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Central Banks ARE The Crisis

Jul 252017
 
 July 25, 2017  Posted by at 1:31 pm Finance Tagged with: , , , , , , , , , ,  6 Responses »


Walter Langley Never morning wore to evening but some heart did break 1894

 

If there’s one myth -and there are many- that we should invalidate in the cross-over world of politics and economics, it‘s that central banks have saved us from a financial crisis. It’s a carefully construed myth, but it’s as false as can be. Our central banks have caused our financial crises, not saved us from them.

It really should -but doesn’t- make us cringe uncontrollably to see Bank of England governor-for-hire Mark Carney announce -straightfaced- that:

“A decade after the start of the global financial crisis, G20 reforms are building a safer, simpler and fairer financial system. “We have fixed the issues that caused the last crisis. They were fundamental and deep-seated, which is why it was such a major job.”

Or, for that matter, to see Fed chief Janet Yellen declare that there won’t be another financial crisis in her lifetime, while she’s busy-bee busy building that next crisis as we speak. These people are now saying increasingly crazy things, and that should make us pause.

Central banks don’t serve people, or even societies, as that same myth claims. They serve banks. Even if central bankers themselves believe that this is one and the same thing, that doesn’t make it true. And if they don’t understand this, they should never be let anywhere near the positions they hold.

You can pin the moment central banks went awry at any point in time you like. The Bank of England’s foundation in 1694, the Federal Reserve’s in 1913, the ECB much more recently. What’s crucial in the timing is where and when the best interests of the banks split off from those of their societies. Because that is when central banks will stop serving those societies. We are at such a -turning?!- point right now. And it’s been coming for some time, ‘slowly’ working its way towards an inevitable abyss.

Over the past few years the Automatic Earth has argues repeatedly, along several different avenues, that American society was at its richest between the late 1960s and early 1980s. Yet another illustration of this came only yesterday in a Lance Roberts graph:

 

 

Anyone see a recovery in there? Lance uses 1981 as a ‘cut-off’ date, but the GDP growth rate as represented by the dotted line doesn’t really begin to go ‘bad’ until 1986 or so. At the tail end of the late 1960s to early 1980s period, as the American economy was inexorably getting poorer, Alan Greenspan took over as Federal Reserve governor in 1987. A narrative was carefully crafted by and for the media with Greenspan as an ‘oracle’ or even a ‘rock star’, but in reality he has been instrumental in saddling the economy with what will turn out to be insurmountable problems.

Greenspan was a major driving force behind the repeal of Glass-Steagall, which was finally established through the Gramm-Leach-Bliley act of 1999. This was an open political act by the Federal Reserve governor, something that everyone should have then protested, and still should now, but didn’t and doesn’t. Central bankers should be kept far removed from politics, anywhere and everywhere, because they represent a small segment of society, banks, not society as a whole.

Because of the ‘oracle’ narrative, Greenspan was instead praised for saving the world. But all that Greenspan and his accomplices, Robert Rubin and Larry Summers, actually did in getting rid of the 1933 Glass-Steagall act separation between investment- and consumer banking was to open the floodgates of debt, and even more importantly, leveraged debt. All part of the ‘financial innovations’ Greenspan famously lauded for saving and growing economies. It was all just more debt on top of more debt.

 

 

Greenspan et al ‘simply’ did what central bankers do: they represent the best interests of banks. And the world’s central bankers have never looked back. That most people still find it hard to believe that America -and the west- has been getting poorer for the past 30-40 years, goes to show how effective the narratives have been. The world looks richer instead of poorer, after all. That this is exclusively because of rising debt numbers wherever you look is not part of the narratives. Indeed, ruling economic models and theories ignore the role played by both banks and credit in an economy, almost entirely.

Alan Greenspan left as Fed head in 2006, after having wreaked his havoc on America for almost two decades, right before the financial crisis that took off in 2007-2008 became apparent to the world at large. The crisis was largely his doing, but he has escaped just about all the blame for it. Good PR.

With Ben Bernanke, an alleged academic genius on the Great Depression, as Greenspan’s replacement, the Fed just kept going and turned it up a notch. It was no longer possible in the financial world to pretend that banks and people had the same interests, so the former were bailed out at the expense of the latter. The illusionary narrative for the public, however, remained intact. What do people know about finance, anyway? Just make sure the S&P goes up. Easy as pie.

The narrative has switched to Bernanke, and Yellen after him, as well as Mario Draghi at the ECB and Haruhiko Kuroda at the Bank of Japan, saving the world from doom. But once again, they are the ones who are creating the crisis, not the ones saving us from it. They are saving the banks, and saddling the people with the costs.

In the past decade, these central bankers have purchased $20-$50 trillion in bonds, securities and stocks. The only intention, and indeed the only result, is to keep banks from falling over, increase their profits, and maintain the illusion that economies are recovering and growing.

They can only achieve this by creating bubbles wherever they can. Apart from the QE programs under which they bought all those ‘assets’, they used -and still do- another tool: lowering interest rates to the point where borrowing money becomes so cheap everyone can do it, and then do it some more. It has worked miracles in blowing stock market valuations out of all realistic proportions, and in doing the same for housing markets in locations all over the globe.

The role of China’s central bank in this is interesting too, but it is such an open and obvious political tool that it really deserves its own discussion and narrative. Basically, Beijing did what it saw Washington do and thought: why hold back?

 

Fast forward to today and we see that we’ve landed in a whole new, and next, phase of the story. The world’s central banks are all stuck in their own – self-created – bubbles and narratives. They all talk about how they solved all the issues, and how they will now return to normal, but the sad truth is they can’t and they know it.

The Fed stopped purchasing assets through its QE program a while back, but it could only do that because Frankfurt and Japan took over. And now they, too, talk about quitting QE. Slowly, yada yada, because of control, yada yada, but they know they must. They also know they can’t. Because the entire recovery narrative is a mirage, a fata morgana, a sleight of hand.

And that means we have arrived at a point that is new and very dangerous for the entire global economy and all of its people.

 

That is, the world’s central bankers now have an incentive to create the next crisis. This is because they know this crisis is inevitable, and they know their masters and protégés, the banks, risk suffering immensely or even going under. ‘Tapering’, or whatever you might call the -slow- end to QE and the -slow- hiking of interest rates, will prick and blow up bubbles one by one, and often in violent fashion.

When housing bubbles burst, economies lose the primary ingredient for maintaining -let alone increasing- their money supply: banks creating money out of thin hot air. Since the money supply is one of the key components of inflation, along with velocity of money, there will be fantastic outbursts of debt deflation. You’ve never seen -let alone imagined- anything like it.

The worst part of it is not government debt, though that, when financed with bond sales, is not not an instrument to infinity and beyond either. But the big hit to economies will be private debt. Where in many bubble areas, and they’re too numerous too mention, eager potential buyers today fret over affordable housing supply, it’ll all turn on a dime and owners won’t be able to sell without being suffocated by crippling losses.

Pension funds, which have already suffered perhaps more than any other parties because of low interest ZIRP and NIRP policies, have switched en masse to riskier assets like stocks. Well, another whammy, and a bigger one, is waiting just outside the door. Pensions will be so last century.

 

That another crisis is waiting to happen, and that politics and media have made sure that just about no-one at all is aware of it, is one thing. We already knew this, a few of us. That the world’s main central bankers have an active incentive to bring about the crisis, if only by sitting on their hands long enough, is new. But they do.

Yellen, Draghi and Kuroda may opt to leave before pulling the trigger, or be fired soon enough. But whoever is in the governor seats will realize that unleashing a crisis sooner rather than later is the only option left not to be blamed for it. Let the house of dominoes crumble now, and they can say “nobody could have seen this coming”, while at the same time saving what they can for the banks and bankers they serve. That option will not be on the table for much longer.

We should have never given them, let alone their member/master banks, the power to conjure up trillions out of nothing, and use that power as a political tool. But it is too late now.

 

 

I read the news today, oh boy

Jul 182017
 
 July 18, 2017  Posted by at 1:03 pm Finance Tagged with: , , , , , , ,  11 Responses »


Hieronymus Bosch Ascent of the Blessed c1510

 

Reading the news on America should scare everyone, and every day, but it doesn’t. We’re immune, largely. Take this morning. The US Republican party can’t get its healthcare plan through the Senate. And they apparently don’t want to be seen working with the Democrats on a plan either. Or is that the other way around? You’d think if these people realize they were elected to represent the interests of their voters, they could get together and hammer out a single payer plan that is cheaper than anything they’ve managed so far. But they’re all in the pockets of so many sponsors and lobbyists they can’t really move anymore, or risk growing a conscience. Or a pair.

What we’re witnessing is the demise of the American political system, in real time. We just don’t know it. Actually, we’re witnessing the downfall of the entire western system. And it turns out the media are an integral part of that system. The reason we’re seeing it happen now is that although the narratives and memes emanating from both politics and the press point to economic recovery and a future full of hope and technological solutions to all our problems, people are not buying the memes anymore. And the people are right.

Tyler Durden ran a Credit Suisse graph overnight that should give everyone a heart attack, or something in that order. It shows that nobody’s buying stocks anymore, other than the companies who issue them. They use ultra-cheap leveraged loans to make it look like they’re doing fine. Instead of using the money/credit to invest in, well, anything, really. You can be a successful US/European company these days just by purchasing your own shares. How long for, you ask?

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.” What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

Why this rush by companies to buyback their own stock, and in the process artificially boost their Earning per Share? There is one very simple reason: as Reuters explained some time ago, “Stock buybacks enrich the bosses even when business sags.” And since bond investor are rushing over themselves to fund these buyback plans with “yielding” paper at a time when central banks have eliminated risk, who is to fault them.

More concerning than the unprecedented coordinated buybacks, however, is not only the relentless selling by institutions, but the persistent unwillingness by “households” to put any new money into the market which suggests that the financial crisis has left an entire generation of investors scarred with “crash” PTSD, and no matter what the market does, they will simply not put any further capital at risk.

In other words, the system doesn’t only keep zombies alive, making it impossible for anyone to see who’s healthy or not, no, the system itself has become a zombie. The article mentions Blackrock’s Larry Fink talking about ‘cash on the sidelines’, but puhlease… Central banks have injected another $2 trillion into the zombie system this year alone, and that gives you that graph. Basically no-one supposedly on the sideline has a penny left.

So that’s your stock markets. Let’s call it bubble no.1. Another effect of ultra low rates has been the surge in housing bubbles across the western world and into China. But not everything looks as rosy as the voices claim who wish to insist there is no bubble in [inject favorite location] because of [inject rich Chinese]. You’d better get lots of those Chinese swimming in monopoly money over to your location, because your own younger people will not be buying. Says none other than the New York Fed.

Student Debt Is a Major Reason Millennials Aren’t Buying Homes

College tuition hikes and the resulting increase in student debt burdens in recent years have caused a significant drop in homeownership among young Americans, according to new research by the Federal Reserve Bank of New York. The study is the first to quantify the impact of the recent and significant rise in college-related borrowing—student debt has doubled since 2009 to more than $1.4 trillion—on the decline in homeownership among Americans ages 28 to 30. The news has negative implications for local economies where debt loads have swelled and workers’ paychecks aren’t big enough to counter the impact. Homebuying typically leads to additional spending—on furniture, and gardening equipment, and repairs—so the drop is likely affecting the economy in other ways.

As much as 35% of the decline in young American homeownership from 2007 to 2015 is due to higher student debt loads, the researchers estimate. The study looked at all 28- to 30-year-olds, regardless of whether they pursued higher education, suggesting that the fall in homeownership among college-goers is likely even greater (close to half of young Americans never attend college). Had tuition stayed at 2001 levels, the New York Fed paper suggests, about 360,000 additional young Americans would’ve owned a home in 2015, bringing the total to roughly 2.9 million 28- to 30-year-old homeowners. The estimate doesn’t include younger or older millennials, who presumably have also been affected by rising tuition and greater student debt levels.

Young Americans -and Brits, Dutch etc.- get out of school with much higher debt levels than previous generations, but land in jobs that pay them much less. Ergo, at current price levels they can’t afford anything other than perhaps a tiny house. Which is fine in and of itself, but who’s going to buy the existent McMansions? Nobody but the Chinese. How many of them would you like to move in? And that’s not all. Another fine report from Lance Roberts, with more excellent graphs, puts the finger where it hurts, and then twists it around in the wound a bit more:

People Buy Payments –Not Houses- & Why Rates Can’t Rise

Over the last 30-years, a big driver of home prices has been the unabated decline of interest rates. When declining interest rates were combined with lax lending standards – home prices soared off the chart. No money down, ultra low interest rates and easy qualification gave individuals the ability to buy much more home for their money. The problem, however, is shown below. There is a LIMIT to how much the monthly payment can consume of a families disposable personal income.

In 1968 the average American family maintained a mortgage payment, as a percent of real disposable personal income (DPI), of about 7%. Back then, in order to buy a home, you were required to have skin in the game with a 20% down payment. Today, assuming that an individual puts down 20% for a house, their mortgage payment would consume more than 23% of real DPI. In reality, since many of the mortgages done over the last decade required little or no money down, that number is actually substantially higher. You get the point. With real disposable incomes stagnant, a rise in interest rates and inflation makes that 23% of the budget much harder to sustain.

In 1968 Americans paid 7% of their disposable income for a house. Today that’s 23%. That’s as scary as that first graph above on the stock markets. It’s hard to say where the eventual peak will be, but it should be clear that it can’t be too far off. And Yellen and Draghi and Carney are talking about raising those rates.

What Lance is warning for, as should be obvious, is that if rates would go up at this particular point in time, even a lot less people could afford a home. If you ask me, that would not be so bad, since they grossly overpay right now, they pay full-throttle bubble prices, but the effect could be monstrous. Because not only would a lot of people be left with a lot of mortgage debt, and we’d go through the whole jingle mail circus again, yada yada, but the economy’s main source of ‘money’ would come under great pressure.

Don’t let’s forget that by far most of our ‘money’ is created when private banks issue loans to their customers with nothing but thin air and keyboard strokes. Mortgages are the largest of these loans. Sink the housing industry and what do you think will happen to the money supply? And since inflation is money velocity x money supply, what would become of central banks’ inflation targets? May I make a bold suggestion? Get someone a lot smarter than Janet Yellen into the Fed, on the double. Or, alternatively, audit and close the whole house of shame.

We’ve had bubbles 1, 2 and 3. Stocks, student debt and housing. Which, it turns out, interact, and a lot. An interaction that leads seamlessly to bubble 4: subprime car loans. Mind you, don’t stare too much at the size of the bubbles, of course stocks and housing are much bigger issues, but focus instead on how they work together. As for the subprime car loans, and the subprime used car loans, it’s the similarity to the subprime housing that stands out. Like we learned nothing. Like the US has no regulators at all.

Fears Mount Over a New US Subprime Boom – Cars

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis.

But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo. Few things capture this phenomenon like the partnership between Fiat Chrysler and Banco Santander. [..] Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s.

If it’s alright with you, we’ll deal with the other main bubble, no.5 if you will, another time. Yeah, that would be bonds. Sovereign, corporate, junk, you name it. The 4 bubbles we’ve seen so far are more than enough to create a huge crisis in America. Don’t want to scare you too much all at once. Just you read the news again tomorrow. There’ll be more. And the US Senate is not going to do a thing about it. They’re too busy not getting enough votes for other things.

 

 

 

 

Debt Rattle May 4 2017

May 042017
 
 May 4, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »


Fred Stein Americans All 1943

 

• “We Have Enough Votes”: House To Vote Thursday To Repeal Obamacare (ZH)
• Democrats, Not Trump, Are Driving Policy (BBG)
• Corporate Insiders Are Unloading Their Stocks Like There’s No Tomorrow (Lang)
• The Coming Collapse In US Auto Sales (F.)
• Fed to Markets: June Rate Hike Coming Your Way (CNBC)
• Rickards Says Fed Raising Into Weakness, Recession Due By Summer (BBG)
• 57% Of Australians Couldn’t Handle $100 A Month Rise In Mortgage Payments (G.)
• Kyle Bass Warns “All Hell Is About To Break Loose” In China (ZH)
• PIMCO Warns “Brace For Lower Growth” From A Less ‘Impulsive’ China (ZH)
• Do Tax Cuts Pay For Themselves? (MW)
• The Economics of the Future (Michael Hudson)
• UK PM May Accuses EU of Brexit Threats and Election Interference (CNBC)
• Le Pen Tirade Meets Logic of Macron in Brutal French TV Duel
• Universal Basic Income is Not “Free Money” (Santens)
• The Brothers Fighting For Indebted Greek Homeowners (AP)

 

 

The whole thing oozes cynicism.

• “We Have Enough Votes”: House To Vote Thursday To Repeal Obamacare (ZH)

The Republicans are giving Obamacare repeal another try, and this time they may succeed. Just a few hours after we reported that “Obamacare repeal suddenly looks possible” when two key Republicans – Fred Upton and Billy Long – flipped and decided to support the GOP healthcare bill, leading to immediate speculation the bill has enough support, the WSJ reported that House Majority Leader Kevin McCarthy told reporters Wednesday evening the House will vote on Thursday on the Republican bill to replace most of Obamacare: “we will be voting on the health-care bill tomorrow because we have enough votes.” When asked by a reporter about whether the bill would have to be pulled from the floor again for lack of support, McCarthy replied: “Would you have confidence? We’re going to pass it. We’re going to pass it. Let’s be optimistic about life.”

McCarthy also cited an insurer pulling out of the ObamaCare exchanges in Iowa Wednesday as a reason the law needs to be quickly repealed. “That’s why we have to make sure this passes. To save these people from ObamaCare, which continues to collapse.” And so just like at the end of March, when the GOP was confident it had whipped enough names, only to pull the vote in the last moment, the announcement once again sets up a high-stakes vote that is expected to come down to the wire. The House GOP bill, if passed, would roll back much of the 2010 health-care law, replacing its subsidies with a system of tax credits largely tied to age. Until Wednesday, Republican leaders had struggled to secure the 216 votes they need to pass the bill, which is expected to receive no Democratic support.

They pulled the bill from the floor in late March, when conservatives and centrists defected and it became clear the legislation didn’t have the support to pass. Last week, GOP leaders also opted not to vote on the bill ahead of Trump’s first 100 days in office. [..] in pulling yet another page from the Democrats’ playbook, the House will pass the vote first before finding out what’s in it: the vote will take place without waiting for a new Congressional Budget Office analysis of Upton’s changes or the amendment from Rep. Tom MacArthur that won over the House Freedom Caucus. That analysis will eventually provide the details of the bill’s effects on coverage and its cost. For now however, Republicans are just scrambling to take advantage of this rare moment of agreement and get something finally done.

Read more …

What’s so cynical: trying to break Democrats’ power by pushing through a half-baked bill.

• Democrats, Not Trump, Are Driving Policy (BBG)

Enough about Donald Trump’s first 100 days. On the 101st day, Congress came to a rare bipartisan agreement funding the federal government through September. This showed who really holds power in the Trump era: Democrats. After last November’s election, when Republicans had consolidated power and held both chambers of Congress as well as the White House, the question was who would be driving policy. Would it be the Trump administration, perhaps led by populist mastermind Steve Bannon? Would it be House Speaker Paul Ryan, a man with a reputation as a policy wonk with a vision for government? Would it be the ideological House Freedom Caucus, demanding that the new Republican-led government live up to the promises the party made to its base during the Obama years? All have tried to lead at some point this year, but the recently agreed-upon budget deal shows that instead, it’s Democrats who appear to be in charge.

Democrats have the leverage in Washington now because Republicans haven’t figured out how to govern on their own. The first Republican attempt at legislation was Paul Ryan’s American Health Care Act. That failed in part because it didn’t repeal Obamacare as the House Freedom Caucus insisted. The Trump administration tried to influence the legislative agenda by putting forth its budget blueprint in mid-March, which included draconian cuts to various departments. Yet the only parts of that budget that made it into the final agreement were modest spending increases for defense spending and border security, without any of the corresponding cuts. This happened because Republicans couldn’t come to an agreement on the budget on their own, meaning Democratic votes were needed for passage, and Democrats wouldn’t sign on to anything with big spending cuts.

[..]The emerging view may be that Trump just wants to sign legislation that he can take credit for, regardless of the substance of the bills. After all, he’s on the verge of signing a government funding bill that’s more in line with Democratic priorities than his own. Since he hasn’t been willing to stand up for any of his or his party’s policy priorities so far, should Democrats retake the House in 2018, there’s no reason to think he wouldn’t sign legislation passed by Democrats in the House if it makes it to his desk. On policy, the author of “The Art of the Deal” doesn’t seem to have any policy deal-breakers. A president without any fixed policy vision or breaking points is no authoritarian. He makes the legislature more powerful than it’s been in decades. If Republicans can’t come to internal agreement on major legislation, and Democrats are the ones with leverage, then complete inaction might become a best-case scenario for the GOP.

Read more …

“The people who would stand to lose the most if the markets crashed [..] are all jumping ship and selling their stocks.”

• Corporate Insiders Are Unloading Their Stocks Like There’s No Tomorrow (Lang)

There aren’t any surefire ways to tell if the stock market, and perhaps the rest of the economy, is about to take a nosedive. That’s because millions of people with millions of ideas are involved, so it’s an inherently unpredictable system. However, there are certain players in our economy that have a lot more influence and insider knowledge than the rest of us. So when they make a move in unison, you know there’s a good chance that something is about to go down. And that’s exactly what’s going on with the stock market right now. The people who would stand to lose the most if the markets crashed; the corporate executives and insiders, are all jumping ship and selling their stocks.

“As the investing public has continued to devour stocks, sending all three major indexes to record highs in the last few months, corporate insiders have been offloading shares to an extent not seen in seven years.”Selling totaled $10 billion in March, according to data compiled by Trim Tabs. It’s a troubling trend facing an equity market that’s already grappling with its loftiest valuations since the 2000 tech bubble. If the people with the deepest knowledge of a company are cashing out, why should investors keep buying at current prices? The groundswell of insider selling has the attention of Brad Lamensdorf, portfolio manager at Ranger Alternative Management, and he doesn’t like what he sees. “This is definitely a negative sign,” Lamensdorf wrote in his April newsletter. “They do not see value in their own companies!”

And this isn’t a recent trend. While ordinary investors were optimistically diving into the stock market after Trump was elected, these people were dumping their stocks as far back as February. “Chief executives and other corporate insiders are selling stock hand over fist now that the quarterly earnings season is over, a report from Vickers Weekly Insider shows. Transactions by insiders are restricted around a company’s report. “Insider selling has jumped again, and this time to levels rarely seen,” analyst David Coleman wrote in Monday’s note.”

Read more …

A useful term: “Pent Down Demand”

• The Coming Collapse In US Auto Sales (F.)

Automobiles are not moving off the parking lot. That’s according to an industry report that showed a sharp decline in auto sales across all auto makers—see table. Meanwhile industry inventories have been climbing up from an average of 55 days back in April of 2015 to 70 days last month. Coming after months of sluggish sales and generous incentives, the big drop in April sales could be a sign of an impending collapse which could parallel that of 2008-9. There’s a compelling reason for that: pent down demand, which for years has been “stealing” sales from the future. Now the future has arrived and pent down demand is bad for auto makers, their investors and the economy as a whole.

To get an idea how “pent down demand” (my own term) works, a good place to begin with is the more familiar concept of pent up demand, the lack of current demand for discretionary items like automobiles, home appliances, etc., which depresses sales of these items in the short run. Pent up demand usually appears before a period of consumer euphoria, when consumers choose to push spending on discretionary items to a future date, due to lower price expectations, depressed consumer confidence, or a credit crunch. And it disappears together with these conditions when that future day comes, and consumers rush to buy the items they put off in the past.

In contrast, pent down demand appears after a period of consumer euphoria when consumers choose to move spending on discretionary items from a future date into the present day, due to low cost of financing — which blurs the distinction between present and future. Why wait to buy a new car or a new home appliance next year when you can have it this year, paying a small penalty for this privilege? Simply put, ultra-low interest rates help “steal” sales from the future, creating market saturation, and eventually depress spending on “high ticket” items when the future becomes present. That’s what happened in the six years that preceded the 2008-9 collapse in US auto sales. Consumers rushed to take advantage of “zero percent” financing to purchase cars they would normally buy years later.

That’s how automobile sales grew from an average of 15 million in the 1980s and the 1990s to 17 million in the first six years of 2000s, before they tumbled during the Great Recession. Nonetheless, the Federal Reserve and other central bankers around the world didn’t take notice of the impact of pent down demand on future growth. They upped their ultra-low interest rate policies, refueling pent down demand again (automobile sales are above the pre-Great Recession levels). Compounding the problem, pent down demand is exacerbated by debt – a lot of debt – amassed on top of the old debt, which fueled the bubble that preceded the Great Recession. This was documented by a McKinsey report—US auto loans have crossed $1 trillion lately.

Read more …

Locked in to their own fantasies.

• Fed to Markets: June Rate Hike Coming Your Way (CNBC)

As expected, the Fed gave a nod to a temporary weakness in the economy and signaled it is still moving ahead with policy tightening. “They’re looking past the first-quarter weakness. They are laying the groundwork for a June rate hike, in my opinion,” said Peter Boockvar, chief market analyst at Lindsey Group. Fed funds futures indicated just about a 75% chance of a June interest-rate hike, up about 5 percentage points after the announcement, according to Michael Schumacher, head of rates strategy at Wells Fargo Securities. “It seems pretty optimistic. … There’s no big difference between this statement and the last one. The comment that they are ignoring weak first-quarter growth is the big thing. There’s nothing really changed in their path,” Schumacher said.

First-quarter growth grew at a weak 0.7%, but economists expect a bounce back and some see growth over 3%. The Fed acknowledged the softness in its statement. “The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2% over the medium term,” they wrote. [..] The statement did not mention changes to the Fed’s balance sheet, which officials were expected to have discussed at length during the two-day meeting. That discussion should be revealed in the minutes of the meeting, expected to be released May 24.

Instead, the Fed noted in its statement that it was maintaining its strategy of balance sheet reinvestment, meaning it replaces securities as they roll down. The Fed has forecast two more rate hikes this year, and many strategists expect it to tackle its balance sheet after those moves. The Fed has said it would like to begin shrinking its balance sheet as early as this year. Many market pros expect some action on the balance sheet around the December meeting or in early 2018, after it raises interest rates in June and September.

Read more …

Rickards’ been saying for a while that the Fed wouldn’t be able to help itself.

• Rickards Says Fed Raising Into Weakness, Recession Due By Summer (BBG)

Read more …

A quarter are in mortgage stress already.

• 57% Of Australians Couldn’t Handle $100 A Month Rise In Mortgage Payments (G.)

The burden of housing costs is biting even in Australia’s wealthiest suburbs as an unprecedented one in four households nationally face mortgage stress, according to the latest in a 15-year series of analyses. Households in Toorak and Bondi, prestigious pockets of affluence in Australia’s biggest cities, have made the list of those struggling to meet repayments amid rising costs and stagnating wages, research firm Digital Finance Analytics has found. The firm’s principal, Martin North, said it was surprising new evidence showed that financial distress from property price surges reached beyond “the battlers and the mortgage belt” and was a “much broader and much more significant problem”. The survey, which analyses real cash flows against mortgage repayments, finds more than 767,000 households or 23.4% are now in mortgage stress, which means they have little or no spare cash after covering costs.

