Jan 062017
 
 January 6, 2017  Posted by at 4:52 pm Finance Tagged with: , , , , , , ,  4 Responses »
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Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

 

Since the new year will bring yuuge and bigly changes to us all (I truly hope both the year and the changes will leave you happy), I thought I’d start off by ‘reduxing’ two articles that contain further ‘reduxes’, Russian doll style. I do this because the man the articles are about is set to play a large role in those changes, certainly where Europe is concerned. And since the changes in Europe will be weally weally bigly, they will impact the entire world.

That is to say, we must seriously doubt if the EU -or rather, what’s left of it post-Brexit-, will live to see January 1 2018 in one piece. This is hardly an exaggeration, as you may be inclined to think. As I said recently, in Europe it’s not and-and, it’s if-or: with elections in Germany, France, Holland and probably Italy coming up, they don’t all have to turn out ‘badly’ for the pro-EU camp, if just one of them goes against the EU, it may well be game over.

Therefore Beppe Grillo, leader of the Five Star movement, is a man to keep an eye on. And not just for that. The first item below, a 1998 video, is an addition to my original article from November 14 2014, and it makes clear, once more, that Beppe is no fool. Nor is he a right wing nut, or anything remotely like that. Beppe actually understands what money is, much much better than any of the politicians and economists that rule the old continent. That makes him a threat to them.

Below that video from 1998, my November 14 2014 article, which in turn cites a 2013 article. I know some things will look dated, but you’ll get it, I’m sure. I hope you also get why I repost it all: 2017 has begun.

 

Beppe Grillo: Whom does the money belong to? Who does its ownership belong to? To the State, fine, so to us, we are the State.

You know that the State doesn’t exist, it is only a legal entity. WE are the state, the money is ours.

Then tell me one thing: if the money belongs to us, why do they lend it to us?

 

 

 

From November 14 2014: That says quite something, that title. And it’s probably not entirely true, it’s just that I can’t think of any others. And also, I’m in Europe myself right now, and I still have a European passport too. So there’s two of us at least. Moreover, I visited Beppe Grillo three years ago, before his 5-Star Movement (M5S) became a solid force in Italian politics. So we have a connection too.

Just now, I noticed via the BBC and Zero Hedge that Beppe not only expects to gather far more signatures than he said he would recently (1 million before vs 4 million today) for his plan to hold a referendum on the euro, he also claims to have a 2/3 majority in the Italian parliament. Well done. But he can’t do it alone.

Martin Armstrong thinks the EU may have him murdered for this before they allow it to take place. Which is a very good reason for everyone, certainly Europeans, to come out in support for the only man in Europe who makes any sense. I know many Italians find Beppe too coarse, but they need to understand he’s their only way out of this mess.

The smear campaigns against him are endless. The easier ones put him at the same level as Nigel Farage and Marine Le Pen, the more insidious ones paint him off as a George Soros patsy. There’ll be a lot more of that. And given the success of this year’s anti-Putin campaign in Europe, and the ongoing pro-Euro one, it’s going to take a lot not to have people believe whatever they are told to.

Just take this to heart: since Italy joined the euro, its industrial production has fallen by 25%. How is that not a disaster? Meanwhile, the eurozone economy is in awful shape, and the longer that lasts, the more countries like Italy will be disproportionally affected and dragged down further. There’s a reason for that numbers such as that: it’s not like Germany and Holland lost 25% of their production.

The eurozone must end before it starts to do irreversible damage, and before it turns Europe into a warzone, a far more real and imminent risk than anyone dares suggest.

The first bit here is from Zero Hedge, and then after that I will repost a lengthy piece about Beppe that I first published on February 12, 2013.

Italy’s Grillo Rages “We Are Not At War With ISIS Or Russia, We Are At War With The ECB”

Next week, Italy’s Beppe Grillo – the leader of the Italian Five Star Movement – will start collecting signatures with the aim of getting a referendum in Italy on leaving the euro “as soon as possible,” just as was done in 1989. As Grillo tells The BBC in this brief but stunning clip, “we will leave the Euro and bring down this system of bankers, of scum.” With two-thirds of Parliament apparently behind the plan, Grillo exclaims “we are dying, we need a Plan B to this Europe that has become a nightmare – and we are implementing it,” raging that “we are not at war with ISIS or Russia! We are at war with the European Central Bank,” that has stripped us of our sovereignty.

Beppe Grillo also said today:

It is high time for me and for the Italian people, to do something that should have been done a long time ago: to put an end to your sitting in this place, you who have dishonoured and substituted the governments and the democracies without any right. Ye are a factious crew, and enemies to all good government; ye are a pack of mercenary wretches, and would like Esau sell your country for a mess of pottage, and like Judas betray your God for a few pieces of money. Is there a single virtue now remaining amongst you? A crumb of humanity? Is there one vice you do not possess? Gold and the “spread” are your gods. GDP is you golden calf.

We’ll send you packing at the same time as Italy leaves the Euro. It can be done! You well know that the M5S will collect the signatures for the popular initiative law – and then – thanks to our presence in parliament, we will set up an advisory referendum as happened for the entry into the Euro in 1989. It can be done! I know that you are terrified about this. You will collapse like a house of cards. You will smash into tiny fragments like a crystal vase.

Without Italy in the Euro, there’ll be an end to this expropriation of national sovereignty all over Europe. Sovereignty belongs to the people not to the ECB and nor does it belong to the Troika or the Bundesbank. National budgets and currencies have to be returned to State control. They should not be controlled by commercial banks. We will not allow our economy to be strangled and Italian workers to become slaves to pay exorbitant interest rates to European banks.

The Euro is destroying the Italian economy. Since 1997, when Italy adjusted the value of the lira to connect it to the ECU (a condition imposed on us so that we could come into the euro), Italian industrial production has gone down by 25%. Hundreds of Italian companies have been sold abroad. These are the companies that have made our history and the image of “Made in Italy”.

As Martin Armstrong asks rather pointedly…

Since the introduction of the euro, all economic parameters have deteriorated, the founder of the five-star movement in Italy is absolutely correct. The design or the Euro was a disaster. There is no fixing this any more. We have crossed the line of no return. Beppe is now calling for referendum on leaving euro. Will he be assassinated by Brussels? It is unlikely that the EU Commission will allow such a vote.

And then here’s my February 2013 article; it seems silly to try and rewrite it. There is nobody in Europe other than him who understands what is going on, and is willing to fight for it. Grillo is a very smart man, a trained accountant and an avid reader of anything he can get his hands on. The image of him as a populist loud mouthed good for little comedian is just plain false. It was Grillo who exposed the Parmalat scandal, and the Monte Dei Paschi one.

Never forget what political and behind the veil powers he’s up against in his country, and how they seek to define the image the world has of him. What Beppe Grillo does takes a lot of courage. Not a lot of people volunteer to be smeared and insulted this way, let alone run the risk of being murdered. Those who do deserve our support.

 

 

Beppe Grillo Wants To Give Italy Democracy

In the fall of 2011, The Automatic Earth was on another European lecture tour. Nicole Foss had done a series of talks in Italy the previous year, and there was demand for more. This was remarkable, really, since a knowledge of the English language sufficient to understand Nicole’s lectures is not obvious in Italy, so we had to work with translators. Certainly none of this would have happened if not for the limitless drive and energy of Transition Italy’s Ellen Bermann.

In the run-up to the tour I had asked if Ellen could perhaps set up a meeting with an Italian I found very intriguing ever since I read he had organized meetings which drew as many as a million people at a time for a new – political – movement. Other than that, I didn’t know much about him. We were to find out, however, that every single Italian did, and was in awe of the man. A few weeks before arriving, we got word that he was gracious enough to agree to a meeting; gracious, because he’d never heard of us either and his agenda was overloaded as it was.

So in late October we drove the crazy 100+ tunnel road from the French border to Genoa to meet with Beppe Grillo in what turned out to be his unbelievable villa in Genoa Nervi, high on the mountain ridge, overlooking – with a stunning view – the Mediterranean, and set in a lovely and comfortable sunny afternoon. I think the first thing we noticed was that Beppe is a wealthy man; it had been a long time since I had been in a home where the maids wear uniforms. The grand piano was stacked with piles of books on all sorts of weighty topics, politics, environment, energy, finance. The house said: I’m a man of wealth and taste.

 


Eugenio Belgeri, Raúl Ilargi Meijer, Beppe Grillo, Nicole Foss and Ellen Bermann in Genoa Nervi, October 2011

 

I don’t speak Italian, and Beppe doesn’t speak much English (or French, German, Dutch), so it was at times a bit difficult to communicate. Not that it mattered much, though; Beppe Grillo has been a super charged Duracell bunny of an entertainer and performer all his life, and he will be the center of any conversation and any gathering he’s a part of no matter what the setting. Moreover, our Italian friends who were with us – and couldn’t believe they were there – could do a bit of translating. And so we spent a wonderful afternoon in Genoa, and managed to find out a lot about our very entertaining host and his ideas and activities.

Beppe had set up his Five Star movement (MoVimento Cinque Stelle, M5S) a few years prior. He had been organizing V-day “happenings” since 2007, and they drew those huge crowds. The V stands for “Vaffanculo”, which can really only be translated as “F**k off” or “Go f**k yourself”: the driving idea was to get rid of the corruption so rampant in Italian politics, and for all sitting politicians to go “Vaffanculo”.

At the time we met, the movement was focusing on local elections – they have since won many seats, have become the biggest party on Sicily (after Beppe swam there across the Straits of Messina from the mainland) and got one of their own installed as mayor of the city of Parma.

Grillo explained that M5S is not a political party, and he himself doesn’t run for office. He wants young people to step forward, and he’s already in his sixties. Anyone can become a candidate for M5S, provided they have no ties to other parties, no criminal record (Beppe does have one through a 1980 traffic accident); they can’t serve more than two terms (no career politicians) and they have to give back 75% of what they get paid for a public function (you can’t get rich off of politics).

I found it surprising that our friends at Transition Italy and the general left were reluctant to endorse Grillo politically; many even wanted nothing to do with him, they seemed to find him too coarse, too loud and too angry. At the same time, they were in absolute awe of him, openly or not, since he had always been such a big star, a hugely popular comedian when they grew up. Grillo offered to appear through a video link at Nicole’s next talk near Milan, but the organizers refused. It was only the first sign of a lot of mistrust among Italians even if they all share the same discontent with corrupt politics. Which have made trust a major issue in Italy.

 

 

This may have to do with the fact that Grillo is a comedian in the vein of perhaps people like George Carlin or Richard Pryor in the US. On steroids, and with a much wider appeal. Rough language, no holds barred comedy turns a lot of people off. Still, I was thinking that they could all use the visibility and popularity of the man to get their ideas across; they preferred anonymity, however.

By the way, the Five Stars, perhaps somewhat loosely translated, stand for energy, information, economy, transport and health. What we found during our conversation is that Beppe Grillo’s views on several topics were a little naive and unrealistic. For instance, like so many others, he saw a transition to alternative energy sources as much easier than it would realistically be. That said, energy and environment issues are important for him and the movement, and in that regard his focus on decentralization could carry real benefits.

Still, I don’t see the present naive ideas as being all that bad. After all, there are limits to what people can do and learn in a given amount of time. And Beppe certainly has a lot to do, he’s leading a revolution, so it’s fine if the learning process takes some time. Ideally, he would take a crash Automatic Earth primer course, but language will be a barrier there. I hope he finds a way, he’s certainly smart and curious enough.

 

 

When his career took off in the late 70’s, early 80’s, Beppe Grillo was just a funny man, who even appeared on Silvio Berlusconi’s TV channels. Only later did he become more political; but then he did it with a vengeance.

Grillo was first banned from Italian TV as early as 1987, when he quipped about then Prime Minister Bettino Craxi and his Socialist Party that if all Chinese are indeed socialists, who do they steal from? The ban was later made permanent. In the early 90’s, Operation Clean Hands was supposed to have cleaned up corruption in politics. Just 15 years later, Beppe Grillo started the Five Star movement. That’s how deeply engrained corruption is in Italy, stretching across politics, business and media.

We are- almost – all of us living in non-functioning democracies, but in Italy it’s all far more rampant and obvious. There’s a long history of deep-seated corruption, through the mafia, through lodges like P5 and Opus Dei, through many successive governments, and through the collaboration between all of the above, so much so that many Italians just see it as a fact of life. And that’s what Beppe Grillo wants to fight.

Ironically, he himself gets called a neo-nazi and a fascist these days. To which he replies that perhaps he’s the only thing standing between Italy and a next bout of fascism. I’ve read a whole bunch of articles the past few days, the international press discovers the man in the wake of the general elections scheduled for February 24-25, and a lot of it is quite negative, starting with the all too obvious notion that a clown shouldn’t enter politics. I don’t know, but I think Berlusconi is much more of a clown in that regard than Grillo is. A whole lot more of a clown and a whole lot less funny.

Beppe is called a populist for rejecting both right and left wing parties, a neo-nazi for refusing to block members of a right wing group from M5S, a Jew hater in connection with the fact that his beautiful wife was born in Iran, and a dictator because he’s very strict in demanding potential M5S candidates adhere to the rules he has set. Oh, and there are the inevitable right wing people calling him a communist.

There are of course tons of details that I don’t know, backgrounds, I’m largely an outsider, willing to be informed and corrected. And this would always be much more about the ideas than about the man. Then again, I did talk to the man in his own home and I don’t have the impression that Grillo is a fraud, or part of the same system he purports to fight as some allege, that he is somehow just the existing system’s court jester. He strikes me as being too loud and too embarrassing for that. And too genuinely angry.

Moreover, I think Italy is a perfect place for a nasty smear campaign, and since they can’t very well murder the man – he’s too popular – what better option than to make him look bad?! If anything, it would be strange if nobody did try to paint him off as a demagogue, a nazi or a sad old clown.

 


Photo: AFP: Marcello Paternostro

 

After being banned from TV, Grillo went on the build one of the most visited blogs/websites in the world, and the number one in Europe. Ironically, he is now in some media labeled something of a coward for not appearing in televised election debates. But Beppe doesn’t do TV, or – domestic – newspapers. For more than one reason.

Because he was banned from TV, because of the success of the internet campaign, and because Silvio Berlusconi incessantly used “lewd” talk shows on his own TV channels to conduct politics, Beppe Grillo insists his councilors and candidates stay off TV too, and he has his own unique way of making clear why and how: When a female Five Star member recently ignored this and appeared on a talk show anyway, Grillo said “the lure of television is like the G-spot, which gives you an orgasm in talk-show studios. It is Andy Warhol’s 15 minutes of fame. At home, your friends and relations applaud emotionally as they share the excitement of a brief moment of celebrity.”. Of course Beppe was labeled a sexist for saying this.

The internet is central to Grillo’s ideas. Not only as a tool to reach out to people, but even more as a way to conduct direct democracy. Because that is what he seeks to create: a system where people can participate directly. Grillo wants to bring (back) democracy, the real thing, and he’s long since understood that the internet is a brilliant tool with which to achieve that goal. One of his spear points is free internet access for all Italians. Which can then be used to let people vote on any issue that can be voted on. Not elections once every four years or so, but votes on any topic anytime people demand to vote on it. Because we can.

Since we had our chat in that garden in Genua, Beppe Grillo and M5S have moved on to bigger pastures: they are now set to be a major force in the general elections that will establish a new parliament. Polls differ, but they can hope to gain 15-20% of the vote (Grillo thinks it could be even much more). The leader in the polls is the Socialist Party, and then, depending on which poll you choose to believe, M5S comes in either second or third (behind Berlusconi). What seems certain is that the movement will be a formidable force, carrying 100 seats or more, in the new parliament, and that they could have a lot of say in the formation of any new coalition government.

In the run-up the elections, Beppe has now traded his home for a campaign bus, going from town to town and from one jam-packed campaign event to the next on what he has labeled the Tsunami Tour, in which he, in his own words, brings class action to the people.

As was the case in the local elections, Beppe Grillo says he wants “normal” people (“a mother of three, a 23-year-old college graduate, an engineer [..] those are the people I want to see in parliament”) to be elected, not career politicians who enrich themselves off their status and influence, and who he labels “the walking dead”, and though he acknowledges his candidates have no political experience, he says: “I’d rather take a shot in the dark with these guys than commit assisted suicide with those others.” In the same vein, another one of his lines is:“The average age of our politicians is 70. They’re planning a future they’re never going to see”.

On his immensely popular website beppegrillo.it, which has quite a bit of English language content, Grillo has some nice stats and tools. There is a list of Italian parlimentarians and Italian members of the EU Parliament who have been convicted of crimes. At this moment there are 24; their number has come down, but still. There is also a great little thing named “Map of Power of the Italian Stock Exchange” that graphically shows the links various politicians have with various corporations. I remember when Grillo proudly showed it to us, that after clicking just 2-3 politicians and 2-3 businesses, the screen was so full of lines depicting connections it had become an unreadable blur.

In between all the other activities, Beppe was instrumental 10 years ago in exposing the stunning $10 billion accounting fraud at dairy and food giant Parmalat before it went bankrupt, as well as the recent scandal at the world’s oldest bank, Monte Dei Paschi Di Siena, which will cost a reported $23 billion. Corruption is everywhere in Italy, which has a large political class that is all too eager to share in the spoils. Mr. Grillo was trained as an accountant, and he understands what he’s talking about when it comes to dodgy numbers. What he needs is the power to act.

 

 

Apart from the strong stance that Grillo and M5S take against corruption and for direct representation, critics say they have few clear policy objectives, that they don’t even know what they want. Being a movement instead of a party doesn’t help. But then, these critics think inside the very old system that M5S wants to replace with one that is far more transparent and direct. It’s more than obvious that existing powers have no interest in incorporating the possibilities for improvement offered by new technologies, but it should also be obvious that people, wherever they live, could potentially benefit from a better functioning political system.

There will be many who say that no such thing can be achieved, but perhaps it not only can, but is inevitable. All it could take is for an example to show that it can work. One might argue that the only reason our current systems continue to exist in all their opaqueness is that those who stand to profit from them are the ones who get to vote on any changes that could be applied. What Beppe Grillo envisions is a system in which every one can vote directly on all relevant issues, including changes to the system itself. It’s about class action, about taking back power from corrupt existing politics. Italy looks like a good testing ground for that, since its systemic rot is so obvious for all to see. But in other western countries, just like in Italy, it could return the power where it belongs: in the hands of the people.

Radical ideas? Not really, because when you think about it, perhaps it’s the technology itself that’s radical, not the use of it. And maybe it’s the fact that we’re so stuck in our existing systems that keeps us from using our new technologies to their full potential. Just like it keeps us from restructuring our financial systems and our energy systems for that matter. We continue to have systems and institutions guide our lives long after they’ve ceased to be useful for our present day lives, as long as we’re snug and warm and well-fed. And we do so until a real bad crisis of some sort comes along and makes it absolutely untenable, often with a lot of misery and blood thrown into the equation.

Beppe Grillo wants to break that chain. And he’s got a recipe to do it. It may not be perfect or foolproof, but who cares when it’s replacing something that no longer functions at all, that just drags us down and threatens our children’s lives? Who cares? Well, the Monti’s and Berlusconi’s and Merkel’s and Obama’s and Exxon’s and BP’s and Monsanto’s of the world do, because it is the old system that gave them what they have, and they don’t want a new one that might take it away. Our so-called democracies exist to please our leaders and elites, not ourselves. And we’re unlikely to figure that one out until it’s way too late.

Unless the Italians do our work for us and vote for the Cinque Stelle in huge numbers.

 

 

Oct 072016
 
 October 7, 2016  Posted by at 7:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle October 7 2016
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G. G. Bain Katherine Stinson, “the flying schoolgirl,” Sheepshead Bay Speedway, Brooklyn 1918

IMF, Global Finance Leaders Fret Over Populist Backlash (R.)
Donald Trump Makes History With Zero Major Newspaper Endorsements (Yahoo)
The Great Debt Unwind: US Business Bankruptcies Soar 38% (WS)
Pound Falls 10% In ‘Insane’ Asian Trading Mystery (G.)
California Overtakes UK To Become ‘World’s Fifth Largest Economy (Ind.)
China’s Housing Boom Looks a Lot Like Last Year’s Stocks Bubble (BBG)
Deutsche Bank Mismarked 37 Deals Like Monte Dei Paschi’s (BBG)
14 US Senators Call for Criminal Investigation of Wells Fargo (AP)
Liar Loans Surge in Australia’s Red-Hot Housing Bubble (WS)
Risk and Volatility Cannot be Extinguished (CH Smith)
USA’s Day Of Reckoning – Hidden Secrets Of Money 7 (Mike Maloney)
Why Democracy Rewards Bad People (Mises Inst.)
Marine Le Pen Says EU Responsible For “Monstrous Chaos In Syria” (ZH)
Renzi Must Go If He Loses Italy Referendum, Five Star Rival Says (BBG)
This Greek Grandmother Could Win The Nobel Peace Prize (USA Today)
EU Launches Tough Border Force To Curb Refugee Crisis (AFP)

 

 

Bunch of losers.

IMF, Global Finance Leaders Fret Over Populist Backlash (R.)

World finance leaders on Thursday decried a growing populist backlash against globalization and pledged to take steps to ensure trade and economic integration benefited more people currently left behind. Their comments at the start of the IMF and World Bank fall meetings signaled frustration with persistently low growth rates and the surge of public anger over free trade and other pillars of the global economic system. The meetings are the first since Britain voted in June to leave the EU and U.S. billionaire Donald Trump secured the Republican presidential nomination with a campaign that attacked trade deals.

“More and more, people don’t trust their elites. They don’t trust their economic leaders, and they don’t trust their political leaders,” German Finance Minister Wolfgang Schaeuble said during an IMF panel discussion in Washington. “In the UK, everyone from the elites told the people, ‘don’t vote for a Brexit.’ But they did.” Schaeuble said Germany was trying to “hold Europe together” in the face of rising nationalism, and failure to do so would bode poorly for global economic cooperation. Last week, the World Trade Organization slashed its global trade volume growth forecast to the slowest pace since 2007, saying it expected it to rise just 1.7% this year, down from the 2.8% it forecast in April.

Read more …

Propaganda works. Until it doesn’t.

Donald Trump Makes History With Zero Major Newspaper Endorsements (Yahoo)

With just a little over a month until election day, Donald Trump has racked up zero major newspaper endorsements, a first for any major party nominee in American history. While newspaper endorsements don’t necessarily change voters’ minds, this year’s barrage of anti-Trump endorsements could actually move the needle come November, experts say. “It’s significant,” Jack Pitney, professor of government at California’s Claremont McKenna College, told TheWrap. “The cumulative effect of all these defections could have an impact on moderate Republicans.” Some conservative papers, which have endorsed Republicans for decades, are now breaking with tradition to endorse Hillary Clinton or, at the very least, urge their readers not to vote for Trump.

Several have taken a stand even at the expense of losing subscribers at a time when newspapers are barely staying afloat. Some papers have received death threats. But for a growing number of newspaper editorial boards, staying on the sidelines is no longer an option. The Dallas Morning News, which has endorsed every Republican nominee since 1940, was so appalled by the idea of a President Trump that it introduced its Clinton endorsement with this caveat: “We don’t come to this decision easily. This newspaper has not recommended a Democrat for the nation’s highest office since before World War II — if you’re counting, that’s more than 75 years and nearly 20 elections.”

Read more …

But today’s jobs report will be a big ray of sunshine. It’s election time, don’t you know.

The Great Debt Unwind: US Business Bankruptcies Soar 38% (WS)

Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis. In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak.

But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010. [..] The ugliest credit stories in terms of bonds, according to Standard & Poor’s Distress Ratio, are the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.” Next down the line are two consumer-facing industries: brick-and-mortar retailers and restaurants.

But these metrics by credit ratings agencies are based on companies that are big enough to be rated by the ratings agencies and that are able to borrow in the capital markets by issuing bonds. The 18.9 million small businesses in the US and many of the 182,000 medium size businesses don’t qualify for that special treatment. They can only borrow from banks and other sources. And they’re not included in those metrics. But when they go bankrupt, they are included in the overall commercial bankruptcy numbers, and those numbers are getting uglier by the month. In September, US commercial bankruptcy filings soared 38% from a year ago to 3,072, the 11th month in a row of year-over-year increases, according to the American Bankruptcy Institute.

Read more …

Just a fat finger, or…? Most of the loss has been recuperated.

Pound Falls 10% In ‘Insane’ Asian Trading Mystery (G.)

A “fat finger” error by a trader or computerised chain reaction was thought responsible as the pound plunged to a new three-decade low during “insane” early trading in Asia on Friday – adding to the huge losses sterling had already suffered amid speculation that Britain is heading for a “hard Brexit”. The pound fell almost 10% at one point to US$1.1378, prompting confusion among traders who were struggling to identify any news or market event that could have been to blame. As the currency recovered to around $1.2415 there was speculation a technical glitch or human error had sparked a rash of computer-driven orders.

“What we had was insane – call it flash crash but the move of this magnitude really tells you how low the currency can really go,” said Naeem Aslam, chief market analyst of Think Markets, in a note. “Hard Brexit has haunted the sterling.” [..] The pound has fallen 13% against the dollar since Britain voted in late May to leave the EU, with its losses accelerated after Theresa May announced on Sunday that she would trigger Article 50 by next March, a move that would begin Britain’s formal exit from the EU. Sean Callow, senior currency strategist at Westpac, noted that sterling had been “on a precipice” since May’s declaration in a speech at the Conservative party conference. “I think we’ve underestimated how many people had money positions for a very wishy-washy Brexit, or even none,” he said.

Read more …

Falling pound meets bragging rights.

California Overtakes UK To Become ‘World’s Fifth Largest Economy (Ind.)

Kevin de Leon, the leader of the California Senate, has said the state of California is now the fifth largest economy in the world after UK’s vote to leave the EU. His comments came a day after the pound sterling hit a new 31-year low against the dollar as on-going fears over the consequences of a “hard” Brexit spooked traders. Speaking at an event celebrating the tenth anniversary of the California Global Warming solution Act, de Leon said: “As of this morning California is officially the 5th largest economy in the world. “We have created more jobs than the other top two job creators in the US, Florida and Texas, combined,” he added.

Economists tend to be wary of comparing the relative size of economies using volatile market exchange rates, generally preferring to use a Purchasing Power Parity measure which adjusts for differences in local purchasing power. However, according to the US Bureau of Economic Analysis, California’s GDP in 2015 was $2.46 trillion. This compares to a GDP of $2.36 trillion for the UK in 2016, at the current currency exchange rate of $1.27. In June, the state of California’s GDP surpassed France to become the sixth largest in the world on this measure.

Read more …

China can only go from bubble to bubble, or the game is up.

China’s Housing Boom Looks a Lot Like Last Year’s Stocks Bubble (BBG)

Tai Hui is experiencing deja vu. China’s surge in home prices reminds JPMorgan Asset Management’s chief Asia market strategist of last year’s stock market mania. Spiraling leverage and implicit state support are among the common denominators, he says. Shanghai property values jumped 31% in August from a year earlier, the latest data show. In 2015, a 60% rally in the city’s equities through June 12 was followed by a $5 trillion rout. Deutsche Bank warned last month that China’s housing market is in a bubble, while Goldman Sachs said this week it sees growing risks across the real estate industry. Home prices started to take off last year in the wake of the stock market crash after the governments eased curbs on property purchases.

In recent days, cities including Shenzhen have started re-imposing restrictions. “It’s similar to the equity market where if you let things loose, it just runs like a stallion,” said Hui. “And then you have to really rein it back, then it’s like an ice bucket challenge. So you go through this extreme heat and cold. That’s not particularly good for the economy because then you’re going through very aggressive investment cycles.” [..] Home prices started to climb after China eased mortgage policies and down-payment requirements in March 2015 to arrest what was then a slide in prices. New curbs, such as higher deposits to limits on the number of homes people can buy, are proving ineffective given the easy access homebuyers have to leverage, said Wee May Ling at Henderson Global Investors.

