Dec 122017
 
 December 12, 2017  Posted by at 10:28 am Finance Tagged with: , , , , , , , , , , , , ,  


Wassily Kandinsky Clear connection 1925

 

How Fed Rate Hikes Impact US Debt Slaves (WS)
Why Obamacare Is Locked In An Inescapable Death Spiral (ZH)
Sitting Closer To The Exit (Roberts)
Oil Producers Turning to Crypto to Solve Sanctions Problems (Luongo)
Peak Bitcoin Media Mania Yet? (WS)
Bitcoin – Millennials’ “Fake Gold” (Katsenelson)
Next Bank of Japan Governor Faces a ‘Job From Hell’ (BBG)
Sweden: More Signs The World’s Biggest Housing Bubble Is Cracking (ZH)
Trump Tells NASA to Send Americans to the Moon (AFP)
Exxon To Provide Details On Climate Change Impact To Its Business (R.)
Apple Aims To Block Climate, Rights Using SEC Guidance (R.)
EU Could ‘Scrap Refugee Quota Scheme’ (G.)
Lesvos Authorities Block Ship With Container Homes For Refugees (AP)
Germany Rejects Additional Winter Aid For Refugees On Greek Islands (KTG)

 

 

“If the average interest rate on this debt is 20%, credit-cart interest payments alone add $233 a month to their household expenditures.”

How Fed Rate Hikes Impact US Debt Slaves (WS)

Revolving credit outstanding of $1 trillion, spread over 117.72 million households, would amount to $8,300 per household. But many households do not carry interest-bearing credit card debt; they pay their cards off in full every month. Finance charges are concentrated on households that use this form of debt to finance their spending and that cannot pay off their balances every month. Many of these households are already strung out and are among the least able to afford higher interest payments. Consumer credit bureau TransUnion shed some light on this in its Q3 2017 Industry Insights Report, according to which 195.9 million consumers had a revolving credit balance at the end of Q3, with total account balances of $1.35 trillion. This equals $6,892 per person with revolving credit balances.

If there are two people with balances in a household, this would amount to nearly $14,000 of this high-cost debt. If the average interest rate on this debt is 20%, credit-cart interest payments alone add $233 a month to their household expenditures. What is next for these folks? For now, the Fed has penciled in, and economists expect, three hikes next year. But recent developments – particularly the expected tax cuts and what the Fed calls “elevated asset prices” – suggest that the Fed might “surprise” the markets with its hawkishness in 2018. The Fed is currently pegging the “neutral” rate – the rate at which the federal funds rate is neither stimulating nor slowing the economy – at somewhere near 2.5% to 2.75%, so about five or six more rates hikes from today’s target range.

Interest rates on credit cards would follow in lockstep. These rate hikes to “neutral” would extract another $8 billion or so a year, on top of the additional $7.5 billion from the prior rate hikes. But that’s not all. Credit card balances continue to rise as our brave consumers are trying to prop up US consumer spending and thus the global economy by borrowing more and more. Thus, rising credit card balances combined with rising interest rates on those balances conspire to produce sharply higher interest costs. Since consumers with high-interest credit-card balances already don’t have enough money to pay off their costly debt, these additional interest payments will further curtail their efforts at making principal payments and thus inflate their credit card balances further.

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And if/when you manage to pay off your credit cards, there’s the next challenge…

Why Obamacare Is Locked In An Inescapable Death Spiral (ZH)

Ever since it was signed into law in 2010, defenders of Obamacare have dismissed staggering surges in annual premiums by highlighting only the rates paid by those fortunate enough to receive subsidies. In fact, last year we wrote about Marjorie Connolly’s, from Obama’s Department of Health and Human Services, response to the Tennessee insurance commissioner’s fear that the exchanges in his state were “very near collapse” after a staggering 59% premium surge: “Consumers in Tennessee will continue to have affordable coverage options in 2017. Last year, the average monthly premium for people with Marketplace coverage getting tax credits increased just $2, from $102 to $104 per month, despite headlines suggesting double digit increases,” said Marjorie Connolly, HHS spokeswoman, in a statement.

We’re unsure whether Connolly’s comment was just propaganda intended to defend a failing piece of legislation or an intentional, blatant admission that the Department of Health and Human Services just doesn’t care about the majority of Americans, the so-called 1%’ers, who are facing debilitating increases in healthcare costs simply because they manage to live above the poverty line. We’ll let you decide on that one. Be that as it may, as the Miami Herald points out this morning, roughly half of all Obamacare participants, nearly 9 million people in aggregate, don’t qualify for the subsidies that Connolly praised and have been forced to absorb debilitating premium increases for the past several years.

[..] As open enrollment for Affordable Care Act coverage nears the deadline of Dec. 15, and Florida once again leads all states using the federal exchange at healthcare.gov, Heidi and Richard Reiter sit at the kitchen table at their Davie home and struggle to piece together the family’s health insurance for 2018. The Reiters buy their own coverage, but they earn too much to qualify for financial aid to lower their monthly premiums. For 2017, they bought a plan off the exchange and paid $26,000 in premiums for family coverage, including their two sons, ages 21 and 17. Keeping the same coverage for 2018 would have cost the Reiters $40,000 in premiums, a 54% increase. So they selected a lower-priced plan that covers less but costs $29,000 in premiums. “That’s more than a lot of people’s mortgage payments,” Richard Reiter said. “For me, it’s a crisis situation.”

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The odds of a correction (reversion).

Sitting Closer To The Exit (Roberts)

While valuation risk is certainly concerning, it is the extreme deviations of other measures to which attention should be paid. When long-term indicators have previously been this overbought, further gains in the market have been hard to achieve. However, the problem comes, as identified by the vertical lines, is understanding when these indicators reverse course. The subsequent “reversions” have not been forgiving. The chart below brings this idea of reversion into a bit clearer focus. I have overlaid the real, inflation-adjusted, S&P 500 index over the cyclically-adjusted P/E ratio. Historically, we find that when both valuations and prices have extended well beyond their intrinsic long-term trendlines, subsequent reversions beyond those trend lines have ensued. Every. Single. Time.

Importantly, these reversions have wiped out a decade, or more, in investor gains. As noted, if the next correction began in 2018, and ONLY reverts back to the long-term trendline, which historically has never been the case, investors would reset portfolios back to levels not seen since 1997. Two decades of gains lost. With everyone crowded into the “ETF Theater,” the “exit” problem should be of serious concern. “Over the next several weeks, or even months, the markets can certainly extend the current deviations from long-term mean even further. But that is the nature of every bull market peak, and bubble, throughout history as the seeming impervious advance lures the last of the stock market ‘holdouts’ back into the markets.”

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“..the petrodollar is not the source of the U.S. dollar’s power around the world, but rather the U.S.’s main fulcrum by which to keep competition out of the markets..”

Oil Producers Turning to Crypto to Solve Sanctions Problems (Luongo)

Last week, Venezuela announced it would develop a national cryptocurrency backed by its oil reserves, the Petro. Now there is a report that Russia is considering the same thing. Iran will likely follow suit. As of right now this is just a rumor, but it makes some sense. So, let’s treat this rumor as fact for the sake of argument and see where it leads us. The U.S. continues to sanction and threaten all of these countries for daring to challenge the global status quo. There is no denying this. [..] at the heart of this is the petrodollar. Contrary to what many believe, the petrodollar is not the source of the U.S. dollar’s power around the world, but rather the U.S.’s main fulcrum by which to keep competition out of the markets. It is a secondary effect of the dollar’s dominance in global finance today. But it is not the main driver.

Financial market are simply too big relative to the size any one commodity market for it to be the fulcrum on which everything hinges. It was that way in the past. But it is not now. That said, however, getting out from underneath the petrodollar gives a country independence to begin building financial architecture that can be levered up over time to threaten the institutional control it helped create. U.S. foreign policy defends the petrodollar along with other systems in place – the IMF, the World Bank, SWIFT, LIBOR and the central banks themselves – to maintain its control. The main oil producers, however, can escape this control simply by selling their oil in currencies other than the U.S. dollar. That’s not enough to dethrone the dollar, but, like I just said, it is where the process has to start. Therefore, any and all means must be employed to defend the dollar empire by keeping everyone inside that system.

[..] The problem with backing any currency with physical reserves is the fluctuations in value of those reserves. It’s not like oil is a low-beta commodity or anything. But, like everything else in the commodity space, price movements are supposed to be smoothed out by the futures markets helping to coordinate price with time. But the bigger problem is the estimation of those reserves the coin’s value is based on. First, how do you accurately quantify them? Can holders of Petro or Neft-coin trust the Russian or Venezuelan governments to provide accurate assessments of their reserves? Second, there is the ability of the country to pull it out of the ground and sell it into the market at anything close to a fair price. This isn’t a concern for Russia, the world’s 2nd largest supplier of oil and very stable government but Venezuela is the opposite. And, its “Petro” would probably trade at quite a discount early on to the dollar price of oil.

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I doubt it. If only because as Taleb said, you can’t actually short BTC, and they should have introduced options along with futures. They didn’t. This story is far from over.

Peak Bitcoin Media Mania Yet? (WS)

Bitcoin mania is now everywhere. It’s hard to have a conversation with regular people without sooner or later getting into bitcoin. Some of this is just for fun. Manias breed amazement. Miracles are wonderful to behold. But some of it is pretty serious. “We’ve seen mortgages being taken out to buy bitcoin,” said Joseph Borg, president of the North American Securities Administrators Association and director of the Alabama Securities Commission, on CNBC’s Power Lunch today. “People do credit cards, equity lines,” he said. Bitcoin futures trading started Sunday night on the Cboe futures exchange. Next week, the CME will offer trading in bitcoin futures.

This way, speculators can bet with unlimited derivatives on an unregulated digital entity that is backed by nothing and whose cash trading takes place in unregulated opaque and easily hacked exchanges around the world. But Borg doesn’t think that futures contracts legitimize bitcoin. Innovation and technology always outrun regulation, he said. “You’re on this mania curve. At some point in time there’s got to be a leveling off,” he said. “Cryptocurrency is here to stay. Blockchain is here to stay. Whether it is bitcoin or not, I don’t know.” And so the media mania over bitcoin has become deafening.

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But there’s definitely a media bubble, even if there’s no BTC one yet.

Bitcoin – Millennials’ “Fake Gold” (Katsenelson)

If you cannot value an asset you cannot be rational. With Bitcoin at $11,000 today, it is crystal clear to me, with the benefit of hindsight, that I should have bought Bitcoin at 28 cents. But you only get hindsight in hindsight. Let’s mentally (only mentally) buy Bitcoin today at $11,000. If it goes up 5% a day like a clock and gets to $110,000 – you don’t need rationality. Just buy and gloat. But what do you do if the price goes down to $8,000? You’ll probably say, “No big deal, I believe in cryptocurrencies.” What if it then goes to $5,500? Half of your hard-earned money is gone. Do you buy more? Trust me, at that point in time the celebratory articles you are reading today will have vanished. The awesome stories of a plumber becoming an overnight millionaire with the help of Bitcoin will not be gracing the social media.

The moral support – which is really peer pressure – that drives you to own Bitcoin will be gone, too. Then you’ll be reading stories about other suckers like you who bought it at what – in hindsight – turned out to be the all-time high and who got sucked into the potential for future riches. And then Bitcoin will tumble to $2,000 and then to $100. Since you have no idea what this crypto thing is worth, there is no center of gravity to guide you or anyone else to make rational decisions. With Coke or another real business that generates actual cash flows, we can at least have an intelligent conversation about what the company is worth. We can’t have one with Bitcoin. The X times Y = Z math will be reapplied by Wall Street as it moves on to something else.

People who are buying Bitcoin today are doing it for one simple reason: FOMO – fear of missing out. Yes, this behavior is so predominant in our society that we even have an acronym for it. Bitcoin is priced today at $11,000 because the fool who bought it for $11,000 is hoping that there is another, greater fool who will pay $12,000 for it tomorrow. This game of greater fools is not new. The Dutch played it with tulips in the 1600s– it did not end well. Americans took the game to a new level with dotcoms in the late 1990s – that round ended in tears, too. And now millennials and millennial-wannabes are playing it with Bitcoin and few hundred other competing cryptocurrencies.

