Menu Icon

Why Not Tell Greece How To Run A Democracy?

May 142015
 
 May 14, 2015  Posted by at 9:58 pm Finance Tagged with: , , , , , ,  13 Responses »


Harris&Ewing Washington Monument, view from air 1919

I know I’ve talked about this before, but it just keeps coming and it keeps being crzay. Bloomberg ‘reports’ that the ‘German Finance Ministry’, let me get this right, “is supporting the idea of a vote by Greek citizens to either accept the economic reforms being sought by creditors to receive a payout from the country’s bailout program or ultimately opt to leave the euro.” And that’s it.

They ‘report’ this as if it has some sort of actual value, as if it’s a real thing. Whereas in reality, it has the exact same value as Greek Finance Minister Varoufakis suggesting a referendum in Germany. Or Washington, for that matter. Something that Bloomberg wouldn’t even dream of ‘reporting’ in any kind of serious way, though the political value would be identical.

Apparently there is some kind of consensus in the international press – Bloomberg was by no means the only ‘news service’ that ‘reported’ this – that Germany has obtained the right to meddle in the internal politics of other eurozone member nations. And let’s get this one thing very clear: it has not.

No more than the Greek government has somehow acquired the right to even vent its opinions on German domestic issues. It is a no-go area for all European Union countries. More than that, it’s no-go for all nations in the world, and certainly in cases where governments have been democratically elected.

So why do Bloomberg and Reuters and all the others disregard such simple principles? All I can think is they entirely lost track of reality, and they live in a world where reality is what they say it is.

Now, I know that Schäuble ‘merely’ said – I quote Bloomberg -: “If the Greek government thinks it should hold a referendum, it should hold a referendum.. Maybe it would even be the right measure to let the Greek people decide whether they’re ready to accept what needs to be done.”

That’s admittedly not the same thing that Bloomberg makes of it, though it’s possible that the ‘reporter’ got some additional background information from the German Finance Ministry, and that that’s the reason the ministry gets mentioned, instead of just Schäuble.

But that still doesn’t make it alright by any stretch of the imagination. The EU, and the eurozone, are made up of sovereign nations. Who function in a system of equal partners, certainly from a political point of view. So the German FinMin has no business even talking about a Greek referendum, no more than the Greeks have talking about a German referendums. And Angela Merkel should be on his case for this. But she’s not. At least not in public.

Whether or not Greece has a referendum -about the euro or anything else- is up to the Greek people, and first of all to the government they elected only 3.5 months ago. It has absolutely nothing to do with whoever is in charge in Berlin, or Paris, or even in the EU headquarters in Brussels. It’s a fatal mistake to think otherwise. Bloomberg has made that fatal mistake. Schäuble has come so close Athens should file a complaint against him.

Granted, all parties involved may be influenced by what happened 4 years ago -more Bloomberg-:

Schaeuble’s stance on a Greek plebiscite is a departure from Germany’s position in 2011. Back then, Prime Minister George Papandreou dropped his plan for a referendum after Chancellor Angela Merkel and French President Nicolas Sarkozy urged him not to hold the vote.

That referendum involved a haircut on Greek debt ‘negotiated’ by the troika, which Papandreou wanted the Greek people to vote on. And Merkel and Sarkozy did much more than ‘urge’ Papandreou not to hold the vote. They were afraid it would drive Greece from the eurozone, and scared the sh*t out of him so much he withdrew the plan a few days after proposing it.

Which is just another case of Euro nations meddling in the internal affairs of a fellow member nation. Something for which there wasn’t then, and still isn’t now, any political or legal support or framework inside the EU. Still, Brussels, Berlin and Paris applied similar pressure on Italy PM Berlusconi in those days, and installed – helped install – a technocrat PM, Mario Monti. In Greece, they got Papademos. Both Papandreou and Berlusconi were gone soon after the ‘pressure’ was applied.

That’s how Europe operates. And they have no legal right to do it. But that you won’t read at Bloomberg. The whole thing is so accepted that not even Syriza tells the Germans – or Bloomberg for that matter – to shut their traps. Even though they would have a lot more right to do that than Schäuble has to comment on internal Greek affairs.

And from where I’m sitting that means that Ashoka Mody’s piece for Bruegel is too little too late. Nice try but..

Europe’s Integration Overdrive

The problems will worsen in Greece and, will inevitably, arise elsewhere. The economic and political costs of breaking the Eurozone are so horrendous that the imperfect monetary union will be held together. Instead, the cost of the ill-judged rush to the euro and mismanagement of Greece will eventually be a substantial forgiveness of Greek debt.

But this is a good moment to step back and loosen European ties. As Schuman said, “Europe will not be built according to one plan.” The task is to create a de facto solidarity—not to force a fragile embrace. A new architecture should scale back the corrosive power relationships of centralized economic surveillance. Let nations manage their affairs according to their priorities.

And put on notice private creditors that they will bear losses for reckless lending. The European fabric -held together by commercial ties- is fraying as European businesses seek faster growing markets elsewhere. That fabric could tear if political discord and economic woes persist. History and Schuman will be watching.

Things have moved way beyond where Mody thinks they are at present. The secret ingredient is simply the crisis. The way the eurozone was hastily slapped together allows only for good times. The idea was that as long as things go well, nobody would notice the cracks. But Europe has been nothing but cracks for 7 years now, and there’s no end in sight.

The Greek people can vote all they want to end the misery Europe has inflicted on them, it doesn’t matter to the major powers in the union. They simply blame it all on the same Greeks, and judging from how Bloomberg approaches the issue, they have the upper hand. They live above their means, they’re wasteful and they’re lazy. That’s the portrait painted, and that’s how 90% of the world therefore sees them.

It makes no difference whether it is true or not. It’s all just about who has more money and power and press; they get to decide what people think about other people.

Does the euro have a future? If it does, it won’t look anything like it does today. The eurozone has only ever been a mechanism to make more money flow from the south to the north. And now the north will have to come up with a measure of solidarity, of being an actual union, and they bluntly refuse.

Rich European countries are all led by politicians who want to win their next elections. And these are national elections, not European elections. Those hardly matter. Because Europe is made up of sovereign nations. And that’s why the European Union in its present shape is doomed to fail.

Brussels will always clamor for a closer union, politically, fiscally, economically. But the way Germany et al has treated Greece and Italy and Spain over the past 7 years makes abundantly clear that such a close union will never come to fruition. These are all countries that are proudly independent, that commemorate battles from hundreds of years ago where their ancestors shed the blood and gave the lives that made them independent.

They’re not going to let Germany and France and Holland call the shots in their economies and countries now. Not a chance.

Europe only has a -peaceful- future as a continent of independent nations that work together where they can. To get there, they will need to abolish the euro and completely redo the union project, from scratch, close down all offices in Brussels, and they will have to do it soon, or there will be no peace.

Meanwhile, what’s left for Greece in Brussels that is beneficial to the country? I don’t see it. It makes me think more of a Stockholm syndrome by the hour. Get out, get your own currency, negotiate a treaty with Italy and Spain, maybe France. But don’t stay in a ‘union’ with outsiders who think they can tell you, Greeks, how to run a democracy, or when to hold a referendum. That can only be a road to nowhere.

Will Austerity Be the Straw that Breaks the EU AND the UK?

May 102015
 
 May 10, 2015  Posted by at 7:30 pm Finance Tagged with: , , , , , , ,  3 Responses »


Jack Delano Worker inspecting locomotive, Proviso Yard 1942

From where we’re sitting, the biggest victory in the May 7 British election will turn out to be not that of the Conservatives, but of the SNP, the Scottish nationalists. The party took 56 out of 59 Scottish seats in the United Kingdom’s Westminster parliament in London (with just half of the total votes..). Perhaps even more significant is the increased divide between Scotland and ‘the rest of the UK’.

While Cameron’s ‘unexpected’ victory marks a sharp turn to the right, the SNP’s landslide win sets the Scots on a course that’s close to a 180º opposite, even sharper turn to the left. Or in other words: while Britain voted for more of the same, Scotland voted for change. And never the twain shall ever see eye to eye again?! The left side of the spectrum was represented by the SNP, not by Labour, who Tony Blair now claims should run even more to the right – which he calls center.

Perhaps it’s nice to start off with a more philosophical angle about the future viability and/or inevitable fate of the United Kingdom. Just to set the overarching and underlying tone. Ian Jack had this for the Guardian yesterday:

Did The End Of The British Empire Make The Death Of The Union Inevitable?

.. what some of us were in Denmark to consider is the now almost-conventional wisdom about British identity: that it rose and fell with the empire, and with the empire’s going the United Kingdom will almost inevitably break up. Stuart Ward, professor of global and imperial history at Copenhagen University, reminded us of this theory’s several advocates, from Tom Nairn, writing presciently in 1977, to Linda Colley in her book Britons, published in 1992.

David Marquand took the idea to the extreme when he announced in 1995 that shorn of empire, Britain had “no meaning” and it was therefore impossible “for Britain as such to be post-imperial”. In a what-goes-up-must-come-down way, it looks a plausible argument. The logic is, as Ward said, that if you can demonstrate that the empire forged an idea of Britain, then Britain’s vanishing two centuries later “is merely a question of the laws of physics – remove the load-bearing pillar, and the structure falls”.

Is Britain destined to fall to pieces? Are all empires? How long can the center hold?

There are more interesting angles besides these, not least of which is the similarities between Greece vs Eurozone and Scotland vs United Kingdom. The keyword in this is ‘austerity’. The Greek people voted en masse to end it, and so did the Scots. Here’s what SNP leader Nicola Sturgeon had to say post-election:

Nicola Sturgeon Tells Westminster: ‘Scotland Will No Longer Be Sidelined Or Ignored”

“Scotland has given the SNP a mandate on a scale unprecedented for any political party, not just in Scotland but right across the UK. “We will use that mandate to speak up for and protect the interests of Scotland. “Let us be very clear, the people of Scotland on Thursday voted for an SNP manifesto which had ending austerity as its number one priority, and that is the priority that these men and women will now take to the very heart of the Westminster agenda.” Ms Sturgeon said: “After Thursday, and as I told the Prime Minister when I spoke to him yesterday, it simply cannot be and it will not be business as usual when it comes to Westminster’s dealing with Scotland.”

Sturgeon has hinted that she aims to end austerity across the UK, not just in Scotland. That may be a bit much to ask given that her mandate is limited, but at the same time it’s hard to see how ending austerity only in some parts of a union would work out in practice. The EU certainly doesn’t seem eager to grant Greece an austerity-free status, and how Cameron would tackle this mandate issue is unclear. Can he abandon austerity in Scotland and continue it in the rest of the UK? And if he can’t do it in Scotland, then how can he in Wales?

Cameron thinks he’s riding a major victory, and he will now be called upon to deliver on his election promises, which just so happen to include a deepening and acceleration of austerity measures. At a time when we can see even such sworn antagonists as Steve Keen and Paul Krugman agree on the failure of austerity as a financial/fiscal policy measure, David Cameron insists on inflicting more of it on Britain in the exact same way that the Troika insists on more of the same for Greece. And he’s not kidding.

Here are two British pieces on the topic; first the Mirror:

100 Days Of Tory Cuts Carnage As George Osborne Plans To Fast-Track £12 Billion In Savings

George Osborne is preparing to drastically speed up the pace of £12 billion in brutal spending cuts. Before the election, Tories feared proposals to slash cash from the welfare bill would have to be watered down under any coalition deal. But now the party has a majority, the Chancellor plans to race ahead with his austerity cuts to meet his pledge of eliminating the deficit by 2018. Senior Tories revealed how ministers would try to push through the majority of the welfare cuts within two years instead of the original three-year timescale.

But Prime Minister David Cameron hopes to kick it off with a 100-day policy blitz. One senior party source admitted: “When it comes to cuts, we want the pain to be out of the way long before the next general election. Without the restraint of the Lib Dems, it means we can go further and faster when it comes to controlling the welfare bill.” The new Conservative Government is due to present its programme of legislation to Parliament through the Queen’s Speech on May 27. But officials are already drawing up worrying plans to squeeze a host of benefits.