Medium and long-term new loans, mostly mortgages, totaled 529 billion yuan ($79 billion) in August, while aggregate financing jumped to 1.47 trillion yuan, helping fuel a 39% jump in property sales by value in the first eight months. Private investment in fixed assets, meanwhile, stalled at 2.1% for a second straight month in the January through August period, matching a record low. While HSBC says the overall level of China’s household debt remains low, Deutsche Bank said it sees “clear sign of a bubble” in property – one that will end in a major correction in two years’ time. Just like last year’s equity boom, China is using credit growth to boost the economy, Zhiwei Zhang, chief China economist at Deutsche Bank, wrote in a report on Sept. 28.

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It’s like Tony Soprano is running the banking system.

Deutsche Bank Mismarked 37 Deals Like Monte Dei Paschi’s (BBG)

Deutsche Bank, indicted for colluding with Banca Monte dei Paschi di Siena to conceal the Italian lender’s losses, mismarked the transaction and dozens of others on its own books, according to an audit commissioned by Germany’s regulator. Executives at Deutsche Bank arranged 103 similar deals with a total value of €10.5 billion ($11.8 billion) for 30 clients, according to the audit, a copy of which was seen by Bloomberg. The lender, Germany’s largest, adjusted the accounting of 37 of those trades in 2013, in addition to Monte Paschi’s, changing them from loans that had been kept off the books to derivatives, the audit said. The widespread use of a transaction that’s now the subject of a criminal case highlights the lender’s appetite for complexity at a time when the bank was expanding its fixed-income empire.

While Deutsche Bank has since cut risky assets and eliminated thousands of jobs to bolster capital, mounting legal costs have become a source of increasing concern to investors, driving shares to a record low. “Very complex deals prevent the market and regulators from properly understanding the state of a bank’s balance sheet, inhibiting proper regulatory monitoring and distorting market discipline,” said Emilios Avgouleas at the University of Edinburgh. The audit found that while Monte Paschi was the only client that used a transaction to “window dress” its books, Deutsche Bank didn’t correctly account for similar deals with banks from Italy to Indonesia made between 2008 and 2010. The report also said senior executives didn’t properly authorize the Monte Paschi trade, dubbed Santorini, or adequately review the transaction after receiving a subpoena from the U.S. Federal Reserve in 2012.

[..] Deutsche Bank and six current and former managers, including Michele Faissola, who oversaw global rates at the time, and Ivor Dunbar, former co-head of global capital markets, were indicted in a Milan court on Oct. 1 for the 2008 Monte Paschi transaction. Both were top deputies to former Deutsche Bank co-Chief Executive Officer Anshu Jain, and all three have left the company.

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What’s needed is a comprehensive investigation of the whole system. But by all means, start with Wells Fargo and Deutsche.

14 US Senators Call for Criminal Investigation of Wells Fargo (AP)

Fourteen senators are calling on the Justice Department to open a criminal investigation of Wells Fargo executives after revelations that bank employees opened millions of fake banks and credit card accounts. A bank teller who steals bills from a cash drawer is likely to face charges, the senators said in a statement, but “an executive who oversees a massive fraud that implicates thousands of bank employees and costs customers millions of dollars can walk away with a hefty retirement package and millions in the bank.” House and Senate hearings last month with Wells Fargo CEO John Stumpf “raised serious questions” that point to possible wrongdoing by Stumpf and other high-ranking executive, said the senators, all but one of them Democrats.

U.S. and California regulators have fined San Francisco-based Wells Fargo $185 million, saying bank employees trying to meet aggressive sales targets opened up to 2 million fake deposit and credit card accounts in customers’ names. Regulators said employees issued and activated debit cards and signed people up for online banking without permission. The abuses are said to have gone on for years, unchecked by senior management. In their letter, the senators urged Attorney General Loretta Lynch to hold Wells Fargo accountable as a corporation and also prosecute individual executives who may have broken the law. “Every time the Department of Justice settles a case of corporate fraud without holding individuals accountable, it reinforces the notion that the wealthy and powerful have purchased a higher class of justice for themselves,” the senators said.

The letter was led by Democratic Sen. Mazie Hirono of Hawaii and signed by 12 other Democrats, including Sens. Elizabeth Warren of Massachusetts, Jeff Merkley of Oregon and Patrick Leahy of Vermont. Warren and Merkley serve on the Senate Banking Committee, while Leahy is senior Democrat on the Judiciary Committee.

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Well, that’s a surprise!

Liar Loans Surge in Australia’s Red-Hot Housing Bubble (WS)

UBS Securities Australia reported today that about 28% of Australian mortgages issued in 2015 and 2016 are what we in the US have come to call “liar loans,” which played a big role in the housing boom and the collapse and subsequent bailout of the global financial system. Reality is the last phase of a housing bubble needs liar loans to keep going because buyers have to reach beyond their limits, and the only way to do this is lie now, or miss out forever on buying a home. Evidence that home buyers are lying about income, assets, expenses, and other things on their mortgage applications has been surfacing for a while, along with fears that this would eventually lead to a “Mortgage Meltdown.” The US-style mortgage fraud would be a “Nuclear Bomb” to Australia’s banks.

Hedge funds are betting on this meltdown by shorting the big four banks. But everyone else wants these bank stocks that dominate the Australian stock exchange to rise. They’re in everyone’s portfolio. And they’re all doing what they can to turn shorting the banks into a widow-maker trade. To get “hard evidence,” UBS Securities Australia and UBS Evidence Lab surveyed 1,228 Australians who’d taken out a residential mortgage in 2015 or 2016. Participants, who remained anonymous, were asked 63 questions. The survey was broad based, covering all states and territories in Australia. Given the size of the sample and broad spread of respondents we believe the results are representative of Australian mortgage borrowers. Conclusions based on the total sample have a potential sampling error of just ±2.71% at a 95% confidence level.

The resulting report, “Mortgages – Time for the Truth?” found that 28% of the respondents admitted that they’d lied on their mortgage application: • 21% claimed their applications were “mostly factual and accurate.” • 5% stated they were “partially factual and accurate”• 2% “would rather not say.” How many of these liar-loan applicants lied on the survey to hide their lies on the mortgage application? We don’t know. But the actual percentage of liar loans could even be higher, given the propensity of liar-loan applicants – just my hunch – to lie on surveys to cover their tracks.

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Fractals, swaps and central banks.

Risk and Volatility Cannot be Extinguished (CH Smith)

[..] while modern portfolio management is statistically based (all those “standard deviations” you always see referenced in quantitative analyses), the markets behave fractally. Fractals are known as the geometry of chaos, for they describe how seemingly stable systems can quickly, and unpredictably, degrade into chaos. But as Mandelbrot explains, “100-year floods” actually occur with startling regularity in all markets. Put another way: you cannot disappear all risk with fancy statistical models and credit default swaps, etc., that offload the risk onto others, i.e. counterparties. In other words, all you’re really doing is masking the risk-you’re not eliminating it. And in hiding the real risk, you are lulling the market participants into a pernicious choice architecture in which their willingness to take riskier and riskier actions is rewarded and encouraged, while caution is punished.

This is the Paradox of Risk: by masking risk behind assurances that the Fed has your back, the Federal Reserve is encouraging unwary investors to increase their exposure to risk without even being aware of the dangers. I covered the perverse consequences of believing risk can be “managed away to near-zero” in my book An Unconventional Guide to Investing in Troubled Times. This is how you get a total systemic collapse of the entire choice architecture. And by this I mean not just the financial markets, but the backstop provided by central banks. In a system that is now highly correlated to central bank policies, the idea that some counterparty will cover your losses is illusory. This is magical thinking: that when the system implodes, the counterparties will magically escape the highly correlated collapse.

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Mike is one of the few people who understands the importance of money velocity -and deflation- the way the Automatic Earth has talked about it for a long time. We’ve been in touch off and on for many years now, lots of mutual respect. I’m not focused so much on the ‘crisis as opportunity’ story though, since in my view it leaves too many people behind.

USA’s Day Of Reckoning – Hidden Secrets Of Money 7 (Mike Maloney)

History shows that once or twice in a generation a global crisis comes along that radically devastates people’s way of life. A fundamental shift so big and drastic and overwhelming that it destroys their standard of living and impacts every area of their lives. We are about to experience one of those events… As Mike Maloney outlines in his brand new episode of the Hidden Secrets of Money, that next major event is deflation. And the culprit will be a relatively obscure monetary term that will impact virtually every area of your life: money velocity. You may not know exactly what money velocity means, but we will all soon experience it firsthand. In fact, money velocity will be the culprit of not just deflation, but the resulting inflation—and maybe hyperinflation—that will immediately follow.

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Not applicable to all forms of democracy, but as I’ve often said, our systems self-select for sociopaths.

Why Democracy Rewards Bad People (Mises Inst.)

One of the most widely accepted propositions among political economists is the following: Every monopoly is bad from the viewpoint of consumers. Monopoly is understood in its classical sense to be an exclusive privilege granted to a single producer of a commodity or service, i.e., as the absence of free entry into a particular line of production. In other words, only one agency, A, may produce a given good, x. Any such monopolist is bad for consumers because, shielded from potential new entrants into his area of production, the price of the monopolist’s product x will be higher and the quality of x lower than otherwise. This elementary truth has frequently been invoked as an argument in favor of democratic government as opposed to classical, monarchical or princely government.

This is because under democracy entry into the governmental apparatus is free – anyone can become prime minister or president – whereas under monarchy it is restricted to the king and his heir. However, this argument in favor of democracy is fatally flawed. Free entry is not always good. Free entry and competition in the production of goods is good, but free competition in the production of bads is not. Free entry into the business of torturing and killing innocents, or free competition in counterfeiting or swindling, for instance, is not good; it is worse than bad. So what sort of “business” is government? Answer: it is not a customary producer of goods sold to voluntary consumers. Rather, it is a “business” engaged in theft and expropriation — by means of taxes and counterfeiting — and the fencing of stolen goods.

Hence, free entry into government does not improve something good. Indeed, it makes matters worse than bad, i.e., it improves evil. Since man is as man is, in every society people who covet others’ property exist. Some people are more afflicted by this sentiment than others, but individuals usually learn not to act on such feelings or even feel ashamed for entertaining them. Generally only a few individuals are unable to successfully suppress their desire for others’ property, and they are treated as criminals by their fellow men and repressed by the threat of physical punishment. Under princely government, only one single person – the prince – can legally act on the desire for another man’s property, and it is this which makes him a potential danger and a “bad.”

However, a prince is restricted in his redistributive desires because all members of society have learned to regard the taking and redistributing of another man’s property as shameful and immoral. Accordingly, they watch a prince’s every action with utmost suspicion. In distinct contrast, by opening entry into government, anyone is permitted to freely express his desire for others’ property. What formerly was regarded as immoral and accordingly was suppressed is now considered a legitimate sentiment. Everyone may openly covet everyone else’s property in the name of democracy; and everyone may act on this desire for another’s property, provided that he finds entrance into government. Hence, under democracy everyone becomes a threat.

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As referenced quite lost here before: it’s an uncomfortable feeling if the far right is the only voice to speak the truth. But make no mistake: it speaks loud and clear to the failure of the entire rest of the political system.

Marine Le Pen Says EU Responsible For “Monstrous Chaos In Syria” (ZH)

With the proxy war in Syria escalating dramatically on a day by day basis, with ideological support for the warring powers split along West vs Russia (and China) lines, one particular outlier in the “western world” emerged overnight when Marine Le Pen, leader of France’s National Front party and the frontrunner for the role of president in near year’s French elections, accused the EU of being responsible for the ongoing chaos in Syria. She added that Europe has been too busy trying to overthrow Assad while Russia was actually fighting terrorists.

“You’ve done everything to bring down the government of Syria, throwing the country into a terrible civil war, while accusing Russia which is actually fighting Islamic State. Your responsibility could not be concealed”, she said speaking at the European Parliament plenary session in Strasbourg on Wednesday. “You cannot hide your responsibility […] for plunging this part of the world into an absolutely monstrous chaos,” Le Pen said, alleging that policies advocated by both the United States and the EU had contributed to the state Syria is currently in, as well as neighboring Iraq.

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Brussels is getting very nervous about this: “If he manages to supplant Renzi he plans to hold his own referendum – on Italian membership of the euro area..”

Renzi Must Go If He Loses Italy Referendum, Five Star Rival Says (BBG)

Italian Prime Minister Matteo Renzi cannot wriggle out of his pledge to quit if he loses the country’s referendum on constitutional reform, his main rival said. Luigi Di Maio, a leader of the anti-establishment Five-Star Movement and deputy-speaker of the lower house, said Italy will have to hold elections “as soon as possible” if Renzi’s plans for reform are rejected by voters on Dec. 4. “I am sure that Italians will ask him to maintain that promise despite the fact he has changed his mind,” Di Maio said in an interview at Bloomberg’s Rome office on Wednesday. “If Italians vote “No,” Renzi must keep the promise.” The premier has repeatedly pledged to step down if he loses the referendum which he says is central to his plans to make Italy work again after years of stagnation.

Still, he has backtracked somewhat in recent interviews as surveys show the “No” camp edging ahead and investors concerns mounting. The 30-year-old from near Naples is already described as “prime minister-in-waiting” by newspapers like Corriere della Sera with Five-Star neck-and-neck with Renzi’s Democratic Party in opinion polls. If he manages to supplant Renzi he plans to hold his own referendum – on Italian membership of the euro area. “I’d also like to see a European referendum on the euro, to see other countries starting to talk about it,” Di Maio said. “I know this is very difficult but I don’t think the Europe we know today will be the one we will face when we’re in government in a couple of years’ time.”

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Bless these people, win or no win. They need no prize, simply do what must be done. And in Greece, there’s so much that must be done.

This Greek Grandmother Could Win The Nobel Peace Prize (USA Today)

Emilia Kamvysi is not the typical Nobel Peace Prize candidate. The 86-year-old is not a politician, activist or lawyer. Her days are simple and slow. Like other Greek retirees on the island of Lesbos off the Turkish coast, she cooks for her children and grandchildren, watches the evening news and sits on the bench with her neighbors gazing at the sea. Then her life changed. Along with two neighbors -aged 89 and 85- Kamvysi was sitting on a bench in February, helping out a Syrian refugee mother by feeding her child with a bottle. The photo went viral, and she and the two other grannies in the photo became symbols of Greek generosity toward the migrants who have fled to Europe in recent years.

Soon after, a group of Greek lawmakers, academics and others nominated the grandmother as well as Greek fisherman Stratis Valiamos and actress Susan Sarandon. A second nomination included the grandmother and local agencies. Both cited their humanitarian efforts for the refugees. This Friday, Kamvysi and her granny-corps will find out whether she’ll become an official laureate. “I wish that Greece wins this prize, not just me,” Kamvysi said, pledging if she wins to give her share of the $1.2 million prize to the decaying Greek healthcare system. She lives well enough now on a $360-per-month farmer’s-pension, she said. “What am I going to do with it anyway?” she asked. “There are many people that helped the refugees — the fishermen, the volunteers. It wasn’t just us. Those poor babies, escaping war and drowning in the waters. It’s such a shame. We’re all crying in the village whenever there’s a shipwreck.”

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The exact opposite of the grandmothers helping refugees. Military force against people fleeing military force.

EU Launches Tough Border Force To Curb Refugee Crisis (AFP)

The EU launched its beefed-up border force Thursday in a rare show of unity by the squabbling bloc as it seeks to tackle its worst migration crisis since World War II. EU officials inaugurated the new task force at the Kapitan Andreevo checkpoint on the Bulgarian-Turkish border, the main land frontier for migrants seeking to enter the bloc and avoid the dangerous Mediterranean sea crossing. The European Border and Coast Guard Agency (EBCG) will have at its disposal some 1,500 officers from 19 member states who can be swiftly mobilised in case of an emergency, like a sudden surge of migrants. Brussels hopes the revamped agency will not just increase security, but also help heal the huge rifts that have emerged between member states clashing over the EU’s refugee policies.

The long-term goal is to lift border controls inside the bloc and fully restore the passport-free Schengen Zone. “The new agency is stronger and better equipped to tackle migration and security challenges,” EBCG director Fabrice Leggeri said at the launch. The force will also conduct stress tests at the bloc’s external borders to “identify vulnerabilities before a crisis hits”, he added. EU Migration Commissioner Dimitris Avramopoulos hailed the launch as a “historical day for the European Union”. “From now onwards, the external EU border of one member state is the external border of all member states – both legally and operationally,” he said. “Countries like Bulgaria, Greece and Italy are still under pressure, but they are not alone.”

Read more …

Jul 062016
 
 July 6, 2016  Posted by at 10:56 am Finance Tagged with: , , , , , , , ,  12 Responses »
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LOOK Detroit’s 1960 look. Sneak preview of the new models. Dodge Polara 1959

Remember the referendum in April in which voters in the Netherlands rejected the EU-Ukraine trade deal? Seems forever ago, doesn’t it? But to date nothing has been done with the outcome of the vote, even though Dutch law requires a government to implement referendum outcomes as swiftly as possible.

PM Mark Rutte told parliament this week that ‘changing’ the deal would be very difficult, and that talks on the topic in the European Council ‘don’t make him happy’. Since one of the things Rutte has demanded from the EU is a pledge that Ukraine will not become an EU member, none of this should be surprising.

But more importantly, the Dutch didn’t vote for Rutte to renegotiate the deal, they outright rejected it. Ergo, Rutte is playing fast and loose with the integrity and credibility of the Dutch legal and political systems as much as the FBI does with America’s in the Clinton email sleight of hand, and as later today Britain will do with its credibility following the Chilcot report on Tony Blair et al.

As if the Brexit fall-out hasn’t done enough damage to that credibility. One might get the distinct impression that the powers-that-be could get awfully annoyed with the riff-raff out there wanting a say in their own lives. But the riff-raff don’t just want a say anymore, they are getting mighty annoyed with the powers-that-be too.

And that is guaranteed to increase if more ‘incidents’ happen like FBI director Jim Comey’s announcement yesterday that Hillary won’t be charged. At some point credibility must come with accountability, or else. The Hillary files bring the US awfully close to that point, as well as to ‘or else’.

Eric Zuesse explains very well why that is:

In Clinton Case, Obama Administration Nullifies 6 Criminal Laws

There can be no excuse for Obama’s depriving the public, via a grand jury decision, of the right to determine whether a full court case should be pursued in order to determine in a jury trial whether Hillary Clinton’s email system constituted a crime (or several crimes) under U.S. laws. The Obama Administration’s ‘finding’ that “clearly intentional and willful mishandling of classified information” would need to have been proven, in order for her to have been prosecuted under any U.S. criminal law, is a flagrant lie..

[..] anyone who in the future would be charged with violating any one of those six laws could reasonably cite the precedent that Ms. Clinton was not even charged, much less prosecuted, for actions which clearly fit the description provided in each one of those U.S. criminal laws. Anyone in the future who would be charged under any one of these six laws could prove discriminatory enforcement against himself or herself.

It is highly irresponsible for any government to play such games, and it’s skating on the edge of the law, something a government should always attempt to avoid. That is essential.

Someone who’s not known to be overly bothered by accountability or integrity is everybody’s favorite wino, European Commission President Jean-Claude Juncker. But Juncker, whatever else may be wrong with him, is not a stupid man. And unless I’m gravely mistaken, he has just saddled the European Union with a problem that could well trigger its undoing.

What happened was that at some point last week, reports started coming out that several parties, especially in Germany, were planning to oust Juncker from his plush job. He read them too, of course. And he may have gotten other signals as well in Brussels backrooms.

Then, Germany and France began to clamor for their parliaments to have a say in the ratification of CETA, the Comprehensive Economic and Trade Agreement between the EU and Canada. And Juncker must have seen his chance for revenge. Because yesterday he announced that all 27 parliaments of EU member nations get to have a crack at CETA.

That is Pandora’s box, and I don’t believe for a second that Juncker is not aware of it. Here’s what Deutsche Welle had to say:

EU Commission: CETA Should Be Approved By National Parliaments

European Commission chief Jean-Claude Juncker is expected to scrap plans to fast-track a trade agreement with Canada through the EU. After pressure from Germany and France, Juncker appears to be backtracking. Juncker will reportedly propose a mixed agreement – one that requires both the approval of the European parliament and national legislatures – at an European Commission meeting on Tuesday. Last week he was reported saying he “personally couldn’t care less” whether lawmakers get to vote on the deal. A report in the Financial Times noted that Germany and France wanted their national parliaments to be involved, which would inevitably lengthen the process.

That Juncker quote indicates something had been brewing for a while. Given the position he’s in, it’s quite funny, though

The deal was scheduled to be signed at the end of October during a summit in Brussels with Canadian Prime Minister Justin Trudeau, and it was due to be implemented in 2017. Trade ministers in Germany, France, Italy, the Netherlands and UK have reportedly said they will support the Comprehensive Economic and Trade Agreement, or CETA. CETA is similar to the agreement under negotiation between the EU and US and has drawn strong criticism in EU countries. Canadian and EU leaders concluded CETA in 2014, but implementation was delayed due to last-minute objections in Europe. This was related to an investment protection system to shield companies from government intervention.

Yes, CETA is TTiP on a smaller scale. A sort of test. The nonsensical audacity of ‘an investment protection system to shield companies from government intervention’ says it all.

With opposition to the EU’s impending free trade deal with Canada apparently growing, German Chancellor Angela Merkel said recently that the German parliament should be consulted on the EU’s free trade deal with Canada. “It is a highly political agreement that has been widely discussed,” said Merkel, adding that the “Bundestag is allowed to be involved of course… in national decisions”. German Economy Minister Sigmar Gabriel told the Tagesspiegel daily that Juncker’s comment was “incredibly stupid” and “would stoke opposition to other free trade deals,” including with the US. German media has also described Juncker’s position as badly timed given the growing skepticism among European voters about the EU.

What Gabriel actually said was that Juncker was “unglaublich töricht”, I looked it up. And it wasn’t his reaction to a ‘comment’, but to Juncker’s initial decision to NOT let national parliaments get their say on CETA. It’s brilliant and hilarious, isn’t it? I think I think quite a bit higher of Juncker now.

Because it was Germany itself that insisted they wanted the Bundestag to get involved (under domestic pressure). But they thought that would be it, that and the French parliament. And Jean-Claude threw it right back in their faces. Since they were going to get rid of him anyway, he decided to leave them the perfect parting gift, the ultimate poisoned chalice.

Getting back to the Dutch referendum on EU and Ukraine, one of the things to know about how this works is that the Dutch can ask for a referendum not on any topic, but only on bills the government sends to parliament to discuss. CETA will now be such a case, and a referendum looks at least quite possible.

I don’t know what comparable legislation is in other EU countries, but no doubt in many countries it’s enough to have their parliaments discuss the issue, to cause havoc. That will mean huge delays and/or worse (just what Juncker initially sought to prevent).

The ‘worse’ in this regard -in the eyes of the politicians- is the possibility of referendums, on CETA, and then on TTiP. And before you know it somewhere in Europe such a referendum will be combined with the question whether the country where it’s held should Remain in the EU or Leave it. It seems for all intents and purposes, inevitable.

How the EU can be kept together is a behemoth conundrum already, even without all these new issues. But now we can be absolutely sure that Brexit is only the beginning.

Beppe Grillo’s Five Star Movement (M5S) came out as no. 1 in a poll in Italy yesterday. When I visited Beppe almost 5 years ago in Genoa he was still torn over the EU and the euro, but he has since made up his mind: he’s determined to take Italy out of the unholy Union. Europe’s powers-that-be are in for troubled times.

And Jean-Claude Junker will be sitting somewhere in the world in a beach chair by one of his luxurious summer homes, with a big smile on his face and a stiff drink in his hand.

Jun 082016
 
 June 8, 2016  Posted by at 2:18 pm Finance Tagged with: , , , , , , , ,  10 Responses »
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Fred Stein Evening, Paris 1934

Two months ago, there was a referendum in Holland about an association agreement between the EU and Ukraine. A relatively new Dutch law states that with an X amount of signatures a referendum can be ‘forced’ by anyone. Before, during and -especially- after the vote, its importance was -and is actively being- pooh-poohed by both the Dutch government and the EU. That in itself paints the issue better than anything else. Both the call and the subsequent support for the referendum stem from resistance against exactly that attitude.

The Dutch voted No to the EU/Ukraine agreement. It was with a turnout not much above the validity threshold, but a large majority of those who did vote agreed they want no part of the deal. This puts Dutch PM Rutte in an awkward position, he can’t be seen ignoring the population. Well, at least not openly. The EU can’t validate the agreement, and with Holland still holding the chair of the Union until July 1, a meeting on the topic has been pushed forward until the last weekend of June. With Rutte still in charge, but only just, and with the June 23 UK Brexit vote decided.

Brussels is frantically looking for a way to push through the agreement despite the Dutch vote, and likely some sort of bland compromise will be presented, which Rutte’s spin doctors will put into words that he can -with a straight face- claim honor the vote while at the same time executing what that same vote specifically spoke out against.

The EU will claim that since 27 other nations did ‘ratify’ the agreement, the 67% of the 32% of Dutch voters who bothered to show up should not be able to block it. As they conveniently fail to mention that nobody in the other 27 countries had a chance to vote on the issue. Just imagine a Brexit-like vote in all 28 EU nations on June 23. Brussels knows very well what that would mean. There’s nothing it finds scarier than people having an active say in their lives.

 

All this is a mere introduction for what is a ‘western world wide’ trend that hardly anybody is able to interpret correctly. It what seems to many to be a sudden development, votes like the Dutch one are ‘events’ where people vote down incumbents and elites. But these are not political occurrences, or at least politics doesn’t explain them.

In the US, there’s Trump and Bernie Sanders. In Britain, the Brexit referendum shows a people that are inclined not to vote FOR something, but AGAINST current political powers. In Italy, a Five-Star candidate is set to become mayor of Rome, something two Podemos affiliated -former- activists have already achieved in Barcelona and Madrid.

All across Europe, ‘traditional’ parties are at record lows in the polls. As is evident when it comes to Brexit, but what when you look closer is a common theme, anything incumbents say can and will be used against them. (A major part of this is that the ’propaganda power’ of traditional media is fast coming undone.)

The collapse of the system doesn’t mean people swing to the right, as is often claimed, though that is one option. It means people swing outside of the established channels, and whoever can credibly claim to be on that outside has a shot at sympathy, votes, power, be they left or right. Whatever else it is they may have in common, first and foremost they’re anti-establishment.

 

To understand the reason all this is happening, we must turn our heads and face economics. Or rather, the collapse of the economy. Especially in the western world – the formerly rich world-, there is no such thing as separate political and economic systems anymore (if there ever were). There is more truth in Hazel Henderson’s quote than we should like: “economics [..] has always been nothing more than politics in disguise”.

What we have is a politico-economic system, with the former media establishment clinging to (or inside?!) its body like some sort of embedded parasite. A diseased triumvirate.

With the economy in irreversible collapse, the politico part of the Siamese twin/triplet can no longer hold. That is what is happening. That is why all traditional political parties are either already out or soon will be. Because they, more than anything else, stand for the economic system that people see crumbling before their eyes. They represent that system, they are it, they can’t survive without it.

Of course the triumvirate tries as hard as it can to keep the illusion alive that sometime soon growth will return, but in reality this is not just another recession in some cycle of recessions. Or, at the very minimum this is a very long term cycle, Kondratieff style, . And even that sounds optimistic. The system is broken, irreparably. A new system will have to appear, eventually. But…

‘Associations’ like the EU, and perhaps even the US, with all the supranational and global entities they have given birth to, NATO, IMF, World Bank, you name them, depend for their existence on an economy that grows. The entire drive towards globalization does, as do any and all drives toward centralization. But the economy has collapsed. So all this will of necessity go into reverse, even if there are very powerful forces that will resist such a development.

 

Despite what the media try to tell you, as do the close to 100% manipulated economic data emanating from various -tightly controlled- sources, the economy is not growing, and it hasn’t for years; the only thing that grows is debt. And you can’t borrow growth.

You can argue in fascinating philosophical debates about when this started, arguments can be made for Nixon’s 1971 abolishment of the -last vestiges of- the gold standard anywhere up to Clinton’s 1998 repeal of Glass-Steagall, or anything in between -or even after.