The counterargument to everything I have said so far is that those dollar bills you have in your wallet or that digitally reside in your bank account are as fictional as Bitcoin. True. Currencies, like most things in our lives, are stories that we all have (mostly) unconsciously bought into. Of course, society and, even more importantly, governments have agreed that these fiat currencies are going to be the means of exchange. Also, taxation by the government turns the dollar bill “story” into a very physical reality: If you don’t pay taxes in dollars, you go to jail. (The US government will not accept Bitcoins, gold, chunks of granite, or even British pounds).

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Compared to Japan, all other central banks are wimps and pussies.

Next Bank of Japan Governor Faces a ‘Job From Hell’ (BBG)

The next governor of the Bank of Japan faces a “job from hell.” That’s according to Takeshi Fujimaki, a banker-turned-lawmaker who sees any attempt by Japan’s central bank to exit its program of unprecedented easing as triggering a Greek-like debt crisis. “This is the calm before the battle,” Fujimaki, an opposition Japan Innovation Party politician who once served briefly as an adviser to George Soros, said in an interview at his Tokyo office on Monday. BOJ Governor Haruhiko Kuroda’s five-year term runs out in April, with recent praise from Prime Minister Shinzo Abe strengthening expectations that the 73-year-old will stay on for a second stint. His massive easing program has weakened the yen, bolstered exports and helped stock prices to more than double. But inflation is still short of the government’s 2% target, and critics say the BOJ’s swollen balance sheet is unsustainable.

Fujimaki, 67, said he agreed with the view expressed by Kuroda’s predecessor Masaaki Shirakawa in his 2013 resignation press conference, when he said no judgment could be made on non-traditional monetary easing in Japan and in other developed economies until exits had been completed. Last week, Kuroda said the BOJ can take the appropriate steps to exit when the time comes, but talking specifics of an exit now would end up confusing markets. Even so, Fujimaki said Kuroda should stay on to oversee an exit from the policies he introduced. “Because Mr. Kuroda has taken it this far, he should carry on until the end,” Fujimaki said. “Just taking the good part and running away would be unfair.”

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“(SEB) says 63% of households in Stockholm now expect prices to decline in the coming year while only 21% expect an increase; that’s “a dramatic shift compared with only two months’ ago..”

Sweden: More Signs The World’s Biggest Housing Bubble Is Cracking (ZH)

We like to highlight that although Sweden’s property bubble is not the longest running (that accolade goes to Australia at 55 years), it is probably the world’s biggest, even though it gets relatively little coverage in the mainstream financial media. A month ago, we noted that SEB’s housing price indicator suffered its second biggest ever drop, falling by 39 points, only lagging a steeper fall from ten years earlier. This month the indicator, which shows the balance between households forecasting rising or falling prices, fell into negative territory, dropping to -5 from +11 in November. Households expecting prices to rise has almost halved from 66% In October, to 43% in November and 36% this month. The percentage of households expecting prices to fall has risen from 16% in October, to 32% in November and 41% this month.

After the housing price indicator was published, the Swedish krona fell as much as 0.7% versus the Euro to 10.0118, its lowest level since 5 December 2017. Not surprisingly, the focal point of Sweden’s property boom has been Stockholm, where the decline in the housing price indicator in December 2017 was precipitous. According to Bloomberg. “SEB says sharp drop in home-price expectations in Stockholm was main culprit behind the decline in its Swedish home-price indicator, with the indicator falling to -42 in the Swedish capital in Dec. from -6 in Nov. That means the Stockholm indicator is now close to the record low of -47 that was reached in Dec. 2008, at the height of the global financial crisis. (SEB) says 63% of households in Stockholm now expect prices to decline in the coming year while only 21% expect an increase; that’s “a dramatic shift compared with only two months’ ago..”

Given the disproportionate rate of decline in December in Stockholm, SEB was minded to ask whether special factors are at work “rather than general drivers such as fears over rising interest rates or a weak business cycle”. Indeed, aside from south-eastern Sweden, the outlook in all other regions remains positive. With regard to Stockholm, the bank notes that a large increase in new supply of expensive residential property and what it terms “very negative media reporting” have had an impact. Whether that’s a fair assessment, or whether it’s realist reporting of a monumental asset bubble is a moot point. What is indisputable is that the number of Swedish homes for sale has surged in November 2017 compared with the same month last year.

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After talking to Musk and Bezos. Who target billions in profits from the bridges to nowhere on steroids.

Trump Tells NASA to Send Americans to the Moon (AFP)

US President Donald Trump directed NASA on Monday to send Americans to the Moon for the first time since 1972, in order to prepare for future trips to Mars. “This time we will not only plant our flag and leave our footprint,” Trump said at a White House ceremony as he signed the new space policy directive. “We will establish a foundation for an eventual mission to Mars and perhaps someday to many worlds beyond.” The directive calls on NASA to ramp up its efforts to send people to deep space, a policy that unites politicians on both sides of the aisle in the United States. However, it steered clear of the most divisive and thorny issues in space exploration: budgets and timelines.

Space policy experts agree that any attempt to send people to Mars, which lies an average of 140 million miles (225 million kilometers) from Earth, would require immense technical prowess and a massive wallet. The last time US astronauts visited the Moon was during the Apollo missions of the 1960s and 1970s. Trump, who signed the directive in the presence of Harrison Schmitt, one of the last Americans to walk on the Moon 45 years ago, said “today, we pledge that he will not be the last.” The better known Buzz Aldrin, the second man on the Moon after Armstrong and a fervent advocate of future space missions, was also present at the ceremony but not mentioned by Trump during his speech.

[..] Trump vowed his new directive “will refocus the space program on human exploration and discovery,” and “marks an important step in returning American astronauts to the Moon for the first time since 1972.” The goal of the new Moon missions would include “long-term exploration and use” of its surface. “We’re dreaming big,” Trump said. His administration has previously held several meetings with SpaceX boss Elon Musk and Amazon owner Jeff Bezos, who also owns Blue Origin.

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The article has two authors, and at least one editor (Reuters), and still it says this: “world temperatures are likely to rise by more than 2 degrees Celsius (35.6°F) this century..

Exxon To Provide Details On Climate Change Impact To Its Business (R.)

Exxon Mobil on Monday said it would publish new details about how climate change could affect its business in a move aimed at appeasing critics and forestalling another proxy fight next year. The largest U.S. oil and gas producer said in a filing to U.S. securities regulators that its board agreed to provide shareholders with information on “energy demand sensitivities, implications of two degree Celsius scenarios, and positioning for a lower-carbon future.” Scientists have warned that world temperatures are likely to rise by more than 2 degrees Celsius (35.6°F) this century, surpassing a “tipping point” that a global climate deal aims to avert. Exxon’s statement, which came three days before the deadline for its 2018 annual meeting resolution submissions, said additional information would be released in the near future, but did not provide details.

The company’s board originally opposed providing shareholders with a report outlining the potential impact of global warming on Exxon’s long-term outlook. Thomas P. DiNapoli, New York state’s comptroller, heads one the two lead sponsors of a shareholder resolution calling for Exxon to issue a climate-impact report. He called Monday’s decision “a win for shareholders and for the company’s ability to manage risk.” However, another sponsor noted the lack of specificity in the company’s statement. “This is giving no detail,” said Tim Smith, who leads shareholder engagement efforts at Walden Asset Management, a co-filer of last spring’s resolution. He said Exxon’s statement “needs to be expanded to assure shareowners that they’re responsive to last year’s request.”

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Apple, Exxon, everybody seeks to escape their own shareholders.

Apple Aims To Block Climate, Rights Using SEC Guidance (R.)

Apple is pushing back on shareholder proposals on climate issue and human rights concerns, an effort activists worry could sharply restrict investor rights. In letters to the U.S. Securities and Exchange Commission last month, an attorney for the California computer maker argued at least four shareholder proposals relate to “ordinary business” and therefore can be left off the proxy Apple is expected to publish early next year, ahead of its annual meeting. The attorney, Gene Levoff, cited guidance issued by the SEC on Nov. 1 saying that company boards are generally best positioned to decide if a resolution raises significant policy issues worth putting to a vote.

While companies routinely seek permission to skip shareholder proposals, Apple’s application of the new SEC guidance shows how it could be used to ignore many investor proposals by claiming boards routinely review those areas, said Sanford Lewis, a Massachusetts attorney representing Apple shareholders who had filed two of the resolutions. Were the SEC to side with Apple, “this would be an incredibly dangerous precedent that would essentially say a great many proposals could be omitted,” Lewis said. [..] Often seen as distractions in the past, shareholder measures have taken on new significance as big asset managers increasingly back those on areas like climate change or board diversity.

Apple cited the SEC’s new guidance among other things in seeking to omit the shareholder measures from its proxy, according to letters Apple sent to the SEC. These include calls for Apple to take steps such as establishing a “human rights committee” to address concerns on topics like censorship, and for Apple to report on its ability to cut greenhouse gas emissions.

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Tusk against the rest. Couldn’t be because he’s Polish, could it? And looking at big jobs back home?!

EU Could ‘Scrap Refugee Quota Scheme’ (G.)

The EU could scrap a divisive scheme that compels member states to accept quotas of refugees, one of the bloc’s most senior leaders will say this week. The president of the European council, Donald Tusk, will tell EU leaders at a summit on Thursday that mandatory quotas have been divisive and ineffective, in a clear sign that he is ready to abandon the policy that has created bitter splits across the continent. Tusk will set a six-month deadline for EU leaders to reach unanimous agreement on reforms to the European asylum system, but will propose alternatives if there is no consensus. “If there is no solution … including on the issue of mandatory quotas, the president of the European council will present a way forward,” states a draft letter from Tusk to national capitals, seen by the Guardian.

In effect this means scrapping mandatory quotas, because Hungary, Poland and Czech Republic are fiercely opposed to the idea of dispersing refugees around the bloc based on a formula drawn up in Brussels. Tusk is likely to face opposition, however, from other EU bodies, including the European commission. EU leaders introduced compulsory quotas in 2015 at the height of the migration crisis, as thousands of people arrived daily on Europe’s shores, many of whom were refugees from Syria, Iraq and Eritrea. Hungary, Slovakia, Romania and the Czech Republic voted against the move, but the policy was forced through by a majority vote. Hungary and Poland have defied the rest of the EU by not taking a single refugee under the scheme, which aimed to relocate about 120,000 refugees, mainly Syrians. The Czech republic has taken in only 12. All three countries were referred to the European court of justice last week for failing to implement the policy, the usual procedure for flouting EU rules.

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All refugees living on Lesbos should be evacuated.

Lesvos Authorities Block Ship With Container Homes For Refugees (AP)

Authorities on the Greek island of Lesvos say they have blocked a ship carrying container homes for refugees and other migrants in protest at the refusal of the government and the European Union to move more people to Greece’s mainland. A government-chartered ship carrying the containers remained anchored at Mytilene, the island’s main town, on Monday after municipal vehicles were used to block port facilities. The island’s municipal board was due to meet later on Monday to decide on whether to lift the blockade following talks with the government, state-run TV ERT said. The mayors of five Greek islands facing the coast of Turkey are demanding that the government and EU end a policy of containment for migrants – introduced last year as a deterrent against illegal migration – because living facilities are severely overcrowded.

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Merkel, the story of a great and bitter failure.

Germany Rejects Additional Winter Aid For Refugees On Greek Islands (KTG)

The German Foreign Ministry has made it clear that it will not provide additional winter assistance to refugees on the Aegean islands. In a related question from German newspapers, the foreign ministry replied that “responsibility for accommodating and feeding refugees falls under the jurisdiction of each country.” According to dpa, the Foreign Ministry recalled that Berlin recently funded the installation of 135 heated containers for a total of 800 people in two camps in the Thessaloniki region and that the EU has allocated up to now 1.4 billion euros to tackle the refugee crisis in Greece.