This includes 32,000 that are in severe stress, meaning they cannot cover repayments from current income. The firm predicts that almost 52,000 households will probably default on mortgages over the next year. Risk hotspots include Meadow Springs and Canning Vale in Western Australia, Derrimut and Cranbourne in Victoria, and Mackay and Pacific Pines in Queensland. Overall, New South Wales and Victoria, whose capital cities have seen a recent surge in home prices, accounted for more than half the probable defaults (270,000) and households in mortgage distress (420,000). North said the numbers were “an early indicator of risk in the system”. The underlying drivers were “flat or falling wage growth”, much faster rising living costs and the likelihood mortgage interest payments would only go up.

Widespread mortgage burdens were limiting spending elsewhere and “sucking the life out of the economy”, and the problem should be addressed to head off a housing crash and its repercussions, North said. North is not alone in highlighting household vulnerability. The Reserve Bank of Australia’s financial stability review last month observed one-third of Australian borrowers had little or no mortgage “buffer”, which North said was “the first time they’ve ever admitted it”. Finder.com last week found 57% of mortgagees could not handle a rise of $100 or more in monthly repayments. “The surprising thing is that people in Bondi in NSW, for example, or even young affluents who have bought down in Toorak in Victoria are actually on the list [of mortgage stressed],” North said.

Read more …

“As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose..”

• Kyle Bass Warns “All Hell Is About To Break Loose” In China (ZH)

China's credit system expanded "too recklessly and too quickly," and "it's beginning to unravel," warns Hayman Capital's Kyle Bass. Crucially, Bass notes that ballooning assets in Chinese wealth management products are another sign of a looming credit crisis in the nation.

"Some of the longer-term assets aren't doing very well," Bass said on Bloomberg TV from the annual Milken Institute Global Conference in Beverly Hills, California. "As soon as liabilities have problems – meaning the depositors decide to not roll their holdings – all hell breaks loose."

The wealth management products, or WMPs, have swelled to $4 trillion in assets in the last few years, he said., on a $34 trillion banking system…

"think about this – in the US, our asset-liability mismatch at the peak of our subprime greatness was around 2%! … China's mismatch is more than 10% of the system."

Must Watch simplification of the next stage of the credit cycle in China…

Timing the drop is hard, Bass notes, reminding Bloomberg's Erik Schatzker that "in the US, the first bumps in the road hit in early 2007, and we didn't start to really accelerate until mid 2008… even a large unraveling takes a while."Bass has been sounding the alarm for some time that debt-burdened Chinese banks need to be restructured…

"What you see when the liquidity dries up is people start going down… and this is the beginning of the Chinese credit crisis."

And judging by the collapse in both Chinese stocks and bonds, the deleveraging is accelerating…

 

And liquidity is getting desperate again…

Read more …

China=Debt.

• PIMCO Warns “Brace For Lower Growth” From A Less ‘Impulsive’ China (ZH)

In the company’s blog, PIMCO’s Gene Fried echoes everything we have said and write that following the defeat of the new U.S. healthcare bill, investors have begun to rethink the likely time frame and extent of the Trump administration’s other top priorities, such as fiscal stimulus. Equity markets stalled and bonds rallied as investors toned down their expectations for global reflation recently. None of this is horribly surprising, but by focusing so intensely on U.S. political developments, investors risk missing a silent shift in what has arguably been the strongest driver of global reflation in the last five years: Chinese credit. This driver is now moving sharply in reverse. China’s “credit impulse,” the change in the growth rate of aggregate credit to GDP, bears close watching: It has tended to lead the Chinese manufacturing Purchasing Managers’ Index (PMI) by a year (see Figure 1) and the U.S. Institute for Supply Management’s (ISM) manufacturing index by 14 months.

The relevance of the Chinese credit impulse to global reflation cannot be overstated (see Figure 2). China’s massive credit stimulus starting in 2014 initially put a floor under commodity prices and emerging market (EM) growth. Then, the unexpected acceleration in Chinese real estate investment drove both commodity prices and volume demand higher. EM growth subsequently bounced, and with it, global trade volumes. The key driver of realized global reflation, then, has been China – not the promise of fiscal stimulus and deregulation that has helped boost confidence and other soft data in the U.S.

When will China’s credit drop affect growth? The sharp downturn in the Chinese credit impulse starting in 2016 portends a material drag on Chinese growth in the year ahead. Looking back on the past three years, the Chinese credit impulse turned positive sometime between late 2014 and mid-2015. Given China’s exchange rate volatility in August 2015, it took longer than normal for credit to gain traction. The Chinese credit impulse peaked in March 2016 and slowed sharply after the second quarter. It is only now that the impact of that reduced stimulus should be felt. PIMCO has already factored credit-related drag into its Chinese growth outlook, but the decline in the credit impulse has been sharper and more extreme than many expected.

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Unanswerable question.

• Do Tax Cuts Pay For Themselves? (MW)

Forty-three years after economist Arthur Laffer sketched a pictorial representation of individuals’ response to changes in income tax rates, economists still can’t agree if tax cuts pay for themselves: entirely, in part, or not at all. In a capitalist system, a tax rate of 0% or a tax rate of 100% will yield no revenue for the government: in the first instance, because there is no tax levied on labor income; in the second, because there is no labor income to tax because most of us would refuse to work without compensation. The Laffer Curve is an attempt to describe the optimal tax rate, or the rate that maximizes revenue. As with most economic theories nowadays, the idea that tax cuts pay for themselves has been politicized. Many conservatives take an oath of fealty to supply-side economics, an offshoot of the Laffer Curve: the idea that lower tax rates act as an incentive to work and produce, lifting economic growth and tax revenue.

Supply-siders don’t differentiate between the potential effect of large reductions in the top marginal tax rate — from 91% (1950s) to 70% (1960s) to 28% (1980s) — and that of President Donald Trump’s proposed modest cut from 39.6% to 35% for top earners. Liberals, on the other hand, love to quote George H.W. Bush’s assessment of supply-side theory — at least until he became Ronald Reagan’s running mate — as “voodoo economics.” “Tax cuts for the rich” is another favorite derogatory moniker, which is an accurate description but one that is taboo for believers. The basic premise underlying supply-side economics is sound: Tax something less, and you will get more of it. Tax something more, and you will get less of it. Think hefty cigarette taxes, designed to deter cancer-causing tobacco use. It’s the application that goes astray.

The income tax is a tax on labor. According to supply-siders, if you raise marginal tax rates, individuals will work less. And if you cut rates, they will work more. Who except the rich is in a position to forgo take-home pay, even if it is taxed at a higher rate? Households with both parents working, struggling to make ends meet, can’t sacrifice one salary. That’s the dirty little secret of supply-side economics that its advocates never mention. It’s the rich who are able respond to changes in marginal tax rates. And yes, they are the ones likely to start a new business and create jobs. Theory aside, why don’t we know what the effect of tax cuts is on economic output and federal revenue? Economists of both political persuasions are eager to tout their findings, both in support of and as a challenge to supply-side economics.

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Hopefully I should be getting Steve’s book today. Everyone should read it.

• The Economics of the Future (Michael Hudson)

At first glance Steve Keen’s new book Can We Avoid Another Financial Crisis? seems too small-sized at 147 pages. But like a well-made atom-bomb, it is compactly designed for maximum reverberation to blow up its intended target. Explaining why today’s debt residue has turned the United States, Britain and southern Europe into zombie economies, Steve Keen shows how ignoring debt is the blind spot of neoliberal economics – basically the old neoclassical just-pretend view of the world. Its glib mathiness is a gloss for its unscientific “don’t worry about debt” message. Blame for today’s U.S., British and southern European inability to achieve economic recovery thus rests on the economic mainstream and its refusal to recognize that debt matters.

Mainstream models are unable to forecast or explain a depression. That is because depressions are essentially financial in character. The business cycle itself is a financial cycle – that is, a cycle of the buildup and collapse of debt. Keen’s “Minsky” model traces this to what he has called “endogenous money creation,” that is, bank credit mainly to buyers of real estate, companies and other assets. He recently suggested a more catchy moniker: “Bank Originated Money and Debt” (BOMD). That seems easier to remember. The concept is more accessible than the dry academic terminology usually coined. It is simple enough to show that the mathematics of compound interest lead the volume of debt to exceed the rate of GDP growth, thereby diverting more and more income to the financial sector as debt service.

Keen traces this view back to Irving Fisher’s famous 1933 article on debt deflation – the residue from unpaid debt. Such payments to creditors leave less available to spend on goods and services. In explaining the mathematical dynamics underlying his “Minsky” model, Keen links financial dynamics to employment. If private debt grows faster than GDP, the debt/GDP ratio will rise. This stifles markets, and hence employment. Wages fall as a share of GDP. This is precisely what is happening. But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla), who insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks. It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”

[..] By being so compact, this book is able to concentrate attention on the easy-to-understand mathematical principles that underlie the “junk economics” mainstream. Keen explains why, mathematically, the Great Moderation leading up to the 2008 crash was not an anomaly, but is inherent in a basic principle: Economies can prolong the debt-financed boom and delay a crash simply by providing more and more credit, Australia-style. The effect is to make the ensuing crash worse, more long-lasting and more difficult to extricate. For this, he blames mainly Margaret Thatcher and Alan Greenspan as, in effect, bank lobbyists. But behind them is the whole edifice of neoliberal economic brainwashing.

Keen attacks this “neoclassical” methodology by pointing at the logical fallacy of trying to explain society by looking only at “the individual.” That approach and its related “series of plausible but false propositions” blinds economics graduates from seeing the obvious. Their discipline is the product of ideological desire not to blame banks or creditors, wrapped in a libertarian antagonism toward government’s role as economic regulator, money creator, and financer of basic infrastructure.

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The EU really cares.

• UK PM May Accuses EU of Brexit Threats and Election Interference (CNBC)

U.K. Prime Minister Theresa May has accused the EU of not wanting Brexit negotiations to be a success, as tensions between both sides escalate ahead of official talks. “The events of the last few days have shown that – whatever our wishes, and however reasonable the positions of Europe’s other leaders – there are some in Brussels who do not want these talks to succeed,” May said Wednesday afternoon outside Downing Street. Her comments follow media reports that the EU’s Commission President Jean-Claude Juncker left London “10 times more skeptical” than he was before after a dinner with Prime Minister May last week. Their meeting has been described in the press as a disaster with both leaders clashing over key negotiating issues.

Earlier on Wednesday, Juncker described May as a “tough woman”. May has said that she will be a “bloody difficult woman” during Brexit talks. Speaking outside Downing Street, the head of the Conservative party went further and accused the European Union of wanting to interfere in the upcoming general election. “Britain’s negotiating position in Europe has been misrepresented in the continental press. The European Commission’s negotiating stance has hardened.Threats against Britain have been issued by European politicians and officials. All of these acts have been deliberately timed to affect the result of the general election that will take place on 8 June,” the prime minister said.

Read more …

I watched parts of the debate, nothing brutal about it, just politics. Le Pen’s logic seems pretty solid: “France will be run by a woman whatever happens,” Le Pen said. “Either by me or by Mrs. Merkel.”

• Le Pen Tirade Meets Logic of Macron in Brutal French TV Duel

Marine Le Pen unleashed a barrage of attacks on her presidential rival Emmanuel Macron as she tried to close a gap of some 20 percentage points in the only head-to-head debate of the French election campaign. Le Pen, 48, said her centrist opponent was the candidate of the capitalist elite, and a friend to terrorists, who planned to shut down factories, schools and hospitals. Macron said Le Pen’s broadsides against state bodies meant she was unfit to lead the country as she struggled to defend her plans to leave the euro. “You have threatened public employees,” Macron, 39, said as his opponent chuckled on the other side of the table during the almost three-hour debate Wednesday night. “Your words show that you are not worthy to be the defender of our institutions.”

A snap survey of 1,314 likely voters by polling firm Elabe showed that 63 percent of respondents rated Macron as the winner and 34 percent picked Le Pen. With just three days to go before French voters settle the most turbulent election in the country’s modern history, Le Pen argued for new border restrictions to protect the French people from foreign competition and terrorism, and an exit from euro, reversing 60 years of European integration. The clash was brutal from the get-go, and the general consensus from commentators was that it wasn’t a particularly dignified debate. “It was like a schoolyard brawl,” said Emmanuel Riviere, managing director of pollster Kantar Public France. “The candidates went straight for the jugular. Le Pen started it. But Macron also played his part.”

Both candidates justified the nasty tone on Thursday. “It was severe, but that’s because for the first time ever the French have a real choice,” Le Pen said on RMC Radio. “Before, the candidates agreed on everything. I want to wake up the French people.” [..] She told him he’d traveled to Berlin to get the blessing of German Chancellor Angela Merkel for his policy plans, playing on French concerns that their country plays second fiddle within the European Union. “France will be run by a woman whatever happens,” Le Pen said. “Either by me or by Mrs. Merkel.”

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“..your just and due compensation as part of this interdependent system we call society. We are all stakeholders in it.”

• Universal Basic Income is Not “Free Money” (Santens)

Let’s say the cost to produce a widget is $1. What’s the cost to produce 1 million widgets? This may sound like an extremely simple word problem that even some preschoolers could solve. However, if you think the answer is $1 million, you would be entirely wrong. The cost to produce 1 million widgets is far below $1 million thanks to the savings inherent in mass production. It’s a lot cheaper per something to make a lot of something, than it is to create one of it, or even a few. A couple secondary understandings extend themselves as a result of this primary understanding. First, it’s wrong to assume that providing people with more money will necessitate rising prices. Increased demand can lead to greatly increased production, which then leads to lower prices. Just how much production can be ramped up in response to increased demand is a key factor in price determination.

Where supply cannot be increased, and therefore more money is chasing the same amount of goods, price increases can be expected. Where supply can be greatly or even infinitely increased, lower prices can be expected, especially where true competition exists. Second, and I find this point extremely compelling and the real point of this post, is a recognition of our interdependence, and the collective debt we owe each other. Take whatever device you’re reading these words on as a prime example. Whatever its cost to you, it only cost that because millions of others like you expressed their demand for the same device. Without everyone else, that device would have cost you ten times, a hundred times, or even a thousand times more than it would have to create just one, just for you. In other words, we all subsidize each other.

[..] In Alaska, Alaskans are paid on average about $1000 per year for being an Alaskan. Why? Because the oil companies didn’t make the oil in Alaska. They’re merely bringing it up out of the ground and processing it. The oil is considered owned by all Alaskans, and so they should as owners see some of the revenue generated by its sale. Now apply this logic to the rest of what was not created by humankind. Apply it to what is not created by any one human individually, but everyone together, like for example land value. Take a million dollar mansion and swap it with an empty lot in the middle of the desert. The mansion becomes worth only the sum total of what its parts can sell for. The empty lot shoots up in value. Why? Because the unimproved value of land is socially created. That value exists because YOU exist.

Do you see now that basic income is not “free money” or “money for nothing?” You are owed it. It is your just and due compensation as part of this interdependent system we call society. We are all stakeholders in it. We are all owed a dividend as investors. No investor in Apple would ever be okay with being told that in return for their investment in Apple, they merely get the privilege of purchasing Apple products. Their reward is a return on their investment in the form of cash dividends. That’s fair and just. What is true for corporate stockholders should also be true for you. Don’t accept anything less than a cash dividend for your investments in this grand organization called human civilization. Claim what you are owed and demand unconditional basic income.

Read more …

Key: “There is an effort by a coalition of interests: banks, financial funds, pro-bailout governments, and the international creditors. They want to grab people’s property by using the public debt as a lever..”

• The Brothers Fighting For Indebted Greek Homeowners (AP)

Leonidas Papadopoulos is a doctor, his brother Ilias an economist, and once a week they take a break from ordinary life to fight the government. They go to court every Wednesday, the day homeowners in default on mortgages lose their properties at auctions – the final step of foreclosure in a country where the government and its citizens are overwhelmed by debt. Auctions are supervised by a notary public, who faces a weekly hour of crowd harassment. At a lower court in Athens one Wednesday, the Papadopoulos brothers and about 30 protesters gather menacingly around the notary’s desk, shouting insults and chanting “Vultures out!” When the atmosphere gets heated, protesters clamber onto the empty judges’ benches. In the court halls outside the chamber, demonstrators unfurl large banners and set up loudspeakers to blast music normally associated with protest movements from the 1970s.

Police look on without intervening, and another auction is cancelled. The crowd celebrates with chants of “No Homes in Bankers’ Hands!” – and goes home. “We create a list of all the auctions that are due to take place and decide which cases require our intervention. When the notary enters the chamber, we eject them with our presence, and by shouting,” the 35-year-old Leonidas Papadopoulos says. Each postponement typically delays an auction by about two months. The bearded brothers have created a nationwide protest network of several hundred volunteers to disrupt the auctions across Greece and to help illegally reconnect homes of unemployed people who have had their electricity cut off. In its fourth year, the campaign is intensifying as the country faces pressure from its international bailout creditors to deal with a mountain of bad bank loans.

Greece owes a staggering 325 billion euros ($354 billion), most of it to bailout lenders, while annual economic output – hammered by austerity, political upheaval and years of recession – has withered to below 180 billion euros ($196 billion). The country’s key assets are locked up for 99 years under the control of a fund created by the creditors. The picture for the country’s 10 million citizens is equally grim: Some 4 million are in arrears on tax payments, while 2 million households and businesses are behind on their electricity bills. Nearly half of loans given by banks for businesses and property purchases are now officially listed as soured. Ilias Papadopoulos, 33, sees the problem differently, arguing that people’s property are being seized at fire-sale prices after tax collection has been exhausted, in a desperate effort to maintain bailout debt commitments.

“There is an effort by a coalition of interests: banks, financial funds, pro-bailout governments, and the international creditors. They want to grab people’s property by using the public debt as a lever,” he said. “That includes homes, small businesses, farm land, and industry. It’s wealth that was acquired with such great effort by the Greek people. It cannot be surrendered without a fight.” Ilias says he’s never been arrested or detained by police due to his activism, and predicts the fight against foreclosures will intensify after Greece and it’s bailout creditors reached a new austerity deal this week. “This will only make things worse for poor people. So we’ll have to step things up.”

Read more …

Debt Rattle March 16 2017

Mar 162017
 
 March 16, 2017  Posted by at 9:16 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle March 16 2017


Arthur Rothstein “Quack doctor, Pittsburgh, Pennsylvania” 1938

 

• Hawaii Judge Halts Trump’s New Travel Ban Before It Can Go Into Effect (R.)
• Trump Proposes Historic Cuts Across Government to Fund Defense (BBG)
• Janet Yellen Explains Why She Hiked In A 0.9% GDP Quarter (ZH)
• Fed Rate Hikes + Low Growth = Recession (MW)
• How The Fed Rate Hike Will Impact Millions Of Americans (MW)
• How Global Central Banks Have Set Interest Rates Since 2008 (Tel.)
• Beware the Debt Ceiling (BBG)
• Amazon Is Going To Kill More American Jobs Than China Did (MW)
• PM Mark Rutte Sees Off Challenge Of Geert Wilders In Dutch Election (G.)
• Northern Ireland Vote Jolts Already Disunited Kingdom (R.)
• Erdogan, Europe Head for Political Blow-Up They Can’t Afford (BBG)
• Turkey Protests Dutch Government by Returning 40 Holstein Cows (BBG)
• Spike In Number Of Greeks Renouncing Inheritance To Avoid Taxes (K.)
• New Zealand River Granted Same Legal Rights As Human Being (G.)

 

 

Not much room left to move, it would seem. And the Supreme Court is still some distance away, if the case even gets there.

• Hawaii Judge Halts Trump’s New Travel Ban Before It Can Go Into Effect (R.)

Just hours before President Donald Trump’s revised travel ban was set to go into effect, a U.S. federal judge in Hawaii on Wednesday issued an emergency halt to the order’s implementation. The action was the latest legal blow to the administration’s efforts to temporarily ban refugees as well as travelers from six predominantly Muslim countries, which the President has said is needed for national security. Trump lashed out at the judge’s ruling, saying it “makes us look weak.” Trump signed the new ban on March 6 in a bid to overcome legal problems with a January executive order that caused chaos at airports and sparked mass protests before a Washington judge stopped its enforcement in February. U.S. District Judge Derrick Watson put an emergency stop to the new order in response to a lawsuit filed by the state of Hawaii, which argued that the order discriminated against Muslims in violation of the U.S. Constitution.

Judge Watson concluded in his ruling that while the order did not mention Islam by name, “a reasonable, objective observer … would conclude that the Executive Order was issued with a purpose to disfavor a particular religion.” Watson was appointed to the bench by former Democratic President Barack Obama. Speaking at a rally in Nashville, Trump called his revised executive order a “watered-down version” of his first. “I think we ought to go back to the first one and go all the way, which is what I wanted to do in the first place,” Trump said. Trump called the judge’s block “unprecedented judicial overreach” and said he will take the case “as far as it needs to go,” including to the U.S. Supreme Court. The Department of Justice called the ruling “flawed both in reasoning and in scope,” adding that the president has broad authority in national security matters. “The Department will continue to defend this Executive Order in the courts,” it said a statement.

[..] The government, in its court filings cautioned the court against looking for secret motives in the executive order and against performing “judicial psychoanalysis of a drafter’s heart of heart.” Watson said he did not need to do that, because evidence of motive could be found in the president’s public statements. He said he did not give credence to the government’s argument that the order was not anti-Muslim because it targeted only a small percentage of Muslim-majority countries. “The notion that one can demonstrate animus toward any group of people only by targeting all of them at once is fundamentally flawed,” the judge wrote.

Read more …

The military-industrial complex.

• Trump Proposes Historic Cuts Across Government to Fund Defense (BBG)

President Donald Trump is proposing historically deep budget cuts that would touch almost every federal agency and program and dramatically reorder government priorities to boost defense and security spending. The president’s fiscal 2018 budget request, which will be formally delivered Thursday to Congress, would slash or eliminate many of the Great Society programs that Republicans have for decades tried to peel back while showering the Pentagon and Department of Homeland Security with new resources. Some of the deepest cuts are reserved for the agencies and programs Trump has often derided. The State Department would be hit with a 28% reduction below fiscal 2016 levels that mainly targets international aid and development assistance; the EPA would face a 30% reduction.

Also in the crosshairs are agriculture programs, clean energy projects and federal research funding. “You see reductions in many agencies as he tries to shrink the role of government, drive efficiencies, go after waste, duplicative programs,” Office of Management and Budget Director Mick Mulvaney told reporters. “If he said it in the campaign, it’s in the budget.” Trump’s proposal for $1.15 trillion in federal discretionary funding for fiscal year 2018 is certain to face vigorous opposition from lawmakers in both parties who will resist chopping favored programs, whether foreign aid, rural water projects, or development grants for Appalachia and the Mississippi Delta. In addition to a solid wall of opposition from Democrats, senior Republicans including Senate Majority Leader Mitch McConnell have raised objections to specific agency cuts even before the budget request went to the Capitol.

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It’s all about credibility. “Fighting inflationary pressures”?!

• Janet Yellen Explains Why She Hiked In A 0.9% GDP Quarter (ZH)

It appears that, the worse the economy was doing, the higher the odds of a rate hike.

Putting the Federal Reserve's third rate hike in 11 years into context, if the Atlanta Fed's forecast is accurate, 0.9% GDP would mark the weakest quarter since 1980 in which rates were raised (according to Bloomberg data).

We look forward to Ms. Yellen explaining her reasoning – Inflation no longer "transitory"? Asset prices in a bubble? Because we want to crush Trump's economic policies? Because the banks told us to?

For now it appears what matters to The Fed is not 'hard' real economic data but 'soft' survey and confidence data…

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“..raising interest rates off ultralow levels during a period of tepid economic growth coincides with recessions in the following three to nine months..”

• Fed Rate Hikes + Low Growth = Recession (MW)

The Federal Reserve on Wednesday lifted benchmark interest rates for only the third time in about a decade, and that has caused trepidation among some market participants. Lance Roberts, chief investment strategist at Clarity Financial, makes the case in one chart that raising interest rates off ultralow levels during a period of tepid economic growth coincides with recessions in the following three to nine months (see chart below, which compares real, inflation-adjusted, GDP to Fed interest rate levels).

The Fed lifted key rates by a quarter-point Wednesday to a range of 0.75% to 1%. The rate increase comes as the U.S. economy has been growing at a lackluster pace. Government data show that gross domestic product—the official report card of economic performance—was growing at a seasonally adjusted pace of 1.9% in the fourth quarter compared with 1.6% in 2016 and 2.6% in 2015. “Outside of inflated asset prices, there is little evidence of real economic growth, as witnessed by an average annual GDP growth rate of just 1.3% since 2008, which by the way is the lowest in history since…well, ever,” Roberts wrote in a blog post March 9 (see chart below):

Woeful productivity, defined as the average output per hour of work, has been another bugaboo for economists and the Fed, for the past six years. Higher rates could exacerbate both problems, especially since corporations tend to benefit when borrowing costs are low. Roberts told MarketWatch in a recent interview that the “Fed lifts interest rates to slow economic growth and quell inflationary pressures.” He argues that outside of a stock market that has been mostly zooming higher, “economic growth is weak.”

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Debtors get screwed, savers get some air. Sounds cute and all, but there’s so much debt out there.

• How The Fed Rate Hike Will Impact Millions Of Americans (MW)

Bad news for those with credit card debt: The Federal Reserve hiked its key rate on Wednesday by a quarter%age point and, as a result, your own interest rates could rise almost immediately. The Fed raised the rate for federal funds by a quarter%age point, to 0.75% to 1% at the end of its two-day meeting on Wednesday, and signaled two further rates rises in 2017. In other words, the Fed announced an increase in how much banks will be charged to borrow money from Federal Reserve banks. (The Fed raises and lowers interest rates in an attempt to control inflation.) That increase will most likely eventually be passed on to consumers, said Sean McQuay, a credit card expert at the personal finance website NerdWallet. Many households with credit card debt — the average household carrying credit card debt has more than $16,000 — will likely take a hit. Here’s how the latest Fed rate increase could impact your credit cards and bank accounts.

Credit cards Because a rise in the federal funds rate means banks will likely pay more to borrow from the Federal Reserve, they may pass that cost on to consumers. Credit card interest rates are variable (banks and credit card companies should state that their rates are variable in the literature customers receive to learn about their cards), and they are tied to the prime rate, an index a few%age points above the federal funds rate. It is a benchmark that banks use to set home equity lines of credit and credit card rates; as federal funds rates rise, the prime rate does, too. As a result, credit card holders are likely to see their interest rates rise, and that will happen soon, said Greg McBride, the chief financial analyst at the personal finance company Bankrate, told MarketWatch.

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Written just before Yellen’s hike.

• How Global Central Banks Have Set Interest Rates Since 2008 (Tel.)

After the financial crisis in 2008 central banks across the world cut their base lending rates to varying degrees, with some introducing negative rates of interest. [..] The US economy has performed strongly in recent months, leading Fed chair Janet Yellen to say that policymakers are now ready to change their stance on interest rates. The expectation is that there will be a steady hike in rates in the coming years and that, in the longer term, interest rates should be hovering around 3pc. Market traders are predicting three interest rate rise in the US this year alone. Ms Yellen has said that waiting too long to raise interest rates risked more rapid increases later if the economy started to overheat. If the Fed does see fit to continue to increase interest rates, it could signal the start of a similar pattern in other countries that have, thus far, kept rates very low since the financial crisis.