Ministers are looking at means testing unemployment benefits like Jobseeker’s Allowance, according to a document leaked earlier this year. Other proposals to slash the £125 billion welfare bill include limiting Child Benefit payments to the first two children and taxing Disability Living Allowance and Personal Independence Payments. The Tories also want to reduce the maximum any household can receive in benefits from the current £26,000 a year to £23,000. Other cuts include a £3.8 billion raid on tax credits, which are relied on by millions of families on low wages.

The number of people who get Carer’s Allowance could also fall by 40%. Such moves are likely to pile the pressure on food banks and charities as the cost of living crisis deepens. Senior Labour MP John Mann warned: “People don’t realise what’s going to hit them. The entire benefits system is going to crumble and almost everyone will lose out apart from private landlords who will remain untouched. It will be a return to the Victorian age.” “Everyone will have to stand on their own two feet, even people with no legs.”

And second, this is from Here Is The City:

Tories Weigh Up Options For £12 Billion Welfare Cuts

Either the poorest in society or the “hard-working people” courted by the Conservatives face being targeted under the party’s commitment to £12bn of welfare cuts, experts have said. One way of achieving the £12bn goal could be by reducing the £38bn cost of out-of-work payments to working-age families, for example by cutting entitlements to a third of the recipients, according to John Hills at the London School of Economics.

“But that would mean hitting lone parents and disabled people and create pressure on food banks and hardship on a scale that would be hard to imagine,” Hills said. “Alternatively you could take it from hard-working families who rely on housing benefit and tax credits. That’s a lot of pain from a large number of people who have just voted for you.”

[..] To justify the cuts, the Tories are likely to employ a narrative of skivers v strivers, suggesting a clear division between a large, permanently welfare-dependent group and the rest of the population who pay taxes to support it. The Tories know this is a fiction, but it is a politically useful one. Welfare is mainly about taking money from those of working age – when incomes are high on average – and giving cash and services to older people, and families with children.

A DWP paper setting out options was leaked to the BBC in March. [..] if the BBC’s document is any guide, George Osborne – reappointed as chancellor – could look to strip £1bn from carers’ allowances; means-test national insurance-backed unemployment benefits, saving another £1.3bn; and tax disability benefits to raise another £1.5bn. Then there’s limiting child benefit to two children – affecting a million families to save another £1bn.

The Institute For Fiscal Studies noted: “These may well not be the decisions that a future Conservative government would make. But it is likely they would have to make changes at least as radical as this to find £12bn a year.” Not all these changes would require a new bill, but if past form is anything to go by then the Tories would want to lay a trap for their opponents with new legislation so as to paint anyone who votes against it – such as the anti-austerity Scottish Nationalists – as pro-welfare parties prepared to spend lavishly on the idle poor.

How this will not end badly and ugly is hard to see. As we quoted in an earlier article, the number of foodbanks in Britain went from 66 to 421 in the first 5 years of Cameron rule. How many more need to be added before people start setting cities on fire? Or even just: how much more needs to happen before the Scots have had enough?

Very much like the Greeks, the Scots unambiguously voted down austerity. And in very much the same fashion, they face an entity that claims to be more powerful and insists on forcing more austerity down their throats anyway. It seems inevitable that at some point these larger entities will start to crack and break down into smaller pieces. As empires always do. Now, the EU was of course never an empire, there’s just tons of bureaucrats dreaming of that, and Britain is a long-decayed empire.

Larger entities like empires are more powerful only for a limited period of time, for as long as the center can make the periphery benefit; once the center starts feeding off the periphery, the endgame starts. This can take a while, but it will happen, it’s a law of nature. When periphery regions figure out they have nothing to lose by splitting off, they will elect to stand on their own two feet and be their own boss.

And it’s not as if either Scotland or Greece lack a history of fighting for their independence. Just a reminder.

What’s next for Greece is by now anybody’s guess. And a whole other story too. What’s next for Britain and Scotland is or seems -for now- somewhat less convoluted.

Nicola Sturgeon will have conversations with Cameron. Who will offer her more ‘autonomy’ for Scotland. But the budget, also for Scotland, is decided in London, not in Edinburgh. How Cameron’s austerity 2.0 can be made to fit with the SNP’s anti-austerity message, their number 1 priority in last week’s elections, is hard to fathom. Label us curious to see what happens.

It would seem that there are two referendums in Britain’s future. First, the EU in-or-out referendum Cameron promised his voters. It looks like the majority of British voters will opt to leave the EU, or at least partially; things may change if or when Cameron convinces Brussels to change the entire concept of the Union to ‘pacify’ the UK. But that majority will probably come from England only. Scotland, Wales and Northern Ireland will -almost certainly- choose to remain in the EU. And it just so happens that Sturgeon addressed the issue in the Guardian in no uncertain terms:

There are huge issues and challenges ahead – not least the looming question of the UK and Scotland’s place in Europe. A key requirement of the prime minister’s in-out referendum should be a “double-lock” requiring the assent of all four UK home nations before any withdrawal from the EU..

It doesn’t look like there will a general endorsement for the Tories’ vision for leaving the EU. So what’s your run of the mill Cameron to do? Ignore the Scottish demand for that ‘double-lock’? That wouldn’t be very democratic, and it would raise the chance of the UK falling to pieces. No easy choices, no easy pieces for David.

The other referendum, brought closer, as time passes, by Cameron’s multiple conundrums, is of course about Scottish independence. If London holds on to its position on austerity, it’s hard to see how there can not be another of these plebicites, soon.

Granted, it would depend on how much of a warrior Nicola Sturgeon is. Just like in Greece, the outcome of the Syriza vs Troika battle depends on how much chutzpah each side carries. And how much integrity. That last one should be an easy contest. London and Brussels have none, Athens and Edinburgh may yet find some.

All in all, yours truly is going for the center cannot hold.

Debt Rattle March 9 2015

Mar 092015
 
 March 9, 2015  Posted by at 7:05 am Finance Tagged with: , , , , , , , , ,  5 Responses »


NPC Skating night, Washington DC 1919

• The Global Dollar Funding Shortage Is Back With A Vengeance (Zero Hedge)
• “Ignore This Measure Of Global Liquidity At Your Own Peril” (Zero Hedge)
• China Inc Flocks To Euro Debt For Funding (FT)
• Heta Damage Spreads in Austrian Downgrades, German Losses (Bloomberg)
• Europe Is Being Torn Apart – And The Torture Will Be Slow (Guardian)
• IMF Could Do More For EU Than ECB’s QE (CNBC)
• Tsipras At Crossroads Between Euro And Drachma (Kathimerini)
• Juncker Urges EU To Face Up To ‘Serious’ Greek Troubles (AFP)
• Jean-Claude Juncker Calls For EU Army (Guardian)
• Greece Mulls Referendum as No Deal With Lenders in Sight (Bloomberg)
• Greece Threatens New Elections If Eurozone Rejects Planned Reforms (Guardian)
• Eurozone: Greek Reform Outline Helpful, But Needs ‘Troika’ Scrutiny (Reuters)
• UK Treasury ‘Not Ready For Next Financial Crisis’ (Guardian)
• An Inflection Point For Keynesian Parlor Tricks (Mark St. Cyr)
• Goldman Sachs Stress Test Results Could Endanger Big Profit Source (NY Times)
• Russia’s Anti-US Sentiment Now Is Even Worse Than It Was In Soviet Union (WaPo)
• How Everything Will Change Under Climate Change (Naomi Klein)
• Upcoming Supermoon Eclipse Will Dazzle Britain, Hit Europe’s Power Grids (RT)

“..different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks.”

• The Global Dollar Funding Shortage Is Back With A Vengeance (Zero Hedge)

[..].. all else equal, there is at least enough downside to push the fx basis as far negative at -50 bps: this would make the USD shortage the most acute it has ever been, at least as calculated by this key metric! And since this is essentially a risk-free arb for credit issuers, and since there are many more stock buybacks that demand credit funding, one can be certain that the current fx basis print around – 20 bps will most certainly accelerate to a level never before seen, a level which would also hint that something is very broken with the financial system and/or that transatlantic counterparty risk has never been greater. Unlike us, JPM hedges modestly in its forecast where the basis will end up:

Whether the above YTD trends continue forward is a difficult call to make. The widening of USD vs. EUR credit spreads shown in Figure 4 has the propensity to sustain the strength of Reverse Yankee issuance putting more downward pressure on the basis. On the other hand, this potential downward pressure on the basis should be offset to some extent by Yankee issuance the attractiveness of which increases the more negative the basis becomes.

In all, different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks. It is rather driven by the monetary policy divergence between the US and the rest of the world. This divergence appears to have created an imbalance in funding markets and a shortage in dollar funding. It is important to monitor how this dollar funding shortage and issuance patterns evolve over time even if the currency implications are uncertain.

And to think the Fed’s cheerleaders couldn’t hold their praise for the ECB’s NIRP (as first defined on these pages) policy. Because little did they know that behind the scenes the divergence in Fed and “rest of the world” policy action is leading to two things: i) the fastest emergence of a dollar shortage since Lehman and ii) a shortage which will be arbed to a level not seen since Lehman, and one which assures that over the coming next few months, many will be scratching their heads as to whether there is something far more broken with the financial system than merely an arbed way by US corporations to issue cheaper (hedged) debt in Europe thanks to Europe’s NIRP policies.

If and when the market finally does notice this gaping dollar shortage (as is usually the case with the mandatory 3-6 month delay), watch as the Fed will once again scramble to flood the world with USD FX swap lines in yet another desperate attempt to prevent the global dollar margin call from crushing a matched synthetic dollar short which according to some estimates has risen as high as $10 trillion. Until then, just keep an eye on the Fed’s weekly swap line usage, because if the above is correct, it is only a matter of time before they are put to full use once again. Finally what assures they will be put to use, is that this time the divergence is the direct result of the Fed’s actions, and its insistence that despite what is shaping up to be a 1% GDP quarter, that it has to hike rates. Well, as JPM just warned it in not so many words, be very careful what you wish for, and what you end up getting in your desire to telegraph just how “strong” the US economy is.

Read more …

Absolute must read: “when the dollar rallies strongly, as is the case now, FX intervention rapidly dries up and can even reverse, exerting a massive monetary tightening on emerging economies and ultimately the entire over-inflated global financial complex…”

• “Ignore This Measure Of Global Liquidity At Your Own Peril” (Zero Hedge)

With all eyes squarely on the ECB as Mario Draghi prepares to flood the EMU fixed income market with €1.1 trillion in new liquidity starting Monday, Soc Gen’s Albert Edwards reminds us that “another type of QE” is drying up thanks largely to the relative strength of the US dollar. The printing of currency to buy US dollar denominated assets in an effort to prop up “mercantilist export-led growth models [is] no different to the Fed’s QE,” Edwards says, explicitly equating EM FX intervention with the asset purchase programs employed by the world’s most influential central banks in the years since the crisis. Via Soc Gen:

Clearly when the dollar is declining sharply, global FX intervention accelerates as the Chinese central bank, for example, needs to debauch its own currency at the same rate. Conversely, when the dollar rallies strongly, as is the case now, FX intervention rapidly dries up and can even reverse, exerting a massive monetary tightening on emerging economies and ultimately the entire over-inflated global financial complex… The swing in global foreign exchange reserves is one key measure of the global liquidity tap being turned on and off ? with the most direct and immediate effect being felt in emerging economies.

Given the above, we should expect to see global foreign exchange reserves falling…

… with the most pronounced move in EM reserves…

Edwards goes on to note that even as China dials back the market’s expectations for Chinese GDP growth, a look at the variables that Premier Li Keqiang himself has said are a better proxy for economic growth in the country (electricity usage, rail freight volume, and credit growth) suggest GDP growth in China may actually be running below 4%…

The bottom line is that in a world of over-inflated asset values, the strength of the dollar is resulting is a rapid tightening of global liquidity as emerging economies (and indeed the Swiss) stop printing money to buy the US dollar. This should be seen for what it is a clear tightening of global liquidity. Traditionally these periods of dollar strength are highly disruptive to emerging markets and often end in the weakest links blowing up the entire EM and commodity complex and sometimes much else besides! Investors ignore this at their peril.

Read more …

The craziness continues unabated.