Meanwhile, there is media report that Greece has persuaded Turkey to accept migrant returns from the mainland in order to reduce critical overcrowding in its refugee camps. The Kathimerini daily said the agreement came during a strained two-day state visit by Turkish President Recep Tayyip Erdogan this week, during which he angered his hosts with talk of revising borders and complaints about Greece’s treatment of its Muslim minority. The deal is in addition to Turkey’s existing agreement to take back migrants from Aegean island camps, under the terms of an EU-Turkey pact.

Read more …

Sep 232015
 
 September 23, 2015  Posted by at 8:54 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein President Roosevelt tours drought area near Bismarck, ND 1936

Signs Point To Deepening China Distress (FT)
Shadow Finance Expansion by Chinese Banks Deepens Credit Mystery (Bloomberg)
China Flash PMI Falls To Lowest Since May 2009 (CNBC)
China’s Workers Stumble as Factories Stall (WSJ)
Xi Jinping Defends China Stock Market Interventions On First US Visit (Guardian)
China Has A Message Markets Don’t Understand (CNBC)
VW Scandal Caused Nearly 1 Million Tonnes Of Extra Pollution (Guardian)
California Tests To Include Larger Diesel Engines From Audi, Porsche (Reuters)
VW Emissions Fallout Spreads To Asia (FT)
VW Emissions Investigations To Widen to Entire Auto Industry (WSJ)
VW Emissions Cheating Affects 11 Million Cars Worldwide (WaPo)
Europe Stumbles Towards A Migrant Plan (BBC)
EU’s East-West Rift Exposed In Refugee-Sharing Plan (Reuters)
Hungary Mobilizes Troops, Prisoners, Jobless To Fence Out Refugees (Reuters)
Hollande Wrongfooted on Refugee Surge, Fearing Le Pen’s Rise (Bloomberg)
The Fed Just Made A Gigantic Mess (CNBC)
Economic Policy Often Seems To Have Little To Do With Economists. Why? (Ind.)
English Farmland Prices Double In Five Years (Guardian)
Alaska Fossil Find Points To New ‘Lost World Of Dinosaurs’ (Guardian)

“Suddenly, the debate in China has shifted from a perception of too much money sloshing round and too many reserves earning meagre returns, to a concern about the adequacy of reserves given the extent of debt — much of it hidden.”

Signs Point To Deepening China Distress

China’s foreign exchange reserves fell alarmingly in August, anywhere from $94bn to as much as $150bn according to various calculations. That was just another in a series of dramatic data points that are leading to an increasing sense both within the Middle Kingdom and without that all is not well. For a long time now many hedge funds have been short Macau, once the main beneficiary of both the Chinese propensity to gamble and the rise of China as a market for luxury goods. Then the anti-corruption campaign put a big chill on the junkets to the former Portuguese enclave, as it did on sales of everything from Rolex watches to shark fin soup and abalone in top restaurants. But now there is another strand to the story.

Macau has long been one of the more porous parts of the wall meant to keep capital flows in and out of China under strict control. For example, those who wanted to get significant amounts of money out of China would purchase a dozen watches, using their renminbi credit cards, only to return the time pieces instantly and receive cash refunds, with a discount for the jeweller’s trouble. The currency would then be converted and go straight into bank accounts and investments abroad. Today, the thesis of hedge fund managers putting on the Macau trade is that regulators will tighten up on such practices, causing further damage to Macau’s wounded economy. Suddenly, the debate in China has shifted from a perception of too much money sloshing round and too many reserves earning meagre returns, to a concern about the adequacy of reserves given the extent of debt — much of it hidden.

After all, the downdraft in the stock market was all about the use of borrowed money, invisible to regulators and almost everyone else. Meanwhile, the capital flows out of China continue. It is difficult to calculate what is prudent diversification and what is capital flight. At the same time, more alarmingly, the signs of distress in the real economy are deepening, with ripple effects far beyond the mainland. Greek shipyards, for example, report that the yards in China are desperately discounting the containers they construct. The Chinese shipbuilders have to discount to compensate for the fact they are competing against builders whose currencies have fallen dramatically against the renminbi.

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Assessing China without including the shadows is of no use at all.

Shadow Finance Expansion by Chinese Banks Deepens Credit Mystery (Bloomberg)

China’s riskier banks are investing more customer funds in financing that is kept off their loan books, making it harder for rating companies to gauge their asset quality. There has been a surge in a balance-sheet item known as receivables, which often includes shadow funding such as trusts and wealth products, said Moody’s Investors Service. Fitch Ratings said it is hard to analyze this escalation in activity. Listed banks excluding the Big Four saw short-term investments and other assets – which include receivables – jump 25% in the first half, compared with total asset growth of 12%, data compiled by Bloomberg show. Slower growth in the world’s second-largest economy coupled with “still significant” credit expansion prompted Standard & Poor’s to cut its view of the banking industry’s economic risk to negative from stable this week.

Shadow-finance assets, estimated at 41 trillion yuan ($6.4 trillion) by Moody’s at the end of 2014, have become more attractive as five interest-rate cuts by the central bank since November curbed profits from lending. “Our concern with some of these investment positions is banks are using them as a way to bypass lending restrictions,” said Grace Wu at Fitch in Hong Kong. “Unlike bank loans, they don’t get reported into loan provisions, so it’s more difficult for us to ascertain the asset quality.” The opacity of Chinese banks’ credit exposure helps explain why they are priced as if investors are expecting a nonperforming loan ratio of 10 to 12% next year, which would mark a “sizeable credit crisis” in other countries, according to Wei Hou at Sanford C. Bernstein.

The reported ratio is 1.5%, according to the China Banking Regulatory Commission. The nation’s shadow-banking industry emerged as a way for creditors to circumvent lending restrictions and for savers to attain yields higher than the legally capped deposit rate. It includes trusts, asset-management plans and wealth-management products, which package loans into products for buyers.

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As long as Xi is in the US, the homefront will keep things smooth and quiet. But this number points to contraction, even as Xi just reiterated growth is at 7%.

China Flash PMI Falls To Lowest Since May 2009 (CNBC)

The preliminary Caixin China manufacturing purchasing managers’ index (PMI) fell to a six-and-a-half-year low of 47.0 in September, below the 47.5 forecast in a Reuters poll. This compares with a final reading of 47.3 in August, the lowest since March 2009. A print above 50 indicates an expansion in activity while one below points to a contraction. The closely-watched gauge of nationwide manufacturing activity focuses on smaller and medium-sized companies, filling a niche that isn’t covered by the official data. The decline in the flash PMI was mainly led by the new orders and new export orders sub-indexes, suggesting weak domestic and external demand. The new orders sub-index fell 0.6 percentage points to 46.0 in September, while the new export orders sub-index slipped 0.8percentage points to 45.8.

Wednesday’s data weighed on investor sentiment in Asia, with stock indices in Sydney and Seoul widening losses to more than 1% each in the morning trading session. China stocks, however, trimmed losses to 0.9%, from an over 1% decline at the open. “The principle reason for the weakening of manufacturing is tied to previous changes in factors related to external demand and prices,” said He Fan at Caixin Insight Group. “Fiscal expenditures surged in August, pointing to stronger government efforts on the fiscal policy front. Patience may be needed for policies designed to promote stabilization to demonstrate their effectiveness,” he added. A recent run of disappointing data has raised concerns around the health of China’s economy, leading several banks and international institutions to pare growth forecasts for the country.

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“..roughly 55% of China’s 1.37 billion people now live in cities, compared with just under 18% in 1978…”

China’s Workers Stumble as Factories Stall (WSJ)

For decades, an army of migrant workers drove China’s boom times, flocking to its cities to sew T-shirts, assemble iPhones, or build apartment blocks and Olympic stadiums. The arrangement helped millions of poor, rural Chinese join a new consumer class, though many also paid a heavy price. Now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest. In Xiguozhuang, a village among cornfields some 155 miles south of Beijing, it had been rare to see working-age men for much of the year. This year, however, many of the men are at home, sidelined by a fading property boom.

“Times are tough now,” said Wang Hongxing, a 39-year-old father of three who has worked at building sites across China’s northeast since his teens, but who has spent the past two months tending his farmland plot. “There are too many workers and wages are dropping.” But for other migrants, especially those of a younger generation who took jobs in factories along China’s coast, a return to farming isn’t an option. Nor do they necessarily want to join the service sector China sees as a cornerstone in its shift to a new economic model. Wang Chao dropped out of school when he was 15 and left his home in Anhui province. After a series of jobs up and down China’s east coast, he felt he had struck gold with a job in a textile factory near his hometown.

The factory closed in July. Mr. Wang, now 19, and other workers gathered recently outside the factory premises to demand back wages. He says he is owed two months’ pay, or about 2,000 yuan, or $320. The owner of the factory, which produces cheap trousers, told workers he is in deep debt and can’t afford to pay them. He couldn’t be reached to comment. Mr. Wang hopes he can find another factory job. In Shanghai, he worked in a restaurant but doesn’t want to do that again. “Factory work is so much more comfortable in comparison, and better paid,” he said. As a result of a rural-to-urban flow that many scholars say is likely the largest in history, roughly 55% of China’s 1.37 billion people now live in cities, compared with just under 18% in 1978.

The migrant workforce now numbers some 274 million but the pace of its expansion has slowed, and many economists believe China now faces a shortage of unskilled labor in urban areas. A mismatch of workers’ skills and aspirations with actual labor demand has exacerbated the problem. “There’s a broad structural imbalance in China’s labor market—a shortage of low-end labor and surfeit of high-end workers,” said Peng Xizhe, professor of population and development at Fudan University in Shanghai. “In China’s job market today, we see university graduates struggling to find work, while employers are finding it hard to fill traditional blue-collar positions.”

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“Xi peppered his speech with US cultural references from Sleepless in Seattle and House of Cards to Henry David Thoreau, Walt Whitman, Ernest Hemingway..”

Xi Jinping Defends China Stock Market Interventions On First US Visit (Guardian)

China’s president, Xi Jinping, has sought to reassure global concern about the world’s second-largest economy, defending his government’s actions in the stock market and saying growth will be maintained. “China’s economy will stay on a steady course with fairly fast growth. It’s still operating in a proper range with a growth rate of 7% … Our economy is under pressure but that is part of the path on the way toward growth,” the Chinese president said in a speech in Seattle on Tuesday, the first day of his state visit to the US. The president defended his government’s intervention into the country’s stock market saying the “recent abnormal ups and downs” in the market had now reached “a phase of self-recovery”.

Xi also reiterated there was no basis for continuing depreciation of the renminbi, saying Beijing was opposed to currency wars and would not devalue yuan to boost exports. World markets experienced more than a month of volatility after China devalued its currency, fuelling concerns about the state of the world’s No 2 economy. Intervention from authorities into the country’s bourses also added to worries Beijing had lost control over the economy. But just minutes after the speech, fresh data showed renewed signs of weakness in the Chinese economy with the Caixin China manufacturing flash PMI coming in at 47, the lowest since March 2009. [..]

Xi peppered his speech with US cultural references from Sleepless in Seattle and House of Cards to Henry David Thoreau, Walt Whitman, Ernest Hemingway – saying he once ordered a Mojito at El Floridita in Havana to better understand Hemingway and Cuba. Dismissing speculation that his sweeping anti-corruption campaign was about factional infighting, Xi said “We have punished tigers and flies. It has nothing to do with power struggles. In this case there is no House of Cards.”

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Or they understand it all too well.

China Has A Message Markets Don’t Understand (CNBC)

China may be compounding its own problems by the way its leaders talk about them. With the country’s growth a concern for global markets, investors are trying to fathom the depth of China’s economic issues and understand what authorities are doing. Analysts say it is difficult to discern what’s really going on there and that the economy has always been difficult to measure. Ahead of his U.S. visit that kicked off Tuesday, Chinese President Xi Jinping said in an interview with The Wall Street Journal that recent intervention in capital markets was necessary or normal and that China is still on track to transform its economy. “I think they are mostly nothing new and simply a repeat of what other officials have said,” Ilya Feygin, managing director at WallachBeth Capital, said of Xi’s comments.