The Bank of England’s base lending rate stood at 5.75pc in July 2007 but was slashed repeatedly in the following months and years. Since March 2009 the Bank’s lending rate has been languishing below 1pc. In contrast to the expected direction of interest rates in the US, last August BoE Governor Mark Carney cut the rate again from 0.5pc to 0.25pc. [..] The ECB’s deposit rate has been at -0.4pc since early 2016 while the Swiss National Bank’s lending rate has been even lower than this. Mark Carney has said that the next move on interest rates in the UK will be an upward one but that it will be “limited and gradual”. However with the economic uncertainty surrounding Brexit it may be some time before rate rises catch up with the US. And it is likely to be some time before the ECB feels it can gamble with a significant rate rise.

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June 1 drop-off.

• Beware the Debt Ceiling (BBG)

Euphoria has been pervasive in the stock market since the election. But investors seem to be overlooking the risk of a U.S. government default resulting from a failure by Congress to raise the debt ceiling. The possibility is greater than anyone seems to realize, even with a supposedly unified government. In particular, the markets seem to be ignoring two vital numbers, which together could have profound consequences for global markets: 218 and $189 billion. In order to raise or suspend the debt ceiling (which will technically be reinstated on March 16), 218 votes are needed in the House of Representatives. The Treasury’s cash balance will need to last until this happens, or the U.S. will default. The opening cash balance this month was $189 billion, and Treasury is burning an average of $2 billion per day – with the ability to issue new debt.

Net redemptions of existing debt not held by the government are running north of $100 billion a month. Treasury Secretary Steven Mnuchin has acknowledged the coming deadline, encouraging Congress last week to raise the limit immediately. Reaching 218 votes in favor of raising or suspending the debt ceiling might be harder than in any previous fiscal showdown. President Donald Trump almost certainly wants to raise the ceiling, but he may not have the votes. While Republicans control 237 seats in the House, the Tea Party wing of the party has in the past has steadfastly refused to go along with increases. The Republican Party is already facing a revolt on its right flank over its failure to offer a clean repeal of the Affordable Care Act. Many members of this resistance constitute the ultra-right “Freedom Caucus,” which was willing to stand its ground during previous debt ceiling showdowns.

The Freedom Caucus has 29 members, which means there might be only 208 votes to raise the ceiling. (It’s interesting to recall that, in 2013, President Trump himself tweeted that he was “embarrassed” that Republicans had voted to extend the ceiling.) It may be unrealistic to expect Democrats to save the day – at least initially. House Democrats may be more than happy to sit back and watch Republicans fight among themselves. If the Democrats eventually ride to the rescue, it probably won’t be until after a period of Republican-on-Republican violence. Nobody wants the Treasury to reach the point where it has to prioritize payment of interest over other obligations – a threshold where creditworthiness and market confidence will have begun to retreat. The bond market already seems to be reacting to this possibility, sending yields higher and prices lower, even as the S&P/Dow/Nasdaq have been on a tear and are showing scant concern over the potential turmoil.

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Change with an enormous impact. Do we really want this?

• Amazon Is Going To Kill More American Jobs Than China Did (MW)

Amazon.com has been crowing about its plans to create 100,000 American jobs in the next year, but as with other recent job-creation announcements, that figure is meaningless without context. What Amazon won’t tell us is that every job created at Amazon destroys one or two or three others. What Jeff Bezos doesn’t want you to know is that Amazon is going to destroy more American jobs than China ever did. Amazon has revolutionized the way Americans consume. Those who want to shop for everything from books to diapers increasingly go online instead of to the malls. And for about half of those online purchases, the transaction goes through Amazon.

For the consumer, Amazon has brought lower prices and unimaginable convenience. I can buy almost any consumer product I want just by clicking on my phone or computer — or even easier, by just saying: “Alexa: buy me one” — and it will be shipped to my door within days or even hours for free. I can buy books for my Kindle, or music for my phone instantly. I can watch movies or TV shows on demand. But for retail workers, Amazon is a grave threat. Just ask the 10,100 workers who are losing their jobs at Macy’s. Or the 4,000 at The Limited. Or the thousands of workers at Sears and Kmart, which just announced 150 stores will be closing. Or the 125,000 retail workers who’ve been laid off over the past two years.

Amazon and other online sellers have decimated some sectors of the retail industry in the past few years. For instance, employment at department stores has plunged by 250,000 (or 14%) since 2012. Employment at clothing and electronics stores is down sharply from the earlier peaks as more sales move online. “Consumers’ affinity for digital shopping felt like it hit a tipping point in Holiday 2014 and has rapidly accelerated this year,” Ken Perkins, the president of Retail Metrics, wrote in a research note in December. And when he says “digital shopping,” he really means Amazon, which has increased its share of online purchases from about 10% five years ago to nearly 40% in the 2016 holiday season.

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Rutte lost big and is the winner.

• PM Mark Rutte Sees Off Challenge Of Geert Wilders In Dutch Election (G.)

The Dutch prime minister, Mark Rutte, has seen off a challenge from the anti-Islam populist Geert Wilders to claim a resounding victory in parliamentary elections widely seen as a test for resurgent nationalism before key European polls. With nearly 95% of votes counted and no further significant changes expected, Rutte’s centre-right, liberal VVD was assured of 33 MPs, by far the largest party in the 150-seat Dutch parliament, national news agency ANP said. Wilders’ Freedom party (PVV) looked certain to finish second, but a long way behind on 20 seats, just ahead of the Christian Democrat CDA and liberal-progressive D66 which both ended up in third position on 19 seats. “Our message to the Netherlands – that we will hold our course, and keep this country safe, stable and prosperous – got through,” Rutte told a cheering crowd of supporters at the VVD’s election night party.

After Britain’s shock Brexit vote and Donald Trump’s presidential victory in the US, he added, the eyes of the world had been on the vote: “This was an evening when … the Netherlands said ‘Stop’ to the wrong sort of populism.” A first-place finish for the anti-immigration, anti-EU PVV would have rocked Europe. In France, the far-right leader Marine Le Pen is expected to make the second-round runoff in the presidential election in May, while the Eurosceptic Alternative für Deutschland (AfD) is on target to win its first federal parliament seats later in the year. Relieved European politicians were quick to applaud. A spokesman for European commission president Jean-Claude Juncker hailed “a vote against extremists” while French foreign minister Jean-Marc Ayrault tweeted: “Congratulations to the Netherlands for halting the advance of the far right.”

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What’s going to be left by the time Brexit is reality?

• Northern Ireland Vote Jolts Already Disunited Kingdom (R.)

A nationalist surge at elections in Northern Ireland and a Scottish demand for a second independence referendum have raised doubts over whether the United Kingdom can hold together after it leaves the European Union. Last year’s referendum on EU membership saw England and Wales vote to leave while Scotland and Northern Ireland voted to remain, straining the ties that bind the UK together. Scottish leader Nicola Sturgeon dealt a blow to British Prime Minister Theresa May on Monday by demanding a new vote on independence in late 2018 or early 2019, making her move much sooner than expected. But while the Scottish issue had been well flagged since the Brexit vote, a snap provincial assembly election in Northern Ireland produced a genuine shock: for the first time since the partition of Ireland in 1921, unionists lost their majority.

Nationalist party Sinn Fein, backed by many of Northern Ireland’s Catholics, narrowed the gap with the Democratic Unionist Party, whose support base is among pro-British Protestants, to just one seat. This has revived the slow-burning question of whether Northern Ireland will stay in the United Kingdom over the long term or become part of the Republic of Ireland. This could be achieved by a referendum, often referred to as a border poll. “A border poll might be 10 years away and it might still be lost, but clearly this election has shown a different dynamic in Northern Ireland politics,” said Peter Shirlow, Director of Irish Studies at the University of Liverpool. “This opens the door for a different scenario.”

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No visa-free travel either.

• Erdogan, Europe Head for Political Blow-Up They Can’t Afford (BBG)

Politicians in Turkey and the European Union stoking tensions for short-term electoral gain may have done lasting damage to vital economic and security ties. While relations between the EU and Turkey have been rocky for years, the furor of recent days – with Turkish President Recep Tayyip Erdogan freely hurling the Nazi epithet at his western antagonists – marks a rift that could prove irreparable. Turkey has been negotiating EU membership since 2005, but progress has come close to a halt. “Even without anyone saying it, Turkey’s EU membership talks will go into an irreversible coma now,” said Marc Pierini, who served as the EU’s ambassador to Turkey from 2006-2011 and is a visiting scholar at Carnegie Europe, a Brussels-based think tank. “That will suit everybody, except Turkey’s democrats.”

[..] Pierini sees a wider clash between two populisms – one anti-Muslim in Europe, and the other fighting for the Islamization of the secular Turkish Republic – that risks an uncontrolled downward spiral. Europe’s leaders, he said, “are losing sight of the fundamentals, that you have a counter-revolution going on in Turkey,” where Erdogan is trying to reverse the westward course on which Mustafa Kemal Ataturk set the country in 1923. Hanging in the balance is a deal struck a year ago, under which Turkey agreed to cooperate in stemming the flow of refugees from Syria. In exchange, the EU provided more than $3 billion in economic aid and pledges both to “re-energize” Turkey’s stalled membership talks and deliver visa-free travel for Turks entering the 26-nation Schengen area, both of which are increasingly politically toxic for EU leaders.

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Where it hurts.

• Turkey Protests Dutch Government by Returning 40 Holstein Cows (BBG)

Two months after a Turkish butcher broke the Internet, the country’s red meat producers are trying a novel way to break the Dutch government’s resolve. Members of the Ankara-based Beef and Lamb Producers Association have sent 40 Holstein cows back to the Netherlands to show their displeasure at a decision to prevent Turkish ministers from conducting political campaigning on their soil, the association’s chairman Bulent Tunc said in telephone interview. A fiery diplomatic spat has erupted between the two countries after the EU state, which is holding its own elections on Wednesday, refused access to Turkish ministers seeking to campaign on a referendum to expand President Recep Tayyip Erdogan’s powers.

While Tunc called the number of cows being shipped away “symbolic,” he spoke of widespread support for the Turkish president’s stance among association members, who number 160,000. Those involved in the cattle trade are also considering putting a stop to purchases of tractors, equipment, feed and bull semen — and extending the boycott to Austria, which Tunc accused of sharing the Dutch government’s stance. “There are many alternatives,” he said, citing Brazil and Romania as possibilities. “Turkey is a huge market for livestock imports and countries are dying to get in.”

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More Greek tragedies. Imagine having to give up age-old family homes and/or land because you can’t afford taxes.

• Spike In Number Of Greeks Renouncing Inheritance To Avoid Taxes (K.)

An increasing number of people are turning their backs on properties they have inherited to avoid paying the higher taxes that accompany them, according to new data from the country’s courts which show that applications for renunciation of property rose 86.4% last year compared to 2013. According to the latest statistics, which were made public on Wednesday, a total of 54,422 such applications were lodged with the country’s local courts last year, compared to 45,628 in 2015 and 29,199 in 2013. Experts attribute the rise to the tremendous increase in property taxes that successive governments have imposed over the years as part of bailout agreements with Greece’s creditors. According to official figures, property owners paid seven times more in taxes last year compared to 2009, the year before the crisis hit.

In 2009, property taxes did not exceed €500 million, while revenue collected from property reached €3.5 billion last year. Most of those who filed documents last year to renounce their inheritance did so in the country’s major cities, with 11,655 applications recorded in Athens, 5,563 in Thessaloniki, 1,938 in Piraeus and 1,473 in Patra. People are not only giving up family houses and apartments but also plots of lands. According to Nikos Stasinopoulos, formerly the head of the association representing Greek notaries, many people in the provinces give up inherited land even when the tax they would have to pay on it is relatively small. He offered the example of one beneficiary in the region of Gortynia who gave up a plot on which he faced a €150 levy, and a second who inherited a total of 98 plots of land in the region of Larissa from his father and aunt and was “relieved” to discover that he could hand them over to the state to avoid paying tax.

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We have lost all wisdom. Only native peoples have any left.

“..all Maori tribes regard themselves as part of the universe, at one with and equal to the mountains, the rivers and the seas.”

• New Zealand River Granted Same Legal Rights As Human Being (G.)

In a world-first a New Zealand river has been granted the same legal rights as a human being. The local Maori tribe of Whanganui in the north island has fought for the recognition of their river – the third-largest in New Zealand – as an ancestor for 140 years. On Wednesday, hundreds of tribal representatives wept with joy when their bid to have their kin awarded legal status as a living entity was passed into law. “The reason we have taken this approach is because we consider the river an ancestor and always have,” said Gerrard Albert, the lead negotiator for the Whanganui iwi [tribe]. “We have fought to find an approximation in law so that all others can understand that from our perspective treating the river as a living entity is the correct way to approach it, as in indivisible whole, instead of the traditional model for the last 100 years of treating it from a perspective of ownership and management.”

The new status of the river means if someone abused or harmed it the law now sees no differentiation between harming the tribe or harming the river because they are one and the same. Chris Finlayson, the minister for the treaty of Waitangi negotiations, said the decision brought the longest-running litigation in New Zealand’s history to an end. “Te Awa Tupua will have its own legal identity with all the corresponding rights, duties and liabilities of a legal person,” said Finlayson in a statement. “The approach of granting legal personality to a river is unique … it responds to the view of the iwi of the Whanganui river which has long recognised Te Awa Tupua through its traditions, customs and practise.” Two guardians will be appointed to act on behalf of the Whanganui river, one from the crown and one from the Whanganui iwi.

Albert said all Maori tribes regarded themselves as part of the universe, at one with and equal to the mountains, the rivers and the seas. [..] “We can trace our genealogy to the origins of the universe,” said Albert. “And therefore rather than us being masters of the natural world, we are part of it. We want to live like that as our starting point. And that is not an anti-development, or anti-economic use of the river but to begin with the view that it is a living being, and then consider its future from that central belief.”

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Debt Rattle March 13 2017

Mar 132017
 
 March 13, 2017  Posted by at 9:23 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle March 13 2017


DPC The Mammoth Oak at Pass Christian, Mississippi 1900

 

• The Ides of March Could Be A Critical Turning Point For The Stock Market (MW)
• The US As The “Cleanest Dirty Shirt” (Snider)
• A Third Of American Families Have ‘Roller Coaster’ Finances (MW)
• US Interest Rate Rise To Deepen Developing Countries’ Debt Crisis (G.)
• The Issue Is The Leverage And Instability Of The System (Rickards)
• Who Bleeds When the Wolves Bite? (CNBC)
• When It Comes to Wall Street, Preet Bharara Is No Hero (PP)
• China’s Economic Miracle Is Over (Friedman)
• Iceland Exits Capital Controls Eight Years After Banking Crash (BBG)
• Steve Keen Is In The House (YT)
• We Will All Need A Stiff Drink To Swallow Hammond’s Austerity (G.)
• No Proof Russia Disrupts UK Democracy, But They Can – Boris Johnson (RT)
• Brussels Keeping 2015 Emergency Grexit Plan Locked Away (K.)
• Fukushima Evacuees Face ‘Forced’ Return As Subsidies Withdrawn (G.)
• Police Raid Athens Squats, Detain Dozens Of Refugees (K.)
• What Would You Do To Keep Your Children Alive? (I’Cept)

 

 

The Fed, the debt ceiling and the Dutch election. All this Wednesday, March 15.

The Ides of March (Latin: Idus Martiae, Late Latin: Idus Martii) is a day on the Roman calendar that corresponds to 15 March. It was marked by several religious observances and became notorious as the date of the assassination of Julius Caesar in 44 BC..

• The Ides of March Could Be A Critical Turning Point For The Stock Market (MW)

As much as Julius Caesar’s assassination on the Ides of March signaled an inflection point in Roman history, March 15 may also mark a watershed moment for the U.S. stock market with the Federal Reserve poised to seek closure to its loose monetary policy regime. “The coming week has the potential to be huge for trading opportunities,” said Colin Cieszynski, chief market strategist at CMC Markets, in a note. “Everything centers around the Ides of March…with a number of key developments coming out both on [March] 15 and 16.” The Fed’s monetary policy decision on Wednesday will take center stage with markets nearly 100% certain of a rate increase following solid February jobs data. The focus will be on the Fed’s statement rather than the decision itself.

“The commentary will help determine how many more hikes the market has to get used to and then when it has to start preparing,” said Bob Pavlik at Boston Private Wealth. If the central bank strikes a hawkish tone, it could trigger a selloff in the market although Pavlik expects Fed Chairwoman Janet Yellen to keep her comments positive to avoid upsetting the market. Still, investors should keep in mind is that this is the third hike in the current tightening cycle, and history is working against the market. Since 1971, stocks have fallen an average of 2.2% on the third hike over the following three months, said Tom Lee at Fundstrat Global Advisors. To be sure, there are always exceptions. Stocks rose sharply in the following three months after the Fed hiked for a third time in both June 1984 and September 2004, he said.

Most analysts agree that stocks have largely priced in a rate hike of 25 basis points. But there are still bargains to be found in automobile, semiconductors, consumer finance and insurance sectors, which are cheap but benefit from a hawkish Fed, according to Bank of America Merrill Lynch. Aside from the Fed, eight other central banks are scheduled to meet next week, including the Bank of Japan and the Bank of England, providing a quick insight into whether other countries will adjust their policies in response to the Fed. Meanwhile, Trump is expected to present his preliminary budget request to the Congress on Thursday, outlining his administration’s priorities. It will serve as a critical test for whether the euphoria that propelled stocks to record territory in anticipation of tax reforms and ramped up fiscal spending under President Donald Trump is warranted.

The S&P 500 has risen 4.5% and the Dow Jones Industrial Average DJIA has gained 5.3% in the first 50 days since Trump took office, the best ever for a GOP president. However, if Trump’s budget proposal fails to meet the market’s expectations, it could spark a major unwinding in positions, leading to a sharp drop in prices. “Thursday could be the day the instant speed of markets crashes into the glacial speed of government,” said Cieszynski.

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Boy, what a bubble this is turning into.

• The US As The “Cleanest Dirty Shirt” (Snider)

It is surely one of the primary reasons why many if not most people have so much trouble accepting the trouble the economy is in. With record high stock prices leading to record levels of household net worth, it seems utterly inconsistent to claim those facts against a US economic depression. Weakness might be more easily believed as some overseas problem, leading to only ideas of decoupling or the US as the “cleanest dirty shirt” – the US economy has problems, but how bad can they be? Yet, despite asset price levels and even record debt, all those prove is just how disconnected those places have become from what used to be an efficient way to redistribute financial resources.

According to the Fed’s Z1 report, Household net worth climbed by $2 trillion in Q4 alone to $92.8 trillion. That is a 69% increase from the low in Q1 2009, even though Final Sales to Domestic Purchasers have grown by just 30% in that same time. The wealth effect is dead, or, more specifically, it never was.

From the view of net worth, the increase to record debt levels seems manageable. From the more appropriate view of income and economy, it does not, even though US debt levels have grown more slowly post-crisis. That would mean debt is partway between assets and economy, sort of splitting the difference of what monetary policy believes and what it, at best, “achieved.”

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The Great Volatility.

• A Third Of American Families Have ‘Roller Coaster’ Finances (MW)

When it comes to making money, consistency may be almost as important as quantity. Families that had large fluctuations in their incomes — even when it was a 25% gain — were more likely than those with stable incomes to say they wouldn’t be able to come up with $2,000 for an unexpected need, according to a study by Pew Charitable Trusts released this week. The study looked at “income volatility” among more than 5,600 families the term for a year-over-year change in annual income of 25% or more, between 2014 and 2015. “Volatility in general, regardless of the direction, is very disruptive to families,” said Erin Currier, the director of Pew’s financial security and mobility project, who called that volatility “a roller coaster” for many Americans. “It makes it harder for them to plan.”

More than a third of those households surveyed experienced these large changes in their incomes from 2014 to 2015, Pew found. That number has been fairly consistent over time, Currier said. Households of various incomes see major dips and drops, but since volatility is measured as a percentage change in income, those with lower incomes had the lowest threshold for qualifying as having volatile incomes, Pew’s report says. In fact, there were more households in the years Pew studied that saw a gain in their incomes than those who saw dips, which is probably less surprising given that the economy was growing in those years and many families were finally getting back on their feet after the Great Recession.

Roller coaster finances are more common than many people realize. A quarter of people saw their incomes rise or drop by 30% or more, according to an analysis of 27 million Chase bank accounts between 2013 and 2014 by the J.P. Morgan Chase Institute JPM, -0.32% a J.P. Morgan Chase think tank. Those fluctuations were about the same, regardless of account holders’ incomes. One problem: Although income and spending both change, they don’t always change in the same direction, which can create budgeting problems. Put bluntly, some people keep spending even when they and their families experience a reversal of fortune.

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Been warning about this for a long time. It could get completely out of hand. Much of it is private debt.

• US Interest Rate Rise To Deepen Developing Countries’ Debt Crisis (G.)

Developing countries are struggling with steep rises in their debt payments after being hit by a double whammy of lower commodity prices and a stronger dollar, with more pain to come once the US central bank raises interest rates this week, campaigners warn. The Jubilee Debt Campaign said that some of the world’s poorest countries have seen the cost of repaying their debts – as a proportion of government revenue – hit the highest level for a decade. Government coffers have been depleted by lower revenues from commodity exports and the size of dollar-denominated debts has risen as the US currency has strengthened.

The dollar has risen more than 6% against a basket of other big currencies over the past six months as investors anticipate that big spending plans by President Donald Trump will boost US growth and that the US Federal Reserve will follow up December’s interest rate rise with more increases this year. After the latest US jobs numbers on Friday beat expectations, a rate rise from the Fed’s policymakers when they meet this Wednesday is seen as imminent among investors. That would further increase the cost of debt payments for poor countries, which have taken out big loans in recent years from western countries where interest rates have been low, said the Jubilee Debt Campaign.

Tim Jones, economist at the campaign group, warned the rising cost of debt payments was putting developing countries under extra strain just when they needed to be spending more money at home to meet the UN sustainable development targets – a series of goals for human development intended to be achieved by 2030. “The rapid increase in debt payments in many countries comes after a boom in lending, a fall in commodity prices, the rising value of the US dollar and now increasing dollar interest rates,” said Jones. He warned there was a danger that loans from the IMF and other lenders would be used to bail out “reckless lenders” who were at risk of not getting repayments from crisis-hit countries. That would lead to year of economic stagnation, just as in debt-laden Greece, Jones added. “Instead, reckless lenders should be made to shoulder some of the costs of recent economic shocks by accepting lower payments,” he said.

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Has been for may years.

• The Issue Is The Leverage And Instability Of The System (Rickards)

[..] expectations of a Fed rate hike March 15 are now near 100% based on surveys of economists and fed funds futures contracts. Markets are looking at things like business cycle indicators, but that’s not what the Fed is watching these days. The Fed is desperate to raise rates before the next recession (so they can cut them again) and will take every opportunity to do so. But as I’ve said before, the Fed is getting ready to raise into weakness. It may soon have to reverse course. My view is that the Fed will raise rates 0.25% every other meeting (March, June, September and December) until 2019 unless one of three events happens — a stock market crash, job losses or deflation. But right now the stock market is booming, job creation is strong and inflation is emerging. So none of the usual speed bumps is in place. The coast is clear for a rate hike this Wednesday.

But growth is being financed with debt, which has now reached epic proportions. A lot of money has been printed since 2007, but debt has expanded much faster. The debt bubble can be seen at the personal, corporate and sovereign levels. If the debt bubble bursts, things can get very messy. In a liquidity crisis, investors who think they have “money” (in the form of stocks, bonds, real estate, etc.) suddenly realize that those investments are not money at all — they’re just assets. When investors all sell their assets at once to get their money back, markets crash and the panic feeds on itself. What would it take to set off this kind of panic? In a super-highly leveraged system, the answer is: Not much. It could be anything: a high-profile bankruptcy, a failed deal, a bad headline, a geopolitical crisis, a natural disaster and so on. This issue is not the catalyst; the issue is the leverage and instability of the system.

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Bit curious coming from a judge, but good title.

• Who Bleeds When the Wolves Bite? (CNBC)

The question posed was, “Who Bleeds When the Wolves Bite?” It’s the title of an evocative paper written by Leo Strine, the chief justice of the Delaware Supreme Court. By wolves, he means hedge funds, and his answer, found within a 113-page paper set to be published next month in the Yale Law Review, is that average American investors are the ones getting bit by the existing corporate-governance system. While little known in circles outside the highest ranks of corporate America, Strine’s voice is among one of the most powerful in the business community. That’s because two-thirds of American companies are legally based in Delaware, meaning corporate litigation often takes place in that state, so his opinions on such topics can hold tremendous sway.

Strine’s paper is one of the strongest repudiations to date of hedge-fund activism — or what critics of the industry describe as the practice of investors with major stock holdings aggressively forcing companies into changes that will quickly pump up stock prices, often without regard for those same companies’ long-term health. Strine looks at what he calls a “flesh and blood” perspective on how hedge funds, and specifically hedge-fund activists, are harmful to typical American investors. He calls regular Americans “human investors,” distinguishing from the “wolf packs” of hedge funds. Human investors are those who invest in the capital markets and save for events like retirement or college for their children, according to Strine. Strine’s main argument is that the “current corporate governance system … gives the most voice and the most power to those whose perspectives and incentives are least aligned with that of ordinary Americans.”

Strine’s critics — largely hedge funds and hedge fund advisers — privately criticized the paper, arguing that a justice should not be on the record condemning a group of people who tend to litigate in his court and the lower Delaware courts. Additionally, they say his paper does not offer much in the way of prescriptions for how to fix what he sees as a flawed system. They declined to be quoted, fearing retribution from Strine.

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A history lesson.

• When It Comes to Wall Street, Preet Bharara Is No Hero (PP)

After his election in 1968, President Richard Nixon asked Robert Morgenthau, the US Attorney for the Southern District of New York, to resign. Morgenthau refused to leave voluntarily, saying it degraded the office to treat it as a patronage position. Nixon’s move precipitated a political crisis. The president named a replacement. Powerful politicians lined up to support Morgenthau. Morgenthau had taken on mobsters and power brokers. He had repeatedly prosecuted Roy Cohn, the sleazy New York lawyer who had been Senator Joe McCarthy’s right-hand man. (One of Cohn’s clients and protégés was a young New York City real estate developer named Donald Trump.) When Cohn complained that Morgenthau had a vendetta against him, Morgenthau replied, “A man is not immune from prosecution merely because a United States Attorney happens not to like him.”

Morgenthau carried that confrontational attitude to the world of business. He pioneered the Southern District’s approach to corporate crime. When his prosecutors took on corporate fraud, they did not reach settlements that called for fines, the current fashion these days. They filed criminal charges against the executives responsible. Before Morgenthau, the Department of Justice focused on two-bit corporate misdeeds—Ponzi schemes and boiler room operations. Morgenthau changed that. His prosecutors went after CEOs and their enablers—the accountants and lawyers who abetted the frauds or looked the other way. “How do you justify prosecuting a nineteen-year old who sells drugs on a street corner when you say it’s too complicated to go after the people who move the money?” he once asked. Morgenthau’s years as United States Attorney were followed by political success. He was elected New York County District Attorney in 1974, the first of seven consecutive terms for that office.