• China Inc Flocks To Euro Debt For Funding (FT)

Chinese companies are ditching the renminbi and flocking to the euro to raise new offshore debt, as the imminent launch of quantitative easing in the single currency bloc sends ripples through global markets. So far this year, mainland-based companies have sold $2.9 billion worth of euro-denominated debt, according to Dealogic, compared with nothing in the first quarter of last year and within striking distance of the $3.3 billion raised during the whole of 2014. Meanwhile, Chinese borrowers have shunned offshore renminbi debt, known better as “dim sum” bonds. The total raised in the market this year is only $250 million, a dramatic drop from the $6.6 billion issued during the first three months of last year. US dollar borrowing has been steadily high, with $16.3 billion of bonds sold this year.

Funding costs for euro debt have been tumbling since the ECB announced plans to start its own program of quantitative easing, which is due to begin on Monday. More than €1.5 trillion of sovereign eurozone bonds now offer investors negative yields, according to JPMorgan estimates. The new focus on euro debt also marks a change in Chinese corporate funding habits, in part a reflection of increasing eurozone assets held by some of Asia’s most acquisitive companies. Euro bonds can be used for deal financing or for currency management. In the past six months, the euro has dropped 13% against the renminbi, which has a managed peg to the US dollar.

Beijing-based State Grid, which owns stakes in grid operators in Portugal and Italy, borrowed €1 billion in January. Another euro bond issuer, Fosun International, already owns financial and healthcare assets in Portugal, duty free shops in Greece, and German fashion brand Tom Tailor. It successfully completed a €939 million deal for French holiday resort group Club Méditerranée last month. “Going out and borrowing in euros is a pretty good way to hedge,” said Jon Pratt, head of debt capital markets in Asia at Barclays, adding that many more Chinese companies were expected to tap the euro market in the coming months. “Investors are starting to follow it as an asset class. It’s reaching a real critical mass.”

Read more …

Wait till German exposure starts to hit.

• Heta Damage Spreads in Austrian Downgrades, German Losses (Bloomberg)

Austria’s decision to wind down Heta Asset Resolution sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany. Moody’s cut the rating of Carinthia province, which guarantees €10.2 billion of Heta’s debt, by four levels to Baa3 from A2, and said it may lower the ratings of three state-owned Austrian banks exposed to it. Dexia’s German unit, Deutsche Pfandbriefbank and NRW.Bank said yesterday they own Heta bonds that may suffer losses. “Notwithstanding the intention of the central government to protect taxpayers under the new banking resolution regime, Moody’s sees the steps taken so far as adding higher uncertainty to developments,” the ratings company said late Friday in a statement on the Carinthia downgrade. “Susceptibility to an adverse scenario has increased as a result.”

Austria paved the way for imposing losses on Heta’s bondholders when it ruled out further support for the “bad bank” of Hypo Alpe-Adria-Bank March 1. Using powers set out in European Union and Austrian bank laws covering debt reorganization, the Finanzmarktaufsicht regulator ordered a 15-month debt moratorium while it plans resolution of Heta’s €18 billion of assets. Carinthia’s guarantees, which peaked at €25 billion in 2006, were the main justification for Hypo Alpe’s public rescue in 2009 and the biggest conundrum in its wind-down. With budgeted revenue of €2.36 billion this year, the southern province of 556,000 people would be unable to honor the guarantees if they came due now or in a year’s time, Governor Peter Kaiser told Austrian radio ORF on Tuesday.

The guarantees “could exceed Carinthia’s liquidity resources, lead to increased financial leverage and could require some form of extraordinary central government support,” Moody’s said. Finance Minister Hans Joerg Schelling has said repeatedly that the Austrian government isn’t liable to cover Carinthia’s guarantees. Among Heta’s liabilities affected by the moratorium and a future bail-in are €1.24 billion Heta owes to Pfandbriefbank, which issues bonds on behalf of Austrian provincial banks.

Read more …

“There is a great deal of ruin in a nation,” said Adam Smith.”

• Europe Is Being Torn Apart – And The Torture Will Be Slow (Guardian)

“If the euro fails, Europe fails”: thus spake Angela Merkel. Unfortunately, the euro is failing, but it is failing slowly. Even if Greece grexits, the eurozone seems unlikely to fall apart in the near future, although there is still a chance that it will. There is a much higher chance that it will grind along like a badly designed Kazakh tractor, producing slower growth, fewer jobs and more human suffering than the same countries would have experienced without monetary union. However, the misery will be unevenly distributed between debtor and creditor countries, struggling south and still prospering north. These different national experiences will be reflected through rational elections, creating more tensions of the kind we have already seen between Germany and Greece. Eventually, something will give, but that process may take a long time.

“There is a great deal of ruin in a nation,” said Adam Smith. Given the extraordinary achievements of the 70 years since 1945, and the memories and hopes still invested in the European project, there is a lot of ruin still left in our continent. I recently participated in an event in Frankfurt attended by representatives of leading European investors. A multiple-choice instant poll was taken, offering a number of scenarios for how the eurozone would look in five years’ time, and asking which we found most probable. Nearly half those present opted, as I did, for “Japan in the 1990s”. Around 20% voted for “what eurozone?”; 18% went for “the UK after Thatcher”, by which they presumably meant a leaner, meaner economy, with the policies of austerity and structural reform producing growth, but also dislocation and inequality.

The catch is that even in this last, “best” case, the inequality would not be within one country, such as Britain, but unevenly distributed between different countries. Germans and a few other north European nations would go on taking most of the gain, others the pain. To say this is to endorse an economic analysis that mainstream German politicians and economists will fiercely dispute. Austerity and structural reform are the one true way to salvation, they insist. As Merkel put it in 2013: “What we have done, everyone else can do.”

There are at least three problems with this. First, as every wise doctor knows, even the theoretically right medicine can be disastrous if administered in too strong a dose to a weakened patient. Second, Greeks, Italians and French are not Germans. Their economies certainly need structural reforms, which have, for example, boosted exports from Spain, but their societies and companies simply do not respond in the same way. Third, even if the whole eurozone becomes one giant German-style Exportweltmeister, who will be the consumer? Some of the demand must come from inside the eurozone, and especially from richer countries such as Germany. If everyone else is to behave more like Germany, then Germany must behave a bit less like Germany. But Germany is not prepared to do that.

Read more …

Curious notion.

• IMF Could Do More For EU Than ECB’s QE (CNBC)

Have you ever thought of the IMF as a peacemaker? Here is what Christine Lagarde, the IMF’s managing director, was telling the warring Ukrainians last Wednesday (March 4): “… We are trying to help Ukraine with … a set of reforms, massive financial support, but all of that is really going to depend on how it stabilizes … the east … and how the … conflict stops.” She went on to say that the fighting in the eastern part of Ukraine “has been a huge distraction” for the country’s leaders who, in her view, “are really determined to reform the economy.” The message is clear: Stop fighting, strive for peace and we – the IMF and international investors – will help you to rebuild, reform and modernize your economy. And here is the money. Ms. Lagarde announced that over the next four years $40 billion – half of that from the IMF – would be provided to support the Ukrainian economy.

If there is peace, you can think of these $40 billion as seed money. With its vast and fertile land, its skilled labor force and a diversified (if rusty) industrial base this beautiful country could easily attract large private direct investment inflows. The IMF is clearly playing a key role here, because it is hard to see how large-scale fund disbursements to support Ukraine’s meaningful and sustainable economic reforms can be carried out unless the guns fall silent. With no other source of finance readily available, the IMF’s political clout could be decisive in the successful implementation of the latest round of cease-fire and peace agreements negotiated in Minsk, Belarus, on February 12, 2015. Europe would then be extricated from the claws of its old demons of division, exclusion and medieval savagery.

That is what some European leaders are counting on. Their foreign policy chief Federica Mogherini told a meeting of the group’s top diplomats last Friday (March 6) that “… around our continent … cooperation is far better than confrontation.” She was echoing increasingly pressing calls to stop Ukraine’s fighting and restore Europe’s unimpeded flows of commerce and finance. All this puts the IMF in an interesting position. By forcing the warring parties in Ukraine to seek peace as a condition of economic survival, the IMF can also help the recovery of the European economy by removing obstacles to intra-regional trade that are costing hundreds of thousands of jobs.

Arguably, that would be of far greater help than the ECB’s debasement of the euro with an avalanche of new liquidity that no area economy needs with an already record-low interest rate of 0.05%. Even Germany opposed that ill-conceived policy. Never an advocate of a weak currency, Germany does not need a sinking euro to maintain a trade surplus exceeding 7% of its economy.

Read more …

“Clearly Tsipras has been persuaded that the eurozone and the ECB will not allow Greece to go bankrupt and that things will change politically in Europe come autumn.”

• Tsipras At Crossroads Between Euro And Drachma (Kathimerini)

Prime Minister Alexis Tsipras will soon find himself having to choose between the euro and the drachma. He can’t take the euro road with Panayiotis Lafazanis and certain other SYRIZA officials on his team. Privatizations, looser labor laws, pension cuts and other measures required for a eurozone deal will not be approved by MPs who are of a completely different mindset. Nevertheless, the eurozone “bosses” have decided that rules are rules and that if the preliminary agreement with Tsipras and Finance Minister Yanis Varoufakis is not implemented swiftly the country’s liquidity will remain at zero. Meanwhile, the prime minister believes our partners are trying to bring back the troika and the memorandums through the back door.

Well, they never hid their intentions. While they may have dubbed the troika “institutions” and the memorandum “funding program,” they have never suggested that there would be no evaluation or a new program. Meetings with the troika may be taking place in Brussels and certain Greek government initiatives may be accepted but at the end of the day it comes down to strict supervision and the program. Some think that it is only Berlin insisting on terms. They are mistaken; everyone is behind it, from the governments of southern Europe, to the ECB and the IMF. People who care about our country, such as Commission chief Jean-Claude Juncker, have spent plenty of political capital by supporting Greece but will eventually give up. Besides, we have eroded their trust through leaks, irresponsible comments and an unbelievable lack of professionalism. We are losing friends on a daily basis and won’t admit it.

Clearly Tsipras has been persuaded that the eurozone and the ECB will not allow Greece to go bankrupt and that things will change politically in Europe come autumn. The problem is that autumn is too far away and a Greek default is no longer such a big threat. The IMF thinks it’s manageable, in contrast to 2012 when Christine Lagarde persuaded Angela Merkel of the opposite. Markets also believe it manageable and this is bad in terms of our own negotiating capital. Certain cabinet officials still suggest that a solution could come from China or Russia. Whatever assistance these countries could offer, it would not solve Greece’s funding problem or entail a rift with Europe.

Tsipras must keep his party and ministers under control in order to move on with the negotiation. He will also need to offer a couple of major trade-offs in order to persuade the “bosses” not to cut off the country’s cash flow. I don’t know what these could be but I can safely predict that they will not be an easy sell to his party. Tsipras cannot take the euro road as his party stands today. The danger is if he starts leaning toward a euro exit without actually having decided to do so, simply because time and political capital are running out.

Read more …

He may feel forced to act if Grexit takes shape. He’s responsible for keeping it all together.

• Juncker Urges EU To Face Up To ‘Serious’ Greek Troubles (AFP)

European Commission head Jean-Claude Juncker called on the European Union to recognize the gravity of the situation in Greece — both for the country’s impoverished citizens and for the wider risks to the eurozone. “We must be sure that the situation does not continue to deteriorate in Greece. What worries me is that not everyone in the European Union has understood how serious the situation in Greece is,” Juncker told German paper Die Welt in an interview published Saturday. He did not specify whom his comments were aimed at, but they appeared two days after the European Central Bank took a tough stance on extending more financial help to Greece. Juncker noted in his comments that a quarter of Greeks are not covered by social security, unemployment is the highest in the eurozone and the country sees regular protests.

Although Greece’s debt problems are far from being resolved, Juncker repeated previous assertions that Athens should not leave the eurozone, noting this would amount to an “irreparable loss of reputation” for the single currency. However, the European Commission president also advised Greece to stick to reforms agreed upon with its creditors. “If the government wants to spend more money, it must compensate with savings or supplemental income,” he added. After July, when Greek bonds held by the European Central Bank come due, there needs to be “reflecting about the ways international creditors must behave toward countries that find themselves in a critical economic situation,” Juncker said. “It is not acceptable that a prime minister must negotiate reforms with civil servants. One is an elected official, the others are not,” he added.