Sticking to policy lines casts doubt for many on whether Chinese leaders have a grip on maneuvering the country’s economic transition in a way that doesn’t shock global markets more than it already has. “I think it’s a combination of missteps that add up to a lot of worries, capacity of the Chinese government to manage its economy through a very challenging environment and not making it worse,” said Scott Kennedy of the Center for Strategic and International Studies. “It begins with their intervention to push up their stock market last year.” Rapid-fire policy changes in the last few months have befuddled outsiders on Chinese leaders’ intentions, which raise real concern on whether the world’s second-largest economy can make a timely transition from a manufacturing hub to a consumer-oriented system.

“The point is to recognize there’s a structural transition going on,” said Arthur Kroeber, head of research at Gavekal Dragonomics. “And the problem we have is the data we have on the bad part of the economy is actually pretty developed. The data on services (is) much better but fuzzier.” Most of the economic reports still focus on manufacturing-related aspects of the economy, such as electricity use and the producer price index. Data such as the Caixin nonmanufacturing PMI provide some light on services, which continued to hold above the 50 expansion/contraction line in August. Manufacturing PMI fell below that line.

Growth in the services sector has outpaced that of the manufacturing sector in the last year and a half, according to the latest National Bureau of Statistics of China data compiled by Wind information. Amid the transition, questions also surround the accuracy of China’s reports on headline GDP growth. The official figure is 7%, the slowest in more than two decades In a report Tuesday, the Asian Development Bank lowered its forecast for Chinese growth in 2015 to 6.8% from 7.2% previously. Other analyst estimates range from 2 to 4 percentage points lower.

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“..roughly the same as the UK’s combined emissions for all power stations, vehicles, industry and agriculture..”

VW Scandal Caused Nearly 1 Million Tonnes Of Extra Pollution (Guardian)

Volkswagen’s rigging of emissions tests for 11m cars means they may be responsible for nearly 1m tonnes of air pollution every year, roughly the same as the UK’s combined emissions for all power stations, vehicles, industry and agriculture, a Guardian analysis suggests. The potential scale of the scandal puts further pressure on Volkswagen’s board and its chief executive, Martin Winterkorn. The company’s executive committee plans to meet on Wednesday to discuss the affair and to agree the agenda of a full board meeting scheduled for Friday, amid reports that Winterkorn could be replaced. The carmaker has recalled 482,000 VW and Audi brand cars in the US after the Environmental Protection Agency (EPA) found models with Type EA 189 engines had been fitted with a device designed to reduce emissions of nitrous oxides (NOx) under testing conditions.

A Guardian analysis found those US vehicles would have spewed between 10,392 and 41,571 tonnes of toxic gas into the air each year, if they had covered the average annual US mileage. If they had complied with EPA standards, they would have emitted just 1,039 tonnes of NOx each year in total. The company admitted the device may have been fitted to 11m of its vehicles worldwide. If that proves correct, VW’s defective vehicles could be responsible for between 237,161 and 948,691 tonnes of NOx emissions each year, 10 to 40 times the pollution standard for new models in the US. Western Europe’s biggest power station, Drax in the UK, emits 39,000 tonnes of NOx each year. [..] For years, UK air pollution measurements have failed to show improvements in air quality, even as standards have tightened.

“Since 2003 scientists have been saying things are not right. It’s not just the VW story, this is part of something much bigger,” said Dr Gary Fuller of King’s College. “It has a serious public health impact.” Last week, a report from NGO Transport & Environment found that Europe’s testing regime was allowing nine out of every 10 new diesel vehicles to breach EU limits. Testing regimes in the EU are known to fail to pick up “real world” emissions because cars are not driven in the same way in the laboratory as on the road. Some studies suggest the discrepancy may be up to seven times the legal limit. Williams said being able to mask their NOx emissions would also enable carmakers to pass carbon emissions tests more easily as there was a trade-off between NOx and CO2 in diesel engines.

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Bets are open on this one.

California Tests To Include Larger Diesel Engines From Audi, Porsche (Reuters)

The California Air Resources Board will broaden its testing of Volkswagen cars with diesel engines to include those with 3.0-liter V6 engines sold by two subsidiaries, a spokesman for the state regulator said on Tuesday. The latest models to be examined are the Porsche Cayenne and the Audi A6, Stanley Young, communications director for the Air Resources Board, told Reuters. Volkswagen said on Tuesday that engine software connected with a scandal over falsified U.S. vehicle emission tests could affect 11 million of its cars worldwide as investigations of its diesel models multiplied. The California Air Resources Board’s testing uncovered software in several Volkswagen models that allowed the company to cheat state and federal emissions requirements by switching performance levels between testing and real-world conditions.

“That investigation looked at two-liter four-cylinder engines,” said Young. “Now we’re going to start looking at six-cylinder, three-liter diesel engines.” Young said VW engineers acknowledged the use of a so-called defeat device – in fact, a software algorithm – to circumvent state and federal emissions standards during a Sept. 3 meeting in the board’s El Monte, California testing headquarters, attended by senior engineering executives of the regulator and the car company. It was the 10th meeting between the two sides, called by CARB to resolve the discrepancy between pollution levels measured on the road and those obtained under controlled testing conditions. “They literally ran out of excuses,” Young said, describing the meeting in which the car manufacturer “admitted there was a defeat device.”

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It’ll have to be worldwide. Wouldn’t it be funny if test results vary greatly?

VW Emissions Fallout Spreads To Asia (FT)

South Korea’s environment ministry said it would investigate the emissions compliance of Volkswagen’s diesel cars, as the fallout for the German carmaker after its admission that it rigged US emissions tests spread to Asia. The announcement on Tuesday came a day after Germany called for a probe into the matter, confirming fears Volkswagen’s trouble was unlikely to be confined to the US and that breaches could have occurred in other regions. The US Environmental Protection Agency on Friday ordered the world’s second-biggest carmaker to recall nearly 500,000 cars in the US after it admitted that it had fitted “defeat devices” to bypass environmental standards.

In the first public appearance by a senior executive since the scandal emerged, Michael Horn, VW’s US chief executive, said at an event in New York on Monday that the carmaker had “screwed up”, vowing to fix the vehicles involved and ensure no repetition. Seoul’s environment ministry said it would conduct emissions tests on 4,000-5,000 of VW’s Jetta and Golf models and the Audi A3 sedan that were imported into South Korea since 2014. “We will review if the three car models sold here show the same problems as those in the US, although the carmaker says its cars here have no such problems,” said Park Pan-kyu, the ministry’s deputy director. “We plan to complete the investigation within two months and will come up with punitive measures if any problems are found.

“If South Korean authorities find problems in VW diesel cars, the probe could be expanded to all German diesel cars,” he said. If the cars are found to have breached air pollution standards, the ministry could issue a recall order for vehicles already sold in the country, or order the German carmaker to stop domestic sales of problematic models. It could also impose a maximum Won1bn ($850,000) fine on each model. The ministry said any punitive measures would be levied in consultation with the German government, in keeping with the Korea-EU trade agreement.Volkswagen is one of the best-selling foreign brands in South Korea. VW and Audi accounted for nearly 30% of all foreign cars sold in the country in the first eight months of this year, and more than 90% of the roughly 25,000 vehicles VW sold were diesel models.

Shares in South Korean carmakers Hyundai Motor and affiliate Kia Motors rose more than 3% on Tuesday, on the view that Asian competitors could benefit at VW’s expense. “Volkswagen’s brand value is expected be hit by this issue as its strong diesel engine technology has been the backbone of its brand recognition,” said Yim Eun-young, analyst at Samsung Securities. “This could lead to gains for Hyundai and Kia, which are competing with Volkswagen in the sedan segment.”

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As I said yesterday, if VW couldn’t even come close to required emissions, what are the odds others could?

VW Emissions Investigations To Widen to Entire Auto Industry (WSJ)

Investigations into Volkswagen’s alleged manipulation of U.S. emissions tests should widen to include the entire auto industry, German and French officials said Tuesday, as regulators begin to ponder whether such deception is widespread. Calls for a broader probe came as Italy opened an investigation into the issue and a spokesman for the European Union said its regulators would soon meet with national authorities to discuss how to address the Volkswagen crisis. Concerns that the scandal could lead to broader damage for the industry hit the shares of car companies across Europe on Tuesday and those losses accelerated after Volkswagen warned that 11 million vehicles could be affected.

Shares in Volkswagen dived as much as 23% while those of Daimler AG dropped 5.5% and BMW AG slumped 5.4%. In France, Renault SA dropped 6.3% and PSA Peugeot Citroën was down 8.6%. The state of Lower Saxony, a major Volkswagen shareholder with 20% of the car maker’s voting stock, said the emissions allegations raised doubts about tailpipe data published by all car makers. The French government also called for a broader probe, suggesting a European-wide examination of the auto industry. “We need to do it at the European level,” French Finance Minister Michel Sapin said Tuesday.

In Germany, Olaf Lies, Lower Saxony’s economy minister and a member of the Volkswagen’s supervisory board, called for a wider probe and said investigations into the scandal would have consequences for any executives found guilty of deliberate manipulation. “I am convince that everyone is going to become intensely interested in knowing whether the emissions values that have been measured are the real emissions levels,” he said. “This question will not only affect Volkswagen, but the entire public debate and will certainly play a role at other companies.”

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“The only way to change auto company behavior is to put the responsible executives in jail..”

VW Emissions Cheating Affects 11 Million Cars Worldwide (WaPo)

The deception perpetrated by Volkswagen in the United States reaches around the globe, with about 11 million cars worldwide equipped with software designed to cheat emissions tests, the company said Tuesday. The automaker said it will set aside $7.3 billion to cover fixes and other efforts to win back the trust of our customers. That amount is likely to fall many times short of the actual costs, including car repairs, lawsuits and government penalties around the world. Exactly what alterations are necessary on all of those cars is unknown, and independent engineers said it could be extremely difficult to repair the emissions systems without harming engine efficiency and performance. None could offer what they deemed a reliable estimate of the cost of a potential repair.

“In my German words, we have totally screwed up”, Volkswagen s U.S. chief, Michael Horn, said at an event in Brooklyn late Monday night. The broad scale of the deception suggests that knowledge of the emissions cheating was widespread, and Justice Department investigators are focusing on the actions of executives, according to two people familiar with the inquiry. German news outlets reported Tuesday that the firing of chief executive Martin Winterkorn is imminent, citing unidentified members of the company s board. Also Tuesday, new details of the cat-and-mouse interactions between suspicious regulators and the German car giant showed how far the company was willing to go to assure the government that, contrary to the best evidence, nothing was amiss in its diesel cars.

Last year, Volkswagen informed regulators that it was initiating a 500,000-car recall in the US that would fix the problem. The recall was either a technical failure or, as some U.S. officials said, a ruse. Whether those involved in the emissions cheating software will face more severe penalties is unknown, but anger among customers, who are stuck with cars that violate pollution standards, and dealers, who are left with unsold inventory, has become increasingly evident. Their appeals have been heard in Washington. “It is an outrage that VW would take advantage of its consumers by purposely deceiving them on their mileage on diesel vehicles …There ought to be some prosecutions, and corporate executives that knew this and have done it ought to be going to jail”, Sen. Bill Nelson (D-Fla.) said in a speech on the Senate floor Tuesday, citing the repeated failures of automakers.

“And I lay this not only on the corporate culture, I lay it at the feet of the U.S. regulatory agencies who ought to be doing their job, ought to be doing it in a forceful way”. Noting that Volkswagen had been accused of similar tactics in the United States in the early 1970s, when the company paid fines of $120,000, Clarence Ditlow, director of the Center for Auto Safety, argued that financial penalties are not enough to keep the company honest. “The only way to change auto company behavior is to put the responsible executives in jail,” he said.

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In firm denial.

Europe Stumbles Towards A Migrant Plan (BBC)

There was a sense of grim determination about the crowd of cold and tired refugees and other migrants we met crossing the border one damp and windy night this week from Hungary into Austria. No euphoria. No desperation, such as we’ve seen at so many European borders over the last months, but more a sense of quiet purpose. The young men and families we spoke to were passing through what has become a relatively efficient people’s pipeline established on the ground from southern, into central and onto northern Europe. EU leaders may be in disarray over what to do next but in the meantime – for now – chaos on the ground has given way to an orderly means of transporting migrants from country to country.