There are parallels between Morgenthau, and Preet Bharara, the U.S. attorney for the Southern District who was fired by President Trump this weekend. Like Morgenthau, the 48-year old Bharara leaves the office of US Attorney for the Southern District celebrated for taking on corrupt and powerful politicians. Bharara prosecuted two of the infamous “three men in a room” who ran New York state: Sheldon Silver, the Democratic speaker of the assembly and Dean Skelos, the Republican Senate majority leader. He won convictions of a startling array of local politicians, carrying on the work of the Moreland Commission, an ethics inquiry created and then dismissed by New York’s Gov. Andrew Cuomo. (This weekend, Bharara cryptically tweeted that “I know what the Moreland Commission must have felt like,” a suggestion that he was fired as he was pursuing cases pointed at Trump or his allies.)

But the record shows that Bharara was much less aggressive when it came to confronting Wall Street’s misdeeds. President Obama appointed Bharara in 2009, amid the wreckage of the worst financial crisis since the Great Depression. He inherited ongoing investigations into the collapse, including a probe against Lehman Brothers. He also inherited something he and his young charges found more alluring: insider-trading cases against hedge fund managers. His office focused obsessively on those. At one point, the Southern District racked up a record of 85-0 in those cases. (Appeals courts would later throw out two prominent convictions, infuriating him and dealing blows to several other cases.)

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I know it’s George Friedman, but he’s right.

• China’s Economic Miracle Is Over (Friedman)

Sustained double-digit economic growth is possible when you begin with a wrecked economy. In Japan’s case, the country was recovering from World War II. China was recovering from Mao Zedong’s policies. Simply by getting back to work an economy will surge. If the damage from which the economy is recovering is great enough, that surge can last a generation. But extrapolating growth rates by a society that is merely fixing the obvious results of national catastrophes is irrational. The more mature an economy, the more the damage has been repaired and the harder it is to sustain extraordinary growth rates. The idea that China was going to economically dominate the world was as dubious as the idea in the 1980s that Japan would. Japan, however, could have dominated if its growth rate had continued. Since that was impossible, the fantasy evaporates — and with it, the overheated expectations of the world.

In 2008, China was hit by a double tsunami. First, the financial crisis plunged its customers into a recession followed by extended stagnation, and the appetite for Chinese goods contracted. Second, China’s competitive advantage was cost, and they now had lower-cost competitors. China’s deepest fear was unemployment, and the country’s interior remained impoverished. If exports plunged and unemployment rose, the Chinese would face both a social and political threat of massive inequality. It would face an army of the unemployed on the coast. This combination is precisely what gave rise to the Communist Party in the 1920s, which the Party today fully understands. So, a solution was proposed that entailed massive lending to keep non-competitive businesses operating and wages paid. That resulted in even greater inefficiency and made Chinese exports even less competitive.

The Chinese surge had another result. China’s success with boosting low-cost goods in advanced economies resulted in an investment boom by Westerners in China. Investors prospered during the surge, but it was at the cost of damaging the economies of China’s customers in two ways. First, low-cost goods undermined businesses in the consuming country. Second, investment capital flowed out of the consuming countries and into China. That inevitably had political repercussions. The combination of post-2008 stagnation and China’s urgent attempts to maintain exports by keeping its currency low and utilize irrational banking created a political backlash when China could least endure it — which is now.

China has a massive industrial system linked to the appetites of the United States and Europe. It is losing competitive advantage at the same time that political systems in some of these countries are generating new barriers to Chinese exports. There is talk of increasing China’s domestic demand, but China is a vast and poor country, and iPads are expensive. It will be a long time before the Chinese economy generates enough demand to consume what its industrial system can produce.

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Greece has had capital controls for only 18 months or so.

• Iceland Exits Capital Controls Eight Years After Banking Crash (BBG)

Iceland is back. The government at a hastily called press conference on Sunday in Reykjavik announced that effective Tuesday it will lift almost all of the remaining capital controls, allowing its citizens, corporations and pension funds full access to the global capital markets. The move ends an eight-year struggle to clean up after the 2008 banking collapse, which triggered the worst recession in more than six decades and enveloped the north Atlantic island of 340,000 people in political turmoil. Prime Minister Bjarni Benediktsson said this final step will “create more trust in the Icelandic economy,” with the most significant move being the removal of a requirement for businesses to return foreign exchange. “That will make direct foreign investment easier,” he said in an interview after the press conference.

The controls are being lifted as Iceland is booming, helped by a record surge in tourism. The economy is even at risk of overheating with money flowing back into the economy as the controls have been eased in steps. The economy last year surged 7.2%, driven by household spending and investments. Unemployment is down at about 3% and inflation is under control. The krona has rallied about 18% against the euro over the past year, in part as traders have been attracted to the nation’s higher interest rates. The government hopes these next moves will ease pressure on the currency to appreciate, according to Benediktsson. “We don’t have any exact hints as to what comes next,” he said. While pension funds have taken full use of exemptions that were granted in the past years, the public hasn’t rushed to invest abroad after other controls were eased, he said.

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In Britain, at least Steve gets invited. What good it will do is another matter.

• Steve Keen Is In The House (YT)

This talk on whether we can avoid another financial crisis, and what caused the last one, was arranged by New City Agenda and held in a committee room of the House of Commons. I cover what caused the crisis (credit), why mainstream economics erroneously ignores credit, and the empirical data showing which countries face continued stagnation, and which countries face a future private debt crisis.

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Alcohol and politics?!

• We Will All Need A Stiff Drink To Swallow Hammond’s Austerity (G.)

Yes, the Conservative party that for a long time believed the state had no role to play in industrial policy is now rediscovering the wheel – but has dismissed Michael Heseltine, who did not need to rediscover it. And the Treasury is placing great emphasis on the importance of “productivity” – ie the supply side of the economy – to provide the future growth on which higher living standards and tax revenues ultimately depend.

For the uncomfortable truth, underlined by the Office for Budgetary Responsibility, the Institute for Fiscal Studies and the Resolution Foundation last week, is that, after a splurge of consumer spending largely financed by borrowing, the outlook for real incomes is pretty bleak – indeed, there are already signs of a slowdown, and the OECD is forecasting economic growth this year of a mere 1.6%. And the OBR’s post-Brexit forecasts are frightening. But austerity in the public sector is set to continue. Let no one be in doubt: this was a policy choice on the part of George Osborne in 2010, and it is a policy choice now. Underlying it all is the Conservative party’s obsession with shrinking the size of the state and minimising the so called “tax burden” – a “burden” which helps to ensure we have decent hospitals, schools and infrastructure generally.

There can be little doubt that, on his own terms, the decision of Chancellor Lawson in the 1988 budget to bring the top rate of income tax down from 60% to 40%, and the basic rate from 27% to 25%, was what is known in the trade as a “game changer”. Total taxation as a proportion of national income has been around 34% in recent years. But when the economy is operating close to capacity, as the OBR believes it now is, in a decent society the ratio of taxation to national income should be considerably higher – even close to 40% – in order to provide decent public services. For all their conciliatory talk, May and Hammond are pursuing Osborne’s austerity policies. Meanwhile, although for all his efforts Osborne failed to achieve anything like a budget surplus for the nation, he has managed – while capitalising on the lecture circuit upon his experience in office – to achieve a healthy budget surplus for himself. Some people are shameless.

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Lame and empty.

• No Proof Russia Disrupts UK Democracy, But They Can – Boris Johnson (RT)

Russia is planning to use “all sorts of dirty tricks” to meddle in the political life of European countries, British Foreign Secretary Boris Johnson warned, though he admitted there is “no evidence” that Moscow is actually involved in anything of the kind. “We have no evidence the Russians are actually involved in trying to undermine our democratic processes,” Johnson told British ITV’s Peston on Sunday show. “But what we do have is plenty of evidence that the Russians are capable of doing that,” he insisted adding that Russians “have been up to all sorts of dirty tricks.” Remarkably, Johnson made these statements just weeks before his visit to Russia, during which he will meet with his Russian counterpart, Sergey Lavrov. His visit would be the first made to Moscow by a British Foreign Minister in five years.

When asked what the UK’s approach to Russia should be now, he said that Britain needs to take “a twin-track approach” towards Russia. “As the prime minister has said, we’ve got to engage but we have to beware,” Johnson stated. Despite constantly saying there was solid proof that Russia had meddled in the affairs of other countries, such as by bringing down French TV stations and interfering in US elections, he failed to provide any concrete evidence to back his accusations. Johnson also implicated that Russia was involved in the situation in Montenegro, where a group of Serbian nationalists was arrested in October of 2016 suspected of planning to carry out armed attacks on the day of the country’s parliamentary elections.

The British Telegraph newspaper later reported that the group was sponsored and controlled by the Russian intelligence officers and had actually tried to stage a coup targeting its Prime Minister Milo Djukanovic with “the support and blessing” of Moscow. However, the paper’s report turned out to be based mostly on the assumptions of unidentified sources and Montenegrin Special Prosecutor for Organized Crime, Milivoje Katnic, confirmed that, despite the participation of several suspected “nationalists from Russia,” there was no “evidence that the state of Russia is involved in any sense.”

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Democracy, Transparency, EU.

• Brussels Keeping 2015 Emergency Grexit Plan Locked Away (K.)

European Economic and Monetary Affairs Commissioner Pierre Moscovici has turned down a request from former Greek minister Anna Diamantopoulou for Brussels to make public the emergency plan it drafted in the summer of 2015 for the possibility of a Greek exit from the eurozone. Diamantopoulou, who also served as a European commissioner between 1999 and 2004, wrote to Moscovici earlier this year following a revival of Grexit speculation and asked for the plan to be published so Greeks could be aware of the dangers involved. However, Moscovici suggested in his response, which Diamantopoulou received a few days ago, that publishing the draft would simply fuel damaging speculation and would not be in the public interest as it would endanger financial, monetary and economic stability in Greece.

He also said that the document contains some highly sensitive issues. Parts of the plan, which is said to include emergency humanitarian aid for Greece, were discussed at the College of Commissioners in Brussels a few days before the July 5 referendum in 2015. “In our view, the public interest is best served when citizens know the whole truth about issues that affect their future,” Diamantopoulou, who now heads the Diktyo think tank, told Kathimerini. “When knowledge is absent, speculation, fear and populism flourish and we are left to watch the support for the euro wane day by day, while that for the drachma rises.”

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Japan’s leaders don’t admit failure easily.

• Fukushima Evacuees Face ‘Forced’ Return As Subsidies Withdrawn (G.)

Thousands of people who fled the meltdown at the Fukushima Daiichi nuclear power plant six years ago will soon lose their housing subsidies, forcing some to consider returning despite lingering concerns over radiation in their former neighbourhoods. The measure, condemned by campaigners as a violation of the evacuees’ right to live in a safe environment, will affect an estimated 27,000 people who were not living inside the mandatory evacuation zone imposed after Fukushima became the scene of the worst nuclear accident in Japanese history. The meltdown in three reactors occurred after a magnitude-9 earthquake on 11 March 2011 triggered a powerful tsunami that killed almost 19,000 people along Japan’s north-east coast and knocked out the plant’s backup cooling system.

As a “voluntary” evacuee, Noriko Matsumoto is among those who will have their subsidies withdrawn at the end of this month, forcing them to make a near-impossible choice: move back to homes they believe are unsafe, or face financial hardship as they struggle on living in nuclear limbo. “Many of the other evacuees I know are in the same position,” Matsumoto said at the launch of Unequal Impact, a Greenpeace Japan report on human rights abuses affecting women and children among the 160,000 people who initially fled from areas near the plant. As of last month, almost 80,000 were still displaced. Matsumoto said: “They would still have to contend with high radiation if they returned, but the government is forcing them to go back by withdrawing housing assistance – that’s tantamount to a crime.”

At the time of the incident, Matsumoto was living with her husband and their two daughters in the city of Koriyama, 43 miles (70km) west of the stricken facility, well outside the area where tens of thousands of people were ordered to leave. Matsumoto initially stayed put, but three months later, with her youngest daughter, then aged 12, having nosebleeds, stomach ache and diarrhoea, she left her husband behind and took their children to Kanagawa prefecture, more than 150 miles south of Fukushima. She said: “The government is playing down the effects of radiation exposure … Yet people who don’t return to places like Koriyama after this month will be left to fend for themselves. They will become internally displaced people. We feel like we’ve been abandoned by our government.”

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They should help them, not detain. For what purpose, send them to Turkey?

• Police Raid Athens Squats, Detain Dozens Of Refugees (K.)

Police raided squats in central Athens early on Monday, reclaiming properties and detaining dozens of undocumented migrants. In the first raid, officers entered a building on Alkiviadou Street which has been occupied since February. They transferred 120 migrants from the premises to the Aliens Bureau on Petrou Ralli Street. Police subsequently raided a building in Zografou which has been occupied by members of anti-establishment groups since 2012. Noone was in the building at the time of the raid but they started returning while police were on the premises and seven people were taken to the Athens police headquarters. Riot police units were stationed outside the squat buildings to prevent their reoccupation.

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Refugee issues will keep growing until we help rebuild their countries, and work for stability instead of collateral damage control.

• What Would You Do To Keep Your Children Alive? (I’Cept)

Women and children from Central America began arriving at the U.S.-Mexico border in unprecedented numbers during the summer of 2014. Referring to the “urgent humanitarian situation,” President Barack Obama called on Congress to build new detention centers, hire new immigration judges, and increase border surveillance as tens of thousands of unaccompanied children were detained by U.S. immigration officials. At the same time, the United States backed a Mexican government initiative to increase patrols, detentions, and deportations along Mexico’s southern border. The idea was to stop Central Americans from getting into Mexico, let alone the United States. But the gang violence, kidnappings, and extortion sending families fleeing from the “Northern Triangle” comprising El Salvador, Honduras, and Guatemala hasn’t stopped.


People illegally cross the Suchiate River on the Mexico-Guatemala border – Alice Proujansky

The area has the highest murder rate in the world outside a war zone, and people are still coming to Mexico. Only now, as photographer Alice Proujansky documents, they are taking new routes and facing new dangers. “Entire families arrive with little more than backpacks,” Proujansky said. “Women and children are particularly vulnerable: increased enforcement on freight trains has driven migrants to ride buses and walk on isolated routes where they face robbery, assault, and sexual violence.”

Proujansky spent time with families who were hoping to receive asylum from Mexico. There are no reliable figures on how many people cross the border with Guatemala each year, which is still porous despite increased patrols. But between 2014 and the summer of 2016, Mexico detained 425,000 migrants, according to an analysis of government statistics by the Washington Office on Latin America, or WOLA, a human rights advocacy group. In that same time, only 2,900 people received asylum. Last year, there were some 8,700 applicants, of whom 2,800 have so far received protection. (In 2014, Mexico’s refugee agency had just 15 people to screen thousands of applications.)


Alice Proujansky

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Debt Rattle March 7 2017

Mar 072017
 
 March 7, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , ,  1 Response »


Edward Steichen Marlene Dietrich 1932

 

• The World Economy Can’t Handle Even One US Rate Hike (CNBC)
• Wall Street Investors Make $3 Trillion Since Trump Election Victory (Ind.)
• China Banking System Overtakes Eurozone To Become Biggest In The World (Ind.)
• The Finance Curse (Renegade)
• Money and the Government – Ann Pettifor (Vogue)
• Great Expectations -Not- (Jim Kunstler)
• Manufacturing Consent: The Movie – Journalism Cannot Be A Check On Power (RS)
• 66 Of Government’s 100 Largest Contractors Violated Federal Labor Laws (Ibt)
• UK Housing Benefit Cuts ‘Put Young People At Risk Of Homelessness’ (G.)
• Trump’s New Travel Ban Is Much Narrower – And Possibly Courtproofed (Vox)
• America Has Locked Up So Many Black People It Warps Our Sense Of Reality (WaPo)
• Greek Economy Performed Even Worse Than Expected At The End Of 2016 (BI)
• US Ambassador Pyatt Concerned About “Accident” Between Greece And Turkey (KTG)
• War-Scarred Syrian Children May Be ‘Lost To Trauma’ (AFP)

 

 

What comes after the bubble. Overblown?

• The World Economy Can’t Handle Even One US Rate Hike (CNBC)

Even one small interest rate increase by the Fed could have a sweeping impact on U.S. and world economies, Komal Sri-Kumar told CNBC on Monday. “I think they are going to hike” on March 15, Sri-Kumar said on “Squawk Box,” echoing a theory shared by many analysts. “But that is going to prompt capital outflows from the euro zone, especially with the political risk. It is going to increase the capital outflow from China, and the U.S. economy will feel the impact.” These moves would strengthen the dollar against other currencies, putting downward pressure on the euro, said Sri-Kumar, president of Sri-Kumar Global Strategies. He acknowledged that some of that pressure “is probably good for the European economy from a trade perspective” because European exports would become cheaper to foreign partners.

“The problem is in terms of capital outflows,” he said, cautioning that divestment in Europe could raise risk in overseas markets. “These economies, despite some positive numbers, … they are not in strong enough shape to take an increase in interest rates on the part of the United States.” The reason for this weakness in global markets stems from a long period of liquidity, or market price stability, according to Sri-Kumar. “We have had too long a period of excessive liquidity,” he said. “The markets have been distorted. The bond yields are very, very low, much lower than they would have been in the absence of quantitative easing and zero interest rate policy.” As a result, small changes in the U.S. economy reverberate worldwide, Sri-Kumar said, adding that had the Fed started hiking rates as the country emerged from the 2008 financial crisis, the United States may have been better off.

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That’s going to hurt. Who’s going to be bailed out?

• Wall Street Investors Make $3 Trillion Since Trump Election Victory (Ind.)

Wall Street investors have cashed in big on US President Donald Trump’s election victory. Stocks have added nearly $3 trillion to their paper value since Mr Trump’s election as measured by the Wilshire 5000 Total Market Index. The index, made up of more than 3,000 stocks, including an assortment of big companies, mid-sized businesses and small ones, has gained about 12% since the election. This means the overall increase in market capitalisation of all the US companies in the index jumped $3 trillion between 8 November through 3 March. Mr Trump’s unexpected victory has prompted the steepest rally from election day to inauguration for a first-term president since John F. Kennedy won the White House in 1960.

Last week, the Dow pierced the 21,000 mark for the first time ever after Mr Trump’s measured tone in his first speech to Congress lifted optimism and reassured some investors who had been disconcerted by his aggressive tone and divisive policies. It was just over one month ago that the index surpassed the 20,000 milestone for the first time in its history. The three main stock indexes surged more than 1.3% after the 1 March speech to close at record highs, according to Reuters data. Bank stocks have enjoyed particularly dramatic gains, but other sectors have rallied hard too, spurred by hopes of major tax cuts, regulatory roll-backs and bumper infrastructure spending. Neil Wilson, a market analyst at ETX Capital, last week said that this is the fastest time ever in which the Dow index has risen 1,000 points after a Presidential election.

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As measured in ‘assets’.

• China Banking System Overtakes Eurozone To Become Biggest In The World (Ind.)

China’s banking system is now the biggest in the world, new analysis has shown. The country’s banks have more assets than those of the eurozone for the first time, the Financial Times found. China’s GDP surpassed that of the EU’s economic bloc in 2011 but its banks have taken more time to catch up, helped by a huge explosion in lending since the 2008 global financial crisis. Beijing launched a vast programme of fiscal stimulus in order to combat the effects of economic slowdown, but this has caused concern among some economists that a dangerous debt bubble has formed.

“The massive size of China’s banking system is less a cause for celebration than a sign of an economy overly dependent on bank-financed investment, beset by inefficient resource allocation, and subject to enormous credit risks,” Eswar Prasad, economist at Cornell University and former China head of the IMF, told the FT. Some analysts have said the stimulus has led to wasteful investments, overcapacity in certain industries and unsustainable debt levels. Chinese local governments have financed large infrastructure projects, mostly through debt. Three of the world’s four largest banks by assets are now Chinese. The total assets of the country’s banking system were $33 trillion at the end of 2016; more than the eurozone’s $31 trillion for the eurozone and more than double the US’ $16 trillion. The value of China’s banking system is more than 3.1 times the size of the country’s annual economic output, compared with 2.8 times for the eurozone and its banks, the FT said.

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Excellent Richard Werner, especially the 2nd part, from 16:00 min on. How do banks create money? And how do you solve the problems that rise from that?

“The City of London is not part of the UK. The Queen can’t enter withour permission.”

• The Finance Curse (Renegade)

For many years, we’ve been told that finance is good and more finance is better. But it doesn’t seem everyone in the UK is sharing the benefits. On this program, we ask a very simple question – can a country suffer from a finance curse? Host Ross Ashcroft is joined by City veteran David Buik and the man who coined the term Quantitative Easing, International Banking and Finance Professor Richard Werner.

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“A well-managed economy has the means to fund any priority it holds dear.”

• Money and the Government – Ann Pettifor (Vogue)

Let’s start with the obvious question: What is money?As the economist Joseph Schumpeter said, money is nothing more than a promise, a promise to pay. It’s a social construct. Coins, checks, the credit card you hand over at the till—they’re representative of those promises. We’re trained to think of money as a commodity, something there’s a limited supply of, that you can either spend or save, but in fact we’re creating money all the time, by making these promises. When you use a credit card, you’re not handing over your card to the shopkeeper or the waiter to keep, you’re just showing them a piece of plastic that says, “this person can be trusted.” We make myriad uses of these arrangements every day. And there’s far more of those promises in circulation at any given time than there is hard money sitting in vaults, or in people’s wallets, or wherever.

And what does understanding money-as-promise have to do with feminism? Most orthodox economists would have you think of money as finite, like a commodity. Which makes it very easy for politicians to say, when you come asking for paid maternity leave, or government-subsidized childcare, Sorry, ma’am, there’s no money in the budget for that. But you’ll note that they don’t reach for that excuse when they have other priorities—when they want $54 billion for military spending, for instance, or a trillion dollars to bail out the banks, suddenly the money is magically available. A well-managed economy has the means to fund any priority it holds dear.

But surely the government runs a budget, and the government we elect sets priorities for how to spend the money that it has. And some governments prioritize military spending, and others prioritize childcare . . . I’ll give you an example of what I mean. When the Federal Reserve decided to bail out AIG in 2008, a lot of journalists were asking Ben Bernanke: Hey, are you spending taxpayer money on this? And his answer was, no, we’ve just entered this $85 billion into their account. In exchange, AIG had to put up collateral, as you do when you take out a mortgage, but fundamentally, all the Fed was doing was typing some numbers into a computer that said: This belongs to AIG. Where taxpayers come into this is the Fed’s ability to make sure that $85 billion loan is backed by the money people pay to the U.S. government in taxes. Not what the government has on hand now, but what it anticipates taking in next year, five years, 100 years from now.

And there you have two issues: The issue of a well-managed economy, and the issue of how a government is different from an individual or a family where budgets are concerned. Politicians who advocate for austerity measures—cutting spending—like to say that the government ought to run its budget the way women manage our households, but unlike us, the government issues currency and sets interest rates and so on, and the government collects taxes. And if the government is managing the economy well, it ought to be expanding the numbers of people who are employed and therefore paying income tax and tax on purchases—purchases that turn a profit for businesses which then hire more employees, and on and on it goes. That’s called the multiplier effect, and for 100 years or so, it’s been well understood. And it’s why governments should invest not in tax breaks for wealthy people, but in initiatives like building infrastructure.

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“..around June sometime the country won’t be able to pay invoices, issue salaries, send out entitlement checks, or do anything, really. It means pure government paralysis.”

• Great Expectations -Not- (Jim Kunstler)

Halloween’s coming super-early this year and it will be a shocking surprise to those currently busy looking for Russians behind every potted plant in Washington DC. First, accept the premise that your country has lost its mind. This is what happens when societies (and individuals) can’t face the true quandaries of a particular moment in their history. All of their attention gets channeled into fantasy: spooks, sexual freakery, conspiracies, persecution narratives, savior fairy tales. It’s been quite a cavalcade of unreality for the past six months, with great entertainment value for connoisseurs of the bizarre — until you’re reminded that the fate of the nation is at stake. The questions Americans might more profitably ask ourselves: can we continue living the way we do? And by what means?

These matters of home economics have been sequestered in some forgotten storage unit of the collective mind for at least a year while a clock ticks in the time-bomb that sits on the national welcome mat. That bomb is made of financial plutonium and it’s getting ready to blow. When it does, all the distracting spookery and freakery will vaporize and the shell-shocked citizens will have a clear view of the bleak, toxic, devastated landscape they actually inhabit. March 15 is when the temporary suspension of the national debt ceiling — engineered in a 2015 deal between Barack Obama and then House Speaker John Boehner — finally expires, meaning the government loses its authority to continue borrowing money. The chance that congress can pass a bill raising the debt ceiling to enable further borrowing is about the same as the chance that Xi Jinping will send every American household a dim sum breakfast next Sunday morning by FedEx.

The US treasury will then be left with around $200 billion in walking-around money, at a burn rate of about $90 billion a month — meaning that that around June sometime the country won’t be able to pay invoices, issue salaries, send out entitlement checks, or do anything, really. It means pure government paralysis. It means no infrastructure spending jamboree, no “great” wall, no military shopping spree, none of the Great Expectations sewn into the golden fleece of Trumptopia. Meanwhile, over the next few weeks, Janet Yellen and her crew of economic astrologasters at the Federal Reserve will have to put up or shut up vis-à-vis raising the interest rate on the basic overnight lending rate. The Las Vegas odds of it being raised currently stand at around 95%.

So, they will be running that play around the time that the debt ceiling issue materializes into a live-action event. Of course, the Fed could welsh on its carefully-scripted previous hints and utterances and do nothing. But that option would probably extinguish the last remaining shreds of the Fed’s credibility, since they’ve been jive-talking about raising rates since they began “tapering” the QE bond-buying spree in the spring of 2013, i.e., a long time ago. The Fed’s credibility is synonymous with the dollar’s credibility. Look out below.

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“Democracy is staged with the help of media that work as propaganda machines.”

• Manufacturing Consent: The Movie – Journalism Cannot Be A Check On Power (RS)

Nearly 30 years before President Trump’s press gaggle last Friday, Noam Chomsky and Edward Herman authored ‘”Manufacturing Consent“, a book that radically redefined mass media’s relationship with the state. Now, in the age of fake news and alt facts, Democracy Now! co-founder Amy Goodman and animator Pierangelo Pirak have teamed up to give new life to the world renowned linguist and media analyst’s famed work. “Propaganda,” Goodman begins in her narration of the cartoon. “Many use the word when talking about countries like North Korea, Kazakhstan, Iran, Countries viewed as authoritarian through the lens of the western media. ‘Press freedom’. ‘Freedom of thought’. People use those terms when talking about countries like the United States, France, Australia. ‘Democracies’.”

In 1988, “Manufacturing Consent” “blasted apart the notion that media acts as a check on political power,” Goodman explains as a myriad of mouthy orange villains murmur ominously in a machine-like universe. “That media inform the public, serve the public so that we can better engage in the political process,” Goodman continues. “In fact, media manufacture our consent. They tell us what those in power need them to tell us … so we can fall in line. Democracy is staged with the help of media that work as propaganda machines.”

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This happened in 8 years of Obama. Calling on Trump now seems a bit strange in that light. First ask yourself: why did Obama fail so badly?

• 66 Of Government’s 100 Largest Contractors Violated Federal Labor Laws (Ibt)

Federal contractors, who employ about 20% of all American workers and receive $500 billion in taxpayer funds annually, have been stealing wages and endangering workers despite Obama administration policies designed to protect workers, Sen. Elizabeth Warren said in releasing a report Monday. The report comes as the Trump administration prepares to slash regulations, and the Senate is scheduled to vote Monday on repealing the Fair Pay and Safe Workplaces executive order issued by former President Barack Obama, which would make it easier for federal contractors to hide labor law violations and make it harder for companies following the rules to do business with the government, Warren said. “All Americans deserve a safe workplace and fair pay for a day’s work,” Warren, D-Mass., said. “But too often, federal contractors break labor laws while continuing to suck down millions in taxpayer dollars.