Juncker did not directly mention the meeting of eurozone finance ministers set for Monday in Brussels nor the date of his next meeting with Greek Premier Alexis Tsipras. Tsipras called for the meeting just after a speech Thursday from ECB President Mario Draghi, which stated that all supplemental help to Greece would be conditional on the rapid completion of reforms promised by Athens. The ECB “is still holding the rope which we have around our necks,” said Tsipras, according to excerpts of an interview with German magazine Der Spiegel. The remark came after Athens received no help from the Frankfurt-based institution to address a cash squeeze caused by the non-delivery of promised loans.

Read more …

“Europe’s image has suffered dramatically and also in terms of foreign policy, we don’t seem to be taken entirely seriously.”

• Jean-Claude Juncker Calls For EU Army (Guardian)

The EU needs its own army to help address the problem that it is not “taken entirely seriously” as an international force, the president of the European commission has said. Jean-Claude Juncker said such a move would help the EU to persuade Russia that it was serious about defending its values in the face of the threat posed by Moscow. However, his proposal was immediately rejected by the British government, which said that there was “no prospect” of the UK agreeing to the creation of an EU army. “You would not create a European army to use it immediately,” Juncker told the Welt am Sonntag newspaper in Germany in an interview published on Sunday. “But a common army among the Europeans would convey to Russia that we are serious about defending the values of the European Union.”

Juncker, who has been a longstanding advocate of an EU army, said getting member states to combine militarily would make spending more efficient and would encourage further European integration. “Such an army would help us design a common foreign and security policy,” the former prime minister of Luxembourg said. “Europe’s image has suffered dramatically and also in terms of foreign policy, we don’t seem to be taken entirely seriously.” Juncker also said he did not want a new force to challenge the role of Nato. In Germany some political figures expressed support for Juncker’s idea, but in Britain the government insisted that the idea was unacceptable. A UK government spokesman said: “Our position is crystal clear that defence is a national – not an EU – responsibility and that there is no prospect of that position changing and no prospect of a European army.”

Read more …

Would make sense. As I said earlier on, they need a mandate to act.

• Greece Mulls Referendum as No Deal With Lenders in Sight (Bloomberg)

Greece’s anti-austerity coalition is considering calling a referendum on government policy as euro-area finance ministers are set to withhold further aid payments at a meeting in Brussels tomorrow. European Commission Vice President Valdis Dombrovskis said he doesn’t expect the Eurogroup to make any decisions on Greece on Monday. Reform proposals must first be approved by the Greek parliament and then implemented before the next bailout disbursement is made, Dombrovskis said in an interview with Frankfurter Allgemeine Zeitung. Dutch Finance Minister Jeroen Dijsselbloem said Greek reform plans are “far from” complete. No disbursements are seen in March, Dijsselbloem, who also chairs the meetings of the currency bloc’s finance ministers, said at an event organized by de Volkskrant in Amsterdam.

Greece’s anti-austerity coalition has so far been unable to agree with creditors on the terms for the disbursement of an outstanding aid tranche totaling about 7 billion euros ($7.6 billion). The deadlock threatens to lead the country into defaulting on its payments, since Greece’s only sources of financing are emergency loans from the euro area’s crisis fund and the International Monetary Fund. Its banks are being kept afloat by an Emergency Liquidity Assistance lifeline, subject to approval by the European Central Bank. “I can only say that we have money to pay salaries and pensions of public employees,” Greek Finance Minister Yanis Varoufakis told Italy’s Il Corriere della Sera in an interview today. “For the rest we will see.” In separate interviews this weekend, Greece’s finance and defense ministers said that if the country’s creditors raise requests which aren’t acceptable to the government, then the people of Greece may have to decide on how to break the deadlock.

Prime Minister Alexis Tsipras also signaled the referendum option is being considered. “If we were to hold a referendum tomorrow with the question, ‘do you want your dignity or a continuation of this unworthy policy,’ then everyone would choose dignity regardless of difficulties that would accompany that decision,” Tsipras told Der Spiegel Magazine, in an interview published Saturday. Greece may call new elections or hold a referendum if European finance ministers reject the government’s reform proposals, Varoufakis told Corriere della Sera. A referendum would only be held if negotiations with creditors fail, spokesman Gabriel Sakellaridis said by telephone. The government believes a solution will be found in negotiations with creditors, though it doesn’t expect an aid tranche disbursement decision from tomorrow’s meeting, Sakellaridis said. Any referendum is unlikely, and if held, it would approve or reject government policy, not consider Greece’s euro membership, he added.

Read more …

“If [lenders] question the will of the Greek people and of the government, one possible response would be to carry out a referendum..”

• Greece Threatens New Elections If Eurozone Rejects Planned Reforms (Guardian)

Greece’s anti-austerity government has raised the spectre of further political strife in the crisis-plagued country by saying it will consider calling a referendum, or fresh elections, if its eurozone partners reject proposed reforms from Athens. Racheting up the pressure ahead of a crucial meeting of his eurozone counterparts on Monday, the Greek finance minister, Yanis Varoufakis, said the leftist-led government would hold a plebiscite on fiscal policy if faced with deadlock. “We are not attached to our posts. If needed, if we encounter implacability, we will resort to the Greek people either through elections or a referendum,” he told Italy’s Il Corriere della Sera in an interview on Sunday. Varoufakis was the second high-ranking official in as many days to suggest the possibility of a referendum being held.

On Saturday, Panos Kammenos, who heads the government’s junior partner in office, the small, rightwing Independent Greeks party, said such a ballot could be a “possible response” to protracted disagreement with creditor bodies propping up Greece’s debt-stricken economy. “If [lenders] question the will of the Greek people and of the government, one possible response would be to carry out a referendum,” Kammenos, who is also defence minister, told the financial weekly Agora. Reforms have been set as a condition for unlocking a €7.2bn (£5.2bn) tranche of aid that Athens has yet to draw down from its €240bn bailout programme agreed with the EU, ECB and IMF. With Greece shut out of capital markets, the disbursement is vital to meeting debt obligations.

A letter outlining prospective government reforms – including the novel idea of clamping down on tax evasion by enlisting the support of tourists and housewives – was dispatched to the Euro group chairman Jeroen Dijsselbloem on Friday. But with the proposals reportedly receiving a lukewarm response, the Greek finance ministry spent the weekend feverishly fine-tuning the policies. One EU official in Brussels was quoted as saying that the leaked letter “bore no relation” to the deal recently reached between Athens and its creditors enabling the country to extend its current bailout programme until June. Another described the proposals as “amateurish”. Faced with the prospect of a new credit crunch, the prime minister, Alexis Tsipras, also worked the phones at the weekend, speaking with French President François Hollande and the ECB president Mario Draghi.

Insolvent Greece has reached this point before. But patience is also running out with Athens. The elevation to office of Tsipras’ anti-establishment Syriza party has strained relations with partners – not least Germany, which has provided the bulk of Athens’s bailout finds – more than ever before.

Read more …

Lovely choice of words/

• Eurozone: Greek Reform Outline Helpful, But Needs ‘Troika’ Scrutiny (Reuters)

The reform outline sent by Greece to eurozone ministers to unblock loans is “helpful,” but needs to be scrutinized by representatives of the country’s creditors, according to the head of the Eurogroup of eurozone finance ministers. Jeroen Dijsselbloem, whose group meets on Monday to discuss Greece, was responding to a letter he received on Friday from the new left-wing government in Athens asking for an immediate resumption of talks with creditors. It also described seven reforms it wants to launch to achieve goals agreed to by the previous government. Once steps to reach these goals are taken, Greece would become eligible for more credit from the euro zone and the International Monetary Fund, and its banks could again finance themselves at ECB open market operations. But time is pressing because Greece will run out of cash later this month.

“This document will be helpful in the process of specifying the first list of reform measures,” Dijsselbloem said in a written reply to the Greek letter ahead of Monday’s meeting. Greece’s main creditors are eurozone governments and the IMF. They are represented in talks with Athens by three institutions dubbed the troika – the European Commission, the ECB and the IMF. “The proposals described in your letter will thus need to be further discussed with the institutions,” Dijsselbloem wrote in the letter, obtained by Reuters. “Let me also clarify that in the course of the current review the institutions will have to take a broad view covering all policy areas,” Dijsselbloem wrote. His remarks refer to plans of the new Greek government to replace some of the budget consolidation measures agreed to by the previous government with different reforms. Eurozone officials say such substitution is fine only if the end result in budgetary terms will be the same.

Read more …

Never will be.

• UK Treasury ‘Not Ready For Next Financial Crisis’ (Guardian)

The Treasury is not doing enough to prepare for the possibility of another financial crash, a cross-party committee of MPs said on Monday. The Commons public administration committee said that it was surprised financial and economic risks were not included in the government’s national risk register and that, although some planning has taken place, it has not been thorough enough. “The Treasury has done a lot, but there is more to be done to be ready for another financial crisis,” said Bernard Jenkin, the Conservative MP and chair of the committee, which set out its comments in a general report on how Whitehall addresses future challenges. “We still have institutions which are ‘too big to fail’ but with so much national borrowing capacity used up, they may prove ‘too big to save’ if it happens again.

We did not find evidence that government and the City are actively practising and exercising for this worst case scenario.” The committee said that financial risks should be included in the government’s national risk register, and that the Treasury should plan for financial crises that could be triggered by non-financial events. It also said there was “no comprehensive understanding across government as a whole of the future risks and challenges facing the UK”. But a Treasury spokesman flatly rejected the committee’s analysis, saying the report “takes no account of the relevant facts”. He went on: “By focusing on Whitehall procedures they have entirely missed the point: the lessons of the financial crisis have been learned and acted upon by putting in place a reformed regulatory system, ring-fencing the banks, ending the ‘too big to fail’ problem, and dealing with the risks posed to the economy by an unsustainable deficit.

Read more …

“.. the rabbit falling out comatose in front of all the children seated in the front rows.”

• An Inflection Point For Keynesian Parlor Tricks (Mark St. Cyr)

Suddenly everywhere you look, one after another, a story is making its way into the main stream press (albeit a trickle but that’s a tidal wave in comparison) that we may be, in fact; experiencing a “bubble” in stock prices. All I can say is the line made famous by Jim Nabors as Gomer Pyle, “Well surprise – surrrr-prise!” But there’s a whole lot more going on here and it too is bubbling up more and more for all to see. The once magic trick performed by the Federal Reserve via QE is turning from a one time grand spectacle of illusion used to levitate the markets; and is quickly being laid bare and exposed for its street corner value of tricks. That fact is becoming unavoidable. Even those who still believe in unicorns and rainbows (cue CNBC™) are finding it harder and harder to hold onto the magic.

Anyone with just a smidgen of common sense knows what’s being presented as “a miracle of economic intervention” has been nothing more than a grand escapade only made possible through the use of monetary smoke and mirrors. Everyone now knows how the tricks are being done. And those who continue espousing that this market is based on “fundamentals” as well as “fairly priced” (cue the media’s next in-rotation “everything is awesome” fund manager) are being hard pressed to control the snickering if not out right fits of laughter by others as they continue trying to make their case. e.g., “This past earnings season was a bona-fide beat!” In reality we all know its only been possible through the use of extraordinary record stock buy backs made possible by a ZIRP, along with such an adulteration of GAAP via Non-GAAP: it’s a wonder why they even need calculators any more.

These numbers (in my opinion) have more in common with illusion and magical thinking than anything based in reality – so why even bother. Be honest, just go for it, and declare, “We’re making all this shit up!” because: it just isn’t fooling anyone anymore. Now the real issue from here for both the Fed. as well as Keynesians everywhere will be in trying to maintain some form, as in: “illusion of control” going forward. Surely there’s more magical thinking and sleight of hand needed now more than ever to keep up this grand deceptive appearance or “wealth effect” we were all told we’d be experiencing by now. After all, unemployment just hit 5.5% and the markets are at record levels. “Where’s the pony?” Who needs an economy based on fundamental monetary principles when you can report economic numbers like this?