One 19-year-old told us it had taken him five days to get from Turkey to Austria, passing through Greece, Macedonia, Serbia, Croatia and Hungary along the way. He still hoped to reach Germany, to join the Syrian community there, which is growing larger by the day. But this is no long-term solution to Europe’s migration conundrum. Europe’s prime ministers and heads of state will discuss that at their emergency meeting in Brussels on Wednesday. A quick or easy fix will be impossible to find and the meeting is likely to be fiery but leaders know they have to stumble towards some sort of plan or risk the unravelling of the EU itself. Look at the anger of Slovakia, Hungary, Romania and the Czech Republic forced on Tuesday at a meeting of European interior ministers to accept their share of 120,000 asylum seekers who will be re-located across the continent. [..]

EU leaders will discuss how to tighten the control of European borders. They’ll also debate a workable EU asylum policy, the more efficient deportation of economic migrants, defining who is a refugee, an asylum seeker or economic migrant, the better integration of refugees and their families already here and sending significant aid abroad to improve living conditions closer to people’s home countries so they shouldn’t be tempted to come to Europe in the first place. Decisions and debates tomorrow and in the months to come will affect all of our lives. Endre Sik is the director of the Centre for Refugee and Migration Studies in Budapest. He told me in 10 years’ time, we will look back and see this as a moment that changed Europe – its general landscape, its politics and its economics. There’s no turning back now from mass migration Europe, he says. This is an unprecedented social phenomenon.

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“We would have preferred a consensus but we could not reach that, and it is not for want of trying..”

EU’s East-West Rift Exposed In Refugee-Sharing Plan (Reuters)

The European Union approved a plan on Tuesday to share out 120,000 refugees across its 28 states, overriding vehement opposition from four ex-communist eastern nations. The European Commission, the EU executive, had proposed the scheme with the backing of Germany and other big powers in order to tackle the continent’s worst refugee crisis since World War Two. But the rift it has caused between older and newer members was glaringly evident as the interior ministers of the Czech Republic, Slovakia, Romania and Hungary voted against the plan at a meeting in Brussels, with Finland abstaining. “We would have preferred a consensus but we could not reach that, and it is not for want of trying,” Luxembourg Interior Minister Jean Asselborn, whose country holds the rotating presidency of the EU, told a news conference.

Slovak Prime Minister Robert Fico said pushing through the quota system had “nonsensically” caused a deep rift over a highly sensitive issue and that, “as long as I am prime minister”, Slovakia would not implement a quota. And Czech Interior Minister Milan Chovanec tweeted: “We will soon realize that the emperor has no clothes. Common sense lost today.” This year’s influx of nearly half a million people fleeing war and poverty in the Middle East, Asia and Africa has already sparked unseemly disputes over border controls as well as bitter recriminations over how to share out responsibility. Refugees and migrants arriving in Greece and Italy have been streaming north to reach more affluent nations such as Germany, prompting countries in central and eastern Europe alternately to try to block the flow or shunt it on to their neighbors.

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How is this Europe? How can Germany and France continue in a Union with Hungary?

Hungary Mobilizes Troops, Prisoners, Jobless To Fence Out Refugees (Reuters)

Built in a matter of weeks by soldiers, prison laborers and cadres of the unemployed, a vast new wall along Balkan frontiers is a monument to the ruthless efficiency with which Prime Minister Viktor Orban has mobilized Hungary against migrants. Orban describes the arrival of hundreds of thousands of refugees and other migrants in Europe this year from Asia, Africa and the Middle East as an attack on the continent’s Christian welfare model. Until last week, most trekked through Hungary, the main overland entry route into the EU’s border-free Schengen zone from the Balkan peninsula, which they cross after arriving by dinghy in Greece.

While Europe dithered over a collective response, Hungary took matters into its own hands, shutting off the route with a new fence along its entire 175 km (110 mile) border with Serbia, topped with razor wire and guarded by helmeted riot police. It was erected at a cost of 22 billion forints (about $80 million), a rare example of efficiency in a country which built its last underground metro line ten years behind schedule at triple the projected cost. The government says it put the military in charge of the construction so that it could act more quickly. By swiftly mobilizing state resources, the authorities also managed to turn the fence into a national project, immensely popular at home even as it is denounced by European partners.

“It took a while but the government’s campaign to rouse public opinion against the refugees is bearing fruit, and having brought much of the media under control is paying dividends,” said Richard Szentpeteri Nagy, an analysts at Centre for Fair Political Analysis. “By properly filtering the message through public television, what viewers at home see is that this is a mob, throwing stones and attacking police.” In just days since it shut the Serbian frontier, Hungary has already moved even faster to shut the border with Croatia, which is inside the European Union but outside the Schengen zone. A 41-kilometre temporary fence was thrown up within four days. Work is already underway on a permanent barrier, with machines clearing the land, fence posts driven into the ground and razor wire rolled out.

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Hollande’s a dunce and a coward. Full stop.

Hollande Wrongfooted on Refugee Surge, Fearing Le Pen’s Rise (Bloomberg)

As Europe searches for a solution to the migrant crisis, French President Francois Hollande is in his customary position: stuck in the middle and pleasing few. The Socialist leader finds himself playing second fiddle to German Chancellor Angela Merkel in the unfolding drama as European Union leaders meet Wednesday to seek a way out of their impasse on how to cope with thousands of migrants knocking on the region’s gates. France’s acceptance of migrants has been overshadowed by greater generosity shown next door by Germany. “The government is fearful of doing anything that would benefit the anti-immigration right,” said Francois Gemenne , researcher at Sciences Po University.

“At the same time, they have intellectuals in the press and much of their base saying that France, the nation of human rights, looks ridiculous next to Germany. The government doesn’t know what foot to dance on. They’ve ended up with a policy that satisfies no one.” That mirrors much of what Hollande has done in his three years in office. On the economy, his socialist base feels he has sold out by recent moves to liberalize labor markers and ease rules for business, while conservative parties pillory him for raising taxes. Hollande’s approval rating fell one point to 24% in September, according to the most recent Ifop poll. Hollande and Merkel on Sept. 4 jointly urged the EU to agree on a redistribution plan for refugees and to speed up processing in countries where they arrive.

Under a formula proposed by the European Commission, France and Germany agreed to take 30,000 and 44,000 refugees respectively, out of the 160,000 who had made their way to Italy, Greece and Hungary. Those pledges have been overtaken by events as thousands of Syrians a day cross to Greek islands from Turkey, and then try to reach northern Europe. The Organisation for Economic Cooperation and Development said Tuesday that 700,000 refugees have sought asylum in Europe so far this year and that it’ll be 1 million by year end, a record. That has led Hollande’s opponents to say he’s doing too much or too little.

Marine Le Pen, leader of the anti-immigration National Front and by some measures the most popular presidential candidate in France, has compared the influx of refugees to the barbarian invasions that destroyed the Roman empire. Former President Nicolas Sarkozy said France should reinstall border controls, has blamed Hollande’s handling of the Syrian crisis for the influx, and has called into question automatic citizenship for children born in France. “There are differences of tone between Le Pen and Sarkozy on this issue, but they are basically on the same page,” said Smain Laacher, a sociology professor at the University of Strasbourg.

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Damned if you do, doomed if you don’t.

The Fed Just Made A Gigantic Mess (CNBC)

The Federal Reserve is creating a negative-feedback loop with its mixed messages on interest rates — and it’s messing with the markets. In explaining why the Fed opted to hold rates steady, Fed Chair Janet Yellen said that policy makers remain concerned about slowing economic growth — especially in China — and the impact on global markets and inflation. But then, she added that the Fed could still raise rates in before the year was out — as early as October. What? If slowing global growth and market turbulence was a reason to pause, how likely was it, then, that all of that would be resolved by October? Since Chair Yellen spoke, a number of Fed officials have spoken, reiterating that a rate hike in 2015 remains likely. This is cognitive dissonance at its worst. Investors are now simultaneously worried about incompatible outcomes.

If growth is weak, and inflation continues to fall, the Fed should NOT, and would NOT, raise rates. If this global problem is truly transitory (a word most Fed officials need to look up in the dictionary), then a rate hike should have already occurred. This is a problem of the Fed’s own making. By insisting that interest rate normalization is imminent, the Fed is creating the very problem it is combatting by delaying that very same process. From my vantage point, the Fed more clearly needs to define what it takes to meet its dual mandate — inflation and employment. Clearly, the Fed has reached many of its goals on the employment front, although wage inflation is not accelerating to the point where a rate hike would be justified to cool an overheating economy.

Low inflation, while “transitory,” has persisted for nearly six years and is being pushed even lower by the huge drop in oil prices; the crash in other commodities; slowing growth in China and Japan and Asian emerging markets; recessions in Russia and Brazil and uneven growth in Europe. If the world is not normal, why normalize policy at all? The world affects the U.S. As we have seen in innumerable instances in the past, global instability has altered the course of domestic monetary policy for decades. Factoring that in, does not mean that the Fed has a “third mandate” as some Fed bashers claim. It simply means that the Fed has an obligation to consider how all variables affect its mandate. With an economy only “half-normal,” the normalization of interest rates can wait. But if the Fed continues to convey confusing messages about the timing of normalization, in an abnormal world, it will only serve to exacerbate the very trends it is hoping will abate.

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Economics is just politics in disguise.

Economic Policy Often Seems To Have Little To Do With Economists. Why? (Ind.)

With Jeremy Corbyn as leader of the Labour Party we will hear a great deal from his opponents that his economic policies are not “credible”. At the moment we do not have a clear idea of what these policies will be, but it is worth asking beforehand what exactly a credible economic policy is. A natural way to define a credible economic policy is one that accords with what most economists think. If this was true, you might expect it would be difficult to win an election based on a macroeconomic policy that most economists regard as mistaken. Unfortunately, the last General Election provides a clear counter-example. In that election George Osborne proposed eliminating the overall budget deficit within five years. That contradicted what most economists believe is a sensible fiscal policy, for at least two reasons.

First, it precluded any significant increase in public investment, on things like building schools and flood defences. Every economist I know agrees that now is an excellent time to increase infrastructure investment, because labour is cheap and interest rates are low. Second, another round of austerity is very risky when interest rates are so low. Osborne says we must reduce government borrowing quickly to prepare for the next crisis. That makes little economic or business sense. Firms that cut back on investment when borrowing is cheap and the economy is expanding generally fail. The more significant risk is that the world economy takes a turn for the worse in the next year or two because of events in China or elsewhere. If interest rates are already low because they are having to offset the impact of austerity, the Bank of England has little room to counter these global shocks.

So the prudent policy while interest rates are low is to avoid austerity. The fiscal policy platform on which the Conservatives won was not credible to most academic macroeconomists. The problem is that most people in politics and the media do not get their notion of credibility from this source. So where does their idea of economic credibility come from? Discussion of economic policy in the media is dominated by political rather than economic journalists. They routinely provide comment after major economic policy announcements and interview politicians. They spend most of their time talking to politicians, so the Westminster bubble defines what the media sees as a credible economic policy.

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How to turn farmers into serfs.

English Farmland Prices Double In Five Years (Guardian)

The price of good quality English farmland has doubled over the past five years, making it the most expensive in the world and offering a better return than prime London property, the FTSE 100 or gold. According to agents Knight Frank demand from wealthy private individuals as well as pension funds, has driven up the average price for an acre of “investment grade” English farmland (large plots with economies of scale) to £12,500, up 100% since 2010. In comparison, the price of luxury London homes has risen 42% over the same period, the FTSE 100 has increased 33%, while gold has dropped 10%. Many recent buyers of prime farmland arelifestyle buyers, often London financiers, for whom farming can be more of a hobby than about making the land pay its way.