It doesn’t matter much anymore, the specifics are already gathering dust as research material for historians. The single best thing to do for all of us not in positions of politico/economic power is to recognize the irreversible collapse of the system. Since we all grew up in it and have never known anything else, that is hard enough in itself. But we don’t have all that much time to lose anymore.

The whole shebang is broke. This can easily be displayed in a US nominal debt vs nominal GDP graph:

 

 

That’s really all you need to know. That’s what broke the shebang. It is easy. And even if a bit more of the ‘surplus’ debt had been allowed to go towards the common man, it wouldn’t have made much difference. We’ve replaced growth with debt, because that is the only way to keep the -illusion of- the politico-economic system going, and thereby the only way for the incumbent powers to cling on to that power.

And that is where the danger lies. It’s not just that the vast majority of westerners will become much poorer than they are now, they will be forced to face powers-that-be that face the threat of seeing their powers -both political and economic- slip sliding away and themselves heading towards some sort of Marie-Antoinette model.

The elites-that-be are not going to take that lying down. They will cling to their statuses for -literally- dear life. That right there is the biggest threat we all face (including them). It would be wise to recognize all these things for what they really are, not for what all these people try to make you believe they are. Dead seriously: playtime is over. The elites-that-be are ready and willing to ritually sacrifice you and your children. Because it’s the only way they can cling on to their positions. And their own very lives.

It may take a long time still for people to understand the above, but it’s also possible that markets crash tomorrow morning and bring the facades of Jericho down with them. Waiting for that to happen is not your best option.

Apr 072016
 
 April 7, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , ,  3 Responses »
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John M. Fox “The new Hudson” 1948

Time To Stop Dancing With Equities On A Live Volcano (AEP)
Hillary Clinton’s Corporate Cash and Corporate Worldview (Naomi Klein)
How Bad Is China’s Debt Problem, Really? (Balding)
China Traders Flee to Hong Kong in Record Stock-Buying Streak (BBG)
China Set To Shake Up World Copper Market With Exports (Reuters)
Panama Papers Reveal Offshore Secrets Of China’s Red Nobility (G.)
David Cameron’s EU Intervention On Trusts Set Up Tax Loophole (FT)
Panama Papers Reveal London As Centre Of ‘Spider’s Web’ (AFP)
How Laundered Money Shapes London’s Property Market (FT)
London Luxury-Apartment Sales Slump Triggers 20% Bulk Discounts (BBG)
US Readies Bank Rule On Shell Companies Amid ‘Panama Papers’ Fury (Reuters)
US Government, Soros Funded Panama Papers To Attack Putin: WikiLeaks (RT)
Bookmakers Set Odds For Next Leader To Resign After Panama Papers (MW)
Brexit May Force Europe’s Banks To Dump $123 Billion Of Securities (BBG)
Economics Builds a Tower of Babel (BBG)
Dutch ‘No’ Vote On Ukraine Pact Forces Government Rethink (Reuters)
Greece Sees Two-Week Lag In Migrant Returns To Turkey (AFP)

Ambrose sees inflation?!

Time To Stop Dancing With Equities On A Live Volcano (AEP)

Be very careful. The US economic expansion is long in the tooth and starting to hit the time-honoured constraints that mark the last phase of the business cycle. Wall Street equities are more stretched by a host of measures than they were at the peak of sub-prime bubble just before the Lehman crisis. All it will take to bring the S&P 500 index back to earth is a catalyst, and that is exactly what is coming into view on the macro-economic horizon. This does not mean we are on the cusp of recession or racing headlong towards some imminent reckoning, but we are probably in the final innings of this epic asset boom. Didier Saint-Georges, from fund manager Carmignac, says the “massive and indiscriminate equity market rally” since February’s panic-lows is a false dawn driven by short-covering, telling us little about the world’s deformed economic, financial, and political landscape.

Corporate earnings peaked at $1.845 trillion (£1.3 trillion) in the second quarter of 2015, and recessions typically start five to seven quarters after the peak. “We will not be dancing on the volcano like so many others,” said Saint-Georges. If we are lucky it will be a slow denouement with a choppy sideways market going nowhere for another year as the US labour market tightens, and workers at last start to claw back a greater share of the economic pie. The owners of capital have had it their way for much of the post-Lehman era, exorbitant beneficiaries of central bank largesse. Now they may have to give a little back to society. Yet this welcome “rotation” spells financial trouble. Strategists Mislav Matejka and Emmanuel Cau, from JP Morgan, have told clients to prepare for the end of the seven-year bull run, advising them to trim equities gradually and build up a safety buffer in cash.

“This is not the stage of the US cycle when one should be buying stocks with a six to 12-month horizon. We recommend using any strength as a selling opportunity,” they said. Their recent 165-page report on the subject is a sobering read. The price-to-sales ratio (P/S) of US stocks is higher than any time in the sub-prime boom. Share buy-backs are at an historic high in relation to earnings (EBIT). Net debt-to-equity ratios have blown through their historical range. This is happening despite two quarters of tighter lending by US banks. Spreads on high-yield debt have doubled since 2014, jumping by 300 basis points even after stripping out the energy bust. The list goes on; the message is clear. “One should be cutting equity weight before the weakness becomes obvious,” they said.

Read more …

Hillary equals more of the same. The same disaster.

Hillary Clinton’s Corporate Cash and Corporate Worldview (Naomi Klein)

There aren’t a lot of certainties left in the US presidential race, but here’s one thing about which we can be absolutely sure: The Clinton camp really doesn’t like talking about fossil-fuel money. Last week, when a young Greenpeace campaigner challenged Hillary Clinton about taking money from fossil-fuel companies, the candidate accused the Bernie Sanders campaign of “lying” and declared herself “so sick” of it. As the exchange went viral, a succession of high-powered Clinton supporters pronounced that there was nothing to see here and that everyone should move along. The very suggestion that taking this money could impact Clinton’s actions is “baseless and should stop,” according to California Senator Barbara Boxer. It’s “flat-out false,” “inappropriate,” and doesn’t “hold water,” declared New York Mayor Bill de Blasio.

New York Times columnist Paul Krugman went so far as to issue “guidelines for good and bad behavior” for the Sanders camp. The first guideline? Cut out the “innuendo suggesting, without evidence, that Clinton is corrupt.” That’s a whole lot of firepower to slap down a non-issue. So is it an issue or not? First, some facts. Hillary Clinton’s campaign, including her Super PAC, has received a lot of money from the employees and registered lobbyists of fossil-fuel companies. There’s the much-cited $4.5 million that Greenpeace calculated, which includes bundling by lobbyists. One of Clinton’s most active financial backers is Warren Buffett, who is up to his eyeballs in coal. But that’s not all. There is also a lot more money from sources not included in those calculations. For instance, one of Clinton’s most prominent and active financial backers is Warren Buffett.

While he owns a large mix of assets, Buffett is up to his eyeballs in coal, including coal transportation and some of the dirtiest coal-fired power plants in the country. Then there’s all the cash that fossil-fuel companies have directly pumped into the Clinton Foundation. In recent years, Exxon, Shell, ConocoPhillips, and Chevron have all contributed to the foundation. An investigation in the International Business Times just revealed that at least two of these oil companies were part of an effort to lobby Clinton’s State Department about the Alberta tar sands, a massive deposit of extra-dirty oil. Leading climate scientists like James Hansen have explained that if we don’t keep the vast majority of that carbon in the ground, we will unleash catastrophic levels of warming.

During this period, the investigation found, Clinton’s State Department approved the Alberta Clipper, a controversial pipeline carrying large amounts of tar-sands bitumen from Alberta to Wisconsin. “According to federal lobbying records reviewed by the IBT,” write David Sirota and Ned Resnikoff, “Chevron and ConocoPhillips both lobbied the State Department specifically on the issue of ‘oil sands’ in the immediate months prior to the department’s approval, as did a trade association funded by ExxonMobil.”

Read more …

“All this leads one to think that the government doesn’t recognize the severity of the problem.”

How Bad Is China’s Debt Problem, Really? (Balding)

For months now, China’s regulators have been warning about the dangers of rapidly expanding credit and the need to deleverage. With new plans to clean up bad loans at the country’s banks, you might conclude that the government is getting serious about the risks it faces. But there’s reason to doubt the effectiveness of China’s approach. In fact, it’s running a serious risk of making its debt problems worse. After the financial crisis, China embarked on a credit binge of historical proportions. In 2009, new loans grew by 95%. The government offered cheap credit to build apartments for urban migrants, airports for the newly affluent and roads to accommodate a fleet of new cars. Yet as lending grew at twice the rate of GDP, problems started bubbling up. Companies gained billion-dollar valuations, then collapsed when they couldn’t profit.

Enormous surplus capacity drove down prices. Excessive real-estate lending led to the construction of “ghost cities.” Asset bubbles popped and bad loans mounted. China’s policy makers say they recognize these problems. The government’s most recent 5-year plan, released in December, notes the need for deleveraging. The PBOC has talked up the party line about slowing credit growth and making high-quality loans. Yet officials still say that only about 1.6% of commercial-banking loans are nonperforming. Some analysts put the real figure closer to 20%. And Beijing’s primary plan to address the problem – allowing companies to swap their debt with banks in exchange for equity – actually creates new risks. For one thing, while a debt-for-equity swap may help excessively indebted firms, it will wreak havoc with banks.

Directly, a given bank will no longer receive the cash flow from interest and principal payments. Indirectly, it won’t be able to sell equity to the PBOC or to other banks as it could with a loan. Valuing the equity could present a bigger problem. In China, banks must count 100% of loans made to non-financial companies against their reserve requirements. When they invest in equity, however, they must set aside 400% of the value of the investment. If the debt isn’t worth face value to the bank, it seems unlikely that the equity is worth far more – suggesting that large write-downs will be required. The swaps program also creates a number of big-picture problems. Consider the tight relationship between banks and large government-linked companies.

If banks were under pressure to roll over loans when they were creditors hoping to get repaid, what will their incentive be when they own the firm and have essentially unlimited lending capacity? Another problem is that Chinese industry exists in a deflationary debt spiral: Prices have been falling for years, raising the real cost of repaying loans. If companies are relieved of their debt, they’ll have an incentive to reduce prices to gain market share, thus worsening one of the primary causes of the current malaise. All this leads one to think that the government doesn’t recognize the severity of the problem. Debt-for-equity swaps and loan rollovers simply aren’t long-term solutions for ailing companies on the scale China faces.

Read more …

All that monopoly money behaves like liquid gas.

China Traders Flee to Hong Kong in Record Stock-Buying Streak (BBG)

Cash is pouring into Hong Kong stocks from across the mainland border. Chinese investors have been net buyers of the city’s shares for 104 consecutive trading days, sinking 43.8 billion yuan ($6.8 billion) into equities from October through Tuesday, according to data compiled by Bloomberg tracking investments via the exchange link with Shanghai. Mainland traders have now put more money into Hong Kong than global asset managers have invested in Shanghai, a reversal of flows in the link’s first year, the data show. As concern persists about a further slide in the yuan, Chinese investors are piling into cheaper shares across the border that have lagged behind mainland counterparts for years.

While the flows are small relative to estimates of the record capital flight from China in 2015, they’re another sign of what’s at stake for policy makers seeking to stabilize the currency and stem outflows by providing credible investment options at home. “In China, there is talk of an asset drought – people don’t find domestic assets particularly attractive,” said Tai Hui at JPMorgan. “They are investing overseas in any way possible including via the southbound stock connect.” Buying mainland Chinese stocks has been a losing proposition this year, with the benchmark Shanghai Composite Index down 14%. Other investment alternatives such as property are coming under scrutiny as authorities impose fresh curbs after home prices jumped in the biggest cities such as Shanghai and Shenzhen.

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What’s next? Compete with OPEC?

China Set To Shake Up World Copper Market With Exports (Reuters)

China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs, onto the global market. Four traders of copper, including two from state-owned Chinese smelters, said they expect China to raise its copper exports – which are usually tiny – in the next few months. China’s refined copper exports averaged less than 10,000 tonnes a month in the first two months of 2016, and around 17,000 a month in 2015. If higher exports materialize, they will be a major jolt to producers and investors in the metal across the world – in particular because it would come during what is traditionally the strongest period of demand for copper from China, the world’s largest consumer of the metal. It will also be a further sign that the Chinese economy is still struggling against headwinds. Some sectors that buy copper – such as construction and manufacturing – have been hit especially hard in the past couple of years.

Traders and analysts in China say slowing building construction and electronics manufacturing has stifled demand for refined copper from the nation’s massive smelting sector at a time when the country is already swimming in the metal. China’s copper consumption has been a crucial measure of the country’s economic growth as the metal forms the essential network of its infrastructure, carrying water, conducting electricity and comprising the circuits in its machines. “The situation for copper smelters in China is probably the worst it has been in 20 years. But they won’t admit it. It wouldn’t surprise me in the least (if they start exporting),” said a source at an Asian copper producer, who declined to be named because he is not authorized to speak to the media. Increasing Chinese exports would mark an abrupt turnaround in global copper trade flows as China’s refined copper imports hit a record in 2015.

Read more …

Looking at China, it’s hard not to think of 1789, Robespierre, Marie-Antoinette, Bastille. Napoleon next?

Panama Papers Reveal Offshore Secrets Of China’s Red Nobility (G.)

The eight members of China’s Communist party elite whose family members used offshore companies are revealed in the Panama Papers. The documents show the granddaughter of a powerful Chinese leader became the sole shareholder in two British Virgin Islands companies while still a teenager. Jasmine Li had just begun studying at Stanford University in the US when the companies were registered in her name in December 2010. Her grandfather Jia Qinglin was at that time the fourth-ranked politician in China. Other prominent figures who have taken advantage of offshore companies include the brother-in-law of the president, Xi Jinping, and the son-in-law of Zhang Gaoli, another member of China’s top political body, the politburo standing committee.

They are part of the “red nobility”, whose influence extends well beyond politics. Others include the daughter of Li Peng, who oversaw the brutal retaliation against Tiananmen Square protestors; and Gu Kailai, wife of Bo Xilai, the ex-politburo member jailed for life for corruption and power abuses. The relatives had companies that were clients of the offshore law firm Mossack Fonseca. There is nothing in the documents to suggest that the politicians in question had any beneficial interest in the companies connected to their family members. Since Monday, China’s censors have been blocking access to the unfolding revelations about its most senior political families. There are now reports of censors deleting hundreds of posts on the social networks Sina Weibo and Wechat, and some media organisations including CNN say parts of their websites have been blocked.

The disclosures come amid Xi Jinping’s crackdown on behaviour that could embarrass the Communist party. Two more well-connected figures – the brother of former vice-president Zeng Qinghong and the son of former politburo member Tian Jiyun – are directors of a single offshore company. They have previously been linked in a court case that highlighted how some Chinese “princelings” have used political connections for financial gain. They have emerged from the internal data of the offshore law firm Mossack Fonseca. [..] China and Hong Kong were Mossack Fonseca’s biggest sources of business, with clients from these jurisdictions linked to a total of 40,000 companies past and present. About a quarter of these are thought to be live: in 2015, records show the firm was collecting fees for nearly 10,000 companies linked to Hong Kong and China. The Mossack Fonseca franchise now has offices in eight Chinese cities, according to its website

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How much pressure will he get?

David Cameron’s EU Intervention On Trusts Set Up Tax Loophole (FT)

David Cameron personally intervened in 2013 to weaken an EU drive to reveal the beneficiaries of trusts, creating a possible loophole that other European nations warned could be exploited by tax evaders. The disclosure of the prime minister’s resistance to opening up trusts to full scrutiny comes as he faces intense pressure to make clear whether his family stands to benefit from offshore assets linked to his late father. Although Mr Cameron championed corporate tax transparency, he wrote in November 2013 to Herman Van Rompuy, president of the European Council at the time, to argue that trusts widely used for inheritance planning in Britain should win special treatment in an EU law to tackle money laundering.

In the letter, seen by the Financial Times, Mr Cameron said: “It is clearly important we recognise the important differences between companies and trusts. This means that the solution for addressing the potential misuse of companies, such as central public registries, may well not be appropriate generally.” Britain has emerged as the strongest European rival to Switzerland for private banking and wealth management, administering £1.2tn of assets, according to Deloitte. The sector contributed £3.2bn to the economy, according to 2014 estimates from the British Bankers’ Association. A senior government source said that Mr Cameron’s letter reflected official advice that creating a central registry for trusts would have been complex and would have distracted from the main objective of shining a light on the ownership of shell companies.

“It would have slowed down the process because of the different types of trust involved,” the official said. “They are sometimes used to protect vulnerable people, so that would have been an extra complication. “As the directive went through we reached a position where trusts which generate tax consequences had to demonstrate their ownership to HM Revenue & Customs.” According to officials, the UK stance in 2013 prompted clashes with France and Austria as well as with members of the European Parliament, who accused Britain of double standards in the fight against tax avoidance. Maria Fekter, the Austrian finance minister at the time, had attacked Britain earlier that year as “the island of the blessed for tax evasion and money laundering”. She cited trusts as a specific problem.

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“London is the epicentre of so much of the sleaze that happens in the world..”

Panama Papers Reveal London As Centre Of ‘Spider’s Web’ (AFP)

As-well as shining a spotlight on the secret financial arrangements of the rich and powerful, the so-called Panama Papers have laid bare London’s role as a vital organ of the world’s tax-haven network. The files leaked from Panama law firm Mossack Fonseca exposed Britain’s link to thousands of firms based in tax havens and how secret money is invested in British assets, particularly London property. Critics accuse British authorities of turning a blind eye to the inflow of suspect money and of being too close to the financial sector to clamp down on the use of its overseas territories as havens, with the British Virgin Islands alone hosting 110,000 of the Mossack Fonseca’s clients. “London is the epicentre of so much of the sleaze that happens in the world,” Nicholas Shaxson, author of the book “Treasure Islands”, which examines the role of offshore banks and tax havens, told AFP.

The political analyst said that Britain itself was relatively transparent and clean, but that companies used the country’s territories abroad – relics of the days of empire – to “farm out the seedier stuff”, often under the guise of shell companies with anonymous owners. “Tax evasion and stuff like that will be done in the external parts of the network. Usually there will be links to the City of London, UK law firms, UK accountancy firms and to UK banks,” he said, calling London the centre of a “spider’s web”. “They’re all agents of the City of London – that is where the whole exercise is controlled from,” Richard Murphy, professor at London’s City University, said of the offshore havens. The files showed that Britain had the third highest number of Mossack Fonseca’s middlemen operating within its borders, with 32,682 advisers.

Although not illegal in themselves, shell companies can be used for illegal activities such as laundering the proceeds of criminal activities or to conceal misappropriated or politically-inconvenient wealth. Around 310,000 tax haven companies own an estimated £170 billion (210 billion euros, $240 billion) of British real estate, 10% of which were linked to Mossack Fonseca. The files appeared to show that the United Arab Emirates President Sheikh Khalifa bin Zayed Al-Nahyan owned London properties worth more than £1.2 billion and that Mariam Safdar, daughter of Pakistani prime minister Nawaz Sharif, was the beneficial owner of two offshore companies that owned flats on the exclusive Park Lane.

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“..the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”

How Laundered Money Shapes London’s Property Market (FT)

For three-quarters of Londoners under 35, owning a home in the capital remains out of reach. But according to the leaked Panama Papers, buying property in London presented little problem for associates of Bashar al-Assad, the Syrian president; for a convicted embezzler who is also the son of a former Egyptian president; or for a Nigerian senator facing corruption charges. The leaks from the Panamanian law firm Mossack Fonseca have brought back into focus the ownership of London property via offshore companies by people suspected of corruption overseas — a phenomenon that has helped to shape the capital’s housing market, where prices are up 50% since 2007. “We think it very likely that the influx of corrupt money into the housing market has pushed up prices,” said Rachel Davies, senior advocacy manager at Transparency International.

Donald Toon, head of the National Crime Agency, has gone further, saying last year that “the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK”. Since 2004 £180m of UK property has been subject to criminal investigation as suspected proceeds of corruption, according to Transparency International data from 2015. Yet this probably represented “only a small proportion of the total”, added the campaign group. Most of these properties were bought using anonymous shell companies based in offshore tax havens such as the British Virgin Islands. Overseas companies own 100,000 properties in England and Wales, Land Registry data show. Owning property through a company can present tax advantages but, depending where that company is based, it can also offer anonymity.

According to Transparency International figures, almost one in 10 properties in the London borough of Kensington & Chelsea is owned through a “secrecy jurisdiction” such as the British Virgin Islands, Jersey or the Isle of Man. “UK property can be acquired anonymously, anti-money-laundering checks can be bypassed with relative ease, and if you invest in luxury property in London you know your investment is safe. All that comes from the flaws in the UK anti-money-laundering system,” said Ms Davies. According to the documents leaked to the International Consortium of Investigative Journalists, Soulieman Marouf, an al-Assad associate whose assets in Europe were frozen for two years from 2012, holds luxury flats in London worth almost £6m through British Virgin Islands companies.

The family of a deceased former Syrian intelligence chief owns a £1.2m Battersea home, the Guardian reported. The documents also link Alaa Mubarak — a son of Hosni Mubarak, the former Egyptian president — who was jailed and released last year for corruption, to an £8m Knightsbridge property. Bukola Saraki, the president of the Nigerian senate who faces charges in his home country of failing to declare assets, owns a Belgravia property, while a second is held by companies in which his wife and former special assistant are shareholders. Mr Saraki denies any wrongdoing and says he declared his assets in accordance with the law.

Read more …

This bubble too will burst.

London Luxury-Apartment Sales Slump Triggers 20% Bulk Discounts (BBG)

Developers in central London are offering institutional investors discounts of as much as 20% on bulk purchases of luxury apartments as demand from international buyers slumps amid higher taxes and low commodity prices. Concessions of about that magnitude are being offered to investors willing to take 100 homes or more, according to Killian Hurley, chief executive officer of London developer Mount Anvil. Broker CBRE is negotiating discounts of as much as 15% for bulk purchases on the fringes of the capital’s best districts, said Chris Lacey, head of U.K. residential investment. A record number of high-end homes are planned in London districts such as Nine Elms and Earls Court even as demand wanes.

Sales of properties under construction in the U.K. capital slumped 19% in the fourth quarter of 2015, according to researcher Molior, while the percentage of overseas buyers fell to 20% from about 33% a year earlier, broker Hamptons International data show. “We will see distress in prime central London and in Nine Elms, where there has been a lot of international investment,” Andrew Stanford at LaSalle Investment said in an interview. “There have been a number of house builders who have approached us directly with schemes as a direct result of off-plan sales falling, particularly in central London.” Bulk buyers may be hard to find because the apartments being built aren’t designed for the rental market, lacking features such as equal-size bedrooms, said Stanford, whose company has invested more than $457 million in U.K. multifamily housing on behalf of clients.

Many developers traveled to Asia to sell homes in advance of construction and secure cheaper development loans because the down payments made projects less risky. The imposition of higher purchase taxes has now reduced the appeal of the costliest properties, leaving developers wondering how they will secure funding, said Dominic Grace, head of London residential development at broker Savills. “It is a question everyone is asking, and the truth is no one really knows,” Grace said.

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Sure..

US Readies Bank Rule On Shell Companies Amid ‘Panama Papers’ Fury (Reuters)

The U.S. Treasury Department intends to soon issue a long-delayed rule forcing banks to seek the identities of people behind shell-company account holders, after the “Panama Papers” leak provoked a global uproar over the hiding of wealth via offshore banking devices. A department spokesman said on Wednesday the rule would “soon” be turned over to the White House for review and issuance, but did not confirm any timetable for the initiative, which has taken years. Governments around the globe have launched probes into possible financial wrongdoing after 11.5 million documents from the Panamanian law firm Mossack Fonseca, nicknamed the “Panama Papers,” were leaked to the media and reports emerged Sunday. Mossack Fonseca has said it was the victim of a computer hack, and that it has consistently acted appropriately.

The papers offer “validation for those who have been screaming for a decade” about the need for financial institutions in the United States and elsewhere to address risks of money laundering, terror finance and other crime by identifying people who clandestinely control legal entities, former Treasury official Chip Poncy told Reuters. The leaked documents may give banks a glimpse into the kind of information on true, or “beneficial” owners, that they regularly should be obtaining to better understand the cross-border money flows they facilitate, said Poncy, one of the architects of the Treasury rule, which has been in the works since 2012.

But simply having a client who is linked to the offshore shell companies highlighted in the Panama papers “doesn’t necessarily mean much,” said a former FinCEN official who asked not to be named due to his role in the private sector. What would be significant is “inconsistent information or payment flows that now connect” in ways that suggest possible illicit activity, he said.

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“We have innuendo, we have a complete lack of standards on the part of the western media, and the major mistake made by the leaker was to give these documents to the corporate media..”

US Government, Soros Funded Panama Papers To Attack Putin: WikiLeaks (RT)

Washington is behind the recently released offshore revelations known as the Panama Papers, WikiLeaks has claimed, saying that the attack was “produced” to target Russia and President Putin. On Wednesday, the international whistleblowing organization said on Twitter that the Panama Papers data leak was produced by the Organized Crime and Corruption Reporting Project (OCCRP), “which targets Russia and [the] former USSR.” The “Putin attack” was funded by the US Agency for International Development (USAID) and American hedge fund billionaire George Soros, WikiLeaks added, saying that the US government’s funding of such an attack is a serious blow to its integrity. Organizations belonging to Soros have been proclaimed to be “undesirable” in Russia.

Last year, the Russian Prosecutor General’s Office recognized Soros’s Open Society Foundations and the Open Society Institute Assistance Foundation as undesirable groups, banning Russian citizens and organizations from participation in any of their projects. Prosecutors then said the activities of the institute and its assistance foundation were a threat to the basis of Russia’s constitutional order and national security. Earlier this year, the billionaire US investor alleged that Putin is “no ally” to US and EU leaders, and that he aims “to gain considerable economic benefits from dividing Europe.” “The American government is pursuing a policy of destabilization all over the world, and this [leak] also serves this purpose of destabilization. They are causing a lot of people all over the world and also a lot of money to find its way into the [new] tax havens in America. The US is preparing for a super big financial crisis, and they want all that money in their own vaults and not in the vaults of other countries,” German journalist and author Ernst Wolff told RT.

Earlier this week, the head of the International Consortium of Investigative Journalists (ICIJ), which worked on the Panama Papers, said that Putin is not the target of the leak, but rather that the revelations aimed to shed light on murky offshore practices internationally. “It wasn’t a story about Russia. It was a story about the offshore world,” ICIJ head Gerard Ryle told TASS. His statement came in stark contrast to international media coverage of the “largest leak in offshore history.” Although neither Vladimir Putin nor any members of his family are directly mentioned in the papers, many mainstream media outlets chose the Russian president’s photo when breaking the story.

“We have innuendo, we have a complete lack of standards on the part of the western media, and the major mistake made by the leaker was to give these documents to the corporate media,” former CIA officer Ray McGovern told RT. “This would be humorous if it weren’t so serious,” he added. “The degree of Putinophobia has reached a point where to speak well about Russia, or about some of its actions and successes, is impossible. One needs to speak [about Russia] in negative terms, the more the better, and when there’s nothing to say, you need to make things up,” Kremlin spokesman Dmitry Peskov has said, commenting on anti-Russian sentiment triggered by the publications. WikiLeaks spokesman and Icelandic investigative journalist Kristinn Hrafnsson has called for the leaked data to be put online so that everybody could search through the papers. He said withholding of the documents could hardly be viewed as “responsible journalism.”

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Almost funny.

Bookmakers Set Odds For Next Leader To Resign After Panama Papers (MW)

Whose scalp will the Panama Papers scandal claim next? Irish bookmaker Paddy Power has opened betting lines on which head of state could be the next to go. “Who needs the Grand National when you’ve got the Panama Papers to punt on?” the betting line boasted in a press release on Wednesday. Icelandic Prime Minister Sigmundur Gunnlaugsson, announced yesterday he was stepping down after Panama Papers revelations that he and his wife sought to hide their claims on Icelandic banks that were bailed out by his administration during the financial crisis. Paddy Power puts the odds of British Prime Minister David Cameron resigning next at 20-1. The leaked documents outed Cameron’s father Ian Cameron as a client of the Panamanian law firm, Mossack Fonseca, at the center of the scandal.

