Jan 072017
 
 January 7, 2017  Posted by at 10:28 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Arthur Rothstein Highway marker in Polk County, Florida 1937


Here Is The US Intel Report Accusing Putin Of Helping Trump Win (ZH)
A Case Study in the Creation of False News (Paul Craig Roberts)
Obama Set For Pardon Frenzy As He Leaves Office (AFP)
Worst. Recovery. Ever. (ZH)
How Many Bombs Did the United States Drop in 2016? (CFR)
Le Pen Says Brexit Isn’t a Disaster and France Should Be Next (BBG)
Economics Is Driven By Ideology, Not Science (Pettifor)
The Labor Market: The End Of The Innocence? (DiMartino Booth)
Canadian Woman Arrested In Turkey For Saying Erdogan Jails Journalists (CBC)
Giant Iceberg Poised To Break Off From Larsen C Antarctic Shelf (G.)

 

 

I’m so tired of this. No, ‘trust us’ is not good enough anymore. That is why Trump won, because it’s no longer enough to say ‘because we say so’. People don’t trust CIA et al. And you can’t turn that back on its head and demand trust now. You lost! I get so frustrated they even locked up my Facebook account again. There’s always people who want to complain about those who don’t toe lines.

Here Is The US Intel Report Accusing Putin Of Helping Trump Win (ZH)

The farce is complete. One week after a joint FBI/DHS report was released, supposedly meant to prove beyond a reasonable doubt that Russia intervened in the US presidential election, and thus served as a diplomatic basis for Obama’s expulsion of 35 diplomats, yet which merely confirmed that a Ukrainian piece of malware which could be purchased by anyone, was responsible for spoofing various email accounts including that of the DNC and John Podesta, moments ago US intelligence agencies released a more “authoritative”, 25-page report, titled “Assessing Russian Activities and Intentions in Recent US Elections”, and which not surprisingly only serves to validate the media narrative, by concluding that Russian President Vladimir Putin ‘ordered’ an effort to influence U.S. presidential election.

Specifically, the report concludes the following: “We assess Russian President Vladimir Putin ordered an influence campaign in 2016 aimed at the US presidential election. Russia’s goals were to undermine public faith in the US democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency. We further assess Putin and the Russian Government developed a clear preference for President-elect Trump.” What proof is there? Sadly, again, none. However, as the intelligence agencies state, “We have high confidence in these judgments”… just like they had high confidence that Iraq had weapons of mass destruction. And while the report is severely lacking in any evidence, it is rich in judgments, such as the following:

“We assess Russian President Vladimir Putin ordered an influence campaign in 2016 aimed at the US presidential election. Russia’s goals were to undermine public faith in the US democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency. We further assess Putin and the Russian Government developed a clear preference for President-elect Trump. We have high confidence in these judgments. “We also assess Putin and the Russian Government aspired to help President-elect Trump’s election chances when possible by discrediting Secretary Clinton and publicly contrasting her unfavorably to him. All three agencies agree with this judgment.”

At this point a quick detour, because the intel agencies responsible for drafting the report then explain how “confident” they are: “CIA and FBI have high confidence in this judgment; NSA has moderate confidence.” What do these distinctions mean? High confidence generally indicates judgments based on high-quality information, and/or the nature of the issue makes it possible to render a solid judgment. However, high confidence judgments still carry a risk of being wrong. Moderate confidence generally means credibly sourced and plausible information, but not of sufficient quality or corroboration to warrant a higher level of confidence. In other words, while not carrying the infamous DHS disclaimer according to which last week’s entire joint FBI/DHS report is likely garbage, the US intel agencies admit they may well be “wrong.”

Read more …

“Trump is supposed to side with the CIA which is trying to destroy him.”

A Case Study in the Creation of False News (Paul Craig Roberts)

For many weeks we have witnessed the extraordinary attack by the CIA and its assets in Congress and the media on Donald Trump’s election. In an unprecedented effort to delegitimize Trump’s election as the product of Russian interference in the election, the CIA, media, senators and representatives have consistently made wild accusations for which they have no evidence. The CIA’s message to Trump is clear: Get in line with our agenda, or we are going to mess you over. It is clear that the CIA is warring against Trump. But the CIA’s media assets have turned the facts on their head and are blaming Trump for having a negative view of the CIA. Consider the January 4 Wall Street Journal article by Damian Paletta and Julian E. Barnes, which begins: “President-elect Donald Trump, a harsh critic of U.S. intelligence agencies . . .”

The two presstitutes set up their false news story by putting the shoe on the other foot. It is Trump who is the harsh critic rather than the victim of the CIA’s harsh accusations. Set up this way, the story continues: “White House officials have been increasingly frustrated by Mr. Trump’s confrontations with intelligence officials. ‘It’s appalling,” the official said. “No president has ever taken on the CIA and come out looking good.’” Now that the story is Trump taking on the CIA and not the CIA taking on Trump, the case can be built against Trump: Analysts accustomed to more cohesion with the White House are “jarred” by Trump’s skepticism of the CIA’s assessment that Putin got him elected. Trump is supposed to respond to the allegation by saying: I am not legitimate. Here take back the presidency.

WikiLeaks’ Assange has stated unequivocally that there was no hack. The information came to WikiLeaks as a leak, which suggests that it came from inside the Democratic National Committee. That Trump sees it this way means, according to one unidentified official that “It’s pretty horrifying to me that he’s siding with Assange over the intelligence agencies.” You see, Trump is supposed to side with the CIA which is trying to destroy him. Has the CIA shot itself in both feet? How can the agency control policy by manipulating the information fed to the President when the President does not trust the agency?

Read more …

Leonard Peltier has been in jail for 40 years for a set-up. Forget about Snowden and Chelsea. Not going to happen.

Obama Set For Pardon Frenzy As He Leaves Office (AFP)

A Rastafarian prophet, a former Taliban captive and thousands of minor drug traffickers have one thing in common: Their names have been submitted to President Barack Obama for clemency before he leaves office in two weeks. Some US presidents have used this regal power of leniency in a pointed way near the end of their term in office. On the last day of his term in 2001, Democratic president Bill Clinton granted pardon in a highly controversial move to late fugitive trader Marc Rich, whose ex-wife had been a major donor to Democrats. Sixteen years later, Obama is fielding pressure from all sides to grant unlikely pardons or commutations of sentences to people whose supporters say have been unjustly sentenced or sought out by the justice system.

Among them is Bowe Bergdahl, a US Army sergeant held captive for five years by the Taliban before his release in a prisoner swap, who is due to be court-martialed for desertion. Leonard Peltier, a Native American activist convicted for the 1975 deaths of two FBI agents in what his supporters say was a setup, is also hoping to enjoy Obama’s good graces. Then there’s Edward Snowden, who made the shattering revelation in 2013 of a global communications and internet surveillance system set up by the United States. The 33-year-old, a refugee in Russia, is backed by numerous celebrities like actress Susan Sarandon and singer Peter Gabriel, as well as Amnesty International and the American Civil Liberties Union. If Obama fails to pardon Snowden, his supporters say he may face the death penalty under the incoming administration of Republican Donald Trump, who has called him a “terrible traitor.”

In another leak case, Chelsea Manning is serving a 35-year sentence in solitary confinement for handing 700,000 sensitive military and diplomatic documents to WikiLeaks, some of them classified. Activists say her sentence is excessive and point to the psychological frailty of the transgender soldier who has already made two suicide attempts. Even though the White House has dismissed a possible pardon for Snowden and Manning, their supporters are still hoping for a final magnanimous gesture from a president about to leave the constraints of his high office on January 20.

Read more …

We know.

Worst. Recovery. Ever. (ZH)

As the champagne glasses clink in Washington over a record-breaking streak of job growth on record (as the percent of the population employed slumped), and the fastest wage growth since the start of the recovery (for managers), we just wanted to remind a few blinkered media types that Obama’s “recovery” has officially been the worst recovery in US history (despite adding almost $10 trillion to the national debt)… When ‘fake news’ and ‘peddling fiction’ meet fact… Not quite as rosy an economic handover to Trump as The White House would like everyone to believe.

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Peace, man!

How Many Bombs Did the United States Drop in 2016? (CFR)

As President Obama enters the final weeks of his presidency, there will be ample assessments of his foreign military approach, which has focused on reducing U.S. ground combat troops (with the notable exception of the Afghanistan surge), supporting local security partners, and authorizing the expansive use of air power. Whether this strategy “works”—i.e. reduces the threat posed by extremists operating from those countries and improves overall security and governance on the ground—is highly contested. Yet, for better or worse, these are the central tenets of the Obama doctrine.

In President Obama’s last year in office, the United States dropped 26,171 bombs in seven countries. This estimate is undoubtedly low, considering reliable data is only available for airstrikes in Pakistan, Yemen, Somalia, and Libya, and a single “strike,” according to the Pentagon’s definition, can involve multiple bombs or munitions. In 2016, the United States dropped 3,027 more bombs—and in one more country, Libya—than in 2015.

Most (24,287) were dropped in Iraq and Syria. This number is based on the percentage of total coalition airstrikes carried out in 2016 by the United States in Operation Inherent Resolve (OIR), the counter-Islamic State campaign. The Pentagon publishes a running count of bombs dropped by the United States and its partners, and we found data for 2016 using OIR public strike releases and this handy tool.* Using this data, we found that in 2016, the United States conducted about 79% (5,904) of the coalition airstrikes in Iraq and Syria, which together total 7,473. Of the total 30,743 bombs that the coalition dropped, then, the United States dropped 24,287 (79% of 30,743).

To determine how many U.S. bombs were dropped on each Iraq and Syria, we looked at the percentage of total U.S. OIR airstrikes conducted in each country. They were nearly evenly split, with 49.8% (or 2,941 airstrikes) carried out in Iraq, and 50.2% (or 2,963 airstrikes) in Syria. Therefore, the number of bombs dropped were also nearly the same in the two countries (12,095 in Iraq; 12,192 in Syria). Last year, the United States conducted approximately 67% of airstrikes in Iraq in 2016, and 96% of those in Syria.

Read more …

Quick, Carney, cause chaos, or Le Pen will win…

Le Pen Says Brexit Isn’t a Disaster and France Should Be Next (BBG)

French presidential candidate Marine Le Pen said the U.K. economy is weathering Brexit, giving her confidence to seek an immediate renegotiation of France’s relationship with the European Union if elected. “Brexit has not been a disaster,” Le Pen said at a meeting with English-language reporters in Paris on Friday. “The economic signals are good.” National Front leader Le Pen, who polls suggest will reach the presidential runoff in May, said she would seek talks with France’s EU partners “the day after my election” and put the result to a national referendum. She said the goal is to take back what she called “the four sovereignties”: control of borders, economic policy, money and legislation. France should dump the euro and return to a national currency, though the exchange rate could be linked to some sort of European currency mechanism, Le Pen said.

“I’ll give six months to these talks, and if at the end we have won back our sovereignty, I will tell the French to vote to stay in this Europe of nations and liberty,” she said. “If we don’t, I’ll suggest that they vote to leave.” Polls suggest Le Pen would finish second in the first round of France’s presidential elections on April 23, and lose a May 7 runoff to center-right candidate Francois Fillon. An Elabe poll released Thursday showed independent Emmanuel Macron gaining on Le Pen, taking second place in some hypothetical matchups. Le Pen, whose party received a $8.5 million loan from a Russian bank in 2014, said she doesn’t fear Russian meddling in France’s election. That follows U.S. intelligence findings that Russian officials directed hacking attacks to help elect Trump, whom she said she supports because his anti-globalist views were better for France.

“Every time big corporations, big finance don’t get what they want, they say it’s a conspiracy of the Russians,” she said. “It makes one laugh.” While the U.S. shouldn’t lecture anyone given its history of spying on allies, improved ties between Russia and the U.S. are in France’s interest, especially if they can cooperate on combating Islamic militants, Le Pen said. “I think that Mr. Trump and Putin can repair ties, and I hope so,” she said. “We don’t want to see an increase in tensions between the U.S. and Russia for a very selfish reason: we are in the middle.”

Read more …

Should we let economists ‘heal’ their own field, or is it too late for that?

Economics Is Driven By Ideology, Not Science (Pettifor)

As someone who correctly predicted the financial crisis (first in 2003 and later in a 2006 book) I support Andy Haldane’s assertion that the economics profession is “to some degree in crisis”. He is not the first to argue this. The retiring head of the UK Treasury admitted in 2016 that economists failed to spot the build-up of risk before 2007 and were guilty of what he called “a monumental collective intellectual error”. It is a collective intellectual failure that I believe has played a key role in the rise of political populism. The Bank of England’s chief economist was also right to compare the challenges facing economists to the famous “Michael Fish” moment, where everyone was assured that a hurricane wouldn’t hit before it did, bringing with it much devastation, in 1987.

Meteorologists have since transformed their field and improved forecasts. But that is not true of the economics profession. The dominant economic model of financial liberalisation, monetary policy dominance and fiscal austerity remains intact. In their defence, economists can’t be faulted for getting forecasts wrong. Political events such as Brexit are not easy to predict. But unlike economists, meteorologists have a deep understanding of the major forces shaping outcomes in their fields, even when they get precise forecasts wrong. Mainstream economists, by contrast, lack that deep understanding of the economic forces driving outcomes. The reason is not hard to understand. The field of meteorology is not underpinned by policy or by an agenda. Economics, by contrast, is dogged by ideology.

It is ideology, not science, that leads economists to wrongly assert that the market in money is like the market in widgets, and must not be regulated or tampered with by governments. That financial flows across borders must be “free”, regardless of whether they cause instability. That bankers are simply intermediaries between savers and borrowers – and do not create credit out of thin air. That monetary and fiscal policies that serve the finance sector with bailouts are tolerable, while those that serve the poor must be resisted. That the reasoning that informs the micro-economy can be extrapolated to reach conclusions about the macro-economy. In other words, the fallacy that the budgets of households (the micro-economy) can be aggregated and compared to the budgets of governments (the macro-economy).

Unsurprisingly, these flawed theories and models are a great comfort to financial elites – which is why so many economists are hired and funded by big banks, corporations and the wealthy. And it explains why their words and ideas are repeated by the media outlets that faithfully serve the status quo or “the establishment”. Very little has been done to transform the dominant economic model of financial and trade liberalisation or to limit economists’ almost religious belief in the efficiency of markets and hostility to public intervention.

Read more …

“Let me take a long last look, before we say goodbye..”

The Labor Market: The End Of The Innocence? (DiMartino Booth)

One of the first of life’s lessons we all learned is that we need not rush life; it will do that for us and in the end against our will. The inspiration for this wisdom could well have sprung from Ecclesiastes wherein we read these peaceful words: To every thing there is a season, and a time to every purpose under the heaven. Co-writers Don Henley and Bruce Hornsby embraced the spirit of this message as the 1980’s were coming to a close. You must agree 1989’s The End of the Innocence, that haunting and mournful ballad, was just the coda needed to move on to the last decade of the last century. “Let me take a long last look, before we say goodbye,” the song asks of the listener who can’t help themselves but to listen.

Many veteran investors, those who don’t need to be reminded about the Reagan era because they were there, may be feeling a bit more wistful as they peer over the horizon. They have lived through extraordinary economic times and maybe even recall the early 1970’s, the last time initial jobless claims were at their current historically low levels. They know, in other words, this can’t go on forever, that we are nearing the end of our own innocence. Federal Reserve Chair Janet Yellen has been adamant that economic cycles can’t die of old age. At the end of this month, we can proclaim to be living through the third longest expansion in postwar times. The parlor game occupying those on the Street these days entails devising scenarios that can push us into the second, or dare we dream, longest expansion of all.

The Wall Street Journal perfectly captures the infectious optimism, the yearning to keep that dream alive, by asking this in a headline: How Low Can the Unemployment Rate Go? Rather than keep you in suspense, the article’s answer is as follows: “Assuming the economy adds around 200,000 jobs a month in 2017 and the labor-force participation rate stays relatively constant, the unemployment rate would fall to 3.9% by the end of the year, according to a model maintained by the Federal Reserve Bank of Atlanta.” If we do get there, a big if, we are sure to be staring down the barrel of appreciably higher interest rates and a flat, if not by then, inverted yield curve. The only precedent is, you guessed it, that which occurred in 2000, when the unemployment rate hit 3.6% as the longest cycle of all time was finally flaming out. Economics 101 teaches one tenet above all – that the unemployment rate is the most lagging within the data universe.

A recent visit with Dr. Gates, that steel-eyed sleuth, corroborated this maxim. “The unemployment rate is the single, most visible economic indicator for households. It’s easy to understand, black and white. Up is bad, down is good,” Gates observed. “If we keep getting downside surprises, it will feed even more consumer optimism. That happens late in the cycle.” What goes hand in hand with these late cycles guideposts? Since you asked, that optimism Gates cites tends to correlate with households overreaching their paychecks, which is exactly what we’re seeing. When adjusted for inflation, credit card borrowing is up 4.5% over last year, a full two percentage points above wage income, which is up 2.5% over the same period. That’s a new high for the current cycle. At 2.9%, inflation-adjusted spending is also running ahead of wage income.

These data are validated by separate data that shows state withholding tax collections are way off last year’s figures. “Vulnerabilities in household demand don’t happen overnight; they take time to rise to the surface,” Gates cautioned. “Households aren’t overstretched yet, but they’re getting there. Just like corporations substitute debt for profits late in the cycle, households also are starting to do just as they ride the wave of Trump optimism. Eventually this will run its course.”

Read more …

So is Canada going to stand up to him?

Canadian Woman Arrested In Turkey For Saying Erdogan Jails Journalists (CBC)

A Canadian woman has been arrested in Turkey for allegedly insulting the country’s president in comments posted on Facebook, her Turkish lawyer said Thursday. Ece Heper, 50, was arrested in the city of Kars in northeastern Turkey, and charged on Dec. 30, Sertac Celikkaleli told The Canadian Press. Heper, a dual Canadian-Turkish citizen, had been in the country since mid-November, according to her friends. “She is intense and opinionated, for sure,” Birgitta Pavic said from her Toronto home. “But everything is intense over there right now, especially criticizing the government.” At issue, her friends and lawyer said, are several recent Facebook posts about Turkish President Recep Tayyip Erdogan.

In one posted on Dec. 28, Heper accused Erdogan of jailing journalists who suggest there is evidence Turkey is supporting the Islamic State of Iraq and the Levant, known as ISIS or ISIL. Global Affairs Canada said they are aware of a Canadian citizen detained in Turkey and are providing consular assistance, but wouldn’t divulge further information, citing privacy laws. Heper has a log home in Norwood, Ont., about 150 kilometres northeast of Toronto, Pavic said, where she lives with five dogs she rescued from Turkey “that are like her children.” Her parents are dead and she is estranged from her brother, Pavic said, so her friends are taking up the cause to help her out.

Read more …

We’re just going to watch it happen, ain’t we? That’s all we’re capable of.

Giant Iceberg Poised To Break Off From Larsen C Antarctic Shelf (G.)

A giant iceberg, with an area equivalent to Trinidad and Tobago, is poised to break off from the Antarctic shelf. A thread of just 20km of ice is now preventing the 5,000 sq km mass from floating away, following the sudden expansion last month of a rift that has been steadily growing for more than a decade. The iceberg, which is positioned on the most northern major ice shelf in Antarctica, known as Larsen C, is predicted to be one of the largest 10 break-offs ever recorded. Professor Adrian Luckman, a scientist at Swansea University and leader of the UK’s Midas project, said in a statement: “After a few months of steady, incremental advance since the last event, the rift grew suddenly by a further 18km during the second half of December 2016. Only a final 20km of ice now connects an iceberg one quarter the size of Wales to its parent ice shelf.”

The separation of the iceberg “will fundamentally change the landscape of the Antarctic Peninsula” and could trigger a wider break-up of the Larsen C ice shelf, he added. “If it doesn’t go in the next few months, I’ll be amazed,” Luckman told BBC News. Ice shelves are vast expanses of ice floating on the sea, several hundred metres thick, at the edge of glaciers. Scientists fear the loss of ice shelves will destabilise the frozen continent’s inland glaciers. And while the splitting off of the iceberg would not contribute to rising sea levels, the loss of glacial ice would. Martin O’Leary, also of Swansea University, said: “It just makes the whole shelf less stable. If it were to collapse there would be nothing holding the glaciers up and they would start to flow quite quickly indeed.”

Read more …

Dec 042016
 
 December 4, 2016  Posted by at 9:44 am Finance Tagged with: , , , , , , , ,  4 Responses »
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Wyland Stanley “J.A. Herzog Pontiac, 17th & Valencia Sts., San Francisco.” 1936


Trump’s Unhappy Fate: A Financial Crisis Far Worse Than The Last (Rickards)
Trump’s Appointments (Paul Craig Roberts)
Petition To Reverse US Election Result Becomes Most Popular In History (Ind.)
Jill Stein Supporters Drop Pennsylvania Recount Suit (WSJ)
Jill Stein To Pursue Pennsylvania Recount Petition In Federal Court (R.)
Brent Caps Biggest Weekly Advance Since 2009 on OPEC Agreement (BBG)
Steve Keen, Michael Hudson Unpick Historical Path to Global Recovery (MH)
The Italian Trouble for Greek Debt (BBG)
Will 2017 See End Of US Neocons’ Promotion Of Chaos Theory? (RT)
Late Is Enough: On Thomas Friedman’s New Book (Matt Taibbi)

 

 

As I said on election day in America is The Poisoned Chalice.

Trump’s Unhappy Fate: A Financial Crisis Far Worse Than The Last (Rickards)

As earthquake doesn’t care if you’re progressive or populist. It destroys your house all the same. Likewise a financial crisis is indifferent to a politician’s policy mix. Systemic crises proceed according to their own dynamic based on the array of agents in a system, and systemic scale. The tempo of recent crises in 1994, 1998, and 2008 says a crisis is likely soon. A new global financial panic will be one legacy of the Trump administration. It won’t be Trump’s fault, merely his misfortune. The equilibrium and value-at-risk models used by banks will not foresee the new panic. Those models are junk science relying as they do on notions of efficient markets, normally distributed risk, continuous liquidity, and a future that resembles the past. None of those hypotheses match reality.

Advances in behavioural psychology have demolished the idea of efficient markets. Data shows the degree distribution of risk is a power curve not a normal bell curve. Liquidity evaporates when most needed. Prices gap down; they do not move continuously. Each of the 1994, 1998, and 2008 crises was worse than the one before, and required more drastic intervention. The future does not resemble the past; it keeps getting worse. The standard models are in ruins. Recent model improvements that take into account so-called tail risk still fail to come to grips with systemic scale. The most catastrophic event possible in a complex system is an exponential function of scale. In plain language, if you double system size, you do not double risk; you increase it by a factor of five or more.

Since 2008, the largest banks in the world are larger in terms of gross assets, share of total deposits, and notional value of derivatives. Everything that was too-big-to-fail in 2008 is bigger and exponentially more dangerous today. The living wills and resolution authority of Dodd-Frank are entrances to gated communities. They seem imposing, but are a façade. They will do nothing to stop an angry mob. Increases in regulatory capital will not suffice. When a leveraged financial institution faces a liquidity panic, no amount of capital is enough. As boxing legend Mike Tyson mused, no plan survives the first punch in the face.

[..] What snowflake could precipitate the next financial panic? Deutsche Bank is an obvious candidate. Less obvious is a failure to deliver physical gold by a London bullion bank. That would expose the hyper-leveraged “paper gold” market for what it is. A natural disaster on the scale of Fukushima would do as well. Looming over these catalysts is a global dollar shortage, which has been limned by economists Claudio Borio and Hyun Song Shin at the Bank for International Settlements. The strong dollar could precipitate a wave of defaults on $9 trillion of dollar-denominated emerging markets corporate debt. Those defaults would make the 1994 Tequila Crisis look tame.

The 2008 crisis was truncated with tens of trillions of dollars of currency swaps, money printing, and rate cuts coordinated by central banks around the world. The next crisis will be beyond the scope of central banks to contain because they have failed to normalise either interest rates or their balance sheets since 2008. Central banks will be unable to pull another rabbit out of the hat; they are out of rabbits.

Read more …

Trump vs special interests. Why jump to conclusions?

Trump’s Appointments (Paul Craig Roberts)

We do not know what the appointments mean except, as Trump discovered once he confronted the task of forming a government, that there is no one but insiders to appoint. For the most part that is correct. Outsiders are a poor match for insiders who tend to eat them alive. Ronald Reagan’s California crew were a poor match for George H.W. Bush’s insiders. The Reagan part of the government had a hell of a time delivering results that Reagan wanted. Another limit on a president’s ability to form a government is Senate confirmation of presidential appointees. Whereas Congress is in Republican hands, Congress remains in the hands of special interests who will protect their agendas from hostile potential appointees. Therefore, although Trump does not face partisan opposition from Congress, he faces the power of special interests that fund congressional political campaigns.

[..] With Trump under heavy attack prior to his inauguration, he cannot afford drawn out confirmation fights and defeats. Does Trump’s choice of Steve Mnuchin as Treasury Secretary mean that Goldman Sachs will again be in charge of US economic policy? Possibly, but we do not know. We will have to wait and see. Mnuchin left Goldman Sachs 14 years ago. He has been making movies in Hollywood and started his own investment firm. Many people have worked for Goldman Sachs and the New York Banks who have become devastating critics of the banks. Read Nomi Prins’ books and visit Pam Martens website, Wall Street on Parade. My sometimes coauthor Dave Kranzler is a former Wall Streeter. Commentators are jumping to conclusions based on appointees past associations. Mnuchin was an early Trump supporter and chairman of Trump’s finance campaign.

He has Wall Street and investment experience. He should be an easy confirmation. For a president-elect under attack this is important. Will Mnuchin suppport Trump’s goal of bringing middle class jobs back to America? Is Trump himself sincere? We do not know. What we do know is that Trump attacked the fake “free trade” agreements that have stripped America of middle class jobs just as did Pat Buchanan and Ross Perot. We know that the Clintons made their fortune as agents of the 1%, the only ones who have profited from the offshoring of American jobs. Trump’s fortune is not based on jobs offshoring. Not every billionaire is an oligarch. Trump’s relation to the financial sector is one as a debtor. No doubt Trump and the banks have had unsatisfactory relationships. And Trump says he is a person who enjoys revenge.