Even what Knight Frank describes as some of the best land in the world – the pampa west of Buenos Aires in Argentina – sells for just a third of the average price investors are paying for farmland in England. An acre of investment grade land in Argentina sells for £4,510, while in France it fetches about £4,490. On the vast wheat-producing prairies of Canada, quality land fetches just £800 an acre, only 7% of the price achieved in England. Australian farmland values, blighted by drought, have largely flatlined in recent years.

The inflation in English land values is taking place despite a crisis among farmers struggling with falling global prices, particularly for wheat. After peaking at about £214 a tonne in December 2012, feed wheat values have since fallen by more than 50%. Global demand for wheat was 679m tonnes in 2012/13, but only 657m tonnes was produced, pushing prices up sharply. But the situation has now reversed, with global production forecast to hit about 725m tonnes this year but consumption at about 715m tonnes, sending prices spiralling down on commodity markets. UK farm gate milk prices are down by a third since 2013, prompting a wave of closures among English dairy farmers.

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And now dinosaurs are literally cool.

Alaska Fossil Find Points To New ‘Lost World Of Dinosaurs’ (Guardian)

Fossils from a unique plant eating dinosaur found in the high Arctic of Alaska may change how scientists view dinosaur physiology, Alaska and Florida university researchers have said. A paper published on Tuesday concluded that fossilized bones found along Alaska’s Colville river were from a distinct species of hadrosaur, a duck-billed dinosaur not connected to hadrosaurs previously identified in Canada and the Lower 48 states. It’s the fourth species unique to northern Alaska. It supports a theory of Arctic-adapted dinosaurs that lived 69m years ago in temperatures far cooler than the tropical or equatorial temperatures most people associate with dinosaurs, said Gregory Erickson, professor of biological science at Florida State university. “Basically a lost world of dinosaurs that we didn’t realise existed,” he said.

The northern hadrosaurs would have endured months of winter darkness and probably snow. “It was certainly not like the Arctic today up there – probably in the 40s (five to nine degrees ) was the mean annual temperature,” Erickson said. “Probably a good analogy is thinking about British Columbia.” The next step in the research program will be to try to figure out how they survived, he said. Mark Norell, curator of paleontology at the American Museum of Natural History in New York, said by email that it was plausible the animals lived in the high Arctic year-round, just like musk oxen and caribou do now. It’s hard to imagine, he said, that the small, juvenile dinosaurs were physically capable of long-distance seasonal migration. “Furthermore, the climate was much less harsh in the Late Cretaceous than it is today, making sustainability easier,” he said.

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Sep 122015
 
 September 12, 2015  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  


DPC The Mammoth Oak at Pass Christian, Mississippi 1900

UN Warns Of Millions More Refugees Coming To Europe (Reuters)
Migrant Crisis Could Be ‘Biggest Challenge’ In EU History: Germany (AFP)
EU Refugee Quota Plan Rebuffed By At Least 4 European Nations (AP)
Hungary Wants European Military Forces At Greek Borders (DW)
Welcoming the Refugees: Has Germany Really Changed? (Juan Moreno)
Germany’s Asylum System Struggles to Cope (Spiegel)
China Is Dumping US Debt (CNN)
Citi’s Chief Economist Says China Is ‘Financially Out of Control’ (Bloomberg)
Goldman’s Next 11 Markets Are Sinking Even Faster Than the BRICs (Bloomberg)
Poland Versus Greece (Paul Krugman)
Greece at the Cross-Roads: A Test Case of Austerity (Pollack)
A Plan B in Europe (Mélenchon, Fassina, Konstantopoulou, Lafontaine, Varoufakis)
1.5 Million People Take Part In Catalan Independence March (RTE)
Canadian Household Debt Hits New Record, Fuelled By Low Mortgage Rates (Star)
$15 Minimum Wage for NY State: Ford Paid Workers That 100 Years Ago (Intercept)
Russia Calls On World Powers To Arm Syrian Military (AP)
Dairy Farmers at the Barricades (Bloomberg)
Global Food Prices Hit Lowest Level In Over 6 Years (CNBC)

There should have been highest level emergency meetings for a long time now. Is Merkel afraid her Teflon may wear off?

UN Warns Of Millions More Refugees Coming To Europe (Reuters)

[..] More than 170,000 migrants have crossed into Hungary from non-EU Serbia so far this year. Many try to avoid being registered in Hungary for fear of being stranded there or returned to the country later in their journey across Europe. In Geneva, the U.N. High Commissioner for Refugees (UNHCR) said it was sending pre-fabricated housing units to provide temporary overnight shelter for 300 families in Hungary but also expressed concern over Budapest’s tough approach, including the possible deployment of troops to tackle the crisis. “Obviously we expect authorities to respect rights of refugees whether they are the police or army,” said UNHCR spokesman William Spindler.

Syria’s four-year civil war has so far displaced almost eight million people, said Peter Salama of UNICEF, the U.N. childrens’ agency, adding: “There could be millions and millions more refugees leaving Syria and ultimately (going) to the European Union and beyond.” So far this year, a record 433,000 refugees and migrants have crossed the Mediterranean to Europe, more than double the total for all of 2014, the International Organization for Migration (IOM) said on Friday. The EC, backed by Germany and France, wants EU member states to accept mandatory quotas to share out some 160,000 refugees but the plan faces stiff resistance in some capitals. On Friday the UNHCR said the number of people requiring relocation had now risen to 200,000.

Speaking in Prague, Steinmeier said Germany was expecting about 40,000 refugees this weekend alone, adding the EU needed a “fair mechanism of redistribution of migrants (still coming)”. “This challenge cannot be borne by one country. We have to invoke European solidarity,” he told a joint news conference with the foreign ministers of the Czech Republic, Slovakia, Hungary and Poland – countries opposed to the EU’s proposal for mandatory quotas. Germany has come under fire from Orban and other east European leaders for opening its door to Syrian asylum seekers, saying such generosity will only encourage many more to come. Denmark, which like Britain has opted out of EU rules on justice and home affairs, said on Friday it would not take part in the Commission’s relocation scheme.

Earlier this week, Denmark shut off some traffic with Germany to curb refugees trying to reach Sweden, which remains much more welcoming than other Scandinavian countries, but later allowed them to travel through. Finland said it would accept its 2% share of asylum seekers under the Commission plan but said it remained opposed to mandatory quotas and would cut benefits for refugees. EU interior ministers are due to discuss the Commission proposals on Monday. If they fail to reach a deal on tackling the crisis, European Council chief Donald Tusk said on Friday he would call an extraordinary summit of EU leaders this month.

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No doubt there.

Migrant Crisis Could Be ‘Biggest Challenge’ In EU History: Germany (AFP)

The unprecedented influx of refugees and migrants flooding into the EU could be the bloc’s greatest-ever challenge, Germany’s foreign minister said Friday, adding Berlin expects 40,000 new migrants to arrive this weekend. Europe’s largest refugee crisis since the end of World War II could be “the biggest challenge for the EU in its history,” said Frank-Walter Steinmeier, calling for solidarity at Prague crisis talks with eastern EU members who have ruled out binding migrant quotas proposed by the European commission. “If we are united in describing the situation as such, we should be united that such a challenge is not manageable for a single country,” he said, adding “we need European solidarity.”

“Germany expects 40,000 new migrants from the south at the weekend, despite the willingness of German people our possibilities are smaller and smaller,” Steinmeier told counterparts from the Czech Republic, Hungary, Slovakia and Poland. Record numbers of people, many of them fleeing war and conflict in Syria and Iraq, continued to pour into Europe, with around 7,600 entering Macedonia in the last 12 hours.

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This is going to be a fight.

EU Refugee Quota Plan Rebuffed By At Least 4 European Nations (AP)

At least four countries Friday firmly rejected a European Union plan to impose refugee quotas to ease a worsening migrant crisis that Germany’s foreign minister said was “probably the biggest challenge” in the history of the 28-nation bloc. Hungary, which along with the Czech Republic, Slovakia and Poland said it would not support the proposal, threatened instead to crack down on the thousands of people streaming across its borders daily as they flee war and persecution. The stance by those Central European countries reflected a hardening front against distributing at least some of the refugees among them and was a stinging rebuff to German Foreign Minister Frank-Walter Steinmeier, who traveled to Prague to try to persuade them to reconsider.

While the Czechs, Slovaks and Poles have been relatively unaffected by the influx, Hungary has faced growing criticism about its stance toward the asylum seekers. Other EU leaders and human rights groups accuse the government of gross mismanagement or serious negligence in housing, feeding and processing the migrants traveling from the Balkans and through Hungary to Western Europe. Peter Bouckaert of Human Rights Watch asserted Hungary was keeping migrants and refugees “in pens like animals, out in the sun without food and water.” A video that the rights group said was from inside a holding facility at the border town of Roszke showed metal fences surrounding clusters of tents and dividing migrants into groups. Guards were depicted throwing food into the air for desperate people to grab.

Erno Simon, a spokesman in Hungary for the U.N. refugee agency, said the housing situation in Roszke with nighttime temperatures falling to near freezing “is really very, very alarming.” Unfazed, Hungarian Prime Minister Viktor Orban threatened an even harder line, saying his country intended to catch, convict and imprison people who continue to penetrate its new border barriers as part of get-tough border security measures scheduled to begin Tuesday. “If they don’t cross into Hungary territory legally, we will consider it a crime,” Orban said, saying the “illegal immigrants” had no one to blame but themselves for any hardships suffered. “They don’t cooperate. They are not willing to go to the places where they receive provisions: food, water, shelter, health care. They have risen up against Hungary’s legal order,” he told a Budapest news conference.

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How long till we see refugees get shot to death?

Hungary Wants European Military Forces At Greek Borders (DW)

Beginning on September 15, “Hungarian authorities cannot be forgiving of illegal border-crossing,” Orban said on Friday after meeting with Manfred Weber, the chairman of the conservative European People’s Party in the EU Parliament. “We will not courteously accompany them as until now.” Stricter immigration laws are set to take place next week to block the flow of migrants passing through the country on their way to northern European countries. Many are trying to avoid registering in Hungary out of fear of being stranded or returned to the country later. Over 170,000 people have entered Hungary this year, with the UN expecting another 42,000 to arrive next week. Orban also accused refugees of “rebelling against Hungarian legal order” after numerous camp breakouts and standoffs at the Budapest train station.

“They have seized railway stations, refused to give fingerprints, failed to cooperate, and are unwilling to go to places where they would get food, water, accommodation and medical care,” he said. The prime minister also blamed Greece for Hungary’s current refugee crisis. “If Greece is not capable of protecting its borders, we need to mobilize European forces to the Greek borders so that they can achieve the goals of European law instead of the Greek authorities. That is one of the foremost goals,” Orban said. His statements come at the end of an uneasy week which saw increasing tensions at the Serbian-Hungarian border. The country’s decision to build a fence along its border with Serbia, as well as a recent video of refugees being fed “like animals in a pen” at a border reception center drew international criticism on Friday.

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Juan Moreno, child of Spanish immigrants to Germany, tries to find out for Der Spiegel if the country’s really changed.

Welcoming the Refugees: Has Germany Really Changed? (Juan Moreno)

I continue my journey to Leipzig, to the next person who is an expert on foreigners. Oliver Decker is a psychologist, sociologist and philosopher. He received his PhD, became a professor and has focused his academic attentions for the last 13 years on right-wing extremism and xenophobia. Last year, he published his latest study, which was widely quoted in the press. The conclusion: Germans have become less xenophobic. Whereas 9.7% of Germans still had a right-wing extremist weltbild 13 years ago, only 5.4% do today. Anti-Semitism, sympathy for National Socialism, support for a dictatorship: all of that, Decker wrote, is on the wane. That seemed to be the answer to my question. Right down to the decimal point.

Decker is a calm man with a penchant for holding forth in long and complicated sentences. I meet him in a café not far from Leipzig University, where he works. We order something to eat, but before our food comes, Decker makes it clear to me that Laschet is wrong. “There is only an ostensive reduction in xenophobia,” Decker says, explaining that the rejection of certain groups has become more acute. Sinti, Roma and Muslims, for example, are more disapproved of than they used to be, he says. According to Decker, many Germans feel there are two types of foreigners: the useful and the useless. “The Italians brought us their cuisine, so they can stay,” Decker says with ironic bitterness. Americans, Britons, French and Spaniards all integrate well, find work and pay taxes.