Unless you’re one of the over 92 million souls unable to find work. The Keynesian answer to this? You just apply today’s version of Keynesian economic math and principles to any statistic that gets in the way of the illusion. Then “poof” just like magic, another irritating issue to the “everything is awesome” narrative is gone. No cape required for that one. Yet the Fed board of magic seemed to have an issue with the illusion of “control” as it faltered a bit on Friday. Having more in common with an assistant dropping the magician’s hat: and the rabbit falling out comatose in front of all the children seated in the front rows.

Read more …

Crazy world. Making a profit from buying back your own shares.

• Goldman Sachs Stress Test Results Could Endanger Big Profit Source (NY Times)

Concerns have emerged that Goldman Sachs — long the leader on Wall Street — may lose an important engine of profitability. On the Federal Reserve stress tests last week, Goldman performed poorly compared with other big banks. Now analysts and investors are worried that the bank could be barred by regulators from buying back its own stock or increasing dividends. Goldman has used dividends and share buybacks to appeal to investors at a time when other elements of the bank’s business have faced challenges. When companies buy shares of their own stock on the open market, it generally increases the amount of profits attributed to every share, an important metric for investors.

Several analysts have released research questioning whether the Federal Reserve would allow Goldman to continue its buyback programs given the results of the stress tests. Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods, estimated that if Goldman is unable to repurchase shares, it could earn 42 cents a share less than expected this year, and $1.78 a share less than expected next year. “There is an expectation that they could be at risk,” said Steve Chubak, a bank analyst with Nomura. Shares of Goldman fell 1.7% on Friday, the day after the stress tests, while the broader bank sector was up.

The bank’s predicament highlights how the Fed’s stress test, which has become a powerful tool for Wall Street regulators, can trip up even a bank like Goldman, which came out of the financial crisis looking stronger than many rivals. The stress tests are intended to ensure that banks have an adequate cushion to sustain losses if another financial crisis hits. The Fed does not allow banks to give money back to shareholders if it would leave the banks with less of a cushion than they would need in a severe crisis. The Fed will not publicly give its final verdict on Goldman’s buyback plans until Wednesday. Its decision is likely to hinge on how it analyzes the results of the stress test, and it may have determined that Goldman is strong enough to use profits to buy back shares.

Read more …

The WaPo just can’t believe it… How can they not love us? It must be that conspiracy propaganda…..

• Russia’s Anti-US Sentiment Now Is Even Worse Than It Was In Soviet Union (WaPo)

Thought the Soviet Union was anti-American? Try today’s Russia. After a year in which furious rhetoric has been pumped across Russian airwaves, anger toward the United States is at its worst since opinion polls began tracking it. From ordinary street vendors all the way up to the Kremlin, a wave of anti-U.S. bile has swept the country, surpassing any time since the Stalin era, observers say. The indignation peaked after the assassination of Kremlin critic Boris Nemtsov, as conspiracy theories started to swirl – just a few hours after he was killed – that his death was a CIA plot to discredit Russia. (On Sunday, Russia charged two men from Chechnya, and detained three others, in connection with Nemtsov’s killing.) There are drives to exchange Western-branded clothing for Russia’s red, blue and white. Efforts to replace Coke with Russian-made soft drinks. Fury over U.S. sanctions.

And a passionate, conspiracy-laden fascination with the methods that Washington is supposedly using to foment unrest in Ukraine and Russia. The anger is a challenge for U.S. policymakers seeking to reach out to a shrinking pool of friendly faces in Russia. And it is a marker of the limits of their ability to influence Russian decision-making after a year of sanctions. More than 80% of Russians now hold negative views of the United States, according to the independent Levada Center, a number that has more than doubled over the past year and that is by far the highest negative rating since the center started tracking those views in 1988. Nemtsov’s assassination, the highest-profile political killing during Vladiimir Putin’s 15 years in power, was yet another brutal strike against pro-Western forces in Russia. Nemtsov had long modeled himself on Western politicians and amassed a long list of enemies who resented him for it.

The anti-Western anger stands to grow even stronger if President Obama decides to send lethal weaponry to the Ukrainian military, as he has been considering. The aim would be to raise the cost of any Russian intervention by making the Ukrainian response more lethal. But even some of Putin s toughest critics say they cannot support that proposal, since the cost is the lives of their nation’s soldiers. “The United States is experimenting geopolitically, using people like guinea pigs,” said Sergey Mikheev, director of the Kremlin-allied Center for Current Politics, on a popular talk show on the state-run First Channel last year. His accusations, drawn out by a host who said it was important to “know the enemy,” were typical of the rhetoric that fills Russian airwaves. “They treat us all in the same way, threatening not only world stability but the existence of every human being on the planet,” Mikheev said.

Read more …

A 2nd chapter from her book.

• How Everything Will Change Under Climate Change (Naomi Klein)

The alarm bells of the climate crisis have been ringing in our ears for years and are getting louder all the time – yet humanity has failed to change course. What is wrong with us? Many answers to that question have been offered, ranging from the extreme difficulty of getting all the governments in the world to agree on anything, to an absence of real technological solutions, to something deep in our human nature that keeps us from acting in the face of seemingly remote threats, to – more recently – the claim that we have blown it anyway and there is no point in even trying to do much more than enjoy the scenery on the way down. Some of these explanations are valid, but all are ultimately inadequate. Take the claim that it’s just too hard for so many countries to agree on a course of action. It is hard.

But many times in the past, the United Nations has helped governments to come together to tackle tough cross-border challenges, from ozone depletion to nuclear proliferation. The deals produced weren’t perfect, but they represented real progress. Moreover, during the same years that our governments failed to enact a tough and binding legal architecture requiring emission reductions, supposedly because cooperation was too complex, they managed to create the World Trade Organisation – an intricate global system that regulates the flow of goods and services around the planet, under which the rules are clear and violations are harshly penalised. The assertion that we have been held back by a lack of technological solutions is no more compelling.

Power from renewable sources like wind and water predates the use of fossil fuels and is becoming cheaper, more efficient, and easier to store every year. The past two decades have seen an explosion of ingenious zero-waste design, as well as green urban planning. Not only do we have the technical tools to get off fossil fuels, we also have no end of small pockets where these low carbon lifestyles have been tested with tremendous success. And yet the kind of large-scale transition that would give us a collective chance of averting catastrophe eludes us.

Is it just human nature that holds us back then? In fact we humans have shown ourselves willing to collectively sacrifice in the face of threats many times, most famously in the embrace of rationing, victory gardens, and victory bonds during world wars one and two. Indeed to support fuel conservation during world war two, pleasure driving was virtually eliminated in the UK, and between 1938 and 1944, use of public transit went up by 87% in the US and by 95% in Canada. Twenty million US households – representing three fifths of the population – were growing victory gardens in 1943, and their yields accounted for 42% of the fresh vegetables consumed that year. Interestingly, all of these activities together dramatically reduce carbon emissions.

Read more …

Sounds awesome.

• Upcoming Supermoon Eclipse Will Dazzle Britain, Hit Europe’s Power Grids (RT)

This spring should reward plenty of star-gazers, especially in Britain, which will experience its deepest solar eclipse in 15 years, as well as a Supermoon, all at the same time – an event that will sink the island into twilight for two whole hours. The Supermoon eclipse, as the phenomenon is known, is an astronomical alignment where the Moon is sent on a trajectory between the Sun and the Earth, depriving us of light. The event will occur on March 20 at around 8:40GMT. Scotland will have it best though, with a whopping 98% of the sky darkened, compared to about 85% for the south of England. For best results the Scottish need to look up starting 9:36 am. Other areas in Britain will only get around 30%. Similar events took place in 2006, 2008 and 2011, but neither of them can touch the upcoming Supermoon eclipse, except an event that occurred in 1999.

[..] Britain will remain relatively unscathed, compared to its European neighbors, where up to 10% of energy is generated sustainably, meaning they depend more on the sun. According to the UK’s energy body, only 1.5% of power there is generated by solar panels. And since people will be going out in droves to watch the spectacle, energy consumption should drop almost at the same time the shortages will strike, it says. The European Network Transmission System Operators for Electricity says, according to the Independent, “with the increase of installed photovoltaic energy generation, the risk of an incident could be serious without appropriate countermeasures.” “Within 30 minutes the solar power production would decrease from 17.5 gigawatts to 6.2GW and then increase again up to 24.6GW. This means that within 30 minutes the system will have to adapt to a load change of -10GW to +15GW,” said Patrick Graichen, executive director of the Berlin-based think-tank on renewable energy Agora Energiewende, as cited by the FT.

Read more …

The Only Man In Europe Who Makes Any Sense

Nov 142014
 
 November 14, 2014  Posted by at 9:06 pm Finance Tagged with: , , , , ,  3 Responses »


Dorothea Lange Farm family fleeing OK drought for CA, car broken down, abandoned Aug 1936

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

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.

Debt Rattle Sep 9 2014: The Black Swan Of Scotland

Sep 092014
 
 September 9, 2014  Posted by at 9:49 pm Finance Tagged with: , , , ,  14 Responses »


Matson Photo Service Palmyra (Tadmur, Syria). The Turkish castle. Kala’at Ibn Na’an 1935

Got a mail from a friend in Scotland late last night that got me thinking. “Unfortunately, using Ireland as a model of fracture, we may start blowing up each other.” I’ve been reading a lot lately, in between all the other things, about Scotland, as should be obvious from my essay (Jim Kunstler tells me I can use that word) yesterday, Please Scotland, Blow Up The EU, and sometime today a thought crept up on me that has me wondering how ugly this thing is going to get. I think it can get very bad.

What I get from it all is that if anything is going to win this for the independence side, it must be the arrogance the London government has exhibited. That alone could seal the deal. But now of course London has belatedly woken up. Even David Cameron is scheduled to – finally – visit Scotland in the course of the contest. And if push comes to shove, they’ll throw in a royal baby. Or a Queen. Mark my words.

Cameron’s visit is funny in that he never thought it necessary until now because he thought he would win no matter what until a few days ago, and also funny because he must easily be the least popular person in all of Scotland, so a visit is a substantial risk. He had his bellboy Alistair King do a TV debate recently, and King flunked that thing so badly he may have single-handedly propelled the Yes side into the lead.

The knifes are being sharpened and soon they will be drawn – there’s only 9 days left. Question is, who will end up hurt? Bank of England Governor Mark Carney picked today of all days, 9 days before the referendum, to at last get more specific about his rate hike plan: it’s going to be early 2015. Because the UK economy is doing so great…

Only, wages will have to rise, and that will have to happen through British workers ‘earning’ pay hikes by ‘boosting their productivity and skills’. These workers have about 6 months to do that. You’re pulling my leg here, right, Mark? In any case, it seems obvious that Canadian Carney will be used as a tool against the Scottish independence movement. That’s just more arrogance.

Carney also spoke out directly on Scotland, saying there can’t be a currency union between the Scots and the Brits. Oh yeah, that should scare ’em!

The pound sterling is falling, but that doesn’t mean much. What does is that the entire financial world, of which the City is a large part, was caught on the wrong foot as much as the UK government. And both will now, until September 18, pull all the stops to cover their – potential – losses. With all means at their disposition. Some of which will be brutal, or at least appear to be.

Billions of dollars have already been lost in just a few days, since everybody realized the UK may actually split up. Many more billions will be lost in the coming week, as measures of volatility go through the roof. Neither the Yes side nor the No side have gone into this thing terribly prepared; there are a zillion questions surrounding the independence issue that won’t be solved before the vote takes place. Passports, currencies, central banks, monetary unions, there’s too much even to mention.

Somewhere, emanating from the old crypts and burrows in which Britain was founded, I fear a hideous force may emerge to crush the Scottish people’s desire for self-determination, if only because that desire is a major threat to some very rich and powerful entities who found themselves as unprepared as Downing Street 10.

I don’t know if, as my friend fears (though he’s much closer to the action than I am, so who am I to speak), it will lead to people blowing up each other, but then also, who am I to rule that out? The UN charter on self-determination looks good on paper and in theory, but when reality comes knocking, there’s mostly not much left of the lofty ideals and intentions, or is that just me, Catalunya?