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Not the Jill Stein petition. More the Soros one.

Petition To Reverse US Election Result Becomes Most Popular In History (Ind.)

A petition asking for the result of the US election to be reversed is now the most popular in the history of Change.org. The signatories – who total 4.6 million people – call on the Electoral College to stop Donald Trump from being President, which is a theoretically possible but never-before-attempted way of altering the result of the US election. Hillary Clinton won millions more votes than Donald Trump, but Mr Trump became President-elect because of the voting system. The petition is titled “Make Hillary Clinton President” and argues that because Ms Clinton won the popular vote she should be made President. It also argues that the President-elect is “unfit to serve”. With 4.6 million signatures, the petition has over two million more votes than the second largest campaign on the website. That was a campaign asking for the Yulin Dog Meat Festival to be shut down, which was begun three years ago.

The petition against Mr Trump was begun just after the election on 10 November. It was started by social worker Daniel Brezenoff. Signatures to the petition are based on the idea that it is still possible for the result of the election to be reversed. The Electoral College system requires that representatives of each state cast ballots to decide who will actually become the new President – those members of the college are supposed to vote for whoever won their state, but could theoretically change their mind. “On December 19, the Electors of the Electoral College will cast their ballots,” the petition writes. “If they all vote the way their states voted, Donald Trump will win. However, in 14 of the states in Trump’s column, they can vote for Hillary Clinton without any legal penalty if they choose.”

Since the petition has started, some legal proceedings have been launched to test the legal penalty in those other states. There has never really been any need to enforce them, since faithless electors make up only a tiny number of people, but activists are looking to encourage more people not to vote this year. The petition itself argues that the Electoral College should change its mind because of the results of the popular vote. “Hillary won the popular vote,” the description reads. “The only reason Trump “won” is because of the Electoral College.

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But wait, there’s more…

Jill Stein Supporters Drop Pennsylvania Recount Suit (WSJ)

Supporters of Green Party presidential candidate Jill Stein on Saturday withdrew a last-ditch lawsuit in Pennsylvania state court aimed at forcing a statewide ballot recount, another major setback in the effort to verify the votes in three states that provided President-elect Donald Trump his margin of victory. Ms. Stein’s campaign announced in a statement Saturday that the Pennsylvania lawsuit had been dropped after the court demanded that a $1 million bond be posted by the 100 Pennsylvania residents who brought the suit, which was backed by the campaign. Recounts will still proceed in a handful of Pennsylvania precincts, but it is far from the statewide recount that Ms. Stein initially was hoping for.

She is also pushing recounts in Wisconsin and Michigan after a prominent computer scientist laid out a case that the election results may have been hacked. Legal challenges have also been filed in state and federal court to halt those recount efforts as well. The decision also dashes the aspirations of some Democrats, who had hoped that enough irregularities or missing votes would be found across all three states to overturn the election results that saw Mr. Trump, the Republican candidate, prevail over Democrat Hillary Clinton. Mrs. Clinton would need to declared the winner in all three states to reverse the election results.

“The judge’s outrageous demand that voters pay such an exorbitant figure is a shameful, unacceptable barrier to democratic participation,” said Ms. Stein in the statement. “This is yet another sign that Pennsylvania’s antiquated election law is stacked against voters. By demanding a $1 million bond from voters yesterday, the court made clear it has no interest in giving a fair hearing to these voters’ legitimate concerns over the accuracy, security and fairness of an election tainted by suspicion.”

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…. straight to federal court.

Jill Stein To Pursue Pennsylvania Recount Petition In Federal Court (R.)

Green Party candidate Jill Stein late Saturday vowed to bring her fight for a recount of votes cast in Pennsylvania in the U.S. presidential election to federal court, after a state judge ordered her campaign to post a $1 million bond. “The Stein campaign will continue to fight for a statewide recount in Pennsylvania,” Jonathan Abady, lead counsel to Stein’s recount efforts, said in a statement. Saying it has become clear that “the state court system is so ill-equipped to address this problem,” the statement said “we must seek federal court intervention.” The Stein campaign said it will file for emergency relief in the Pennsylvania effort in federal court on Monday, “demanding a statewide recount on constitutional grounds.”

The bond was set by the Commonwealth Court of Pennsylvania a day after representatives of President-elect Donald Trump requested a $10 million bond, according to court papers. The court gave the petitioners until 5 p.m. local time on Monday to post the bond, but said it could modify the amount if shown good cause. Instead, Stein’s campaign withdrew. “Petitioners are regular citizens of ordinary means. They cannot afford to post the $1,000,000 bond required by the court,” wrote attorney Lawrence Otter, informing the court of the decision to withdraw.

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“The last time OPEC set a quota, members exceeded it for 20 of the 24 months before the cap was scrapped..”

Brent Caps Biggest Weekly Advance Since 2009 on OPEC Agreement (BBG)

Brent oil capped its biggest weekly gain since 2009 after OPEC approved its first supply cut in eight years, with attention now shifting to compliance with the deal and how other producers will react to a price rally. Futures closed at the highest in more than a year in London and New York. OPEC’s three largest producers – Saudi Arabia, Iraq and Iran – overcame discord to reach Wednesday’s pact to reduce the group’s output by 1.2 million barrels a day, while Russia pledged a cut of as much as 300,000. The accord ended the group’s pump-at-will policy started in 2014 aimed at protecting market share and driving out high-cost competitors such as shale. “Everyone wins, but U.S. shale producers are the big winners from the OPEC deal,” Francisco Blanch at Bank of America said.

“The agreement made sense purely on economic logic. OPEC wanted to end the price war.” OPEC set a collective output target at the lower end of the range outlined two months ago in Algiers, boosting prices and prompting predictions of a possible advance to $60 a barrel from Goldman Sachs and Morgan Stanley. Some analysts warned that the rally may encourage higher output from producers outside the group, including in the U.S. The last time OPEC set a quota, members exceeded it for 20 of the 24 months before the cap was scrapped at the end of 2015.

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Two of the finest in a long conversation. Here’s a tiny snippet of Hudson talking.

Steve Keen, Michael Hudson Unpick Historical Path to Global Recovery (MH)

Killing the Host will be published in German at the end of the month of November, and, basically, it’s a more popular version of The Bubble and Beyond. And it shows that when the financial sector takes over, it’s very much like a parasite in nature. And people think of parasites simply as taking the life blood of the host and draining the energy. But in order to do that, the parasite has to have an enzyme to take over the host’s brain. And the key thing in nature is they take over the brain, and they convince the host that the free luncher is actually part of the host’s own body, and even its baby to be protected. And that’s what the financial sector has done.

Classical economics was all about separating the rent-extracting sectors – landlords, monopolies, and finance – from the rest of the economy. And that was unearned income. It wasn’t necessary. And the whole idea of classical economics from Quesnay’s Tableau Economique to all the way through Adam Smith and John Stuart Mill was to look at the finance sector and the landlord sector and monopolies as unnecessary. You’re going to get rid of them. You’re going to tax away all the land’s rent or else nationalize the land. And you are going to have public enterprises as basic infrastructure so that they couldn’t be monopolized. Well, you had a revolution against classical economics in the 1890s and 1900s, and the national income now – accounts make it appear as if the financial sector and the real estate sector and the monopolies – oil and gas – are all contributing to GDP.

So a few months ago, you had the head of Goldman Sachs – Lloyd Blankfein – say, the Goldman Sachs managers are the most productive workers in the United States, because we make $22 million a year in salary, and we get bonuses. And that’s all considered as contributing to GDP. That’s the financial services that we’re providing $22 million per manager of financial services. Now what they don’t realize is that this $22 million per manager in that Goldman Sachs extracts money from the rest of the economy. It’s a zero-sum game. And instead of adding to the GDP, you should have – A subtraction. Yes, you should have – all of this is overhead – unnecessary. And since 2008, the 99% of the population in America, and I think in most of Europe, too, have seen their incomes go down. But the 1% have had their financial and real estate incomes go up so much more that there is an illusion of growth. And what’s been growing is the tumor, not the actual economic body.

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Italian debt is a threat to the entire eurozone, not just Greece.

The Italian Trouble for Greek Debt (BBG)

If the fallout for Sunday’s Italian referendum is bad for Italian bonds, it could well be worse for one of Europe’s star performers this year: Greece.Greek debt has tightened massively to German bonds in the past three months, while all other main European government securities have been widening. Growing confidence in Greek Prime Minister Alexis Tsipras’s willingness to conform to the Troika requirements on the latest bailout package, is behind this.

The pot of gold at the end of the rainbow would be inclusion into the ECB’s bond purchase program – Greece has long been excluded since it’s not rated investment grade. A shift in the rules would be a reward for budget discipline.This has looked until recently like a long shot, but a tectonic shift in attitude is underway. A recent piece of evidence for this is a remark from ECB policy maker Benoit Couere on Tuesday. He said that Greece can maintain a 3.5% primary budget surplus to GDP for years after the current bailout ends in 2018 – that is a major vote of confidence. Such recent Greek outperformance could easily unwind on a “no” vote on Italian constitutional reform. As Gadfly has argued, that could create serious problems not just for Italy, the world’s third-largest debtor, but also for other borrowers in the region.

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It’s all the US have done for decades.

Will 2017 See End Of US Neocons’ Promotion Of Chaos Theory? (RT)

Trump will hopefully be an assertive defender of US interests rather than an assertive meddler, says Oxford Crisis Research Institute Director Mark Almond.

RT: What obstacles remain preventing the UN from sending aid to Aleppo? Mark Almond: Obviously, there is still an area controlled by the rebels where there is fighting, and the rebels have not always been terribly concerned about discriminating between their enemies and aid workers. But it is quite bizarre that now, as you actually have people, tens of thousands of people, who are finally accessible, that the UN agencies are not actually rushing to help. Because, after all, these are people who are in need, and the weather is very bad in addition to all the suffering caused by the violence.

But I think we have to, I’m afraid, accept the fact that the UN is not composed of people from outside the normal world of politics – after all, the head of its aid agency is a former British conservative MP, [UN Special Envoy for Syria’s Senior Adviser] Jan Egeland is a Norwegian political activist who has been for a long time very critical of Russia. So, we are talking of people who do have a political past, even if they are now presented as being somehow the representatives of global charity or global concern. But I am afraid they are politicians.

RT: Do you think the standoff in Aleppo will continue for much longer? Despite major gains by the Syrian Army, the rebels are reportedly refusing to surrender. Mark Almond: I think the remaining rebel forces are in a very difficult position, so unless something changes through some external intervention which would widen the wall and would be a very dangerous development. And I don’t see the US, either doing it itself or, for that matter, encouraging any of its friends to do it, like Turkey or Saudi Arabia, neither of which, I think, really has the stomach for such a fight. So, the likelihood is that the horrible conflict in Aleppo itself is grinding towards a conclusion. And that may also mean that in 2017 we can look towards trying to repair the international situation around Syria.

The new president of the US has said that he is much more prepared to offer realpolitik rather than an ideologically driven agenda to produce regime change [that], if necessary, [says]… “if we can’t have regime change, at least we can have chaos and, perhaps, out of that chaos, something good will come.” I think we’ve seen, really, over the last 25 years, from the chaos we helped produce in Afghanistan through to Syria today, that the chaos theory that the neocons in Washington have promoted has actually bitten back. We’ve seen terrorist attacks in Western Europe, we’ve seen [them] in the US. I think Trump recognizes that even though he is going to be a very assertive defender of American interests, he is not going to be an assertive meddler. And that does offer some hope.

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Friedman’s easy fodder.

Late Is Enough: On Thomas Friedman’s New Book (Matt Taibbi)

“The folksiness will irk some critics … But criticizing Friedman for humanizing and boiling down big topics is like complaining that Mick Jagger used sex to sell songs: It is what he does well.” –John Micklethwait, review of Thank You for Being Late, in The New York Times With apologies to Mr. Micklethwait, the hands that typed these lines implying Thomas Friedman is a Mick Jagger of letters should be chopped off and mailed to the singer’s doorstep in penance. Mick Jagger could excite the world in one note, while Thomas Friedman needs 461 pages to say, “Shit happens.” Joan of Arc and Charles Manson had more in common. Thomas Friedman was once a man of great influence. His columns were must-reads for every senator and congressperson.

He helped spread the globalization gospel and push us into war in Iraq. But he’s destined now to be more famous as a literary figure. No modern writer has been lampooned more. Hundreds if not thousands of man-hours have been spent teaching robots to produce automated Friedman-prose, in what collectively is a half-vicious, half-loving tribute to a man who raised bad writing to the level of an art form. We will remember Friedman for interviewing 76% of the world’s taxi drivers, for predicting “the next six months will be critical” on 14 occasions over two and a half years (birthing the neologism, “the Friedman unit”), and for his unmatched, God-given ability to write nonsensical metaphors, like his classic “rule of holes”: “When you’re in one, stop digging. When you’re in three, bring a lot of shovels.”

Friedman’s great anti-gift is his ability to use many words when only a few are necessary. He became famous as a newspaper columnist for taking simple one-sentence observations like, “Wow, everyone has a cell phone these days,” and blowing them out into furious 850-word trash-fires of mismatched imagery and circular argument. The double-axel version of this feat was to then rewrite that same column over and over again, in the same newspaper, only piling on more incongruous imagery and skewing rhetoric to further stoke that one thought into an even higher and angrier fire.

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Nov 182016
 
 November 18, 2016  Posted by at 10:14 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Unknown Army of the James, James River, Virginia. 1865


The End of Globalization? (Spiegel)
Global Trade Is Slowing (BBG)
US Recovery Is Heading Towards Its Death: Albert Edwards (CNBC)
US Retail Sales, Ignorance & Return Reality (Roberts)
How “Dynamic Scoring” Could Justify A Debt Driven Keynesian Stimulus (BBG)
How US Federal Revenues Have Been Used To Steer The Economy In The Past (BBG)
Yellen: I’m Not Stepping Down Until My Term Is Done (CNBC)
Europe At Risk Of Collapse; France, Germany Must Lead – French PM (R.)
Renzi Renews Pledge To Resign If He Loses Referendum (Local.it)
Italy Is The Next Country To Fall To Trumpism (David McWilliams)
EU Reinforces 2017 Budget On Migration And Jobs (EUO)
Kremlin Ramps Up Efforts To Crack Down On US Tech Companies (BBG)
Why the World Needs WikiLeaks (Sarah Harrison)
Another 100 Migrants Feared Drowned in Mediterranean (AFP)
The North Pole Is An Insane 36º Warmer Than Normal As Winter Descends (WaPo)

 

 

They all find it terribly hard to acknowledge that globalization is gone because growth is too. Wonder how long it will take them. A long five-part article.

The End of Globalization? (Spiegel)

Who could have imagined in 2006 that such an outlandish billionaire like Donald Trump could become president of the United States? Who would have believed that the British would leave the European Union? Who would have thought it possible that a right-wing populist party in Germany would win over 10% support in several state elections? Nobody. Ten years ago, the world was a vastly different place. In 2006, Germany lived through its “Summer Fairytale” of hosting the football World Cup – still untainted by accusations of corruption – and presented itself as a cosmopolitan host. Russia was still part of the G-8 and welcomed world leaders to the summit in St. Petersburg. Pope Benedict XVI visited Turkey and prayed in the Blue Mosque. In Berlin, the first Islam conference took place, promoting better integration for the religion.

A Romano Prodi-led alliance defeated the populist Silvio Berlusconi in Italian parliamentary elections. And international trade grew by 9% while the Chinese economy spiked by almost 13%. Between then and now lie years of crisis. Banks and entire countries had to be bailed out, debt grew and faith in the economy and politics evaporated. Central banks chopped their interest rates again and again to stimulate the economy – with modest success and significant side-effects: Debt continued climbing around the world while in industrialized countries, savers suffered and middle-class retirement funds in particular took a hit. Now, in 2016, many people in Western, industrialized countries are worried about losing their jobs, their prosperity and that of their children. They see themselves as the losers of a development that has only helped the elite.

[..] It is a fact that globalization and free trade have increased global prosperity, but they have also increased inequality in the world’s wealthiest nations. They have made the biggest companies more powerful, because business operates globally while politics tends to be a local or regional affair, and made the world more vulnerable to crises, because everything is networked and the debts of American homeowners could lead the entire world to the brink of collapse. In short, globalization is responsible for a host of problems that would otherwise not exist. And it is therefore in the process of gambling away the trust of people around the world. Already today, global trade growth has slowed and state interference is on the rise. The world finds itself at a turning point. It must try to eliminate the drawbacks of globalization without destroying its advantages. If, on the other hand, protectionism and populism gain the upper hand, there is a danger that global prosperity could shrink. The age of globalization would be at an end.

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“The days of frenzied trade growth may be over.” No kidding.

Global Trade Is Slowing (BBG)

Until he takes office in January, Donald Trump won’t be able to follow through on his pledges to scrap TPP, renegotiate NAFTA, or penalize Chinese imports. Even without him, protectionism is rising, and world trade is slowing. Responding to an outcry from local steelmakers, the EU this year has punished Chinese competitors for allegedly selling steel below cost. The EU has announced antidumping duties as high as 81.1% on Chinese steel. “Free trade must be fair, and only fair trade can be free,” EC VP Jyrki Katainen said in a statement on Nov. 9, adding that some 30 million European jobs depend on free trade. Around the world, many companies that binged on easy credit after the global financial crisis have excess capacity and are struggling to find buyers, since economic growth in the U.S., Europe, and Japan is relatively weak, and China’s economy is cooling.

“The pie is growing more slowly, and that makes domestic producers more defensive about their share of it and more willing to fight when threatened,” says Tim Condon, chief Asia economist in Singapore with ING. Bloomberg Intelligence chief Asia economist Tom Orlik points out that over the past two decades, consumers and businesses have spent heavily on laptops, tablets, and smartphones, but despite efforts by Apple and others to popularize smart watches, there’s no new must-have device to boost global trade. Stagnant income growth in the West also forces politicians to show they understand voters’ worries. “The pressure grows for governments to appease those voices by giving them the things they want,” says Orlik, “and the things they want are trade restrictions.”

[..] In the five months leading up to mid-October, members of the world’s 20 major economies, the Group of 20, implemented an average of 17 trade constraints a month, the World Trade Organization reported on Nov. 10. “The continued introduction of trade-restrictive measures is a real and persistent concern,” WTO Director-General Roberto Azevêdo said in a statement. The curbs come while global commerce is sputtering. World trade volume has grown a little more than 3% a year since 2012, the IMF reported last month, less than half the average expansion rate over the prior three decades. Said the IMF, “Between 1985 and 2007, real world trade grew on average twice as fast as global GDP, whereas over the past four years, it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few precedents during the past five decades.”

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As always, I’m uncomfortable with the definition of inflation used here, it obscures the argument.

US Recovery Is Heading Towards Its Death: Albert Edwards (CNBC)

Societe Generale’s resident uber-bear, Albert Edwards, says the very long economic recovery underway in the U.S. is gearing up to suffer a “very traditional death” as consumption will likely crumble under rapidly stepped-up inflation and tighter monetary conditions next year. In Edwards’ own words, “Even if the Fed refuses to tighten, monetary conditions will tighten dramatically anyway as bond yields and the dollar surge, exacerbating the profits recession.” “The surge in headline inflation from zero to 2.5%-3% in Q1 next year is likely to crush consumption,” he continued, adding, “The expected expansion of the fiscal deficit under Trump will not prevent this happening in 2017 as it will come too late – in 2018/19.”

Edwards breaks down the recent spike in nominal bond yields by pointing out it has been driven by spiraling inflation expectations with real yields staying relatively steady. An anomaly in the current situation, he says, is that this has occurred without an accompanying surge in oil prices. However, what has risen more quickly than acknowledged by the U.S. Federal Reserve or the broader market, in his view, is real wage inflation, partially disguised by the weakness of nominal wage inflation given subdued consumer price index (CPI) inflation. But as we move into an era of higher CPI inflation, Edwards warns that it is such real wage inflation that will slip to zero before long. According to Edwards, “We might quibble about how much nominal wage inflation might accelerate in a weak economic and corporate profits environment, but accelerate it will.”

Why this is so important, he notes, is that it is likely to propel the Fed into action. Speaking about the U.S. central bank, he says “to those who retort that the increasingly weak economy in H1 2017 means they should not tighten, I would probably agree. But that doesn’t mean the Fed won’t be forced into it by surging wage inflation.” The knock-on effect for bonds will come through in the form of a continued rise in yields over the next six months with the trend upwards now having become a momentum trade with investors “looking for a narrative to support the direction of travel”.

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“81% of American’s are now worse off than they were in 2005..”

US Retail Sales, Ignorance & Return Reality (Roberts)

There was an awful lot of cheering about the recent retail sales report which showed an uptick of 0.8% which beat the analyst’s estimates of 0.6%. Despite the fact the improvement was driven by a surge in gasoline prices (which is important as consumers did not consume MORE of the product, but just paid more for it) important discretionary areas like restaurants and furniture declined. However, if we dig deeper behind the headlines more troubling trends emerge for the consumer which begins to erode the narrative of the “economy is doing great” and “there is no recession” in sight. [..] Despite ongoing prognostications of a “recession nowhere in sight,” it should be remembered that consumption drives roughly 2/3rds of the economy. Of that, retail sales comprise about 40%. Therefore, the ongoing deterioration in retail sales should not be readily dismissed. More troubling is the rise in consumer credit relative to the decline in retail sales as shown below.

What this suggests is that consumers are struggling just to maintain their current living standard and have resorted to credit to make ends meet. Since the amount of credit extended to any one individual is finite, it should not surprise anyone that such a surge in credit as retail sales decline has been a precursor to previous recessions. Further, the weakness of consumption can be seen in the levels of retailers inventory relative to their actual sales. We can also view this problem with retail sales by looking at the National Federation of Independent Business Small Business Survey. The survey asks respondents about last quarter’s actual sales versus next quarter’s expectations.

[..] it really isn’t just the Millennial age group that are struggling to save money but the entirety of the population in the bottom 80% of income earners. According to a recent McKinsey & Company study, 81% of American’s are now worse off than they were in 2005: “Based on market income from wages and capital, the study shows 81% of US citizens are worse off now than a decade ago. In France the figure is 63%, Italy 97%, and Sweden 20%.”

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If you don’t like the models, well, we have other ones.

How “Dynamic Scoring” Could Justify A Debt Driven Keynesian Stimulus (BBG)

Republicans have long argued that economic growth from tax cuts should be fed back into the model, year by year. They call this approach “dynamic scoring” or “macroeconomic analysis.” For the first time, macroeconomic analysis will likely prevail in next year’s official scores for major revenue bills from the JCT. Some Democrats, who’ve been suspicious of an approach that makes tax cuts look cheaper, are slowly warming to the same idea for appropriations bills. It could make infrastructure spending look cheaper, too. Into this fussing over details strides Donald Trump. During the campaign, he proposed a tax cut that would cost, according to his own preferred estimate, $4.4 trillion. And to pay for it, his campaign proposed a new kind of analysis, an economic model radically more complex than what either academics or policymakers have tried in the past.

All aspects of Trump’s plan, including trade and regulatory rollbacks, would be part of the analysis. Together, the campaign argued, they would create enough growth, and therefore enough tax revenue, to offset all but about $200 billion of those tax cuts. The real challenge of budgeting is to offer something, but at a discount. In 2017 dynamic scoring will let the Republican majority offer tax cuts without having to offset them entirely with spending cuts. It may even offer infrastructure spending—without having to renege on the promise of tax cuts. If the models are right, they’re right. If they’re wrong, the tax cuts will be a debt-driven Keynesian stimulus. Dynamic scoring arrived on the Republican wave of 1994. In January 1995, as one of its first acts, the new GOP majority in Congress invited Alan Greenspan, among others, to a rare joint hearing of the budget committees.

The representatives wanted to talk about macroeconomic models of budget changes. Greenspan, then the chairman of the Federal Reserve and thus in charge of the world’s best-known macroeconomic modeler, was skeptical. Then as now, the CBO every year produces a 10-year projection of economic growth. This is the “baseline,” the fixed point from which everything else is calculated. Under “static analysis,” modelers in Washington make assumptions about human behavior. But as they project out into the future, they can’t change the CBO’s baseline gross domestic product. Under “dynamic analysis,” they can. Next year’s projected growth changes the baseline for the year after, and so on. If static analysis is arithmetic, dynamic analysis is calculus.

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The comparisons only hold up to a point, as Trump will find out. There’s nowhere to grow to anymore. But focusing on domestic production and consumption can still solidify the economy somewhat.

How US Federal Revenues Have Been Used To Steer The Economy In The Past (BBG)

Donald Trump plans massive fiscal stimulus to combat lackluster growth just as the budget deficit begins rising again, making this a good time to look at how federal revenues have been used to steer the economy in the past. After the six recessions prior to the 2007-2009 downturn, lawmakers let the deficit’s share of GDP rise for an average of 15 months to make sure the economy was back on track. Following the last downturn, the most severe since World War II, Barack Obama’s stimulus gave way to Republican-backed spending cuts to shrink the deficit within just eight months – and the weakest recovery in decades.

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She won’t be able to stop the first rate hike, and after that things will be very different anyway.

Yellen: I’m Not Stepping Down Until My Term Is Done (CNBC)

Forget all that talk about Janet Yellen stepping down if Donald Trump becomes president: The Fed chair told Congress on Thursday she’s not leaving. Trump has been critical of the central bank leader and has suggested that he would replace her at some point. He once told CNBC that Yellen should be “ashamed” of her actions, saying her policies were political positions to help President Barack Obama. Amid expectations that the president-elect would step up political pressure on the Fed after he takes office in January, there was chatter that Yellen might just step aside. “No I cannot,” she said when asked by Rep. Carolyn Maloney if there were circumstances under which she might leave before her term expires. “I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term.” If Trump removes her from the chair, she could still stay on as a governor until her 14-year term expires in 2024.

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Yeah, lead the collapse!

Europe At Risk Of Collapse; France, Germany Must Lead – French PM (R.)