But if people believe that newcomers don’t contribute, they are rejected even more than before. Someone once called it “Usefulness-racism.” Decker says that the German identity is deeply bound up with the economy. “Even the poor are proud of the fact that the world envies us for our economy. If that is threatened by immigration, acceptance begins to fall,” he says. So is it all just a big misunderstanding, this new German tolerance of foreigners? Decker smiles. “Germany is currently experiencing a period of economic sunshine, which has led to a reduction in xenophobia. I will be interested to see what studies find a few years from now.”

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German reality beyond the initial euphoria: pretty soon, dramatic scenes will start to unfold.

Germany’s Asylum System Struggles to Cope (Spiegel)

Hannelore Kraft, the Social Democratic (SPD) governor of North Rhine-Westphalia, Germany’s most populous state, made clear at the beginning of the week that the number of refugees to be expected this year will likely rise from the 800,000 the federal government forecast in August. She also made clear that the effort needed to deal with the influx will be much greater than previously thought. Just how great that effort might be became clear on Thursday morning during a conference call of all state interior ministries in addition to the federal Interior Ministry in Berlin. As part of the meeting, states indicated how much shelter capacity they possessed, and the results, according to the phone conference’s protocol, were not particularly promising.

Seven states – including Baden-Württemberg, Hesse and Rhineland-Palatinate – reported that they had no remaining capacity whatsoever. Bavaria complained of “uncontrolled access pathways.” And Schleswig-Holstein lamented the “uncoordinated influx into the reception facilities.” The Interior Ministry in Berlin also had an alarm bell to sound: Austria, through which refugees must travel on their way from Hungary to Germany, is beginning to diverge from the joint approach. The conference call provides a small insight into the immense challenges facing Germany this year and in the years to come. Indeed, the effects are likely to remain with the country for decades to come — and will have consequences for Germany’s identity, its prosperity and for its self-image. Against that backdrop, the question arises: Can we handle the crisis? Or will the crisis handle us?

Either is possible. It could be that Germany, with its gleeful welcoming party, is currently sowing the seeds for problems that the country will face in 2040. It could be that the foreigners will remain foreign, that they will create a new, parallel underclass. Simultaneously, it could also be that Germany is currently solving those problems that would, without immigration, face the country in 2040: Labor market problems, pension fund problems and old-age care problems. It will take many years before it becomes clear in which direction the pendulum is swinging. But if Germany wants the opportunities to win out over the dangers, then that state will have to confront the chaos and do all it can to integrate the newcomers, the majority of whom are likely to stay. And that project will have to begin soon, even if the state is currently having difficulties accelerating asylum procedures, providing therapy to traumatized children and training adults for the labor market.

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“Capital outflows have skyrocketed in China and the yuan is under intense selling pressure..”

China Is Dumping US Debt (CNN)

It’s no secret that China is the largest holder of U.S. debt. So should Americans be concerned that China has started dumping some of its Treasury holdings? After all, it raises serious questions about whether China will keep lending Washington money to help finance the federal deficit in the future. But right now, China is selling because it’s in dire need of cash. Recently, it unleashed multiple moves to support its markets and prevent its currency from a freefall, while at the same time trying to stimulate the economy. China owned $1.3 trillion of U.S. Treasuries as of June, making it the biggest holder of U.S. debt. But China’s foreign-exchange reserves plunged by a record $94 billion in August, according to the country’s central bank, leaving it with a war chest of $3.6 trillion.

Analysts say it’s very safe to believe a big chunk of that decline occurred due to a reduction in U.S. Treasury holdings. The selling and the potential that China will not be buying U.S. debt in the near future raises questions on its potential to increase America’s borrowing costs. Some of this might already be happening, at least at a small scale. When stock markets are turbulent, investors usually rush to the safety of U.S. Treasurys and yields fall. However, despite August’s extreme stock volatility, rates on Treasurys actually rose slightly in late August. Part of that move is likely due to Wall Street betting the Federal Reserve may raise interest rates next week. But market participants also suspect the unusual action in the bond market was driven by China dumping Treasuries.

This time, Beijing is cutting its Treasury holdings out of a weakened position as it tries to stave off more declines in its currency. China is also propping up its stock market, which lost half its value in the span of just a few months this summer. “Capital outflows have skyrocketed in China and the yuan is under intense selling pressure. The only thing they could do is sell Treasuries to buy their own currency,” said Walter Zimmerman, chief technical analyst at United-ICAP.

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The 55% chance is a loony number and Buiter’s ‘solutions’ make zero sense, but his headline may well be correct for once. Coming from America’s biggest bank, this should have Beijing in a nervous state.

Citi’s Chief Economist Says China Is ‘Financially Out of Control’ (Bloomberg)

Willem Buiter, Citigroup chief economist, sees a storm brewing in China. This week, he estimated that there is a 55% chance of a made-in-China global recession in the not too distant future, which he defines as a period of sub-2% global growth. Without a massive, consumer-focused stimulus plan, he argues, Chinese growth will slip below 4%. This would constitute a recession for the world’s second-largest economy, according to Buiter, and the rest of the world wouldn’t be insulated from the slowdown. Buiter appeared on BloombergTV to discuss his headline-grabbing call.

The cause of his consternation is the immense debt that Chinese non-financial companies have racked up in a short period of time. Over the past decade, the indebtedness of China’s private sector has exploded and exceeded that of the U.S., which Buiter pointed out has a much more advanced economy and sophisticated financial system: “I think things are financially out of control in China and we are waiting for the regulators and supervisors to bring things back under control and to do for the financial system the kind of things – recapitalizing banks and other systemically important financial institutions – that would give you the underpinning for continued growth,” he said.

The economist isn’t too optimistic about the prospects for the powers in Beijing to resolve their bloated credit situation. Chinese policymakers are playing a game of “extend and pretend,” said Buiter, drawing a parallel to the EU’s penchant for reaching short-term solutions to the crisis in Greece. “Until the problems in the banking sector, the financial sector generally, and in the corporate sector – the excessive debt burden – is tackled by the government, the only entity that can do it, I think the prospects for resumption of healthy growth in China are dim,” he concluded.

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It’s called deflation. Global stock markets have lost $12.5 trillion.

Goldman’s Next 11 Markets Are Sinking Even Faster Than the BRICs (Bloomberg)

This time last year, it looked like Goldman Sachs’s selection of emerging market up-and-comers was ready to fill the void left by shrinking investment returns in Brazil, Russia, India and China. Share prices in these “Next 11” countries – places like the Philippines, Turkey and Mexico – were trading at all-time highs as foreign investors flooded their markets with cash. Inflows into Goldman Sachs’s U.S.-domiciled Next 11 equity fund sent assets under management to twice the level of the firm’s BRICs counterpart. Now, though, the Next 11 countries are looking even worse for investors than the larger markets they were supposed to supplant. MSCI’s Next 11 equity gauge has tumbled 19% this year, versus a 14% slump for the BRIC index. Foreign capital is rushing out, with the Goldman Sachs fund shrinking by almost half as losses deepened to 11% since its inception four years ago.

The turnaround shows how young populations and a rising middle class – characteristics that first lured Goldman Sachs to the Next 11 economies a decade ago – have failed to safeguard stock-market returns in a world facing higher U.S. interest rates, tumbling commodity prices and a Chinese economic slowdown. For John-Paul Smith, one of the few strategists to accurately predict the losses in emerging markets, it also illustrates the dangers of grouping so many disparate countries into a single investment theme. Money managers “are increasingly moving away from acronym-based investment,” said Smith, the former Deutsche Bank AG strategist who founded Ecstrat, a London-based research firm, last year. “Within emerging markets, it is difficult to think of a market that has a combination of attractive valuations and constructive policy developments.”

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It’s the euro.

Poland Versus Greece (Paul Krugman)

Yannis Ioannides and Christopher Pissarides, in a new Brookings Paper, talk about the ways lack of structural reform hurts Greek productivity and competitiveness. I have no reason to doubt that there are big things that should change, and that Greece would be much better off if it could somehow break the political barriers to making these changes. But I would argue that it’s very, very wrong to point to factors limiting Greek productivity and claim that these factors are the “cause” of the Greek crisis. Low productivity exacts a price from any economy; it does not normally, or need not, create financial crisis and a huge deflationary depression. Consider, in particular, a comparison that should be made — between Greece and Poland. Poland, like Greece, is a country on Europe’s periphery, closely linked to the rest of the European economy.

It’s also a country with relatively low productivity by northwestern European standards, indeed lower productivity than Greece by standard international measures. But Poland has not had a Greek-style crisis, or indeed any crisis at all. Instead, it has powered through the turmoil of recent years. What’s the difference? The main answer, surely, is the euro: by adopting the euro Greece first brought on massive capital inflows, then found itself in a trap, unable to achieve the needed real devaluation without incredibly costly deflation. Every time someone asserts that the Greek problem is really on the supply side, you should ask, not whether it has supply-side problems — it does — but why this should lead to collapse. Greece seems to have about 60% of Germany’s productivity, which means that it should have real wages only about 60% as high as Germany’s. It should not have 25% unemployment.

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Interesting critique of Varoufakis.

Greece at the Cross-Roads: A Test Case of Austerity (Pollack)

Austerity entails sacrifice. It suggests an ascetic mental cast and, perhaps secondarily, enforced or extreme economy (Webster’s). Speaking personally, I have always favored an ascetic cast of mind as the ultimate negation of conspicuous consumption, and beyond, a dependence on consumerism as a principal mode of class identity, and a gut-addiction to luxury, as diversion from the real world of living. The ascetic cast is absolutely essential to a gracious view of Nature and respect for the environment. And it also rules out militarism as incompatible with a nation’s servicing of the basic needs of its people. Asceticism promotes sharing and conserving of scarce resources and, be it said, a spiritual cleanliness not cluttered with status needs and consideration. So much on the positive side.

But what happens when what I take to be a moral category of human belief and conduct has become politicized to favor exactly the opposite societal results. For austerity has been the tool of upper groups to fasten poverty on the remainder, a bone-dry social system devoid of everything from progressive taxation and enforced business regulation to a vibrant social safety net—all in the vacuous name of balanced budgets. Austerity is the battering ram of plutocracy to enhance its own wealth and subjugate working people and the poor to unfulfilled lives often coming down to human social misery. It is a class weapon of power, a means, thoroughly respectable at that, of promoting class differentiation and wealth concentration.

Not unexpectedly, it is the method of choice of the IMF, World Bank, EU, and, standing behind all three, the US (though meant to apply to others more than to itself). It is legitimation in its nastiest form, meant to seal a hierarchical order in place at the expense of its most deprived members. Within the EU, Greece became the designated victim, 1.e., sacrificial lamb, to justify a malicious economic policy-construct pointing the way to where capitalist development was heading: greater inequality through enforced strict ground rules that favor corporatist goals of financial-business hegemony over governments and peoples.

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“..an international summit on a plan B for Europe..” If they can make that work, it would be a positive development. Somewhat surprised to see Zoe be part of this little group.

A Plan B in Europe (Mélenchon, Fassina, Konstantopoulou, Lafontaine, Varoufakis)

This is our plan A: We shall work in each of our countries, and all together throughout Europe, towards a complete renegotiation of the European Treaties. We commit to engage with the struggle of Europeans everywhere in a campaign of Civil European disobedience toward arbitrary European practices and irrational “rules” until that renegotiation is achieved. Our first task is to end the unaccountability of the Eurogroup. The second task is to end the pretence that the ECB is “apolitical” and “independent”, when it is highly political (of the most toxic form), fully dependent on bankrupt bankers and their political agents, and ready to end democracy at the touch of a button.