Instead of making it easier for companies to cheat their employees or threaten workers’ health and safety, President Trump and Republicans in Congress should join Democrats in standing up for the hardworking Americans who do important jobs for our country.” The report indicates 66 of the largest 100 federal contractors have violated federal wage and hour laws, and a third of the largest penalties levied since 2015 were imposed by the Occupational Safety and Health Administration. Some violations have been fatal, including four in a single year at Goodyear. [..] The employer with the most wage and hour violations nationwide was AT&T with nearly 30,000, the report said. Another major violator was private prisons operator Corrections Corporation of America, now known as CoreCivic, with more than 21,000 violations. When it came to federal contracts specifically, Manpower Group racked up the most violations with 19,838, followed by USProtect Corp. with 7,263 and Management & Training Corp. with 5,519.

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The UK as a caring society does not exist anymore. The sick, the old, the young, all the most vulnerable groups are targeted.

• UK Housing Benefit Cuts ‘Put Young People At Risk Of Homelessness’ (G.)

The government’s move to exclude young people from receiving housing benefit could bar most of them from the private rental market, a landlords’ association has warned, as charities said the decision could leave thousands at risk of homelessness. Amid widespread anger among charities at the decision to strip housing benefit entitlement from single people aged 18 to 21, the National Landlords Association (NLA) said one effect would be to put off most of its members from housing young tenants on benefits. “The message that will go out from these changes is that 18- to 21-year-olds don’t have automatic entitlement to housing benefit,” said Richard Lambert, the NLA’s chief executive. “Yes, there are all these exceptions in the actual policy, but the nuances won’t cut through. I wouldn’t go as far to say young people will be totally excluded, but they’re going to find it very, very difficult.”

The change, first mooted under David Cameron in 2012 and outlined in the 2015 Conservative party manifesto, was pushed through without fanfare in a ministerial directive to parliament late on Friday. It means that from 1 April, new single claimants aged 18 to 21 will not be entitled to the housing element of universal credit unless they fall into certain categories. The exceptions include people with children, or those where to continue living with their parents would bring a “serious risk to the renter’s physical or mental health” or would otherwise cause “significant harm”. While such categories are broad, homelessness charities warned that to prove such potential harm would be so difficult that many young people would instead opt to sleep rough or sleep on friends’ sofas instead.

“As we’ve seen before, the bureaucracy of the welfare state is not good at capturing people in delicate situations,” said Kate Webb, head of policy for Shelter. “This is particularly so if we’re talking about 18- or 19-year-olds who have suffered really unpleasant, very personal things at home, and don’t want to disclose that to someone.” Webb said that even those who wished to claim the exception would struggle to find a landlord willing to take them on. “If you’re a landlord now, every 18- to 21-year-old is a risk,” she said. “You have no reason to believe that someone will be eligible for an exemption. The idea this is going to work in practice is fanciful. “It’s a real worry – there is no way this isn’t going to lead to an increase in rough sleeping.”

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Good and detailed overview. It’s going to be a legal fight every step of the way.

• Trump’s New Travel Ban Is Much Narrower – And Possibly Courtproofed (Vox)

The first version of President Donald Trump’s refugee and visa ban — the one he signed on January 27, in place for only a week before federal courts put it on hold — was an ambitious disaster. It attempted, literally overnight, to prevent people who had already bought plane tickets from entering America. It posed a substantial problem for people currently living in the US who might want to travel abroad. And it turned preference for “persecuted religious minorities” into a cornerstone of US refugee policy. The latest version of the executive order, signed by Trump Monday, does none of those things. It all but admits that the administration overreached the first time, provoking a legal and political backlash that could have been avoided.

What it offers, instead, is a much more narrowly tailored and thoughtfully considered version of the ban — one that’s much more likely to stand up in court. The administration has done basically all it can to judgeproof the new executive order. It was a foregone conclusion that immigration advocates and Democratic prosecutors would sue to stop the 2.0 executive order just as they stopped the first one, but it’s a lot less clear that they’ll succeed this time around. The first version of President Donald Trump’s refugee and visa ban — the one he signed on January 27, in place for only a week before federal courts put it on hold — was an ambitious disaster. It attempted, literally overnight, to prevent people who had already bought plane tickets from entering America. It posed a substantial problem for people currently living in the US who might want to travel abroad.

And it turned preference for “persecuted religious minorities” into a cornerstone of US refugee policy. The latest version of the executive order, signed by Trump Monday, does none of those things. It all but admits that the administration overreached the first time, provoking a legal and political backlash that could have been avoided. What it offers, instead, is a much more narrowly tailored and thoughtfully considered version of the ban — one that’s much more likely to stand up in court. The administration has done basically all it can to judgeproof the new executive order. It was a foregone conclusion that immigration advocates and Democratic prosecutors would sue to stop the 2.0 executive order just as they stopped the first one, but it’s a lot less clear that they’ll succeed this time around.

If Trump officials could only make everyone forget that the first version of the executive order existed at all, they’d be golden. Unfortunately for them, they can’t. Between the chaos of the first executive order and the internal tussles over the drafting of the second, “travel ban 2.0” is already associated in the public mind with its more aggressive predecessor. And federal judges may be similarly disinclined either to forgive or forget.

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Obama had 8 years to do something about this. What happened?

“America has locked up so many people it needs to rethink how it measures the economy…”

“Black Americans are twice as likely as whites to be out of work and looking for a job — the same ratio as in 1954..”

• America Has Locked Up So Many Black People It Warps Our Sense Of Reality (WaPo)

For as long as the government has kept track, the economic statistics have shown a troubling racial gap. Black people are twice as likely as white people to be out of work and looking for a job. This fact was as true in 1954 as it is today. The most recent report puts the white unemployment rate at around 4.5%. The black unemployment rate? About 8.8%. But the economic picture for black Americans is far worse than those statistics indicate. The unemployment rate only measures people who are both living at home and actively looking for a job. The hitch: A lot of black men aren’t living at home and can’t look for jobs — because they’re behind bars. Though there are nearly 1.6 million Americans in state or federal prison, their absence is not accounted for in the figures that politicians and policymakers use to make decisions. As a result, we operate under a distorted picture of the nation’s economic health.

There’s no simple way to estimate the impact of mass incarceration on the jobs market. But here’s a simple thought experiment. Imagine how the white and black unemployment rates would change if all the people in prison were added to the unemployment rolls. According to a Wonkblog analysis of government statistics, about 1.6% of prime-age white men (25 to 54 years old) are institutionalized. If all those 590,000 people were recognized as unemployed, the unemployment rate for prime-age white men would increase from about 5% to 6.4%. For prime-age black men, though, the unemployment rate would jump from 11% to 19%. That’s because a far higher fraction of black men — 7.7%, or 580,000 people — are institutionalized. Now, the racial gap starts to look like a racial chasm. (When you take into account local jails, which are not included in these statistics, the situation could be even worse.)

“Imprisonment makes the disadvantaged literally invisible,” writes Harvard sociologist Bruce Western in his book, “Punishment and Inequality in America.” Western was among the first scholars to argue that America has locked up so many people it needs to rethink how it measures the economy. Over the past 40 years, the prison population has quintupled. As a consequence of disparities in arrests and sentencing, this eruption has disproportionately affected black communities. Black men are imprisoned at six times the rate of white men. In 2003, the Bureau of Justice Statistics estimated that black men have a 1 in 3 chance of going to federal or state prison in their lifetimes. For some high-risk groups, the economic consequences have been staggering. According to Census data from 2014, there are more young black high school dropouts in prison than have jobs.

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A Greek recovery is not possible. All this is theater. Tsipras said Greece was back to growth, about half an hour before this report came out.

• Greek Economy Performed Even Worse Than Expected At The End Of 2016 (BI)

Greece’s economy performed much worse than forecast in the final quarter of 2016, according to the latest data from the country’s statistical service Elstat. GDP shrank 1.2% in Q4 of 2016 — marking the worst quarterly performance for the stricken southern European economy since the heart of its debt crisis in the summer of 2015. A previous first estimate of GDP in the quarter suggested that the economy shrunk just 0.4%, but the final figure is significantly worse. The data comes just days after the country’s central bank governor Yannis Stournaras said that international lenders should lower the country’s fiscal targets from 2021 onwards to help boost its growth potential.

“The easing of the primary surplus targets, together with the implementation of the agreed structural reforms, would put the necessary conditions in place for a gradual lowering of tax rates, with positive multiplier effects on economic growth,” Stournaras said at an event over the weekend. Greece is in the middle of a major tug of war between its creditors over how its current bailout packages are handled. A second review of its bailout has dragged on for months, mainly due to differences between the EU and the International Monetary Fund over Greece’s fiscal targets in 2017, when its current bailout programme expires. The IMF favours a softer approach to fiscal conditions, saying in a report in February that additional austerity measures and spending cuts would not improve Greece’s financial prospects in the longer term.

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Never trust Pyatt.

• US Ambassador Pyatt Concerned About “Accident” Between Greece And Turkey (KTG)

US Ambassador to Greece Geoffrey Pyatt expressed concern about the possibility of an “accident” between Greece and Turkey due to the increased activity in the Aegean Sea in recent weeks. At the same time, Pyatt praised the Greek government’s responsible attitude at a time of heightened tension and for the financial contributions of the indebted state to the NATO. Pyatt made these remarks speaking to a journalist at the side of the Delphi Economic Forum over the weekend. Regarding on the Cyprus issue, meanwhile, he said the new U.S. administration will continue its efforts for a solution. Turning to economic affairs and the role of the IMF, the ambassador said that he had not observed any change in the attitude of the new U.S. leadership, expressing U.S. support for growth in Greece.

Pyatt also referred to the importance of transatlantic relations, with emphasis on NATO and bilateral ties. “I want to see Greece play an even greater role as a pillar of regional stability,” he added. “Economic stability and prosperity are important elements of any effort to broaden Greece’s role in this region and in Europe. And, therefore, my number one priority is to sustain the U.S. effort to spur growth and support economic recovery in Greece,” the ambassador said, “As Greece demonstrates its commitment to reform and builds additional trust with its creditors, I am convinced that new investments, both by foreign investors and domestic ones, will buoy the economy and create new jobs,” he added. Pyatt said that the U.S. government was eager to see U.S. companies expand existing investments and invest in new ventures in Greece.

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“Children wish they were dead and that they would go to heaven to be warm and eat and play..”

• War-Scarred Syrian Children May Be ‘Lost To Trauma’ (AFP)

Syrian children terrified by shelling and airstrikes are showing signs of severe emotional distress and could grow up to be a generation “lost to trauma,” Save the Children warned Monday. Interviews with more than 450 children and adults showed a high level of psychological stress among children, with many suffering from frequent bedwetting or developing speech impediments. At least three million children are estimated to be living in Syria’s war zones, facing ongoing bombing and shelling as the conflict heads into its seventh year. Two-thirds of those interviewed by the aid organization have lost a loved one or had their house bombed or shelled, or suffered war-related injuries themselves.

“After six years of war, we are at a tipping point,” said the report entitled “Invisible Wounds” on the war’s impact on children’s mental health. “The risk of a broken generation, lost to trauma and extreme stress, has never been greater,” it said. A staggering 84% listed bombing and shelling as the number one cause of stress in children’s daily lives. About 48% of adults reported that children had lost the ability to speak or developed speech impediments since the start of the war. Some 81% of children have become more aggressive while 71% suffer from frequent bedwetting, according to the research. Half of those interviewed said domestic abuse was on the rise and one in four children said they don’t have a place to go or someone to talk to when they are scared, sad or upset.

Sonia Khush, Save the Children’s Syria director, cited instances of attempted suicide and self-harm. In the besieged town of Madaya, six teenagers – the youngest a 12-year-old girl – have attempted suicide in recent months, said Khush. The report quoted a teacher in Madaya who said children there were “psychologically crushed and tired.” “They draw images of children being butchered in the war, or tanks, or the siege and the lack of food.” “Children wish they were dead and that they would go to heaven to be warm and eat and play,” said Hala, another teacher in Madaya.

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Debt Rattle March 4 2017

Mar 042017
 
 March 4, 2017  Posted by at 9:42 am Finance Tagged with: , , , , , , , , , ,  4 Responses »


DPC Pine Street below Kearney after the great San Francisco earthquake and fire 1906

 

• Yellen Points To March Rate Hike As Fed Signals End Of Easy Money (R.)
• The Fed Is Embarking On A Path That Usually Ends With A Recession (Udland)
• A Selloff Is Looming As Fear Stalks The Stock Market Rally (MW)
• Medicine In The USA Is A Hostage Racket (Jim Kunstler)
• Chevron Warns Future Oil Drilling May Be ‘Economically Infeasible’ (Ind.)
• Germany-Turkey War Of Words Escalates (BBC)
• UK Could Quit EU Without Paying A Penny (G.)
• Greece Should Be Added to ECB’s QE Bond-Buying List (BBG)
• To Solve Refugee Crisis, Stop Funding Terrorism – Tulsi Gabbard (TAM)
• Austria To Stop Giving Food, Shelter To Rejected Asylum Seekers (ZH)
• US Considers Separating Women And Children Who Enter Country Illegally (G.)
• Parents Fearing Deportation Pick Guardians For US Children (R.)

 

 

‘The end of easy money’ will only come through collapse.

• Yellen Points To March Rate Hike As Fed Signals End Of Easy Money (R.)

The U.S. Federal Reserve’s long-stalled ‘liftoff’ of interest rates may finally get airborne this year as policymakers from Chair Janet Yellen on Friday to regional leaders across the United States signaled that the era of easy money is drawing to a close. Yellen capped off a seemingly coordinated push from the central bank on Friday when she cemented the view that the Fed will raise interest rates at its next meeting on March 14-15, and likely be able to move faster after that than it has in years. It’s a welcome turn for the Fed chair, who has hoped to get rates off the ground throughout her three-year tenure, and now sees the economy on track and investors aligned around the idea.

“At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate,” Yellen said at a business luncheon in Chicago. “The process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016,” she added. Stocks were up slightly, and futures tied to rate-hike expectations moved little on Yellen’s remarks. The comments from Fed speakers this week had already pushed market pricing of a March hike to 80%. The Fed has struggled for the past three years to raise interest rates off the zero lower bound as the U.S. economy slowly healed after the Great Recession. Issues from sluggish inflation globally to the dampening effect of a strong dollar and low energy prices blew them off course. By contrast, 2017 may be the year the Fed is able to follow through on its forecast of three rate hikes.

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Central bank manipulation is a craziness that can end in one way only.

• The Fed Is Embarking On A Path That Usually Ends With A Recession (Udland)

Stocks are at record highs. And while the Trump administration’s early days have been filled with internal political chaos, the market’s reaction has continued to remain positive. On Wednesday, when U.S. stocks had their best day of the year, the popular SPY ETF, which tracks the S&P 500, saw $8.2 billion in new inflows, its single-best day since December 2014. But something else happened on Wednesday that should have equity bulls quite a bit more concerned: markets got behind the idea the Federal Reserve will raise interest rates in March and, perhaps, be more aggressive about raising rates in than previously expected.On Friday, Fed Chair Janet Yellen signaled that a March rate hike is on the table and said the pace of the Fed raising rates in 2017 would likely exceed that seen in 2015 and 2016.

And while an accomodative Fed has been seen as a backstop for markets during the post-crisis bull run higher, a tighter Fed is bad news for stocks because when rates begin to rise, the end of the bull market has already been signaled. As we highlighted in our daily market outlook post, David Rosenberg at Gluskin Sheff wrote Thursday that, “Monetary policy is profoundly more important to the markets and the economy than is the case with fiscal policy, though all the Fed is doing now is removing accommodation.” Rosenberg added that, “there have been 13 Fed rate hike cycles in the post-WWII era, and 10 landed the economy in recession. Soft landing are rare and when they have occurred, they have come in the third year of the expansion, not the eighth.”


The gray bars mark recessions. Ahead of recessions, rates usually rise. Right now, rates are set to rise.

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Fear vs greed.

• A Selloff Is Looming As Fear Stalks The Stock Market Rally (MW)

Wall Street’s so-called fear index has started to move in lockstep with stock prices and that has one money manager warning of an impending selloff even as market sentiment remains fairly stable. Jesse Felder, founder of the Felder Report and an alumni of Bear Stearns, on Friday shared a chart that showed an increasingly positive correlation between the S&P 500 and the CBOE Market Volatility Index. “Normally stocks and the VIX move in opposite directions…and it makes sense that rising stock prices mean less fear and vice versa,” said Felder. However, that reverse relationship has started to change in recent days as expectations of a market correction mount.

The VIX is a measure of the market’s expectation for volatility over the next 30 days and is calculated from the implied volatilities of S&P 500 index options. A low reading indicates a placid market while a higher number suggests elevated uncertainty. “The options market is pricing in greater volatility ahead even though stocks don’t yet reflect this same dynamic,” Felder told MarketWatch. “Over the past few years this signal has preceded anywhere from a 2% to a 10% correction.”

That this trend comes on top of the 10-year Treasury yield’s nearly 40% surge over the past year as the Federal Reserve prepares to tighten monetary policy suggest risky assets such as equities will face significant selling pressure. Analysts are projecting the Fed to raise interest rates three times this year, a view reinforced by comments from Fed Chairwoman Janet Yellen on Friday that a rate hike at the next Federal Open Market Committee in mid-March is likely. “The Fed looks like it will take its third step toward tightening here soon so it might pay to remember the old Wall Street adage ‘three steps and a stumble.’ For these reasons, I think the chance of a major reversal is higher than it has been in the past,” he said.

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“Some things are too big to fail; some are too broken to fix.”

• Medicine In The USA Is A Hostage Racket (Jim Kunstler)

The ObamaCare quandary. A fiasco for sure. Under it, not uncommonly, a family pays $12,000-a-year for a policy that carries a $5,000 deductible. That’s an interesting number in a land were most people don’t even have enough ready cash for routine car repairs. The cruel and idiotic injustice of such a set-up could only happen in a society that has normalized pervasive lying, universal accounting fraud, and corporate racketeering. I personally doubt the existing health care system can be reformed. Anyway, we’re starting in the wrong place with it. The part that nobody talks about is the psychopathic pricing system that drives medicine. The average cost for a normal (non-surgical) hospital childbirth in America these days is $10,000. WTF? An appendectomy: between $9,000 and $20,000 depending on where. WTF?

These days, a hip replacement runs about $38,000. Of course, you will never find out what a treatment or procedure costs before-the-fact. They simply won’t tell you. They’ll say something utterly ridiculous like, “we just don’t know.” You’ll find out when the bills roll in. Last time I had a hip replacement, I received a single line-item hospital charge report from the insurance company that said: “Room and board, 36 hours… $23,000.” Say what? This was apart from the surgeon’s bill and the cost of the metal implant, just for occupying a bed for a day and a half pending discharge. They didn’t do a damn thing besides take my blood pressure and temperature a dozen times, and give me a few hydrocodone pills.

The ugly truth, readers, is that medicine in the USA is a hostage racket. They have you in a tight spot at a weak moment and they extract maximum payment to allow you to get on with your life, with no meaningful correlation to services rendered — just whatever they could get. Until these racketeers are compelled under law to post their prices openly and transparently, no amount of tweaking the role of insurers or government policy will make any difference. Note, too, that there is a direct connection between the outrageous salaries of hospital executives and their non-transparent, dishonest, and extortionist pricing machinations. The pharma industry is, of course, a subsidiary racket and needs to be subject to the kind of treatment the Department of Justice used to dispense to the likes of the Teamsters Union.

The healthcare system probably will not be reformed, but rather will collapse, and when it does, it will reorganize itself in a way that barely resembles current practice. For one thing, citizens will have to gain control over their own disastrous behavior, especially their eating, or else suffer the consequences, namely an early death. Second, the hospital system must be decentralized so that localities are once again served by small hospitals and clinics. The current system represents a mergers-and-acquisitions orgy that went berserk the past quarter century. The resulting administrative over-burden at every medical practice in the land is a perfectly designed fraud machine for enabling rackets. Preliminary verdict: congress will get nowhere in 2017 trying to fix this mess. Some things are too big to fail; some are too broken to fix. The coming debacle in finance, markets, and currencies will speed its demise.

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Because of climate legislation.

• Chevron Warns Future Oil Drilling May Be ‘Economically Infeasible’ (Ind.)

In an industry first, one of the world’s biggest oil companies has warned it could face legal action over climate change. Chevron, the California-based multinational, admitted it could be the subject of “governmental investigations and, potentially, private litigation” because of its role in causing global warming. And the firm added that regulations designed to reduce greenhouse gas emissions might also render the “extraction of the company’s oil and gas resources economically infeasible”. Environmentalists suggested the decision to admit the threat to the company could be a reaction to legal case brought last year against Exxon Mobil by the Boston-based Conservation Law Foundation, which alleges the fossil fuel company tried to discredit climate science despite knowing the risks in order to make money.

Chevron was one of a number of oil firms targeted in a campaign by the Union of Concerned Scientists in the US to “stop funding climate disinformation”. And, in an official filing about the state of its financial health to the US Securities and Exchange Commission (SEC), the company lays out possible reasons why it might have been in its interest to cast doubt on scientific evidence that its products are causing a problem. Laws requiring the reduction of emissions – like legislation that could be in the UK Government’s long-delayed Emissions Reduction Plan – “may result in increased and substantial … costs and could, among other things, reduce demand for hydrocarbons”, Chevron said in a section called “risk factors”.

“In the years ahead, companies in the energy industry, like Chevron, may be challenged by an increase in international and domestic regulation relating to greenhouse gas emissions,” it said. “Such regulation could have the impact of curtailing profitability in the oil and gas sector or rendering the extraction of the company’s oil and gas resources economically infeasible.”

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Makes me fear for Greece.

• Germany-Turkey War Of Words Escalates (BBC)

A row between Ankara and Berlin over a series of cancelled Turkish political rallies in Germany is continuing to escalate. On Friday, Turkish President Recep Tayyip Erdogan accused Berlin of “aiding and harbouring” terror. He said a German-Turkish journalist detained by Turkey was a “German agent” and a member of the outlawed Kurdish militant group, the PKK. A source in Germany’s foreign ministry told Reuters the claims were “absurd”. Earlier German Chancellor Angela Merkel said she respected local authorities’ decisions to cancel rallies that Turkey’s justice and economy ministers had been scheduled to address. Turkey is trying to woo ethnic Turkish voters ahead of a key referendum. About 1.4 million Turks living in Germany are eligible to vote in the April referendum, in which President Erdogan aims to win backing for sweeping new powers.

The constitutional changes would boost Mr Erdogan’s presidency and significantly weaken parliament’s role. Turkish officials have been angered after local German officials withdrew permission for rallies in Gaggenau, Cologne and Frechen. Gaggenau authorities had said there was insufficient space for the rally, while Cologne officials said they had been misled about the purpose of the event. Turkish Justice Minister Bekir Bozdag, who had been due to speak in Gaggenau, said he saw “old illnesses flaring up” between the two Nato allies. Meanwhile, Turkish Foreign Minister Mevlut Cavusoglu accused the German government of backing opposition to Mr Erdogan’s planned constitutional changes. He said: “You are not Turkey’s boss. You are not a first class [country] and Turkey is not second class. We are not treating you like that, and you have to treat Turkey properly. “If you want to maintain your relations with us, you have to learn how to behave.”

Germany’s foreign ministry said the central government had nothing to do with the cancellations, and Ankara should refrain from “pouring oil on the fire”. The growing row is troubling for Chancellor Merkel because she persuaded Turkey to help block the surge of migrants – many of them Syrian refugees – into the EU. Separately, the Dutch government on Friday described plans for a Turkish referendum campaign rally in Rotterdam as “undesirable”. Turkish Foreign Minister Mevlut Cavusoglu was reportedly meant to attend the rally scheduled for 11 March. Ties between Berlin and Istanbul are also strained over Turkey’s arrest of Deniz Yucel, a journalist who works for Die Welt. Mr Yucel “hid in the German embassy as a member of the PKK and a German agent for one month”, Mr Erdogan said. “When we told them to hand him over to be tried, they refused.” German’s foreign ministry called the spy claims “absurd”. Ms Merkel, referring to the case earlier, told reporters in Tunis: “We support freedom of expression and we can criticise Turkey.”

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The EU’s position in the talks will weaken as the union crumbles.

• UK Could Quit EU Without Paying A Penny (G.)

The UK could walk away from the European Union in 2019 without paying a penny, the House of Lords has said, in a report bound to raise tensions with Brussels in the run-up to Brexit talks. The British government would have no legal obligation to either pay a €60bn Brexit bill mooted by the European commission or honour payments into the EU budget promised by the former prime minister David Cameron, according to analysis by the House of Lords EU financial affairs sub-committee. In a report published on Saturday, the committee argues that the British government would be on strong legal ground if it chose to leave the EU without paying anything, adding that Brussels would have no realistic chance of getting any money.

The peers stress, however, that if the government wants goodwill from EU countries and a deal on access to European markets, agreement on the budget will be important. “The UK appears to have a strong legal position in respect of the EU budget post-Brexit and this provides important context to the article 50 negotiations,” said Lady Falkner of Margravine, the Liberal Democrat peer who chairs the sub-committee. “Even though we consider that the UK will not be legally obliged to pay into the EU budget after Brexit, the issue will be a prominent factor in withdrawal negotiations. The government will have to set the financial and political costs of making such payments against potential gains from other elements of the negotiations.”

[..] The peers’ argument will be toxic to the EU’s chief Brexit negotiator, Michel Barnier, whose staff drew up the mooted bill ranging from €55bn-€60bn. This covers the UK’s share of EU civil staff pensions, unpaid bills and decommissioning nuclear power plants. Barnier is expecting the UK to pay into the EU budget in 2019 and 2020, putting the UK on the hook for payments worth £12.4bn, agreed by Cameron in 2013. The EU’s €1tn, seven-year budget was negotiated in late 2013 by EU leaders including the British prime minister. It is due to expire at the end of 2020, although bills may be trickling in until 2023. This reflects that payments for EU-funded infrastructure projects, such as roads or airports, are not settled until two to three years after being promised.

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There is no reason for the ECB not to include Greece. Never was. It’s pure economic strangulation.

• Greece Should Be Added to ECB’s QE Bond-Buying List (BBG)

Greece and its creditors look poised to strike a deal that will allow the nation to draw down aid and avoid defaulting on its debts in July. That sounds good, but it is, in fact, just a fudge. What’s needed instead is for the country to regain access to capital markets in its own right. To help make that happen, the European Central Bank should add Greek bonds to the list of securities eligible for purchase under its quantitative easing program.

The deal Greece is about to agree with its European partners and the IMF is the latest in a long line of compromises that have failed to address the core issue – that Greece’s debts, now 170% of economic output, are so burdensome they are preventing a recovery. The IMF is right to argue that Greece needs additional debt relief on the €174 billion it owes to the European Financial Stability Facility and the European Stability Mechanism. With elections looming this year in the Netherlands, France and Germany, however, details about that relief will probably have to wait until next year; voters don’t want to hear about Greek bailouts right now. But the ECB can act swiftly to include Greek bonds in its asset purchase program.

