Aug 262016
 
 August 26, 2016  Posted by at 9:17 am Finance Tagged with: , , , , , , , , ,  


G. G. Bain On beach near Casino, Asbury Park 1911

Japan July Consumer Prices Post Biggest Annual Fall In 3 Years (R.)
Dollar Stores’ Admission: Half Of US Consumers Are In Dire Straits (ZH)
QE Infinity: Are We Heading Into The Unknown? (CNBC)
A Less Weird Time at Jackson Hole? (John Taylor)
There May Not Be Too Many Tricks Left For The ECB and Bank of England (BBG)
China’s Great Divide: A New Cultural Revolution? (CH Smith)
Backlash Against Chinese Investment Abroad Grows Ahead Of G-20 Summit (BBG)
China Has Returned To Reform Mode (BBG)
Australia’s Hunger Games (BBG)
Fannie, Freddie, Regulator Rolls Out Refinance Program For Homeowners (R.)
Eurozone Banks See Net Profit Fall 20% In First Quarter (R.)
Deposits at Bank of Ireland To Face Negative Interest Rates (O’Byrne)
It Was a Union for the Ages, Until Suddenly It Wasn’t. Is Europe Lost? (BBG)
The Broken Chessboard: Brzezinski Gives Up on Empire (Whitney)
2000 Finns to Get Basic Income in State Experiment Set to Start 2017 (BBG)
Greece Grapples With More ‘Fugitives’, Seeks To Avoid Tensions With Ankara (K.)

 

 

Might as well give up on Japan. 3 years of horrible policy failure, and Abe’s as popular as ever.

Japan July Consumer Prices Post Biggest Annual Fall In 3 Years (R.)

Japan’s consumer prices fell in July by the most in more than three years as more firms delayed price hikes due to weak consumption, keeping the central bank under pressure to expand an already massive stimulus program. The gloomy data reinforces a dominant market view that premier Shinzo Abe’s stimulus program have failed to dislodge the deflationary mindset prevailing among businesses and consumers. The nationwide core consumer price index, which excludes volatile fresh food prices but includes oil products, fell 0.5% in July from a year earlier, the fifth straight month of declines, data showed on Friday. It exceeded a median forecast for a 0.4% decline and June’s 0.4% drop.

While falling energy costs were mainly behind the slide in consumer prices, rises in imported food prices and hotel room rates moderated in a sign that weak consumption is discouraging firms from passing on rising costs. A strong yen also pushed down import costs, offering few justifications for retailers to raise prices of their goods. “While economic activity is on the mend, the slump in import prices suggests that underlying inflation will continue to fall in coming months,” said Marcel Thieliant, senior Japan economist at Capital Economics. “The Bank of Japan will find it increasingly difficult to blame falling energy prices for the decline in overall consumer prices.”

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Where the propaganda fails.

Dollar Stores’ Admission: Half Of US Consumers Are In Dire Straits (ZH)

Both Dollar General and Dollar Tree said pressures on their core lower-income shoppers contributed to the same-store sales misses that both retailers reported. On today’s conference call, Dollar General CEO Todd Vasos said that he was surprised to admit that while on the surface things are supposed to be getting better, the reality is vastly different for low-income US consumers: “I know that when we look at globally the overall U.S. population, it seems like things are getting better. But when you really start breaking it down and you look at that core consumer that we serve on the lower economic scale that’s out there, that demographic, things have not gotten any better for her, and arguably, they’re worse. And they’re worse, because rents are accelerating, healthcare is accelerating on her at a very, very rapid clip.”

Making matters worse, he added that the company’s core consumers base, 65% of which is comprised of lower-income shoppers, has been impacted by the recent reduction or elimination in foodstamps: “now couple that in upwards of 20 states where they have reduced or eliminated the SNAP benefit, and it has really put a toll on [the core consumer].” He elaborated that the reduction in foodstamps benefits promptly filtered through the entire business model, and culminated with Dollar General being forced to cut prices to remain competitive. This is what he said:

“That SNAP benefit reduction and/or elimination happened in April. That was the kickoff, and you could see it immediately in the numbers. So I believe that those are the things that are affecting her today. Again, our core customer, and by the way, we’ve seen this play out before. If you dial the clock back to October of 2013 and coming into November of 2013, when the last large SNAP benefit reduction happened, it happened almost exactly the same way on our comps and in how we saw traffic. Obviously, we’re up at a little higher level at that time, but rest assured, that our traffic slowed tremendously then, very similar to as it did now.