The majority of governments representing Europe’s oligarchy, and hiding behind Berlin and Frankfurt, also have a plan A: Not to yield to the European people’s demand for democracy and to use brutality to end their resistance. We’ve seen this in Greece last July. Why did they manage to strangle Greece’s democratically elected government? Because they also had a plan B: To eject Greece from the Eurozone in the worst conditions possible by destroying its banking system and putting to death its economy. Facing this blackmail, we also need a plan B of our own to deter the plan B of Europe’s most reactionary and anti-democratic forces. To reinforce our position in the face of their brutal commitment to policies that sacrifice the majority to the interests of a tiny minority.

But also to re-assert the simple principle that Europe is about Europeans and that currencies are tools for promoting shared prosperity, not instruments of torture or weapons by which to murder democracy. If the euro cannot be democratised, if they insist on using it to strangle the people, we will rise up, look at them in the eye, and tell them: Do your worst! Your threats don’t scare us. We shall find a way of ensuring that Europeans have a monetary system that works with them, not at their expense. Our Plan A for a democratic Europe, backed with a Plan B which shows the powers-that-be that they cannot terrorise us into submission, is inclusive and aims at appealing to the majority of Europeans. This demands a high level of preparation. Debate will strengthen its technical elements.

Many ideas are already on the table: the introduction of parallel payment systems, parallel currencies, digitization of euro transactions, community based exchange systems, the euro exit and transformation of the euro into a common currency. No European nation can work towards its liberation in isolation. Our vision is internationalist. In anticipation of what may happen in Spain, Ireland – and potentially again in Greece, depending on how the political situation evolves – and in France in 2017, we need to work together concretely towards a plan B, taking into account the different characteristics of each country.

We therefore propose the convening of an international summit on a plan B for Europe, open to willing citizens, organisations and intellectuals. This conference could take place as early as November 2015. We shall begin the process on Saturday the 12th of September during the Fête de l’Humanité in Paris. Do join us !

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Europe’s next black swan?!

1.5 Million People Take Part In Catalan Independence March (RTE)

Some 1.4 million people have joined a march demanding independence for the Catalonia region from Spain, Barcelona city police said. Officials published the figure on Twitter after the demonstration, which marked the start of campaigning for a 27 September regional election billed by Catalan leaders as an indirect vote on independence. The city police force, which is controlled by city hall, estimated turnout at 1.4 million. Spanish government officials say half a million people are taking part in the march. Waving red and yellow Catalan flags, they marched down a major road into the city, yelling “Independence!” while some formed human pyramids – a Catalan folk tradition. The show of force on Catalan national day came at a time of high political tensions, some three months ahead of a general election in Spain, the eurozone’s fourth-biggest economy.

State officials and other authorities did not immediately release their own estimates for turnout in Barcelona, capital of this region which counts 7.5m inhabitants. Before the rally, organisers had said 500,000 people had signed up to take part. At last year’s Catalan national day demo, Spanish state officials and local authorities gave wildly different turnout figures for the politically-sensitive rally. Polls this week showed pro-secession candidates could win a majority of seats in the Catalan parliament during this month’s vote. If they win, Catalan president Artur Mas has vowed to push through an 18-month roadmap to secession for the region, which accounts for a fifth of Spain’s economy.

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Blind into the abyss: “..for every $1 of after-tax income Canadians earned, they owed nearly $1.65 in credit market debt..”

Canadian Household Debt Hits New Record, Fuelled By Low Mortgage Rates (Star)

A key indicator of household debt hit a record high in the second quarter of 2015 as lower mortgage rates drove increased borrowing, Statistics Canada figures show. The ratio of debt to disposable income reached 164.6% as debt loads grew faster than incomes, the federal agency noted in its quarterly National Balance Sheet Accounts. That means for every $1 of after-tax income Canadians earned, they owed nearly $1.65 in credit market debt, which includes mortgages, credit cards and other kinds of consumer loans. The ratio was 163% in the previous three-month period, Statistics Canada said. The increase “came as no surprise,” TD Bank economist Jonathan Bendiner wrote in a commentary.

Rising mortgage debt drove most of the growth as interest rate cuts by the Bank of Canada earlier in the year spurred borrowing, especially in the hot housing markets in British Columbia and Ontario, Bendiner noted. The report comes two days after the Bank of Canada held its trendsetting overnight interest rate at 0.5%, citing strength in exports and consumer spending. In the past, Bank governor Stephen Poloz has raised concerns about growing household debt loads as a risk to future economic stability. But that concern was pushed onto the back burner as plunging oil prices sent the Canadian economy into a mild recession in the first half of the year. A credit counselling agency said consumers need to be cautious about taking on debt levels they may not be able to carry if interest rise from their current very low levels.

“Household debt levels are continuing their upward trend, and this puts Canadian consumers in a precarious situation,” said Scott Hannah, the president and chief executive officer of the Credit Counselling Society, a non-profit agency in British Columbia. “If they’re struggling to manage their increasing debt obligations now, a sudden change in external factors — like a rise in interest rates or the loss of a job — will leave many Canadians in greater financial difficulty.” Overall, Canadian households held $1.874 trillion in credit market debt at the end of the quarter, Statistics Canada said.

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“According to the Wall Street Journal, Ford had “committed economic blunders, if not crimes” that would “get riddance to Henry Ford of his burdensome millions..”

$15 Minimum Wage for NY State: Ford Paid Workers That 100 Years Ago (Intercept)

This Thursday in Manhattan, New York Gov. Andrew Cuomo called for the state to raise its minimum wage to $15 an hour for all workers. Cuomo can’t just do this by edict — as he essentially could using an industry-specific wage board when he raised the minimum pay for New York fast food workers to $15 an hour by 2021 — so any raise for everyone will have to pass the state legislature. Still, simply getting the endorsement of the governor of the third-biggest U.S. state is a huge victory for a national movement of low-wage workers. What will come next is a series of hysterical warnings from conservative pundits that New York can’t meddle with the almighty power of supply and demand, and that this will cause massive unemployment and destroy the very people it’s supposed to help, etc.

So here’s some historical context: Adjusted for inflation, $15 an hour is exactly what Henry Ford paid his workers over 100 years ago. Ford famously decided in 1914 to raise his workers’ wages to $5 a day while cutting the workday from nine hours to eight. Five dollars in 1914 has the same buying power as $119.32 in 2015. Divided by eight, that’s $14.92 an hour. When Ford made his announcement, the New York Times proclaimed that “The theory of the management at Ford Motor Company is distinctly Utopian and runs dead against all experience.” According to the Wall Street Journal, Ford had “committed economic blunders, if not crimes” that would “get riddance to Henry Ford of his burdensome millions” and “may return to plague him and the industry he represents, as well as organized society.”

Instead, Ford had kicked off the age of mass consumption, a huge century-long economic expansion, and the creation of the first real middle class in world history. As Ford later wrote: “We increased the buying power of our own people, and they increased the buying power of other people, and so on and on. It is this thought of enlarging buying power by paying high wages and selling at low prices which is behind the prosperity of this country.” (Interestingly, someone making $5 dollars a day at Ford would have had to work a little more than 100 days to afford a Model T – and if New York workers get a raise to $15 an hour, they’ll have to work about the same period of time to afford a Ford Fiesta.)

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Russia’s fed up with US chaos theories.

Russia Calls On World Powers To Arm Syrian Military (AP)

Sergei Lavrov, Russia’s foreign minister, has called on world powers to help arm the Syrian army, saying it was the most efficient force against Islamic State. The US and Nato have raised concerns over Russia’s military buildup in Syria since they see the president, Bashar al-Assad, as the cause of the Syrian crisis, which has claimed more than 250,000 lives over four years. Moscow, meanwhile, has sought to cast arms supplies to Assad’s government as part of international efforts to combat Isis militants. The increased Russian activity reflects Moscow’s concern that its longtime ally is on the brink of collapse, as well as hopes by the president, Vladimir Putin, that a common battle against Isis can improve Russia’s ties with the west, which have been strained over Ukraine.

Lavrov said in Moscow that Russia would continue to supply Assad with weapons and called on other countries to help the Syrian government and its ground troops. “You cannot defeat Islamic State with airstrikes only,” Lavrov said. “It’s necessary to cooperate with ground troops and the Syrian army is the most efficient and powerful ground force to fight the Islamic State.” Lavrov insisted that by sending weapons to Syria, Russia was not propping up Assad but was contributing to defeating Isis fighters. “I can only say once again that our servicemen and military experts are there to service Russian military hardware, to assist the Syrian army in using this hardware,” he said at a news conference in Moscow. “And we will continue to supply it to the Syrian government in order to ensure its proper combat readiness in its fight against terrorism.”

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“The world is awash in milk..”

Dairy Farmers at the Barricades (Bloomberg)

Talk to dairy farmers in Britain, the U.S., New Zealand, Canada, Argentina, and countries worldwide, and you ll hear the same thing: Times are tough. Russia’s ban on European Union milk and the EU’s removal of production quotas have driven local prices down 20% in the past 12 months. That s why 6,000 farmers and 2,000 tractors converged on Brussels on Sept. 7 to protest EU farm policies. Audrey Le Bivic, a dairy farmer from France s Brittany region, was grim: “I cannot pay my bills. If tomorrow I can no longer buy food for my cows, they will not produce any more milk, and I cannot let my cows starve”. “The world is awash in milk, with global trade in whole milk powder at its lowest since 2011”, the U.S. Department of Agriculture says.

For the first seven months of 2015, American dairy exports were down 28%, compared with the same period in 2014, says the U.S. Dairy Export Council; the USDA expects purchases of whole milk powder by China, the world s biggest dairy importer, to drop 40% this year. The former No. 2 importer, Russia, has banned imports from not only the EU, but also the U.S. and Australia in retaliation for sanctions imposed to protest Russian intervention in Ukraine. “We don’t see any major recovery in sight”, says Pekka Pesonen, secretary general of Copa-Cogeca, a farm lobby in Brussels. The Brussels demonstrations were the culmination of a summer of unrest in the countryside. French farmers blockaded highways; their Lithuanian counterparts dumped 30 tons of milk to highlight their plight.

In the U.K. angry farmers raided supermarkets and emptied shelves of milk to pressure retailers including Wal-Mart Stores to commit to higher prices. Dairy farmers have been losing huge amounts of money, says Rob Harrison, an English farmer. China and Russia aren’t the only culprits. Record prices last year primed farmers to bolster output in the U.S., where milk production in 2015 will reach 208.7 billion pounds, the fifth consecutive record-setting year. In April the EU, seeking to liberalize trade, removed quotas that had been in place for the past 30 years, leading to increased production from Ireland, the Netherlands, and the U.K. China is producing more milk thanks to investments such as a $140 million, 20,000-cow facility that China Modern Dairy Holdings, partly owned by private equity firm KKR, unveiled in 2013. The Chinese are also consuming stockpiled milk powder and importing less. Global milk supply grew 3.7% last year, almost triple the growth rate of 2013, the USDA says.

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Food must be a local trade, not an international one.

Global Food Prices Hit Lowest Level In Over 6 Years (CNBC)

Global oversupply and concerns over China’s economic slowdown have knocked food commodity prices to the lowest level in over six years, the UN’s food body said on Thursday. The Food and Agriculture Organization of the UN’s trade-weighted food price index posted its steepest monthly drop in August since December 2008, falling to 155.7 points, its lowest level since April 2009. “In addition to ample supplies, a number of other factors contributed to the decrease, including the slump in energy prices and concerns about China’s economic slowdown and its negative consequences on the global economy and financial markets,” the organization said in an statement on Thursday. The index is a measure of the monthly change in international prices of a basket of five food commodities cereal, vegetable oil, dairy, meat and sugar.

Cereal prices were at their lowest level since June 2010 and the prices of milk powders, cheese and butter “dropped substantially.” Vegetable oil prices hit a March 2009 trough and sugar prices also fell on the previous month, hit by a falling Brazilian real and expectations that India will become a net exporter of the commodity. The only food commodity that didn’t see a fall was the price of meat, which remained virtually unchanged from the previous month. “International prices of ovine (sheep) meat moved up somewhat, while those for other types of meat were stable,” the UN said. “Nevertheless, compared to the index’s historic peak in August 2014, overall prices were down by 18%, with pig and ovine meat the most affected, although poultry and bovine meat quotations also slid markedly over the period.”

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