The EU is in danger of breaking apart unless France and Germany, in particular, work harder to stimulate growth and employment and heed citizens’ concerns, French PM Manuel Valls said in the German capital on Thursday. Valls said the two countries, for decades the axis around which the EU revolved, had to help refocus the bloc to tackle an immigration crisis, a lack of solidarity between member states, Britain’s looming exit, and terrorism. “Europe is in danger of falling apart,” Valls said at an event organized by the Sueddeutsche Zeitung. “So Germany and France have a huge responsibility.” He said France must continue to open up its economy, not least by cutting corporate taxation, while Germany and the EU as a whole must increase investment that would stimulate growth and job creation, as well as boosting defense.

As Britain seeks to negotiate its post-Brexit relationship with the EU, hoping to restrict immigration from the EU while maintaining as much access as possible to the EU single market, Valls said it must be prevented from cherry-picking. “If they are able to have all the advantages of Europe without the inconveniences, then we are opening a window for others to leave the EU,” Valls said. Immigration was one of the main drivers of Britons’ vote to leave the EU, and Valls said the bloc, which more than a million migrants entered last year, had to regain control of its borders. He said the Brexit vote and Donald Trump’s election victory showed how important it was to listen to angry citizens, and that politicians scared of making decisions were opening the door to populists and demagogues.

In France, opinion polls suggest that the far-right, anti-EU, anti-immigration National Front leader Marine Le Pen will win the first round of the presidential election next April, before losing the runoff.

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He has no choice.

Renzi Renews Pledge To Resign If He Loses Referendum (Local.it)

Italian Prime Minister Matteo Renzi said on Wednesday that he would have no interest in a government role if he loses Italy’s upcoming constitutional referendum. In an interview on Italian radio, the premier said: “I’m here to change things. If that doesn’t happen, there is no role for me to play.” If the ‘No’ vote wins on December 4th and Renzi’s proposed changes to the constitution are rejected, it is likely that a temporary or technical government will be formed to change the electoral law before general elections can be held. The PM said he would not be willing to seek a deal with other parties to form a coalition if this happens, adding that he didn’t want to take part in “old-style political games”. Renzi vowed to “fight like a lion” to win the vote and said he believed the “silent majority” of voters would back him in the referendum.

He is currently touring the south of the country, where the ‘No’ camp’s lead is strongest. However, he also emphasized that he didn’t envisage a ‘No’ victory causing immediate problems in the country. “The 5th of December won’t be Armageddon,” said Renzi. “If ‘No’ wins, everything will stay as it is. Italians shouldn’t be fooled by politicians who are fighting to keep the privileges they have always had.” The reforms would see the number of senators and their legislative power drastically reduced, which Renzi claims will cut down on bureaucracy, making government more stable and efficient. But his opponents argue that there are inconsistencies in his proposed changes, and that they would put too much power in the hands of the prime minister.

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I like McWilliams, but Trumpism is a nonsensical term, and Italy’s resistance against the EU and globalization was way earlier than Trump became an issue. Correlation and causation.

Italy Is The Next Country To Fall To Trumpism (David McWilliams)

The Bangladeshi selfie-stick hawkers are doing a brisk trade outside the Colosseum. Local chain-smoking lads dressed as gladiators prey on vulnerable tourists, while portly priests on their annual visit to Catholicism’s corporate HQ take time out from soul-searching. Even the heavily armed soldiers, there to protect against a potential Italian Bataclan, are smiling in the Mediterranean sunshine. And as it is midday in Italy, everyone is checking out everyone else. All looks quite normal, chilled out and as it should be. But it is not. Italy is a country going through what could be described as a nervous breakdown. After a decade of almost no economic growth, in two weeks Italians will vote in a referendum which will determine what direction this huge country of nearly 60 million people will take. The result will profoundly affect the EU.

Although the referendum is technically about the way Italy is governed, the country is split down the middle in a plebiscite that has come to symbolise something much bigger. Once again, like the Brexit vote and the Trump election, this referendum is about insiders against outsiders. It is about those who are the victims of inequality and globalisation and those who uphold the status quo. On one side, you have the Italian political elite — the insiders embodied by Matteo Renzi, the youthful prime minister. He represents the people and institutions that have ruled Italy for decades. On the other side, you have an unusual anti-EU coalition, the Left and the Right — the ‘Outsiders’ — who are united by a common belief that, after 10 years of economic stagnation, there must be another way.

We have the same picture we saw in the UK in June and in the US last week, where an elite is desperately trying to connect with the people and large swathes of the population are saying they have had enough. In terms of the big picture, the Italian election can be seen as yet another domino in a year of falling dominos. First we had Brexit, then Trump, and the next big one for Europe after Italy is the potential rise of Le Pen in France. Italy is the triplet in a quartet that will culminate in France, and, in my opinion, if the Italian elite loses on December 4th, Marine Le Pen will win in France.

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The amounts are mind-boggling. Money in, waste out.

EU Reinforces 2017 Budget On Migration And Jobs (EUO)

EU member states and European Parliament have reached an agreement on a budget for next year that focuses on tackling the migration crisis and creating jobs. After 20 hours of discussions, a deal was reached early on Thursday (17 November) to set the total commitments for 2017 at €157.88 billion and payments at €134.49 billion. “The 2017 EU budget will thus help buffer against shocks, providing a boost to our economy and helping to deal with issues like the refugee crisis,” budget commissioner Kristalina Georgieva said. The budget commits €5.91 billion to tackling the migration crisis and reinforcing security, an 11.3% increase on 2016’s figure, according to a statement from the EU Council, which represents member states.

The money will help EU countries resettle refugees, create reception centres, and return those who have no right to stay. Extra spending will also go to help enhance border protection, crime prevention, counter terrorism activities and protect critical infrastructure. A total of €21.3 billion was put aside to boost economic growth and create new jobs, which is an increase of around 12% compared with this year, the council said. The Erasmus+ scheme, a cross-border student programme, will see an increase of its budget of 19%. The 2017 budget also includes €500 million for youth unemployment, and a €42.6 billion support for farmers.

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The Russians are highly aware of what Facebook and Alphabet are doing: “Not replacing foreign IT would be equivalent to dismissing the army.”

Kremlin Ramps Up Efforts To Crack Down On US Tech Companies (BBG)

In a Nov. 14 phone call with President-elect Donald Trump, Russian President Vladimir Putin held out the prospect of better relations between their two countries. But U.S. tech companies shouldn’t expect warmer ties to ease a Kremlin effort to freeze out their products. Seeking to cut dependence on companies such as Google, Microsoft, and LinkedIn, Putin in recent years has urged the creation of domestic versions of everything from operating systems and e-mail to microchips and payment processing. Putin’s government says Russia needs protection from U.S. sanctions, bugs, and any backdoors built into hardware or software. “It’s a matter of national security,” says Andrey Chernogorov, executive secretary of the State Duma’s commission on strategic information systems. “Not replacing foreign IT would be equivalent to dismissing the army.”

Since last year, Russia has required foreign internet companies to store Russian clients’ data on servers in the country. In January the Kremlin ordered government agencies to use programs for office applications, database management, and cloud storage from an approved list of Russian suppliers or explain why they can’t—a blow to Microsoft, IBM, and Oracle. Google last year was ordered to allow Android phone makers to offer a Russian search engine. And a state-backed group called the Institute of Internet Development is holding a public contest for a messenger service to compete with text and voice apps like WhatsApp and Viber. Russia’s Security Council has criticized the use of those services by state employees over concerns that U.S. spies could monitor the encrypted communications while Russian agencies can’t. Trump’s election hasn’t changed those policies, according to Putin spokesman Dmitry Peskov. “This doesn’t depend on external factors,” he says. “It’s a consistent strategy.”

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Do try and wrap your head around the irony of this being published by the NYT, on of the main media companies whose disfunctionality makes Wikileaks so necessary.

Why the World Needs WikiLeaks (Sarah Harrison)

My organization, WikiLeaks, took a lot of heat during the run-up to the recent presidential election. We have been accused of abetting the candidacy of Donald J. Trump by publishing cryptographically authenticated information about Hillary Clinton’s campaign and its influence over the Democratic National Committee, the implication being that a news organization should have withheld accurate, newsworthy information from the public. The Obama Justice Department continues to pursue its six-year criminal investigation of WikiLeaks, the largest known of its kind, into the publishing of classified documents and articles about the wars in Iraq and Afghanistan, Guantánamo Bay and Mrs. Clinton’s first year as secretary of state. According to the trial testimony of one F.B.I. agent, the investigation includes several of WikiLeaks founders, owners and managers.

And last month our editor, Julian Assange, who has asylum at Ecuador’s London embassy, had his internet connection severed. I can understand the frustration, however misplaced, from Clinton supporters. But the WikiLeaks staff is committed to the mandate set by Mr. Assange, and we are not going to go away, no matter how much he is abused. That’s something that Democrats, along with everyone who believes in the accountability of governments, should be happy about. Despite the mounting legal and political pressure coming from Washington, we continue to publish valuable material, and submissions keep pouring in. There is a desperate need for our work: The world is connected by largely unaccountable networks of power that span industries and countries, political parties, corporations and institutions; WikiLeaks shines a light on these by revealing not just individual incidents, but information about entire structures of power.

While a single document might give a picture of a particular event, the best way to shed light on a whole system is to fully uncover the mechanisms around it – the hierarchy, ideology, habits and economic forces that sustain it. It is the trends and details visible in the large archives we are committed to publishing that reveal the details that tell us about the nature of these structures. It is the constellations, not stars alone, that allow us to read the night sky. [..] WikiLeaks will continue publishing, enforcing transparency where secrecy is the norm. While threats against our editor are mounting, Mr. Assange is not alone, and his ideas continue to inspire us and people around the world.

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Just another day.

Another 100 Migrants Feared Drowned in Mediterranean (AFP)

The toll of missing and dead rose Thursday in a grim week of Mediterranean crossings as African survivors described being robbed of life jackets and boat engines and abandoned to a watery grave. A group of 27 survivors, all men, were plucked to safety on Wednesday, but roughly 100 other passengers who set off with them from Libya were missing and feared drowned, Doctors Without Borders (MSF) said. Along with two other shipwrecks this week, the latest incident pushed the toll to 18 confirmed dead and 340 missing, in what was already the most lethal year ever recorded for migrant deaths at sea. The survivors rescued Wednesday by a British Navy ship, described being stripped of their sole means of survival by the men they had paid for safe passage.

They had set off before dawn on Monday from a beach close to Tripoli. After several hours the traffickers, travelling aboard a separate boat, ordered them at gunpoint to hand over life jackets they had paid for, as well as the boat engine, and left them without a satellite phone to call for help. “At that point I thought we were going to die”, said Abdoullae Diallo, 18, according to MSF. “Without a motor, we couldn’t go far. A trafficker told us we would be rescued but I felt like we were going to die.” The overcrowded dinghy began rapidly taking on water and deflated. Tossed for two days and nights on rough seas, some passengers fell overboard, while others succumbed to exhaustion. By the time the British Royal Navy’s HMS Enterprise – engaged in the anti-trafficking Sofia operation – found them, just 27 people were left alive, clinging to what was left of the dinghy.

[..] The first group of survivors were brought to Catania, in Sicily, while the second group were expected to arrive on Italy’s mainland in the port of Reggio Calabria Some were children. “One young boy has been weeping, asking for his mother,” Mathilde Auvillain, a spokeswoman for SOS Mediterranee told AFP. “Another has written a list of names of the people travelling with him and re-reads it over and over. He wants to know if his friends are on the boat or in the sea,” she said.

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Watching in bewilderment.

The North Pole Is An Insane 36º Warmer Than Normal As Winter Descends (WaPo)

Political people in the United States are watching the chaos in Washington in the moment. But some people in the science community are watching the chaos somewhere else — the Arctic. It’s polar night there now — the sun isn’t rising in much of the Arctic. That’s when the Arctic is supposed to get super-cold, when the sea ice that covers the vast Arctic Ocean is supposed to grow and thicken. But in the fall of 2016 — which has been a zany year for the region, with multiple records set for low levels of monthly sea ice — something is totally off. The Arctic is super-hot, even as a vast area of cold polar air has been displaced over Siberia. At the same time, one of the key indicators of the state of the Arctic — the extent of sea ice covering the polar ocean — is at a record low. The ice is freezing up again, as it always does this time of year after reaching its September low, but it isn’t doing so as rapidly as usual.

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Sep 292016
 
 September 29, 2016  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 29 2016
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DPC “Wood Street, Pittsburgh, Pennsylvania.” 1905


OPEC Agrees Modest Oil Output Curbs In First Deal Since 2008 (R.)
Congress Rejects Obama Veto, Saudi 9/11 Bill Becomes Law (R.)
Desperate Central Bankers (Stephen Roach)
Disturbing Facts About The Fed’s Phony Housing “Recovery” (Adler)
China’s Richest Man: Country’s Real Estate Is ‘Biggest Bubble In History’ (CNN)
Beige Book Sounds Warning Over Chinese Economy (WSJ)
China Property Bubble In Global Perspective (BBG)
‘Radioactive’ Deutsche Bank Could Go Nuclear At Any Time (Exp.)
Europe’s Banks ‘Not Investable’ Says Credit Suisse CEO (G.)
Rep. Gowdy Questions FBI Director Comey (USHouseJudiciary)
Varoufakis: UK Should Activate Article 50 Now, Create Space And Time (CityAM)
Hard Brexit Looms As 28 Red Lines Turn Deeper Shade Of Scarlet (BBG)
Greece Approves Plan To Transfer State Utilities To New Asset Fund (DW)
The Planned Destruction Of Greece Continues … (Mitchell)
Brussels Pushes Greece For Action On Migrants Before Dublin Pact Reboot (Kath.)

 

 

Entirely meaningless. No-one’s committed to any specific cuts. In the end it’s all about market share and nobody wants to lose any.

OPEC Agrees Modest Oil Output Curbs In First Deal Since 2008 (R.)

OPEC agreed on Wednesday modest oil output cuts in the first such deal since 2008, with the group’s leader Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices. “OPEC made an exceptional decision today … After two and a half years, OPEC reached consensus to manage the market,” said Iranian Oil Minister Bijan Zanganeh, who had repeatedly clashed with Saudi Arabia during previous meetings. He and other ministers said the OPEC would reduce output to a range of 32.5-33.0 million barrels per day. OPEC estimates its current output at 33.24 million bpd.

“We have decided to decrease the production around 700,000 bpd,” Zanganeh said. The move would effectively re-establish OPEC production ceilings abandoned a year ago. However, how much each country will produce is to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia. Oil prices jumped more than 5% to trade above $48 per barrel as of 2015 GMT. Many traders said they were impressed OPEC had managed to reach a compromise after years of wrangling but others said they wanted to see the details.

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Wonder how this plays into the OPEC ‘agreement’.

Congress Rejects Obama Veto, Saudi 9/11 Bill Becomes Law (R.)

Congress on Wednesday overwhelmingly rejected President Barack Obama’s veto of legislation allowing relatives of the victims of the Sept. 11 attacks to sue Saudi Arabia, the first veto override of his presidency, just four months before it ends. The House of Representatives voted 348-77 against the veto, hours after the Senate rejected it 97-1, meaning the “Justice Against Sponsors of Terrorism Act” will become law. The vote was a blow to Obama as well as to Saudi Arabia, one of the United States’ longest-standing allies in the Arab world, and some lawmakers who supported the override already plan to revisit the issue. Obama said he thought the Congress had made a mistake, reiterating his belief that the legislation set a dangerous precedent and indicating that he thought political considerations were behind the vote.

“If you’re perceived as voting against 9/11 families right before an election, not surprisingly, that’s a hard vote for people to take. But it would have been the right thing to do,” he said on CNN. Obama’s 11 previous vetoes were all sustained. But this time almost all his strongest Democratic supporters in Congress joined Republicans to oppose him in one of their last actions before leaving Washington to campaign for the Nov. 8 election. “Overriding a presidential veto is something we don’t take lightly, but it was important in this case that the families of the victims of 9/11 be allowed to pursue justice, even if that pursuit causes some diplomatic discomforts,” Senator Charles Schumer, a top Senate Democrat, said in a statement.

Schumer represents New York, site of the World Trade Center and home to many of the nearly 3,000 people killed in the 2001 attacks, survivors and families of victims. The law, known as JASTA, passed the House and Senate without objections earlier this year. Support was fueled by impatience in Congress with Saudi Arabia over its human rights record, promotion of a severe form of Islam tied to militancy and failure to do more to ease the international refugee crisis. The law grants an exception to the legal principle of sovereign immunity in cases of terrorism on U.S. soil, clearing the way for lawsuits seeking damages from the Saudi government.

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“..it is strikingly reminiscent of the so-called liquidity trap of the 1930s, when central banks were also “pushing on a string.”

Desperate Central Bankers (Stephen Roach)

As in Japan, America’s subpar recovery has been largely unresponsive to the Fed’s aggressive strain of unconventional stimulus – zero interest rates, three doses of balance-sheet expansion (QE1, QE2, and QE3), and a yield curve twist operation that seems to be the antecedent of the BOJ’s latest move. (The BOJ has just announced that it is targeting zero interest rates for ten-year Japanese government bonds.) Notwithstanding the persistent growth shortfall, central bankers remain steadfast that their approach is working, by delivering what they call “mandate-compliant” outcomes. The Fed points to the sharp reduction of the US unemployment rate – from 10% in October 2009 to 4.9% today – as prima facie evidence of an economy that is nearing one of the targets of the Fed’s so-called dual mandate.

But when seemingly solid employment growth is juxtaposed against weak output, the story unravels, revealing a major productivity slowdown that raises serious questions about America’s long-term growth potential and an eventual buildup of cost and inflationary pressures. The Fed can’t be faulted for trying, argue the counter-factualists who insist that only unconventional monetary policies stood between the Great Recession and another Great Depression. That, however, is more an assertion than a verifiable conclusion. While policy traction has been notably absent in the real economies of both Japan and the US, asset markets are a different story. Equities and bonds have soared on the back of monetary policies that have led to rock-bottom interest rates and massive liquidity injections.

The new unconventional monetary policies in both countries are obviously missing the disconnect between asset markets and real economic activity. This reflects the aftermath of wrenching balance-sheet recessions, in which aggregate demand, artificially propped up by asset-price bubbles, collapsed when the bubbles burst, leading to chronic impairment of overleveraged, asset-dependent consumers (America) and businesses (Japan). Under such circumstances, the lack of response at the zero bound of policy interest rates is hardly surprising. In fact, it is strikingly reminiscent of the so-called liquidity trap of the 1930s, when central banks were also “pushing on a string.”

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The Fed kills the American homeownership dream.

Disturbing Facts About The Fed’s Phony Housing “Recovery” (Adler)

But the Fed got the result it intended. It wanted to inflate prices to save the banks from their stupidity and criminality. Decisions were made at the highest levels of the Fed and the Federal Government to not only let the banks off the hook, but to rescue them. The only way to do that was to forego prosecution of massive criminal wrongdoing, and to engineer price inflation, so that the criminal perpetrators of the fraud that drove the Great Bubble would be free to re-offend. The Fed’s claim of trying to help the typical consumer is hogwash. The benefits of the low interest rate policy have flowed only to the upper income strata. In our monthly updates of our “Thanks Fed For Helping the Average Guy” we see that the chance of the “average guy” to buy a new home remains virtually nil.

Not only has there been no recovery in homes priced under $200,000, sales in that price range have essentially disappeared in spite of the world’s major central banks pushing mortgage rates down. Builders no longer have any interest in producing product in that price range because demand has weakened so much at that level. People at the reported median US household income simply can’t afford to buy houses regardless of the fact that they may be borderline qualified. Prior to the housing crash, most new homes sold were in the under $200,000 price range.Since 2007, mortgage rates have been cut nearly in half. Yet production and sales of homes in the under $200,000 range have continued falling, now down 61% since 2007.

Builders have shifted their efforts to the $200-$400k range, where they still have some margin, and can move enough inventory to earn a profit. The higher the price of the home, the more profitable it is for a builder. Unfortunately, homes priced above $230,000 are beyond the reach of households earning the reported median household income of $56,000, a figure which itself we believe is overstated. Because of central bank driven housing inflation, and suppression of household income growth (also partly attributable to ZIRP) home ownership is increasingly out of reach for an ever growing percentage of US households If monetary policy were helping the housing market, the rate of homeownership should be at least stable. Instead, as mortgage rates have been consistently suppressed since 2007, homeownership has fallen concurrently.

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The bubble made him a billionaire.

China’s Richest Man: Country’s Real Estate Is ‘Biggest Bubble In History’ (CNN)

Chinese billionaire Wang Jianlin made his fortune in the country’s real estate market – and now he’s warning that it’s spiraling out of control. It’s the “biggest bubble in history,” he told CNNMoney in an exclusive interview Wednesday. Bubble is a sensitive word in China after the dramatic rise and spectacular crash in the country’s stock market last year, which wiped out the savings of millions of small investors who thought Beijing wouldn’t allow the market to drop. After struggling to contain the fallout from the stock market debacle, China’s leaders could face a similar headache in the real estate sector. The big problem, according to Wang, is that prices keep rising in major Chinese metropolises like Shanghai but are falling in thousands of smaller cities where huge numbers of properties lie empty.

“I don’t see a good solution to this problem,” he said. “The government has come up with all sorts of measures – limiting purchase or credit – but none have worked.” It’s a serious worry in China, where the economy is slowing at the same time as high debt levels continue to increase rapidly. There are massive sums at stake in the real estate market: direct loans to the sector stood at roughly 24 trillion yuan ($3.6 trillion) at the end of June, according to Capital Economics.

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“Deteriorating corporate finances and a rebalancing reversal seem a high price to pay for a quarter’s worth of stability..”

Beige Book Sounds Warning Over Chinese Economy (WSJ)

Recent stability in the Chinese economy masks deep-seated problems that threaten to rattle global markets in advance of a leadership change next year, according to a survey. Ignoring these risks is shortsighted, said authors of the China Beige Book International, a quarterly survey that tracks the world’s second-largest economy. Data from the group’s third-quarter survey of 3,100 Chinese firms and 160 bankers point to some potential problems. New growth engines intended to shift the economy away from investment toward consumption-led growth are increasingly wobbly as corporate cash flow is squeezed and Beijing doubles down on traditional engines to stabilize output, the China Beige Book says.

“I’d find it earth-shatteringly surprising if we don’t have a significant problem between now and China’s leadership change” in the fall of 2017 when the 19th Party Congress convenes, said Leland Miller, China Beige Book’s president. “This is not a stable economy. It’s one that twists and turns and happens to end up at the same spot. There are real problems below the surface.” Growth in China’s service industry, a cornerstone of its planned transition to a new and more sustainable economic model, weakened during the third quarter as financial services, private healthcare, telecommunications, media and other subsectors flagged, the group’s data showed. In retail, the apparel, luxury goods and food sectors slowed, it said, as online retailers continued to cannibalize brick-and-mortar sales.

Despite Beijing’s pledge to reduce excess Industrial capacity and pare debt, China remains heavily dependent on government spending to power traditional debt-fueled growth engines, the group said. Much of the economic momentum during the third quarter came from infrastructure, manufacturing, commodities and real estate and many of these sectors are in danger of losing momentum, it said. While property sales remained strong in major cities, cash flow in the sector tightened and borrowing increased, a sign that investors should “think about getting off this train sooner rather than later,” the China Beige Book said. “Deteriorating corporate finances and a rebalancing reversal seem a high price to pay for a quarter’s worth of stability,” the group added.

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“..the real-estate boom is leading couples to divorce, as a move to pay less property-related taxes..”

China Property Bubble In Global Perspective (BBG)

China is turning Japanese. That’s the increasingly held view of observers comparing China’s frenzied real-estate market with the epic bust that more than two decades ago hobbled one of its biggest economic rivals. While the two scenarios aren’t a carbon copy, similarities between China’s record credit boom in recent years and Japan’s bubble era have been made at various times by a number of economists and investors. Now, those voices are being heard more often – even within China. Huang Yiping, a Peking University professor who advises China’s central bank, warned Saturday about leverage that continues to climb, saying that the top risk is more and more investment generates less growth. “That’s exactly the story that unfolded in Japan.”

[..] Hardly a week goes by without a warning that China is stoking a new bubble only a year after a $5 trillion stock market crash that rocked policy makers. Curbs to cool demand have struggled for traction, and Chinese media outlets carry reports of panic buying. A commentary published by a WeChat account affiliated to the People’s Daily, the Communist Party’s mouthpiece, on Monday said the real-estate boom is leading couples to divorce, as a move to pay less property-related taxes. It also said companies risk losing competitiveness as they focus on gaining from real estate rather than focusing on their own industry.

One example of a company benefiting from property: Nanjing Putian Telecommunication-B, a loss-making telecommunication equipment manufacturer, which is selling two apartments in the heart of Beijing’s school district to shore up its balance sheet. The value of the residences is estimated to have risen more than 10-fold since the firm bought them in 2004. At least 73 listed companies said they’re planning to sell or have sold properties to shore up cash. “I am big on the parallels,” said Roy Smith, the New York University academic who as a banker in 1990 anticipated Japan’s decline. Japan’s market crash “led to a financial crisis that they never recovered from. China probably faces a debt-led financial crisis too, which could have significant consequences,” he said.

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“..it’s the interconnectedness with the rest of the system that is the problem.”

‘Radioactive’ Deutsche Bank Could Go Nuclear At Any Time (Exp.)

Germany’s biggest bank reportedly has a $45 TRILLION portfolio of underlying assets that its clients are taking a position in – which equates to more than 10 times Germany’s entire GDP. And the problem is that no one really knows what’s makes up Deutsche’s book of exposure and so-called derivatives book because it’s so opaque and complicated, according to Michael Hewson, chief market analyst at CMC Markets UK. He told Express.co.uk: “Deutsche has the biggest derivatives book in the world, and people will say that its hedged to a greater or lesser extent, but it’s the interconnectedness with the rest of the system that is the problem. “There doesn’t seem to be transparency about what’s in its book. No one really knows what the ripple-out effects would be.”