The difference here is we’re going to take aggressive price action to get that consumer back in the store. She needs a little motivation to get back in. We need to help her stretch her budget for a time period until she figures it out. Our core customer is very resilient. They’ll figure it out over time, but they need a little help as they tend to now try to figure out how to make ends meet with less money during the month.”

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No, we’ve been in the unknown for years. As soon as Bernanke said ‘Uncharted Territory’, we knew we were lost. Of course they’ve acted ever since as if they know what they’re doing, but that is bull.

QE Infinity: Are We Heading Into The Unknown? (CNBC)

Markets are currently riding on the wave of uncertainty and speculation over whether the world’s central banks will continue to pump in more and more cash into the economy though bond-buying programs known as quantitative easing (QE). But as we go deeper into the world of easy money from central banks, there are other areas of the economy that could see a knock-on effect. Alberto Gallo, manager of the Algebris Macro Credit Fund, describes this paradox as “QE infinity,” whereby low rates and seemingly endless rounds of bond-buying programs encourage cheap borrowing, and investment in financial markets – but not in the real economy. “The problem is rising debt and monetary easing comes with many collateral effects. One is the distortion of asset prices, leading to asset bubbles,” Gallo explained.

“Asset price distortion also has a ripple effect on wealth distribution, increasing inequality by benefitting the already-wealthy who are more likely to hold financial assets. Over time, low rates and QE can also encourage misallocation of resources to leverage-sensitive sectors, including real estate and construction.” Gallo further explained that for the global economy to exit this QE infinity trap, government action and reforms to improve productivity are needed. “But many governments are reluctant to accept the need for these measures, often instead implementing policies that win votes but compound the distortions of easy monetary policy e.g. housing affordability programmes, mortgage subsidies.” Without an adequate fiscal response from governments, growing imbalances make it harder to withdraw stimulus, warned Gallo.

“This is the paradox of current monetary policy: On one hand, it is the best possible response available to central bankers. On the other, it has long-term collateral effects which need to be confronted eventually.” Central banks have seen themselves come up with new ways of stimulating the economy ever since the world plunged into financial crisis in September 2008. Data from JPMorgan shows that the top 50 central banks around the world have cut rates 672 times between them since the collapse of Lehman Brothers, a figure that translates to an average of one interest rate cut every three trading days. This has also been combined with $24 trillion worth of asset purchases. This raises a big question: Will the global economy ever exit QE Infinity?

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Dream on. All they have left is weird.

A Less Weird Time at Jackson Hole? (John Taylor)

I’m on my way to join the world’s central bankers at Jackson Hole for the 35th annual monetary-policy conference in the Grand Teton Mountains. I attended the first monetary-policy conference there in 1982, and I may be the only person to attend both the 1st and the 35th. I know the Tetons will still be there, but virtually everything else will be different. As the Wall Street Journal front page headline screamed out on Monday, “Central Bank Stimulus Efforts Get Weirder”. I’m looking forward to it. Paul Volcker chaired the Fed in 1982. He went to Jackson Hole, but he was not on the program to give the opening address, and no one was speculating on what he might say. No other Fed governors were there, nor governors of any other central bank. In contrast, this year many central bankers will be there, including from emerging markets.

Only four reporters came in 1982 — William Eaton (LA Times), Jonathan Fuerbringer (New York Times), Ken Bacon (Wall Street Journal) and John Berry (Washington Post). This year there will be scores. And there were no television people to interview central bankers in 1982 (with the awesome Grand Teton as backdrop). It was clear to everyone in 1982 that Volcker had a policy strategy in place, so he didn’t need to use Jackson Hole to announce new interventions or tools. The strategy was to focus on price stability and thereby get inflation down, which would then restore economic growth and reduce unemployment. Some at the meeting, such as Nobel Laureate James Tobin, didn’t like Volcker’s strategy, but others did. I presented a paper at the 1982 conference which supported the strategy. The federal funds rate was over 10.1% in August 1982 down from 19.1% the previous summer.

Today the policy rate is .5% in the U.S. and negative in the Eurozone, Japan, Switzerland, Sweden and Denmark. There will be lot of discussion about the impact of these unusual central bank policy rates, as well the unusual large scale purchases of corporate bonds and stock, and of course the possibility of helicopter money and other new tools, some of which greatly expand the scope of central banks. I hope there is also a discussion of less weird policy, and in particular about the normalization of policy and the benefits of normalization. In fact, with so many central bankers from around the world at Jackson Hole, it will be an opportunity to discuss the global benefits of recent proposals to return to a rules-based international monetary system along the lines that Paul Volcker has argued for.