German Chancellor Angela Merkel has told ECB President Mario Draghi that she’s willing to let inclusion in his QE program be used as an incentive to persuade Greece to agree to the new deal, the Greek news service Kathimerini reported on Wednesday, without identifying the source of its information. Draghi has made a new agreement between Greece and its lenders a condition of adding Greek debt to the 60 billion euros of bonds the central bank will buy from April, as it scales back the monthly program from 80 billion euros. Greek Prime Minister Alexis Tsipras told lawmakers last week that he’s hopeful the latest bailout review can be completed by March 20, when euro-region finance ministers are scheduled to meet in Brussels.

While Greek yields have declined in recent weeks, they remain too high for the country to attempt to tap the markets. Greece’s two-year borrowing cost of about 7%, for example, compares with just 2% for Italy and 1.7% for Spain, both of which have benefited from the support of ECB purchases:

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“..never once laying blame to the U.S. military establishment for spending over $1 billion a year arming Syrian rebels.”

• To Solve Refugee Crisis, Stop Funding Terrorism – Tulsi Gabbard (TAM)

Democratic Congresswoman Tulsi Gabbard, the politician who previously accused the U.S. of arming ISIS, is still calling on the U.S. government to stop its disastrous regime change policies in the Middle East. According to a press release made public on Tuesday, Gabbard has again called for the U.S. to stop aiding terrorists like al-Qaeda and ISIS. Gabbard’s guest at the presidential address to Congress, a Kurdish refugee activist, also called for an end to the U.S. policy of “regime change in Syria.” Gabbard said:

“In the face of unimaginable heartbreak, Tima has been a voice for the voiceless, a champion for refugees worldwide, and a strong advocate for ending the regime change war in Syria. I am honored to welcome her to Washington tonight as we raise our voices to call on our nation’s leaders to end the counterproductive regime change war in Syria that has caused great human suffering, refugees, loss of life, and devastation. We urge leaders in Congress to pass the Stop Arming Terrorists Act and end our destructive policy of using American taxpayer dollars to provide direct and indirect support to armed militants allied with terrorist groups like al-Qaeda and ISIS in Syria, who are fighting to overthrow the Syrian government.”

Gabbard also reportedly told Russian state-owned news station RT: “For years, our government has been providing both direct and indirect support to these armed militant groups, who are working directly with or under the command of terrorist groups like Al-Qaeda and ISIS, all in their effort and fight to overthrow the Syrian government.” The activist, Tima Kurdi, is more widely known as the aunt of a three-year-old boy who drowned on the shores of Turkey in September 2015. The image went viral on social media and was easily manipulated by the mainstream media to further the United States’ agenda in the region, never once laying blame to the U.S. military establishment for spending over $1 billion a year arming Syrian rebels.

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Welcome to Europe. It’s the same as America.

• Austria To Stop Giving Food, Shelter To Rejected Asylum Seekers (ZH)

In a bill aimed at encouraging asylum seekers to leave voluntarily, Austrian lawmakers are considering halting the provision of food and accommodation to migrants who are denied asylum and refuse to leave the country. Austria took in roughly 90,000 asylum seekers in 2015, more than 1 percent of its population, as it was swept up in Europe’s migration crisis when hundreds of thousands of people crossed its borders, most on their way to Germany. As Reuters notes, it has since tightened immigration restrictions and helped shut down the route through the Balkans by which almost all those people – many of them fleeing war and poverty in the Middle East and elsewhere – arrived. Asylum applications fell by more than half last year.

Asylum seekers in Austria get so-called basic services, including free accommodation, food, access to medical treatment and €40 pocket money a month. But now, Austria’s centrist coalition government on Tuesday agreed on a draft law which would allow authorities to stop providing accommodation and food to rejected asylum seekers who refuse to leave the country. “The first thing is basically that they don’t get anything from the Austrian state if they don’t have the right to stay here. Is that so hard to understand?” As Politico reports, Interior Minister Wolfgang Sobotka said the law, which will need approval by parliament, was designed to encourage rejected asylum seekers to leave voluntarily.

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This is getting too absurd.

• US Considers Separating Women And Children Who Enter Country Illegally (G.)

Women and children crossing together illegally into the United States could be separated by US authorities under a proposal being considered by the Department of Homeland Security, according to three government officials. Part of the reason for the proposal is to deter mothers from migrating to the United States with their children, said the officials, who have been briefed on the proposal. The policy shift would allow the government to keep parents in custody while they contest deportation or wait for asylum hearings. Children would be put into protective custody with the Department of Health and Human Services, in the “least restrictive setting” until they can be taken into the care of a US relative or state-sponsored guardian.

Currently, families contesting deportation or applying for asylum are generally released from detention quickly and allowed to remain in the United States until their cases are resolved. A federal appeals court ruling bars prolonged child detention. Donald Trump has called for ending so-called “catch and release”, in which people who cross illegally are freed to live in the United States while awaiting legal proceedings. Two of the officials were briefed on the proposal at a 2 February town hall for asylum officers by US Citizenship and Immigration Services asylum chief John Lafferty. A third DHS official said the department was actively considering separating women from their children but has not made a decision. About 54,000 children and their guardians were apprehended between 1 October 2016, and 31 January 2017, more than double the number caught over the same time period a year earlier.

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The sadness is deafening.

• Parents Fearing Deportation Pick Guardians For US Children (R.)

Parents who immigrated illegally to the United States and now fear deportation under the Trump administration are inundating immigration advocates with requests for help in securing care for their children in the event they are expelled from the country. The Coalition for Humane Immigrant Rights of Los Angeles (CHIRLA) advocacy group has been receiving about 10 requests a day from parents who want to put in place temporary guardianships for their children, said spokesman Jorge-Mario Cabrera. Last year, the group said it received about two requests a month for guardianship letters and notarization services. At the request of a nonprofit organization, the National Lawyers Guild in Washington D.C. put out a call this week for volunteer attorneys to help immigrants fill out forms granting friends or relatives the right to make legal and financial decisions in their absence.

In New Jersey, immigration attorney Helen Ramirez said she is getting about six phone calls a day from parents. Last year, she said, she had no such calls. “Their biggest fear is that their kids will end up in foster care,” Ramirez said. President Donald Trump’s administration has issued directives to agents to more aggressively enforce immigration laws and more immigrants are coming under scrutiny by the authorities. For parents of U.S. citizens who are ordered removed, the U.S. Immigration and Customs Enforcement (ICE) agency “accommodates, to the extent practicable, the parents’ efforts to make provisions” for their children, said ICE spokeswoman Sarah Rodriguez. She said that might include access to a lawyer, consular officials and relatives for detained parents to execute powers of attorney or apply for passports and buy airline tickets if the parents decide whether or not to take the children with them.

Randy Capps of the Migration Policy Institute (MPI), a Washington-based non-profit that analyzes the movement of people worldwide, said that while putting contingency plans in place is a good idea, he does not think the level of fear is justified. During the previous administration of President Barack Obama, a Democrat, the likelihood of both parents being deported was slim, Capps said. He doubts there will be a huge shift under Republican Trump toward deporting both parents. “The odds are still very low but not as low as they were – and this is just the beginning of the administration,” he said.

Read more …

Debt Rattle December 15 2016

Dec 152016
 
 December 15, 2016  Posted by at 8:50 am Finance Tagged with: , , , , , , , , , ,  1 Response »


William Henry Jackson Hand cart carry, Adirondacks, New York 1902

• Dollar at 14-Year Peak as Fed Rejuvenates Trump Rally (R.)
• Dollar Jumps as Fed Pulls the Trigger While Stocks, Debt Decline (BBG)
• Fed Fallout Escalates: China Bond Market Crashes Most On Record (ZH)
• Higher US Interest Rates Next Year Could Make Big Problems For China (CNBC)
• Shadow Banking in China Appears to Have Made a Roaring Comeback (BBG)
• Trump Meets With Tech Titans: “No Formal Chain Of Command Around Here” (CNBC)
• Canada’s Gravity-Defying Household Debt Swells to C$2 Trillion (BBG)
• EU Politicians Believe UK Post-Brexit Trade Deal Could Take Decade (G.)
• Ex-UK Ambassador: Clinton Emails Leaked By “Disgusted” Dem. Whistleblower (DM)
• US Accuses Vladimir Putin Of “Personal Involvement” In Election Hack (ZH)
• Eurozone Suspends Short-Term Debt Relief for Greece (WSJ)
• Greek Opposition Leader To Seek Backing In Brussels For Snap Polls (Kath.)

 

 

Moving fast. A lot of global debt gets much more expensive to pay off.

• Dollar at 14-Year Peak as Fed Rejuvenates Trump Rally (R.)

The dollar rose to a 14-year peak against a basket of major currencies on Thursday after the Federal Reserve boosted the number of projected interest rate hikes for 2017, rejuvenating the month-long Trump rally and knocking emerging market currencies. The Fed’s 25 basis-point interest rate increase on Wednesday was widely anticipated by financial markets though they appeared to have been caught out by the central bank signal of three hikes in 2017, up from around two flagged at its September policy meeting. The relatively hawkish Fed stance came as U.S. president-elect Donald Trump takes over with promises to boost growth through tax cuts, spending and deregulation. “The rate hike projections for 2017 being increased to three shows that Fed’s board is having to factor in the impact of Trump’s policies,” said Junichi Ishikawa at IG Securities in Tokyo.

The dollar index extended its overnight rally and was up 0.5% at 102.270. It touched 102.620, its highest since January 2003. The euro was down 0.2% at $1.0512 after sliding to $1.0468, a trough not seen in 21 months. The greenback set a 10-month high of 117.860 yen early on Thursday and was last up 0.3% at 117.390. The allure of higher U.S. yields took a predictable toll on emerging Asian currencies. The Chinese yuan fell to its lowest levels in more than eight years, after the central bank set the daily mid-point at the lowest since mid 2008. Low-yielding currencies such as the Singapore dollar and Korean won came under pressure, as investors grew anxious over the risk of capital being sucked out of regional economies toward dollar-based assets.

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Yellen hiked rates and dotplot.

• Dollar Jumps as Fed Pulls the Trigger While Stocks, Debt Decline (BBG)

The dollar rallied, while Treasury yields spiked as the Federal Reserve signaled a steeper path for in interest rates going forward after their first hike to borrowing costs in 2016. U.S. equities slumped the most since October. The greenback climbed to its strongest level in 10 months versus the yen, advancing against most of its major peers as as traders speculated that U.S. rates may be elevated faster than previously thought. Utilities and energy shares drove the S&P 500 Index down 0.8% as two-year Treasury yields soared to their highest level in seven years. The dollar’s gains sent oil tumbling as gold also retreated. Emerging-market currencies were among the biggest decliners, while Asian index futures diverged amid the yen’s drop.

“The bottom line is that this is more hawkish than the markets expected,” said Dennis Debusschere at Evercore ISI in New York. “I don’t think the shift higher in the dots was priced in. The consensus going in was that they’d wait until they had details of the fiscal program before they actually raised the rate forecast, and they did that before they saw the details.” What was only the second U.S. rate increase in a decade tied off a volatile year for markets, with investors whipsawed by ructions in Chinese trading, then the shock wins for Brexit and Donald Trump. The Fed moving further into tightening territory puts it at the vanguard of a shift globally from easing monetary policy toward an increased focus on fiscal stimulus.

After hiking by 25 basis points, the central bank said it expects three rate increases in 2017, up from two in its September forecasts. Speaking to reporters after the decision, Fed Chair Janet Yellen sought to downplay the significance of that change in the projections. “This is a very modest adjustment in the path of the federal funds rate,” Yellen said during the press conference. The decision to raise rates is “a vote of confidence in the economy,” she said, noting that some fed officials, but not all, incorporated the assumption of a change in fiscal policies when making their forecasts.

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“.. it appears the final bastion of safety has cracked”.

• Fed Fallout Escalates: China Bond Market Crashes Most On Record (ZH)

After a bubblicious surge higher over the last few months (as China’s hot money swishes from one trending-higher market to another), China’s bond market is collapsing. As Chinese money-markets tighten into new year, yuan weakens, and capital outflows accelerate, so it appears the final bastion of safety has cracked. Chinese bond futures crashed overnight by the most on record, erasing in a week the gains of the last 18 months. The rally began in 2014, buoyed by slowing economic growth and a monetary-easing cycle that kicked off in November that year. Now that is over…

As Chinese liquidity pressures ripple up from the short-term repo markets…

Offshore Yuan has tumbled 5 handles since The Fed raised rates…

And Japanese stocks cannot hold a bid despite the weaker yen. It appears Janet’s message about Trump’s fiscal plan is starting to sink in.

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“They’re playing whack-a-mole constantly. They try to bring down one bubble, and something pops up somewhere else. They do that, and something comes up somewhere else..”

• Higher US Interest Rates Next Year Could Make Big Problems For China (CNBC)

Rising interest rates in the United States have an obvious effect on the world’s biggest economy — but less obvious is the impact those rates could have on the second biggest. Higher interest rates in the United States could make it harder for China to manage its exploding debt, as the Asian giant increasingly depends on borrowing in order to keep growing — while simultaneously trying to block capital from fleeing for more fruitful shores in America. “If the Federal Reserve [keeps increasing] interest rates in the United States, the single biggest casualty of that this time is going to be China, because there’s so much money just waiting to leave” the country, said Ruchir Sharma at Morgan Stanley. Sharma spoke Tuesday evening as part of a panel at the Asia Society in New York.

Sharma pointed out that over the last year, China has moved from one bubble to another: commodities, stocks and, currently, real estate. That is not a sustainable way for China to grow, he said, especially considering that China’s “debt increase over the last five years has been 60 percentage points as a share of its economy.” “They’re playing whack-a-mole constantly. They try to bring down one bubble, and something pops up somewhere else. They do that, and something comes up somewhere else,” said Sharma, who noted that housing prices in China’s largest cities have increased between 30 and 50% over the last 18 months alone. Fed officials on Wednesday approved the first U.S. interest rate increase in a year. The 0.25 percentage point hike was widely expected, but the more aggressive pace for future increases outlined by the Fed — three next year instead of the two that were previously expected — was not.

Rising U.S. rates typically mean better yields for U.S. Treasurys and a stronger U.S. dollar. And indeed, both bond yields and the greenback immediately moved higher after Wednesday’s announcement. “I certainly think we could hit a 3 (percent on the 10-year Treasury yield) by the first quarter” of next year, Rick Rieder, CIO, global fixed income at BlackRock, told CNBC on Wednesday. The 10-year was last at 3% in January 2014. [..] the ability to keep financing its “massive debt binge” is impaired, Sharma said, if too much money bleeds out of the system. And China needs a lot of money — and more and more of it — to keep hitting the largely arbitrary 6% GDP growth rate that Beijing has mandated for the country. “Today in China, it’s taking $4 in debt to create a dollar of GDP growth,” said Sharma

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Oh no, it was never gone. It’s only been growing the whole time.

• Shadow Banking in China Appears to Have Made a Roaring Comeback (BBG)

Time to don the tin hats? Chinese shadow-banking activity registered a surprise jump in November, throwing into sharp relief how policy makers are struggling to make good on their vow to rein in the runaway loan growth that threatens the stability of the financial sector. Often cast as one of the weakest links in the global financial system given the potential threat it poses to Asia’s largest economy, shadow credit – which consists of trust loans, entrusted loans and bank-acceptance bills –rose sharply to 479 billion yuan ($69 billion), after having dropped to 55 billion yuan in October. The surprise rebound may be a reaction to expectations for continuing yuan weakness as companies look to increase their local-currency liabilities at the expense of dollar-denominated obligations.

“Today’s surprising data will likely trigger some regulatory concerns,” David Qu, China economist at Australia & New Zealand Banking, wrote in a note to clients on Wednesday, citing the size and opacity of off-balance sheet lending from trust companies, brokerages, micro-lenders, pawn-shops and even real-estate companies. The rise could reflect “short-term speculation due to expectations of renminbi depreciation and producer-price inflation,” analysts at Nomura Holdings Inc, led by Zhao Yang, wrote in a report on Wednesday. Efforts to curtail shadow lending may exacerbate this month’s liquidity squeeze, as the yield on 10-year government bonds shoots up to 3.24% from 2.74% at the end of October – their highest level in more than a year.

“If Chinese regulators start to restrict shadow banking activities, there may be spillover effects to the bond market due to liquidity tightening,” Qu adds, referring to the prospect that redemptions from wealth-management funds would force asset managers to trim their bond positions. Last month’s credit binge wasn’t confined to the shadow financial system. Total social finance, the broadest measure of new lending, expanded the most since March at 1.74 trillion yuan, up from 896.3 billion yuan in October. [..] The 11.8% increase on a year-on-year basis was driven by household lending growth, reflecting how property curbs have yet to kick in, as well as expansion in the shadow-banking sector.

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Tens of billions eating crow at that table. Trump knows exactly what Bezos, Cook etc. said about him not long ago. Eric Schmidt just about ran Hillary’s campaign.

• Trump Meets With Tech Titans: “No Formal Chain Of Command Around Here” (CNBC)

A confab of tech titans had a “productive” meeting with President-elect Donald Trump at Trump Tower on Wednesday, Amazon CEO Jeff Bezos told CNBC, as Trump moved to mend fences with Silicon Valley before taking office in January. Apple, Alphabet, Microsoft, Amazon, Facebook, Intel, Oracle, IBM, Cisco and Tesla were among the C-suite executives in attendance, with Apple CEO Tim Cook and Tesla CEO Elon Musk expected to get private briefings, according to transition staff. During the campaign, Trump issued a number of barbs directed at Bezos and his businesses, but at the meeting both men appeared nothing but complimentary. “I found today’s meeting with the president-elect, his transition team, and tech leaders to be very productive,” Bezos said.

“I shared the view that the administration should make innovation one of its key pillars, which would create a huge number of jobs across the whole country, in all sectors, not just tech—agriculture, infrastructure, manufacturing—everywhere.” Though many tech leaders actively opposed his election, Trump said at the meeting he was interested in helping tech do well — and that the executives can call any time, since there’s no formal chain of command. “We want you to keep going with the incredible innovation,” Trump said. “There’s no one like you in the world….anything we can do to help this go along, we’re going to be there for you. You can call my people, call me — it makes no difference — we have no formal chain of command around here.”

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As someone commented on Twitter: “Carney’s baby is all grown up”.

• Canada’s Gravity-Defying Household Debt Swells to C$2 Trillion (BBG)

The appetite for bank borrowing remained unabated in the third quarter, setting fresh records for total credit and mortgage borrowing, Statistics Canada reported Wednesday. The widely-followed ratio of household debt to after-tax income rose to another record high of almost 167%. The numbers will intensify concern among policy makers the economy has become over-reliant on bank borrowing, and is vulnerable to a housing downturn and rising interest rates. The latest report covers the three months before Finance Minister Bill Morneau tightened mortgage lending rules again in October, a move designed to discourage Vancouver and Toronto home buyers from signing larger mortgages than they could handle.

“Household indebtedness continues to defy gravity and remains the Achilles heel of the Canadian economy,” said Charles St-Arnaud at Nomura Securities, who has worked in Canada’s finance department and central bank. “Continued increase in yields and job losses remain the biggest risks.” Credit-market debt climbed to C$2.005 trillion ($1.53 trillion) from C$1.980 trillion in the prior quarter. Those obligations jumped by 1.3% in the third quarter, faster than the 0.9% gain in household income. Total consumer debt exceeded the size of Canada’s economy for a second straight quarter, accounting for 101.2% of gross domestic product in the July-to-September period. Debts have climbed alongside the Vancouver and Toronto housing boom, fueled by job growth and rock-bottom borrowing costs.

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Elections, anyone?

• EU Politicians Believe UK Post-Brexit Trade Deal Could Take Decade (G.)

Europe’s politicians believe a trade deal with the UK could take up to a decade or more and could still fail in the final stages, Downing Street has been warned by the UK’s ambassador to the EU. Sir Ivan Rogers, who conducted David Cameron’s renegotiation with the EU prior to the referendum, is reported to have told the prime minister that European politicians expected that a deal would not be finalised until the early to mid-2020s, according to the BBC. That deal could still be rejected by any of the 27 national parliaments during the ratification process. It is understood Rogers was reporting back conversations he had had with European politicians, rather than giving his own advice to the British government. “It is wrong to suggest this is advice from our ambassador to the EU,” a Number 10 spokesman said. “Like all ambassadors, part of his role is to report the views of others.”

Former Tory minister Dominic Raab, a leave campaigner, said it was “reasonable to set out a worst-case scenario of five to 10 years to iron out all the detail of a trade deal.” He told BBC Radio 4’s Today programme: “The crucial question is whether we maintain barrier-free trade in the meantime, in which case there’s no real problem. I have to say it’s very unlikely in the interim that the EU would want to erect trade barriers.” The reports come after Brexit secretary, David Davis, told a select committee hearing that “everything is negotiable” within a year and a half of the formal article 50 notification in March. The deal would then take about six months to be agreed by European leaders, the European parliament and the British parliament, he said.

Read more …

Try these on for size: “Murray is a controversial figure who was removed from his post as a British ambassador amid allegations of misconduct.” Misconduct? Well: “Murray was a vocal critic of human rights abuses in Uzbekistan while serving as ambassador between 2002 and 2004, a stance that pitted him against the UK Foreign Office.”

• Ex-UK Ambassador: Clinton Emails Leaked By “Disgusted” Dem. Whistleblower (DM)

A Wikileaks envoy today claims he personally received Clinton campaign emails in Washington D.C. after they were leaked by ‘disgusted’ whisteblowers – and not hacked by Russia. Craig Murray, former British ambassador to Uzbekistan and a close associate of Wikileaks founder Julian Assange, told Dailymail.com that he flew to Washington, D.C. for a clandestine hand-off with one of the email sources in September. ‘Neither of [the leaks] came from the Russians,’ said Murray in an interview with Dailymail.com on Tuesday. ‘The source had legal access to the information. The documents came from inside leaks, not hacks.’ His account contradicts directly the version of how thousands of Democratic emails were published before the election being advanced by U.S. intelligence.

Murray is a controversial figure who was removed from his post as a British ambassador amid allegations of misconduct. He was cleared of those but left the diplomatic service in acrimony. His links to Wikileaks are well known and while his account is likely to be seen as both unprovable and possibly biased, it is also the first intervention by Wikileaks since reports surfaced last week that the CIA believed Russia hacked the Clinton emails to help hand the election to Donald Trump. Murray’s claims about the origins of the Clinton campaign emails comes as U.S. intelligence officials are increasingly confident that Russian hackers infiltrated both the Democratic National Committee and the email account of top Clinton aide John Podesta. In Podesta’s case, his account appeared to have been compromised through a basic ‘phishing’ scheme, the New York Times reported on Wednesday.

U.S. intelligence officials have reportedly told members of Congress during classified briefings that they believe Russians passed the documents on to Wikileaks as part of an influence operation to swing the election in favor of Donald Trump. But Murray insisted that the DNC and Podesta emails published by Wikileaks did not come from the Russians, and were given to the whistleblowing group by Americans who had authorized access to the information. ‘Neither of [the leaks] came from the Russians,’ Murray said. ‘The source had legal access to the information. The documents came from inside leaks, not hacks.’ He said the leakers were motivated by ‘disgust at the corruption of the Clinton Foundation and the tilting of the primary election playing field against Bernie Sanders.’

‘I don’t understand why the CIA would say the information came from Russian hackers when they must know that isn’t true,’ he said. ‘Regardless of whether the Russians hacked into the DNC, the documents Wikileaks published did not come from that.’ Murray was a vocal critic of human rights abuses in Uzbekistan while serving as ambassador between 2002 and 2004, a stance that pitted him against the UK Foreign Office.

Read more …

“The former CIA official said the Obama administration may feel compelled to respond before it leaves office. “This whole thing has heated up so much,” he said. “I can very easily see them saying, `We can’t just say wow, this was terrible and there’s nothing we can do.'”

Well, if Obama is truly getting involved, he has 4 days in which to turn 37 Republican electors against Trump. As for the potential fallout, which may include various forms of social conflict should the Trump victory be overturned in the 11th hour at the Electoral College, then Putin will truly win as a result of what may then follow.

• US Accuses Vladimir Putin Of “Personal Involvement” In Election Hack (ZH)

And just like that the narrative of Russia hacking the presidential election has escalated to the highest possible level, and has officially jumped the shark. Moments ago, following a month-long barrage of unsubstantiated stories in the press accusing the Russian government of indirectly hacking the US presidential election, which culminated with last night’s 8,000 word NYT expose, and which followed a schism between the FBI and CIA, in which the former disputed the latter’s “fuzzy and ambiguous” claims that Russia sought to influence the presidential elections, moments ago the NBC News reported that U.S. intelligence officials believe with “a high level of confidence” that Russian President Vladimir Putin became personally involved in the covert Russian campaign to interfere in the U.S. presidential election.

Perhaps because the official narrative has so far been unable to gather traction with the previous “shotgun approach” in which just “Russia” was accused of handing the election to Trump, four short days before the Electoral College vote, the narrative has changed and it now involves the very pinnacle of Russia’s government: the president himself. Citing two senior officials with direct access to the information, NBC reports that “new intelligence shows that Putin personally directed how hacked material from Democrats was leaked and otherwise used. The intelligence came from diplomatic sources and spies working for U.S. allies, the officials said.” So why did Putin hack a few million rust belt Americans into believing that their lives under Obama, and by extension Hillary, were bad enough that they demanded a change? NBC provides the following spoonfed logic:

Putin’s objectives were multifaceted, a high-level intelligence source told NBC News. What began as a “vendetta” against Hillary Clinton morphed into an effort to show corruption in American politics and to “split off key American allies by creating the image that [other countries] couldn’t depend on the U.S. to be a credible global leader anymore,” the official said.

Ultimately, the CIA has assessed, “the Russian government wanted to elect Donald Trump.” And this is where the latest turn in the story falls apart, because even NBC – which will blast this report on prime time TV to all America – admits “the FBI and other agencies don’t fully endorse that view”, but it adds “few officials would dispute that the Russian operation was intended to harm Clinton’s candidacy by leaking embarrassing emails about Democrats.”

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As I said, looks like Tsipras has had enough.

• Eurozone Suspends Short-Term Debt Relief for Greece (WSJ)

Greece’s European creditors suspended proposed debt-relief measures for the country after the Greek government surprised them by announcing it would boost welfare benefits for low-income pensioners, a sign of escalating tensions over the country’s bailout. The moves come as Athens and its international creditors—which include the eurozone and the IMF—are struggling to conclude their latest review of the country’s rescue plan of as much as €86 billion ($92 billion) in loans. “The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” a spokesman for Jeroen Dijsselbloem, the Dutch finance minister who presides over the group of his eurozone counterparts, said in a statement on Twitter.

“No unanimity now for implementing short-term debt measures,” he added. The step puts further pressure on Greece’s government, which is considering calling snap elections in 2017 as it grapples with slumping popularity and is losing hope of winning concessions on deeper debt relief or austerity from the eurozone and the IMF. Greece’s embattled Prime Minister Alexis Tsipras surprised Greeks and the country’s creditors last week with handouts that his government hadn’t previously discussed with bailout supervisors, which represent eurozone governments and the IMF. Mr. Tsipras promised 1.6 million pensioners a Christmas bonus of between €300 and €800. He also suspended a planned increase in sales tax for Aegean islands that have received large numbers of refugees from the Middle East and elsewhere.