Still, there’s an added dimension in Scotland: the fact that the City of London is the number 1,2 or 3 (take your pick) most important finance center on the planet. If and when anybody rattles that kind of cage, other forces come into play. It’s no longer about politics, but about money (and no, I’m not too think to see how the two are linked).

So I hold my breath and my prayers for both my Scottish and my British friends – and I happen to have lots of them – and I hope this is not going to get completely out of hand. The reasons I think it may get out of hand regardless is that 1) there is not one side that was ever prepared for the situation in which they find themselves today and 2) there is an enormous supra-national interest that resides in the UK financial world which is in a semi panic mode about how much money can be lost not just because of a UK break-up, but because of the uncertainty surrounding that potential break-up.

And there’s something in all of that which is definitely scary. London, and the Queen, will do all they can not to lose part of their ’empire’. The City of London will do even more not to lose a substantial part of their wealth. And this time around I don’t think they properly hedged their bets: the surge of the Yes side is as close to a black swan as we, and the City of London, have seen.

• Bank of England Governor Mark Carney Signals Spring Rate Rise (WSJ)

The Bank of England will likely meet its inflation and jobs goals if it starts to raise its benchmark interest rate early next year, Gov. Mark Carney said Tuesday in his clearest statement yet on the probable timing of a first move toward unwinding crisis-era stimulus. In a speech to labor union members in Liverpool, Mr. Carney said the rate at which wages rise over coming months will be key to the exact timing of the first move, and repeated his assurance that a rise in the benchmark rate will be “gradual and limited.” Mr. Carney said the U.K.’s economic recovery has “exceeded all expectations” and “has momentum.” Against that background he said the time for interest rates to “normalize” is nearing, and that in recent months the decision on whether to raise or leave policy unchanged “has become more balanced.” Most investors expect the BOE to raise its benchmark interest rate from a 320-year low of 0.5% in the first quarter of 2015, and Mr. Carney appeared to validate that expectation.

“Our latest forecasts show that, if interest rates were to follow the path expected by markets—that is, beginning to increase by the Spring and thereafter rising very gradually—inflation would settle at around 2% by the end of the forecast and a further 1.2 million jobs would have been created,” he said. “In other words, we would achieve our mandate.” Should it raise its benchmark interest rate early next year, the BOE would likely become the first major central bank to start to remove the unprecedented levels of stimulus provided to the economy since the financial crisis struck in late 2008. The U.S. Federal Reserve is expected to start to raise its key rate later in the year, while the European Central Bank Thursday provided additional stimulus in the form of rate cuts and new bond buying programs. With the Japanese economy struggling to recover from an April hike in the sales tax, the Bank of Japan may yet provide more stimulus.

Read more …

And counting.

• Billions Of Pounds Wiped Off Value Of Scottish-Linked Firms (Guardian)

Billions of pounds were wiped off the value of companies with Scottish links and the pound was pummelled as markets took fright at the increasing prospect of Scotland voting next week to break away from the United Kingdom. Investors on Monday dumped companies with exposure to Scotland, including the Royal Bank of Scotland and Lloyds Banking Group, which owns Bank of Scotland. They also ditched sterling, which at one point fell to its lowest level against the dollar for 10 months. “Be afraid, be very afraid,” Deutsche Bank analysts warned its clients after the Sunday Times YouGov poll had showed a small lead for the yes campaign.

American Nobel prize-winning economist Paul Krugman echoed the analysts’ view, warning Scotland it was unsafe to vote yes while uncertainty about the country’s currency remained. “If Scottish voters really believe that it’s safe to become a country without a currency, they have been badly misled,” Krugman wrote in the New York Times. “The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.” Elsewhere, a leading City banking expert warned that companies and individuals were likely to withdraw their cash from banks if the vote was in favour of a split from the union, while another economist warned independence could “easily derail the UK recovery”.

Initially almost £4.8bn was wiped off the stock-market value of companies with exposure to Scotland. As well as RBS and Lloyds, companies to be hit included engineering group Weir, insurer Standard Life, fund manager Aberdeen Asset Management and energy company SSE. By the end of trading the losses had been pared back to £2.6bn after RBS kickstarted the sale of its US arm. The taxpayer remains heavily exposed to Lloyds and RBS, which are both registered in Scotland, following the 2008 bailouts. The mood among City professionals has changed markedly in recent days: the FTSE 100 hit a 14-year high last week and until recently there had been concerns about a strong pound hurting exports. The blue chip index slipped back to 6,834 on Monday while the currency is weakening.

Read more …

Word.

• Ex-Chief Economist Stark: ECB Is Turning Into European ‘Bad Bank’ (Reuters)

The European Central Bank is turning into a European “bad bank” by loading up on bundled-up loans, and its record-low interest rates will not do anything to promote lending in the euro zone, former ECB chief economist Juergen Stark said. Stark, a former ECB executive board member and an arch-hawk, quit the bank in 2011 to protest its policies. Now he says the September rates cut would be “ridiculous, if the matter was not so serious”. The ECB cut its main interest rate to 0.05 percent on Thursday and pledged to buy asset-backed securities (ABS) on top of its four-year loan offer, or TLTROs, in a fresh attempt to ward off deflation and stimulate the euro zone economy. “The ECB is taking enormous risks onto its balance sheet with the purchases of ABS – of whatever quality – and is turning itself into a European bad bank,” Stark wrote in a guest column for the German newspaper Handelsblatt, which is to be published on Tuesday.

He said the rate cut could be seen as a “symbolic” move, if it had not been driven for the first time by a pursuit of an exchange rate target. Its goal was a targeted weakening of the euro exchange rate, he said, which had been demanded repeatedly by French and Italian politicians. “Zero-interest-rates will, however, not produce a single euro in additional lending, and this inefficiency will in the long term among other things further undermine the ECB reputation,” Stark wrote in his piece. The ECB has said many times that it does not have an exchange rate policy target but aims only for price stability. His comments come after an ally of German Chancellor Angela Merkel in a rare public attack, criticised the ECB’s ABS programme, saying it would scare Germans.

Read more …

In lieu of QE.

• Germany, France Push $400 Billion EU Investment Program (Bloomberg)

Germany and France are poised to take the first step toward a European investment program, as the euro area’s two biggest economies seek to resolve differences and spur growth without resorting to stimulus spending, government officials said. The proposals, which enlist the European Investment Bank for loans to companies, aim to pave the way for a €300 billion ($388 billion) investment plan outlined in July, according to three euro-area government officials who asked not to be named because the document is in draft form. Germany and France plan to present the initiative at a meeting of European finance ministers in Milan, Italy on Sept. 12. Germany’s emerging endorsement marks an attempt to shift the debate away from austerity and acknowledge the European Central Bank’s efforts to prod governments into action to combat low inflation and a weak economic outlook.

It’s also intended to deter ECB President Mario Draghi from resorting to purchases of sovereign bonds and asset-backed securities to increase bank lending, a move viewed with anxiety in Germany. Draghi “threw the kitchen sink” at German Chancellor Angela Merkel, Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington, said in an interview after the ECB’s policy decisions on Sept. 4. “Draghi’s message was plain: my back’s to the wall — do something to push fiscal stimulus now or watch me buy bonds.” With Merkel opposed to fiscal stimulus, German backing requires avoiding pledges of cash and any suggestion that pressure on France and Italy to make their economies more competitive is easing, one official said.

Read more …

And that took 8 weeks?!

• MH17 Broke Up In Mid-air Due To External Damage – Dutch Prelim. Report (RT)

The MH17 crash was a result of structural damage caused by a large number of high-energy objects that struck the Boeing from the outside, the preliminary report into the Malaysia Airlines disaster in Ukraine said. “Flight MH17 with a Boeing 777-200 operated by Malaysia Airlines broke up in the air probably as the result of structural damage caused by a large number of high-energy objects that penetrated the aircraft from outside,” the Dutch Safety Board said in its preliminary report. Dutch investigators added that “there are no indications” that the tragedy was triggered “by a technical fault or by actions of the crew.” [..] The plane was “split into pieces during flight,” the investigators said, based on the analysis of the pattern of wreckage on the ground.

The Dutch investigators said that “available images show that the pieces of wreckage were pierced in numerous places.” The report emphasizes that investigators haven’t yet had the chance to recover the components for forensic investigation. However, the photos taken from the wreckage “indicated that the material around the holes was deformed in a manner consistent with being punctured by high-energy objects,” the report said. “The characteristics of the material deformation around the puncture holes appear to indicate that the objects originated from the outside the fuselage.” The fact that the plane was damaged from the outside “also explains the abrupt end to the data registration on the recorders, the simultaneous loss of contact with air traffic control and the aircraft’s disappearance from radar,” the report says.

Read more …

So why not blame Kiev for spreading lies?

• Hagel ‘Not Aware’ Of Secret Deal To Supply Kiev With Lethal Weapons (RT)

US Defense Secretary Chuck Hagel said he was not aware of a secret deal to supply Ukraine with lethal weapons. His words contradict earlier statements by an aide to President Petro Poroshenko that the US is backing Kiev’s military with arms. “I’m not aware of any kind of a secret deal that was made in Wales about supplying lethal weapons to the Ukrainians,” Hagel told journalists on a visit to Turkey’s capital, Ankara. Earlier, Poroshenko aide Yury Lutsenko wrote on his Facebook page that the US, along with France, Italy, Poland and Norway, will supply modern weapons to Ukraine. The agreements were reached at the Sept. 4-5 NATO summit in Wales, Lutsenko wrote, adding that the West will also send military advisers to Ukraine. However, Hagel later denied the report Sunday, saying that Washington has not made an offer of “lethal assistance” to Ukraine.

Read more …

Brussels is a pool of fools.

• Here’s Why Europe Launched The ‘Nuclear Option’ Against Russia (Zero Hedge)

Europe’s leaders, we assume under pressure from Washington, appear to be making a big weather-related bet with their taxpayers’ lives this winter. As they unleash funding sanctions on Russia’s big energy producers, Europe has pumped a record volume of natural gas into underground inventories in an effort to ‘outlast’ Russia and mitigate any Napoleonic “Winter War” scenario. The plan appears to be to starve Russian energy firms of cashflow – as flows to Europe are already plunging – and remove their funding ability, potentially forcing severe hardship on Russia’s key economic drivers. As Bloomberg reports,

Europe’s reliance on Russian natural gas shipments via Ukraine is declining after the region pumped a record volume of the fuel into underground inventories, minimizing the risk of shortages during the coming winter. [..] Natural gas flows from Russia to the EU haven’t been affected in the current crisis. Storage sites in Slovakia, which had to seek emergency imports after its supplies were cut in 2009, were 92 percent full on Sept. 4, according to Gas Infrastructure Europe.

So Europe is stocking-up – which makes perfect sense – just in case Russia pulls the plug… but has now taken the situation to “11” on the Spinal Tap amplifier of escalating tensions by planning sanctions on Russia’s energy providers.

The plan appears clear:
• stock-up now (to survive the winter)…
• starve Russian firms of cashflow (thanks to stockpiles)…
• cut off their funding source (sanctions)…
• force Putin’s economy into a tailspin…
• Putin folds and it all ends happily ever after

There appear to be 3 problems with this plan…

1) What if the weather is considerably colder than normal this winter? (i.e. they need more supply)
2) Russia has already committed to supporting the sanctioned firms (and we would hardly be shocked if China chipped in)
3) What happens in Spring? German industrials need energy?

Read more …

• Finland Wants EU to Go Slow on Russia Sanctions (WSJ)

Finland thinks the European Union should wait in implementing its new economic sanctions against Russia, Finland’s prime minister said Monday. The EU launched on Monday the process to adopt formally a set of new measures that will slightly stiffen the EU’s response to Russia for its role in the Ukraine crisis. The new sanctions were adopted by the EU members including Finland on Monday, but the actual timing for their implementation was left to be decided later, Finland’s Prime Minister Alexander Stubb told Finnish media at a press briefing in Helsinki shortly after 1900 local time (1600 GMT).