Cameron’s father used a secret but legal offshore structure to set up a fund for investors. After saying all day Monday that his tax affairs were a “private matter”, media questions about his family’s remaining interest in the fund forced Cameron’s office, according to BBC reports, to issue a statement affirming that his family “[does] not benefit from any offshore trusts.” A surer bet according to the bookmaker is Argentina’s President Mauricio Macri at 8-1 odds. Macri won last year’s general election campaigning on a platform promising to fight corruption but the leaked documents say he was a director of Fleg Trading Ltd, founded in 1998 by his father Franco Macri, one of the richest men in Argentina. The company was dissolved in January 2009. “It was an offshore company to invest in Brazil, an investment that ultimately wasn’t completed, and where I was director,” he said in a television interview with a local program.

A Paddy Power spokesman told MarketWatch that to pay off, the leader has to leave “after being implicated specifically in the Panama Papers.” There have already been a few bets made that Macri and Cameron are next, he said. Paddy Power also has laid odds that the President of Pakistan Nawaz Sharif will leave at 10-to-1 and Ukraine’s President Petro Poroshenko almost as good at 12-1. Sharif is mentioned in the leak as the result of a £7 million loan from Deutsche Bank backed up by four London apartments owned by offshore companies established by Mossack Fonseca. Poroshenko – nicknamed the ‘chocolate king’ – hid his ongoing interest in his candy company, Roshen, in a blind trust offshore when he became president in 2014. He had promised to sell it after being elected. Longshots to leave include President Xi Jinping of China, Russia’s Putin and France’s Francois Hollande, all set at 33-1.

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Coming closer.

Brexit May Force Europe’s Banks To Dump $123 Billion Of Securities (BBG)

If Britain decides to leave the EU, a corner of the credit market may depart with it and European banks could be left having to replace as much as €108 billion ($123 billion) of securities. Lenders from the EU that bought bonds backed by U.K. mortgages, bank loans and credit-card debt may find themselves caught up in the fallout of a “Brexit” because the debt might no longer count toward their emergency cash reserves. While a settlement with the bloc would take years to reach, lawyers and analysts are beginning to flag concerns about holdings of the asset-backed securities, a market that’s already been hammered since the financial crisis.

“Banks could find themselves having a liquidity issue if these assets no longer count,” said Vincent Keaveny at law firm DLA Piper, who specializes in structured credit. “There are big risks out there, but there aren’t any easy fixes.” Under the Basel Accords, a set of agreements by global regulators, banks must meet minimum standards meant to make them more resilient to shocks after the financial crisis highlighted their weaknesses. One standard, known as the Liquidity Coverage Ratio, requires banks maintain an adequate amount of high-quality assets that can be quickly converted to cash to meet liquidity needs for 30 days.

Certain securitized notes are counted, but their underlying assets must originate from a member state, according to the European Commission’s Delegated Act for the standard. That means some bonds backed by collateral from a newly go-it-alone Britain may be excluded. “‘Brexit’ could result in certain U.K. ABS no longer qualifying as eligible assets for current LCR purposes,” Angela Clist and Nicole Rhodes, London-based lawyers specializing in securitization at Allen & Overy LLP, wrote in a note to clients in February.

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“When economists say “equilibrium,” what they really mean is “any solution to any equations I decide to write down.”

Economics Builds a Tower of Babel (BBG)

In Lewis Carroll’s “Through the Looking Glass,” Humpty Dumpty proudly declares: “When I use a word, it means just what I choose it to mean – neither more nor less.” To which Alice replies: “The question is whether you can make words mean so many different things.” Humpty Dumpty could have been an economist. The modern economics profession made a collective decision, long ago, to develop a system of jargon in which words have multiple, sometimes contradictory meanings. Unfortunately, the general public’s reaction tends to be similar to that of poor Alice. Want some examples? There’s no shortage. Let’s take the word “investment.” Most people think this means buying some financial assets, such as stocks or bonds. That’s basically a form of lending – you give someone money today, and you hope they’ll give you back more money tomorrow.

Economists call that “financial investment,” but the kind of investment they usually talk about is business investment, meaning a company’s purchase of capital goods. Since companies use debt to buy capital goods (or use their own cash, which is essentially the same thing), this kind of “investment” is actually a type of borrowing. So economists use the same word to mean both borrowing and lending! That couldn’t possibly result in any confusion, right? Two similar examples are “capital” and “equity.” “Equity” can mean stock – partial ownership of a company – or it can refer to “shareholders’ equity,” which is a measure of the value of a business. “Capital” in econ can mean financial capital, i.e. money in the bank. More commonly, it refers to capital goods – productive stuff such as buildings or machines that help you create more stuff.

Though economists usually use the term in the second way, many people outside the profession refer to financial capital as “economic capital.” Confused yet? We’re just getting started. Everyone knows that economists love models where rational agents interact in an efficient market that reaches equilibrium, right? Except that almost every word in that sentence is complete nonsense, thanks to econ’s Humpty Dumpty-like tendency to redefine words without telling anyone. So how about “equilibrium”? The word used to refer to a situation where prices adjust in order to clear markets, so that supply matches demand. Later, game theorists came up with “Nash equilibrium,” named after mathematician John Nash, which refers to a situation where everyone is responding optimally to everyone else in a strategic situation. Other concepts proliferated, and so by now the word has lost all meaning entirely. When economists say “equilibrium,” what they really mean is “any solution to any equations I decide to write down.”

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Will the EU survive?

Dutch ‘No’ Vote On Ukraine Pact Forces Government Rethink (Reuters)

The Dutch government said on Wednesday it could not ignore the resounding “No” in a non-binding referendum on the EU’s association treaty with Ukraine, but that it may take weeks to decide how to respond. Although the results were preliminary, they exposed dissatisfaction with the Dutch government and policy-making in Brussels – signalling a anti-establishment mood in a founding EU member weeks before Britain votes on membership. There could also be far-reaching consequences for the fragile Dutch coalition government, which currently holds the rotating EU presidency and which has lost popularity amid a wave of anti-immigrant sentiment. Exit polls indicated roughly 64% of Dutch voters voted “No” and 36% said “Yes”. Although turnout was too close to call, early tallies indicated it was just ahead of a turnout minimum of 30% required for the vote to be valid.

“It’s clear that ‘No’ have won by an overwhelming margin, the question is only if turnout is sufficient,” Dutch Prime Minister Mark Rutte said in a televised reaction. “If the turnout is above 30% with such a large margin of victory for the ‘No’ camp, then my sense is that ratification can’t simply go ahead,” Rutte added. That sentiment was shared by Diederik Samsom, leader of the Labour Party, the junior partner the governing coalition. “We can’t ratify the treaty in this fashion,” he said. A person familiar with internal EU discussions on how leaders in Brussels would respond said EU officials had been hoping for very low turnout that would disqualify or diminish the impact of a “No” vote. The European Commission, the bloc’s executive, will play for time, waiting for the Dutch government to suggest a way forward, the official said. The political, trade and defence treaty is already provisionally in place, but has to be ratified by all 28 EU member countries for every part of it to have full legal force. The Netherlands is the only country that has not done so.

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Monday there was a lot of media and brouhaha, and then they have a 17-day hiatus? EU-Assclowns.

Greece Sees Two-Week Lag In Migrant Returns To Turkey (AFP)

A last-minute flurry of asylum applications by migrants desperate to avoid expulsion from Greece to Turkey will likely cause a two-week “lag” in an EU deportation plan slammed by rights groups, a Greek official said Wednesday. Nikos Xydakis, junior foreign minister for European affairs, indicated there would likely be few migrants sent back to Turkey over the next two weeks, following the first deportation of around 200 people on Monday. “We knew there would be a lag, an intermediate period before the program takes off, of at least two weeks to get through the first batch of (asylum) applications,” Xydakis told reporters. He nevertheless said the next set of expulsions would likely take place “from Friday onwards”, without going into further detail.

Athens stressed that the people shipped back to Turkey on Monday were migrants who had not claimed asylum. But the UN’s refugee agency has expressed concern that 13 of them, mostly Afghans, had expressed a wish to claim asylum but were not registered in time. Xydakis said some two dozen EU legal experts had arrived so far to assist the asylum process, compared to hundreds of security agents from EU border agency Frontex. “This is the weakness of the whole procedure. It is easier to deploy police officers than experts in refugee law, interpreters, debriefers,” he said. But he added: “They are coming.” Once the system is fully up and running, Greece has said it can process asylum claims in two weeks. “In two weeks (authorities) can get through 400 to 500 applications,” Xydakis said.

Under the terms of the EU-Turkey deal, all “irregular migrants” arriving on the Greek islands from Turkey since March 20 face being sent back, although the accord calls for each case to be examined individually. And for every Syrian refugee returned, another Syrian refugee will be resettled from Turkey to the EU, with numbers capped at 72,000. “It was overestimated that in five days everything would begin, it was crazy. We told them many times in Brussels, we knew,” Xydakis said. “Things must be done by the book, we cannot bundle people together, they have to be certified and checked,” the minister said. Out of around 6,000 migrants who have arrived on the islands of Chios and Lesvos after the March 20 deadline, more than 2,300 have now applied for asylum. And many others had previously complained of not having had access to the asylum procedure.

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Mar 202016
 
 March 20, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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NPC Kidwell’s Market on Pennsylvania Avenue, Washington DC 1920

World Is ‘Overloaded On Monetary Policy’, Says OECD (Tel.)
Central Banks Are Already Doing The Unthinkable – You Just Don’t Know It (Tel.)
Helicopter Drops By Stealth (Tel.)
Buyback Blackout Period Starts Monday (ZH)
Another False Oil Price Rally: Crossing A Boundary (Berman)
China’s Property Rally Has ‘Reached A Tipping Point’ (Forbes)
China’s Bottom Line to Avoid Systemic Risks, Vice Premier Says (BBG)
China Top Planner Promises Foreign Companies Access To Markets (WaPo)
Why Are There Doubts Over China’s Growth Rate? (Forbes)
Support For Impeaching Brazil’s President Rises To 68% (Reuters)
German Right Wing Demands Referendum on EU, Refugee Crisis (Express)
Greece Delays Sending Refugees Back To Turkey Under EU Deal (AFP)
EU-Turkey Deal: Officials Left In The Dark As Deadline Looms (Tel.)
Don’t Make Us Ashamed To Be European (3 Mayors)

One trick ponies.

World Is ‘Overloaded On Monetary Policy’, Says OECD (Tel.)

Central banks cannot haul economies out of stagnation on their own, the OECD has warned. Catherine Mann, chief economist at the Paris-based think-tank, said countries were now “overloaded on monetary policy” as she described the use of negative interest rates as “a reaction of central banks trying to meet the objective of raising inflation and fostering growth alone”. Ms Mann said banks faced being “squeezed” by the unintended consequences of sub-zero rates in an environment where demand remained subdued. The OECD has repeatedly warned that fiscal policy and structural reforms are needed to ensure recoveries are self-sustaining. “In the economies where negative interest rates are most deployed, the credit channel is particularly important, and this is impaired. Banks in Europe for example have not deleveraged and they as a result are not in a position to effectively lend credit,” said Ms Mann.

“They are also squeezed in the middle between negative interest rates on the one hand and very soft economic activity on the other. So negative interest rates are tough. It’s a tough policy to use.” Mark Carney, the Governor of the Bank of England, has warned that negative interest rates could do more harm than good by eating into banks and building societies’ profits and pushing up consumer charges. Earlier this month, the ECB stepped up efforts to reflate the eurozone. Policymakers slashed its deposit rate deeper into negative territory and beefed-up its quantitative easing programme. In a bid to spur credit growth, the ECB sweetened its incentive for banks to lend by revamping its targeted longer-term refinancing operations (TLTROs).

From this June, banks that lend more will be paid as much as 0.4pc to borrow from the ECB. Ms Mann said the ECB’s actions were welcome, but would not get Europe “back on track” on their own. “The ECB has done a lot, but the effective way to enhance economic activity in the euro area is a three-legged stool: fiscal, monetary and structural. What [Mario] Draghi [the president of the ECB] has done is make the monetary leg of the stool even longer, so we’re not there yet with the recipe we need in order to get Europe back on track.” Some experts argue that central banks will be forced to inject money directly into the economy through so-called “helicopter drops” in order to boost flagging nations.

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The road to helicopter money.

Central Banks Are Already Doing The Unthinkable – You Just Don’t Know It (Tel.)

The lords of finance are losing their touch. Institutions which dragged the world from its worst depression since the early 20th century are finally seeing their magic desert them, if conventional wisdom is to be believed. Eight years on the from the Great Recession, voices as authoritative as the IMF and the BIS – dubbed the ‘central bank of central banks’ – have called time on the era of extraordinary monetary policy. Having hoovered up $12.3 trillion in financial assets and carried out 637 interest rate cuts since 2008, central banks have been stunned back into action in the last six weeks. The Bank of Japan kicked off a new round of global easing with its decision to cross the rubicon into negative interest rate territory on January 29.

Eurozone policymakers followed suit earlier this month with a triple whammy of interest rate cuts, €20bn in additional asset purchases a month, and an unprecedented move to allow commercial banks to borrow money at negative rates. The Federal Reserve has also taken its foot off the pedal by slashing its expected interest rate hikes from four a year to just two. But the new wave of policy accommodation has ushered in fresh panic that monetary policy is suddenly subject to dwindling returns. Instead, talk has turned to governments finally pulling their weight to support the shaky global recovery. Fiscal policy has been largely dormant in the wake of the crisis as countries have concentrated on bringing down debt and deficits levels, binding themselves to stringent spending rules in the process.

Without tax breaks and greater state investment, the world is at risk of another “economic derailment”, the IMF has warned. The latest G20 communique has paid lip service to the idea that global governments will adopt policies to “strengthen growth, job creation and confidence”. In reality, there are little signs that politicians are ready to jettison their fixations on low debt and balanced budgets to support global growth.

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Part 2 of the long article above that takes a while getting to the point.

Helicopter Drops By Stealth (Tel.)

For some observers, the next phase in extraordinary central bank action has already arrived, and it is Japan which is leading the way. The Bank of Japan’s move to impose a three tiered deposit rate on banks this year can be seen as a covert attempt to transfer funds to the private sector, argues Eric Lonergan, economist and hedge fund manager. He notes that the BoJ’s decision to exempt some reserves from the negative rate represents a transfer of cash to commercial lenders at rate of 0.1pc. The system “separates out the interest rate on reserves from that which affects market rates”, says Lonergan. “It is taking the first step along the journey towards helicopter money and opens up a whole new avenue of stimulus”. In the same vein, the ECB has also signaled its intention to move away from endless interest rate cuts towards targeted attempts to boost private sector credit demand.

From June, eurozone banks will be paid as much as 0.4pc to borrow from the ECB for four years – a scheme dubbed ‘Targeted Long-Term Refinancing Operations’ (TLTRO’s). Lenders who do the most to pass on cheap loans to customers will be rewarded with the most favourable rates. “I wish they’d done it an awful lot sooner”, says Lonergan, who notes that for all its institutional constraints, the ECB still boasts a number of tools to boost bank lending. With government borrowing costs at rock bottom across the eurozone, even more QE would be unnecessary at this stage, he says. TLTRO’s however, “open the possibility of two different rates where you can leave the policy rate unchanged but lend to banks at lower and lower rates contingent on them lending to the real economy” he adds. “It is much cleverer way of doing things because savers do not suffer.”

But central bank ingenuity – however welcome – raises separate concerns about the accountability of institutions whose independence is sacrosanct but where decision-making is often insulated from public view. Lord Adair Turner, a former chairman of the Financial Services Authority, and one of the earliest advocates of helicopter money, calls for more transparency in a bid to finally smash the taboos around injecting money straight into the hands of consumers or governments. “I think it is more dangerous for central banks to forever denying what they are doing,” says Lord Turner. He calls Japan’s move to issue government debt at a rate of 40 trillion yen, while the central bank expands its balance sheet at a rate of 80 trillion yen a year, “a de facto debt monetisation”. “You are effectively replacing government debt with central bank money,” says Lord Turner. “It would be better for authorities to publish a statement, laying out the rules and assuring the world it is not too much.”

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It’s been all buybacks, so this should scare you.

Buyback Blackout Period Starts Monday (ZH)

Last week, one day before the Fed unleashed a statement that stunned Wall Street by its dovishness and admission that the Fed had been far too optimistic on the state of the US (and global) economy, when it slashed its forecast on the number of rate hikes from 4 to 2, we said that “while everyone’s attention is on the Fed, the biggest danger to the S&P500 has little to do with what Janet Yellen may say tomorrow, and everything to do with the marginal buyer of stocks being put into a state of forced hibernation”, namely the start of the stock buyback blackout period during Q1 earnings session.

As a reminder, even Bloomberg recently acknowledged the unprecedented role corporate stock repurchases play in the current market when it penned “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” Of course,  our readers have known the identity of the “mystery, indescriminate buyer” for two years.

Today, it is Deutsche Bank’s turn to warn about the imminent end of buybacks for the next 6 weeks. From Parag Thatte’s latest Asset Allocation and Flows report:

Buyback blackout period starts Monday. An increasing number of S&P 500 companies will enter into their blackout period starting next week, about a month before the earnings season kicks into high gear in the third week of April

Deutsche Bank tries to spin it as not necessarily a source of downside:

The blackout period means a slowing in the pace of buybacks which leaves equities vulnerable to negative catalysts. However it does not automatically imply downside and as we have emphasized before it is the total demand-supply gap that is key. So flows are critical and data surprises suggest the recent flow rotation into US equities can go further

There are two problems with this assessment. First. as DB’s own chart below shows, traditionally US equity flows have seen substantial and sharp declines during the buyback blackout period during the past three calendar years. It is unclear why this time will be any different.

Second, and more important, is that as Bank of America reported earlier this week, in the latest week “during which the S&P 500 climbed 1.1%, BofAML clients were net sellers of US stocks for the seventh consecutive week. Net sales of $3.7bn were the largest since September and led by institutional clients (where net sales by this group were the second-largest in our data history). Hedge funds and private clients were also net sellers, as was the case in each of the prior two weeks, but a different group has led the selling each week. Clients sold stocks across all three size segments, and net sales of mid-caps were notably the largest since June ’09.”

BofA’s summary: “clients don’t believe the rally, continue to sell US stocks” and they were selling specifically to corporations whose repurchasing activity is near all time highs: “buybacks by corporate clients accelerated for the third consecutive week to their highest level in six months, which is also above levels at this time last year.

Next week this “accelerating” buyback activity ends, and the question will be whether the S&P at a high enough level to give institutional investors comfort that without the buyback bid, in fact the only bid for the past seven weeks, they should now buy on their own, or will the selling, which took place as the market has soared from its recent lows in its biggest quarterly comeback ever…

 

… continue, only this time with a cheap debt-funded, price indiscriminate buyer on the other side to absorb all the selling. We will have the answer in just about one week’s time.

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Keep your eyes on the dollar.

Another False Oil Price Rally: Crossing A Boundary (Berman)

The oil-price rally that began in mid-February will almost certainly collapse. It is similar to the false March-June 2015 rally. In both cases, prices increased largely because of sentiment. As in the earlier rally, current storage volumes are too large and demand is too weak to sustain higher prices for long. WTI prices have increased 47%  over the past 20 days from $26.21 in mid-February to $38.50 last week (Figure 1).

Figure 1. NYMEX WTI futures prices & OVX oil-price volatility, 2015-2016. Source: EIA, CBOE, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).

 

A year ago, WTI rose 41% in 35 days from $43 to almost $61 per barrel. Like today, analysts then believed that a bottom had been reached. Prices stayed around $60 for 37 days before falling to a new bottom of $38 per barrel in late August. Much lower bottoms would be found after that all the way down to almost $26 per barrel at the beginning of the present rally.

Higher prices were unsustainable a year ago partly because crude oil inventories were more than 100 mmb (million barrels) above the 5-year average (Figure 2). Current inventory levels are 50 mmb higher than during the false rally of 2015 and are they still increasing.

Figure 2. U.S. crude oil stocks. Source: EIA and Labyrinth Consulting Services, Inc. (click image to enlarge).

 

International stocks reflect a similar picture. OECD inventories are at 3.1 billion barrels of liquids, 431 mmb more than the 2010-2014 average and 359 mmb above the 2015 level. Approximately one-third of OECD stocks are U.S. (1.35 billion barrels of liquids).

For 2015, U.S. liquids consumption shows a negative correlation with crude oil storage volumes (Figure 3). During the 2015 false price rally, consumption began to increase in April and May following the lowest WTI oil prices since March 2009–response lags cause often by several months. First quarter 2015 prices averaged $47.54 compared to an average price of more than $99 per barrel from November 2010 through September 2014 (44 months).

Figure 3. U.S. liquids consumption, crude oil stocks and WTI price. Source: EIA, Bloomberg and Labyrinth Consulting Services, Inc. (click image to enlarge).

 

This coincided with the onset of declining U.S. crude oil production after April 2015 (Figure 4).

Figure 4. U.S. crude oil production and forecast. Source: EIA March 2016 STEO and Labyrinth Consulting Services, Inc. (click image to enlarge).

 

Net withdrawals from storage continued until consumption fell in July in response to higher oil prices that climbed to $60 per barrel in June. Production increased because of higher prices from July through November before resuming its decline after prices fell again, this time, far below previous lows. This complex sequence of market responses shows how sensitive the current market is to relatively small changes in price, production and consumption.

Most importantly, it suggests that a price variation of only $15 per barrel was enough to depress consumption a year ago. That has profound implications for the present price rally that is now $12 per barrel above its baseline and has already increased by a greater percentage than the 2015 rally.

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“For homebuyers, it is easier than ever to get mortgages.” But more important, the downpayment itself is today often being financed through peer-to-peer lending channels, [..] basically another form of high-interest “loan shark.”

China’s Property Rally Has ‘Reached A Tipping Point’ (Forbes)

The real estate market in China is once again burning hot. Home prices in Beijing, Shanghai and Shenzhen have surged by 20-30% since the Lunar New Year in February, according to state-controlled media. In Shenzhen, prices have increased by more than 70% over the past 12 months. “The makings of this rally started more than a year ago and have reached a tipping point,” says Steven McCord at JLL North China. “Policies are looser than at any time in history in the last ten years, including the major policy rollbacks of 2009.” This is not the first time China is facing a property bubble. But one thing makes this time around different – unregulated lending. Previous upswings were not driven by leverage, McCord explains. The norm was that people did not finance the maximum allowable level.

They financed, on average, half of the cost – even if 70% or 80% was allowed. Therefore, mortgages did not play a role in driving up demand or prices. “Now, we believe there are more buyers using the maximum available leverage,” he says. “For homebuyers, it is easier than ever to get mortgages.” But more important, McCord adds, the downpayment itself is today often being financed through peer-to-peer lending channels. “This is not the norm yet, but it’s appearing and it makes us uncomfortable,” he says. “This means some buyers are buying with zero down.” In his view, peer-to-peer lenders are basically another form of high-interest “loan shark.” Hong Kong Economic Journals recently reported that some 900 peer-to-peer lending platforms went belly up last year, three times the number in 2014.

While some bankruptcies were due to poor management, many companies folded after the owner or operator took the money and disappeared. “Unregulated lending adds fuel to the fire of any bubble, and this could be a real problem if it becomes common,” McCord said. Chen Zhenggao, Minister of Housing and Urban-Rural Development, said earlier this week that China’s real estate market would not collapse. “It is not appropriate to compare the real estate market in China with that of Japan in the 1990s, as the two countries are in different stages of economic development and urbanization. We also have different macro policies to control the situation,” Chen said at a news conference.

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Really?

China’s Bottom Line to Avoid Systemic Risks, Vice Premier Says (BBG)

China will do what it needs to tamp down risks to the stocks, bonds, foreign-exchange and property markets as economic growth slows, Vice Premier Zhang Gaoli said in a speech. The economy faces “relatively large” downward pressure, said Zhang, who is one of seven members of the ruling Communist Party’s top decision-making body, the Politburo Standing Committee. He said plans for a 3% fiscal deficit, outlined in Premier Li Keqiang’s March 5 report to the national legislature, are meant to ease the burden on business. “There will be no systemic risks – that’s our bottom line,” Zhang told the China Development Forum, an annual gathering of global business leaders and Chinese government officials. Zhang’s remarks echoed recent comments from top officials, including the chairman of the securities regulator, that the government would act swiftly to stop the sort of market turmoil that led to a $5 trillion stock-market wipeout last August.

Premier Li Keqiang told his annual news conference on March 16 that China needs to be on the lookout for financial-market risks with “golden-gaze fiery eyes.” Speaking earlier Sunday, IMF Managing Director Christine Lagarde said China is in the middle of a historic transition that’s “good for China and good for the world.” “We should expect that, like any major transition, it will at times be bumpy,” Lagarde said, according to her prepared remarks. “A delicate balance needs to be struck between shifting to a relatively slower but more sustainable pace of growth, and advancing much-needed structural reforms.” Zhang said the government plans to cut overcapacity, especially in the steel and coal sectors. China’s 13th Five-Year Plan, unveiled during the legislative session that ended March 16, said the government will reduce as much as 150 million tons of steel capacity.

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After they’ve collapsed.

China Top Planner Promises Foreign Companies Access To Markets (WaPo)

China’s top planner tried to reassure foreign companies they are welcome in its slowing, state-dominated economy in a speech Sunday aimed at dispelling growing anxiety Beijing is squeezing them out of promising industries. Speaking to an audience that included executives of top global companies at a government-organized conference, Xu Shaoshi pledged to “promote two-way opening up and liberalization.” Xu promised foreign companies equal treatment with local enterprises as Beijing carries out a sweeping overhaul aimed at promoting self-sustaining growth based on domestic consumption and making state companies that dominate a range of industries more competitive and efficient. “We are ready to share these growth opportunities with you,” said Xu, chairman of the Cabinet’s National Reform and Development Commission.

The China Development Forum 2016 is being closely watched by global companies because it comes at the start of the ruling Communist Party’s latest five-year development plan that runs through 2020. Executives are eager to learn details of how the party might carry out pledges to make the economy more competitive, open more industries to private and possibly foreign competitors and to shrink bloated, money-losing industries including coal, steel and cement. The guest list for the weekend conference at a government guesthouse in the Chinese capital included executives of U.S., European and Asian banks, manufacturers, Internet and other companies.

The ruling party’s plan promises to give the private sector a bigger economic role, but business groups say regulators are trying to shield Chinese rivals from competition or compel foreign companies to hand over technology in exchange for market access. Business groups say Beijing has yet to carry out most of the reforms promised in a separate 2013 plan that called for giving market forces a “decisive role” in the economy. They point to limits on foreign ownership in an array of industries and say in some areas such as information security technology for banks regulators are reducing or blocking market access.

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“Examining a range of indicators from VAT rates to steel production volumes, and comparing the results to estimates of the government deficit, produces the startling suggestion that “the real economy in China probably isn’t growing at all.”

Why Are There Doubts Over China’s Growth Rate? (Forbes)

China’s growth rate has been in the spotlight ever since Li Keqiang – China’s Premier – signalled the arrival of a ‘new normal’ in May 2015. Before then, headline rates routinely in excess of 8%, even rising above 14% in 2007, meant the detail was not scrutinised so closely. Now, however, with growth forecast between 6.5% and 7% for the period to 2020, the decimal points are beginning to matter. For China, the growth rate indicates the continuing success of their economic development, and measures their progress towards prosperity. For the rest of the world, Chinese growth has become a crucial source of global demand, driving expansion – and revenue streams – everywhere. There is, therefore, no exaggerating the significance of the number, both in fact and in appearance.