Eurozone officials expressed frustration that the country’s creditors were not told in advance by Greece of its plans—widely seen as a lure to voters ahead of elections—and said the new measures would have to be assessed to determine whether they were in line with the country’s bailout commitments. “We will adhere to the [bailout] program to the letter, but whatever outperformance in revenue arises by following to the program, we will not ask anyone in order to give this money to those most in need,” Mr. Tsipras said Tuesday from the small island of Nisyros.

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Can you imagine the opposition in your country doing this? They would risk being persecuted for treason. In Europe, it’s the new normal. But he might as well ask Putin.

• Greek Opposition Leader To Seek Backing In Brussels For Snap Polls (Kath.)

In talks with officials on the sidelines of a summit of the European People’s Party in Brussels that started Wednesday, conservative New Democracy leader Kyriakos Mitsotakis is to press his argument that Greece needs snap elections to sweep away the current leftist-led government and bring in a more reform-friendly administration. Mitsotakis is to meet Thursday with European Commission President Jean-Claude Juncker and European Economic and Monetary Affairs Commissioner Pierre Moscovici, among others.

ND sources are hoping that EU officials will welcome Mitsotakis’s call for political change, coming as it does just a few days after Prime Minister Alexis Tsipras unsettled the country’s creditors by announcing Christmas bonuses for thousands of pensioners and vowing to keep in place a value-added tax discount for remote islands that the government had promised its lenders to revoke. The meetings come as ND leads leftist SYRIZA by a wide margin in opinion polls. Mitsotakis’s argument is that snap polls would not be destabilizing, as they had been in January 2015, as ND is a reformist power compared to the SYRIZA coalition with Independent Greeks which the conservative party describes as “unreliable and opportunistic” in its policy-making.

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Debt Rattle September 22 2016

Sep 222016
 
 September 22, 2016  Posted by at 8:24 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle September 22 2016


Harris&Ewing Harding inauguration 1921

• The Global Economic Outlook: Dark Clouds Ahead (Guardian Ed.)
• UN Fears Third Leg Of Global Financial Crisis – With Epic Debt Defaults (AEP)
• Major Trend Forecast For The Rest Of 2016 (Celente)
• Report Highlights Rising US Poverty (D&C)
• In Places With Fraying Social Fabric, a Political Backlash Rises (WSJ)
• Greek Bakers Unite To Give Away Bread To Those Too Poor To Afford It (KTG)
• Young Britons Live In ‘Suspended Adulthood’ (G.)
• It’s Not Just Consumers That Are Living Paycheck To Paycheck (BBG)
• Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely (BBG)
• Bank of Japan’s Inflation Overshoot Deepens Policy Innovation (BBG)
• Real Estate Gets Its Seat At The S&P 500 Table (Forbes)
• With Mortgage Rates So Low, Why Are So Many People Still Renting? (Time)
• House-Flippers Are Back, With Anonymous Funding (BBG)
• China Chalks Up $667-Billion Debt Pile Over Toll Roads (R.)
• Wells Fargo Too Arrogant To Own Up To Its Fraudulent Ways (WaPo)
• 27 US Senators Rebel Against Arming Saudi Arabia (I’Cept)
• A First Step for Syria? Stop the Killing (Jimmy Carter)
• Apologizing to My Daughter for the Last 15 Years of War (Van Buren)

 

 

Actually not all that bad from the Guardian Ed. staff. Though they predictably conclude with plain silliness: In the long run, this failed globalisation needs to be turned into something more sustainable and more inclusive, built on higher wages, robust tax systems and strong public safety nets.

• The Global Economic Outlook: Dark Clouds Ahead (Guardian Ed.)

Eight years ago this month, a bank collapsed, Wall Street went into meltdown and the world economy plunged into crisis. Trillions were lost in output ($22tn in the US, within just five years), millions of workers were made redundant (8.8 million in America’s great recession, 1.2 million in the UK) and thousands of promises were made by politicians and policymakers – everyone from Barack Obama and Gordon Brown to David Cameron and Christine Lagarde – that things would change. Yet, nearly a decade later, what is most striking is how little has changed. In the US, the UK and the rest of the developed world, policymakers talk of the “new mediocre”, so tepid is economic performance. And in the developing world things look even worse.

Such is the message from two of the world’s leading economic thinktanks, the OECD and the UN Conference on Trade and Development (Unctad). Both their reports on Wednesday were thick with cloud and short on silver lining. Yes, the OECD believes that Brexit Britain will have a slightly easier time this year – but that will be followed by a far choppier 2017. And the Unctad report is even more troubling. The biggest single warning it makes is that the world is on the verge of “entering a third phase of the financial crisis”. What began in the US subprime housing market before roiling Europe’s governments is likely to rear its head again – this time in Latin America, Africa and other poor countries. What will do for them, believe the Unctad researchers, is what also did for America and Europe: debt.

Much of the cheap money created by the Fed, the BOE and the ECB has been pushed by financial speculators into the higher-yielding markets of South Africa, Brazil and India, among others. Economists at the Bank for International Settlements, the central banks’ central bank, reckon that $9.8tn was pumped out in foreign bank loans and bonds in the first half-decade after the Lehman Brothers collapse. Unctad calculates that around $7tn of that was pushed through to emerging markets. By any standards, that is a flood of credit – one that was encouraged by panicky policymakers.

Wasn’t it the turn of China and the rest to pick up the slack in the global economy? Except now developing countries are lumbered with a gigantic private debt mountain to pay down. The private, non-financial sector across the developing world has debt service obligations worth nearly 150% of its income. The comparable figure for the developed world, by contrast, is just above 80%. And now developing countries are hobbling along rather than sprinting ahead, while commodity prices have tanked. To make matters worse, companies will typically have borrowed in US dollars and invested in their local currencies – but the strength of the dollar will make those loans all the harder to repay.

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“What is clear is that world will soon need a massive and coordinated spending push by governments to create demand and bring the broken global system back into equilibrium. UNCTAD is entirely right about that. If this does not happen, it is sauve qui peut.”

• UN Fears Third Leg Of Global Financial Crisis – With Epic Debt Defaults (AEP)

The third leg of the world’s intractable depression is yet to come. If trade economists at the United Nations are right, the next traumatic episode may entail the greatest debt jubilee in history. It may also prove to be the definitive crisis of globalized capitalism, the demise of the liberal free-market orthodoxies promoted for almost forty years by the Bretton Woods institutions, the OECD, and the Davos fraternity. “Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out,” said the annual report of the UN Conference on Trade and Development (UNCTAD). We know already that the poisonous side-effect of zero rates and quantitative easing in the US, Europe, and Japan was to flood developing nations with cheap credit, upsetting their internal chemistry and drawing them into a snare.

What is less understood is just how destructive this has been. Much of the money was wasted, skewed towards “highly cyclical and rent-based sectors of limited strategic importance for catching up,” it said. Worse yet, these countries have imported the deformities of western finance before they are ready to cope with the consequences. This has undermined what UNCTAD calls the “profit-investment nexus” that ultimately drives growth and prosperity. The extraordinary result is that some countries are slipping backwards, victims of “premature deindustrialisation”. Many of them have fallen further behind the rich world than they were in 1980 despite opening up their economies and following the global policy script diligently.

The middle income trap closed in on Latin America and the non-oil states of the Middle East a long time ago, but now it is beginning to close in such countries as Malaysia and Thailand, and in some respects China. “The benefits of a rushed integration into international financial markets post-2008 are fast evaporating,” it said. Yet the suffocating liabilities built up over the QE years remain. UNCTAD says corporate debt in emerging markets has risen from 57pc to 104pc of GDP since the end of 2008, and much of this may have to written off unless there is a world policy revolution. “If the global economy were to slow down more sharply, a significant share of developing-country debt incurred since 2008 could become unpayable and exert considerable pressure on the financial system,” it said.

“There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis which began in the US housing market in late 2007 before spreading to the European bond market,” it said. These are deeply-disturbing assertions. The combined US subprime and ‘Alt-A’ property exposure before the Lehman crisis was just $2 trillion, and Greece’s debts were trivial. What UNCTAD is talking about is an order of magnitude larger.

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Haven’t featured Celente in ages…

• Major Trend Forecast For The Rest Of 2016 (Celente)

Central bank policies rule the financial world. Their never-in-the-history-of-the-world negative and historically low interest rate policies, plus massive government and corporate bond buying schemes have enriched equity markets but not the general economy… “In fact, what we have been forecasting and reporting since 2010, the Bank for International Settlements confirmed this week with its warning that central bank behavior, not economic fundamentals, hold sway over markets. Claudio Borio, head of the monetary and economic department of the BIS questioned whether “market prices fully reflect the risk ahead,” and “doubts about valuations seem to have taken hold in recent days.” Indeed true price discovery is dead.

Despite massive Federal Reserve intervention in the US that has driven the Dow and NASDAQ to new highs, S&P 500 companies reported five straight quarters of year-over-year declines. Also on the market fundamental front, with retail sales down 0.3% in August, there was no back-to-school-splurge. The service sector, the main economic driver of the United States economy, fell to its lowest level since 2010. Despite “experts” forecasting US GDP to rise 3% in 2016, it’s slogged along at an annualized 1% for the first two quarters. Just yesterday it was reported that housing starts in the US came in at an annualized rate of 1.14 million in August, well below the expected 1.19 million while construction permits fell 0.4% to a 1.14 million-unit rate last month.

And while President Obama chastised “Anyone claiming that America’s economy is in decline is peddling fiction,” US economic growth since the recession ended is tracking at its weakest pace of any expansion since 1949. As the BIS report concludes, “A more balanced policy mix is essential to bring the global economy into a more robust, balanced and sustainable expansion.” Yet, today, all equity eyes are concentrated more on central bank maneuvers than market fundamentals. In Japan, with new data showing exports falling 9.6% and imports down 17.3% in August, the focus is on what new schemes the Bank of Japan will invent to boost the economy despite its long proven track record of failure.

Similarly, later today in the US, the markets await news of if, and when, the Fed will raise interest rates. Yet, as the data proves since the Panic of ’08, central banks’ “policy mix” has failed …and we forecast despite pending measures, they will continue to fail to generate true economic growth. Thus we forecast continued equity market volatility with increasing prospects for a market meltdown.

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There should have been much more of this. People would have understood the world they live in so much better. The lack of this sort of analysis gives birth to Brexit and the Donald.

• Report Highlights Rising US Poverty (D&C)

Among the troubling statistics in a new report released Tuesday was the rising concentration of poverty in city neighborhoods, and expanding number of census tracts where the poverty rate stood at 40% or higher. The count of high-poverty census tracts has nearly doubled in the city, from 19 to 37 since 2000. Fully one-third of Rochester residents live in poverty, and nearly another third require some outside assistance to get by, according to estimates in the ACT Rochester and Rochester Area Community Foundation update to its 2013 report on the state of poverty and self-sufficiency across the Greater Rochester region. The numbers are a near mirror-image of the suburbs, where more than two-thirds of residents are self-sufficient. And while the poverty rate in the nine-county Greater Rochester region continues to creep upward, it remains below state and national averages, the report shows.

“We don’t really have a poverty problem,” said Edward Doherty, a Strategic Community Intervention associate who served as project manager and editor of the report, and is active in local efforts to combat poverty. “We have a concentration of poverty problem.” Rochester has the third-highest concentration of poverty in the nation. And a significant segment of that population is female-headed families with children younger than 18. Though accounting for 17% of the population, the report found, the city has 36% of such households, and that population has a staggering poverty rate of 59.9%. Doing the math, the report estimates these families account for nearly half of all people living in poverty in the city, and these children account for more than 80% of all poor children in the city.

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This is changing the world, all over the world. Poverty and loss hidden from us by media and political propaganda.

• In Places With Fraying Social Fabric, a Political Backlash Rises (WSJ)

Reading, Pa.— The buckling of social institutions fundamental to American civic life is deepening a sense of pessimism and disorientation, while adding fuel to this year’s rise of political populists like Donald Trump and Bernie Sanders. Here and across the U.S., key measures of civic engagement ranging from church attendance to civic-group membership to bowling-league participation to union activity are slipping. Unlocked doors have given way to anxiety about strangers. In Reading, tension between longtime white residents and Hispanic newcomers has added to the unease. For Mr. Martin, social and economic setbacks led him to support Mr. Sanders, who he figured would stick it to the big businesses Mr. Martin feels have sold out working people.

Other people here find resonance in Mr. Trump’s message that the U.S. has skidded so far off course that it needs to lock out immigrants and block imports to recover an era of greatness. “When you lose the family unit and you lose the church community, you are losing a whole lot,” says Bonnie Stock, a retired teacher in Reading and Trump supporter, who says the church where she was baptized is dying from lack of young members. “People are looking at Trump because most of us see this [country] isn’t working,” she says. Ms. Stock figures Mr. Trump’s business experience would help him better attack societal problems like drug addiction.

Across the U.S., the Republican presidential nominee has his firmest support among the white working class. In the Republican primaries, he carried all but nine of the country’s 156 counties where at least 85% of the adult population was whites without four-year college degrees. Mr. Trump won 64% of the vote in Berks and Schuylkill counties, where noncollege whites were 66% of the adult population as of 2014. In Berks County, once famous for the Reading Railroad stop on the Monopoly board game, social ills have been exacerbated by a 30% decline in manufacturing jobs and 6% fall in inflation-adjusted median income since 1995.

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In case you’re wondering why the Automatic Earth tries so hard to help the poorest Greeks. These are the very people your generous donations assist. The problem is their numbers are rising fast.

But we’re not going to give up. I’m breaking my head over the next steps in the process. We need to do something big for Christmas. Meanwhile, please keep donating through our Paypal widget, top left corner of the site, in amounts that end in $0.99 or $0.37.

• Greek Bakers Unite To Give Away Bread To Those Too Poor To Afford It (KTG)

Did you know that there are people in Greece who cannot afford to buy even a loaf of bread at a cost of €0.60 – €0.70? Almost a year after Greece surrendered into the arms of the international lenders and the IMF and the austerity cuts started to affect people’s lives, a bakery in our neighborhood was offering a bread at a special price for pensioners and unemployed. The special price was just half a euro. At one point, I remember that more and more people were going to this bakery and asking for bread from the previous day for a couple of cents or even free of charge. Two days ago, the grim Greek reality hit me again. I was at the bakery sometime at noon. All different kinds of bread loafs were waiting for customers, nicely set in order, one by one, next to each other.

Yet, somewhere, in a corner at one of the lower shelves there was a group of breads: several loaves, long and round, white and wholewheat, a couple of baguettes. “What are these?” I asked the baker and he answered “This is bread from yesterday, for the poor. We give it free of charge.” He told me further, that he had 6-7 returning customers who come every second day for the bread from yesterday. Mostly elderly, pensioners. And “maybe 2-3 people per day,” people he does not know who just step in and ask for “old bread for free.” The problem of poverty is not widespread only in Athens, where the cost of living is much higher than in the countryside. Today, I read about the action of the Bakers’ Association in Kozani, in Northern Greece. Customers can buy extra bread for those in need, while the bakers will keep records of the “Bread on the waiting” – as they call their action – and give it to those who cannot afford it.

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As I’ve written before: and still everyone says they love their kids.

• Young Britons Live In ‘Suspended Adulthood’ (G.)

Despair, worries about the future and financial pressures are taking a toll on millions of young Britons, according to a poll which found young women in particular were suffering. Low pay and lack of work in today’s Britain are resulting in “suspended adulthood”, with many living or moving back in with their parents and putting off having children, according to the poll of thousands of 18 to 30-year-olds. Large numbers describe themselves as worn down (42%), lacking self-confidence (47%) and feeling worried about the future (51%).

The Young Women’s Trust, the charity that commissioned the polling by Populus Data Solutions, warned that Britain was facing a “generation of young people in crisis” as it called on the government to take steps including creating a minister with responsibility for overall youth policy. Young women are being particularly affected. The percentage of women reporting that they lacked self-confidence was 54%, compared with 39% of young men. While four in 10 young people said they felt worn down, the percentage for young women was 46% compared with 38% of men. One in three said they were worried about their mental health, including 38% of young women and 29% of young men.

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US small business dances on the edge. They account for 50% of GDP and more than 50% of new job creation.

• It’s Not Just Consumers That Are Living Paycheck To Paycheck (BBG)

As Federal Reserve officials gather to issue their monthly assessment of the world’s largest economy, a new study lays bare the extent to which many small firms are pressed for cash. “Most small businesses are operating on very small margins,” Diana Farrell, CEO of the JPMorgan Chase Institute, an in-house think tank that uses data from the bank to analyze the economy. “The small business sector is less full of future Googles and Ubers and tons and tons of very small operators living month to month,” she said in a phone interview. The companies in question may be small, but they represent an outsized share of the U.S. economy.

According to the Small Business and Entrepreneurship Council, they account for roughly 50% of GDP and more than 50% of new job creation — a metric that’s closely watched by the Fed in determining whether the economy can withstand a constriction in financing conditions. Yet even though they’re contributing a great deal to the economy there remains ignorance about their financial health, Farrell added. On average, the companies surveyed have just 27 days worth of cash reserves — or money to cover expenses if inflows suddenly stopped — according to the JPMorgan study, which analyzed 470 million transactions by 570,000 small business last year. Restaurants typically hold the smallest cash buffers, with just 16 days of reserves, while the real-estate sector boasts the biggest, at 47 days.

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These people get far too much attention. That makes them feel much too important. We should ignore them. After taking their undemocratic powers away.

• Divided Fed Holds Fire, Signals 2016 Rate Increase Still Likely (BBG)

A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end. “Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength.

Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 – a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election. “The statement is much more hawkish than I thought it would be,” said Stephen Stanley at Amherst Pierpont Securities in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.” Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester – in her first dissent – and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.

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Uh, no: The need for yet another overhaul of the BOJ’s policy framework [..] speaks to the deep-seated challenges facing policy makers. Actually, it speaks to the utter failure of all ‘policies’ up till now.

• Bank of Japan’s Inflation Overshoot Deepens Policy Innovation (BBG)

The first major central bank to adopt quantitative easing in the modern era has innovated again. BOJ Governor Haruhiko Kuroda and his colleagues adopted a pledge of “overshooting” their 2% inflation target, an idea floated by central bankers including Federal Reserve Bank of Chicago President Charles Evans, but not formally adopted up to now. They also unveiled a strategy of targeting short- and longer-term rates to provide the economy with cheap borrowing costs. Since taking the helm in 2013, Kuroda had previously pursued a QE-on-steroids policy to shock Japan out of deflation. Yet after three and a half years, he was running into increasing concerns about the sustainability of the purchases of government bonds, which have run at about 15% of gross domestic product annually.

The adoption of a negative interest rate on some bank reserves resulted in an outcry from banks, and – for a time – an alarming plunge in yields even on longer-dated securities. The Federal Reserve had a cap on long-term yields back in the 1940s, as part of the U.S. government’s efforts to keep down wartime and postwar debt financing. But a strategy of targeting the yield curve as a reflation initiative is new to the major central banks of today. “The BOJ had to do something revolutionary out of necessity – they are concerned about sustainability,” said Yuji Shimanaka at Mitsubishi UFJ Morgan Stanley Securities. The need for yet another overhaul of the BOJ’s policy framework – this is the third iteration under Kuroda alone – speaks to the deep-seated challenges facing policy makers. Japan’s consumer prices slumped 0.5% in July from a year before, far from the 2% gains targeted “at the earliest possible time.”

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There are still scores of greater fools out there… This time lured by low rates.

• Real Estate Gets Its Seat At The S&P 500 Table (Forbes)

In case you haven’t noticed, the S&P 500 Index is looking a little different these days. Once a sub-industry of the financial sector, real estate now has its own zip code in the universe of blue chip stocks. It’s the first time since 1999 that such a change has been made to the S&P’s composition. The new sector has a weighting of nearly 3%, all of it taken out of financials. Real estate’s promotion should attract more institutional and individual investors to the space. It tells them this is no longer a niche market but one with a distinct and significant presence, with its own unique business drivers.

This has been a long time coming, to be perfectly honest. Ever since the housing and financial crisis, real estate investment trusts (REITs) have been pulling in some serious cash as more become available for trading on the New York Stock Exchange and elsewhere. Altogether, REITs currently have a market cap of over $1 trillion, according to REIT.com. With investors on the hunt for yield, it’s not hard to see why. As of August 31, the FTSE NAREIT All Equity REITs Index yielded an average of 3.61%, compared to the S&P 500’s 2.11%. During 2015, stock exchange-listed REITs paid out a whopping $46.5 billion in dividends.

Looking just at the residential housing market, business is definitely booming. With 30-year mortgage rates at below 3.5%, the market is scorching hot in many parts of the U.S.—so much so, some builders are reporting a shortage in construction workers to meet demand. New construction starts rose to 1.2 million in July, beating analysts’ forecasts and suggesting the U.S. housing market appears to have finally made a full recovery eight years following the recession, with Bloomberg calling this the “strongest home sales since the start of the economic expansion.”

Trouble could be brewing, however. As I shared with you last month, millennials just aren’t buying homes at the same rate we’ve historically seen from 18- to 34-year-olds. There are many theories as to why this is, from millennials delaying starting families to focus on careers, to a loss of trust in homeownership as a reliable investment or even as an institution, to a preference to rent. This trend has contributed to the lowest U.S. homeownership rate in five decades. How can this be? How could there be both massive housing demand and yet declining home ownership?

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“On average, homeowners paid 28% more in mortgage payments than renters did in monthly rent.”

• With Mortgage Rates So Low, Why Are So Many People Still Renting? (Time)

With interest rates lower than they have been for years, many people still find that renting is more budget-friendly than a monthly mortgage payment. This is not true in all parts of the U.S., but a study by Robert W. Baird & Co. shows that living in one of the biggest housing markets in the country is often more expensive. The study looked at 28 different cities, and found that U.S. homeowners in 24 of the cities paid more than those who rent. On average, homeowners paid 28% more in mortgage payments than renters did in monthly rent. The study looked at properties with ratings of four or five stars to keep variables to a minimum.

The study also made some assumptions, such as that all mortgages were 30-year fixed loans, that all homeowners made a down payment of 15%, and that all mortgages included private mortgage insurance, homeowners’ insurance, and taxes. Of the 28 different markets examined, it was more affordable to own than to rent in Baltimore, Maryland, Tampa, Florida, Jacksonville, Florida, and Norfolk/Richmond, Virginia. Of the remaining 24 cities, 15 showed a 20% or higher difference in the cost of renting versus the cost of owning. These differences were due to factors such as the increase in housing prices and the fact that there are few houses on the market in many of these areas.

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More fallout from the war on interest rates.

• House-Flippers Are Back, With Anonymous Funding (BBG)

Alex Sifakis never raised this much money this fast. The house flipper from Jacksonville, Florida, crowdfunded nine deals totaling more than $9 million through RealtyShares over the last two and a half years. A July deal for $1 million took him just 12 hours. “Generally, raising money takes so much time,’’ said Sifakis, 33. “This offers so much flexibility and time savings. It’s so much better than going to family offices, banks or Wall Street firms.’’ House flippers and property developers are increasingly crowdfunding — tapping the virtual wallets of anonymous internet backers on platforms such as RealtyShares, LendingHome, PeerStreet and Patch of Land. For riskier ventures, such as building new homes and buying, renovating and selling existing ones, they’re finding quick financing can be easier to get online than from banks.

That’s contributed to an increase in home flipping. In the second quarter, 39,775 investors bought and sold at least one house, the most since 2007, according to ATTOM Data Solutions. The crowdfunding sites are part of the multibillion-dollar ecosystem of marketplace lenders, like LendingClub Corp. and Prosper Marketplace Inc., that match users who need money with people who want to provide it for anything from debt consolidation to elective medical procedures. That business hasn’t always run smoothly. LendingClub is going through a rough stretch after years of rapid growth. In May, its founder and chief executive officer resigned amid an internal probe into a botched loan sale, sending LendingClub’s shares tumbling. So far, there have been few defaults in real estate crowdfunding deals. When they happen, the platforms say they’ll pay investors the proceeds from property sales.

The business has other potential pitfalls. When it comes to real estate, faster isn’t always better. Wall Street’s home-mortgage machine of the mid-2000s valued speed over accuracy, with disastrous results, though most crowdfunding sites cater to investors and not homebuyers. Also, clicking for capital can be exploited by fraudsters who may not be who they say they are, according to Sara Hanks, co-founder and CEO of CrowdCheck, which provides due-diligence services for online investors. “We’ve seen some things where the entity that’s supposed to own the property doesn’t actually own it,’’ she said.

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“..40% of China’s expressways were built between 2010 and 2015..”

• China Chalks Up $667-Billion Debt Pile Over Toll Roads (R.)

China’s toll roads have stacked up a debt pile of 4.45 trillion yuan ($666.96 billion), with almost 80% of their annual income last year going to repay loans, the transport ministry said, as the country accelerates road building. Beijing has cranked up state spending on infrastructure to support economic growth as private sector investment falters, and efforts to lure investors into private-public partnerships to build projects such as toll roads have had few successes. The ministry published the 2015 figures late on Tuesday in a report that comes as global investors express growing concern over China’s overall credit, much of which has gone to build infrastructure. The toll road network’s debt grew an annual 15.7% last year, far outpacing income growth of 4.6%, the ministry said in the report.

“Although China’s toll road debt is relatively large, this is just a phase,” state newspaper the People’s Daily quoted Sun Yonghong, an official of the ministry’s highway division, as saying. “In the long run, the risks are controllable.” About three-quarters of 2015 revenue of 409.78 billion yuan went to paying down debt and interest, as banks sought payment of the principal one year after project completions, Sun said. Toll roads make up less than 4% of China’s road network, which stretches 4.5 million km (2.8 million miles). Sun said much of the debt was incurred to build expressways, and accumulation would slow as the road network matured. Almost 40% of China’s expressways were built between 2010 and 2015, at a cost of 3.32 trillion yuan, about 2.23 trillion yuan of which was paid through loans, he said.

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Sickening.

• Wells Fargo Too Arrogant To Own Up To Its Fraudulent Ways (WaPo)

The 2008 financial collapse was eight years ago this month — and the big banks are back to their old shenanigans. Venerable Wells Fargo has engaged in behavior that would have made a robber baron blush: It pressured low-wage workers with unrealistic sales targets, so these workers created 2 million bogus accounts over five years, causing customers to be hit with fees and damage to their credit ratings. About 5,300 workers have been fired and $185 million in penalties assessed to the bank, but not a single high-level executive has been sacked or even forced to give back the tens of millions of dollars in pay earned based on the fraud. When Wells Fargo chairman and CEO John Stumpf sat before the Senate Banking Committee this week, he represented a bank too big to fail, too sprawling to manage and too arrogant to own up to its failures.

Can’t Wells Fargo take back some of the executive payouts? “I’m not an expert in compensation,” Stumpf said. Would he commit to investigate whether the fraud began in earlier years? “I can’t tell you that today.” Did he learn about the fraud before reading about it in the Los Angeles Times? “I don’t remember the exact time frame.” Stumpf informed the senators that what Wells Fargo did “was not a scam,” disputed that “this is a massive fraud” and said he had no idea “why people did this.” Sen. Jerry Moran, R-Kan., encouraged Stumpf to “make certain that the employees are not the scapegoat for behavior at higher levels.” Stumpf repeated that “the 5,300, for whatever reason, they were dishonest, and I’m not scapegoating.” If high-level bankers didn’t go to prison for the subprime high jinks that caused the 2008 crash, it’s a safe bet that none will in the Wells Fargo scandal either.