“That makes Deutsche radioactive about whether or not I would want to invest in it. “A bank becomes a risk to the financial system as a whole when the degree to which it is interconnected with other institutions increases. Deutsche Bank is currently a counterparty to virtually every major bank in the world, in virtually all asset classes. Deutsche Bank denies it has the biggest derivatives exposure – its portfolio of financial contracts based on the value of other assets – and insists that 85% of its exposure is to investment grade counter-parties. Investor confidence in Deustsche has been shaken over the last two days after German Chancellor Angela Merkel said it would not step in to rescue the bank if needed. But experts claim Berlin could be left with little choice but to intervene.

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“..there was doubt that European banks still had a viable business model…”

Europe’s Banks ‘Not Investable’ Says Credit Suisse CEO (G.)

One of Europe’s most senior bankers has said the embattled sector is “not really investable”, in remarks that underline the difficulties the continent’s big banks could face if they have to raise new funds. Tidjane Thiam, chief executive of Credit Suisse, issued the warning about the problems the sector faces as the focus remained on Deutsche Bank and its battle to reduce a $14bn (£10.5bn) penalty from the US authorities for mis-selling mortgage bonds. On Wednesday the German government raced to deny a report that it was preparing a bailout plan under which it might take a 25% stake in Deutsche Bank, which is the country’s biggest bank. With assets half the size of the German economy it is regarded as the bank that poses the biggest risk to global financial stability.

Shares in Deutsche Bank have plunged to near-30-year lows this week amid reports – which were then denied – that it had asked for German government intervention to help reduce the punishment from the US Department of Justice (DoJ). Their decline was arrested on Wednesday, when the bank sold a UK insurance company for €1bn; they closed 2% higher at €10.76. Thiam told a Bloomberg conference that Europe’s banks were in a “very fragile situation” and said there was doubt that European banks still had a viable business model. Concerns about rock-bottom interest rates and how much capital banks should hold meant returns to investors were too low, making banks “not really investable”.

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Comey’s back in the Senate. A few painful minutes of that here. He’ll either have to come clean or resign.

Rep. Gowdy Questions FBI Director Comey (USHouseJudiciary)

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Get out of the EU while you can!

Varoufakis: UK Should Activate Article 50 Now, Create Space And Time (CityAM)

Academic, EU-tormenter, former Greek finance minister and leather-jacket-wearing big thinker Yanis Varoufakis has blasted George Osborne and told the UK to get a move on with triggering Article 50. In an interview with the Today programme, Varoufakis, who resigned from the Syriza-led government last summer after he helped prime minister Alexis Tsipras take Greece to the edge of leaving the single currency, also outlined his latest thinking on what he sees as the doomed European project. Echoing statements made to the Institute of Directors yesterday, Varoufakis said the UK was about to travel into unchartered waters, and would discover just how difficult and inflexible the European institutions can be.

You can check out any time you like, as the Hotel California song says, but you can’t really leave. The proof is Theresa May has not even dared to trigger Article 50. It’s like Harrison Ford going into Indiana Jones’ castle and the path behind him fragmenting. You can get in, but getting out is not at all clear.

On what strategy the UK should adopt, Varoufakis, who was an academic before entering parliament for the first time in 2015 and diverting his considerable attention to anti-austerity campaigning, said: “My advice is simple: Activate Article 50, use those years as best you can and then strike a deal for the three or four years after Britain should be associated in a Norway-style agreement, and then use that period to have a robust debate on what’s to become later. “You need to create space and time during which to prepare yourself as a nation and a government. “The discussion before Brexit was very low quality, verging between scare-mongering on the one side and xenophobia on the other. There was no debate about a post-Brexit Britian.”

Varoufakis also suggested the Eurozone was on the brink of a breaking up and, despite calls from academics, politicians, economists and people on both the left and right that the European project is unsustainable, he believes not enough people are aware of its failures. He added: “Given these centrifugal forces, Brexit inspires several forces within the Eurozone to go it alone. The trouble with the euro … given it was very very badly constructed, is that it was always going to lead to a rupture which would make the EU totally and utterly unsustainable. “My great fear is that if the Eurozone goes, the EU goes. The repercussions are going to be dire.”

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An entire list of threats.

Hard Brexit Looms As 28 Red Lines Turn Deeper Shade Of Scarlet (BBG)

EU governments are refusing to grant the U.K. any leeway on the link between immigration and trade as it prepares to leave the bloc, raising the likelihood of a “hard Brexit.” Almost 100 days since a referendum signaled the end of Britain’s four decades of EU membership, a Bloomberg News analysis has identified a hardening of positions with even the U.K.’s traditional allies such as Ireland insisting it cannot “cherry pick” in the looming divorce talks. The U.K. “cannot have the advantages of the EU without carrying out the obligations,” Irish Finance Minister Michael Noonan said. Such intransigence may mean PM Theresa May ends up favoring a clean break from the EU to secure her goal of tougher immigration controls even if that costs the country access to the single market, a scenario dreaded by bankers and business executives.

“The dynamics within the government give the upper hand at the moment to the hard Brexit supporters,” former Foreign Secretary David Miliband told Bloomberg TV. The analysis is based on interviews and public comments from officials in all 28 EU governments. Among the other demands listed is that Britain must have “inferior” terms to what it currently enjoys as an EU member for fear that too many concessions will fan calls to leave from elsewhere in the region. Some want the U.K. to keep contributing to the EU budget in return for what benefits it does secure. Central eastern European countries are particularly animated on ensuring that the rights of their citizens to work in the U.K. are protected, with some threatening to veto any Brexit deal that doesn’t allow for that. Others are worried the U.K. will seek to slash corporate taxes.

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Treason. “We think this is a crime because it involves basic public services.”

Greece Approves Plan To Transfer State Utilities To New Asset Fund (DW)

Greece’s parliament passed new reforms on Tuesday night to cut pension expenditure and transfer control of public utilities to a new asset fund. The reforms seek to unlock €2.8 billion in financial loans as part of the country’s latest bailout program. The reforms were passed by a narrow 152-141 majority vote in Greece’s 300-seat parliament, after 152 parliamentary members of the ruling Syriza-Independent Greeks coalition approved the reform bill. Only one member of the coalition voted against the bill, along with all opposition members. The reforms will see public assets transferred to a new asset fund created by Greece’s creditors. Assets include airports and motorways, as well as water and electricity utilities.

The holding company groups together these state entities with the country’s privatization agency, the bank stability fund and state real estate. It will be led by an official chosen by Greece’s creditors, although Greece’s Finance Ministry will retain overall control. The reforms sparked significant backlash among demonstrators and public sector workers. Ahead of the vote, protestors outside of the parliament in Athens chanted, “Next you’ll sell the Acropolis!” Greece’s public sector union criticized the reforms, saying that the transfer of public assets paved the way for a fire-sale to private investors. “Health, education, electricity and water are not commodities. They belong to the people,” the union said in a statement.

Workers at Greece’s public water utility companies in Athens and Thessaloniki walked out on Tuesday to protest the reforms. “They are handing over the nation’s wealth and sovereignty,” George Sinioris, head of the water company workers association said. “We think this is a crime because it involves basic public services. We will respond with court challenges, strikes, building occupations and other forms of protest.”

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” If an organisation can exhibit psychopathy then the IMF has it!”

The Planned Destruction Of Greece Continues … (Mitchell)

After all the hoopla last year with the rise and fall of Syriza one’s attention span strays from what is happening in Greece at present and how it demonstrates the continued (and permanent) failure of the Eurozone. We also become inured to badness after badness is normalised. I was reminded of the depth of the malaise in that nation last week when I was in Kansas City. I won’t disclose confidences but an influential person (in the Greek context) I spoke to now regard their previous support for remaining within the Eurozone as a mistake and they consider my assessment of the situation (which they opposed at the time) to be closer to reality.

That was an interesting conversation and credit to them for being able to recognise an error of judgement. I was also reminded of the absurdity of the Eurozone when the IMF released its latest – Greece: Staff Concluding Statement of the 2016 Article IV Mission (September 23, 2016). This is normalisation of badness in bold! The current thinking is that the Greek unemployment rate will remain in double figures until at least 2050, that business investment has collapsed, real GDP is around 27% below its pre-GFC level – and – more significant and accelerated austerity is required. If an organisation can exhibit psychopathy then the IMF has it!

Conclusion: I haven’t written about Greece (or the Eurozone) for a while – it is depressing thinking about it really and I cannot imagine how the citizens in Greece are dealing with the planned destruction of their prosperity by highly paid officials in Brussels, Frankfurt and, particularly Washington. The scale of the destruction is beyond belief really and constitutes in my non-legal brain a crime against humanity. Someone in the IMF and Brussels should be paying for the professional incompetence that has created this human disaster.

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The world on its head. We all understand that it’s Brussels that has failed to live up to its commitments. Not Greece. But let them try out that Dublin reboot on Italy, see what happens.

Brussels Pushes Greece For Action On Migrants Before Dublin Pact Reboot (Kath.)

European officials are calling on Athens to take action by the end of this year ahead of the review and reactivation of the Dublin Regulation, which would lead to EU member-states returning migrants to Greece. The European Commission on Wednesday asked Athens to improve reception facilities, accelerate the processing of asylum claims and create separate facilities for unaccompanied minors. European Migration Commissioner Dimitris Avramopoulos said there will be no returns to Greece in the months leading up to the review of the pact, which stipulates that migrants lodge their asylum appeals in the first EU country they enter.

He said the goal remains a “gradual resumption” of migrant transfers to Greece but that “we need to avoid that an unsustainable burden be put on Greece.” Meanwhile the Commission aims to relocate 30,000 migrants from Greece to other EU countries by the end of next year. The presense of migrants in Greece has fuelled tensions with protests on Chios and in Rethymno on Wednesday.

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Jan 152016
 
 January 15, 2016  Posted by at 8:03 am Finance Tagged with: , , , , , , , , , ,  11 Responses »
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Russell Lee Tracy, California. Tank truck delivering gasoline to a filling station 1942

The first thing that popped into our minds on Tuesday when WTI oil briefly broached $30 for its first $20 handle in many years, was that this should be triggering a Gawdawful amount of bets, $30 being such an obvious number. Which in turn would of necessity lead to a -brief- rise in prices.

Apparently even that is not so easy to see, since when prices did indeed go up after, some 3% at the ‘top’, ‘analysts’ fell over each other talking up ‘bottom’, ‘rebound’ and even ‘recovery’. We’re really addicted to that recovery idea, aren’t we? Well, sorry, but this is not about recovering, it’s about covering (wagers).

Same thing happened on Thursday after Brent hit that $20 handle, with prices up 2.5% at noon. That too, predictably, shall pass. Covering. On this early Friday morning, both WTI and Brent have resumed their fall, threatening $30 again. And those are just ‘official’ numbers, spot prices.

If as a producer you’re really squeezed by your overproduction and your credit lines and your overflowing storage, you’ll have to settle for less. And you will. Which is going to put downward pressure on oil prices for a while to come. Inventories are more than full all over the world. With oil that was largely purchased, somewhat ironically, because prices were perceived as being low.

Interestingly, people are finally waking up to the reality that this is a development that first started with falling demand. China. Told ya. And only afterwards did it turn into a supply issue as well, when every producer began pumping for their lives because demand was shrinking.

All the talk about Saudi Arabia’s ‘tactics’ being aimed at strangling US frackers never sounded very bright. By November 2014, the notorious OPEC meeting, the Saudi’s, well before most others including ‘analysts’, knew to what extent demand was plunging. They had first-hand knowledge. And they had ideas, too, about where that could lead prices. Alarm bells in the desert.

There are alarm bells ringing in many capitals, there’s not a single oil producer sitting comfy right now. And that’s why ‘official’ prices need to be taken with a bag of salt. Bloomberg puts the real price today at $26:

The Real Price of Oil Is Far Lower Than You Realize

While oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is even deeper. West Texas Intermediate futures, the U.S. benchmark, sank below $30 a barrel on Tuesday for the first time since 2003. Actual barrels of Saudi Arabian crude shipped to Asia are even cheaper, at $26 – the lowest since early 2002 once inflation is factored in and near levels seen before the turn of the millennium. Slumping oil prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said. The nation’s economic expansion faltered last year to the slowest pace in a quarter of a century. “You see a big destruction in the income of the oil and commodity producers,” Turner said. “That is having a major effect on their expenditure across the world.”

Zero Hedge does one better and looks at 1998 dollars:

The ‘Real’ Price Of Oil Is Below $17

“You see a big destruction in the income of the oil and commodity producers,” exclaims an analyst but, as Bloomberg notes, while oil prices flashing across traders’ terminals are at the lowest in a decade, in real terms the collapse is considerably deeper. Adjusted for inflation, WTI is its lowest since 2002 and worse still Saudi Light Crude is trading at below $17 (in 1998 dollar terms) – the lowest since the 1980s… Slumping prices are a critical signal that the boom in lending in China is “unwinding,” according to Adair Turner, chairman of the Institute for New Economic Thinking.

In fact, while sub-$30 per barrel oil sounds very scary, Saudi prices would be less than $17 a barrel when converted into dollar levels for 1998, the year oil sank to its lowest since the 1980s. Slowing investment and construction in China, the world’s biggest energy user, is “sending an enormous deflationary impetus through to the world, and that is a significant part of what’s happening in this oil-price collapse,” Turner, former chairman of the U.K. Financial Services Authority, said.

But this still covers only light sweet crude. Heavier versions are already way below even those levels. Question: what does tar sands oil go for in 1998 dollars? $5 perhaps? A barrel’s worth of it fetched $8.35 in 2016 US dollars on Tuesday. And that does not stop production, because investment (sunk cost) has been spent so there’s no reason to cut, quite the contrary.

Crude At $10 Is Already A Reality For Canadian Oil-Sands Miners

Think oil in the $20s is bad? In Canada they’d be happy to sell it for $10. Canadian oil sands producers are feeling pain as bitumen – the thick, sticky substance at the center of the heated debate over TransCanada’s Keystone XL pipeline – hit a low of $8.35 on Tuesday, down from as much as $80 less than two years ago. Producers are all losing money at current prices, First Energy Capital’s Martin King said Tuesday at a conference in Calgary. Which doesn’t mean they’ll stop. Since most of the spending for bitumen extraction comes upfront, and thus is a sunk cost, production will continue and grow.

Another interesting question is where the price of oil would be right now if the perception of low prices had not made 2015 such a banner year for filling up storage space across the globe, including huge amounts of tankers that are left floating at sea, awaiting a ‘recovery’. But that is so last year:

Tanker Rates Tumble As Last Pillar Of Strength In Oil Market Crashes

If there was one silver-lining in the oil complex, it was the demand for VLCCs (as huge floating storage facilities or as China scooped up ‘cheap’ oil to refill their reserves) which drove tanker rates to record highs. Now, as Bloomberg notes so eloquently, it appears the party is over! Daily rates for benchmark Saudi Arabia-Japan VLCC cargoes have crashed 53% year-to-date to $50,955 (as it appears China’s record crude imports have ceased). In fact the rate crashed 12% today for the 12th straight daily decline from over $100,000 just a month ago…

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. China’s crude imports last month was equivalent to 7.85 million barrels a day, 6% higher than the previous record of 7.4 million in April, Bloomberg calculations show.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher. But given the crash in tanker rates – and implicitly demand – that “boom” appears to be over.

The consequences of all this will be felt all over the world, and for a long time to come. All of our economic systems run on oil, so many jobs are related to it, so many ‘fields’ in the economy, and no, things won’t get easier when oil is at $20 or $10, it’ll be a disaster of biblical proportions, like a swarm of locusts that leaves precious little behind. Squeeze oil and you squeeze the entire economic system. That’s what all the ‘low oil prices are great for the economy’ analysts missed (many still do).

Entire nations will undergo drastic changes in leadership and prosperity. Norway, Canada, North Dakota, Russia. But more than that, Middle East nations that rely entirely on oil, a dependency that won’t allow for many of their rulers to remain in office. Same goes for all OPEC nations, and many non-OPEC producers.

We can argue that a war of some kind or another can be the black swan that sets prices ‘straight’, but black swans are supposed to be the things you can’t see coming, and Middle East warfare for obvious reasons doesn’t even qualify for that definition.

The world is full of nations and rulers that are fighting for bare survival. And things like that don’t play out on a short term basis. For that reason alone, though there are many others as well, oil prices will remain under pressure for now.

Even a war will be hard put to turn that trend around at this point. Unless production facilities are destroyed on a large scale, war may just lead to even more production as demand keeps falling. The fact that Iran is preparing to ‘come back online’, promising an even steeper glut in world markets, is putting the Saudi’s on edge. Rumors of Libya wanting to return for a piece of the pie won’t exactly soothe emotions either.

And when, in a few years’ time, all the production cuts due to shut wells become our new reality, and eventually they must, then no, there will still not be an oil shortage. Because the economy will be doing so much worse by then that demand will have fallen more than supply.

Barring large scale warfare in the Middle East there is nothing that can solve the low oil price conundrum. But think about it, which Gulf nation can even afford such warfare in present times? For that matter, which nation in the world can?

The US may try and ignite a proxy war with Russia, but that would lead to an(other) endless and unwinnable war theater. Which would carry the threat of dragging in China as well. The US and its -soon even officially- shrinking economy can’t afford that. Which of course by no means guarantees it won’t try.

Dec 242015
 
 December 24, 2015  Posted by at 10:52 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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NPC “Poli’s Theater, Washington, DC. Now playing: Edith Taliaferro in “Keep to the Right” 1920


Half The Country Is Either Living In Poverty Or Damn Near Close To It (AN)
Most Americans Have Less Than $1,000 In Savings (MarketWatch)
The Keynesian Recovery Meme Is About To Get Mugged, Part 2 (Stockman)
Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016 (BBG)
US Banks Hit By Cheap Oil As OPEC Warns Of Long-Term Low (FT)
Oil Crash Is a Party Pooper as Holiday Affairs Lose Their Luster (BBG)
New Saudi Budget Expected to Be Squeezed by Low Oil Prices (WSJ)
OPEC Faces A Mortal Threat From Electric Cars (AEP)
The Trouble With Sovereign-Wealth Funds (WSJ)
China Tackles Housing Glut To Arrest Growth Slowdown (Xinhua)
German Emissions Scandal Threatens To Engulf Mercedes, BMW (DW)
Australia Approves Expansion of Barrier Reef Coal Terminal (WSJ)
Japanese Court Clears Way For Restart Of Nuclear Reactors (BBG)
On the 19th day of Christmas… [Am 19. Tag der Weihnachtszeit…] (Orlov)
Greek Banking Sector Cut In Half Since 2008 (Kath.)
No Further Cuts To Greek Pensions, Tsipras Tells Cabinet (Kath.)
Donald Trump: An Evaluation (Paul Craig Roberts)
20 Refugees Drown; 2015 Death Rate Over 10 Human Beings Each Day (CNN)

Yeah, recovery. Sure. “Jobs gained since the recession are paying 23% less than jobs lost..”

Half The Country Is Either Living In Poverty Or Damn Near Close To It (AN)

Recent reports have documented the growing rates of impoverishment in the U.S., and new information surfacing in the past 12 months shows that the trend is continuing, and probably worsening. Congress should be filled with guilt — and shame — for failing to deal with the enormous wealth disparities that are turning our country into the equivalent of a 3rd-world nation.

Half of Americans Make Less than a Living Wage According to the Social Security Administration, over half of Americans make less than $30,000 per year. That’s less than an appropriate average living wage of $16.87 per hour, as calculated by Alliance for a Just Society (AJS), and it’s not enough — even with two full-time workers — to attain an “adequate but modest living standard” for a family of four, which at the median is over $60,000, according to the Economic Policy Institute. AJS also found that there are 7 job seekers for every job opening that pays enough ($15/hr) for a single adult to make ends meet.

Half of Americans Have No Savings A study by Go Banking Rates reveals that nearly 50% of Americans have no savings. Over 70% of us have less than $1,000. Pew Research supports this finding with survey results that show nearly half of American households spending more than they earn. The lack of savings is particularly evident with young adults, who went from a five-percent savings rate before the recession to a negative savings rate today. Emmanuel Saez and Gabriel Zucman summarize: “Since the bottom half of the distribution always owns close to zero wealth on net, the bottom 90% wealth share is the same as the share of wealth owned by top 50-90% families.”

Nearly Two-Thirds of Americans Can’t Afford to Fix Their Cars The Wall Street Journal reported on a Bankrate study, which found 62% of Americans without the available funds for a $500 brake job. A Federal Reserve survey found that nearly half of respondents could not cover a $400 emergency expense. It’s continually getting worse, even at upper-middle-class levels. The Wall Street Journal recently reported on a JP Morgan study’s conclusion that “the bottom 80% of households by income lack sufficient savings to cover the type of volatility observed in income and spending.” Pew Research shows the dramatic shrinking of the middle class, defined as “adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars.” Market watchers rave about ‘strong’ and even ‘blockbuster’ job reports.

But any upbeat news about the unemployment rate should be balanced against the fact that nine of the ten fastest growing occupations don’t require a college degree. Jobs gained since the recession are paying 23% less than jobs lost. Low-wage jobs (under $14 per hour) made up just 1/5 of the jobs lost to the recession, but accounted for nearly 3/5 of the jobs regained in the first three years of the recovery. Furthermore, the official 5% unemployment rate is nearly 10% when short-term discouraged workers are included, and 23% when long-term discouraged workers are included. People are falling fast from the ranks of middle-class living. Between 2007 and 2013 median wealth dropped a shocking 40%, leaving the poorest half with debt-driven negative wealth. Members of Congress, comfortably nestled in bed with millionaire friends and corporate lobbyists, are in denial about the true state of the American middle class. The once-vibrant middle of America has dropped to lower-middle, and it is still falling.

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Damning.

Most Americans Have Less Than $1,000 In Savings (MarketWatch)

Americans are living right on the edge — at least when it comes to financial planning. Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for personal finance website GOBankingRates.com. “It’s worrisome that such a large%age of Americans have so little set aside in a savings account,” says Cameron Huddleston, a personal finance analyst for the site. “They likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends and family, or even their retirement accounts to cover unexpected expenses.”

This is supported by a similar survey of 1,000 adults carried out earlier this year by personal finance site Bankrate.com, which also found that 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). And among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Of course, paltry savings-account rates don’t encourage people to save either.

In the latest survey, 29% said they have savings above $1,000 and, of those who do have money in their savings account, the most common balance is $10,000 or more (14%), followed by 5% of adults surveyed who have saved between $5,000 and just shy of $10,000; 10% say they have saved $1,000 to just shy of $5,000. Just 9% of people say they keep only enough money in their savings accounts to meet the minimum balance requirements and avoid fees. But minimum balance requirements can vary widely and be hard to meet for some consumers. They can vary anywhere between $300 a month and $1,500 a month at some major banks.

Some age groups are less likely to have savings than others. Some 31% of Generation X — who are roughly aged 35 to 54 for the purpose of this survey — while being older and presumably more experienced with money than their younger cohorts, actually report a savings account balance of zero, which is the highest%age of all age groups. Around 29% of millennials — aged 18 to 34 — and 28% of baby boomers — aged 55 to 64 — said they have no money in their savings account. Baby boomers (17%) and seniors aged 65 and up (20%) have the most money saved of any age group while less than 10% of millennials and approximately 16% of Generation X have $10,000 or more saved.

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“High powered central bank credit has exploded from $2 trillion to $21 trillion since the mid-1990’s..”

The Keynesian Recovery Meme Is About To Get Mugged, Part 2 (Stockman)

Our point yesterday was that the Fed and its Wall Street fellow travelers are about to get mugged by the oncoming battering rams of global deflation and domestic recession. When the bust comes, these foolish Keynesian proponents of everything is awesome will be caught like deer in the headlights. That’s because they view the world through a forecasting model that is an obsolete relic – one which essentially assumes a closed US economy and that balance sheets don’t matter. By contrast, we think balance sheets and the unfolding collapse of the global credit bubble matter above all else. Accordingly, what lies ahead is not history repeating itself in some timeless Keynesian economic cycle, but the last twenty years of madcap central bank money printing repudiating itself.

Ironically, the gravamen of the indictment against the “all is awesome” case is that this time is different – radically, irreversibly and dangerously so. High powered central bank credit has exploded from $2 trillion to $21 trillion since the mid-1990’s, and that has turned the global economy inside out. Under any kind of sane and sound monetary regime, and based on any semblance of prior history and doctrine, the combined balance sheets of the world’s central banks would total perhaps $5 trillion at present (5% annual growth since 1994). The massive expansion beyond that is what has fueled the mother of all financial and economic bubbles. Owing to this giant monetary aberration, the roughly $50 trillion rise of global GDP during that period was not driven by the mobilization of honest capital, profitable investment and production-based gains in income and wealth.

It was fueled, instead, by the greatest credit explosion ever imagined – $185 trillion over the course of two decades. As a consequence, household consumption around the world became bloated by one-time takedowns of higher leverage and inflated incomes from booming production and investment. Likewise, the GDP accounts were drastically ballooned by a spree of malinvestment that was enabled by cheap credit, not the rational probability of sustainable profits. In short, trillions of reported global GDP – especially in the Red Ponzi of China and its EM supply chain – represents false prosperity; the income being spent and recorded in the official accounts is merely the feedback loop of the central bank driven credit machine.

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More casino. That’s all that‘s left.

Extreme Oil Bears Bet on $25, $20 and Even $15 a Barrel in 2016 (BBG)

Oil speculators are buying options contracts that will only pay out if crude drops to as low as $15 a barrel next year, the latest sign some investors expect an even deeper slump in energy prices. The bearish wagers come as OPEC’s effective scrapping of output limits, Iran’s anticipated return to the market and the resilience of production from countries such as Russia raise the prospect of a prolonged global oil glut. “We view the oversupply as continuing well into next year,” Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., wrote in a note on Tuesday, adding there’s a risk oil prices would fall to $20 a barrel to force production shutdowns if mild weather continues to damp demand.