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Trapped.

There May Not Be Too Many Tricks Left For The ECB and Bank of England (BBG)

The European Central Bank and the Bank of England may soon find that their most powerful tool for overseeing lenders doesn’t pack the punch it once did. The European Union is overhauling the way supervisors set bank-specific capital levels for current and potential risks that aren’t covered by the minimum requirements in EU law. A proposal from the European Commission, the EU’s executive arm, would rein in supervisors and give banks the lead in determining their capital needs. The ECB has already followed directions from the commission in splitting its demands into binding requirements and non-binding guidance, reducing the capital burden on euro-area banks. This decision also made it less likely that banks will face restrictions on the payment of dividends, bonuses and additional Tier 1 bond coupons.

“What this boils down to is a complete disarming of the authorities,” said Christian Stiefmueller, a senior policy analyst at Finance Watch, a Brussels-based watchdog. “It makes it effectively impossible for the supervisor to set capital requirements for any risk except those that have already materialized.” Europe’s banks are starting to get some slack from policy makers after years of aggressive regulation. The Brussels-based commission has opened up the entire financial rule book for review, including contentious issues such as the cap on bankers’ bonuses. Faced with weak banks and an anemic economy, regulators have made clear that global standards will be adapted to suit Europe’s needs.

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Key: “The processes used to inflate the new bubble suffer from diminishing returns.”

China’s Great Divide: A New Cultural Revolution? (CH Smith)

The status quo solution (in China, the U.S., Japan, the E.U., etc.) to a weakening bubble-dependent economy is to inflate another even bigger bubble. If debt reached extremes that imploded, the solution is to expand debt far beyond the levels that triggered the implosion. If fudging the numbers triggered a loss of confidence, the solution is to fudge the numbers even more, so they no longer reflect reality at all. If the masses protest their powerlessness, the solution is to push them further from the centers of power. And so on. This blowing new bubbles to replace the ones that popped works for a while, but at the expense of systemic stability. Each new bubble requires pushing the system to new extremes that increase the risk of instability and collapse.

In other words, the stability of the new bubble is temporary and thus illusory. The processes used to inflate the new bubble suffer from diminishing returns. The nature of stimulus-response is that overuse of the stimulus leads to diminishing responses. This is a structural feature that cannot be massaged away. Goosing public confidence in the status quo with phony statistics and rigged markets works splendidly the first time, less so the second time, and barely at all the third time. Why is this so? The distance between reality and the bubble construct is now so great that the disconnection from reality is self-evident to anyone not marveling at the finery of the Emperor’s non-existent clothing. The system habituates to the higher stimulus. If the drug/debt has lost its effectiveness, a higher dose is needed.

This is the progression of serial bubbles. Then the system habituates to the higher dose/debt, and the next expansion of debt must be even greater. This dynamic can be visualized as The Rising Wedge Model of Breakdown, which builds on the well-known Ratchet Effect: the system is greased for easy expansion of debt, leverage, employees, etc., but it has no mechanism to allow contraction. Any contraction triggers systemic collapse. The only question left for China (and every other debt/bubble-dependent nation) is what socio-political consequences will manifest when the credit bubble finally bursts?

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More diminishing returns?!

Backlash Against Chinese Investment Abroad Grows Ahead Of G-20 Summit (BBG)

Forget about Yankee go home. Now it’s Chinese go home. From Australia blocking a bid for a power network to the U.K.’s review of a proposed Chinese-funded nuclear plant, opposition to China’s outward push is opening a thornier and potentially more treacherous front in the country’s economic tug-of-war with the rest of the world. And it’s coming as China prepares to host a Sept. 4-5 summit of Group of 20 leaders. Unlike festering frictions over trade, the new front is in an area – investment – where the global rules of engagement are more amorphous and where national security interests are more prominent. That raises the risk of a rapid escalation of tensions that can’t be so easily contained. “The implicit accusation when rejecting overseas direct investment is much stronger than trade,” said James Laurenceson, deputy director of the Australia-China Relations Institute in Sydney.