But if arrogance were a criminal offense, Stumpf would be looking at a life sentence. The bank’s fraud, and the executive’s insolence, may have one salutary result: It takes off the agenda any plan to dismantle the Consumer Financial Protection Bureau, one of the post-2008 regulatory creations and a top target of Donald Trump and congressional Republicans. The Los Angeles city attorney and the Los Angeles Times may deserve more credit for exposing the wrongdoing, but the audacity at Wells Fargo shows that the industry isn’t about to police itself. Stumpf also managed to create rare bipartisan unity on the Banking Committee – in condemnation of his actions. Sherrod Brown, D-Ohio, was “stunned.” Dean Heller, R-Nev., compared him to Sgt. Schultz of “Hogan’s Heroes.” Robert Menendez, D-N.J., called the actions “despicable.” Patrick J. Toomey, R-Pa., told Stumpf: “This isn’t cross-selling, this is fraud.”

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“Let’s ask ourselves whether we are comfortable with the United States getting slowly, predictably, and all too quietly dragged into yet another war in the Middle East.”

• 27 US Senators Rebel Against Arming Saudi Arabia (I’Cept)

A Senate resolution opposing a $1.15 billion arms transfer to Saudi Arabia garnered support from 27 senators on Wednesday, a sign of growing unease about the increasing number of civilians being killed with U.S. weapons in Yemen. A procedural vote to table the resolution passed 71-27. The Obama administration announced the transfer last month, the same day the Saudi Arabian coalition bombed a potato chip factory in the besieged Yemeni capital. In the following week, the Saudi-led forces would go on to bomb a children’s school, the home of the school’s principal, a Doctors Without Borders hospital, and the bridge used to carry humanitarian aid into the capital. Saudi Arabia began bombing Yemen in March 2015, four months after Houthi rebels from Northern Yemen overran the capitol, Sanaa, and deposed the Saudi-backed ruler, Abdu Rabbu Mansour Hadi.

In addition to providing Saudi Arabia with intelligence and flying refueling missions for its air force, the United States has enabled the bombing campaign by supplying $20 billion in weapons over the past 18 months. In total, President Obama has sold more than $115 billion in weapons to the Saudi kingdom – more than any other president. After the White House failed to respond to a letter from 60 members of Congress requesting that the transfer be delayed, Sens. Chris Murphy, D-Conn., and Rand Paul, R-Ky., introduced a resolution condemning the arms sale. Paul and Murphy said they had planned to pursue binding legislation if their resolution was successful. “It’s time for the United States to press ‘pause’ on our arms sales to Saudi Arabia,” Murphy said. “Let’s ask ourselves whether we are comfortable with the United States getting slowly, predictably, and all too quietly dragged into yet another war in the Middle East.”

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Carter’s a real man. No Clinton, Bush or Obama is fit to shine his shoes.

• A First Step for Syria? Stop the Killing (Jimmy Carter)

The announcement this month of a new cease-fire agreement in Syria is good news. But a lack of trust among the Syrian belligerents and their foreign supporters means this agreement, like the one that came before it, is vulnerable to collapse. It is already showing severe signs of strain. Over the weekend, the United States accidentally bombed Syrian government troops. On Monday, the Syrian military declared it would no longer respect the deal, resumed airstrikes on Aleppo, and even a humanitarian aid convoy was bombed. Still, there is reason for hope. If Russia and the United States were willing to come far enough in their negotiations to reach this deal, these setbacks can be overcome. The targeting of the humanitarian convoy, a war crime, should serve as an added impetus for the United States and Russia to recommit to the cease-fire.

The two parties were well aware of the difficulties as they spent a month negotiating the cease-fire’s terms. The agreement can be salvaged if all sides unite, for now, around a simple and undeniably important goal: Stop the killing. It may be more likely than it sounds. Reliable sources estimate the number of Syrians killed to date at almost half a million, with some two million more people wounded. Well over half of the country’s 22 million prewar population has been displaced. These shocking numbers alone should convince all concerned that war itself is the greatest violation of human rights and the ultimate enemy of Syria. If this cease-fire is to last, the United States and Russia must find ways to work beyond the lack of trust that undermined the previous cease-fire, in February.

The countrywide cessation of hostilities that began then started to crumble within two months, with battles in much of the countryside around Damascus, central and northern Syria, and Aleppo. The resumption of the conflict led in April to the suspension of UN-sponsored peace talks in Geneva. However, a strong effort was made earlier in the year when the United States and Russia pressed their respective allies to pause the fighting and give the negotiations a chance. But the American and Russian expectation that they reach an agreement on issues of transitional governance by Aug. 1 was unrealistic. After five years of killing, and before any semblance of trust could be established, pushing the Syrian parties and their supporters to agree on power-sharing was seen as too threatening by some and too inadequate by others. Unsurprisingly, they reverted to violence.

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A lovely letter.

• Apologizing to My Daughter for the Last 15 Years of War (Van Buren)

I recently sent my last kid off for her senior year of college. There are rituals to such moments, and because dad-confessions are not among them, I just carried boxes and kept quiet. But what I really wanted to say to her — rather than see you later, call this weekend, do you need money? – was: I’m sorry. Like all parents in these situations, I was thinking about her future. And like all of America, in that future she won’t be able to escape what is now encompassed by the word “terrorism.” Terrorism is a nearly nonexistent danger for Americans. You have a greater chance of being hit by lightning, but fear doesn’t work that way. There’s no 24/7 coverage of global lightning strikes or “if you see something, say something” signs that encourage you to report thunderstorms.

So I felt no need to apologize for lightning. But terrorism? I really wanted to tell my daughter just how sorry I was that she would have to live in what 9/11 transformed into the most frightened country on Earth. Want the numbers? Some 40% of Americans believe the country is more vulnerable to terrorism than it was just after September 11, 2001 – the highest%age ever. Want the apocalyptic jab in the gut? Army Chief of Staff General Mark Milley said earlier this month that the threat remains just as grave: “Those people, those enemies, those members of that terrorist group, still intend – as they did on 9/11 – to destroy your freedoms, to kill you, kill your families, they still intend to destroy the United States of America.” All that fear turned us into an engine of chaos abroad, while consuming our freedoms at home.

And it saddens me that there was a different world, pre-9/11, which my daughter’s generation and all those who follow her will never know. [..] After the last cardboard boxes had been lugged up the stairs, I held back my tears until the very end. Hugging my daughter at that moment, I felt as if I wasn’t where I was standing but in a hundred other places. I wasn’t consoling a smart, proud, twenty-something woman, apprehensive about senior year, but an elementary school student going to bed on the night that would forever be known only as 9/11. Back home, the house is empty and quiet. Outside, the leaves have just a hint of yellow. At lunch, I had some late-season strawberries nearly sweet enough to confirm the existence of a higher power. I’m gonna really miss this summer.

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Debt Rattle September 10 2016

Sep 102016
 
 September 10, 2016  Posted by at 9:02 am Finance Tagged with: , , , , , , , , , , ,  1 Response »


Harris&Ewing Balancing act, John “Jammie” Reynolds, Washington DC 1917

• Rate-Rise Fears Trip Up Markets (WSJ)
• Surprise Fed Speech Throws Markets For A Loop (CNBC)
• Stocks Sink With Bonds, Dollar Rallies as Complacency Broken (BBG)
• Draghi Asset Buying Deepens the Hole in Europe’s Pension Funds (BBG)
• Gundlach Puts His Finger On Bond Market Inflection Point (BBG)
• VW Engineer Pleads Guilty in US Criminal Case Over Diesel Emissions (NYT)
• Sweden Says No to NATO (BBG)
• One “Lifelong Socialist” Norwegian’s Perspective on America (Nordmann)
• Eurozone Woes Continue: German Exports Plunge, French Industry Weakens (Tel.)
• Why the Eurozone Will Destruct (Mish)
• EU’s Poor Nations Plot Next Move As North-South Divide Erupts (CNBC)
• Greece Rejects Return Of EU’s Dublin Regulation On Reverse Migration Flow (AP)

 

 

Finally, something happened. But still: there are no markets, there’s only a faint surrogate of a market left. And that has consequences, none of which are positive.

• Rate-Rise Fears Trip Up Markets (WSJ)

Major markets had one of their worst days in months, as doubts over central banks’ willingness or ability to stimulate economic growth sent stocks and bonds tumbling. The Dow Jones Industrial Average fell nearly 400 points, and sinking bond prices pushed yields on government debt to their highest levels since early summer. The yield on Germany’s 10-year bund, which had been negative almost without exception since Brexit on June 23, popped into positive territory Friday. The wave of selling shattered weeks of summer torpor and was a reminder of the extent to which long-running rallies in stocks and bonds are reliant upon continued support from central banks.

The ECB damped market sentiment on Thursday by deciding to leave its bond-buying and interest-rate policies unchanged, rather than expanding them as some investors had hoped. An official with the Federal Reserve deepened concerns by suggesting Friday that the Fed still might raise interest rates even after a week of relatively weak U.S. economic data. “A reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” Federal Reserve Bank of Boston President Eric Rosengren said in a speech. [..] Mr. Rosengren, who has tended to support keeping rates low in the past, helped push markets into a deeper rout.

The Dow industrials plunged 394.46 points, or 2.1%, to 18085.45. The S&P 500 declined 53.49 points, or 2.5%, to 2127.81. The percentage drop was the biggest for both indexes since June 24. The Nasdaq Composite Index lost 133.57 points, or 2.5%, to 5125.91. Yields on 10-year Treasury notes jumped to 1.671%, their highest level since June 23. Bond yields rise as prices fall. “Once the snowball starts rolling down the hill, everybody jumps on board,” said Jonathan Corpina, senior managing partner at Meridian Equity Partners.

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“[Fed] Governor Lael Brainard will be delivering a previously unannounced speech Monday..”

• Surprise Fed Speech Throws Markets For A Loop (CNBC)

Those figuring that the Fed still might hike rates in September are getting one more bite at the apple. As the week drew to a close and the Fed’s “quiet period” before meetings was about to settle in, investors recoiled over news that the central bank’s most dovish official, Governor Lael Brainard, will be delivering a previously unannounced speech Monday at The Chicago Council on Global Affairs. The news sent a chill through markets Friday, with major stock market averages taking a beating and short-term government bond yields and the U.S. dollar moving higher, and it set off yet another round of speculation over whether the Fed is ready to come off its historically loose monetary policy. The S&P 500 was down more than 1% Friday afternoon, on track to close with its biggest percentage move since July 8.

“When a market is quiet, it’s susceptible to rumors, whether we’re talking about a path to freeze oil production or whether the Fed is going to raise rates in September,” said Quincy Krosby at Prudential Financial. “This may be a market that has too much time on its hands right now.” Indeed, the guessing game over whether the Fed might enact its first rate rise since December and only its second tightening in more than a decade has set off a fever pitch of horse trading. At one point Friday morning, markets put the chance of a hike later this month as high as 30% before backing off. The probability had been reduced amid a week’s worth of poor economic data, including the worst services reading in six years, a contraction in manufacturing and a weaker-than-expected nonfarm payrolls report.

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You can’t keep ‘markets’ at a completely fake level forever.

• Stocks Sink With Bonds, Dollar Rallies as Complacency Broken (BBG)

Tranquility that has enveloped global markets for more than two months was upended as central banks start to question the benefits of further monetary easing, sending government debt, stocks and emerging-market assets to the biggest declines since June. The dollar jumped. The S&P 500 Index, global equities and emerging-market assets tumbled at least 2% in the biggest rout since Brexit. The yield on the 10-year Treasury note jumped to the highest since June and the greenback almost erased a weekly slide as a Federal Reserve official warned waiting too long to raise rates threatened to overheat the economy. German 10-year yields rose above zero for the first time since July after the ECB downplayed the need for more stimulus.

Fed Bank of Boston President Eric Rosengren’s comments moved him firmly into the hawkish camp, sending the odds for a rate hike this year above 60%. He spoke a day after ECB President Mario Draghi played down the prospect of an increase in asset purchases, while DoubleLine Capital Chief Investment Officer Jeffrey Gundlach said it’s time to prepare for higher rates. “Dovish Fed members getting called up to bat for a hike is putting people on edge,” Yousef Abbasi, a global market strategist at JonesTrading, said by phone. “The more hawkish-leaning investors are grabbing onto that and it’s certainly one of those days where people are positioning for that September hike being back on the table.”

Calm had dominated financial markets in late summer with equity volatility and bond yields near historic lows and measures of cross-asset correlation at the highest levels since at least the financial crisis. The rise in the influence of different markets on each other has been attributed to the growing impact of central bank policy on prices, and rising concern that the era of easing may be nearing an end roiled assets from bonds to currencies and stocks on Friday.

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It will take years for people to realize what central banks and their incompetence have done to fixed income.

• Draghi Asset Buying Deepens the Hole in Europe’s Pension Funds (BBG)

As he tries to jump start the economies of today, ECB President Mario Draghi is punching holes in the retirements of tomorrow. Draghi on Thursday said the ECB may continue asset buying beyond March 2017 until it sees inflation consistent with its targets. The purchases, along with low and negative interest rates from the ECB and the region’s national banks, are pushing more and more bond yields below zero, hurting European pension managers that are already struggling to fund retirement plans. “Pension funds can’t meet their future obligations if interest rates remain as low as they currently are,” said Olaf Stotz at the Frankfurt School of Finance and Management. “Some sponsors will have no choice but to add more capital” to their pension plans.

Funds that supply retirement income of millions of European workers face a growing gap between the money they have and what they must pay out. To make up the shortfalls, they may have to tap their sponsoring companies or institutions, reduce or delay payouts or try to boost returns by investing in riskier assets. That mirrors the dilemma faced by pension managers from the U.S. to Japan who are also being affected by central bank monetary policy. Low yields force funds to buy a greater variety of bonds or diversify their investments to generate a long-term income for their retirees. While some are profiting now by selling bonds purchased at lower prices in the past, they will struggle to get the same kind of returns from any new bonds they purchase.

Occupational funds in Europe currently have resources to pay only about 76% of their commitments on average, according to the European insurance and pensions regulator Eiopa. “Pension funds are more liberal in their investment decisions than insurers,” said Martin Eling at the University of St. Gallen in Switzerland. “Regulators will need to closely watch them as they are driven into higher-return assets such as corporate bonds and emerging markets investments.” EU regulations on the industry “might underestimate the risks,” Eiopa said by e-mail. It recommends measures including improved public disclosure so more beneficiaries know how their funds are investing. While pension systems and controls differ from country to country in Europe, regulators typically approve a pension plan’s design and set limits for certain investments.

They also can intervene to make sure a fund can meet its obligations.] Eiopa’s first stress test of the industry in Europe, published earlier this year, showed that occupational pension fund assets were 24% short of liabilities, a deficit of €428 billion ($484 billion) even before applying a shock scenario. Central banks in Europe and Japan are relying on stimulus packages that include negative deposit rates to fuel inflation and revive the economy. That has pushed yields in countries such as Germany and Japan below zero, bringing the global pile of bonds with negative yields to about $8.9 trillion. Pension liabilities for the 30 members of the benchmark DAX Index in Germany rose by about €65 billion this year to a record €426 billion as interest rates declined, according to consulting firm Mercer.

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“Traders have started dumping government bonds, leading to the biggest rout in Japanese debt in 13 years…”

• Gundlach Puts His Finger On Bond Market Inflection Point (BBG)

DoubleLine’s Jeffrey Gundlach indicated in a webcast on Thursday that financial markets are on the brink of turmoil, saying “this is a big, big moment.” He’s right. It is. The mood has shifted suddenly. Investors are losing faith in the efficacy of monetary stimulus, and it appears that perhaps central bankers may be, too. The BOJ and ECB have refrained from committing to additional rounds of stimulus and are quickly running out of bonds to buy under their existing programs. The BOJ may run out of bonds within the next 18 months, while the ECB may run into a wall sooner than that, according to analysts cited by the WSJ and the FT.

The Federal Reserve, meanwhile, is still planning to raise benchmark interest rates despite underwhelming economic data. This is in large part because policy makers are increasingly concerned about the threats to longer-term financial stability by keeping rates so low. Meanwhile, inflation expectations are rising on bets that government officials will embark on spending plans to stimulate growth. This multifaceted dynamic is a game changer, and markets have taken note. Traders have started dumping government bonds, leading to the biggest rout in Japanese debt in 13 years. [..] “Interest rates have bottomed,” Gundlach said in the webcast. “They may not rise in the near term as I’ve talked about for years. But I think it’s the beginning of something, and you’re supposed to be defensive.”

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So VW guys will be thrown in jail but bankers will not.

• VW Engineer Pleads Guilty in US Criminal Case Over Diesel Emissions (NYT)

A Volkswagen engineer pleaded guilty on Friday to conspiring to defraud regulators and car owners, in the first criminal charges stemming from the American investigation into the German carmaker’s emissions deception. The plea by the engineer, James Robert Liang, a Volkswagen veteran, suggests that the Justice Department is trying to build a larger criminal case and pursue charges against other higher-level executives at the carmaker. Mr. Liang was central in the development of software that Volkswagen used to cheat pollution tests in the United States, which the company admitted last year to installing in more than 11 million diesels vehicles worldwide. He was also part of the cover-up, lying to regulators when they started asking questions about discrepancies in emissions.

Mr. Liang’s admissions, made in the United States District Court for the Eastern District of Michigan, portray a broader conspiracy by executives, making Mr. Liang a potentially valuable resource for the developing criminal investigation. The Justice Department said Mr. Liang, who faces a maximum sentence of five years in prison, would cooperate. The Volkswagen case comes at a time when the government is trying to get tough on white-collar crime and hold more individuals responsible. After being criticized for going soft on executives, the Justice Department introduced new policies last year that emphasized the prosecution of individual employees. And the Volkswagen case provides one of the first real tests of the government’s commitment.

The Volkswagen case has escalated quickly. In June, the Justice Department and other agencies secured a record $15 billion settlement in a civil suit with the company. At the time, officials were quick to note that the settlement was just a first step, saying they would aggressively pursue a criminal case against the company and individuals. “There’s considerable pressure on the Department of Justice to see how far up the chain of management the knowledge goes,” said Daniel Riesel, a principal at the New York-based environmental law firm Sive, Paget & Riesel. One way for investigators to do that was “to indict and cut deals with lower-level people,” he added. Mr. Liang is “a high enough official who is culpable on his own right, and maybe in a position to start unraveling this chain of responsibility.”

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Good on them! Still, while they do this, they still persist in terrorizing Assange for the US.

• Sweden Says No to NATO (BBG)

Sweden’s government affirmed its military neutrality even as a government-commissioned report broadly sided with those in favor of joining the North Atlantic Treaty Organization amid rising tensions with Russia. “Our non-alignment policy serves us well,” Foreign Minister Margot Wallstroem said in Stockholm Friday after receiving the report. Joining NATO “would expose Sweden to risks, both political and otherwise, and we don’t think that’s the right direction.” The country has been forging closer ties with the military alliance, taking part in joint military exercises that have angered authorities in Moscow.

A stable, geographically strategic democracy such as Sweden would be a welcome addition for NATO as it struggles to contain a more assertive Russia on its eastern flank. The review released on Friday in Stockholm refrained from making a formal recommendation. While NATO membership would “increase common conflict-deterrent capabilities,” it would also spark a political crisis with Russia and possibly lead to a regional arms race, the review concluded. And although Russian attacks on Sweden or its Baltic neighbors are considered “unlikely,” being a part of NATO would help “remove uncertainty in case of conflict.”

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Zero Hedge has an interesting ‘alternative’ view from Norway. Tyler calls it a view of Trump, but it’s definitely wider than that.

• One “Lifelong Socialist” Norwegian’s Perspective on America (Nordmann)

I find it interesting that the very wealthy are suddenly vocal, vigorously opposing Donald J Trump’s presidency. Mark Cuban, Warren Buffet, Bill Gates and George Soros have all made statements against “The Donald.” Buffet, Gates, and Soros are avid supporters of Hillary Clinton. Goldman Sachs top management are not allowed to donate to Trump’s campaign. As an average seventy-something Norwegian farmer, looking at American from the outside, I find the vigorous billionaire opposition “interesting.” Moreover, this is amplified by CNN (which we get here in Norway as part of our standard cable package). CNN used to be fact based news only. Now they morphed into the Clinton News Network, attempting to shape public opinion, garnering support for globalism.

Perhaps the billionaire’s enterprises benefit from bloated government spending (this is speculation and worthy of investigation)? These Billionaires are so rich that the interest earned on their idle cash and investments amounts to tens of thousands of dollars per day. What do they have to lose either way? Why is this so important to them? Maybe it’s to their advantage that the ladder (better known as the American Dream), where people can ascend through the rungs, achieving different levels of success through hard work, is broken? Don’t Americans find it strange, despite technological advancements and increased productivity, that medical care, education, and housing costs are rising. I thought technology was supposed to make things cheaper, easier and more abundant.

Remember when people went from horse and buggy to the Ford Model T – what happened? (A middle mobile middle class was born). Based on what I read about American life, it seems like now, when there is a new technology or innovation to make life easier, things get worse. Jobs become less stable than decades earlier. People are working longer hours for less. The housing standard is now a cramped condo instead of a house with a yard. It appears a lot of people are on edge. American’s need to ask themselves, reflecting back one generation (20 years), how billionaires have made their lives better? Billionaires have substantially increased their wealth in the past 20 years, have you? American’s have a history of being rebellious, unpredictable, self-reliant and wild, rooting for the underdog. In this case, the underdog is Trump.

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Europe’s core will take this out on the periphery.

• Eurozone Woes Continue: German Exports Plunge, French Industry Weakens (Tel.)

German exports fell at the fastest pace in more than a year in July as French industrial production shrank for a third straight month, fuelling fears of a wider eurozone slowdown. Exports in Germany fell 2.6pc in July compared with June, according to Destatis. This was the biggest fall since August 2015, and compares with expectations for a 0.4pc rise. The decline was driven by a drop in sales outside the EU, including China and the US, while demand from the UK also fell. June’s month-on-month rise of 0.3pc was also revised down to 0.2pc. Separate data showed French industrial production declined by 0.6pc in July on a monthly basis. Analysts had expected French production to bounce back following declines in May and June when activity was hit by strike action.

Chantana Sam, an economist at HSBC, said: “This is a bad sign for the prospects of a rebound in business investment. Recent manufacturing surveys also point to a deteriorating outlook and persistent weak demand. “All in all, this bad start to the third quarter of industrial production and puts some downside risks on our expectations for a rebound in GDP growth in the third quarter, after flat growth in the second quarter.” Wolfgang Schaeuble, the German finance minister, said Europe’s largest economy had no intention of reining in export growth. Critics, including ECB chief Mario Draghi, say the country’s current account surplus, which includes trade, has contributed to imbalances and hindered growth in the 19 nation bloc. “Even before the ECB decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus,” Mr Schaueble told reporters.

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Love mish, but I’ll write an article on where he goes off the rails on the issue.

• Why the Eurozone Will Destruct (Mish)

No discussion of eurozone problems would be complete without a discussion of Target2, an abomination created by the eurozone founders and one of the fundamental flaws of the euro. Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe. Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.”

Monetary policy can help external balances but it cannot fix internal target2 balances. Germany will pay one way or another for the massive imbalances between the creditor and debtor Eurozone countries. Eventually Spain, Greece, or Italy will realize it is impossible for them to pay back what is owed. Once that realization sets in, some country will default on their euro-denominated liabilities. Beppe Grillo’s Five Star Movement in Italy is on board with that idea already. There are only three possible paths at this point: 1) Germany and the creditor nations forgive enough debt for Europe to grow; 2) Permanently high unemployment and slow growth in Spain, Greece, Italy, with stagnation elsewhere in Europe; 3) Breakup of the eurozone.

Germany will not allow #1. It is unreasonable to expect #2 to last forever. The only door left open is door #3. The best move would be for Germany to leave the eurozone. Germany is in the best shape to suffer the consequences. Unfortunately, the most likely outcome is still a destructive breakup of the eurozone, starting in Italy or Greece.

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Any ‘subversive’ moves from the south will be crushed by the north.

• EU’s Poor Nations Plot Next Move As North-South Divide Erupts (CNBC)

In order to tame the euro zone sovereign debt crisis over the last seven years, the richer countries of Northern Europe have called for austerity measures and budget cuts, coupled with stronger EU sanctions for countries that do not adhere to this policy. In practice, this economic recipe, led by Germany, proved economically and politically disastrous, as it fueled the recession and nourished populism. In some cases it has become increasingly difficult for political parties to pursue an economic agenda that deviates from these fiscal norms without questioning EU membership. Tspiras and his colleagues believe the current situation in southern Europe makes this a good time to address austerity issues and its effect on long-term growth throughout the region.

The stars may be aligning, considering in Italy a referendum on constitutional reform will take place between Nov. 15 and Dec. 5 and the first round of the presidential election in France next April. This may help the Greek prime minister’s cause, which is to convince its lenders that the targeted 3.5 percent primary surplus for 2018 is too high and would negatively affect crisis-stricken Greeks. Terms of the Greek bailout program assumed that tax revenues would exceed program spending, ex-interest on outstanding debt. But within the southern EU bloc, many believe this is an unrealistic target for an aching economy that for seven years has been in a recession and austerity mode. Tsipras does not want to give the impression that he does not respect the agreements with Greece’s creditors.

In an informal government meeting held on September 6, Tsipras asked his ministers to progress rapidly with the fiscal and structural measures that Greece’s lenders set as a prerequisite last June. This effort comes ahead of a mandated second review of its current international bailout, which the Greek government is expected to start in October and which includes controversial reforms. In turn, lenders have promised that the European Stability Mechanism, the EU’s bailout fund, will outline how it will offer Greece debt-relief measures. The austerity measures in southern European nations create the conditions for dividing the EU further, as the Germans and their northern allies insist on tight budgets, despite the persistent deflation in the region and weak growth.

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This is the craziest European idea yet. Merkel suspended Dublin, and now she wants to flood already severely overburdened Greece with the people she invited to Germany last year? Note: Greece is overburdened because Europe refuses to help out.

• Greece Rejects Return Of EU’s Dublin Regulation On Reverse Migration Flow (AP)

The Greek government is adamantly opposing the revival of a European Union rule that would allow the forcible return to its territory of asylum-seekers who entered the bloc via Greece – a path followed by more than a million people in the past two years. Immigration is high on the agenda of a meeting Friday in Athens of southern European leaders. The group includes Italian Prime Minister Matteo Renzi, whose country, with Greece, is Europe’s main immigration gateway. Ahead of the talks, a government spokesman on immigration said Athens rejects reactivation of the so-called Dublin Regulation, which would allow other EU members to send asylum-seekers back to Greece.

“A country such as Greece which receives a large number of refugees from Turkey, and also hosts a large number of refugees – practically without any outside help – cannot be asked to receive refugees from other European countries,” Giorgos Kyritsis told The Associated Press. “That would be outrageous.” The Dublin Regulation that governs the Schengen passport-free area stipulates that people wishing to apply for asylum must do so in the first member country they arrive in. In most cases that was Greece, whose eastern islands were overwhelmed last year by migrants packed into smugglers boats from Turkey. But even before last year’s migration crisis, many of its EU partners had stopped enforcing the rule because Greece’s asylum and migrant reception systems were below standard.

Now, however, both Germany and the EU executive are pressing for the rule to be restored, with EU officials saying that Greece must meet the Dublin standards by the end of this year.

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