But increasing doubts are being raised. A recent article in Foreign Affairs raised the possibility that, despite a headline growth figure of 6.9% for 2015, China’s economy may not be growing at all. Examining a range of indicators from VAT rates to steel production volumes, and comparing the results to estimates of the government deficit, produces the startling suggestion that “the real economy in China probably isn’t growing at all. It may even be shrinking.” Doubts about the official figures are not new of course, but the difference between 6.9% and 0.0% is pretty striking nonetheless. And what often goes unsaid is that the official estimates are always at the high end of expectations. As a follow up, Foreign Affairs published a more optimistic account just a few weeks later.

According to this version of events, the ‘Li Keqiang’ index is out of date, reflecting the sort of industrially focussed economy that China was 10 years ago. But even this measure has different methods of calculation, producing results which vary between 2.9% and 5% for 2015. This account, however, also implies the official figures are not very precise estimates. The main argument is that the Chinese economy has changed and now shows significant growth in the service sector, as opposed to the industrial and manufacturing sector.

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Zika, poisoned water, riots and impeachment: here come the Olympics.

Support For Impeaching Brazil’s President Rises To 68% (Reuters)

A growing majority of Brazilians favor impeachment of President Dilma Rousseff or her resignation, according to a survey released on Saturday by polling firm Datafolha. The poll showed 68% of respondents favor Rousseff’s impeachment by Congress, while 65% think the president should resign. The president’s approval ratings have been hammered by Brazil’s worst recession in decades and its biggest ever corruption probe. Rousseff’s popularity also fell, with 69% of respondents rating her government negatively. The current%age is close to the president’s lowest ratings on record, in August 2015, when 71% of respondents rated the government negatively.

The poll also showed that rejection levels for former President Luiz Inacio Lula da Silva, who was named as Rousseff’s chief of staff on Wednesday, rose to a record 57%. That is far higher than the previous high of 40% in September 1994, before his 2003-2010 presidency. A Supreme Court judge suspended Lula’s appointment on Friday, saying it might interfere with an investigation by prosecutors, who have charged him with money laundering and fraud, as part of the probe into political kick back scheme at state oil company Petrobras. Even if Brazilians support Rousseff’s ouster, voters are not enthusiastic about a government led by vice-president Michel Temer. Some 35% of respondents say his government would be “bad” or “terrible”. Datafolha surveyed 2,794 people on March 17 and 18.

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A Europe-wide idea.

German Right Wing Demands Referendum on EU, Refugee Crisis (Express)

Alternative fur Deutschland, formed in 2013, shocked the German establishment last week with huge gains in state elections. The results have placed it in prime position to challenge Mrs Merkel’s CDU/CSU coalition in next year’s general election. Speaking exclusively to the Sunday Express last night, party leaders shared their envy of Britain’s forthcoming EU referendum on June 23, and confirmed they would be pushing for a similar move in Germany. “I want every member state to decide what is better for them, and the only way we can really do that is to have a referendum, like the UK.” said deputy chairman Beatrix von Storch MEP. “Schengen has collapsed already. Under Schengen Europe’s borders are supposed to be protected. They’re not.

“A referendum is the only way German people can truly express if they want to stay in the EU, if they want to stay in the Euro, if they want to reform border controls to deal with the migrant crisis. They should be given a voice. They must be asked what they want.” Angela Merkel last week refused to back down on her policy not to cap the number of refugees given asylum in Germany. Over the last 12 months, more than 1.1 migrants have crossed Germany’s borders with 300,000 granted asylum. The policy will cost German taxpayers £36bn by 2017, according to a recent report. AfD won an extraordinary 61 seats in 3 regional parliaments last week, coming second with 24% of the votes in Saxony-Anhalt. “We’re still a very young party so it’s a huge success,” said Ms von Storch.

“What’s even more important is the result in Baden-Wuertemberg, where we overtook the SDP, a ruling coalition party, to gain 15% of the votes. “Our success shows that the people are no longer supporting the politics of our Chancellor and all the other parties who back her. “We are the only ones arguing that the only way for Germany to fight the refugee and migrant crisis is to close our borders.”

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The 2,300 ‘experts’ promised -and needed- for the deal are not available. It’ll take weeks for them to get to the islands. What happens to new arrivals in the meantime?

Greece Delays Sending Refugees Back To Turkey Under EU Deal (AFP)

Greece will not be able to start sending refugees back to Turkey from Sunday, the government said, as the country struggles to implement a key deal aimed at easing Europe’s migrant crisis. Under the agreement clinched between Brussels and Ankara last week, migrants who reach the Greek islands will be deported back to Turkey. For every Syrian returned, the EU will resettle one from a Turkish refugee camp. The deal aims to strangle the main route used by migrants travelling to the EU and discourage people smugglers, but it has faced criticism from rights groups and thousands took to the streets of Europe in protest. Greek premier Alexis Tsipras told his ministers on Saturday afternoon to be ready to begin deporting people the following day, as agreed, but officials said afterwards they needed more time to prepare.

“The agreement to send back new arrivals on the islands should, according to the text, enter into force on March 20,” the government coordinator for migration policy (migration coordination agency) spokesman Giorgos Kyritsis told AFP. “But a plan like this cannot be put in place in only 24 hours.” Around 1,500 people crossed the Aegean to Greece’s islands Friday before the deal was brought in, officials said – more than double the day before and compared with several hundred a day earlier this week. A four-month-old baby drowned when a migrant boat sank off the Turkish coast Saturday hours before the deal came into force, Turkey’s Anatolia agency reported. Hundreds of security and legal experts – 2,300 according to Tsipras – are set to arrive in Greece to help enforce the deal, described as “Herculean” by EC chief Jean-Claude Juncker.

Paris and Berlin have pledged to send 600 police and asylum experts to Greece, according to a joint letter seen by AFP. But Greek officials said they were still waiting for the extra personnel, and without them they would struggle to enforce the new accord. “We still don’t know how the deal will be implemented in practice,” a police source on the island of Lesbos told AFP. “Above all, we are waiting for the staff Europe promised to be able to quickly process asylum applications – translators, lawyers, police officers – because we cannot do it alone.” Realistically, migrants will likely not start being returned to Turkey until April 4, according to German Chancellor Angela Merkel, a key backer of the scheme. The numbers are daunting: officials said as of Saturday there were 47,500 migrants in Greece, including 8,200 on the islands and 10,500 massed at the Idomeni camp on the Macedonian border.

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“If they told me I had to go back, I would drown myself in the sea.”

EU-Turkey Deal: Officials Left In The Dark As Deadline Looms (Tel.)

Europe’s refugee resettlement programme with Turkey appeared to be descending into farce last night as officials on the Greek island of Lesbos reported they had received no instructions from the EU authorities on how to proceed. As the midnight deadline approached for the EU’s new deportation regime with Turkey, organisations and local authorities on Lesbos, where the majority of boats land, said not a single new staff member had arrived and no information had been received. “We don’t know anything,” said Marios Andriotis, advisor to the mayor of Lesbos. “We have received many officers from [the EU border agency] Frontex et cetera over the past year but no one new since Friday. And nobody told us to prepare anything or do anything differently.”

“We have taken note of the deal but we are not privy to details of the implementation,” said Boris Cheshirkov, a spokesman for the United Nations Refugee Agency (UNHCR). Jean-Claude Juncker, the president of the European Commission described the controversial plan as last week as a “Herculean task” that will present “the biggest challenge the EU has ever faced”, but there was no sign last night on Lesbos of even a symbolic show of intent. Under the terms of the deal agree last Friday, some 4,000 extra staff have been promised to process all new arriving refugees who will be deported back to Turkey after undergoing fast-track asylum processing. The first deportations are scheduled for April 4. The Greek authorities said yesterday there are now 47,500 migrants in the country, of which 8,200 were on the islands and some 10,500 massed at Idomeni, on the closed border with Macedonia.

NGO workers and volunteers in reception camps on Lesbos, which will serve as detention camps for migrants and refugees waiting to be returned to Turkey, shook their heads when asked about the implementation of the deal. “Like the husband of an unfaithful wife, we will always be the last to know anything about Europe’s deals,” said a UNHCR worker in Kara Tepe camp, where 1,500 Syrians and Iraqis are currently staying. “Really, we have no information.” Refugees in the camp called the idea of being returned “inhumane”, while Amnesty International has called the deal a “historic blow to human rights” raising the prospect of future legal challenges to the deal. The EU insists the deal is lawful.

Those that are now on Lesbos will not be sent back, though with Macedonia’s border still closed, they face an uncertain road ahead. “There is nothing for us in Turkey. No life, no work. I worked bad jobs for 700 lira (£170) a month, I could not put a roof over my family’s head,” said Samir, a teacher from Damascus who had been in the camp for five days. “If they told me I had to go back, I would drown myself in the sea.” In nearby Moria camp hundreds of mainly Pakistani migrants are housed in tents pitched on a muddy field outside the sealed-off EU “hotspot”, the official reception camp. Camp volunteers debated how to break the news of the returns to tomorrow’s arrivals. “They’ll just try again,” said Emma Kriss, an American volunteer. “I don’t think people will give up.”

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Article by Ada Colau, Mayor of Barcelona, Giuseppina Nicoli, Mayor of Lampedusa, and Spyros Galinos, Mayor of Athens

Don’t Make Us Ashamed To Be European (3 Mayors)

Two and a half thousand years ago, the islands of the Western Mediterranean were the cradle of the sciences, the arts and democracy. Today, they’re where the survival of Europe is at stake. We find ourselves facing a dilemma: either we assume our responsibility and strengthen the founding principles of the European project or we allow it to sink irreversibly. There is hope. Over recent months we’ve seen thousands of citizens, volunteers and aid workers working to save lives by helping those fleeing from war. We’ve seen local governments with hardly any legal powers carry out herculean tasks to receive refugees, investing the resources that state governments have refused.

Nevertheless, we’ve also observed, with sadness, not just the inability of European states to offer a dignified solution to the humanitarian crisis, but also transit routes being choked off; increasing border controls and repression, and the aberration of a deal with Turkey that contravenes all international law regarding asylum and fundamental rights. Local initiatives stand in stark contrast to the lack of sensitivity demonstrated by European states. While state governments haggle quotas, we cities make contingency and awareness-raising strategies that, with adequate resources, we have a greater capacity to take in refugees than has been recognized. While state governments agree to repressive measures, we municipalities are working in networks to reach deals, like the agreement between Lesbos, Lampedusa and Barcelona that will allow the exchange of knowledge, resources and solidarity between the three cities.

With state governments are incapable of thinking beyond their national context, Barcelona and Athens city halls are working together to put pressure on them to meet their ethical and legal obligations. We, the cities of the Mediterranean, urgently call for other European cities to put an end to the inhumane policies of state governments and to force them to change course in response to the greatest humanitarian crisis since the end of the Second World War. The families that have lost their homes will not rest in pursuit of a place to live in peace, however many obstacles are put in their way. Each new impediment will simply increase the risks to human life and be another incentive for those wishing to profit from people-trafficking. We call for the rejection of the deal with Turkey, which flouts international law and fundamental rights.

Human lives cannot be traded for economic and commercial agreements. The right to asylum is a basic human right that cannot be subject to discounts and bartering. We also call for an end to the criminalization of refugees, and of the aid workers and volunteers collaborating in their reception. Their work should be a source of pride, and be supported and incentivised by public institutions. Events in recent days at the border of the Former Yugoslav Republic of Macedonia, the xenophobic rallies seen in various European countries, and their subsequent electoral exploitation, are a display of indecency that should embarrass us as European citizens and as human beings.

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Jul 062015
 
 July 6, 2015  Posted by at 12:23 pm Finance Tagged with: , , , , , , ,  9 Responses »
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DPC ‘On the beach, Palm Beach’ 1905

Minister No More! (Yanis Varoufakis)
Our NO Is A Majestic, Big YES To A Democratic, Rational Europe! (Varoufakis)
Yanis Varoufakis: Why Bold, Brash Greek Finance Minister Had To Go (Guardian)
Discussing Syriza’s Stunning Victory On The BBC (Steve Keen)
Defiant Greeks Reject EU Demands As Syriza Readies IOU Currency (AEP)
Yanis Varoufakis: Greece’s ‘Erratic Marxist’ (AFP)
What Are the Geostrategic Implications of a Grexit? (Foreign Policy)
Greece Votes No — Now What? (Peter Spiegel)
Why The Yes Campaign Failed In Greece (Wolfgang Münchau)
UN Debt Expert Says Greece Can’t Take More Austerity (Reuters)
Europe Wins (Paul Krugman)
Ending Greece’s Bleeding (Paul Krugman)
Thomas Piketty: “Germany Has Never Repaid.” (Medium)
We May Soon Be Able To See Polar Bears Only In Picture Books (MD)

Sorry to see him go, but he may be better able to lead things from the background.

Minister No More! (Yanis Varoufakis)

The referendum of 5th July will stay in history as a unique moment when a small European nation rose up against debt-bondage. Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution – to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today. I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum. And I shall wear the creditors’ loathing with pride.

We of the Left know how to act collectively with no care for the privileges of office. I shall support fully Prime Minister Tsipras, the new Minister of Finance, and our government. The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning.

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There is no democratic rational Europe.

Our NO Is A Majestic, Big YES To A Democratic, Rational Europe! (Varoufakis)

On the 25th of January, dignity was restored to the people of Greece. In the five months that intervened since then, we became the first government that dared raise its voice, speaking on behalf of the people, saying NO to the damaging irrationality of our extend-and-pretend ‘Bailout Program’.

We
• spread the word that the Greek ‘bailouts’ were exercises whose purpose was intentionally to transfer private losses onto the shoulders of the weakest Greeks, before being transferred to other European taxpayers
• articulated, for the first time in the Eurogroup, an economic argument to which there was no credible response
• put forward moderate, technically feasible proposals that would remove the need for further ‘bailouts’
• confined the troika to its Brussels’ lair
• internationalised Greece’s humanitarian crisis and its roots in intentionally recessionary policies
• spread hope beyond Greece’s borders that democracy can breathe within a monetary union hitherto dominated by fear.

Ending interminable, self-defeating, austerity and restructuring Greece’s public debt were our two targets. But these two were also our creditors’ targets. From the moment our election seemed likely, last December, the powers-that-be started a bank run and planned, eventually, to shut Greece’s banks down. Their purpose?
• To humiliate our government by forcing us to succumb to stringent austerity, and
• To drag us into an agreement that offers no firm commitment to a sensible, well-defined debt restructure.

The ultimatum of 25th June was the means by which these aims would be achieved. The people of Greece today returned this ultimatum to its senders; despite the fear mongering that the domestic oligarchic media transmitted night and day into their homes. Today’s referendum delivered a resounding call for a mutually beneficial agreement between Greece and our European partners. We shall respond to the Greek voters’ call with a positive approach to:
• The IMF, which only recently released a helpful report confirming that Greek public debt was unsustainable
• The ECB, the Governing Council of which, over the past week, refused to countenance some of the more aggressive voices within
• The European Commission, whose leadership kept throwing bridges over the chasm separating Greece from some of our partners.

Our NO is a majestic, big YES to a democratic Europe. It is a NO to the dystopic vision of a Eurozone that functions like an iron cage for its peoples. It is a loud YES to the vision of a Eurozone offering the prospect of social justice with shared prosperity for all Europeans.

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Curious piece by Helena Smith

Yanis Varoufakis: Why Bold, Brash Greek Finance Minister Had To Go (Guardian)

When historians look back at the great Greek debt crisis, the figure of Yanis Varoufakis will feature large. Bold and brash, he did more to internationalise the folly of austerity politics than any other member of the radical left government of Athens. Alexis Tsipras, the young prime minister, was much indebted to him, and Varoufakis’s resignation was quickly followed by effusive praise. “The prime minister feels the need to thank him for his ceaseless effort to promote the positions of the government and the interests of the Greek people under very difficult circumstances,” government spokesman Gavriel Sakellaridis announced.

Varoufakis may have been forced to leave front-line politics, but he does so hugely vindicated by the historic no vote delivered by Greeks on Sunday. There are not a few in Athens today who believe he is also a victim of his own success. The resounding rejection of further belt-tightening in a referendum that pitted Greece against all its eurozone partners was a high-stakes gamble associated squarely with the 54-year-old’s penchant for game theory and buccaneering style. The morning after, he had to go. In announcing his resignation, the controversial finance minister recognised that of all the impediments to a prospective deal (and there are still many) he would be the biggest.

Even by the standards of a crisis that long ago dispensed with diplomatic niceties, the combative politician had pushed the boundaries of acceptable fighting talk too far. On the eve of the vote, he accused Europe of indulging in terrorism, saying it was instilling fear in people in its bid to get Greece to acquiesce to “neoliberal dogmas.” In April, when eurozone counterparts expressed exasperation at his hectoring and lecturing style after an especially explosive Eurogroup, Varoufakis had felt fit to announce: “They are unanimous in their hate for me – and I welcome their hatred.”

By June, when it became apparent that Varoufakis would take things to the brink, senior Greek government officials in Athens were also finding it hard to contain their consternation. Many were enraged by tactics they saw as deliberately confrontational and a danger to the country’s relationship with Europe. Varoufakis’s showy lifestyle and shameless narcissism also jarred. But his apparent endorsement of a parallel currency and IOUs appears to have been the straw that broke the camel’s back. His ability to represent Greece abroad was over. Ever the maverick, Varoufakis is unlikely to vanish overnight. Although never a member of the ruling Syriza party, he remains an MP and, very possibly, will continue to influence Tsipras behind the scenes. There are few who doubt he will also be working on an unexpurgated version of the euro crisis, Varoufakis style.

He has already said he is looking forward to life on the backbenches. But will his sacrifice be enough to placate creditors? Varoufakis leaves an economy in meltdown, banks closed, capital controls imposed and shortages growing by the hour. If his removal is not enough, the mess that has also been the price of his brinkmanship may well end up being his lasting legacy – a legacy that historians will not forget.

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On the nose.

Discussing Syriza’s Stunning Victory On The BBC (Steve Keen)

After yesterday’s remarkable victory in the Referendum, I was interviewed on the BBC News Channel. Someone has posted a recording from the BBC News Channel stream on YouTube.

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The parallel currency issue is a big one.

Defiant Greeks Reject EU Demands As Syriza Readies IOU Currency (AEP)

Greek voters have rejected the austerity demands of Europe’s creditor powers by a stunning margin, sweeping aside warnings that this could lead to the collapse of the banking system and a return to the drachma. Early returns in the historic referendum showed the No side -Oxi in Greek =- running at 61pc versus 39pc for the Yes side as the Greek people turned out en masse to vent their anger over six years of economic depression and national humiliation. A volcanic revolt appeared to have swept through Greek islands. The shock result effectively calls the bluff of eurozone leaders and the heads of the European Commission and Parliament, forcing them either to back down or carry out drastic threats to eject Greece from monetary union.

The European Central Bank faces an immediate decision over whether to continue freezing emergency liquidity assistance (ELA) for Greek banks at €89bn, a stance that would amount to liquidity suffocation. “If they do that, the situation would be very serious. That would be pretty close to trying to bring down the government,” said Euclid Tsakalotos, the country’s chief debt negotiator. The Bank of Greece (BoG) said on Sunday evening that it will make a formal request to the ECB for fresh support. The EU’s leadership was in utter confusion as it became clear during the day that support was swinging back to the “No” camp, despite blanket coverage from the private TV stations warning that a “No” meant Armageddon. “The Greek people have proven that they cannot be blackmailed, terrorized, and threatened,” said Panos Kammenos, the defence minister and head of the coalition’s ANEL party.

French president Francois Hollande said he would bend over backwards to keep Greece in the euro despite voting no. He is to meet German Chancellor Angela Merkel in Paris on Monday to draw up a joint response to what has turned into the biggest EU fiasco since the rejection of the European constitution by France and Holland in 2005. Martin Schulz, head of the European Parliament, was still insisting on Sunday that a “No” vote must mean expulsion from the euro, but his view is becoming untenable. Jean-Claude Juncker, the Commission’s chief, is equally trapped by his own rhetoric after warning last week that a No vote would be a rejection of Europe itself, leading to calamitous consequences. Top Syriza officials say they are considering drastic steps to boost liquidity and shore up the banking system, should the ECB refuse to give the country enough breathing room for a fresh talks.

“If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago,” said Yanis Varoufakis, the finance minister. California issued temporary coupons to pay bills to contractors when liquidity seized up after the Lehman crisis in 2008. Mr Varoufakis insists that this is not be a prelude to Grexit but a legal action within the inviolable sanctity of monetary union. Mr Varoufakis and ministers will hold an emergency meeting tonight with the private banks and the governor of the Greek central bank, Yannis Stournaras, to decide what to do before the cash reserves of the four big lenders dry up tomorrow. Louka Katseli, head of the Hellenic bank Association, said ATM machines will run out of money within hours of the vote. One official say that Eurobank was “flat out of money” late on Sunday, even though Greek depositors have been limited to €60 a day since capital controls were imposed a week ago.

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“Varoufakis’s father Giorgos told the Greek daily Ethnos that his son’s critics “want to run him down because he is competent.”

Yanis Varoufakis: Greece’s ‘Erratic Marxist’ (AFP)

Yanis Varoufakis, Greece’s finance minister who resigned on Monday despite the government having secured a resounding victory in a weekend referendum, rose to fame and infamy this year for his urban-cool look, his abrasive style, and acerbic attacks on austerity. In a shock announcement just hours after Sunday’s referendum results on bailout terms were announced, Varoufakis said he was quitting to help Prime Minister Alexis Tsipras in ensuing negotiations with creditors. “Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today,” Varoufakis said on his blog.

During the past five months of negotiations between Athens and its international creditors, the self-described “erratic Marxist” seemed more at ease chatting with unemployed anarchists than with fellow European finance ministers, who often groaned about his blunt negotiating tactics. European Economic Affairs chief Pierre Moscovici commented that Varoufakis “is a smart person, not always easy, but smart.” His straight-talking style produced notable moments including his characterisation of the austerity imposed on Greece as “fiscal waterboarding”. After negotiations broke down between Greece and its creditors, Varoufakis slammed Europese governance. “This is not the way to run a monetary union. This is a travesty. It’s a comedy of errors for five years now, Europe has been extending and pretending,” Varoufakis said in a BBC interview.

After becoming finance minister in January, there were some growing pains as he adapted to the burning glare of the global media spotlight. He allowed himself to be pictured in Paris Match magazine at a piano and dining in style with his wife on the roof terrace of his “love nest at the foot of the Acropolis”, while telling the magazine how he abhorred the “star system”. Though the maverick minister has always taken a stance protecting ordinary Greeks, his background was anything but common. He is the son of Giorgos Varoufakis, who at 90 still heads one of Greeces leading steel producers, Halyvourgiki. He also attended the Moraitis School, which has alumni including prominent Greek leaders and artists.

His early career was spent at the English universities of Essex, East Anglia and at Cambridge, and he has often been linked with research into game theory. In 1998 Varoufakis moved to Australia, and he is now a dual Greek and Australian citizen. He moved back to Greece in 2000 to teach at the University of Athens, and in January 2013 accepted a post at the University of Texas in Austin. Varoufakis has had a rebellious streak since a young age. He told the BBC he has deliberately misspelled his name Yanis, writing it with one “n”, since a confrontation with a teacher in elementary school. “I had an aesthetic problem with the double ‘n’, he said. “So I decided to write my name with one. My teacher gave me a bad grade, which made me very angry and I’ve kept writing my name with one ‘n’ ever since.”

As finance minister Varoufakis, his head shaved clean, shook up the staid world of EU summits by arriving to meetings in rock-star-style leather jackets and untucked shirts. He was quickly dubbed “Greece’s Bruce Willis”. His swagger and penchant for lecturing annoyed some EU counterparts at meetings on Greece’s debt and he was eventually pulled from frontline negotiations. Varoufakis’s father Giorgos told the Greek daily Ethnos that his son’s critics “want to run him down because he is competent.” “Yanis is a very good boy, and is always telling the prime minister what to do, which is why he adores him,” he said. A prolific blogger, Yanis Varoufakis has written several books, including “The Global Minotaur: America, Europe and the Future of the Global Economy”.

Varoufakis has said he believes his shattered country can only recover once it has rejigged the terms of an international bailout, and said early on that Greece’s massive debt could not be paid back in full. The minister said he would step down if disavowed by Greek voters who vote Sunday on whether they accept or reject bailout conditions that are no longer on the table. In his latest blog, Varoufakis gave reasons why Greeks should vote ‘no’ in the referendum, one being that the country “will” stay in the euro regardless of the outcome. He told Bloomberg TV that he would rather “cut my arm off” than stay on as minister in the case of a ‘yes’ vote.

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NATO worries.

What Are the Geostrategic Implications of a Grexit? (Foreign Policy)

At the moment, it is unclear how Greece will ultimately fare in the current duel of wills with the Troika over its technical default, the upcoming referendum, and the possibility of a continuation of the long-running bailout drama. The two sides are locked in acrimonious finger-pointing, Greek banks are shuttered for the week, and the logical but ever elusive diplomatic and economic solution — a reasonable negotiation between the parties — seems further away than ever. As a proud Greek-American, I am saddened by the situation. Meanwhile, the July 5 referendum is judged too close to call at the moment, and most Greeks will likely be confused about the implications and uncertain how to vote.

Macroeconomic theory appears to have been the first casualty of the process, and the doomsday economic scenarios — a crashed Greek economy, a battered if not broken euro, and a deeply shaken European project — are looming large on the horizon. But in the midst of all of the appropriate Sturm und Drang of the Greek financial and economic crisis, it is worth considering the geostrategic implications of the “Grexit” — which have been largely ignored. Let’s face it: A Greece that goes crashing out of the eurozone will be an angry, disaffected, and battered nation — but one that will continue to hold membership in the European Union and NATO, both consensus-driven organizations. (“Consensus-driven” means that without unanimous consent among all members, the organization cannot take decisions or execute effective operational actions.)

Many times in NATO councils as the supreme allied commander I watched the agonizing process of building consensus, one compromise at a time. In both the EU and NATO, an uncooperative Greece in the future could time and time again put the organizations “in irons,” which is to say becalmed and not moving effectively forward. This could manifest itself very quickly in, for example, decisions about sanctions against Russia (from which Greece is avidly courting support and funding, logically enough). It could easily affect day-to-day governance in the European Union over issues from negotiating the Transatlantic Trade and Investment Partnership to agricultural subsidies to what should be done about refugee flows across the Mediterranean. Greece could become a troublesome and obstructionist actor in complex negotiations involving the EU, such as the Iranian nuclear treaty efforts.

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More Troika hubris.

Greece Votes No — Now What? (Peter Spiegel)

Even before the polls closed in Greece, Emmanuel Macron, the French economic minister, insisted that even with a No vote in Sunday night’s referendum, talks must resume between the leftwing government in Athens and its eurozone creditors. But despite predictions by Greek ministers that a new bailout deal could be just days away, other than Mr Macron and his French colleagues, there are few elsewhere in the eurozone who predicted a resounding No would lead to much more than continued stalemate. If that is the result of overwhelming rejection of creditors’ terms, it would mean a slow march to Greece exiting the eurozone. “Greece has just signed its own suicide note,” predicted Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy.

“Only the French will want to salvage something from this vote, but they’re unlikely to win the debate in the eurogroup.” Angela Merkel, the German chancellor, is due to fly to Paris on Monday for consultations with President François Hollande on what steps to take next. The most critical immediate response to the vote is likely to be in Frankfurt, where the European Central Bank’s policy making governing council is due to meet on Monday afternoon. With Greek voters unequivocally rejecting the bailout proposal, ECB policy makers may find it difficult to resist the argument made by council hardliners, particularly Jens Weidmann, the Bundesbank president, that the Greek government-backed securities the country’s banks use as collateral for emergency loans are heading to default.

The key date in the crisis is now July 20, when Greece owes €3.5bn on a bond held by the ECB. If Athens defaults on that bond, it would be almost impossible for the ECB to continue accepting collateral from Greek banks, and the €89bn in emergency liquidity assistance (ELA) would be withdrawn, devastating Greece’s banking sector. Without central bankers providing euros, Athens would be forced to print its own currency to reopen banks, and the dice would be cast on the path to “Grexit” from the eurozone.