“Finland in general isn’t of the opinion that now is the right time [for the sanctions],” Mr. Stubb said, adding that EU diplomats were negotiating in Brussels on Monday night over when the sanctions would actually be put into force. To come into force the sanctions have to be entered in the EU’s official journal, “but there are still discussions at which stage [the sanctions] will be published in the official journal,” Mr. Stubb said. Mr. Stubb said the schedule for implementing the new sanctions has been “fast and challenging” because Russia and Ukraine have made progress in their negotiations aimed at putting a stop on fighting in eastern Ukraine. Finland shares a 1,300-kilometer land border with Russia and has profited from tourism and trade with its huge eastern neighbor. In the past during the Ukraine crisis Finland has been among the EU members that have had reservations about ramping up economic pressure on Russia.

Read more …

Stand down Shinzo, stand down please …

• The Wrath of Abenomics Crushes Japanese Consumers (WolfStreet)

Abenomics soothsayers and apologists are worried: the August debacle is hard to explain away, even for them. It just sits there, a nagging, dark reality. In April, after the broad-based consumption-tax hike from 5% to 8% had taken effect, retail sales collapsed 20% from March. Total vehicle sales collapsed 56% to the worst level since December 2012, and December is usually the worst month of the year in Japan. April was terrible. It was much worse than feared by the Abenomics soothsayers and apologists. But the shock didn’t last long, and soon the soothsayers and apologists were at it again. In May, car sales were worse than a year earlier, but not much worse (-1.2%); and in June, car sales were actually a smidgen better (+0.4%) than a year earlier, and hopes were being propagated that this would all somehow work out.

But in July sales dropped 2.5% year over year, and other data points were going to heck as well. Then August happened. In August, vehicle sales as measured by registrations swooned, according to the Japan Automobile Manufacturers Association. All categories were down: sales of new cars, including minis (cars with tiny 500cc engines) plunged 9.4% year over year to 281,326 units; sales of new trucks of all sizes, including minis dropped 7.2% to 51,165 units. And total vehicles sales, retail and commercial, cars, trucks, and buses plunged 9% to 333,471 units. It was worse even than that terrible April, though in recent years, August had been better than April. It was worse even than December 2012. It was the lowest level since August 2011, the time when the consequences of the Great East Japan Earthquake and tsunami that had killed over 19,000 people were still paralyzing Japanese commerce, and when countless aftershocks were still rattling buildings and nerves on a daily basis.

Read more …

Line of the day: ” … the Fed’s policies have rewarded financial engineering at the expense of job creation … ”

• There Are Still 1.4 Million Fewer Full-Time US Jobs Than In 2008 (Lee Adler)

Let’s cut to the chase: There were 1,446,000 fewer people working full time in August 2014 than in August 2008, according to the Bureau of Labor Statistics household survey (CPS). That’s after an increase of 210,000 full-time jobs in August. That’s the actual count, not the seasonally adjusted abstraction. So we have to compare that with past Augusts to get an idea if its any good or not. August is a swing month, sometimes up, sometimes down. The average change over the prior 10 years, which included a couple of ugly years in the recession, was -63,000. So this number wasn’t bad. It was slightly better than August of last year and 2012, but come on…. It’s still 1.4 million below 2008? In 2008, the economy was in full collapse mode. The Fed has expanded its balance sheet by $3.7 trillion since August 2008 and there are fewer full-time jobs now than then? Remind me again what that $3.7 trillion has bought! Since August 2009, near the bottom of the recession, the US economy has added 6.25 million full-time jobs, a 5.5% increase.

That amounts to $588,000 in Fed QE per added full time job. But that’s ok. It’s been great for bankers, securities brokers, and hedge funds. While the number of full time jobs increased 5.5%, stock prices soared 175%. It’s all good! Or not. I have argued for a long time that the Fed’s policies have rewarded financial engineering at the expense of job creation. The Fed has made it profitable for corporations to borrow free money to buy back the stock options that they issue to their executives rather than investing in expanding their businesses and creating jobs. The Fed’s policies have enabled corporate executives and their financial enablers to conduct a massive skimming of the US economy and wealth transfer at the expense of everybody else. By promoting this behavior, not only has Fed policy been ineffective in stimulating real growth, it has been a moral outrage, decimating the middle class and robbing the elderly of their life savings as they’re forced to consume principal.

Read more …

Stand down François, stand down please.

• Hollande Hits Rock Bottom In Poll : 85% of French Oppose 2nd Term (RT)

A poll in France has revealed 85% of the population does not want President Francois Hollande to seek a second term in 2017. His approval ratings have hit an all-time low, with just 13% of those asked saying he is doing a good job. The survey was conducted by IFOP for the French weekly La Journal Du Dimanche and it made uncomfortable reading for Hollande. Fifty% of those polled did not think that the French president was delivering on his promises. Unemployment is approaching a record high and is currently over 10%. However, the under fire president has no plans to quit, saying at the recent NATO summit in Cardiff that he will not step down and will stay in office until his term runs out in 2017. His approval rating of just 13% makes him the most unpopular French president since the Second World War, in another poll conducted by TNS-Sofres. Lambasted for his failure to get the economy up and running, his misery was compounded when a former partner published a tell-all book.

Valerie Trierweiler described the 60 year-old as being dismissive of the poor, which contradicts his status as a socialist president. “With the release of every new poll, I watched him disintegrate,” Trierweiler wrote. “He needs to find someone to blame for the drop. It could never be him, so it had to be others and me.” Hollande has lost many of his core supporters from the left of the political spectrum, and has also suffered from discontent within his own cabinet. In late August, the French government was dissolved despite having being formed just 4 months earlier. They quit after ministers slammed President Francois Hollande’s plans for taxation and cuts, while also being critical of Germany’s austerity program. Led by former economics minister, Arnaud Montebourg, they chastised Hollande for being fixed on high taxes and spending cuts, who they say should have be looking to cut taxes so as to increase spending power and help revive the economy.

Read more …

The miracle is gone.

• Brazil’s ‘New Middle Class’ Turns On President Rousseff (Reuters)

The streets of Jardim São Luis, a poor and violent neighborhood near the edge of São Paulo, have not been this quiet in years. And that is exactly why Valeria Rocha is so worried. Arms folded, she scans the racks of baby clothes in her small store before flicking a glance towards the empty sidewalk. “Just a year ago this area used to be packed with shoppers but nowadays it’s all empty, my store included,” she said. After a decade of economic growth and welfare policies that lifted more than 30 million Brazilians out of poverty, Jardim São Luis and other tough neighborhoods across Brazil had high hopes for the future. But a faltering economy and mounting frustration over poor public services are dimming the outlook for Brazil’s “new middle class.”

As that happens, leftist President Dilma Rousseff is watching a once-loyal base – and her chances of re-election next month – slip away. Her main rival, environmentalist Marina Silva, has surged in the polls and is favored to win a likely second-round runoff against Rousseff. Last month, 13 of 14 people interviewed in Jardim São Luis said they were sure they would not vote for Rousseff, but could not point to a clear alternative. Just a week later, after the first televised debate between the candidates, 8 of 10 people interviewed said they had already decided to vote for Silva or would strongly consider it. The other two were still unsure. Silva, who grew up poor on a rubber plantation, has emerged as the anti-establishment candidate in this campaign. Within three weeks of entering the race late following the death of her party’s original candidate, she is in striking distance of becoming the first Afro-Brazilian woman to lead Brazil.

Read more …

Sure.

• FX Traders Said to Be Surprised by Scope of BOE Probe (Bloomberg)

Foreign-exchange traders interviewed as part of the Bank of England’s probe into whether its staff knew of currency-rate rigging have expressed surprise at the narrow scope of the questioning focused on one meeting, according to people with knowledge of the inquiry. The U.K. central bank called for an investigation after a senior trader turned over notes of an April 2012 meeting in which BOE officials were said to have told dealers it wasn’t improper to share impending customer orders with counterparts at other firms, a practice at the heart of a global probe into alleged manipulation. The BOE said at the time its review would be broader than that one meeting and examine whether staff knew of wrongdoing between July 2005 and December 2013.

Anthony Grabiner, the lawyer leading the probe, has questioned at least two traders in recent weeks, according to the people, who asked not to be identified because the matter is private. His questions were largely confined to what they recalled of the April 2012 meeting, they said. The people said the traders agreed to appear voluntarily, thinking they could discuss how they and other dealers operated without risking self-incrimination. Both said they were taken aback at how narrow Grabiner’s questions were and had prepared for a broader discussion of the rigging allegations. Grabiner, 69, didn’t give any indication whether the traders would be called back or who else would be interviewed, they said.

Read more …

Word.

• ‘Default The Only Solution For The Greek Debt Crisis’ (RT)

Default is highly possible in Greece because it is impossible for the country to repay all its debts, Aris Chatzistefanou, “Debtocracy” filmmaker, told RT. The Greek debt crisis erupted in 2009 and the economy is still struggling to generate growth and reduce high levels of unemployment. Long-term unemployment in Greece will reach almost 27% in 2015, according to an OECD report published on Wednesday. Greece has also seen one of the biggest drops in real wages since the beginning of the crisis, the OECD data shows.

RT: Greece’s debt ratio is much higher that before the crisis began. What is the situation in the country at the moment and how do citizens deal with the crisis?

Aris Chatzistefanou: Greece has become the best example of a country that was invaded by financial institutions of the Central European countries mainly Germany and France. And what they managed to do by imposing strict austerity measures for almost five years now was to increase the debt, not only as a%age of GDP but also as an absolute value. So in 2009 we started with a debt of 115% of GDP and right now just a few days ago we learned that our debt had skyrocketed to 175% of GDP. So it was a nightmare for the Greek people who were bailing out banks from France and Germany while at the same time they were the victims of the huge social genocide. Just to let you know, that in that so-called salvation period, we have lost almost 25% of GDP. And if you ask any historian he will tell you that there is no precedent in time of peace that a country can lose 25%. We are now the champions of unemployment with 30% and almost 60% for the younger people. The average family has lost almost 35% of its purchasing power. It is a real nightmare for the people in Greece.

RT: Is there any possibility of default in Greece in the current situation?

AC: It is highly possible because it is impossible for Greece to repay these debts. As long as they talk about haircuts and renegotiating the debt the problem remains, and that might be a cause for a domino effect in the eurozone. In my opinion default at the moment is the only solution for the debt crisis in Greece. We have seen positive examples in other parts of Europe like Iceland, even Russia, or in Latin America with Ecuador and Argentina where even when they had some problems it was a success story in comparison with what happened in Greece.

Read more …

• G20 Handed Gloomy Jobs Market Report (Guardian)

There is another gloomy assessment of the world’s jobs market On Tuesday. The International Labour Organisation, the World Bank, and the Organisation for Economic Co-operation and Development (OECD) have produced a labour market update for the G20 employment and labour ministers’ meeting in Melbourne. It highlights “large employment gaps remain in most G20 countries”, the grouping of the world’s biggest developed and emerging market economies. The authors also say that “the quality of employment remains a concern” and that “the deep global financial and economic crisis and slow recovery in many G20 countries has resulted not only in higher unemployment but also in slow and fragile wage gains for G20 workers.” The paper concludes: “Seven years after the onset of the global financial and economic crisis, the economic recovery may be strengthening but remains weak and fragile.

The employment challenges across most G20 countries are still very sizeable both in terms of a persistently large jobs gap and low quality of many available jobs. “The current growth trajectory, if unchanged, will not create enough quality jobs – giving rise to the risk that the jobs gap will remain substantial, underemployment and informal employment will rise, and sluggish growth in wages and incomes will continue to place downward pressure on consumption, living standards and global aggregate demand. Underlining these challenges is the fact that income inequality continues to widen across the G20 countries. “The G20 commitment to boost GDP by more than 2% by 2018 over and above the baseline projections is certainly a welcome step, although it will be important to ensure that this additional growth is job-rich and inclusive.”

Read more …

• Down the Memory Hole (Jim Kunstler)

The memory hole is working overtime in the USA zeitgeist these days. Shit happens and a week or so later, it unhappens — at least it seems that way as manifested by the front page of The New York Times or the flapping of Anderson Cooper’s gums on CNN. Anyone remember that Malaysian airlines plane that went down in July in Ukraine killing 283 persons? US government officials were jumping up and down trying strenuously to blame Russian Donbass separatists. The trouble was, they had no evidence whatsoever and their exertions were looking ridiculous (making the USA look ridiculous, of course). Last thing we heard, there were questions about two Ukrainian air force jets chasing it, and photos of entry and exit cannon holes in the pilot’s cabin. Recorded communications between the crew and traffic controllers were shoved into storage bin in the Netherlands, never to be made public.