The bearish outlook has prompted investors to buy put options – which give them the right to sell at a predetermined price and time – at strike prices of $30, $25, $20 and even $15 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing. West Texas Intermediate, the U.S. benchmark, is currently trading at about $36 a barrel. The data, which only cover options deals that have been put through the U.S. exchange or cleared, is viewed as a proxy for the overall market and volumes have increased this week as oil plunged. Investors can buy options contracts in the bilateral, over-the-counter market too. Investors have bought increasing volumes of put options that will pay out if the price of WTI drops to $20 to $30 a barrel next year, the data show. The largest open interest across options contracts – both bullish and bearish – for December 2016 is for puts at $30 a barrel.

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2016 will be a very bad year for US energy lenders. And that’s not just the banks.

US Banks Hit By Cheap Oil As OPEC Warns Of Long-Term Low (FT)

US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector. OPEC on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest. In its World Oil Outlook it said energy efficiency, carbon taxes and slower economic growth would affect demand. Crude oil’s price on Tuesday hit an 11-year low below $36, piling further pressure on banks that have large loans to energy companies or significant exposure to oil on their trading books.

The US Federal Reserve subjects banks with at least $50bn in assets, including the US arms of foreign banks, to an annual stress test, that is designed to ensure they could keep trading through a deep recession and a big shock to the financial system. Today’s oil prices are about 55% below their level when the Fed set last year’s stress test scenarios in October 2014. That test included looking at how banks’ trading books would fare if there was a one-off 68% fall in oil prices sometime before the end of 2017. Banks’ loan books were not tested against falls in oil prices. Banks including Wells Fargo have recently spoken about the dangers of low oil prices that could make exploration companies and oil producers unable to pay their loans.

There are now five times as many oil and gas loans in danger of default to the oil and gas sector as there were a year ago, a trio of US regulators warned in November. Michael Alix, who leads PwC’s financial services risk consulting team in New York, warned the price of oil would weigh much more heavily on the assessors when drawing up next year’s bank stress tests. “It would test those institutions [banks] for both the direct effects [of oil price falls] on their oil or commodity trading business but importantly the indirect effects [of] lending to energy companies, lending in areas of the country that are more dependent on energy companies and energy-related revenues.”

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No kidding: “You can’t have a $2 million Christmas party while at the same time laying off half your workforce..”

Oil Crash Is a Party Pooper as Holiday Affairs Lose Their Luster (BBG)

The Grinch nearly stole Christmas in the oil patch this year. Thanks to the lowest crude and natural gas prices in more than a decade, Norwegian oil and natural gas producer Statoil cut its holiday party budget by about 40% from 2014. KBR Inc. and Marathon Oil opted for smaller affairs with less swank. One Houston hotel said its seasonal party business is down 25% from 2014. Pricey wine and champagne are off the menu. The industry has shed more than 250,000 jobs and idled more than 1,000 rigs as crude prices fell by more than half since last year. Oil services, drilling and supply companies are bearing the brunt of the downturn and account for more than three quarters of the layoffs, according to industry consultant Graves & Co. “You can’t have a $2 million Christmas party while at the same time laying off half your workforce,” said Jordan Lewis at Sullivan Group, a Houston event planning company.

Independent power generators have also been stung by cheap electricity amid declining gas prices. The heating and power plant fuel slid recently to the lowest level since 1999, and is heading for the biggest annual drop since 2006 as the lack of demand leaves stockpiles at a seasonal record. The commodity rout and the layoffs that followed have dampened holiday festivities. Several hundred Statoil employees were invited earlier this month to Minute Maid Park, where Major League Baseball’s Houston Astros play, for a party that featured scaled back entertainment and décor, spokesman Peter Symons said. At the Houston-based oil and gas construction firm KBR, management canceled this year’s companywide party. Instead, individual departments were encouraged to hold their own gatherings from potlucks to group socials, spokeswoman Brenna Hapes said.

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Like all the rest, they’ll go to war to hide their troubles.

New Saudi Budget Expected to Be Squeezed by Low Oil Prices (WSJ)

The drastic slide in global crude prices is expected to force Saudi Arabia, the world’s leading oil exporter, to slash spending and cut back on the billions of dollars it spends on generous benefits for its citizens in next year’s budget. The oil-rich kingdom spent hundreds of billions of dollars at home in the past decade to bolster its economy and dole out subsidies that provide cheap energy and food for its 30 million people, as it enjoyed years of high crude prices. But the price of oil has fallen by more than half since the middle of last year, forcing the government to dip into reserves, reassess its spending plans and look for ways to diversify sources of revenue. “I’m worried that prices would go up,” said a man waiting for his SUV to be filled in a gas station in northern Riyadh this week.

“There is a lot of talk but I think the government has put this into account,” he said, adding that he expects the increase in prices to be small. Saudi Arabia exports about seven million barrels of oil a day and those revenues make up around 90% of the government’s fiscal revenues, and around 40% of the country’s overall gross domestic product. Saudi Arabia sees the need to cut output to boost prices but so far has been reluctant to do it alone. Officials say that preserving the country’s share of the global market is more important. The 2016 budget, expected to be unveiled in the coming days, will be the first major opportunity for the government to publicly outline a strategy to cope with a prolonged period of cheap oil and soothe the nerves of both the public and investors in the Middle East’s largest economy.

It isn’t clear whether ambitious and sensitive policy changes—such as privatizations and the cutting of energy subsidies—will be included. But even if energy subsidies are cut, the government is unlikely to immediately target consumers, who have become accustomed to some of the lowest gas prices in the world. Any reduction would risk a backlash from the public. “My expectation is that it will start gradually, and that it will target non-consumers first,” said Fahad Alturki, chief economist at Riyadh-based firm Jadwa Investment, of potential subsidy cutbacks. “We won’t see a radical change….The change will be gradual, with a clear road map—and it may not be part of the budget.”

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Ambrose is the posterchild for techno-happy. The thinking is that all it takes is for a lot of money to be thrown at the topic. Mind you, the projection is for the number of cars to double in 25 years. That is a disaster no matter what powers the cars. The magic word is ‘grid-connected vehicles’, but that grid would then have to expand, what, 4-fold?

OPEC Faces A Mortal Threat From Electric Cars (AEP)

OPEC remains defiant. Global reliance on oil and gas will continue unchanged for another quarter century. Fossil fuels will make up 78pc of the world’s energy in 2040, barely less than today. There will be no meaningful advances in technology. Rivals will sputter and mostly waste money. The old energy order is preserved in aspic. Emissions of CO2 will carry on rising as if nothing significant had been agreed in a solemn and binding accord by 190 countries at the Paris climate summit. OPEC’s World Oil Outlook released today is a remarkable document, the apologia of a pre-modern vested interest that refuses to see the writing on the wall. The underlying message is that the COP21 deal is of no relevance to the oil industry. Pledges by world leaders to drastically alter the trajectory of greenhouse gas emissions before 2040 – let alone to reach total “decarbonisation” by 2070 – are simply ignored.

Global demand for crude oil will rise by 18m barrels a day (b/d) to 110m by 2040. The cartel has shaved its long-term forecast slightly by 1m b/d, but this is in part due to weaker economic growth. One is tempted to compare this myopia to the reflexive certainties of the 16th Century papacy, even as Erasmus published in Praise of Folly, and Luther nailed his 95 Theses to the door of Wittenberg’s Castle Church. The 407-page report swats aside electric vehicles with impatience. The fleet of cars in the world will rise from 1bn to 2.1bn over the next 25 years – topping 400m in China – and 94pc will still run on petrol and diesel. “Without a technology breakthrough, battery electric vehicles are not expected to gain significant market share in the foreseeable future,” it said. Electric cars cost too much. Their range is too short. The batteries are defective in hot or cold conditions.

OPEC says battery costs may fall by 30-50pc over the next quarter century but doubts that this will be enough to make much difference, due to “consumer resistance”. This is a brave call given that Apple and Google have thrown their vast resources into the race for plug-in vehicles, and Tesla’s Model 3s will be on the market by 2017 for around $35,000. Ford has just announced that it will invest $4.5bn in electric and hybrid cars, with 13 models for sale by 2020. Volkswagen is to unveil its “completely new concept car” next month, promising a new era of “affordable long-distance electromobility.” The OPEC report is equally dismissive of Toyota’s decision to bet its future on hydrogen fuel cars, starting with the Mirai as a loss-leader. One should have thought that a decision by the world’s biggest car company to end all production of petrol and diesel cars by 2050 might be a wake-up call.

Goldman Sachs expects ‘grid-connected vehicles’ to capture 22pc of the global market within a decade, with sales of 25m a year, and by then – it says – the auto giants will think twice before investing any more money in the internal combustion engine. Once critical mass is reached, it is not hard to imagine a wholesale shift to electrification in the 2030s. Goldman is betting that battery costs will fall by 60pc over the next five years, driven by economies of scale as much as by technology. The driving range will increase by 70pc. This is another world from OPEC’s forecast.

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They’re all invested in hubris.

The Trouble With Sovereign-Wealth Funds (WSJ)

Kazakhstan’s $55 billion sovereign-wealth fund helped pull the country through the global financial crisis and offered funding for the country’s bid to host the 2022 Winter Olympics. But the collapse in oil prices has hit Kazakhstan and its fund, Samruk-Kazyna JSC, hard. In October, the fund borrowed $1.5 billion in its first syndicated loan to help a cash-strapped subsidiary saddled with a troubled oil-field investment. “Our oil company lost lots of its revenues,” says the fund’s chief executive, Umirzak Shukeyev. “Currently, we are trying to adjust to the situation.” Funds like Samruk are at a critical juncture. For years, sovereign-wealth funds—financial vehicles owned by governments—swelled in size and number, fueled by rising oil prices and leaders’ aspirations to increase economic growth, invest abroad and boost political influence.

A new wave of sovereign funds came from African countries like Ghana and Angola. Asian nations joined in with funds like 1Malaysia Development Bhd., or 1MDB. The world’s sovereign-wealth funds together have assets of $7.2 trillion, according to the Sovereign Wealth Fund Institute, which studies them. That is twice their size in 2007, and more than is managed by all the world’s hedge funds and private-equity funds combined, according to JP Morgan. The number of funds tracked by the Institute of International Finance is up 44% to 79 since the end of 2007. Nearly 60% of sovereign-wealth-fund assets are in funds dependent on energy exports. Now, some funds are shrinking or are being tapped by governments as oil revenues fall.

That is forcing them to borrow or sell investments, potentially pressuring global markets just as other investors are pulling back from risk. Saudi Arabia’s central bank, which functions in some ways like a sovereign-wealth fund as it holds significant reserves that are invested widely, has sold billions in assets this year. Norway says it plans to tap its fund, the world’s largest, for the first time in 2016. The stress from low energy prices comes at a sensitive time. At least two funds are embroiled in controversy. 1MDB, which amassed $11 billion in debt, is the subject of at least nine investigations at home and abroad. One of its main financial backers was an Abu Dhabi fund. The head of South Korea’s fund stepped down in the wake of a public outcry over his plan to invest in the Los Angeles Dodgers baseball team.

Adnan Mazarei, deputy director of the IMF’s Middle East and Central Asia Department, says the worry is sovereign-wealth funds will be forced to sell during a period of already turbulent markets. “A withdrawal of assets by sovereign-wealth funds against the background of liquidity concerns could lead to large price movements,” he says. “Nobody knows how much or when but the concern is there.”

Read more …

Behind the curve by a mile and a half: “China will roll out policy to transform 100 million farmers into registered urban residents..”

China Tackles Housing Glut To Arrest Growth Slowdown (Xinhua)

China will continue to actively destock its massive property inventory over concerns that the ailing housing market could derail the economy.Along with cutting overcapacity and tackling debt, destocking will be a major task in 2016, according to a statement released on Monday after the Central Economic Work Conference, which mapped out economic work for next year.Attendees of the meeting agreed that rural residents that move to urban areas should be allowed to register as residents, which would encourage them to buy homes in the city. Property developers have been advised to reduce home prices, according to the statement.”Obsolete restrictive measures [in the property market] will be revoked,” said the statement, without specifying which “restrictive measures” it was referring to.

To rein in house prices, China has been trying to curb real estate speculation, with policies such as “home purchase restriction” that only allows registered residents to buy houses. It is believed the restrictive policies mainly affected the property markets in third- and fourth-tier cities, which saw the most supply glut. The property market took a downturn in 2014 due to weak demand and a supply glut. This cooling continued into 2015, with sales and prices falling, and investment slowing. Property investment’s GDP contribution in the first three quarters of this year hit a 15-year low of 0.04%. The property market is vital to steel and cement manufacturers, as well as furniture producers; its poor performance would breed financial risks.

GDP growth during the January-September period eased to 6.9%, down from 7.4% posted for the whole of 2014. Policymakers believe the housing inventory will be lessened as long as rural residents are encouraged to buy. Nearly 55% of the population live in cities but less than 40% are registered to do so. There are around 300 million migrant workers but most are denied “hukou” (official residence status). In addition to housing rights, a hukou gives the holder equal employment rights and social security services, and their children are allowed to be enrolled in city schools. Starting next year, China will roll out policy to transform 100 million farmers into registered urban residents, according to Xu Shaoshi, head of the National Development and Reform Commission, on Tuesday. No deadline for completion was specified.

Read more …

Be that way: “Should you in any way present the accusation that my client manipulated its emissions data, we will act against you with all necessary sustainability and hold you responsible for any economic damage that my client suffers as a result.”

German Emissions Scandal Threatens To Engulf Mercedes, BMW (DW)

The environmental group Deutsche Umwelthilfe (DUH) and German state broadcaster ZDF presented the results of nitric oxide tests they had conducted on two Mercedes and BMW diesel models. They appeared to show similar discrepancies between “test mode” and road conditions that hit Volkswagen earlier this year, triggering one of the biggest scandals in German automobile history. In response to the report released on December 15, a law firm representing Daimler, which owns Mercedes, sent a letter to the DUH that read, “Should you in any way present the accusation that my client manipulated its emissions data, we will act against you with all necessary sustainability and hold you responsible for any economic damage that my client suffers as a result.”

In defiance of another threat by the Schertz law firm, the DUH published the threatening letter in full on its website. “We have been massively threatened two more times, demanding that we take down the letter – we have told them we won’t,” DUH chairman Jürgen Resch told DW on Wednesday. “For me it’s a very serious issue, because in 34 years of full-time work in environmental protection, and dealing with businesses, I have never experienced a business using media law to try and keep a communication – and a threatening letter at that – secret. “How are we supposed to do our work as a consumer and environmental protection organization when industry forbids us from making public certain threats it makes?” an outraged Resch added. “I think the threat itself is borderline legal coercion.”

In a short documentary broadcast on December 15, ZDF tested three diesel cars – a Mercedes C200 CDI from 2011, a BMW 320d from 2009, and a VW Passat 2.0 Blue Motion from 2011 – and showed that all three produced more nitric oxide on the road than they did in an official laboratory test. “The measurement results show that the cars behave differently on the test dynamometer than when they are driven on the road,” said the laboratory at the University of Applied Sciences in Bern, Switzerland, which carried out the tests. The discrepancies researchers found were not small – while all three cars kept comfortably below the European Union’s legal nitric oxide limit (180 milligrams per kilometer) in the lab, they all went well over the standard on the road, where the BMW recorded 428 mg/km (2.8 times its lab result), the Mercedes hit 420 mg/km (2.7 times its lab result), and the VW Passat reached 471 mg/km (3.7 times its lab result).

Read more …

Anything for a buck.

Australia Approves Expansion of Barrier Reef Coal Terminal (WSJ)

Australia approved the expansion of a shipping terminal close to the Great Barrier Reef on Tuesday, drawing criticism from environmentalists who say an area of outstanding natural beauty is threatened by the decision. Environment Minister Greg Hunt said he would allow the extension the Abbot Point terminal—used to ship coal to markets in Asia—with 30 conditions to help protect the environment, including a requirement that dredge material be dumped on land instead of in water near the World Heritage-listed reef. The expanded port will serve one of the world’s largest coal mines that is being developed by Adani Group in Queensland, a state in eastern Australia where the Great Barrier Reef Marine Park is also located.

The Indian conglomerate aims to use the port to ship as much as 60 million tons of thermal coal annually to its power plants in India. “The port area is at least 20 kilometers from any coral reef and no coral reef will be impacted,” said a spokeswoman for Mr. Hunt, adding: “All dredge material will be placed onshore on existing industrial land.” The government of Queensland, which receives an estimated 6 billion Australian dollars (US$4.3 billion) a year from reef tourism, has yet to approve the expansion, but isn’t expected to block it with the government hoping to unlock a new wave of resource projects. The extension of Abbot Point will lead to the dredging of more than 1 million cubic meters of mud and rock nearby to the reef.

Environmentalists have been equally critical of Adani’s plans to build its Carmichael coal mine and associated infrastructure in the region—because of the potential impact on a native Australian lizard and another vulnerable species. Pro-environment groups said the federal government’s approval of the port expansion wouldn’t only harm wildlife, but also run counter to Australia’s pledge at the Paris global climate conference this month to work toward curbing emissions from fossil fuels such as coal, among the country’s top exports. “The Abbot Point area to be dredged is home to dolphins and dugongs which rely on the sea grass there for food,” said Shani Tager, a Greenpeace campaigner. “It’s also a habitat for endangered marine life like turtles and giant manta rays, and is in the path of migrating humpback whales. “It’s reckless and pointless to gouge away at a pristine habitat to build a port for a coal mine nobody needs,” she added.

Read more …

One more accident away from civil war.

Japanese Court Clears Way For Restart Of Nuclear Reactors (BBG)

A Japanese court has cleared the way for Kansai Electric Power to restart two of its nuclear reactors early next year. The Fukui District Court on Thursday removed an injunction preventing the operation of Kansai Electric’s Takahama No. 3 and No. 4 nuclear reactors, Tadashi Matsuda, a representative for the citizen’s group that initiated the case, said by phone. The court also rejected a demand by local residents to block the resumption of reactor operations at Kansai Electric’s Ohi plant. The ruling was earlier reported by broadcaster NHK. “We think that today’s decisions are a result of the understanding that safety at Takahama and Ohi is guaranteed,” Kansai Electric said in a statement. Residents of Fukui who oppose the restarts plan to appeal the ruling to a higher court, according to Matsuda.

Kansai Electric, the utility most dependent on nuclear power before the March 2011 Fukushima disaster, aims to restart Takahama No. 3 in late January or February, according to a company presentation last month. It is slated to be the third Japanese reactor to restart under post-Fukushima safety rules. Firing up both units will boost Kansai Electric’s profits by as much as 12.5 billion yen ($104 million) a month, according to Syusaku Nishikawa, a Tokyo-based analyst at Daiwa Securities. The two reactors at the Takahama facility, about 60 kilometers (37 miles) north of Kyoto, were commissioned in 1985 and have a combined capacity of 1,740 megawatts.

Operations of the units were suspended in the aftermath of the massive earthquake and tsunami in March 2011 that caused a meltdown at Tokyo Electric Power Co.’s Fukushima Dai-Ichi facility. The units received restart approval from the Nuclear Regulatory Authority in February, though court challenges stopped them from resuming operation. On Tuesday, Fukui prefecture Governor Issei Nishikawa granted his approval for the restarts. While not enshrined in law, local government approval is traditionally sought by Japanese utilities before they return the plants to service.

Read more …

Very much worth reading by Dmitry. I can’t copy the whole thing, but do read it.

On the 19th day of Christmas… [Am 19. Tag der Weihnachtszeit…] (Orlov)

You see, the Ukraine produces over half of its electricity using nuclear power plants. 19 nuclear reactors are in operation, with 2 more supposedly under construction. And this is in a country whose economy is in free-fall and is set to approach that of Mali or Burundi! The nuclear fuel for these reactors was being supplied by Russia. An effort to replace the Russian supplier with Westinghouse failed because of quality issues leading to an accident. What is a bankrupt Ukraine, which just stiffed Russia on billions of sovereign debt, going to do when the time comes to refuel those 19 reactors? Good question! But an even better question is, Will they even make it that far? You see, it has become known that these nuclear installations have been skimping on preventive maintenance, due to lack of funds.

Now, you are probably already aware of this, but let me spell it out just in case: a nuclear reactor is not one of those things that you run until it breaks, and then call a mechanic once it does. It’s not a “if it ain’t broke, I can’t fix it” sort of scenario. It’s more of a “you missed a tune-up so I ain’t going near it” scenario. And the way to keep it from breaking is to replace all the bits that are listed on the replacement schedule no later than the dates indicated on that schedule. It’s either that or the thing goes “Ka-boom!” and everyone’s hair falls out. How close is Ukraine to a major nuclear accident? Well, it turns out, very close: just recently one was narrowly avoided when some Ukro-Nazis blew up electric transmission lines supplying Crimea, triggering a blackout that lasted many days.

The Russians scrambled and ran a transmission line from the Russian mainland, so now Crimea is lit up again. But while that was happening, the Southern Ukrainian, with its 4 energy blocks, lost its connection to the grid, and it was only the very swift, expert actions taken by the staff there that averted a nuclear accident. I hope that you know this already, but, just in case, let me spell it out again. One of the worst things that can happen to a nuclear reactor is loss of electricity supply. Yes, nuclear power stations make electricity—some of the time—but they must be supplied with electricity all the time to avoid a meltdown. This is what happened at Fukushima Daiichi, which dusted the ground with radionuclides as far as Tokyo and is still leaking radioactive juice into the Pacific.

And so the nightmare scenario for the Ukraine is a simple one. Temperature drops below freezing and stays there for a couple of weeks. Coal and natural gas supplies run down; thermal power plants shut down; the electric grid fails; circulator pumps at the 19 nuclear reactors (which, by the way, probably haven’t been overhauled as recently as they should have been) stop pumping; meltdown!

Read more …

And what is left is being sold to investor funds.

Greek Banking Sector Cut In Half Since 2008 (Kath.)

The unprecedented crisis that has been squeezing the country since 2009 has seen domestic banks shrink to half the size they were seven years ago. According to data compiled by Kathimerini, some 50,000 jobs have been lost in the sector since 2008, of which 25,000 are in Greece and 25,000 abroad. The total number of branches has been reduced by 3,500 to 4,200 from 7,715 at the end of 2008. Local lenders have also halted operations at 1,700 branches in Greece as well as 2,175 cash machines. The number of branches in Greece has dropped by 42.3%, employees by 36% and ATMs by 28.7%. There are 49.3% fewer branches abroad and 51.7% fewer employees.

The storm within the banking system and the domestic economy is best reflected in the level of deposits and loans: The total deposits of €240 billion six years ago have now been cut in half to €120 billion. The sum of outstanding loans may be 35% less than in 2009 in theory, at €204 billion, but in reality the reduction is far greater, as €100 billion of that €204 billion is not being serviced. Therefore the real picture of the banking system shows deposits of 120 billion and serviced loans of less than €110 billion, meaning that the credit sector has halved since end-2008. Bank officials say that contraction was inevitable given the 25% decline of GDP from 2009 to 2015, with forecasts pointing to a greater recession in 2016.

Read more …

If the troika wants it, it’ll happen anyway.

No Further Cuts To Greek Pensions, Tsipras Tells Cabinet (Kath.)

Greek Prime Minister Alexis Tsipras has pledged there will be no further cuts to pensions adding that social security reform is necessary for the completion of the nation’s bailout program review by foreign creditors. “This red line is non-negotiable: we will not reduce main pensions for a 12th time,” Tsipras told his cabinet on Wednesday. Tsipras said the bailout agreement did not mandate fresh cuts to pensions. “What the agreement calls for is cuts in spending; it does not say that these will come by reducing pensions,” he said.

Previous cuts, Tsipras said, had brought Greek pensions down by an average 45%. However, they had failed to ensure the sustainability of the country’s social security system. The government is trying to build a viable system without disrupting social cohesion, the leftist PM said. Tsipras said that pension reform is the final prerequisite for wrapping up the assessment of the Greek program so that talks on debt relief can proceed. “The goal is to complete the first review as soon as possible while keeping in place a safety net for the weakest,” he said.

Read more …

Well written.

Donald Trump: An Evaluation (Paul Craig Roberts)

Donald Trump, judging by polls as of December 21, 2015, is the most likely candidate to be the next president of the US. Trump is popular not so much for his stance on issues as for the fact that he is not another Washington politican, and he is respected for not backing down and apologizing when he makes strong statements for which he is criticized. What people see in Trump is strength and leadership. This is what is unusual about a political candidate, and it is this strength to which voters are responding. The corrupt American political establishment has issued a “get Trump” command to its presstitute media. Media whore George Stephanopoulos, a loyal follower of orders, went after Trump on national television. But Trump made mincemeat of the whore.

Stephanopoulos tried to go after Trump because the world’s favorite leader, President Putin of Russia, said complimentary things about Trump, and Trump replied in kind. According to Stephanopoulos, “Putin has murdered journalists,” and Trump should be ashamed of praising a murderer of journalists. Trump asked Stephanopoulos for evidence, and Stephanopoulos didn’t have any. In other words, Stephanopoulos confirmed Trump’s statement that American politicians just make things up and rely on the presstitutes to support invented “facts” as if they are true. Trump made reference to Washington’s many murders. Stephanopoulos wanted to know what journalists Washington had murdered. Trump responded with Washington’s murders and dislocation of millions of peoples who are now overrunning Europe as refugees from Washington’s wars.

B ut Trumps advisors were not sufficiently competent to have armed him with the story of Washington’s murder of Al Jazerra’s reporters. Here is a report from Al Jazeera, a far more trustworthy news organization than the US print and TV media:

“On April 8, 2003, during the US-led invasion of Iraq, Al Jazeera correspondent Tareq Ayoub was killed when a US warplane bombed Al Jazeera’s headquarters in Baghdad. “The invasion and subsequent nine-year occupation of Iraq claimed the lives of a record number of journalists. It was undisputedly the deadliest war for journalists in recorded history.

“Disturbingly, more journalists were murdered in targeted killings in Iraq than died in combat-related circumstances, according to the group Committee to Protect Journalists. “CPJ research shows that “at least 150 journalists and 54 media support workers were killed in Iraq from the US-led invasion in March 2003 to the declared end of the war in December 2011.” “’The media were not welcome by the US military,’” Soazig Dollet, who runs the Middle East and North Africa desk of Reporters Without Borders told Al Jazeera. ‘That is really obvious.’”