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“Contempt for democracy and economic illiteracy are not merely tactical errors.”

Why The Yes Campaign Failed In Greece (Wolfgang Münchau)

It is not that hard to explain why Alexis Tsipras won the referendum by a landslide. It is a lot harder to see what’s going to happen now. His opponents, both inside Greece and in the European Union went wrong because of serial misjudgments, ranging from the petty to the monumental. For me, three stand out. The biggest was the clearly concerted intervention by several senior EU politicians, who said that a No vote would lead to Grexit, a Greek exit from the eurozone. One of them was Sigmar Gabriel, the German economics minister and SPD chief. He even doubled up on this threat right after the results came out. The Greeks correctly interpreted these threats as an attempt to interfere in the democratic process of their country.

The news last week that eurozone officials tried to suppress the latest debt sustainability analysis of the International Monetary Fund did not help either. The IMF report essentially revealed that the Greek government had been right after all to demand debt relief. The rest of the EU gave the impression that it wanted to rig the referendum, and it did not even bother to conceal this. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma.

The second error of the Yes campaign was a failure to explain how the bailout programme could work economically. This is not a debate between Keynesian and neoclassical economics, the kind that keeps us endlessly busy on these pages. The Greek referendum united economists with very diverse views of how the world works, including Paul Krugman, Jeffrey Sachs and Hans-Werner Sinn. There is no reputable economic theory according to which an economy that has experienced an eight-year-long depression requires a new round of austerity to bring about economic adjustment.

The third monumental error was arrogance. The Yes supporters thought they had it nailed. Like the British Labour party before the last general election, they had been relying on polls, which turned out to be wildly inaccurate. What I found most galling was the argument that Grexit would bring about an economic catastrophe, as though the catastrophe had not already happened. If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma. Contempt for democracy and economic illiteracy are not merely tactical errors. Those two “qualities” are now the remaining ideological planks of what is left of the European project. Greece is a reminder that the European monetary union, as it is constructed, is fundamentally unsustainable. This means it will need to be fixed, or it will end at some point.

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“..if the parties involved in the Greek tragedy paid more serious attention to what human rights law has to say, everything would be easier..“

UN Debt Expert Says Greece Can’t Take More Austerity (Reuters)

Greece cannot take any more austerity as it will cause more social unrest and lessen the chance of an economic recovery, a United Nations debt expert said on Monday. Greeks overwhelmingly rejected conditions of a rescue package from creditors on Sunday, throwing the future of the country’s euro zone membership into further doubt and deepening a standoff with lenders. Juan Pablo Bohoslavsky, the U.N. Independent Expert on Foreign Debt, told reporters in Beijing that Greece’s creditors in the European Union should have paid more attention to what international law says on the matter of debt. “I have the impression that the EU had forgotten that international human rights law plays and should play a key role in finance. The international community attaches great importance to the interlinks between human rights and finance,” said Bohoslavsky, who operates under the auspices of the U.N.’s High Commissioner for Human Rights.

“The message here is that if the parties involved in the Greek tragedy paid more serious attention to what human rights law has to say, everything would be easier, for the Greek population particularly,” he added. Bohoslavsky said the austerity demanded of Greece had not worked, adding he will visit Greece later in the year. “It’s very clear the message from the Greek population – no more austerity measures. Actually if you look at the figures, austerity measures didn’t really help the country to recover.” In a separate statement, Bohoslavsky said he was concerned at reports of food and medicine shortages, and that he was asking to meet EU officials to remind them of their human rights obligations to Greece.

Bohoslavsky, visiting at the invitation of China’s government, said he carried a message of the need for human rights to be considered in global lending, something important for China which is setting up two new multilateral lenders – the Asian Infrastructure Investment Bank and the New Development Bank. “A narrow idea of efficiency in which human rights plays a limited role should not find its way into these two banks,” he said. China has promised that the infrastructure bank will follow global best practices in transparency and governance. Rights groups often criticize China for its “no-strings” loans to countries, especially in Africa, for encouraging corruption and abuses with a lack of oversight.

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“.. European institutions have just been saved from their own worst instincts..”

Europe Wins (Paul Krugman)

Tsipras and Syriza have won big in the referendum, strengthening their hand for whatever comes next. But they’re not the only winners: I would argue that Europe, and the European idea, just won big — at least in the sense of dodging a bullet. I know that’s not how most people see it. But think of it this way: we have just witnessed Greece stand up to a truly vile campaign of bullying and intimidation, an attempt to scare the Greek public, not just into accepting creditor demands, but into getting rid of their government. It was a shameful moment in modern European history, and would have set a truly ugly precedent if it had succeeded.

But it didn’t. You don’t have to love Syriza, or believe that they know what they’re doing — it’s not clear that they do, although the troika has been even worse — to believe that European institutions have just been saved from their own worst instincts. If Greece had been forced into line by financial fear mongering, Europe would have sinned in a way that would sully its reputation for generations. Instead, it’s something we can, perhaps, eventually regard as an aberration. And if Greece ends up exiting the euro? There’s actually a pretty good case for Grexit now — and in any case, democracy matters more than any currency arrangement.

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ECB needs to start acting as a central bank.

Ending Greece’s Bleeding (Paul Krugman)

Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief. Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice. But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap. But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency. Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth. In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

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Good analysis.

Thomas Piketty: “Germany Has Never Repaid.” (Medium)

In a forceful interview with German newspaper Die Zeit, the star economist Thomas Piketty calls for a major conference on debt. Germany, in particular, should not withhold help from Greece. This interview has been translated from the original German. Since his successful book, “Capital in the Twenty-First Century,” the Frenchman Thomas Piketty has been considered one of the most influential economists in the world. His argument for the redistribution of income and wealth launched a worldwide discussion. In a interview with Georg Blume of DIE ZEIT, he gives his clear opinions on the European debt debate.

DIE ZEIT: Should we Germans be happy that even the French government is aligned with the German dogma of austerity?
Thomas Piketty: Absolutely not. This is neither a reason for France, nor Germany, and especially not for Europe, to be happy. I am much more afraid that the conservatives, especially in Germany, are about to destroy Europe and the European idea, all because of their shocking ignorance of history.

ZEIT: But we Germans have already reckoned with our own history.
Piketty: But not when it comes to repaying debts! Germany’s past, in this respect, should be of great significance to today’s Germans. Look at the history of national debt: Great Britain, Germany, and France were all once in the situation of today’s Greece, and in fact had been far more indebted. The first lesson that we can take from the history of government debt is that we are not facing a brand new problem. There have been many ways to repay debts, and not just one, which is what Berlin and Paris would have the Greeks believe. “Germany is the country that has never repaid its debts. It has no standing to lecture other nations.”

ZEIT: But shouldn’t they repay their debts?
Piketty: My book recounts the history of income and wealth, including that of nations. What struck me while I was writing is that Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War. However, it has frequently made other nations pay up, such as after the Franco-Prussian War of 1870, when it demanded massive reparations from France and indeed received them. The French state suffered for decades under this debt. The history of public debt is full of irony. It rarely follows our ideas of order and justice.

ZEIT: But surely we can’t draw the conclusion that we can do no better today?
Piketty: When I hear the Germans say that they maintain a very moral stance about debt and strongly believe that debts must be repaid, then I think: what a huge joke! Germany is the country that has never repaid its debts. It has no standing to lecture other nations.

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Unspeakable sadness fills my heart.

We May Soon Be Able To See Polar Bears Only In Picture Books (MD)

According to a recent report, polar bears may soon go extinct if global warming continues at the current flabbergasting rate. And about one third of the furry animals face risk of extinction in no more than ten years, the report also showed. Study authors said that reducing the rate of climate change may save polar bears on the long run. Other methods of trying to shield them from an ever warming ocean and dwindling food stocks have only short-term effects, researchers explained. As ice sheets continue to melt, polar bears are forced to retreat inland to find something to eat. While that may be a temporary solution during winter time, in summer months the move is no longer viable.

Loss of sea ice, which the bears use in their hunt for prey, and fewer food sources both inland and out in the sea are two major factors that may force polar bears to soon go extinct. But there are also some other threats including oil rigs, new diseases and trans-Arctic vessels. Yet these factors only pose a “negligible” threat on polar bear populations, study authors wrote in their report. The hidden enemy, authors claim, are greenhouse emissions. In an attempt to assess their effects on the bears’ habitat loss, scientists employed two models. In the first model, emissions were at the current levels we all experience. The second model tried to simulate Arctic conditions if those emissions were lower and climate change more stable.

The first model showed that at the current pace of sea ice loss and food stock reduction some polar bear populations would soon reach a dramatic decline by 2025. In the second model, the scenario emerged roughly 25 years later. Yet both models shared the same conclusion – some polar bear populations may soon go extinct. Even though we may reduce harmful gas emissions by that time, populations would still be affected, scientists said,

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 July 5, 2015  Posted by at 11:15 am Finance Tagged with: , , , , , , ,  3 Responses »
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NPC Wilkins-Rogers Milling Co., Washington, DC 1926

Germany vs Greece: “Marx Is Claiming It Was Offside” (WaPo)
In Bad Faith (Ashoka Mody)
EU Warns Of Armageddon If Greek Voters Reject Terms (AEP)
Why I’d Vote ‘No’ On Greece’s Referendum (Brett Arends)
How a Greek Default Could Hammer Bonds (Carl B. Weinberg)
Quartet Of Crises Threatens Europe’s Core (Reuters)
Europe Can’t Afford To Let Athens Go Under, Says Varoufakis (Reuters)
Mirage of Economic Turnaround Masked New Greek Crisis in the Making (WSJ)
Our Heretic (And Not-So-Simple) Views On The Greek Referendum (ZH)
Euro Area Said to Weigh Push for Aid Deal Even If Greeks Vote No (Bloomberg)
The Greek Bluff In All Its Glory: Presenting The Grexit “Falling Dominoes” (ZH)
4th of July Fireworks: World War III With China Dead Ahead (Paul B. Farrell)
It’s Too Late To Save Our World, So Enjoy The Spectacle Of Doom (Guardian)

“Hegel is arguing that the reality is merely an a priori adjunct of non-naturalistic ethics..”

Germany vs Greece: “Marx Is Claiming It Was Offside” (WaPo)

Many top English-speaking economists are either alarmed or aghast over Europe’s handling of the crisis in Greece. Several Nobel Prize winners say it has been exacerbated, time and again, by an unnecessarily rigid approach by Germany, Europe’s economic powerhouse and decision-maker. Greece simply cannot repay its debts, economists argue, no matter how much the country slashes public services or raises taxes. So by insisting it keep on trying, the thinking goes, Germany seems to be intent on punishing Greece. The Germans see it differently, saying what they are doing may be painful, but necessary, to get the country on a sustainable footing for the long term. To understand the massive gap in opinion, it might help to watch a Monty Python sketch from 1974 about a soccer match between Germany and Greece.

In the match, the two countries are represented by their foremost philosophers. For much of the game, the two sides do nothing but talk. Then, in the final minute, there is movement. Socrates scores past German goalie Gottfried Wilhelm Leibniz, who lived from 1646 to 1716, to win. The German philosophers G.W.F. Hegel, Immanuel Kant and Karl Marx then dispute the goal with the referee, Confucius. “Hegel is arguing that the reality is merely an a priori adjunct of non-naturalistic ethics. Kant via the categorical imperative is holding that ontologically it exists only in the imagination,” the announcer says. “Marx is claiming it was offside.”

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Exactly my argument for why Troika negotiators should all be fired: “The IMF’s report is important because it reveals that the creditors negotiated with Greece in bad faith.”

In Bad Faith (Ashoka Mody)

On July 2, the IMF released its analysis of whether Greek debt was sustainable or not. The report said that Greek debt was not sustainable and deep debt relief along with substantial new financing were needed to stabilize Greece. In reaching this new assessment, the IMF stated it had learned many lessons. Among them: Greeks would not take adequate structural reforms to spur growth, they would not sell enough of their assets to repay their debt, and they were unable to undertake sufficient fiscal austerity. That left no choice but to grant Greece greater debt relief and to provide new financing to tide Greece over till it could stand on its own feet. The relief, the IMF, says must be provided by European creditors while the IMF is repaid in whole.

The IMF’s report is important because it reveals that the creditors negotiated with Greece in bad faith. For months, a haze was allowed to settle over the question of Greek debt sustainability. The timing of the report’s release—on the eve of a historic Greek referendum, well after the technical negotiations have broken down—suggests that there was no intention to allow a sober analysis of the Greek debt burden. Paul Taylor of Reuters tells us that the European authorities worked hard to suppress it and Landon Thomas of the New York Times reports that, until a few days ago, the IMF had played along. As a result, the entire burden of adjustment was to fall on the Greeks before any debt reduction could even be contemplated. This conclusion was based on indefensible economic logic and the absence of the IMF’s debt sustainability analysis intentionally biased the negotiations.

As an international organization responsible for global financial stability, it is the IMF’s role to explain clearly and honestly the economic parameters of a bailout negotiation. The Greeks, many said, benefited from low interest rates and repayments stretched out over many years. Therefore, no debt relief was needed. But, of course, as the IMF now makes clear, if a country has to repay about 4 percent of its income each year over the next 40 years and that country has poor growth prospects precisely because repaying that debt will lower growth, then debt is not sustainable. If this report had been made public earlier, the tone of the public debate and the media’s boorish stereotyping of Greeks and its government would have been balanced by greater clarity on the Greek position.

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Ambromance.

EU Warns Of Armageddon If Greek Voters Reject Terms (AEP)

Greece risks a collapse of the medical system, power black-outs, and an import blockade, if the Greek people reject creditor demands in a make-or-break referendum tomorrow, the EU’s highest elected official has warned. Martin Schulz, the president of the European Parliament, said the EU authorities may have to prepare emergency loans to keep basic public services functioning and to prevent the debt-stricken country spinning out of control next week. “Without new money, salaries won’t be paid, the health system will stop functioning, the power network and public transport will break down, and they won’t be able to import vital goods because nobody can pay,” he said. Mr Schulz earlier called for the elected Syriza government to be replaced by “technocrat” rule until stability is restored.

The alarmist warnings are part of an escalating pressure campaign by European leaders as Greeks decide their destiny in what has become – despite attempts by Syriza to present it otherwise – an in-out vote on euro membership after five years of economic depression and mass unemployment. Yanis Varoufakis, the Greek finance minister, said his country is on “war-footing” and accused the eurozone of trying to terrify Greek voters into submission. “What they’re doing with Greece has a name: terrorism. Why have they forced us to close the banks? To frighten people. It’s about spreading terror,” he told El Mundo. The complete break-down in trust between Syriza and the EU-IMF inspectors comes as polls show the “No” side neck and neck, each driven by powerful emotions in the bitterly divided country.

An estimated 40,000 people gathered for a rally for “No” side on Friday in front of the Greek parliament, drawn by a star-casting of Greek singers and defiant appearance by premier Alexis Tsipras. Some 18,000 thronged a nearby stadium for the “Yes” campaign, blowing whistles and waving Greek and EU flags, many afraid that Greece would be blown out of the EU altogether after 34 years, and cast into oblivion. The crisis has reached a point where the Greece’s manufacturing system is grinding to a halt. Crucial imports and raw materials have been stuck in ports since imposition of capital controls and the shut-down of the banking system a week ago. Industrialists cannot pay suppliers outside the country unless they are deemed a top priority by an emergency payments committee at the Greek treasury.

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“..why would you dig around under the sofa and behind the fridge to find the last few pennies so you could ship them off to Brussels?”

Why I’d Vote ‘No’ On Greece’s Referendum (Brett Arends)

While America celebrates its Declaration of Independence this weekend, the people of Greece are preparing for their own awesome display of democracy. Sunday’s referendum in Greece is about much more than economics, financial reform and the terms of debt repayments.It is about Greek independence — or its continued submission to the dictatorship of the so-called troika.The Greeks will make their own decisions. But if I were among them, I would certainly vote “no” to the troika. It isn’t even difficult. Here’s why.

1. Six years of a Great Depression is enough. Greek output has fallen 25% since the crisis began. Imports have plunged by 40%. A million people have lost their jobs. The official unemployment rate is now 25%, and it is north of 60% among young people. This is a social catastrophe. It is destroying jobs and lives. It is serving no purpose. Enough is enough.

2. If austerity were going to work, it would have done so by now. The Greek government has already tightened its belt even more than demanded, as the IMF has admitted. The country has turned big government deficits into government surpluses (before interest payments). When they struck their deal with the troika in 2010, the Greeks were expected to cut their gross national debts by this year to $350 billion. Instead, they’ve cut them down to $316 billion, 10% lower. They’ve tightened so far that by last summer the price of Greek government bonds had rallied 400% from their crisis lows. Belt tightened. House in order. Confidence restored. Right? Yet the economy has just kept going down and down and down.

3. The troika is crazy.They keep doing the same thing over and over again and expecting different results. In 2010, they said a policy of austerity would produce a “V-shaped” recovery. Ha ha! In 2013, they took another look at the situation and basically concluded: • The Greeks have done everything we asked of them and more. • It hasn’t worked. • Huh. How ’bout that? Their prescription: more austerity. And here we are again in 2015. The economy’s even worse. The solution? Er … even more austerity. Would you really take the advice of a crazy doctor?

4. Austerity doesn’t make sense anyway.It’s based on single-entry book-keeping — or the logical “fallacy of composition,” the belief that the whole is just a bigger version of each individual part. Yes, any person can make himself richer by raising his income and cutting his spending. But a society overall can’t do that, because my spending is your income and your spending is my income. Simple math. It’s like thinking that everyone at the poker table can win by playing well. So even if the Greek government keeps balancing its budget, that alone won’t make Greece overall somehow richer. It will simply transfer money from the private sector to the state (and thence to Brussels).

For that matter, while any person can run out of money, a country can’t. It doesn’t make any sense. Money is an accounting system — a form of IOU. How can everyone be forced to sit at home twiddling their thumbs because “there isn’t any money to go around”? And why, if that were the case, would you dig around under the sofa and behind the fridge to find the last few pennies so you could ship them off to Brussels?

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It’s getting scary out there.

How a Greek Default Could Hammer Bonds (Carl B. Weinberg)

Greece is on the verge of defaulting on €490 billion in loans, bond obligations, central-bank liquidity assistance, and interbank balances. Who will bear those losses? Greece’s creditors, which are all public entities across the euro zone, and that are on the hook for some €335 billion in loan guarantees. How will those losses be covered? Bonds will have to be sold that will roughly equal the increase in annual debt purchases by the European Central Bank announced last January. This is a hit to the European financial system nearly as big as Lehman Brothers’ balance sheet was in 2008. There are precious few alternatives left for Greece or Prime Minister Alexis Tsipras. His government has walked out of talks with its creditors, and he has called a national referendum for July 5.

Its choices are to accept “help” in the form of new loans to replace old loans (and accept austerity conditions), negotiate a debt restructuring with creditors, or default. The government has said it doesn’t want new loans—it wants debt relief. An IMF report on Thursday said that without at least $36 billion in new money over the next three years, Greece can’t meet its obligations without debt reduction. The government appears ready to renege on its debt obligations. So Greece’s creditors are going to lose money—a lot of money. Since these creditors are public entities, the losses will be borne, initially, by the public. You can’t find public-sector exposure in the national accounts of lending governments because they are off-balance-sheet contingent liabilities that don’t exist until they are needed.

But they add up to hundreds of billions of euros in guarantees for everything from the European Stability Mechanism, or ESM, to the ECB, to the interbank clearing system. Bonds will have to be sold to cover those markers. Issuance on this scale promises to be a blow for a market already vulnerable to a price correction. Talks between the Greek government and its creditors have nothing to do with saving Greece or bailing it out. This crisis is about managing the resolution of bad Greek assets in a way that inconveniences creditor governments the least, forcing the least net new public borrowing, and minimizing financial system risks. The best way to do that is to avert a hard default, even if it means kicking the can down the road.

Consider the ESM, Greece’s biggest creditor. Under its previous name, the European Financial Stability Facility, it loaned Greece €145 billion. If Greece defaults, the ESM, a Luxembourg corporation owned by the 19 European Monetary Union governments, will have to declare loans to Greece as nonperforming within 120 days. Accounting rules and regulators insist that financial institutions write off nonperforming assets in full, charging losses against reserves and hitting capital. Here’s the rub: The ESM has no loan-loss contingency reserves. Its only assets—other than loans to Greece—are loans to Ireland and Portugal. Its liabilities are triple A-rated bonds sold to the public.

How do you get a triple-A rating on a bond backed entirely by loans to junk-rated sovereign borrowers? Well, the governments guarantee the bonds, and because they are unfunded off-balance-sheet liabilities, they aren’t counted in their debt burdens—unless borrowers default. If Greece defaults hard, governments will be on the hook for €145 billion in guarantees on those loans to the ESM. We expect credit-rating agencies to insist that these unfunded guarantees be funded. After all, unfunded guarantees are worthless guarantees.

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Forgot one: Marine Le Pen. A much bigger crisis than Britain could ever be.

Quartet Of Crises Threatens Europe’s Core (Reuters)

Four great crises around Europe’s fringes threaten to engulf the European Union, potentially setting the ambitious post-war unification project back by decades. The EU’s unity, solidarity and international standing are at risk from Greece’s debt, Russia’s role in Ukraine, Britain’s pursuit of opt-outs and Mediterranean migration. Failure to cope adequately with any one of these would worsen the others, amplifying the perils confronting “Project Europe”. Greece’s default and the risk, dubbed ‘Grexit’, that it may crash out of the shared euro currency is the most immediate challenge to the long-standing notion of an “ever closer union” of European states and peoples.

“The longer-term consequences of Grexit would affect the European project as a whole. It would set a precedent and it would further undermine the raison d’être of the EU,” Fabian Zuleeg and Janis Emmanouilidis wrote in an analysis for the European Policy Center think-tank. Though Greece accounts for barely 2% of the euro zone’s economic output and of the EU’s population, its state bankruptcy after two bailouts in which euro zone partners lent it nearly €200 billion is a massive blow to EU prestige. Even before the outcome of Sunday’s Greek referendum was known, the atmosphere in Brussels was thick with recrimination – Greeks blaming Germans, most others blaming Greeks, Keynesian economists blaming a blinkered obsession with austerity, EU officials emphasizing the success of bailouts elsewhere in the bloc.

While its fate is still uncertain, Athens has already shown that the euro’s founders were deluded when they declared that membership of Europe’s single currency was unbreakable. Now its partners may try to slam the stable door behind Greece and take rapid steps to bind the remaining members closer together, perhaps repairing some of the initial design flaws of monetary union, though German opposition is likely to prevent any move toward joint government bond issuance. The next time recession or a spike in sovereign bond yields shakes the euro zone, markets will remember the Greek precedent.

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€1 trillion.

Europe Can’t Afford To Let Athens Go Under, Says Varoufakis (Reuters)

Europe will lose a trillion euros if it allows Greece to go under, the country’s finance minister said on Saturday, accusing creditors of ‘terrorizing’ Greeks into accepting austerity in a referendum on bailout terms. After a week in which Greece defaulted, closed its banks and began rationing cash, Greeks vote on Sunday on whether to accept or reject tough conditions sought by international creditors to extend a lending lifeline keeping the country afloat. Their decision could determine Greece’s future as a member of the single currency. Addressing a crowd of over 50,000 in central Athens, left-wing Prime Minister Alexis Tsipras urged them to spurn the deal, rejecting warnings from Greece’s European partners that this may bring an exit from the euro and even greater hardship.

A slew of opinion polls on Friday gave the “Yes” camp, which favors accepting the bailout terms, a slender lead but all were within the margin of error and pollsters said the vote was too close to call. Only one had the “No” vote advocated by the government winning. Tsipras’ finance minister, Yanis Varoufakis, said there was too much at stake for Europe to cast Greece adrift. “As much for Greece as for Europe, I’m sure,” Varoufakis told the Spanish newspaper El Mundo. “If Greece crashes, a trillion euros (the equivalent of Spain’s GDP) will be lost. It’s too much money and I don’t believe Europe could allow it.” “What they’re doing with Greece has a name: terrorism,” said Varoufakis. “Why have they forced us to close the banks? To frighten people. And when it’s about spreading terror, that is known as terrorism.”

Athens’ 18 partners in the euro zone say they can easily absorb the fallout from losing Greece, which accounts for barely 2% of the bloc’s economic output. But it would represent a massive blow to the prestige of Europe’s grand project to bind its nations into a union they said was unbreakable. “For Europe, this would be easy to manage economically,” Austrian Finance Minister Hans Joerg Schelling said in an interview with online newspaper Die Presse. For Greece, however, “it would indeed be considerably more dramatic.” Schelling said Greece would need humanitarian aid in case of a Grexit but described fears of widespread poverty as exaggerated and part of “a propaganda war”.

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“The consequence, as Greece heads in to a momentous referendum Sunday, is a country broken both socially and economically.”

Mirage of Economic Turnaround Masked New Greek Crisis in the Making (WSJ)

Last year, Greece looked as if it were on the way up. The economy was growing—at one point, faster than Germany’s. International investors jostled to buy the government’s bonds. Banks were rebuilding. Politicians talked about a “clean exit” from Greece’s yearslong bailout: no more loans, no more money, no more humiliating reviews by bureaucrats from Brussels. But many Greeks were still on the way down. Katerina Papalevizopoulou was out of work. Her husband had lost his job driving a truck and was driving a cab. In 2014, he made around €7,000 ($8,000), down from €9,000 the year before and half of what he had earned in 2008. They owe €70,000 on a mortgage on their apartment here. They sold their wedding rings. They sent their car to the scrap yard, for €250. They sent their boy, now 10, to live with his grandparents outside the city.

“I don’t want my son to be around this,” Ms. Papalevizopoulou says in their small and cluttered apartment. “If you want to look at my fridge, my pantry, it is empty,” she says. She apologizes that she has nothing to offer visitors. “The priest brings me food,” she says. For many Greeks, any economic improvement has been a mirage, even before the financial chaos of recent weeks. Debt burdens have become harder to bear. Wages have tumbled, pushed down by policies intended to make Greek workers more competitive internationally. Social services have been cut to help close the budget gap. As a result, Greek households have cut their own spending—and they have fallen behind on their debts. The consequence, as Greece heads in to a momentous referendum Sunday, is a country broken both socially and economically.

The rupture has helped elevate Alexis Tspiras, leader of the radical-left party Syriza, to prime minister. It has also been a force behind him as he has urged Greece to vote “no” to a deal with its European creditors. And no matter what outcome—a break with Europe or a rapprochement—the economic devastation means Greece will need a lot of fixing. Its banking system may be first in line, and a look at the country’s mortgage market shows why. When it entered the euro in 2001, Greece had a relatively small amount of consumer borrowing: Its banks had extended €24 billion in loans to domestic households at the end of that year. By the end of 2009, just before the debt crisis exploded, the figure had quadrupled to €99 billion.

Greece has high rates of homeownership, which Greek banks have financed with mortgages. Those are now in trouble. The crumbling economy has pushed many in the middle class to the lower middle class and many in the working class into poverty. Delinquencies on loans have soared. The four big Greek banks reported in the first quarter that between 32% and 39% of their Greek loans were nonperforming. And the pace of souring loans appears to have increased sharply this year: National Bank of Greece, the country’s largest lender, reported that €154 million in Greek mortgages became overdue, by 90 days or more, in the fourth quarter of last year. For the first quarter of this year, the figure jumped to more than €280 million.

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Germans are sold a story that sells well. But fair or realistic it is not.

Our Heretic (And Not-So-Simple) Views On The Greek Referendum (ZH)

Conventional wisdom has it as follows: Tsipras is a hardline communist, who overplayed his hand with the troika (or “the three institutions”, as he calls them). The referendum was a last-ditch play to retain power by stoking a nationalistic response to the standoff with creditors. We believe the current stand-off with Greece’s creditors is just part of the ongoing tug-of-war between Germany and the IMF on a possible haircut on Greek debt. The background of this conflict is as follows: the US (which exerts substantial influence on the IMF) is “pro Keynesian” while Germany is “pro austerity”.