Using a national-security rationale to blocking outbound investment by China “is far more confronting. It suggests that China is untrustworthy and has potentially nefarious intentions. That’s what Beijing objects to.” But it’s not just security concerns that are driving the increased backlash against stepped-up Chinese investment abroad, especially by state-owned companies. It’s also the suspicion that the Communist-led government is trying to game the system by snapping up foreign firms in key areas of the economy while blocking others from doing the same in China. China “remains the most closed to foreign investment of the G-20 countries,” David Dollar, a senior fellow at the Brookings Institution and former U.S. Treasury attache to Beijing, said. “This creates an unfairness in which Chinese firms prosper behind protectionist walls and expand into more open markets such as the U.S.”

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China’s getting desperate to look like it’s in control of its own economy. It’s not.

China Has Returned To Reform Mode (BBG)

China has returned to reform mode. This week, plans have been unveiled to quicken the clean-up of excess capacity in state-backed companies, level the playing field for private and foreign investors with new access to previously off-limit sectors, and take the next step in a long-awaited fiscal shake up. Having stabilized the economy with a mix of fiscal support and easy monetary settings, China’s leaders appear to be reviving a stalled reform push that’s key to long-term growth prospects. The rush of announcements comes ahead of China’s hosting of leaders from the world’s 20 biggest economies in Hangzhou on Sept. 4 and 5, allowing it to show progress to officials from nations such as the U.S. and bodies like the IMF that have called for structural changes.

“The pace of reform had been slower than expected,” said Shen Jianguang at Securities in Hong Kong. “Now, policy makers want to speed it up again. With monetary easing proving less effective in propping up the economy, they have realized that there’s no way out if they don’t push forward on reform.” The People’s Bank of China has been upping its communication in recent weeks, signaling ongoing use of liquidity tools rather than big gun moves such as cuts to benchmark interest rates or the percentage of deposits banks must lock away as reserves. With businesses hoarding cash and reluctant to invest, further easing risks fueling financial risks without spurring a pick up in economic growth.

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More dividend priests liquidating themselves.

Australia’s Hunger Games (BBG)

If economies need animal spirits to thrive, what sort of beast is Australia in the aftermath of its mining boom? Something like a wounded bear that would rather hibernate than go hunting for food, if you listen to Treasurer Scott Morrison.Governments need to work at building an economy that “can coax private capital out of its cave,” he said at an event in Sydney Thursday. “Global capital is sitting dormant. How else do you interpret the absurdity of negative bond yields? “Though Australia’s 25 years without a recession represent a remarkable success story, it’s fair to say the country’s going through a rough patch. Interest rates are at a record-low 1.5%, and local businesses are showing more of a tendency to lick their wounds than search for new investment opportunities.

The huge splurge of capital expenditure that accompanied the mining boom helped cover for a while a fact that’s becoming embarrassingly clear as the resource spending recedes: Take out mining, and investment by Australian businesses has barely increased since the global financial crisis. So where’s the money going? Blame the baby boomers. Self-managed super funds – accounts that are controlled by their owners rather than professional fund managers – make up the biggest share of Australia’s pool of retirement savings.The funds, which have benefited from a range of overly generous tax breaks during the past decade, have an outsized influence on the Australian stock market, according to Hasan Tevfik, director of Australian equities research at Credit Suisse.

Retirees’ desire for a steady income from their investments helps explain why certain types of stocks tend to be overvalued in Australia relative to their performance elsewhere, and why local businesses so often fall over themselves to pay dividends above the levels found in other markets. [..] In the long term, companies that dedicate more of their free cash to shareholders rather than finding new ways of making money are robbing the future to pay the present. Countries where that becomes the predominant mode of corporate behavior are in even greater trouble.

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Everybody’s scared to death of falling home prices, which happen to be the only thing that can make the market somewhat healthier.

Fannie, Freddie, Regulator Rolls Out Refinance Program For Homeowners (R.)

The regulator of Fannie Mae and Freddie Mac unveiled on Thursday a program aimed at homeowners who are paying their mortgages on time but whose loan-to-value (LTV) ratios are too high to qualify for traditional refinance programs. To be eligible for this program, which Fannie and Freddie will implement, borrowers must have not missed any mortgage payments in the prior six months; must not have skipped more than one payment in the previous 12 months; must have a source of income and must receive a benefit from the refinance such as a reduction in their monthly loan payment, the Federal Housing Finance Agency said.

