No one seemed to be in charge,” Hickox wrote in the account yesterday. “No one would tell me what was going on or what would happen to me.” Hickox said she was detained at the airport upon her arrival at 1 p.m. on Oct 24. At the time, her temperature was recorded at 98 degrees. Three hours later, after a confusing series of interactions with officials, her temperature was recorded at 101 degrees using a forehead scanner.

Hickox said she told officials that her skin temperature could have been elevated because her face was flushed with anxiety and asked them to test again using a more accurate oral thermometer. She was left alone for another three hours without her temperature being taken again before being transported with a police escort to a hospital. At the hospital, after being placed in an isolation tent, an oral thermometer recorded her temperature at a normal 98.6 degrees. Her blood was tested for Ebola, and came back negative. All the same, Hickox remains in quarantine for 21 days under rules imposed this week by New York and New Jersey officials. “I am scared about how health-care workers will be treated at airports when they declare that they have been fighting Ebola in West Africa,” Hickox wrote. “I am scared that, like me, they will arrive and see a frenzy of disorganization, fear and, most frightening, quarantine.”

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