The slowdown in the European economy is obviously affecting the US economy as well; hence the US interest is clearly justified. The USA has been nudging Europe to engage in some good-old Keynesian deficit-spending. Obviously, the deficit spending does not need to happen in Germany, whose economy is doing very well, thank you. It needs to happen in places like Greece, but then the question arises, how could this deficit be financed? Well, the markets are certainly not willing to finance Greece, so that leaves few people in the room able to do this. Rich Germany obviously comes to mind, but then this is a major no-no for German voters and politicians.

(West) Germany engaged in the mother of all expansionary policies (and fiscal transfers) at the time of reunification with East Germany, when it set a 1:1 conversion rate of the East German mark into the DEM, while the exchange rate applicable for East German exports had been at 1 to 4.3. Rightly or wrongly, it is widely accepted in Germany that the dismal performance of Germany during the rest of nineties is due to those very policies— justifiable perhaps at the time by a duty of solidarity. Quite understandably, the German public doesn’t feel such a strong duty of solidarity vis-à-vis Greece. Any German politician suggesting a large-scale fiscal transfer to Greece would be skewered. Any haircut on Greek official-sector debt would be seen as (and be) just that: a fiscal transfer to Greece.

One last background note: the German public seems convinced that Germany has already paid its dues when it comes to Greece. This is only partially true: the restructuring of Greek debt was at its heart an effort to convert private unsustainable debt into official unsustainable debt –saving major European banks in the process (including Deutsche Bank, which managed to stay afloat by engineering achieving a risk-weight asset density of 14% in 2008).

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It was St. Augustine who said: Charity Is No Substitute For Justice Withheld.

Euro Area Said to Weigh Push for Aid Deal Even If Greeks Vote No (Bloomberg)

Euro-area finance ministers may be ready to start work on a third bailout agreement for Greece after Sunday’s referendum, even if voters reject the bloc’s last aid proposal, according to two officials familiar with negotiations. A broad majority of finance chiefs have agreed to examine an official request from Greek Prime Minister Alexis Tsipras for aid from the European Stability Mechanism, the people said, asking not to be identified because the talks are confidential. That process could begin as soon as next week, one of them said. Officials on both sides of the negotiations are preparing to accelerate efforts to release aid for Greece irrespective of whether voters reject creditors’ aid terms in the referendum or inflict a defeat on the Tsipras government by delivering a “yes” vote.

With the banking system on lock down to shield it from deposit outflows ahead of the ballot, polls suggest the result is too close to call. The Eurogroup is waiting for the outcome of the referendum, a spokesman for Jeroen Dijsselbloem, the Dutch finance chief who leads meetings of euro-area ministers, said in a text message. While European leaders have framed the referendum as a vote on Greece’s future in the euro, the cost of a Greek exit may ultimately be greater than the bill for keeping the country in the currency. Finance ministers are no longer contemplating a Greek exit, said one of the officials. “We’re waiting for the referendum result,” German Finance Ministry spokesman Martin Jaeger told reporters in Berlin. “An ESM program would depend on a request from the Greek government.” Activating the ESM “is not a straightforward process,” he said.

The quickest way to release aid for Greece may be to hand over €3.3 billion in profit that the ECB made buying Greek debt during an earlier phase of the crisis. Finance ministers and some national parliaments would need to approve such a payment, which would likely be part of a broader third bailout deal. Greek Finance Minister Yanis Varoufakis said Friday he expects a deal to be done even if voters reject the euro area’s latest offer. Finance ministers discussed the request for a third bailout during a conference call on July 1. One of the officials said that Dijsselbloem intends to ask Greece’s creditors to make a swift assessment of any new proposals to speed up a disbursement. “We will come back to your request for financial stability support from the ESM only after and on the basis of the outcome of the referendum,” Dijsselbloem wrote in a July 1 letter to Tsipras.

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“Oh, and if France gets downgraded, Germany’s pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!”

The Greek Bluff In All Its Glory: Presenting The Grexit “Falling Dominoes” (ZH)

Earlier today, Yanis Varoufakis reiterated his core thesis driving the entire Greek approach from day 1 of its negotiations with the Eurogroup: “Europe [stands] to lose as much as Athens if the country is forced from the euro after a referendum on Sunday on bailout terms.” This is merely a recap of what we said 4 years ago when in July of 2011 we explained “How Euro Bailout #2 Could Cost Up To 56% Of German GDP”, recall:

… the bottom line is that for an enlarged EFSF (which is what its blank check expansion today provided) to be effective, it will need to cover Italy and Belgium. As AB says, “its firepower would have to rise to €1.45trn backed by a total of €1.7trn guarantees.” And here is where the whole premise breaks down, if not from a financial standpoint, then certainly from a political one: “As the guarantees of the periphery including Italy are worthless, the Guarantee Germany would have to provide rises to €790bn or 32% of GDP.” That’s right: by not monetizing European debt on its books, the ECB has effectively left Germany holding the bag to the entire European bailout via the blank check SPV.

The cost if things go wrong: a third of the country economic output, and the worst case scenario: a depression the likes of which Germany has not seen since the 1920-30s. Oh, and if France gets downgraded, Germany’s pro rata share of funding the EFSF jumps to a mindboggling €1.385 trillion, or 56% of German GDP!

Several years later, in anticipation of precisely the predicament Europe finds itself today, the ECB did begin to monetize European debt, which has since become the biggest European risk-shock absorber of all, and the one which the ECB is literally betting the bank on: just count the number of times the ECB has sworn it has the tools and can offset any Greek risk contagion simply by buying bonds. Unfortunately, it is not that simple.

The reason is precisely in the contagion threat inherent in Europe’s alphabet soup of bailout mechanism as we explained four years ago in the post above, and as Carl Weinberg of High-Frequency Economics did hours ago in today’s edition of Barrons. Here is how the Greek contagion would spread, laid out in all its simplicity, should there be a Grexit, an outcome which the ECB could catalyze as soon as Monday in case of a “No” vote by raising ELA collateral haircuts:

The [Greek] government appears ready to renege on its debt obligations. So Greece’s creditors are going to lose money—a lot of money. Since these creditors are public entities, the losses will be borne, initially, by the public.

This crisis is about managing the resolution of bad Greek assets in a way that inconveniences creditor governments the least, forcing the least net new public borrowing, and minimizing financial system risks. The best way to do that is to avert a hard default, even if it means kicking the can down the road.

That, once again, is the Varoufakis all-in gamble, a gamble which assumes the ECB will be rational enough (in a game theory context) to appreciate the fallout of a Grexit on Europe’s creditors.

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Oh, that young Farrell guy again…

4th of July Fireworks: World War III With China Dead Ahead (Paul B. Farrell)

World War III? OK, so you’re distracted by Trump vs. Christie? By Wall Street hyping a bull-market recovery? So we forget war, they’re “over there,” nightly news clips of faraway killer bombs. Wrong, WWIII really is getting closer. At the launch of the Iraq War, the Bush team warned us of the “mother of all national security issues … by 2020 there is little doubt that something drastic is happening … warfare defining human life.” Pentagon generals are planning ahead for that 2020. But most Americans are more interested in their next gadget. Wake up. USA Today headline: “CIA veteran Morell: ISIS’ next test could be a 9/11-style attack.” That warning’s from an insider with George W. Bush in 2001 when hijacked airliners hit the World Trade Center. Twice acting CIA director, says USA Today’s Susan Page.

With Obama in the situation room when word came “Navy Seal Team Six had killed Osama bin Laden.” Morell’s new book, “The Great War of Our Time: The CIA’s Fight Against Terrorism From Al Qa’ida to ISIS,” makes clear America is already fighting World War III today. Worse, WWIII will go on for decades, “for as far as I can see,” says the CIA insider. Yes, WWIII is hot news with the Pentagon brass. The Wall Street Journal just reviewed “The Ghost Fleet” by Peter Singer and August Cole. Singer’s “one of Washington’s pre-eminent futurists.” He’s now “walking the Pentagon halls with an ominous warning for America’s military leaders: World War III with China is coming.”

In fact, even America’s advanced new F-35 fighter jets may be “blown from the sky by their Chinese-made microchips and Chinese hackers easily could worm their way into the military’s secretive intelligence service … and the Chinese Army may one day occupy Hawaii.” Speculation? No, the Journal’s Dion Nissenbaum reminded us Chinese hackers have already got into “White House computers, defense industry plans and millions of secret U.S. government files.” Singer’s “written authoritative books on America’s reliance on private military contractors, cybersecurity and the Defense Department’s growing dependence on robots, drones and technology,” and why that puts national security at high risk.

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“How surreal do the signs and warnings have to become before we stop in our tracks? Are whales required to fall from the sky?”

It’s Too Late To Save Our World, So Enjoy The Spectacle Of Doom (Guardian)

In the middle of a week of record temperatures, as if unaware of the irony, the business community celebrated the consolidation of its attempts to force the government’s hand to agree to a third filth-generating runway at Heathrow, tipping all species on Earth towards extinction. Everything will die soon, except for cockroaches, and Glastonbury favourite the Fall, who will survive even a nuclear holocaust, though they will still refuse to play their 80s chart hits. In Norfolk on Thursday, the tarmac melted, and ducklings became trapped in sticky blackness. When a lioness whelped in an ancient Roman street, Caesar thought something was up. Here, solid matter transmuted to hot liquid and swallowed baby birds whole. How surreal do the signs and warnings have to become before we stop in our tracks?

Are whales required to fall from the sky? Does Tim Henman have to give birth to a two-headed cat on Centre Court? CBI director John Cridland says: “The government must commit to the decision now, and get diggers in the ground at Heathrow swiftly by 2020.” Head of the Institute of Directors Simon Walker says: “There can now be no further delay from politicians.” And Segro chief executive David Sleath merely bellows: “Get on with it!”, like some selfish Top Gear presenter demanding his steak dinner after dawdling, the planet itself the powerless BBC employee he punches in the face. The business community has thrown its executive toys out of the pram, and now there are chrome ball bearings on strings everywhere, tripping up unpaid interns and making life difficult for immigrant cleaners scrabbling under desks on less than minimum wage.

David Cameron, an electoral promise to oppose the third runway sticking in his throat like an undigested salmon bone, can only duck his cowardly head and hope some terrible atrocity or a Wimbledon win wafts our attention away. When I was a child, my grandmother always referred to our pet dog’s excrement as “business”, so to this day, when I envisage “the business community”, I imagine a vast pile of sentient faeces issuing its demands while smoking a Cuban cigar, an image that seems increasing accurate as the decades pass. The destruction of all life on Earth is inevitable if fossil fuel use continues unabated. (Legal. Please advise. Are we allowed to say this now without being shouted down by Nigel Lawson?)

The business community’s genius move in the third runway debate has been to change the dialogue from an argument which should have been between building a runway and not building a runway at all, and trying to restructure our society to avoid the need for a third runway, into an argument about where exactly it was best to position this massive portent of our world’s forthcoming doom. It’s like offering an innocent man who doesn’t want to be hanged the chance to be poisoned instead.

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Jul 042015
 
 July 4, 2015  Posted by at 11:29 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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NPC George W. Cochran & Co., 709 14th Street NW, Washington DC 1920

Stop Lying To The Greeks — Life Without The Euro Is Great (MarketWatch)
This Euro Is Destroying The European Dream (Guardian)
Whatever Happens To Greece, The Euro Is Unsustainable (Kohler)
NSA Leak: Both Merkel And Schauble Saw Greek Debt As Unsustainable in 2011 (ZH)
Varoufakis Prepares For Economic Siege As Companies Issue Private Currencies (AEP)
Yanis Varoufakis, Are You Staying Put? ‘We Have A Duty To The People’ (Mason)
Yanis Varoufakis Accuses Creditors Of Terrorism Ahead Of Referendum (Guardian)
IMF Backs (Ever So Peculiarly) Syriza Government’s Debt Assessment (Varoufakis)
The Real Losers From A Greek Exit Won’t Be In Greece (MarketWatch)
ECB Said to Extend Backstop to Bulgaria Amid Greek Fallout (Bloomberg)
Hopeful Start to Greek Debt Negotiations Quickly Soured (NY Times)
How Europe Played Greece (Alex Andreou)
Greek Banks Prepare Plan To Raid Deposits To Avert Collapse (FT)
Europeans Tried To Block IMF Debt Report On Greece (Reuters)
Angela’s Ashes: How Merkel Failed Greece and Europe (Spiegel)
Greece (Steve Randy Waldman)
Greek Mass Psychology Of Revolt Will Survive Financial Carpet-Bombing (Mason)
Greek Economy Close To Collapse As Food And Medicine Run Short (Guardian)
US Shale Drillers’ Safety Net Is Vanishing (Bloomberg)

Biggest economic failure in European history.

Stop Lying To The Greeks — Life Without The Euro Is Great (MarketWatch)

Will the euro-fanatics please stop lying to the people of Greece? And while they’re at it, will they please stop lying to the rest of us as well? Can they stop pretending that life outside the euro — for the Greeks or any other European country — would be a fate worse than death? Can they stop claiming that if the Greeks go back to the drachma, they will be condemned to a miserable existence on the dark backwaters of European life, a small, forgotten and isolated country with no factories, no inward investment and no hope? Those dishonest threats are being leveled this week at the people of Greece, as they gear up for the weekend’s big referendum on more austerity.

The bully boys of Brussels, Frankfurt and elsewhere are warning the Greek people that if they don’t do as they’re told, and submit to yet more economic leeches, they may end up outside the euro … at which point, of course, life would stop. Bah. Take a look at the chart. It compares the economic performance of Greece inside the euro with European rivals that don’t use the euro. Those other countries cover a wide range of situations, of course — from rich and stable Denmark, to former Soviet Union countries, to Greece’s neighbor Turkey, which isn’t even in the EU. But they all have one thing in common.

During the past 15 years, while Greece has been enjoying the “benefits” of having Brussels run their monetary policies, those poor suckers have all been stuck running their own affairs and managing their own currencies (if you can imagine). And you can see just how badly they’ve suffered as a result. They’ve crushed it. Romania, Turkey, Poland, Sweden, Croatia — you name it, they’ve all posted vastly better growth rates than Greece. The data come from the International Monetary Fund itself. It measures growth in gross domestic product, per person, in constant prices (in other words, with price inflation stripped out). Greece adopted the euro in 2001.

And after 14 years in the same club as the big boys, they are back right where they started. Real per-person economic growth over that time: Zero. Meanwhile Romania, with the leu, has only … er … doubled. Everyone else is up. The Icelanders, who suffered the worst financial catastrophe on the planet in 2008, have nonetheless managed to grow. Yes, all data points have caveats. Each country has its own story and its own advantages and disadvantages. But the overall picture is clear: The euro has either caused Greece’s disastrous economic performance, or at least failed to prevent it.

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Amen.

This Euro Is Destroying The European Dream (Guardian)

On Sunday the Greeks vote while the rest of Europe holds its breath. No matter how clunky the wording on the ballot paper, everyone knows what’s at stake. This is a moment of great peril, not only for the euro but for the European project itself. If Greece votes no, it’s hard to see how it can stay in the euro, which will represent the most grievous blow in the 16-year history of a currency whose momentum was always meant to be irreversible. If yes wins, and Syriza duly falls, the victory for the European powers could prove to be pyrrhic. Too many will believe that Brussels, and more pointedly Berlin, engineered the toppling of a democratically elected government.

Once Alexis Tzipras had, admittedly, put a gun to his own head by calling Sunday’s vote, the EU in effect told the Greek nation that the leaders they had chosen just six months ago were unacceptable and had to be removed. The moment will be cited ever after as proof that the EU’s approach to democracy is akin to Henry Ford’s view of consumer choice: you can have whatever colour you like, “so long as it is black”. For things to have reached such a pass – in which Greeks are being asked to select yes for organised penury or no for the chaotic variety – is surely an indictment of the single currency. Any scheme that can result in such a crisis – to say nothing of the stagnant growth, unemployment and poverty that have plagued much of the eurozone since the crash – is bound to be branded an unambiguous failure.

What’s more, it is now acting as a repellent for the European idea itself: witness the rise of populist anti-EU parties in Spain, Italy and beyond. That prompts a question, one that will only get sharper whether the Greeks leave the euro and descend into economic mayhem or stay and suffer back-breaking debt repayments. Is the disaster of the euro strangling the larger European project it was meant to serve? Could it be time to kill off the euro in order to save the European Union?

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It’s dead in the water.

Whatever Happens To Greece, The Euro Is Unsustainable (Kohler)

The latest Greek crisis should end next week after the people surrender this weekend, but Europe’s foundations will continue to weaken: this won’t be the last existential crisis for the euro. Unless greater fiscal and political union accompanies the monetary union, it will eventually, noisily, fall apart. But this crisis, at least, is almost over. The Greeks would vote ‘yes’ on Sunday to almost any question they are asked to get access to what’s left of their euros. Prime Minister Alexis Tsipras will then agree to Germany’s demands for reform against the overruled objections from his party, German cash will start flowing again through the ECB, and Greece’s banks will reopen to sighs of relief all round. Most importantly, funds will be released to repay the IMF.

The eurozone’s mistake was letting the IMF get involved in 2010. The incompetence, or negligence, of its then managing director Dominique Strauss-Kahn, who acted against the advice of many of his member countries (including Australia) and half of its staff, set up Greece for failure. The IMF’s refusal to restructure Greece’s debt in 2010, and instead to insist on crushing austerity in return for more cash, was a terrible mistake. The Eurogroup attempted to repair the situation in 2012 with the restructure that replaced almost all of the private lenders, but the damage to the Greek economy had been done. Ironically, the IMF has changed its mind and is now arguing that Greece needs some debt relief.

Greek Finance Minister Yanis Varoufakis declared this week that he would rather cut off his arm than sign another “pretend and extend” agreement that did not include debt relief, and that he’d resign if the people voted ‘Yes’. Meanwhile the IMF issued this review of Greece’s debt and commented that it needs €60 billion over three years, plus debt relief. The IMF’s central position in the 2010 bailout inserted a hard-line outsider into what had been a cosy arrangement — the 15-year-old European Monetary Union, in which Germany props up the southern countries with loans and they stagger on, burdened with debt, propping up Germany’s export machine. Greece’s failure to make its IMF loan repayment on Tuesday was a disaster for everyone: the IMF, Greece, Germany and the ECB. It is a mistake that should never have happened.

The IMF now has the largest and most prominent delinquent debtor in its history; Greece sits on the edge of catastrophe and Germany, the ECB and the EU are complicit in the threat to the euro itself. They accepted the IMF’s money and conditions in 2010 and now, in reality, it is they who are refusing to repay.

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“..why is Syriza getting hell for pushing what both Germany in 2011 and the IMF now admit has to happen in order to have a viable Greek nation>”

NSA Leak: Both Merkel And Schauble Saw Greek Debt As Unsustainable in 2011 (ZH)

Several days ago, we posted a NSA cable leaked by Wikileaks, in which then French finance minister Moscovici (currently a European commissioner) was admitted that the French economic situation was “worse than anyone [could] imagine and drastic measures [would] have to be taken in the next two years.” It has not improved since then. Overnight, in another perhaps even more relevant to the current quagmire in Greece leak, Wikileaks has released another intercepted NSA communication between German Chancellor Angela Merkel and her personal assistant which reveals that not only Merkel, but Schauble, were well aware that even with a debt haircut (which took place in 2012 but only for private creditors and whose impact was promptly countered with the debt from the second bailout) Greek debt would be unsustainable.

Technically, she did not use that word: she said that “Athens would be unable to overcome its problems even with an additional haircut, since it would not be able to handle the remaining debt.” She was right. And yet here she is, telling Tsipras and the Greek people that all Greece needs is to comply with the existing program when she knows well by her own admission that Greece is insolvent in its current state – precisely what Syriza is arguing and demanding be part of any deal. Because why bother making a deal if Greece will once again be in default a few months down the line, just as Varoufakis said earlier today. But where it gets really humorous is where the cable notes that even “Finance Minister Wolfgang Schaeuble alone continued to strongly back another haircut, despite Merkel’s efforts to rein him in… with IMF Managing Director Christine Lagarde described as undecided on the issue.”

Fast forward to today and now Lagarde is decided, and the IMF admits a 30% Greek haircut is necessary. So, one wonders, why is Syriza getting hell for pushing what both Germany in 2011 and the IMF now admit has to happen in order to have a viable Greek nation. Unless, of course, they don’t want a viable Greek nation, and instead want a vassal state that is constantly on the brink of collapse and thus creating enough systemic risk to constantly push the EUR lower. Because, just in case anyone has forgotten, the real issue here is not the fate of Greece or even the rest of the PIIGS, but how can Germany continue enjoying a currency that is substantially weaker than what a far stronger, and export-crushing Deutsche Mark would be at this very moment.

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Ambrose’s bromance with V. grows.

Varoufakis Prepares For Economic Siege As Companies Issue Private Currencies (AEP)

Greece has stockpiled enough reserves of fuel and pharmaceutical supplies to withstand a long siege, and has set aside emergency funding to cover all the country’s vitally-needed food imports. Yanis Varoufakis, the Greek finance minister, said the left-Wing Syriza government is still working on the assumption that Europe’s creditor powers will return to the negotiating table if the Greek people don’t agree to their austerity demands in a referendum on Sunday. “Luckily we have six months stocks of oil and four months stocks of pharmaceuticals,” he told The Telegraph. Mr Varoufakis said a special five-man committee from the Greek treasury, the Bank of Greece, the trade unions and the private banks is working feverishly in a “war room” near his office allocating precious reserves for top priorities.

Food has been exempted from an import freeze since capital controls were introduced last weekend. Grains, meats, dairy products, and other foodstuffs should be able to enter the country freely, averting a potential disaster as the full tourist season kicks off.
The cash reserves of the banks are dwindling fast as citizens pull the maximum €60 a day allowed under the emergency directive – already €50 at many banks. “We can last through to the weekend and probably to Monday,” Mr Varoufakis said. Despite assurances, the crisis is likely to escalate fast if there is no resolution early next week. Businesses in Thessaloniki and other parts of the country are already creating parallel private currencies to keep trade alive and alleviate an acute shortage of liquidity. [..]

The Greek crisis is likely to come to a head one way or another soon after the referendum. The ECB is expected to restore emergency liquidity for the Greek banking system almost immediately if there is a “yes”, an outcome likely to trigger the downfall of the Syriza government and the creation of a national unity administration. The ECB has given strong hints that it will tighten the tourniquet yet further if there is a “no” vote – probably by raising collateral requirement – pushing Greek banks that it also regulates towards the abyss. This is a legal minefield since the ECB has a treaty duty to uphold financial stability. Syriza has said it will consider legal action at the European Court of Justice if this occurs.

Mr Varoufakis warned that the EU institutions are courting trouble if they respond to a democratic vote by the Greek people in such a way. “I find it hard to believe that Europe will continue to insist on an impasse because their own money will go up in smoke,” he said. The eurozone has well over €300bn of exposure in one form or another. Apart from normal bail-out loans, the ECB itself has €27bn of Greek bonds and has extended roughly €120bn in liquidity support through ELA funding for the banks and Target2 payments support. “They are very vulnerable. Target2 becomes a real loss if a country leaves the euro,” he said.

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Mason tries to sound tough.

Yanis Varoufakis, Are You Staying Put? ‘We Have A Duty To The People’ (Mason)

Greek Finance Minister Yanis Varoufakis tells Paul Mason that Syriza has been offered a deal from Greek creditors that the government would sign – but he won’t say where it is.

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And he’s right.

Yanis Varoufakis Accuses Creditors Of Terrorism Ahead Of Referendum (Guardian)

Yanis Varoufakis, the Greek finance minister, has accused the country’s creditors of terrorism, in an interview published on Saturday. “What they’re doing with Greece has a name: terrorism,” Varoufakis told Spain’s El Mundo. “What Brussels and the troika want today is for the yes [vote] to win so they could humiliate the Greeks. Why did they force us to close the banks? To instil fear in people. And spreading fear is called terrorism.” The escalation of his rhetoric comes as Greece prepares to vote on Sunday in the referendum that could decide the country’s continued membership of the eurozone.

The Greek economy is on the brink of collapse after the capital controls imposed before the referendum left the country with shortages of food and drugs, the tourist industry facing a wave of cancellations and banks with barely enough money to survive the weekend. Holding political rallies and publishing new opinion polls are banned 24 hours before the vote, the result of which remains too close to call. Polls have narrowed in recent days after warnings from the European commission and Greece’s eurozone partners that a no vote would lead to Greece’s ejection from the single currency. A GPO poll put the yes voters on 44.1% and no on 43.7%, while an Alco survey found 44.5% would vote yes, with 43.9% intending to vote no.

Many voters have switched to the yes camp since capital controls were imposed this week limiting daily cash machine withdrawals to just €60. Greeks queued once again on Saturday morning to make withdrawals as fears mounted about the state of the country’s economy. Banks said they had a €1bn cash buffer to see them through the weekend – equal to just €90 (£64) a head for Greece’s 11 million people. However, they will need immediate help from the European Central Bank on Monday whatever the result of the referendum.

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Should have been done in 2010.

IMF Backs (Ever So Peculiarly) Syriza Government’s Debt Assessment (Varoufakis)

Debt relief ought to be at the centre of negotiations over a New Deal for Greece. That has been our government’s mantra from 26th of January, our first day on the job. Exactly five months later, on 26th of June, the IMF has conceded the point (as evidenced earlier today by the NYT) – on the very day Prime Minister Alexis Tsipras called for a referendum so that the Greek people could reject an IMF-led proposal that offered no… debt relief. The IMF’s latest debt sustainability analysis (DSA) is a fascinating read. For the first time, the IMF recognised that, in its fifth review assessment, there was a low probability that Greece’s public debt would prove sustainable.

Here is an extract from the IMF’s own report confessing that, to portray Greek public debt as sustainable (without substantial debt relief), its researchers had to make the assumption that “…Greece would go from having the lowest average total factor productivity (TFP) growth in the euro area since it joined the EU in 1981 to having among the highest TFP growth, and that it would go to the highest labor force participation rates and to German employment rates.” Pigs would, of course, sooner fly!

When asked how productivity growth would do the ‘pole vault’ from the euro area’s lowest to the euro area’s highest levels, with employment recovering fully (and in the absence of credit and investment), the IMF’s standard answer is: “To achieve TFP growth that is similar to what has been achieved in other euro area countries, implementation of structural reforms is therefore critical.” But, Chapter 3 of the IMF’s April 2015 World Economic Outlook report tears this assumption to pieces. Indeed, the IMF’s own research shows that labour market reforms have a negative impact on total factor productivity while product market reform has a neutral one.

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Damn right.

The Real Losers From A Greek Exit Won’t Be In Greece (MarketWatch)

Another weekend, another Greek knife’s edge. As the markets close ahead of the weekend, they will be prepared for another couple of days of drama in the epic saga of the Greek debt crisis, looking to see whether the country will vote for or against the latest bailout package in a referendum scheduled for Sunday, and whether that in turn is the trigger its final exit from the euro. We will find out by Monday morning. One thing should be clear, however. Sooner or later, Greece is going to get out of the single currency. And there is a paradox in that which most commentators have so far missed. When the moment comes, the Greeks themselves will be just fine. But the collateral damage will be huge.

Most countries that tumble out of dysfunctional currency unions are back on their feet very quickly. Its victims? It will be a black day for the IMF, for the EU, for German Chancellor Angela Merkel, and for the gold bugs. Their standing may never recover from the blow that a “Grexit” will deliver. The situation in Greece has descended so deep into chaos that it is anyone’s guess what will happen next. It might still be in the euro next week. It might have re-launched the drachma, or a parallel euro. Heck, who knows, perhaps it will have adopted the dollar or the ruble as its currency? Everyone in Athens, Brussels and Berlin seems to be flying blind at this point, and if there is a plan somewhere no one can find it right now. Anything might happen.