A political candidate with a competent staff would have immediately fired back at Stephanopoulos with the facts of Washington’s murder of journalists and compared these facts with the purely propagandistic accusations against Putin which have no basis whatsoever in fact. The problem with Trump is the issues on which the public is not carefully judging him. I don’t blame the public. It is refreshing to have a billionaire who can’t be bought expose the insubstantialality of all the Democratic and Repulican candidates for president. A collection of total zeros. Unlike Washington, Putin supports the sovereignty of countries. He does not believe that the US or any country has the right to overthrow governments and install a puppet or vassal. Recently Putin said: “I hope no person is insane enough on planet earth who would dare to use nuclear weapons.”

Read more …

3700 deaths in the Mediterranean in 2015. We don’t have enough shale or tears left to do them justice. We’re morally gone.

20 Refugees Drown; 2015 Death Rate Over 10 Human Beings Each Day (CNN)

The Turkish coast guard launched a search and rescue mission after at least nine migrants drowned off the nation’s coast. Eleven people remain missing and 21 have been rescued, the coast guard said Thursday. There was no information on their country of origin. The International Organization for Migration released a report this week saying more than a million migrants had entered Europe this year. The figures show that the vast majority – 971,289 – have come by sea over the Mediterranean. Another 34,215 have crossed from Turkey into Bulgaria and Greece by land. Among those traveling by sea, 3,695 are known to have drowned or remain missing as they attempted to cross the sea on unseaworthy boats, according to IOM figures. That’s a rate of more than 10 deaths each day this year.

Read more …

Oct 022015
 
 October 2, 2015  Posted by at 3:01 pm Finance Tagged with: , , , , , ,  14 Responses »
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NPA Fifth Avenue at W. 54th Street 1954

There’s so much negative real bad economic and financial news out there that it’s hard to choose a ‘favorite’, but I guess I’m going to have to go with what underlies and ‘structures’ it all, the IIF stating that for the first time since 1988 and the Reagan presidency, there’s more money flowing out of emerging markets than there’s flowing in. That is for sure a watershed moment.

And no, that trend is not going to be reversed either anytime soon. Emerging economies, even if they wouldn’t include China -but they do-, have relied exclusively on selling ‘stuff’ to the rich world which combined cheap commodities with cheap labor, and now they see their customer base shrink rapidly just as they were preparing to harvest the big loot.

Now, I hope I can be forgiven for thinking from the get-go that this was always a really dumb model. That emerging nations would provide the cheap labor, and the west would kill of its manufacturing base and turn into a service economy.

This goes very predictably wrong if and when we figure out that A) economies that don’t manufacture anything can’t buy much of anything, and B) that we can sell those services our economies are ‘producing’ only to ourselves, as long as the emerging nations maintain a low enough pay model to make their products worth our while to import.

It makes one wonder how many 6 year-olds would NOT be able to figure this out. In the same vein, how many of them would be hard put to understand that our economies, overwhelmed by, and drowning in, debt, cannot be rescued by more debt? Here’s thinking the sole reason so many of us don’t get it is that we’ve been told it’s terribly hard to grasp, and you need a 10-year university course to ‘get it’.

I see a bad US jobs report coming in as we speak, and that’s not really saying much of anything. The damage not only runs far deeper than those massaged reports, it’s also already been done ages ago. Non-farm employment reports are Brooklyn Bridge-for-sale territory.

We’d all be much better off looking at the $11-13 trillion in ‘value’ lost from global equity markets in Q3. Or, for that matter, at Goldman’s statement that, and I’m only slightly paraphrasing here, only companies buying up their own stocks could save the S&P 500 for 2015.

Think about it: we don’t make much of anything anymore, and what we do make hardly anybody wants to buy, so we issue debt and buy it up ourselves. This may well be presented as a clever ‘investment’ model, but I aks of you: how much closer to eating our own excrements are we comfortable getting?

Stock buybacks can have strategic advantages in specific circumstances in healthy economies, but massive buybacks on the back of too-cheap credit/debt is not one of those circumstances. It’s desperation writ very large.

One other article that stuck out, because it brings into the bright shining limelight the longtime Automatic Earth assertion that we are headed for a disastrous “multiple claims to underlying real wealth”, is Paul Brodsky’s piece served by Tyler Durden. It has far more value than any alleged jobs article, because it describes the real world, not some distorted fantasy:

There Are Five Times More Claims On Dollars As Dollars In Existence

[..] the data show plainly there are five times as many claims for US dollars as US dollars in existence. Does this matter to investors? Well, yes, it matters a lot. Not only is there not enough money to repay outstanding debt; the widening gap between credit and money is making it more difficult to service the debt and more difficult for nominal US GDP to grow through further credit extension and debt assumption.

Remember, only a dollar can service and repay dollar-denominated debt. Principal and interest payments cannot be made with widgets or labor, only dollars. This means that future demand and output growth generated through more credit issuance and debt assumption is self-defeating. In fact, it adds to the problem.

[..] the value of dollar-denominated assets is not supported by the money with which it is ostensibly valued. This has not been a problem historically because the proportion of un-reserved credit has been low relative to asset values and cash flow. As we are seeing today, however, it is becoming a significant problem because balance sheets are already highly levered and zero-bound interest rates chokes off the incentive to refinance asset prices higher.

If the total value of US denominated assets is, say, $100 trillion, and the US dollar money stock is somewhere around $12 trillion, then the inescapable implication is that the market’s expects either: a) $88 trillion more US dollars will be created in the future to fund the purchase of the gross asset pool at current valuations; b) there has to be a decline in the nominal value of aggregate assets, or; c) both.

The US is not going to ‘create’ $88 trillion. More debt cannot solve this. And so the only option available is a huge decline in asset ‘values’. ‘Values’ that have been grossly distorted for years now, and which we all could have known can’t be kept from falling back to earth indefinitely.

Just this morning, we saw 3 other key indicators all point way down. That’s not in itself peculiar or anything, what’s peculiar is that it’s taken so long for people to figure out which way the wind blows. And I betcha, most still won’t get it. Because they’re all exclusively looking for signs of a recovery.

They’ve been looking for 8 years or so now, and there’s always some piece of data that can be found to feed the blinders, but it’s all been nonsense for 8 years running. Your economy, my economy, and the global economy, can and will not recover, and certainly not as long as more debt is injected in our already insanely overindebted financial systems.

You can’t fight historically unequaled amounts of debt with even more debt. But yeah, well, that’s the only trick our pony can think of. Those 3 key indicators -and there’s more where they came from- are the Guardian Gauge: ‘Destruction Of Wealth’ Warning Looms Over Stocks, the Global Dow: Key Global Equity Index Has Fallen Off The Precipice and the IIF’s take on net capital flows for global emerging markets I started out with, Is This The Mother Of All Warnings On Emerging Markets?

I don’t want to make this another of those endless articles, but do click the links, and do read up on each of them. And then shiver. Have a stiff drink. Unless you’re still looking for a recovery. And let’s not forget, yes, it’s true that massive stock buybacks in the US, Europe, perhaps even China, as well as more QE to infinity and beyond, may save a bunch of numbers and you might be sitting pretty yet under the yuletide tree.

But the simplest of principles stands no matter what: there’s no way out of this that doesn’t lead through the exact kind of massive debt deleveraging that all governments and central banks are ostensibly trying desperately to prevent. And which will make the debt deflation, certainly after 8 years of trying to push the 180º opposite way, epic and monumental.

On the bright side: at least if you would have read the Automatic Earth through those past 8 years, you would have known and hopefully been prepared for that debt deflation. It’s not as if it’s something new or unexpected, not around here.

$13 trillion in market losses in just one quarter would be very hard to make up for even in very favorable circumstances. We have no such circumstances. We’ve built our very lives on squeezing China et al for 27 years, and issuing more debt as if there’s no tomorrow -sort of a self-fulfilling prophecy-, and now we’ve belatedly realized that there’s a time limit on that model.

But hey, by all means, it’s your money, and it’s your life, so do keep on betting on that recovery, and the return to ‘normal’, whatever that once was. Put it all on red. Go crazy! You do risk becoming a lonely crowd though. Meanwhile, those of us down here with our feet planted in the real earth have just this one question: “How bad can this get, and how fast?”.

Sep 212015
 
 September 21, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Arthur Rothstein Interior of migratory fruit worker’s tent, Yakima, Washington Jul 1936


The Least-Believed Recovery And The Least-Believed Bull Market (Bloomberg)
Yellen Is Trapped in the Worst Nightmare Ever (Martin Armstrong)
Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (Bloomberg)
Fed’s Lacker Says Economy Strong Enough For Higher Rates (Reuters)
Fed’s Williams Still Sees 2015 Rate Hike After ‘Close Call’ (Reuters)
Volkswagen Plunges 25% After US Emissions Cheat Scandal (Bloomberg)
Greece’s Year Of Tumult Enters New Chapter As Tsipras Dominates (Bloomberg)
Debt Relief Tops Tsipras Agenda, Party Official Says (Reuters)
EU’s Schulz Says Cannot Understand Tsipras’ Greek Coalition Choice (Reuters)
A Frontline Solution to Europe’s Refugee Crisis: Remember Ellis Island (WSJ)
Central Europe Gives Up On Holding Refugees Back From Austria (Guardian)
We Must Act Together, Says Merkel Ahead Of Refugee Summit (Guardian)
Merkel Coalition at Odds Over Proposal to Cap EU Asylum Places (Bloomberg)
15,000 More Refugees To Be Resettled In US Next Year (WaPo)
UN Meets To Fight Poverty, Europe Puts Up Razor Wire To Keep Poor Out (Guardian)
Why China Is Turning Back to Confucius (WSJ)
Was Standard Chartered Flouting US Iranian Sanctions? (FT)
Nine On Lagarde List Being Probed For Money Laundering (Kath.)
The Massacre Of The Kurds And The Silence Of Europe (M5S Lower House)
Safe Assets In A World Gone Mad (Chatham)
People Have No Idea How Money Is Created (PM.org)

“This is the least-believed economic recovery and the least-believed bull market of our careers..”

The Least-Believed Recovery And The Least-Believed Bull Market (Bloomberg)

Investors hate stocks – again. Amid a six-year bull market that’s notable mainly for how little conviction there is in it, equity sentiment is plunging at a historic rate, falling by some measures at the fastest pace since Federal Reserve Chairman Paul Volcker had just finished pushing up interest rates in the 1980s. The cost to hedge against stock losses is soaring, valuations are contracting, and bearishness among professional stock handicappers is rising the most in three decades. Fret not. All of this is good news for bulls, if history is any guide. Since 1963, the S&P’s 500 Index has advanced an average 11% in the year after newsletter writers surveyed by Investors Intelligence were as pessimistic as they are now, data compiled by Bloomberg show. That compares with an annualized return of 8.3%.

Skepticism is one thing the rally since 2009 hasn’t lacked – and it may be the best thing stocks have going for them as corporate profits fall, concerns deepen over China’s travails, oil and commodities plunge and the Fed turns more pessimistic on global growth. Some traders even say they see bargains after S&P 500 posted its first 10% retreat in four years. “This is the least-believed economic recovery and the least-believed bull market of our careers,” said Bob Doll, chief equity strategist at Chicago-based Nuveen Asset Management, which oversees $130 billion and bought stocks during the August selloff. “The nervousness means people have stepped to the sidelines. The question is, who is left to sell? Everybody who has cash is a potential buyer.”

Investors have bailed out of stocks at every sign of trouble since 2009, from the euro crisis to ebola, with the latest catalyst coming from China’s devaluation of its currency. The distrust has been a barrier to euphoria, a quality that historically is the bigger threat to bull markets. Fear reigns, spreading faster than any time since 1984 as the S&P 500 tumbled 10% over four days in August. At the start of this month, the bull-to-bear ratio in Investors Intelligence’s survey of newsletter writers fell to a four-year low of 0.9. In April, when bulls dominated the market that was heading for an all-time high, the ratio reached 4.1.

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“..they MUST raise rates or they will bankrupt countless pension funds and international where emerging markets will go into default..”

Yellen Is Trapped in the Worst Nightmare Ever (Martin Armstrong)

Yellen has inherited a complete nightmare. Thursday’s decision to delay yet again the long-awaited liftoff from zero interest rates is illustrating that the world economy is totally screwed. There is a lot of speculation about why the Fed seems so reluctant to “normalize monetary policy”. There are of course the typical domestic issues that there is low inflation, weak wage gains in the face of strong job growth, a hike will increase the Federal deficit and then there is the argument that corporations that now have $12.5 trillion in debt. All that is nice, but with corporate debt, our clients are locking in long-term at these levels, not funding anything short-term.

Those clients who have listened are preparing for what is to come unlike government which has been forced to shorten the average duration of their debts blind to what happens when rates rise, which will be set in motion by the markets – not Yellen. Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate they MUST raise rates or they will bankrupt countless pension funds and international where emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the US national debt.

By avoiding the normalization of interest rates (hikes), the Fed has encouraged government to spend far more than they realize because money is cheap. This will eventually light the fire under the economy helping to fuel the Sovereign Debt Crisis. There appears to be no hope for the Fed and they will be forced to raise rates only when they see asset inflation in equities. Then they will have no choice. This is the worst possible mess and the longer they have waited to normalize interest rates, the worst the total crisis is becoming for they will have zero control over the economy and once that is seen, holy Hell will break lose.

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“..a structural shift has beset the world economy.”

Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (Bloomberg)

The global economy caused Janet Yellen to pause for thought. It could spur Mario Draghi to act. After the Federal Reserve chair held off from a U.S. interest-rate increase amid concerns that world growth will weaken, her counterpart at the ECB may give clues on the need for further stimulus for the euro area. Draghi and other Governing Council members will make public appearances this week, while data releases will show whether the currency bloc is succumbing to, or shaking off, the gloom. Like the U.S., the euro area is stuck with stubbornly low inflation. Unlike Yellen, Draghi can’t yet rely on domestic demand to lift prices. Whether because the Fed’s delay leads to a stronger euro, or because of the drag of emerging markets, economists see it as increasingly likely that the ECB will be called on its pledge to boost its €1.1 trillion bond-buying program if needed.

“The worry is that, previously, central banks assumed that global growth would be materially stronger in 2016, but that doesn’t look likely now,” said Nick Kounis at ABN Amro in Amsterdam. “If the Fed had hiked rates, it would have given the ECB some breathing space. Now the pressure is on them again.” The ECB’s optimism that a home recovery coupled with stronger external demand would steer inflation back to the goal of just under 2% is now being replaced by concern that a structural shift has beset the world economy. Executive Board member Peter Praet, the institution’s chief economist, said in an interview published over the weekend that policy makers “won’t hesitate to act” if it they reach that conclusion. Draghi’s lieutenants have been reinforcing that message since the Fed’s rate decision last week.

Benoit Coeure, the ECB’s markets chief, said in a speech in Paris on Friday that prospects for growth in the euro area have “clearly weakened,” and aren’t helped by a euro that’s now strengthening against the currencies of its main trading partners. The single currency has gained 3.5% in trade-weighted terms since mid-July and more than 4% against the dollar. European bonds jumped after the Fed’s Sept. 17 decision to keep its benchmark rate at a record low. Both Praet and Coeure speak in public on Monday, followed by Draghi’s appearance at a European Parliament hearing in Brussels on Wednesday. Hours before Draghi addresses lawmakers, purchasing managers’ surveys for September may tell investors whether Europe’s manufacturing and services industries are indeed succumbing to lower external demand, or whether domestic consumers are helping to prop them up.

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“..public understanding of the Fed’s behavior “an essential foundation for the monetary stability we currently enjoy.”

Fed’s Lacker Says Economy Strong Enough For Higher Rates (Reuters)

Richmond Federal Reserve President Jeffrey Lacker on Saturday said he dissented at a Fed policy meeting because he thought the economy was now strong enough to warrant higher interest rates. Fed policymakers on Thursday voted to keep the Fed’s target interest rate at between zero and a quarter point. “Such exceptionally low real interest rates are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets,” Lacker said in a statement. He was the lone dissenter among the 10 Fed officials who voted at the meeting. Lacker said the Fed’s target should rise by a quarter point. Lacker has a history of dissent in Fed policy meetings. In 2012, he voted against eight straight policy decisions by the central bank.

At the time he was urging the Fed to wind down asset purchases that were aimed at stimulating the economy. Regarding Thursday’s decision at the Fed, Lacker said a rebound in consumer spending and “tightening labor markets” meant the economy no longer needed zero interest rates. He said keeping interest rates at their current level deviated from the way the Fed has responded to the economy in the past, which was dangerous because public understanding of the Fed’s behavior was “an essential foundation for the monetary stability we currently enjoy.” “Such departures are risky and raise the likelihood of adverse outcomes,” Lacker said.

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Extending the narrative.

Fed’s Williams Still Sees 2015 Rate Hike After ‘Close Call’ (Reuters)

An interest rate hike will likely be appropriate this year given the U.S. Federal Reserve’s decision last week to stand pat was a “close call,” a top Fed policymaker said on Saturday. John Williams, a centrist and president of the San Francisco Fed, said the arguments for and against beginning to tighten U.S. monetary policy are about balanced now that the economy is on solid footing, giving him confidence in continued economic and labor market growth. Williams, the first U.S. policymaker to speak publicly since the Fed’s much-anticipated decision on Thursday, suggested he is almost ready to pull the trigger on a rate hike. He acknowledged the risks from a slowdown in China and global downward pressure on inflation, noting a rate rise in 2015 is not guaranteed.

But he said full U.S. employment should be achieved “in the near future” and inflation, while still too low for comfort, should gradually move back to a 2% goal. “Given the progress we’ve made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year,” he said at a weekend conference on the China-U.S. financial system. The Fed’s decision to leave rates near zero “was a close call in my mind, in part reflecting the conflicting signals we’re getting,” he said. “The U.S. economy continues to strengthen while global developments pose downside risks to fully achieving our goals.”

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Falling further as the day goes on. “The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines.”

Volkswagen Plunges 25% After US Emissions Cheat Scandal (Bloomberg)

Volkswagen dropped the most in almost seven years after it admitted to cheating on U.S. air pollution tests for years, risking billions in potential fines and a backlash from consumers in the world’s second-biggest car market. The shares declined as much as 17%, or €27.9, to €134.5 in Frankfurt, the most since Nov. 3, 2008. The drop extends the slump for the year to 25%, valuing the Wolfsburg, Germany-based company at €65.3 billion. Volkswagen Chief Executive Officer Martin Winterkorn said on Sunday that the company is cooperating with the probe and ordered its own external investigation into the issue. The CEO said he was “deeply sorry” for breaking the public’s trust. VW has halted sales of the car models involved, which were a cornerstone of Winterkorn’s effort to catch up in the U.S.

The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible. “If this ends up having been structural fraud, the top management in Wolfsburg may have to bear the consequences,” said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG, whose share rating is under review. The German carmaker admitted to fitting its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday. The violations, which affect nearly half a million vehicles, could result in as much as $18 billion in fines. Criminal prosecution is also possible.

Analysts at Kepler Cheuvreux downgraded the shares to “hold” from “buy,” cutting their target price 27% to €185. Volkswagen faces not only a short-term drop in sales and hit to its reputation but also the longer-term risk of litigation in the U.S., the analysts wrote in a note on Monday. During normal driving, the cars with the software – known as a “defeat device” – would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissioned real-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results. Volkswagen had counted on clean, powerful diesel cars to help it build its sales in the U.S., where it has struggled for years. Sales of VW-brand cars in the country dropped 10% last year to 366,970.

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Lame duck.

Greece’s Year Of Tumult Enters New Chapter As Tsipras Dominates (Bloomberg)

Greek voters had the choice to reject the man who led their country closer than ever to being forced out of Europe’s single currency. Instead, they embraced him. Alexis Tsipras and his Coalition of the Radical Left, or SYRIZA, emerged from a second election in eight months with a level of support barely diminished from the emphatic victory that catapulted him both into power and a standoff with the euro region. SYRIZA, which took 35.5% of the vote compared with 28.1% for the center-right New Democracy, will enter a coalition with the same small party that helped it rule before. While the victory tightens Tsipras’s hold over Greek politics, it also exposes the paradoxes of a country whose economy is a shadow of its former self and where controls remain on bank withdrawals.

After coming to power pledging to end austerity and restore “dignity,” Tsipras now must implement the further sharp spending cuts and tax increases he ended up agreeing to in exchange for €86 billion of fresh European aid. The electorate has voted to return to power a party that “ditched its promises, switched its policies, and caused the collapse of Greek banks, bringing in an unneeded recession,” said Stathis Kalyvas, a professor of political science at Yale University. On the other hand, “this government will be called to implement a stringent set of fiscal and structural reforms that it vigorously rejected before,” he said.

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What EU says is non-negotiable.

Debt Relief Tops Tsipras Agenda, Party Official Says (Reuters)

Negotiations over Greece’s debt will top the agenda for Prime Minister-elect Alexis Tsipras from Monday as he prepares for a return to office following a surprisingly easy national election win, a senior source from his party said. Tsipras and his leftist SYRIZA party clinched a clear victory in Sunday’s poll as voters put aside his dramatic U-turn over Greece’s international bailout to offer him a second chance to steer a battered economy to recovery. SYRIZA said on Sunday it plans to govern in a coalition with the small right wing Independent Greeks party, the same partner Tsipras chose after winning the country’s previous general election in January. But to strengthen his hand in talks with EU partners over how to ease Greece’s debt burden, he will seek a broader consensus among the parties he defeated on Sunday, the party source said.

“We will continue negotiations in the coming period, with the debt issue being the first and most important battle,” the source said. “We will ask all political forces to support our efforts.” Some European governments, particularly Germany, are opposed to cutting Greece’s debt – a so-called haircut – but not averse to stretching out its repayment schedule. Eurozone officials told Reuters last week that governments are ready to cap Greece’s debt-servicing costs at 15% of GDP annually over the long term. That would mean the nominal payment would be lower if the Greek economy struggled, higher if it was more robust, they said.

Tsipras is also planning to form a national council for European policy, including representatives of parties other than the Independent Greeks and which would advise the finance minister, the SYRIZA source said. Centre-left daily newspaper Ethnos tipped Euclid Tsakalotos, the former finance minister who brokered terms of the bailout accord in August, to be re-appointed. JP Morgan analyst Malcolm Barr said he expected some sort of debt restructuring to be in place by early next year. “We continue to think that… the (bailout) programme will make enough progress to allow a restructuring of loans from euro area countries by the end of the first quarter of 2016,” he wrote in a note.

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Brussels has lost all sense of the limits of interfering in sovereign nations. This is none of Schulz’s business.

EU’s Schulz Says Cannot Understand Tsipras’ Greek Coalition Choice (Reuters)

The head of the European Parliament, Martin Schulz, lamented on Monday the decision by Greek leftist Alexis Tsipras to renew a coalition with the small right-wing Independent Greeks party. Tsipras stormed back into office with an unexpectedly decisive election victory on Sunday, claiming a clear mandate to steer Greece’s battered economy to recovery. The vote ensured Europe’s most outspoken leftist leader would remain Greece’s dominant political figure, despite having been abandoned by party radicals last month after he caved in to demands for austerity to win a bailout from the eurozone. Speaking to France Inter radio, Schulz said he could not understand Tsipras’ decision to bring the Independent Greeks, who polled less than 4% of the vote, back into government.

“I called him (Tsipras) a second time to ask him why he was continuing a coalition with this strange, far-right party,” Schulz said. “He pretty much didn’t answer. He is very clever, especially by telephone. He told me things that seemed convincing, but which ultimately in my eyes are a little bizarre.” Independent Greeks leader Panos Kammenos says the bailout by the European Union, European Central Bank and International Monetary Fund has reduced Greece to the status of a debt colony.

The party differs from Syriza on many traditionally conservative issues, pledging to crack down on illegal immigration and defend the close links between the Orthodox Church and the state. Schulz said he admired Tsipras for the way he had navigated through the last year to get himself re-elected, but said Kammenos was a loose canon who always needed to be controlled. “It’s politically and strategically something that you have to admire,” he said. “But after … this renewed mandate with this far-right, populist party, that I don’t understand.”

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The US must be part of the solution too.

A Frontline Solution to Europe’s Refugee Crisis: Remember Ellis Island (WSJ)

Tabanovce, Macedonia: This quaint Macedonian village provides a useful vantage point for anyone hoping to grasp the scale of the current European refugee crisis. Up to 7,000 refugees have been passing through here daily before crossing the border with Serbia. A generation ago this region escaped communism, then fought bitter ethnic and sectarian wars that lasted until 2001. Now its nations find themselves in the eye of a humanitarian storm. And Europe is no closer to a durable solution. Short of military intervention to stabilize some of the Middle East hotspots the refugees are fleeing, the only long-term response is to develop legal, safe conduits that bring refugees to European Union-funded and operated frontline processing centers, say, on the Greek and Italian isles and Turkey’s western coast.

Asylum-seekers would be offered fair, humane and expedient processing. Those relying on trafficker routes would be routed back to these centers. Accepted refugees would be placed depending on host-country capacity, family and communal ties, and related factors. The U.S. experience on Ellis Island at the turn of the 20th century is instructive. The island processed an astonishing 1.25 million immigrants in 1907, a banner year for U.S. immigration. In the next decade U.S. immigration authorities also mastered immigrant processing—including ultra-efficient medical checks and questioning—aboard ships. The situations aren’t precisely analogous. At Ellis Island’s height as a processing center, America maintained a more or less open-door policy.

But the main lesson for Europe today lies in the American government’s ability at that time to impose order on human chaos on a scale similar to the current refugee crisis. Central to that success was the existence of a singular executive with broad discretion to examine, process, accept and in some cases reject migrants. Compare that achievement with Europe’s mess today. As the crisis mounted, the states on the Balkan corridor—Greece, Macedonia, Serbia and Turkey—provided refugees easy passage toward Hungary. Macedonia and Serbia especially became efficient at getting refugees in and out of their territory as quickly as possible, sometimes within a day. Balkan governments knew that most refugees were headed for Germany, Sweden and the like, and after minimal processing they granted papers allowing refugees to head north.

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Should have been done from the start.