“This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac,” said FHFA Director Melvin Watt in a statement. Because this program for high LTV borrowers will not be available until October 2017, the agency said it will extend the Home Affordable Refinance Program (HARP) until Sept. 30, 2017 as a bridge to the new high LTV program. HARP was introduced in 2009 to help underwater borrowers following the housing bust. More than 3.4 million homeowners have refinanced their mortgage through the program. More than 300,000 homeowners could still refinance through HARP, FHFA said.

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Portuguese and Italian banks cannot afford this. Many others can’t either. Question is where the next bailout (bail-in) will happen.

Eurozone Banks See Net Profit Fall 20% In First Quarter (R.)

Euro area banks saw their profits fall by a fifth in the first three months of this year as they made less money from trading and most other business areas, European Central Bank data showed on Wednesday. The ECB survey painted a gloomy picture, with all the main sources of profit for banks – lending, trading and fees – down from the year before. Net profit fell by 20% year on year to €18 billion ($20.25 billion). The net result from trading and foreign exchange was one of the main culprits for that drop as it fell by 41% to €10.8 billion. Other income streams – such as net interest on loans, dividends, and fees and commissions – also declined, albeit more modestly.

Banks have blamed the ECB’s policy of ultra-low rates, which includes charging banks for the excess cash they park at the central bank, for eating into their profits. In cash-rich Germany, several banks have responded by charging fees on bank accounts or charging corporate clients a percentage charge on large deposits. The ECB has maintained its policy has done more good than harm but it has acknowledged it comes with side effects.

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This can not end well.

Deposits at Bank of Ireland To Face Negative Interest Rates (O’Byrne)

Deposits at Bank of Ireland are soon to face charges in the form of negative interest rates after it emerged on Friday that the bank is set to become the first Irish bank to charge customers for placing their cash on deposit with the bank. This radical move was expected as the ECB began charging large corporates and financial institutions 0.4% in March for depositing cash with them overnight. Bank of Ireland is set to charge large companies for their deposits from October. The bank said it is to charge companies for company deposits worth over €10 million. The bank was not clear regarding what the new negative interest rate will be but it is believed that a negative interest rate of 0.1% will initially be charged to such deposits by Ireland’s biggest bank.

BOI was identified as one of the most vulnerable banks in Europe in the recent EU stress tests – along with Banca Monte dei Paschi di Siena (MPS), AIB and Ulster Bank’s parent RBS. All the banks clients, retail, SME and corporates are unsecured creditors of the bank and exposed to the new bail-in regime. Only larger customers will be affected by the charge for now. The bank claims that it has no plans to levy a negative interest rate on either personal or SME customers but negative interest rates seem likely as long as the ECB continues with zero% and negative interest rates. Indeed, they are already being seen in Germany where retail clients are being charged 0.4% to hold their cash in certain banks such as Raiffeisenbank Gmund am Tegernsee.

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Europe is not lost, but the EU sure is.

It Was a Union for the Ages, Until Suddenly It Wasn’t. Is Europe Lost? (BBG)

The U.K.’s vote to quit the EU is the enterprise’s worst setback since it was conceived in the 1950s. Until now, the EU has always grown in scale and ambition. For the first time, Brexit shows that Europe’s manifest destiny—ever closer union—may not be destiny after all. Merely knowing that European integration can be reversed is a threat: It makes the unthinkable thinkable. But this isn’t the only danger. The union is increasingly unpopular not only in the U.K. but also in other European countries. Its political capital is depleted. Working through the mechanics of Brexit may deepen divisions, severely testing the union’s ability to adapt. Brexit could conceivably spur support for the union. But this will demand consensus, flexibility, and farsighted calculation, none of which can be taken for granted.

If governments can’t rise to this challenge, Brexit may be the beginning of the end of the European dream. In one way, today’s discontent is nothing new. There has often been a gap between the grandest designs of Europe’s leaders and the readiness of the continent’s citizens to go along. The EU’s remarkable achievements in securing peace and prosperity in the postwar era required brave, visionary leadership, and voters were rarely up to speed. For years, that was fine. The model was top-down institution-building, followed by good results, then popular backing—in that order. It all worked beautifully. Europe’s postwar political and economic reconstruction was a modern miracle. But now the model is failing. The Brits aren’t the proof. They’ve always been uncomfortable in the EU, late to the party and a nuisance throughout; their vote to quit was a shock, but probably shouldn’t have been.