The whole story vanished from the news media like the legendary D.B. Cooper — anyone remember him? — and hasn’t resurfaced since. Anyone remember the outbreak of World War Three in Ukraine two weeks ago? The USA was trying — again, strenuously — to promote the idea of a Russian invasion — minus any evidence of the actual Russian troops, you understand. That didn’t go over so well. All this was occurring, remember, because the USA was determined to make Ukraine a NATO member, contrary to explicit agreements reached with Russia following the collapse of the Soviet Union to not expand NATO eastward. Anyway, there was no Russian invasion and the US State Department and the White House were left holding a pig in a poke that nobody wanted to buy. End of story, as Tony Soprano liked to say.

Read more …

• Australia Gives Up on Australia as Investment Dwindles (Bloomberg)

Australia’s biggest companies are giving up on growth. Investment by businesses in the benchmark stock index will probably slip below rising dividend payouts within two years, according to data compiled by Bloomberg. Wesfarmers Ltd., the country’s biggest private-sector employer with operations spanning retail, mining and manufacturing, returned a record A$2.75 billion ($2.58 billion) to shareholders last year. Reserve Bank of Australia Governor Glenn Stevens, who slashed borrowing costs to a record low, is relying on companies to recover their “animal spirits” and take risks to reignite the economy. Yet firms grappling with an overvalued currency and high costs that leave them unable to compete in export markets are opting to play it safe.

“Only a large real depreciation of the Australian dollar will change this reality,” said Ross Garnaut, a professor of economics at Melbourne University and former economic adviser to Prime Minister Bob Hawke. “Capital spending in the traded goods and services industries is catastrophically weak because few investments look profitable in the current cost and exchange rate environment.” The pattern is repeated across industries, slowing growth in an economy where the unemployment rate exceeded the U.S. level in July for the first time since 2007, and company profits dropped in the second quarter by the most in five years. Australia, which has expanded for 23 years, is losing its developed-world-beating status as the mining investment boom that powered it through the global financial crisis wanes.

Read more …

Ongoing story.

• Drillers Piling Up More Debt Than Oil Hunting Fortunes in Shale (Bloomberg)

A decade into a shale boom that has made fracking a household word and Wilson a rich man, drillers are propping up the dream of U.S. energy independence with a mountain of debt. As oil production hits a 28-year high, investors and politicians are buying into the vision of a domestic energy renaissance. Companies are paying a steep price for the gains. Like Halcon, most are spending money faster than they make it, an average of $1.17 for every dollar earned in the 12 months ended on June 30. Only seven of the U.S.-listed firms in Bloomberg Intelligence’s E&P index made more money in that time than it cost them to keep drilling. (Results for two companies included only the first six months of 2014.) These companies are plugging cash shortfalls with junk-rated debt. They owed $190.2 billion at the end of June, up from $140.2 billion at the end of 2011. (Six of the 60 companies that didn’t have records available for the full period weren’t included.)

Standard & Poor’s rates the debt of 41 of the companies, including Halcon’s, below investment grade, meaning some pension funds and insurance companies aren’t allowed to invest in them. S&P grades Halcon’s bonds CCC+, which the rating company describes as vulnerable to nonpayment. Money manager Tim Gramatovich sees disaster looming in the industry. “I have lent money to nobody in this space, and I don’t plan to. This thing is absolutely going to blow sky-high,” says Gramatovich, chief investment officer of Peritus Asset Management LLC in Santa Barbara, California. The firm manages investments of about $1 billion, including the debt and equity of oil and gas companies that aren’t drilling shale. Halcon’s recent lousy run shows how quickly a bright future can dim. Like many of its peers, Halcon uses two sets of numbers to describe its outlook. To the U.S. Securities and Exchange Commission, the company reports what’s known as proved reserves.

The SEC requires an annual tally and limits these calculations to what the firm is reasonably certain it can extract from existing wells and other properties scheduled to be drilled within five years, based on factors such as geology, engineering and historical production. To investors and lenders, Halcon also highlights a much higher figure that it calls resource potential. These estimates, while loosely defined by industry guidelines, don’t follow the SEC rule or timeline. In fact, as Halcon notes, the SEC forbids companies from making resource-potential claims in official reserve reports. The agency doesn’t regulate what companies say at investor conferences, in press releases or on their websites. No one does. Discrepancies between proved reserves and resource potential are common in the industry, and investors can get duped, says Ed Hirs, a managing director at Hillhouse Resources. “There’s a lot of ways to make money in the oil and gas business, and not all of them involve drilling for oil,” he says. “You just drill investors’ pocketbooks. When investors are willing to throw money at you, you can just make money on that. It’s a time-honored tradition.”

Read more …

Exponentially is not a good word when it comes to epidemics.

• Ebola ‘Spreads Exponentially’ In Liberia, 1000s More Cases Expected (Reuters)

Liberia, the country worst hit by West Africa’s Ebola epidemic, should see thousands of new cases in coming weeks as the virus spreads exponentially, the World Health Organization (WHO) said on Monday. The epidemic, the worst since the disease was discovered in 1976, has killed some 2,100 people in Guinea, Sierra Leone, Liberia and Nigeria and has also spread to Senegal. The WHO believes it will take six to nine months to contain and may infect up to 20,000 people. In Liberia, the disease has already killed 1,089 people – more than half of all deaths reported since March in this regional epidemic. “Transmission of the Ebola virus in Liberia is already intense and the number of new cases is increasing exponentially,” the U.N. agency said in a statement. “The number of new cases is moving far faster than the capacity to manage them in Ebola-specific treatment centers.”

Fourteen of Liberia’s 15 counties have reported confirmed cases. As soon as a new Ebola treatment center is opened, it immediately overflows with patients. “In Monrovia, taxis filled with entire families, of whom some members are thought to be infected with the Ebola virus, crisscross the city, searching for a treatment bed. There are none,” it said. In Montserrado County, which includes the capital Monrovia and is home to more than one million people, a WHO investigative team estimated that 1,000 beds are urgently needed for Ebola patients, the statement said. Motorbike-taxis and regular taxis have become “a hot source” of Ebola transmission. Liberia’s government announced on Monday it was extending a nationwide nighttime curfew imposed last month to curb the spread of the disease. Sierra Leone last week ordered a four-day countrywide “lockdown” starting Sept. 18 as part of tougher efforts to halt the spread of Ebola.

Read more …

“20% of the world’s unfrozen surface freshwater”

• Lake Baikal, World’s Deepest Body Of Freshwater, Turning Into Swamp (RT)

The world’s oldest and deepest body of freshwater, Lake Baikal, is turning into a swamp, Russian ecologists warn. They say that tons of liquid waste from tourist camps and water transport vehicles is being dumped into the UNESCO-protected lake. One of the natural wonders and the pearl of Russia’s Siberia, Lake Baikal has recently been a source of alarming news, due to an increased number of alien water plants which have formed in the lake waterlogging it, ecologists said at a roundtable discussion recently held in the city of Irkutsk. A recent scientific expedition discovered that 160 tons of liquid waste are produced every season in Baikal’s Chivyrkui Bay, said the head of Baikal Environmental Wave, one of Russia’s first environmental NGOs, according to SIA media outlet. Locals have complained to ecologists that the waste easily drains into the lake, SIA reported. The growing number of tourist camps in the area are unwillingly contributing to the pollution.

The report elaborates that the camps pass on waste to special organizations, but disposal vehicles often don’t reach the facilities and instead end up dumping the waste into Baikal or rivers that flow into the lake. The waste dumped into the lake sparked the growth of water plants such as Spirogyra and Elodea Canadensis, which have never grown there before. Researchers found a significant accumulation of water plants and dead lake mollusks on the northern coast of Lake Baikal, according to report. They monitored the coastline from the mouth of the River Tia to Senogda Bay, finding rotting water plants down the coast. An increased level of pollution was also discovered in Listvenichesky Bay.

(Baikal is a rift lake in the south of Siberia which contains roughly 20% of the world’s unfrozen surface freshwater – the greatest in the world by volume. It is 1,642 meters deep and among the clearest of all lakes. At 25 million years old, it is also thought to be the world’s oldest lake. In addition, a large contributing factor to the contamination of the lake is water transport vehicles. Ships, boats, yachts, and other vessels produce 25,000 tons of liquid waste annually, but only 1,600 of them end up at the proper disposal facilities, according to the head of Baikal Environmental Wave.)

Read more …

‘Unparalleled acceleration’ …

• Greenhouse Gas Levels Rising At Fastest Rate Since 1984 (BBC)

A surge in atmospheric CO2 saw levels of greenhouse gases reach record levels in 2013, according to new figures. Concentrations of carbon dioxide in the atmosphere between 2012 and 2013 grew at their fastest rate since 1984. The World Meteorological Organisation (WMO) says that it highlights the need for a global climate treaty. But the UK’s energy secretary Ed Davey said that any such agreement might not contain legally binding emissions cuts, as has been previously envisaged. The WMO’s annual Greenhouse Gas Bulletin doesn’t measure emissions from power station smokestacks but instead records how much of the warming gases remain in the atmosphere after the complex interactions that take place between the air, the land and the oceans. It could be that the biosphere is at its limit but we cannot tell that at the moment” About half of all emissions are taken up by the seas, trees and living things.

According to the bulletin, the globally averaged amount of carbon dioxide in the atmosphere reached 396 parts per million (ppm) in 2013, an increase of almost 3ppm over the previous year. “The Greenhouse Gas Bulletin shows that, far from falling, the concentration of carbon dioxide in the atmosphere actually increased last year at the fastest rate for nearly 30 years,” said Michel Jarraud, secretary general of the WMO. Atmospheric CO2 is now at 142% of the levels in 1750, before the start of the industrial revolution. However, global average temperatures have not risen in concert with the sustained growth in CO2, leading to many voices claiming that global warming has paused. “The climate system is not linear, it is not straightforward. It is not necessarily reflected in the temperature in the atmosphere, but if you look at the temperature profile in the ocean, the heat is going in the oceans,” said Oksana Tarasova, chief of the atmospheric research division at the WMO.

The bulletin suggests that in 2013, the increase in CO2 was due not only to increased emissions but also to a reduced carbon uptake by the Earth’s biosphere. The scientists at the WMO are puzzled by this development. That last time there was a reduction in the biosphere’s ability to absorb carbon was 1998, when there was extensive burning of biomass worldwide, coupled with El Nino conditions.

Read more …

But who cares about birds, right?

• Climate Change Puts Half of North American Birds at Extinction Risk (NatGeo)

Climate change could force more than 300 North American bird species out of most of their current ranges by the end of the century, according to a new study from the National Audubon Society. “Half of the birds of North America are at risk of extinction,” says Gary Langham, Audubon’s chief scientist. That estimate is based on the 314 bird species, out of 588 studied, that could lose more than half of their current geographic range. Nearly 200 of these threatened species may find hospitable conditions elsewhere, but for 126 species there will be nowhere else to go, Audubon estimates in a report released on Monday. Scientists have known for some time that species of all kinds will have to move—and in some cases are already moving—to adapt to the changes wrought by a warming planet. “What’s important about this particular study,” says Joshua Lawler, an ecologist at the University of Washington who was not involved in the study, “is that it’s built with a really solid data set.”

Audubon did not examine all of the more than 800 bird species that can be found in North America, but focused on those for which reliable data were available. The new study combines 30 years of citizen science—bird observations across North America in winter and breeding seasons—with projections of future climate to see where suitable ranges might shift for different species. The citizen science comes from Audubon’s own Christmas Bird Count and the U.S. Geological Survey’s North American Breeding Bird Survey; the climate models are from the Intergovernmental Panel on Climate Change. The results are “deeply worrying,” says Stuart Butchart, head of science for BirdLife International. “They add to a body of studies elsewhere in the world showing that climate change is going to have major impacts. Species are going to have to shift their ranges, and many overall are going to suffer range contraction.”

Read more …

 Newer Entries