Central Europe Gives Up On Holding Refugees Back From Austria (Guardian)

The countries of central Europe suspended their resistance this weekend to Europe’s largest refugee exodus since the second world war, as Hungary, Slovenia and Croatia all shunted tens of thousands of people towards Austria, reversing most recent attempts to block their passage. At least 15,000 refugees mainly from Syria, Afghanistan and Iraq were funnelled from Croatia into Hungary and then onwards to Austria over the weekend, the Austrian news agency APA said, after Hungary temporarily gave up trying to stop refugees from crossing its border. Another 2,500 have crossed from Croatia into Slovenia, despite Slovenia initially trying to block their passage. The moves represent a volte-face from both countries – and in particular from Hungary.

The Budapest government had previously tried to stop the entry of undocumented travellers by building a fence along its southern border with Serbia, and by posting military vehicles on its western border with Croatia. But by Sunday, its resistance was mostly rhetorical. The country admitted thousands of refugees over the weekend from Croatia, whose shared border is not yet blocked by a fence, even as foreign minister Péter Szijjártó promised tougher measures in the future. Szijjártó said: “We are a state that is more than 1,000 years old that throughout its history has had to defend not only itself, but Europe as well many times. That’s the way it’s going to be now.”

Thousands more continued to enter Europe on Saturday and Sunday at the other end of the refugee route in the Greek islands, where coastguards said that 24 people were feared to have drowned on Sunday. An inflatable refugee boat, attempting to reach Lesbos from the Turkish shoreline, capsized before it reached its destination, and only 22 out of 46 passengers were rescued. The number of migrant shipwrecks in the Aegean has increased in recent days, with Sunday’s incident the sixth in a week of accidents that have left around 100 dead.

For many of the survivors, the trauma has not ended with their rescue: it emerged on Sunday that more than 200 Syrians and Iraqis saved by the Turkish coastguard following the sinking of their ship near Kos had allegedly been threatened with deportation back to the war zones they had just fled. One Syrian survivor, who asked not to be named as she is still in detention, said in a voice message: “They are threatening us that Syrians will be deported to Syria, Iraqis to Iraq. If they send us back to Syria we will die.” The Turkish government has denied any Syrians will be deported.

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No kidding, the headline still said ‘emergency summit’.

We Must Act Together, Says Merkel Ahead Of Refugee Summit (Guardian)

A divided European leadership will try to seek a credible response to the continent’s worst migration crisis since second world war at an emergency summit on Wednesday. As central European countries abandoned attempts to stop thousands of refugees from crossing their borders towards Austria on Sunday, German chancellor Angela Merkel called on her peers to accept joint responsibility. “Germany is willing to help. But it is not just a German challenge, but one for all of Europe,” Merkel told a gathering of trade unionists. “Europe must act together and take on responsibility. Germany can’t shoulder this task alone.“ Striking a more sceptical tone on migration than in previous weeks, Merkel also warned that Germany could not shelter those who were moving for economic reasons rather than to flee war or persecution.

“We are a big country. We are a strong country. But to make out as if we alone can solve all the social problems of the world would not be realistic,” she told a gathering of the Verdi trade union. The foreign ministers of the Czech Republic, Hungary, Poland, Slovakia, Romania and Latvia will hold talks on Monday with their counterpart from Luxembourg, which currently holds the EU presidency, aimed at addressing divides between neighbouring states. Donald Tusk, president of the European Council, who chairs EU summits, said on Twitter on Sunday following a weekend visit to Jordan and Egypt that the EU needed to help Syrian refugees find a better life closer at home.

That will be one of the topics of discussion for Wednesday’s summit in Brussels as hundreds of thousands of refugees and migrants brave the seas and trek across the Balkan peninsula to reach the affluent countries of northern Europe. The 28-member bloc has struggled to find a unified response to the crisis, which has tested many of its newer members in the east that are unaccustomed to large-scale immigration. On Sunday Hungary erected a steel gate and fence posts at a border crossing with Croatia, the EU’s newest member state. Overwhelmed by an influx of some 25,000 migrants this week, Croatia has been sending them north by bus and train to Hungary, which has waved them on to Austria.

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Europe remains in bland denial of reality. And that’s dangerous.

Merkel Coalition at Odds Over Proposal to Cap EU Asylum Places (Bloomberg)

German Vice Chancellor Sigmar Gabriel said he doesn’t “understand” Interior Minister Thomas de Maiziere’s proposal for the European Union to set an upper limit to the number of people it accepts as asylum seekers. “It’s the opposite of what the Chancellor has rightly said, namely that those who arrive in Germany and apply for asylum need a fair procedure,” Gabriel, who’s also chairman of the Social Democratic Party, said Sunday on ARD public television. “It is not a solution to establish quotas for asylum seekers. Incidentally, it is also contrary to the German constitution.” Support for two German opposition parties not represented in parliament rose as criticism of Merkel’s handling of Europe’s refugee crisis mounted.

Backing for the Free Democrats, Merkel’s former coalition partner, and the anti-euro Alternative for Germany party each increased 1%age point to 5% in a weekly poll, Bild am Sonntag reported. “We can’t host all the people from conflict areas and all poverty refugees who want to come to Europe and to Germany,” de Maiziere told Germany’s Spiegel magazine. “The right way would be that we in the EU commit ourselves to fixed, generous quotas for the admission of refugees.” A call by one of his party deputies that de Maiziere, a member of Chancellor Angela Merkel’s Christian Democratic Union, should resign unless he succeeds at accelerating asylum procedures was “nonsense,” Gabriel said.

Labor Minister Andrea Nahles said in an interview with Deutschlandfunk public radio she expects German unemployment figures to rise next year due to “a significant increase” in the number of refugees seeking work as “not every refugee who comes now is already automatically a qualified worker.” All parties represented in the lower house of parliament shed 1%age point in the Emnid poll, with Merkel’s Christian Union bloc dropping to 40%, her Social Democrat coalition partner to 24%, the Greens to 10% and the Left party to 9%.

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How about 1 million, just to begin with?

15,000 More Refugees To Be Resettled In US Next Year (WaPo)

The United States will increase its cap on the number of refugees it admits and resettles to 85,000 in the coming fiscal year and to 100,000 in 2017, Secretary of State John F. Kerry said Sunday. The additional refugees, up from 70,000 in the current fiscal year that ends Sept. 30, will come from countries around the world. But the increase largely reflects the 10,000 Syrian refugees that the White House earlier this month promised to admit. Kerry said the administration is exploring ways to admit even more, but Congress must approve enough money to cover the extra cost of resettlement. “This step is in keeping with America’s best tradition as a land of second chances and a beacon of hope,” Kerry said in announcing the increase during a visit to Berlin to discuss the Syrian refugee crisis with his German counterpart, Frank-Walter Steinmeier.

Even before Syrian refugees began streaming into Europe in recent weeks, the State Department had been considering a modest increase of about 5,000 refugees, including more from Congo, where human rights abuses are rampant. At the end of each fiscal year, the State Department announces the new target number for refugees. Although the administration can unilaterally set a numerical goal for the refugees it wants to accept, it is up to Congress to agree to fund the resettlement. In the current fiscal year, it cost $1.1 billion to bring 70,000 refugees to the United States, put them through an orientation program run by refugee charities and have them dispersed throughout the country. It was not immediately clear how much more it will cost to bring in more Syrians.

One of the reasons it is so expensive is that every refugee must undergo extensive background checks under security measures enacted after the terrorist attacks of Sept. 11, 2001. Those checks have been taking 18 to 24 months for Syrians, according to State Department figures. A senior State Department official said many, many more refugees could be admitted if officials can find ways to streamline the system without jeopardizing security. Refugees admitted for resettlement are selected from lists provided by the United Nations High Commissioner for Refugees. So far, about 1,600 of more than 18,000 Syrians referred by the U.N. refugee agency since the conflict began have arrived in the United States about 1,500 in this fiscal year alone. More than 10,000 are well along in being vetted, and they are expected to arrive in much greater numbers in the coming months.

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Let’s be honest, that UN meeting willl lead to nothing at all.

UN Meets To Fight Poverty, Europe Puts Up Razor Wire To Keep Poor Out (Guardian)

The contrast could hardly be sharper. Razor wire fences are being constructed to keep the uprooted poor out of the European Union at the very moment the United Nations meets to agree anti-poverty goals for the next 15 years. No question, the gathering in New York will be a regular jamboree. There will be mutual backslapping about the progress that has been made over the past 15 years, a good deal of it justified. Countries will solemnly pledge to meet the 17 sustainable development goals, with 169 specific targets, by 2030. They will turn a blind eye to what is happening in Serbia, Hungary, Croatia and Austria. The truth, though, is that there is a link between the UN shindig and the most severe refugee crisis in generations: inequality.

It is the obvious disparity between life in a rich country and life in a poor country that makes the long and dangerous journey to the west attractive. It is the gap between rich and poor within developed countries that has helped foster a deep suspicion, not just of unlimited migration, but of free movement of capital and goods as well. And without addressing inequality head on, ensuring that growth benefits the poor by as much as it benefits the rich, there is not the remotest chance that the ambitious goals being embraced in New York this week will be met. Here’s the picture. The SDGs replace the millennium development goals that set the framework for poverty reduction between 2000 and 2015, but are much tougher.

The MDGs sought to make progress in areas such as poverty reduction or infant mortality: the SDGs will commit the international community to more ambitious goals, which include ending poverty and hunger, and ensuring healthy lives and access to quality education for all. There are reasons to be optimistic. Much progress has been made in the past two decades, in large part due to the rapid growth in China. One billion people have been lifted out of poverty and the MDG objective of halving the number living below the global agreed minimum was achieved five years early. This will be seen by world leaders as evidence that even more can be done in the next 15 years.

But achieving the new SDGs would be a gargantuan task in the best of times. And these are not the best of times. China is growing more slowly, with concerns that doctored official figures mask a hard landing. Emerging markets in the rest of the world are being hurt both by weaker Chinese demand for their commodities and by the continued sluggishness of the big western economies. The Great Recession of 2008-09 continues to cast a long shadow.

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Back to the future. “Mr. Xi is backfilling his vision and seeking a fresh source of legitimacy by reinventing the party as inheritor and savior of a 5,000-year-old civilization.”

Why China Is Turning Back to Confucius (WSJ)

One Thursday morning in June, 200 senior officials crammed into an auditorium in the Communist Party’s top training academy to study a revolutionary idea at the heart of President Xi Jinping’s vision for China. They didn’t come to brush up on Marx, Lenin or Mao, staple fodder at the Central Party School since the 1950s. Nor were they honing their grasp of the state-guided capitalism that defined the nation for the last 35 years. They came to hear Wang Jie, a professor of ancient Chinese philosophy and a figure in the country’s next ideological wave: a renaissance of the traditional culture the Communist Party once sought to destroy.

For two hours, Prof. Wang says, he reeled off quotes from Confucius and other Chinese sages—whom the party long denounced as feudal relics—and urged his audience to incorporate traditional concepts of filial piety and moral rectitude into their personal and professional lives. “I’m getting hoarse,” Prof. Wang says over a cup of green tea after class. The previous day, he had lectured at the culture ministry and, the day before, at the commerce ministry. Monday would be the insurance regulator. “Xi Jinping’s words,” he says, “have lit a fuse.” Two years after outlining a “China Dream” to re-establish his nation as a great world power, Mr. Xi is backfilling his vision and seeking a fresh source of legitimacy by reinventing the party as inheritor and savior of a 5,000-year-old civilization.

The shift forms the backdrop for Mr. Xi’s visit to the U.S. this week and could shape China for years. Mr. Xi appears to be seeking to inoculate Chinese people against the spread of Western political ideals of individual freedom and democracy, part of what some political insiders say he views as a long-term contest of values and ideology with the U.S. The effort is gaining urgency now, as an economic slowdown and stock-market rout fray the social compact of the last three decades in which citizens traded political freedom for rapid wealth creation. With Communist dogma and Chinese-style capitalism losing appeal, the party needs fresh ideas. “It’s like the prodigal son returning,” says Guo Yingjie, a University of Sydney Chinese-studies professor who wrote a book on Chinese cultural nationalism. “China has had more than a century of anti-traditionalism. Now they’re heading in the opposite direction.”

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Well, obviously: “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”

Was Standard Chartered Flouting US Iranian Sanctions? (FT)

The expletive-laden exclamation attributed to a senior Standard Chartered executive in 2006 may well come back to haunt the British bank. “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” For US authorities, who included the quote in a legal filing, the statement came to define StanChart’s “obvious contempt” for American banking regulations, including sanctions designed to cut Iran off from access to the US dollar. Nine years on, after paying nearly $1bn in fines to US regulators and law enforcement agencies for sanction breaches and compliance failures, StanChart seems no closer to ending its legal problems. An FT investigation has identified transactions involving Iran that could put the bank at risk of severe penalties ranging from further fines to suspension or loss of its crucial dollar clearing licence.

Documents seen by the FT suggest that StanChart continued to seek new business from Iranian and Iran-connected companies after it had committed in 2007 to stop working with such clients. These activities include foreign exchange transactions that, people familiar with StanChart operations say, would have involved the US dollar. The documents suggest the bank — a few months after a costly settlement with US authorities in 2012 — was still internally reviewing its client list and was unable to determine in certain cases whether customers were Iranian or not. For Bill Winters, the American former JPMorgan investment banker who took over as StanChart’s chief executive in June, the stakes could hardly be higher. The London-listed lender, that specialises in Asia, the Middle East and Africa, is already grappling with slowing growth in emerging markets and a slide in commodity prices.

While it has relatively small operations in the US, the loss of its dollar clearing licence would deal a crippling blow to StanChart’s ability to finance the trade, energy and cross-border activities that have become its main focus. Suspending the dollar clearing rights for banks accused of breaching sanctions is a rare punishment. But US regulators have cracked down hard on institutions for breaching sanctions on Iran, amid concerns about money flowing to the country’s nuclear programme or to militant Islamist organisations such as Hizbollah in Lebanon or the Palestinian group, Hamas. The US has mostly relied on levying heavy fines against non-US banks for using dollars to do business with Iran — frequently causing controversy in those banks’ home countries. BNP Paribas last year paid $8.9bn in fines and had some dollar clearing rights suspended temporarily for such breaches, prompting angry accusations from French politicians of US over-reach.

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I’ll believe it when I see it.

Nine On Lagarde List Being Probed For Money Laundering (Kath.)

Greek judicial authorities are investigating the possibility that up to nine people on the Lagarde list of Greeks with deposits at the Geneva branch of HSBC were involved in a large money-laundering network, Kathimerini understands. Prosecutors from Greece recently questioned Herve Falciani, the former HSBC employee who extracted the data on the list, and he is believed to have given them information that points to the existence of a major money-laundering operation. Prior to speaking to Falciani, Greek authorities had identified three suspects. Kathimerini understands that Greek prosecutors, led by the head of the first instance prosecutor’s office, Ilias Zagoraios, have been in contact with counterparts in France, Spain and Italy regarding the matter. They are expected to make a second trip to Paris to interview Falciani in the coming weeks.

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More trouble on the way.

The Massacre Of The Kurds And The Silence Of Europe (M5S Lower House)

“In the last few days, Turkish Military units have entered northern Iraq in an operation against the guerrillas of the Kurdistan Workers’ Party (PKK). The Ankara government has defined it as land-based incursion and a “short-term” measure to finally “eliminate” the “rebels”. We are given to believe that Erdogan took the decision to intervene following the PKK attack in Igdir last Tuesday which killed 13 local police officers. But the truth is that for some months now, the Turkish army has being besieging the only entity that has demonstrated it is really able to stop the advance of ISIS. And Europe stays silent, enclosed in a shell of hypocrisy and opportunism. The “popular resistance” cells have collapsed.

They were formed last March when different member states (including Italy) gave the green light to sending in arms to the Peshmerga. Even the government stays silent. There’s not a word from Minister Gentiloni even while the Turkish air force is continuing an indiscriminate attack on rebels and civilians. This is not simply shameful. It’s showing the double standards used by the West where people are ready to tear their hair out when looking at the dead body of little Aylan, but where they are careful to stay silent when their own interests, or the interests of their allies are at stake. In fact, Turkey is the only member that NATO has in the Middle East.

It is in a strategic position (to the East it has borders with Armenia, Azerbaijan and Iran, to the South East it borders Iraq and to the South, Syria). The USA cannot do without it and the EU feels it has a duty to protect it. It doesn’t matter whether the game play involves the sacrifice of the fundamental rights of a people who for decades have been legitimately claiming their independence and autonomy. This is why the EU remains silent even in relation to Erdogan’s intentions to change the constitution to give himself more powers and even thinking of the city of Cizre that is now on its last legs – after suffering a blackout for more than a week, without new supplies of food and water. And meanwhile ISIS is moving forward, conquering, and threatening our country, but above all threatening the survival of democracy.

Read more …

Reads the Automatic Earth?

Safe Assets In A World Gone Mad (Chatham)

Gold and silver are good assets to hold to insure the preservation of EXCESS wealth but there are other assets that are even more valuable longterm. Those things that can be used to produce a product are the elements that can be used to leverage your time, resources and talents to produce wealth. The ability to produce excess is the basis of the need for wealth preservation. Physical goods in the form of equipment that can be used to create or produce goods needed by society are the basis of prosperity and wealth in the world. Gold and silver only become necessary when society begins to produce more products than the producer can use. This excess production is then traded for those things that can preserve the value of this excess production until it is needed by individuals.

Machines to build or repair such as saws and hammers, sewing machines, metal fabricating machines such as lathes and mills and machines to convert raw materials to value added products such as steel to I beams or pots and pans, wheat to flour or pasta, lumber to finished furniture and cotton to cloth are the assets that define how prosperous you are as a nation. A nation derives its wealth from having a product to sell. That will never change. It is true for nations as well as for individuals.

Individuals need to have the ability to produce something in excess of their needs to advance to the need to store that excess. This requires tools and equipment in most cases. You do not necessarily need to process your own resources to generate this excess. A miller can provide the equipment to grind grain for the community taking part of the production for his time and effort. This gives rise to the service economy where individual specialization is traded for other services and resources rendered. In most cases this service will require specialized equipment not possessed by the general population. This specialized equipment is an asset more valuable than gold and silver in many cases.

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Only 4% of Swiss know.

People Have No Idea How Money Is Created (PM.org)

Interesting news from our sister organisation MoMo in Switzerland: The survey results from a master’s thesis from the Institute of Finance and Banking at Zurich University confirm that Swiss people have no idea about how Swiss Francs are created. Here are the results and the main reactions from the press: A survey has been carried out as part of a master’s thesis at the University of Zurich about the level of knowledge in the general population about the financial system. The results are astonishing:
• Only 13% know that private commercial banks provide the majority of the money in circulation.
• However, 78% of the Swiss population would like money to be produced and distributed solely by a public organisation working for the common good, such as the National Bank.
• Only 4% preferred the system we actually have today – that money is mostly created by private, for-profit companies such as commercial banks.

The survey results reinforce the Vollgeld Initiative, which currently has more than 90,000 signatures of the 100,000 required to force a binding national referendum in Switzerland. The study shows clearly that the Swiss people do not know who actually creates the Swiss Franc: Only 13% of the population are aware that, in the current system, private banks produce the majority of the money through the extension of loans. 73% mistakenly believe money is created by the state or by the Swiss National Bank.

Read more …

Aug 062015
 
 August 6, 2015  Posted by at 8:05 am Finance Tagged with: , , , , , , , ,  23 Responses »
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Arnold Genthe “Chinatown, San Francisco. The street of the gamblers at night” 1900

Far too many people have already used lines like “We Are All Greeks Now” for the words to hold on to much if any meaning by now. But it’s still a very accurate description of what awaits us all. Just not for the same reasons most who used it, did.

No, I don’t really want to talk about Greece again. I want to talk about where you live. And about how similar the two will be not too long from now. How Greece is holding up a lesson and a big red flashing warning sign for all of us.

Greece is the mold upon which all of our futures will be based. Quite literally. Greece is a test tube baby rat.

Greece will never “recover” to our North American and Western European economic levels (if ever they were there). Instead, it’s us who will descend, “uncover” so to speak, to the levels Greece is at today. That is baked into the cake, that is inevitable, and that is therefore what we need to be ready for.

If we wake up in time to this new reality, we may, and that’s still only may, be able to prevent the worst, prevent something akin to the same punitive measures the Troika has unleashed upon Greek society, fully wrecking it in the process, its healthcare system, the safety nets for its most needy.

We may find a way to make a smoother transition from here to there if we prepare in time. But that’s the best we can do. As societies, that is; individual fates will vary.

Greece will find ways to do better than it does right now, balance things out, but it won’t be through a recovery or a bailout. Athens will -because it must, lest the humanitarian crisis deepens profoundly- find ways to better -fairer- apportion what means are at its disposition, amongst its people.

We all have to do the same, wherever we are. Our advantage today is that we can do this from a relatively well-to-do starting point. Our disadvantage is that, unlike the Greeks, we do not understand the reality we’re in.

We’re ignorant, we deny, we prefer not to think about it. The Greeks used to be like that, but they no longer have that choice. And we won’t for much longer either.

The reason why Greece is where it is today, and why we will all be there tomorrow, we can by now for good reason call ‘deceptively simple’. That is to say, the global banking system that orchestrated the financial crisis refuses to take the losses on its extravagant bets, and it has the political clout to get its way, all the way. That’s all you need to know.

The losses are therefore unloaded upon the citizens of our respective nations. But the losses are far too massive for those citizens to bear. They, or rather we, will see our societies stripped of most things, most of the social fabric, that hold them together. Any service that costs money will be cut, progressively, until there’s very little left.

It happened in Greece, and it will happen all over the world. Mind you, this is nothing new; third world nations have undergone the same treatment for decades, if not forever. Disaster capitalism wasn’t born yesterday. What’s new is that it now takes place in the supposedly well-off part of the world, in this case the European Union. And it will spread.

The successive Greek bailouts that have now ruined the entire nation were “needed” to stem the losses on wagers, derivatives and other, incurred by global banks, French, Dutch, German, Wall Street, the City. The first bailout in 2010 also served the purpose of allowing the banks time to shift away from their exposure to Greek debt.

All bailouts, be they directly for banks, or indirectly through a country like Greece and then for the banks, have been set up according to the exact same MO. Greece’s economic reserves just happened to be a bit tighter, and moreover, the country was a convenient lab rat and scarecrow to prevent others from protesting the bailout system too loudly.

The whole system of bailouts, be it in Greece or in the US, was never anything else than a transfer of public money to private interests, with the express aim of making good on the lost wagers of that private sector. With impunity, no less.

And no, the losses have not disappeared. Nor have they been written down. They have instead been transferred to fester in dark vaults, hidden behind swaps and other derivatives, and on central bank balance sheets. But that won’t last either.

The Automatic Earth has warned of the imminent deleveraging and deflation for years, and now everyone is talking about deflation. No worries, guys. As you were. But do please try and understand how this works.

There’s all these losses, with no-one prepared to write down any of them (see Germany vs Greece), and the elites behind the banks unwilling to absorb any -the elites instead insist on getting richer even in a depression-. There is only one outcome left then: that you and me will have to become much poorer. They are our losses now.

The only way the rich can keep getting richer is if the rest of us keep getting poorer. Economic growth is a thing of the past. Deleveraging has started for real. Huge amounts of zombified ‘money’ are disappearing as we speak.

That leaves the world with a lot less wealth. And still the rich seek to get richer, and they are in charge. The math is simple. As Greece shows us, the rich have no qualms about throwing an entire society off the cliff.

A large part of what is now considered wealth is made up of QE and related and inflated stocks, bonds and real estate prices, all of which is zombie wealth. Which can disappear overnight. And if it can, it will.

China stocks and “real” estate and local government debt to shadow banks, emerging markets, commodity currencies (Australia, New Zealand, Canada etc.), if you overlook that whole panorama it’s hard to see how you could possibly think there’ll be some kind of recovery.

Where should it come from? Overall debts are much worse, much higher, now, then they were in 2008. We haven’t had a recovery, we’ve had an “uncovery”. And we’re headed for a discovery.

The entire idea, the phantom ghost, of a functioning market died, if you were willing to look, with the advent of central bank intervention. People who work in finance, obviously and for understandable reasons, have never been willing to take that look. They’re just looking to make more money even if things tumble down the mountain in a handbasket. They call it “opportunity”.

But they haven’t been actual investors in years. They’ve just helped the banking system put you into deeper doodoo. Greece shows us where that leads. And soon, wherever you live will show that to you too.

Deflation is a bitch. Nicole Foss here at the Automatic Earth has used the phrase “multiple claims to underlying real wealth”, for a long time. It’s like playing musical chairs. And you’re not winning. You never had a chance.

The only people who will wind up winning are the rich trying to get richer. The rest of us will soon live like the Greeks, and that’s if we are lucky.

There is no other possibility. “Money” is vanishing fast, and the only way it can even seem to return is if central banks do more QE, but that’s a dead in the water policy. Economic growth across the globe, and certainly in the west, is an illusion.

China was the last place that briefly seemed to have any, and they screwed up just like us, ending up with far too much debt to ever repay.

There is a point when the can gets so big and heavy, no-one can kick it down any road anymore. Not even one that plunges down a mountain. Something to do with gravity.

May 302015
 
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Arnold Genthe San Francisco, “Grant Avenue at Sacramento Street.” 1930


Big Banks Run Everything: Austerity, The IMF (Salon)
Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)
US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)
Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)
No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)
The Desperate Plight of a Declining Superpower (Michael T. Klare)
The Curious Optimism Of The Godfather Of Inequality (Independent)
If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)
Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)
Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)
Varoufakis’s Great Game (Hans-Werner SInn)
Chinese Stock Market’s Wile E. Coyote Moment (Pesek)
Stop Calling China a Currency Manipulator (Pesek)
French Far-Right Calls For In/Out EU Referendum (EUObserver)
Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)
Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)
More Charges Expected In FIFA Case (NY Times)

Very, very, good by Patrick Smith. Please read the whole thing.