Even so, if there is a Grexit, and that seems the most likely option with the banks already closed, and the country already in default, then in fact the country will recover fairly quickly. The Gr-covery will not be long in coming (after which, there should be a ban on smart-alec words starting with “Gr” — they are getting Gr-iresome). Most countries that tumble out of dysfunctional currency unions are back on their feet very quickly. Take Argentina for example. After the dollar peg ended in 2002, between 2003 and 2007 it averaged growth of 8.5% a year. Greece might not quite manage that, but with wage costs equal to Eastern Europe after devaluation, and with all the infrastructure that comes from being in the EU for 30 years, it should do just fine.

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Nothing for Greece, but loans for Bulgaria, which is nowhere near the eurozone economically. Hmm…

ECB Said to Extend Backstop to Bulgaria Amid Greek Fallout (Bloomberg)

The ECB is set to extend a backstop facility to Bulgaria and is ready to assist other nations in the region to ward off contagion from Greece, according to people familiar with the situation. The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral, the people said, asking to remain anonymous because the matter is confidential. The ECB and the Bulgarian central bank declined to comment. Eastern Europe is at risk of tremors from Greece via ties ranging from trade to finance, with lenders from the debt-ridden country owning almost a third of banking assets in Bulgaria. The possibility of Greece abandoning the euro after shutting banks and imposing capital controls has left eastern European currencies among this week’s worst emerging-market performers.

“The threat of ‘Grexit’ has understandably cast a dark cloud over the outlook” for the region, London-based Capital Economics Ltd. said last week in a note. “Ties with Greece are sizable in a few places, including Bulgaria and Romania.” Bulgaria and its banks have been a main focus of concern for European Union officials looking at potential fallout from the Greek crisis in the region, according to people familiar with their thinking. Yields on euro-denominated Bulgarian government debt due 2024 were little-changed at 3.14% Friday, having risen during the past week on Greek concerns.

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Decent background.

Hopeful Start to Greek Debt Negotiations Quickly Soured (NY Times)

Last Friday morning, the Greek prime minister, Alexis Tsipras, gathered his closest advisers in a Brussels hotel room for a meeting that was meant to be secret. All the participants had to leave their phones outside the door to prevent leaks. A week of tense negotiations between Greece and its creditors was coming to an end. And it was becoming increasingly clear to the left-leaning prime minister that he could not accept the tough economic terms that his lenders were demanding in exchange for new loans. As Mr. Tsipras paced and listened on the 25th floor of the hotel, his top aides argued that neither Germany nor the International Monetary Fund wanted an agreement and that they were instead pushing Greece into default and out of the euro.

The night before, at a meeting of eurozone leaders at the EU headquarters, Mr. Tsipras had asked Chancellor Angela Merkel of Germany about including debt relief with a deal, only to be rebuffed again. This is going nowhere, the 40-year-old Greek leader said in frustration, according to people who were in the room with him. The more we move toward them, the more they are moving away from us, Mr. Tsipras said. After hours of arguing back and forth about possible responses, Mr. Tsipras made a decision to get on a plane and go home to call a referendum, according to the people who were in the room. This decision by Mr. Tsipras to ask his people to back or reject, as he had recommended, the latest set of austerity measures for Greece sent shock waves through Europe.

Just days before the Sunday vote, the outcome remained too close to call. Many here, however, now think that a “no” vote would ultimately lead to Greece’s exit from the euro. This referendum will be one of the most important votes in Greece since it became an independent nation in 1830. Why Mr. Tsipras took such an extreme step remains puzzling. But a close look at the events of the last week — based on interviews with some of the participants and others briefed on the discussions — reveals an accumulation of slights, insults and missed opportunities between Greece and its creditors that led the prime minister to conclude that a deal was not possible, regardless of any concessions he might make.

Greece’s creditors see it differently, of course. In their view, Mr. Tsipras, who swept into power on a wave of anti-austerity support, was only interested in a deal that would go light on austerity measures and deliver maximum debt relief. He could not and would not comply with any agreement that required more sacrifices from the Greek people. Still, for a week that ended with so much enmity, its start was auspicious.

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Logically, a NO vote in Athens July 5 should mean the end of Merkel, Hollande, Juncker, Dijsselbloem, Schultz, Schäuble, etc. But it won’t, will it?

How Europe Played Greece (Alex Andreou)

Do these things, they said, for all our sakes and you will return to prosperity with our help. They lied. “They have decided to strangle us, whether we say yes or no”, said a Greek woman to me yesterday. “The only choice we have is to make it quick or slow. I will vote “oxi” (no). We are economically dead anyway. I might as well have my conscience clear and my pride intact.” Her view is not atypical among friends and relations I have canvassed in the last few days. Trust has evaporated. Faith in European Institutions is thin on the ground. Lines have been crossed. At times of financial strain, a country’s currency issuer, its central bank, should act as lender of last resort and prime technocratic negotiator. In Greece’s case, the European Central Bank, sits on the same side as the creditors; acts as their enforcer.

This is unprecedented. The ECB has acted to asphyxiate the Greek economy – the ultimate blackmail to force subordination. The money is there, in our accounts, but we cannot have access to it, because the overseers of our own banking system, the very people who some months ago issued guarantees of liquidity, have decided to deny liquidity. We have phantom money, but no real money. There is a terrifying poetry to that, since the entire crisis was caused by too much phantom money in the first place. EU Institutions are now openly admitting that their aim is regime change. A coup d’état in anything by name, using banks instead of tanks and a corrupt media as the occupiers’ broadcaster. The rest of Europe stands back and watches. Those leaders who promised the Syriza government support before the election, have ducked for cover.

I understand it. They sympathise, but they don’t want to be next. They are honourable cowards. They look at the punishment beating being meted out and their instinct is to protect their own. Many people within Greece have the same reaction. “[Tsipras] is an idealist”, a friend wrote, “but I don’t know whether idealism has the power to change reality. Life has shown me the opposite to be true. I will vote “yes”, with tears in my eyes. I will be another Brutus.” This tacit collusion, both within Greece and around Europe and the World, with the economic waterboarding being administered to a country on its knees, is made possible by a single politically expedient narrative: That Greece deserves to suffer and should just pay its debts. It is the single most common comment I have had on social media. And the most bitter to swallow.

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Vehemently denied by V.

Greek Banks Prepare Plan To Raid Deposits To Avert Collapse (FT)

Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday. The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said. A Greek bail-in could resemble the rescue plan agreed by Cyprus in 2013, when customers’ funds were seized to shore up the banks, with a haircut imposed on uninsured deposits over €100,000. It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the EC,IMF and ECB.

“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.” Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans. Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.

Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank. Two senior Athens bankers said the country had only enough cash to keep ATMs supplied until the middle of next week. This followed the ECB’s decision this week not to increase Greece’s allocation of emergency liquidity assistance after the bailout programme ended on June 30.

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“..a dispute between Brussels and the IMF that has been simmering behind closed doors for months.” What’s Lagarde’s role in all this?

Europeans Tried To Block IMF Debt Report On Greece (Reuters)

Euro zone countries tried in vain to stop the IMF publishing a gloomy analysis of Greece’s debt burden which the leftist government says vindicates its call to voters to reject bailout terms, sources familiar with the situation said on Friday. The document released in Washington on Thursday said Greece’s public finances will not be sustainable without substantial debt relief, possibly including write-offs by European partners of loans guaranteed by taxpayers. It also said Greece will need at least €50 billion in additional aid over the next three years to keep itself afloat. Publication of the draft Debt Sustainability Analysis laid bare a dispute between Brussels and the IMF that has been simmering behind closed doors for months.

Greek Prime Minister Alexis Tsipras cited the report in a televised appeal to voters on Friday to say ‘No’ to the proposed austerity terms, which have anyway expired since talks broke down and Athens defaulted on an IMF loan this week. It was not clear whether an arcane IMF document would influence a cliffhanger poll in which Greece’s future in the euro zone is at stake with banks closed, cash withdrawals rationed and commerce seizing up. “Yesterday an event of major political importance happened,” Tsipras said. “The IMF published a report on Greece’s economy which is a great vindication for the Greek government as it confirms the obvious – that Greek debt is not sustainable.”

At a meeting on the IMF’s board on Wednesday, European members questioned the timing of the report which IMF management proposed at short notice releasing three days before Sunday’s crucial referendum that may determine the country’s future in the euro zone, the sources said. There was no vote but the Europeans were heavily outnumbered and the United States, the strongest voice in the IMF, was in favor of publication, the sources said.

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According to Der Spiegel, Merkel’s big mistake is not taking a harder line with Greece. Oh, and Tsipras is a radical idiot.

Angela’s Ashes: How Merkel Failed Greece and Europe (Spiegel)

Angela Merkel relishes her reputation as queen of Europe. But she hasn’t learned how to use her power, instead allowing a bad situation to heat up to the boiling point. Her inability to take unpopular stances badly exacerbated the Greek crisis. Angela Merkel was already leaving for the weekend when she received the call that would change everything. The chancellor had just had a grueling day, spending all of it in meetings with Greek Prime Minister Alexis Tsipras – sometimes as part of a larger group, and others with only him and French President François Hollande. They discussed debt restructuring and billions of euros in additional investments. When it comes to issues important to him, Tsipras can be exhaustingly stubborn.

In the end, though, Merkel was left with the feeling the EU summit was the milestone that could quite possibly mark a turn for the better. Martin Schulz, president of the European Parliament, had pulled Merkel aside in Brussels and whispered to her that Tsipras was seeking allies in the opposition, with whom he could push a reform program through Greek parliament even without the consent of the radical wing of Syriza, if necessary. “Can you help me?” Tsipras had asked Schulz. Schulz has good connections in the Social Democratic PASOK Party. But when Merkel returned to Berlin, she received a call from Tsipras. He told her that he was not interested in a deal, but that he intended to hold a referendum in Greece first. A short time later, he tweeted: “With a clear ‘NO,’ we send a message that Greece is not going to surrender.”

Merkel is known for not being easily fazed. She has made it this far in part because she has firm control of her emotions. And she remained silent throughout the weekend. But at a Monday meeting of leading members of her Christian Democratic Union (CDU), she hinted at the depth of her disappointment in Tsipras. His policies are “hard and ideological,” she said, adding that he is steering his country into a brick wall “with his eyes wide open.” Merkel had always described Tsipras as a man who, while leading a crazy organization, was quite open and accommodating in person. She had hoped that Tsipras would ultimately help reason prevail. Now, though, it appears that he has handed Merkel the greatest debacle of her tenure as chancellor.

In the end, of course, it will primarily be the fault of the radical Greek government if the country is ejected from the euro zone. How should one deal with a prime minister who conducts negotiations using the language of military mobilization? “We have justice on our side. If we can overcome fear, then there is nothing left to fear,” Tsipras tweeted on Monday. But the divide that is now opening up in Europe also has something to do with Merkel’s leadership style – and with her idiosyncrasy of allowing things to drift for extended periods. This method works when it comes to negotiating a compromise, and when everyone involved is interested in a favorable outcome. But it reaches its limits when someone like Tsipras is determined to carry things to the extreme.

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“Throughout the crisis, European elites have faced a simple choice: Acknowledge and explain to electorates their own mistakes, or revert to a much older playbook and manufacture scapegoats. Such tiny, tiny people.”

Greece (Steve Randy Waldman)

The fact of the matter is no country, not Germany, not France, would voluntarily put up with the sort of “adjustment” that has been forced on Greece, for the good reason that gratuitous great depressions are not actually helpful to an economy. Creditors have had five years to mismanage Greece and they’ve done a startlingly effective job. Syriza has had five months to object. However much you may dislike their negotiating style, however little you think of their competence, Greece’s catastrophe was not Syriza’s work. If creditors respond to Syriza’s “intransigence” with maneuvers that cause yet more devastation, that will be on the creditors. Blaming victims for having insufficiently perfect leaders is standard fare for apologists of predation.

Unfortunately, understanding this may be of little comfort to the disemboweled prey. Europe’s creditors are behaving exactly as one might naively predict private creditors would behave, seeking to get as much blood from the stone as quickly as possible, indifferent to the cost in longer-term growth. And that, in fact, is a puzzle! Greece’s creditors are not nervous lenders panicked over their own financial situation, but public sector institutions representing primarily governments that are in no financial distress at all. They really shouldn’t be behaving like this.

I think the explanation is quite simple, though. Having recast a crisis caused by a combustible mix of regulatory failure and elite venality into a morality play about profligate Greeks who must be punished, Eurocrats are now engaged in what might be described as “loan-shark theater”. They are putting on a show for the electorates they inflamed in order to preserve their own prestige. The show must go on. Throughout the crisis, European elites have faced a simple choice: Acknowledge and explain to electorates their own mistakes, which do not line up along national borders of virtue and vice, or revert to a much older playbook and manufacture scapegoats. Such tiny, tiny people.

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They’re really fed up with Europe.

Greek Mass Psychology Of Revolt Will Survive Financial Carpet-Bombing (Mason)

When Times correspondent George Steer entered the city of Guernica in April 1937, what struck him were the incongruities. He noted precisely the bombing tactics “which may be of interest to students of the new military science”. But his report begins with a long paragraph describing the city’s ceremonial oak tree and its role in the Spanish feudal system. Sitting in Athens this week, I began to understand how Steer felt. Sunday’s referendum will take place under a kind of financial warfare not seen in the history of modern states. The Greek government was forced to close its banks after the European Central Bank, whose job is technically to keep them open, refused to do so. The never-taxed and never-registered broadcasters of Greece did the rest, spreading panic, and intensifying it where it had already taken hold.

When the prime minister made an urgent statement live on the state broadcaster, some rival, private news channels refused to cut to the live feed. Greek credit cards ceased to work abroad. Some airlines cancelled all ticketing arrangements with the country. Some employers laid off their staff. One told them they would be paid only if they turned up at an anti-government demonstration. Martin Schulz, the socialist president of the European parliament, called for the far-left government to be replaced by technocrats. And the Council of Europe declared the referendum undemocratic. With ATM cash limited to €60 a day, one shopkeeper described the effect on her customers: on day one, panic buying; day two, less buying; day three, terror; day four, frozen.

The words you find yourself using in reports, after looking into the eyes of pensioners and young mothers, make the parallel with conflict entirely justified: terror, fear, flight, panic, uncertainty, sleeplessness, anxiety, disorientation. If the effect was to terrorise the population, it has only half worked. The pollsters are simply finding what Greek political scientists already know: society is divided, deeply and psychologically, between left and right.

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Draghi should be dragged before a court for this. How about The Hague?

Greek Economy Close To Collapse As Food And Medicine Run Short (Guardian)

Greece’s economy is on the brink of collapse after the capital controls imposed ahead of Sunday’s referendum left the country with shortages of food and drugs, the tourist industry facing a wave of cancellations and banks with barely enough money to survive the weekend. Banks said they had a €1bn cash buffer to see them through the weekend – equal to just €90 (£64) a head for the 11 million-strong population – and would require immediate help from the ECB on Monday whatever the result of the referendum, in which the two sides are running neck and neck. Alexis Tsipras, Greece’s prime minister, was fighting for his political life on Friday night, using a rally to say that a no vote would enable him to negotiate a reform-for-debt-relief deal with the country’s creditors.

The survival of the Syriza coalition, formed just over five months ago to repudiate five years of austerity programmes, was in doubt as Greece started to suffer shortages of basic provisions, including the sale of vital drugs in pharmacies nationwide. Food staples, such as sugar and flour, were also fast running out on Friday as consumers started to feel the effect of the restrictions. “We have shortages,” said Mary Papadopoulou, who runs a pharmacy in the picturesque district of Plaka beneath the ancient Acropolis. “We’ve run out of thyroxine [thyroid treatment] and unless things change dramatically we’ll be having a lot more shortages next week.”

Greek islands, where thousands of holidaymakers headed this week, have also been hit, with popular Cycladic destinations such as Mykonos and Santorini reporting shortages of basic foodstuffs. More than half of Greece’s food supplies – and the vast majority of pharmaceuticals – are imported, but with bank transfers now banned, companies are unable to pay suppliers. Queues were reported at every cash machine in Athens on Friday night and business groups warned that the economic shutdown in the week since Tsipras called the referendum had already caused lasting damage to the economy. “Imports, exports, factories, firms, transport – everything is frozen,” said Vasilis Korkidis, who heads the national Confederation of Hellenic Commerce. “The only sectors in demand are food and fuel.”

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Crazy that there still is one.

US Shale Drillers’ Safety Net Is Vanishing (Bloomberg)

The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64% of first-quarter revenue. Now the safety net is going away.
The insurance that producers bought before the collapse in oil — much of which guaranteed minimum prices of $90 a barrel or more — is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

“A year ago, you could hedge at $85 to $90, and now it’s in the low $60s,” said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. “Next year it’s really going to come to a head.” The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the “emerging risk” of lending to energy companies.

Payments from hedges accounted for at least 15% of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37% in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44. West Texas Intermediate for August delivery added 78 cents to $57.74 a barrel on the New York Mercantile Exchange at 10:45 a.m. New York time. Hedges purchased from banks or other traders allow drillers to lock in a sale price. Some guarantee a specific value. Others ensure a minimum payment regardless of how much the market moves, but require the oil company to pay some of it back if the price exceeds a certain threshold.

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OXI

Jun 272015
 
 June 27, 2015  Posted by at 10:45 am Finance Tagged with: , , , , , , , ,  5 Responses »
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Harris&Ewing Woodward & Lothrop dept. store trucks, Washington DC 1912

While many voices will be seeking to define the precise terms of the referendum announced last night by Alexis Tsipras for July 5, I think perhaps the general gist is more important. It’ll be a vote between being governed by Tsipras, and Greeks in general, on the one hand, and being governed by Germany, the ECB and IMF on the other. “Who do you want to decide your future?”

And the Greek population will have to understand that voting to go with the latter, voting yes to the troika proposals, will mean there will be no getting out of the stranglehold of the institutions, there will be no more sovereignty, and there will be far more severe austerity, all for years to come. All that must be caught in the exact wording of the referendum question, but what lies underneath is what really counts.

In a similar vein, I don’t think it’s all that interesting to go through the precise text and numbers of the latest troika proposal, the one Tsipras labeled ‘blackmail’ and which led to the referendum announcement. This is not about those numbers. It never was.

It’s about two things: the battle for power in Europe, all of Europe, and the refusal by the troika members to admit to their past failures. I see the word ‘failures’ as fundamentally different from ‘mistakes’, because the latter indicates a lack of intent, and I am very hesitant to suggest there was no intent involved in the handling of the crisis over the past 5 years.

I would also suggest that unless one or more troika members admit to past failures, and honestly and openly work to correct them retroactively, there will never be a solution to the Greek issue that does not involve huge defaults and political fall-out. They should not want that, but their notion of the battle for power seems to have them too entrenched to get out.

Still, for the neutral observer, there is no way not to realize that the troika has to a large extent been responsible for creating the Greek problem. Which is a whole other problem all by itself, since the troika consists of three entirely different institutions, who often don’t agree. If just one of the three would admit to past failures, and look at and propose ways to correct these failures, the entire Greek issue could be resolved in no time.

I said a while ago that the IMF could be the one to break the chains, (How The IMF Can Save Greece And Itself), by insisting on ‘retroactive debt restructuring’, an applying the losses and write-offs for French, Dutch and German banks that should have been applied in 2010. But the IMF sits a lot closer to those banks than it does to the people of Greece.

The problem with that is that it makes the Fund’s position a political one, and it should stay away from politics at all costs. It ostensibly is part of the troika only because it has more experience in restructurings than the ECB and EU. But the so-called restructuring that has taken place in 2010 and 2012 could just as well have been done by the other two members. It’s what Varoufakis called the difference between a meat cleaver and surgery.

Still, the IMF did sign off on what happened, and that means a large risk to its credibility and the trust it can expect to encounter in subsequent cases. There are elections in Spain and Portugal later this year, and people there have duly noted how Greece has been handled even just so far.

Lagarde and her staff may still think they’re above everyone else on the planet, that they’re even more omnipotent than central banks, but the cracks are showing. The Fund’s own researchers have recently issued quite a few reports critical of the course set in recent events, and the Asian Infrastructure Investment Bank looms on the horizon as an IMF alternative. The IMF’s position, and future, may be much better served by opening up on its failures than by digging in. But hubris is a powerful incentive.

As for the ECB and EU and their ability and willingness to eat their hats and their crows, there is little hope. The ECB, like the IMF, has veered far too deep into political territory, blindly following the example set by the Fed and other central banks. And as long as Goldmanites like Mario Draghi lead the dance, there’ll be no moving away from power politics. It’s what these people feed on.

This has put the ECB into a place where the more political power it seeks, the less independent it becomes. Draghi wouldn’t dream of doing anything that might upset Berlin and Paris, for example. But that’s exactly what he should do, and should have done. Granted, Draghi didn’t get his seat until late 2011, but he could and should have turned things around, and insisted on a -much- better deal for Greece, and a worse one for French and German banks. He did nothing of the kind.

Karl Whelan came with an interesting scenario yesterday that describes what could have happened, had the troika made the right choices in dealing with the Greek crisis. That is hasn’t speaks volumes about the political agendas of the three-headed beast:

An Alternative Version Of How The Greek Crisis Could Have Played Out

The Grexit scenario relies crucially on the Eurozone not having a proper lender of last resort or a functioning banking union. It is easy to imagine an alternative scenario to the current one. Consider the following alternative version of how the Greek crisis could have played out.

  1. As tension builds up in Greece prior to the Greek election in early 2015, Mario Draghi assures depositors in Greece that the ECB has fully tested the Greek banks and they do not have capital shortfalls. For this reason, their money is safe.
  2. Draghi announces that the ECB will thus provide full support to the Greek banks even if the government defaults on its debts, subject to those banks remaining solvent.
  3. Eurozone governments agree that, should Greek banks require recapitalisation to maintain solvency, the European Stabilisation Mechanism (ESM) will provide the capital in return for an ownership stake in the banks.
  4. Provided with assurances of liquidity and solvency support, there is no bank run as Greek citizens believe there banking system is safe even if the government’s negotiations with creditors go badly. The ECB stays out of the negotiations for a new creditor deal for Greece (because they are not a political organisation and are not involved in directly loaning money to the government) and its officials assure everyone that the integrity of the common currency is in no way at stake.

There are no legal impediments to this scenario. Despite the constant blather from ECB officials about how it is constantly constrained by its own persnikety rules, it is well known that the ECB can stretch these rules pretty much as far as it likes. Supporting banks that you have deemed solvent is pretty standard central banking practice. So Draghi’s ECB could have provided full and unequivocal support to the Greek banks if they wished. They just chose not to.

Similarly, procedures are in place for the ESM to invest directly in banks so a credible assurance of solvency could have been offered. Why did this not happen? Politics. European governments did not feel like providing assurances to Greek citizens about their banking system at the same time as their government was openly discussing the possibility of not paying back existing loans from European governments. Indeed, the ability to unleash the bank-driven Grexit mechanism has been the ace in the creditors’ pack all along.

Faced with massive political opposition in Germany and other Northern European countries to their existing monetary policy programmes, Mario Draghi and the ECB Governing Council have decided it is better for them to play along with the creditor country squeeze on Greece than to stabilise the Greek banking system. Imagine the hue and cry in Germany now if the ECB were refusing to threaten cutting off credit to Greek banks, thus undermining Angela Merkel’s leverage in negotiations.

This is what could have been done. That it hasn’t tells you all you need to know about the motives behind the troika’s stance.

The more I look at it, the more it seems that the Greeks on July 5 will vote not only on their own position and their own sovereignty, dignity and independence, they will also cast a vote on the future of the troika members. And that makes this a dangerous ‘experiment’, because the three will not give up without a fight.

The propaganda showered over Greece in the next week will be an exercise in absurdism. Attemps at instigating bank runs are a certainty. If the ECB wants to get even more political, it could cause one with the flick of a switch. But what credibility and trust it has left would fly out the window with that same flick.

There are already comments I see that miss the boat by a mile. :

Greeks will be voting under “extremely difficult conditions of national division and extreme economic conditions,” said Nicholas Economides, an economics professor at New York University’s Stern School of Business. “Tsipras is gambling with the future of Greece.”

I’m sorry, but that’s just dumb. It’s the ‘partners’ in the negotiations that gamble with that future. The only thing Tsipras has done is to refuse to get on his knees with his pants down his ankles. In what setting do we call that a gamble?

Something Tyler Durden (with whom I agree in 99% of cases) said on the Zero Hedge page today also struck me as worthy of a comment:

Greek PM Tsipras just delivered the biggest Friday night bomb in recent European history: he stunned the Troika and his peers in Europe with the biggest shocker of all – a referendum announcement, aka the Greek “nuclear option”, something which cost his predecessor George Papandreou his job. At this point there is no turning back, and the Greeks – of which 80% want to stay in the Euro even as 80% want an end to austerity – will get to choose their own fate. Whatever choice they make, they will now only have only themselves to blame.

You know, that makes me think of a schoolyard bully giving his victim the choice between a punch in the stomach or a blow to the head. However that would play out, can the victim be saddled with the blame for it?

It’s not as if the Greeks volunteered for their current misery. It was imposed upon them. And it’s not as if Syriza didn’t offer substantial concessions in the troika talks, they only said ‘there are limits to what we’ll do, imposed upon us by our mandate’.

I don’t think we can get away from a broader, pretty unforbidding, perspective such as that offered by Paul Craig Roberts in an article I read earlier this week, and which I think must be a part of the entire discussion.

Greek Democracy Is Failing

The Greek debt is unpayable. It is simply too large to be repaid. The austerity that the EU and IMF have imposed on Greece has worsened the problem by driving down the Greek economy, thus making the burden of the debt even heavier. Despite the obvious fact that the EU’s austerity policy is a failure and cannot succeed, the Greek “debt crisis” drama continues.

A solution was possible at the beginning of the “crisis” prior to the economy being driven down by austerity. The debt should have been written down to the amount that the Greek economy could service or pay. This traditional solution was unacceptable to creditors, to the EU, and to the ECB.

[..] the EU and the ECB have agendas unrelated to Greece’s ability to pay. The creditors are determined to establish the principle that they can over-lend to a country and force the country to pay by selling public assets and cutting pensions and social services of citizens. The creditor banks then profit by financing the privatization of public assets to favored customers.

The agenda of the EU and the central bank is to terminate the fiscal independence of EU member states by turning tax and budget policy over to the EU itself.

In other words, the Greek “sovereign debt crisis” is being used to create a precedent that will apply to every EU member government. The member states will cease to exist as sovereign states. Sovereignty will rest in the EU. The measures that Germany and France are supporting will in the end terminate their own sovereignty, very little of which actually remains as they do not have their own currency and their foreign policy is subservient to Washington.

Default and a turn to Russia is the only possible way out for Greece. The entire world would benefit from this course of action as Greece’s departure from the EU and NATO would begin the unraveling of NATO, Washington’s principal mechanism for creating conflict with Russia. In the end, all of Europe and the rest of the world would thank Greece for derailing the violence that will result from Washington’s effort to assert hegemony over Russia.

As a Greek default and a turn to the East is the only workable solution for Greece, the EU’s agents inside Greece have launched a huge campaign against a Greek turn to the East.

I fear that the Greek people are too brainwashed to be able to avail themselves of the opportunity to rescue themselves from the clutches of the One Percent, who will drive the Greek population into the ground. The Greek voters did not have sufficient judgment to give their current government a large enough percentage of the vote for the government to have any credibility with the EU and Greece’s creditors. What we are witnessing in Greece is the failure of democracy due to the people themselves.

I don’t agree with Roberts’ conclusion, or let me put it this way: we’re not there yet. I would tend to be more worried about what awaits the Greeks if they support Tsipras and Syriza on July 5, through a big fat OXI (no!). But they haven’t given in yet.

And perhaps unfortunately from them, their decision will have a much wider impact than only in Greece, politically, economically, and even morally. The way Europe is presently structured is certain, over time, to take ever more powers away from people, and the people they elect to represent them, and centralize them in the hands of far-away, only semi-elected, career politicians in Brussels and bankers in Frankfurt and Washington.

Nobody should choose that last option. It can only lead to disaster.