Lately, though, the disenchantment has spread far more widely. According to one recent poll, the EU is less popular in France—France!—than in the U.K. So what went wrong? [..] Even at the design stage, many economists said the euro’s political underpinnings were too weak. Monetary union, they argued, demanded a commitment to a form of fiscal union. (If currency devaluation with respect to other EU currencies was going to be ruled out, fiscal transfers would be needed to help cushion economies from downturns.) This would require a widely shared sense of common purpose—in effect, a more fully developed European identity. Without it, member states would balk at collective fiscal action. And balk they did: Fiscal union, with the need for fiscal transfers across the union’s internal borders, wasn’t part of the plan.

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Worried about his legacy?

The Broken Chessboard: Brzezinski Gives Up on Empire (Whitney)

The main architect of Washington’s plan to rule the world has abandoned the scheme and called for the forging of ties with Russia and China. While Zbigniew Brzezinski’s article in The American Interest titled “Towards a Global Realignment” has largely been ignored by the media, it shows that powerful members of the policymaking establishment no longer believe that Washington will prevail in its quest to extent US hegemony across the Middle East and Asia. Brzezinski, who was the main proponent of this idea and who drew up the blueprint for imperial expansion in his 1997 book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives, has done an about-face and called for a dramatic revising of the strategy. Here’s an excerpt from the article in the AI:

“As its era of global dominance ends, the United States needs to take the lead in realigning the global power architecture. Five basic verities regarding the emerging redistribution of global political power and the violent political awakening in the Middle East are signaling the coming of a new global realignment. The first of these verities is that the United States is still the world’s politically, economically, and militarily most powerful entity but, given complex geopolitical shifts in regional balances, it is no longer the globally imperial power.” (Toward a Global Realignment, Zbigniew Brzezinski, The American Interest)

Repeat: The US is “no longer the globally imperial power.” Compare this assessment to a statement Brzezinski made years earlier in Chessboard when he claimed the US was ” the world’s paramount power.” ““…The last decade of the twentieth century has witnessed a tectonic shift in world affairs. For the first time ever, a non-Eurasian power has emerged not only as a key arbiter of Eurasian power relations but also as the world’s paramount power. The defeat and collapse of the Soviet Union was the final step in the rapid ascendance of a Western Hemisphere power, the United States, as the sole and, indeed, the first truly global power.” (“The Grand Chessboard: American Primacy And Its Geostrategic Imperatives,” Zbigniew Brzezinski, Basic Books, 1997, p. xiii)

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A basic income for just 2000 people seems to miss the whole idea.

2000 Finns to Get Basic Income in State Experiment Set to Start 2017 (BBG)

Finland is pushing ahead with a plan to test the effects of paying a basic income as it seeks to protect state finances and move more people into the labor market. The Social Insurance Institution of Finland, known as Kela, will be responsible for carrying out the experiment that would start in 2017 and include 2,000 randomly selected welfare recipients, according to a statement released Thursday. The level of basic income would be €560 per month, tax free, and mandatory for those picked. “The objective of the legislative proposal is to carry out a basic income experiment in order to assess whether basic income can be used to reform social security, specifically to reduce incentive traps relating to working,” the Social Affairs and Health Ministry said.

To asses the effect of a basic income, the participants will be held up against a control group, the ministry said. The target group won’t include people receiving old-age pension benefits or students. The level of the lowest basic income to be tested will correspond with the level of labor market subsidy and basic daily allowance. The idea of a basic income, or paying everyone a stipend, has gained traction in recent years. It was rejected in a referendum in Switzerland as recently as June, where the suggested amount was 2,500 francs ($2,587) for an adult and a quarter of that sum for a child. It has also drawn interest in Canada and the Netherlands. Finnish authorities were clear on one thing as they embark on their study: “An experiment means that, at this point, basic income will not be paid to the whole population.”

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Whatever the US do, Greece will follow. Unless Berlin decides against it.

Greece Grapples With More ‘Fugitives’, Seeks To Avoid Tensions With Ankara (K.)

As Greece struggles to strike a balance between international law and Turkey’s demand for the extradition of eight Turkish officers, it was confronted with a fresh challenge this week after seven civilians from the neighboring country arrived in Alexandroupoli and Rhodes late Wednesday and are expected to request asylum. The new arrivals have been charged with illegally entering Greece. According to officials, they include a couple, both university professors, and their two children, who arrived in Alexandroupoli, reportedly via the northeastern border, possibly crossing the Evros River by boat. All four were said to be holding Turkish passports, though only the man’s is valid.