Big Banks Run Everything: Austerity, The IMF (Salon)

Fascinating to watch the IMF as it fronts for the U.S. Treasury and international lenders in the Greek and Ukrainian debt crises. In the former, the fund pins the Syriza government to the wall because it dares to represent its electorate. In the latter, it stands by the Poroshenko government because it has no intention of representing anybody other than banks, corporations and the global strategy set. “Fascinating” is one word for this and it holds. “Greed in action” is three but they do a better job. Coincidentally enough, both the Greek and Ukrainian cases now near their respective denouements. Miss this and you miss a singularly plain display of power, the way it works and what it works for in the early 21st century.

Athens has debt payments of €1.6 billion due in June and must make them if it is to receive a further tranche of European and IMF funding. This is essential if Greece is to recover—not from the 2008 financial crash and its economic fallout, which was long ago absorbed, but from the recovery program the fund and the EU imposed in 2012. That is textbook neoliberalism, naturally, and the results are before us. PM Alexis Tsipras calls it “a humanitarian crisis,” and I have heard no one dare counter him on the point. The Kiev government owes international bondholders $35 billion, and $23 billion of it is also due in June. Slightly different situation here: Ukraine, too, needs to shake loose I.M.F. and European funds to revive an economy even worse than Greece’s, but this is not about ameliorating any kind of social crisis.

It is about inducing one, in effect, so the neoliberalization process can be completed and working people in Ukraine are made properly, structurally desperate. It is highly unlikely you will read about these two crises in the same news report—this would be asking too much of media committed to conveying disembodied data without context so that readers and viewers cannot understand what they are (not) being told. Let us, then, treat Greece and Ukraine together. It is where the fascination comes in.

Read more …

Behavioral economics.

Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)

Yes, the new behavioral economics is Wall Street’s secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street’s most powerful weapon because you can’t see it. They even try to make you think they’re helping you. Bull. Behavioral economists used to be guardians of America’s 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They’re the investors’ enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors.

Don’t believe me? At first, I couldn’t believe the con game. Back in 2002 when Princeton psychologist Daniel Kahneman won the Nobel Prize in Economic Sciences we were hopeful. He disproved Wall Street’s oldest fraud, the myth of the “rational investor.” We cheered. Kahneman’s research that proved investors were never rational .. are in fact irrational .. always have been irrational .. and we always will be irrational. At first we assumed humans can change – we can still educate ourselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become “less irrational.”

Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: Getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians. What did we get? In recent years many of their books resemble high school level self-help “Psych 101” books with cute titles like “Freakonomics,” “Nudge,” “Sway,” “Animal Spirits,” “Blink,” “Blunder,” “Beyond Greed & Fear,” “Predictable Irrational,” all cleverly packaged for mass-market consumption, all with implied promise that their book will make you less irrational, ready to beat the Wall Street casino.

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And they all just go and claim Q2 will be grand. But wasn’t this supposed to be a recovery? Yeah, yeah, snow, I know.

US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)

The world’s largest economy hit a bigger ditch in the first quarter than initially estimated, held back by harsh winter weather, a strong dollar and delays at ports. GDP in the U.S. shrank at a 0.7% annualized rate, revised from a previously reported 0.2% gain, according to Commerce Department figures issued Friday in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9% drop. By contrast, the report also showed incomes climbed, fueling the debate on whether GDP is being underestimated. A swelling trade gap subtracted the most from growth in 30 years as the appreciating dollar caused exports to slump while imports rose following the resolution of labor disputes at West Coast ports.

Federal Reserve officials are among those who believe the setback in growth will be temporary, helping explain why they are considering raising interest rates this year. “The numbers show the economy literally collapsed last quarter, but we know there were a lot of special factors,” Jim O’Sullivan at High Frequency Economics said before the report. O’Sullivan was the top forecaster of GDP in the past two years, according to Bloomberg data. “There’s a good chance we’ll see a second-quarter bounce back.” Economists’ forecasts ranged from a decline of 1.2% to an increase of 0.2%. The GDP estimate is the second of three for the quarter, with the third release scheduled for June, when more information becomes available. The economy grew at a 2.2% pace from October through December.

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And the rise of margin debt in China must be worse and bigger.

Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)

For a few months in mid/late 2014 there was some concern among those who still don’t get that in this New Paranormal market the only real buyers are central banks, that while the stock market kept on rising, and rising, NYSE margin debt was flat, and in fact the total amount of purchases on margin at the end of 2014 was nearly the same to those in January. Meanwhile the S&P 500 had soared to recorder highs. A few things here: first, as we explained one year ago, in a world in which levered purchases take place via such shadow banking conduits as repo and primary broker arrangements, margin debt has become an anachronism from a bygone generation in which there wasn’t $2.5 trillion in Fed reserves supporting the market, and is now almost entirely meaningless.

But for those who still cling on to margin debt as indicative of anything, the latest NYSE report should provide some comfort: finally the long-awaited breakout in participation has arrived, and after stagnating for over a year, investors – mostly retail – are once again scrambling to buy stocks on margin, i.e., using debt, and as of April 30, the amount of margin debt just hit a new all time high of $507 billion, $30 billion more than the month before, and nearly 50% higher than the last bubble peak reached in October 2007.

It’s not just margin debt that hit a record high. Investor net worth, which is the inverse, or investor cash and credit balances less total margin debt, just dropped to ($227 ) billion, a new record low, meaning not only is the amount of investors leverage at an all time high, but investor net worth is also at an all time low.

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Because this is not a revovery.

No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)

The U.S. economy has fallen into negative territory three times since the current recovery began in mid-2009, a dubious feat that last occurred more than a half a century ago. What’s to blame for the most up-and-down recovery since the mid-1950s? Serious flaws in how GDPis calculated is one prime suspect. The government’s GDP report appears to have underestimated growth in the first quarter for decades, a problem that has become even more acute. At the same time GDP probably has overstated growth in the second and third quarters, so the underlying U.S. growth rate is probably the same. “The evidence of a seasonal quirk in the first-quarter GDP growth figures is pretty overwhelming,” said Paul Ashworth at Capital Economics. The second culprit – and evident ring leader – is the U.S. economy itself.

Bad policy, back luck or whatever you call it, the economy is no longer growing as fast as it used to. So any time there’s a temporary dip in economic activity because of poor weather, spiking oil prices or some other major event, it’s no surprise that GDP might show a contraction. The U.S. has grown at a mediocre 2.2% annual pace since the first full year of recovery in 2010. That’s just two-thirds as fast as the economy has grown since the government began keeping track in early 1930s. The less the economy grows, the easier it is for quarterly GDP to slip into the red from time to time, especially if some sort of “shock” occurs. The first-quarter suffered from several of them: unusually harsh weather, a dockworker’s strike, a soaring dollar that undercut U.S. exports and a drop in business investment tied to plunging oil prices.

Of course, such shocks are nothing new, and the economy in the past has shown more resistance to them. The U.S. did not experience a single negative quarter, for example, during the last three major economic expansions: the early 2000s, the 1990s and the 1980s. You have to go a lot further back to the weak 1973-75 expansion to find another episode of a quarterly contraction in a recovery phase. Another one occurred in the short-lived 1958-1960 recovery. The last U.S. recovery to include three negative quarters like the current one was from 1954 to 1957. Yet there is one big difference compared to today: the economy back then expanded by leaps and bounds. The U.S. grew at a 3.8% rate during the “Eisenhower recovery” following the end of the Korean War. And the fastest quarter of growth nearly reached 12% — more than twice as strong as the best quarter in the latest recovery.

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Only little children and psychopaths dream of superpower.

The Desperate Plight of a Declining Superpower (Michael T. Klare)

Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?

This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”

Strategically, in the Cold War years, Washington’s power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a “sole superpower” (aka Rome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”

H.W.’s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be “to take advantage of a tremendous opportunity – given few nations in history – to extend the current peace into the far realm of the future. A chance to project America’s peaceful influence not just across the world, but across the years.”

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A simple moral question.

The Curious Optimism Of The Godfather Of Inequality (Independent)

Before Piketty, there was Atkinson. The subject of inequality is now, perhaps indelibly, associated with the young French economist who burst into the public arena last year and became an unlikely bestselling author across the Anglophone world. But Thomas Piketty himself drew heavily on the work of a British economist – a debt the Frenchman readily admits. “Tony Atkinson is the godfather of historical studies of income and wealth,” he enthused last year. It’s no exaggeration. Sir Anthony Atkinson has been researching inequality since the 1960s and published his first major book on the subject in 1978, when Mr Piketty was still at primary school. The Atkinson index of inequality is named after him. Some scholars expect him to be awarded the Nobel economics prize at some stage.

And now the 70-year-old London School of Economics professor has produced another tome on the subject, Inequality: What can be done?. Yet for all the book’s scholarly virtues and for all the esteem in which Sir Anthony is held within the profession, it seems unlikely it will sell as many copies as Mr Piketty’s blockbuster Capital in the 21st Century. Lightning, after all, rarely strikes twice in the same spot. When I meet Sir Anthony to discuss his latest work, I ask whether it rankles to see another, much more junior colleague become the celebrated face of the subject. Sitting in his rather spartan office just off Lincoln Inn’s Fields, he smiles at the suggestion: “Not at all. He [Piketty] is an amazing character. He’s very inventive. I think he’s managed to present the issue in a way that’s attracted a lot of attention.”

Nevertheless, Sir Anthony stresses that, much as he shares Mr Piketty’s concerns about the level of income inequality across much of the developed world, his own book has a different emphasis. “I think what I would have done differently is discuss more what we can do about it [inequality],” he says. He certainly doesn’t duck the challenge of coming up with constructive policy ideas. The final chapter of his book is overflowing with ideas on how to reduce inequality back to where it stood before what he calls the great “inequality turn” of the early 1980s, when Margaret Thatcher’s government entered office.

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“..the foreign exchange market seems to be designed to create opportunities for bad behaviour.”

If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)

“If you ain’t cheating, you ain’t trying” were the words of one trader working in the foreign exchange market. They belie an attitude that was widespread among traders in this market between 2009 and 2013. Cheating was simply a normal part of a trader’s day job. In fact, not cheating would be to shirk your duties. Widespread cheating in the foreign exchange market has turned out to be very costly indeed. In the past six months, six large banks around the world have paid out US$10 billion in fines over the manipulation of the global foreign exchange market. There have also been fines levied against banks for manipulating other over-the-counter markets such as LIBOR, the ISDAfix and the gold market.

In addition there have been fines for other bad behaviour by banks like money laundering, their role in the sub-prime mortgage crisis, violating sanctions, manipulation of the electricity market, assisting tax evasion, and mis-selling payment protection insurance. This brings the total amount of fines which banks have paid since 2008 to over US$160 billion. To put this in context, this is more than what the UK government spent on education last year. As the cost of misbehaviour mounts, banks are under increasing pressure to clean up their act. Despite widespread public cynicism, much has already changed within the banking sector. Banks have beefed up their risk function and increased oversight of traders.

They have also changed the “tone from the top”. Senior managers of the boom years who promoted a hard-driving, risk-taking culture have largely been replaced by bankers who talk more about ethics, careful risk management and serving the customer. A new legal regime has been put in place to hold senior bank employees personally responsible for wrong-doings on their watch. Banks are required to hold more equity on their balance sheets. There have been new laws which change the way bankers are paid, to emphasise long-term performance rather than short-term risk taking. Riskier trading and investment banking operations are being ring fenced from their more staid retail banks.

All these changes might be making bankers safer, but will they do anything to make the markets which they operate within any less likely to reward bad behaviour? We usually assume a market like foreign exchange emerges from millions of individual decisions. Changing this might sound impossible. But each of these decisions are made within a particular set of constraints. These constraints are the product of deliberate policy design choices. Changing behaviour in a market like foreign exchange involves looking carefully at the design of the market and asking whether this actually does the job it is supposed to do. As it currently stands, the foreign exchange market seems to be designed to create opportunities for bad behaviour..

Read more …

Depends what the other side demands…

Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)

Greece’s government is confident of reaching a deal with its creditors this week and is open to pushing back parts of its anti-austerity program to make that happen, the country’s interior minister said Saturday. Greece and its EU/IMF creditors have been locked in talks for months on a cash-for-reforms deal and pressure is growing for a deal, since Athens risks default without aid from a bailout program that expires on June 30. “We believe that we can and we must have a solution and a deal within the week,” Interior Minister Nikos Voutsis, who is not involved in Greece’s talks with the lenders, told Skai television. “Some parts of our program could be pushed back by six months or maybe by a year, so that there is some balance,” he said.

He did not elaborate on what parts of the ruling Syriza party’s anti-austerity program could be pushed back, but the comments suggested a greater willingness to compromise on pre-election pledges. Prime Minister Alexis Tsipras stormed to power in January on promises to cancel austerity, including restoring the minimum wage level and collective bargaining rights. The government earlier this week said it hoped for a deal by Sunday, though international lenders have been less optimistic, citing Greece’s resistance to labor and pension reforms that are conditions for more aid. Voutsis said Athens and its partners agreed on some issues, such as achieving low primary budget surpluses in the first two years.

But they still disagreed on a sales tax, with Greece pushing so any VAT hikes will not burden lower incomes. “A powerful majority in the political negotiations has showed respect for the fact that there can’t be further austerity strategies for the Greek issue, the Greek problem and the Greek people,” he said. [..] In an interview with Realnews newspaper published on Saturday, Economy Minister George Stathakis said Athens had no alternative plan. “The idea of a Plan B doesn’t exist. Our country needs to stay in the eurozone but on a better organized aid program,” he said. Stathakis was confident a deal will be reached. “Otherwise, mainly Greece but the European Union as well will step into unchartered waters and no-one wants that.”

Read more …

Or it may not. Keep ’em guessing.

Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)

Cash-strapped Greece could avoid paying back the IMF on June 5 and win more time to negotiate a funding deal without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month, officials said on Tuesday. Greece has to repay the IMF €300 million on June 5, the first of four instalments due in June that total €1.6 billion. Cut off from markets, Athens has said it will not be able to make the June 5 payment without new loans from the euro zone, which insists it can only lend Greece more if the country agrees to reforms that would make its debt sustainable. “There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment,” a senior euro zone official close to the talks with Athens said.

A second official close to the talks also acknowledged that possibility. “That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that,” the first official said. But the officials noted that Greece could only use such a trick if there was a credible prospect of a funding deal that could be communicated to markets and its citizens. Otherwise, the missed payment could trigger market panic and a bank run in Greece. “So they would get a few extra weeks. But unless there is some perspective how they would deal with this full payment, it would be a risky thing for the Greeks to do. And the consequences would be unpredictable,” said the first official. “People could want to withdraw their savings and who knows what Greece would have to do.”

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Target2 steps into the spotlight.

Varoufakis’s Great Game (Hans-Werner SInn)

Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B – the implied threat that drives forward negotiations on Plan A. Greece’s finance minister, Yanis Varoufakis, knows this very well. As the Greek government’s anointed “heavy,” he is working Plan B (a potential exit from the eurozone), while PM Alexis Tsipras makes himself available for Plan A (an extension on Greece’s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of “good cop/bad cop” – and, so far, to great effect. Plan B comprises two key elements.

First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone. Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls. But doing so would weaken its negotiating position, and that is not an option. Capital flight does not mean that capital is moving abroad in net terms, but rather that private capital is being turned into public capital.

Basically, Greek citizens take out loans from local banks, funded largely by the Greek central bank, which acquires funds through the European Central Bank’s emergency liquidity assistance (ELA) scheme. They then transfer the money to other countries to purchase foreign assets (or redeem their debts), draining liquidity from their country’s banks. Other eurozone central banks are thus forced to create new money to fulfill the payment orders for the Greek citizens, effectively giving the Greek central bank an overdraft credit, as measured by the so-called TARGET liabilities. In January and February, Greece’s TARGET debts increased by almost €1 billion per day, owing to capital flight by Greek citizens and foreign investors.

At the end of April, those debts amounted to €99 billion. A Greek exit would not damage the accounts that its citizens have set up in other eurozone countries – let alone cause Greeks to lose the assets they have purchased with those accounts. But it would leave those countries’ central banks stuck with Greek citizens’ euro-denominated TARGET claims vis-à-vis Greece’s central bank, which would have assets denominated only in a restored drachma. Given the new currency’s inevitable devaluation, together with the fact that the Greek government does not have to backstop its central bank’s debt, a default depriving the other central banks of their claims would be all but certain.

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The pinnacle question: “How do you deflate a giant bubble without enraging the masses or losing control of the economy?”

Chinese Stock Market’s Wile E. Coyote Moment (Pesek)

Shanghai’s stock market just experienced a Wile E. Coyote moment. For weeks, investors had been chasing higher and higher returns. On Wednesday, however, they suddenly looked down to find their road had disappeared. The realization came courtesy of China’s central bank, which had decided to drain cash from the financial system, and jittery brokerages, which had just tightened lending restrictions. That one-two punch didn’t just send Chinese stocks down 6.5%, the most in four months. It also raised existential questions about one of modern history’s greatest asset bubbles. And it is a bubble. The 127% gain in the Shanghai Composite Index over the past year defies financial gravity.

It’s been driven not by optimism about China’s economic fundamentals or corporate earnings, but record growth in margin debt. Such lending — fueled by speculation that the People’s Bank of China will soon cut interest rates and reduce lenders’ reserve requirements — exceeded $322 billion as of May 27, five times the level of a year earlier. And that’s just the official tally: China’s shadow banking system is estimated to have created $20 trillion of credit since Lehman Brothers went bankrupt in 2008. What makes China’s bubble unique is the government’s direct role in creating it, feeding it and now managing it. Last August, for example, as the Chinese stock market threatened to sag, state-run media started prodding the Chinese public to pile their life savings into shares.

During a single week in August 2014, Xinhua News Agency put out eight features espousing the wisdom and patriotism of owning equities. Beijing also reduced trading fees and allowed individuals to open as many as 20 accounts. The implicit message was that the Communist Party could and would protect stock investments, if need be. The plan succeeded beyond Beijing’s wildest expectations, leaving it with an epic challenge: How do you deflate a giant bubble without enraging the masses or losing control of the economy?

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“Convertible or not, the yuan is too big to ignore.”

Stop Calling China a Currency Manipulator (Pesek)

Christine Lagarde’s people say China’s currency is no longer undervalued. Jacob Lew’s argue it still is. There’s a lot at stake in the debate: The yuan can’t gain status as a global currency reserve if China is thought to be manipulating its value. So who should we believe, the head of the IMF or the U.S. Treasury Secretary? It’s worth asking Ben Bernanke. Now that the former Fed chairman is in the private sector, he can say what he really thinks — and, as he pointed out in a recent speech in Seoul, it’s not wise to ignore political factors when managing the rise of the Chinese economy. Bernanke argued that if Washington had heeded IMF requests to allow China to play a larger role in global institutions, Beijing wouldn’t now be creating the $100 billion Asian Infrastructure Investment Bank, which threatens to undermine the existing global financial system.

It’s worth extending Bernanke’s point to the yuan debate. Japan’s yen is down 30% since late 2012 (hitting a 12-year low this week) while the yuan has risen during the same period. So the IMF has good reason to contradict America’s assessment and bolster China’s case for reserve currency status. But there are two further reasons why the IMF must stand firm, no matter what U.S. officials and lawmakers say. First, China might go it alone. As Bernanke points out, the West is playing hardball with Beijing at its own risk. The AIIB is already diminishing the relevance of the World Bank and Asian Development Bank. What’s to keep Beijing, flush with $3.7 trillion of reserves, from now opening its own bailout fund for governments facing balance-of-payments shortfalls? China proposed a similar idea during the region’s 1997 economic crisis.

Although the idea died a quick death at that time amid fears the IMF and U.S. Treasury would lose influence, it might attract more interest now – especially if China promises to demand less austerity from needy countries like Greece. “If the IMF were to sidestep the explicitly stated desire of China’s government,” says Eswar Prasad of Cornell University in Ithaca, New York, “it would create more bad blood in an already contentious relationship regarding currency matters.” He worries it would “crystallize emerging market policymakers’ concerns that the IMF remains an institution run by and for the benefit of advanced economies.” That would encourage nations to rally around Beijing’s alternative lending institutions, and could deal a fatal blow to the post-World War II global financial architecture.

Second, Chinese economic reform is accelerating. Bernanke is right that the yuan has a ways to go before it can become a major reserve player. But a new Swift study shows the yuan is Asia’s most-active currency for payments to China and Hong Kong and number five globally. Convertible or not, the yuan is too big to ignore. In that sense, its inclusion in the IMF’s special drawing rights system – along with the dollar, euro, yen and pound – is a matter of when, not if.

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France steps out, it’s over.

French Far-Right Calls For In/Out EU Referendum (EUObserver)

France’s far-right National Front party has called for an in/out referendum on the EU at the same time as the UK holds its vote. Florian Philippot, an MEP and the party’s deputy head, wrote on Thursday (28 May) that president Francois Hollande should “follow the British example” and “follow the calendar outlined by our neighbours across The Channel”. “The time has come to ask everybody in Europe Yes or No – if they want sovereignty to decide on their own future”. He added that British PM David Cameron, who is currently on a tour of European capitals to sound out feeling on a renegotiation of EU powers, “with this referendum … has put himself in a powerful position to demand real reforms”.

He also said that if Hollande declines to do it, the National Front will put an in/out EU vote “at the heart” of its 2017 presidential election campaign. Speaking on BFM-TV earlier in the week, Philippot noted that his party wants a “referendum republic”, in which average people can trigger a popular vote on any subject if they file more than 500,000 signatures. He cited Switzerland as a model and listed French membership in Nato, in the Schengen passport-free area, and the EU-US free trade treaty as other potential votes. For its part, French daily Le Figaro, in an Ifop poll published on Friday, said 62% of French people would vote No to the EU constitution again if they were asked the same question as 10 years ago.

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“It represents an almost 30-fold increase on the same period last year..” How dare Europe still not have a comprehensive answer to this?

Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)

Italy helped rescue a total of more than 3,300 migrants trying to cross the Mediterranean on Friday, the country’s coastguard has said. In one operation, 17 bodies were found on three boats. Another 217 people who were on board were rescued.
The coastguard said distress calls were made from 17 different boats on Friday. The International Organization for Migration (IOM) says at least 1,826 people have died trying to cross the Mediterranean so far in 2015. It represents an almost 30-fold increase on the same period last year, the IOM says. The Corriere della Serra newspaper said (in Italian) that most of the rescues on Friday took place close to the Libyan coast.

Irish, German and Belgian ships took part in the rescue, the newspaper said. The UN estimates that at least 40,000 people tried to cross the Mediterranean between the start of the year and late April. The rise has been attributed to chaos in Libya – the staging post for most crossings – as well as milder weather. Many migrants are trying to escape conflict or poverty in countries such as Syria, Eritrea, Nigeria and Somalia. On Thursday, the charity Medecins sans Frontieres reported that a 98-year-old Syrian man had been rescued from a boat, having travelled by sea from Egypt for 13 days. He was taken to Augusta in Sicily.

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Fear? Fear of what?

Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)

A study says Germany’s birth rate has slumped to the lowest in the world, prompting fears labour market shortages will damage the economy. Germany has dropped below Japan to have not just the lowest birth rate across Europe but also globally, according to the report by Germany-based analysts. Its authors warned of the effects of a shrinking working-age population. They said women’s participation in the workforce would be key to the country’s economic future. In Germany, an average of 8.2 children were born per 1,000 inhabitants over the past five years, according to the study by German auditing firm BDO with the Hamburg Institute of International Economics (HWWI). It said Japan saw 8.4 children born per 1,000 inhabitants over the same time period.

In Europe, Portugal and Italy came in second and third with an average of 9.0 and 9.3 children, respectively. France and the UK both had an average of 12.7 births per 1,000 inhabitants. Meanwhile, the highest birth rates were in Africa, with Niger at the top of the list with 50 births per 1,000 people. Germany’s falling birth rate means the percentage of people of working age in the country – between 20 and 65 – would drop from 61% to 54% by 2030, Henning Voepel, director of the HWWI, said in a statement (in German). Arno Probst, a BDO board member, said employers in Germany faced higher wage costs as a result. “Without strong labour markets, Germany cannot maintain its economic edge in the long run,” he added. Experts disagree over the reasons for Germany’s low birth rate, as well as the ways to tackle the situation.

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Just the first round.

More Charges Expected In FIFA Case (NY Times)

Chuck Blazer was a powerful figure in international soccer, and he enjoyed the trappings that came with the role: two apartments at Trump Tower in Manhattan, expensive cars, luxury properties in Miami and the Bahamas. But for all of Mr. Blazer’s lavish living, he did not file personal income tax returns. And in August 2011, Steve Berryman, an IRS agent in Los Angeles, opened a criminal investigation. Thousands of miles away in New York, two FBI agents, Jared Randall and John Penza, were working on an investigation of their own, one that had spun off an unrelated Russian organized-crime case in December 2010. The agents on opposite sides of the country were looking at some of the same people.

In December 2011, news reports revealed that the FBI was asking questions about FIFA, global soccer’s governing body, and the California investigators called New York. The two agencies joined forces, setting in motion the sprawling international case that led to the arrests of top soccer officials this week. The investigation, which involved coordination with police agencies and diplomats in 33 countries, was described by law enforcement officials as one of the most complicated international white-collar cases in recent memory. Fourteen people have been indicted in bribery and kickback schemes linked to corruption in the highest echelons of FIFA. And United States authorities say more charges are all but certain.

“I’m fairly confident that we will have another round of indictments,” said Richard Weber, the chief of the I.R.S. unit in charge of criminal investigations. The American government’s aggressive move shocked the soccer world and led to questions about whether the United States had set out on a mission to topple the leadership of FIFA, which has long been troubled by allegations of corruption. But officials at the Justice Department, the F.B.I. and the I.R.S. said the impetus was criminal activity and organized crime that just happened to occur in the soccer world. “I don’t think there was ever a decision or a declaration that we would go after soccer,” Mr. Weber said. “We were going after corruption.” He added, “One thing led to another, led to another and another.”

Still, investigators quickly realized the potential scope of their case. By the time the F.B.I. and the I.R.S. teamed up, an undercover sting operation by the British newspaper The Sunday Times had revealed corruption in FIFA’s highest ranks. Reporters around the globe followed with articles about whether soccer’s top officials could be bought. “We always knew it was going to be a very large case,” Attorney General Loretta E. Lynch said.

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