The other three individuals – of whom only one has a valid passport – said they are businessmen, but it was not clear how they made it to the southeastern Aegean island. One of the passports has been listed as stolen by Interpol. Initial reports suggested they are possibly supporters of the self-exiled cleric Fethullah Gulen, whom Turkey claims orchestrated the failed coup attempt in July. Their case is set to put yet more strain on already tense relations between the traditional rivals after eight Turkish officers fled to Greece in the aftermath of the attempted coup. Ankara has demanded their immediate extradition to stand trial as “traitors” and coup plotters. Greece has said the decision will lie with its independent court.

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Oct 182014
 
 October 18, 2014  Posted by at 11:16 am Finance Tagged with: , , , , , , , ,  


John Vachon Koolmotor, Cleveland, Ohio May 1938

The Stock Market, Inevitably, Is Going To Crash (MarketWatch)
One Simple Reason Why Global Stock Markets Are Reeling (AEP)
Jim Rogers: Sell Everything And Run For Your Lives (Zero Hedge)
The Return Of The ‘Fear Trade’ (MarketWatch)
Fannie, Freddie Plan Measures to Ease Lending to Riskier Borrowers (Bloomberg)
Why US Banks Are Now Extremely Vulnerable (Simon Black)
Just Try to Refinance. I Dare You (Ritholtz)
Rates Below 4% Leave U.S. Refinancing Banker Sleepless (Bloomberg)
ECB Policymakers Clash Over How To Treat Eurozone (Reuters)
Eurozone: Five Years Of Bailouts, Market Turmoil And Protests (Guardian)
Greece’s Latest Woes Signal Next Stage Of The Eurozone Crisis (Telegraph)
Kudos To Herr Weidmann For Uttering Three Truths In One Speech (Stockman)
Before Bailout, ECB Had Doubts Over Keeping a Cyprus Bank Afloat (NY Times)
Moody’s Report Makes Grim Reading For British Supermarkets (Guardian)
Putin Talks With EU, Ukraine ‘Difficult, Full Of Misunderstandings’ (Reuters)
West Unwilling To Be Objective On Ukraine, Says Russia (WSJ)
1,000 Years Of Dust Bowls Now Inevitable (Paul B. Farrell)
‘We Have A Worst-Case Ebola Scenario, And You Don’t Want To Know’ (Bloomberg)

History says so.

The Stock Market, Inevitably, Is Going To Crash (MarketWatch)

And you thought stock-market crashes were a thing of the past. One ancillary benefit of this week’s turmoil has been to remind us that a market crash could occur at any time. We had been lulled into a false sense of security by the markets’ exceptionally good performance in recent years, coupled with our too-short memories. At one point during the air pocket that hit during Wednesday’ session, the Dow Jones Industrial Average had fallen almost 508 points — which, coincidentally, was the same decline during the 1987 stock market crash, the worst in U.S. history. Piling on: This weekend marks the 27th anniversary of that crash.

Of course, 508 points in 1987 represented a far bigger drop than Wednesday’s intra-day decline, since the Dow at that time was trading for just a fraction of where it stands today. To decline as much in percentage terms today as it did then, the Dow would have to fall by more than 3,700 points. And, believe it or not, declines that big are also an inevitable, if rare, feature of the investment landscape. And we’re kidding ourselves if we think that market reforms will be able to prevent it. The only real solution is to devise investment strategies with the knowledge that big daily drops are unavoidable.

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Liquidity. The magic word.

One Simple Reason Why Global Stock Markets Are Reeling (AEP)

It is no mystery why global liquidity is evaporating. Central banks have turned off the tap. They have reduced net stimulus by roughly $125bn a month since the end of last year, or $1.5 trillion annualized That is a shock for the financial system. The ratchet effect has been incremental, but relentless. We are finally seeing the consequences, with the usual monetary policy lag The Fed and People‘s Bank of China (PBOC) have stopped their two variants of global QE altogether (for now). Others have chopped their purchases of bonds by half or more. The Brazilians are net sellers, and in a sense they carrying out reverse QE. The Russians have just joined them again. Fed tapering has taken out $85bn a month. The markets are having to go it alone as of this month, without their drip feed. Less understood is the effect of global reserve accumulation by the BRICS, emerging Asia, and the Petro-states. This has collapsed. Nomura’s Jens Nordvig has crunched the latest numbers for Q3.

They show that China’s PBOC has completely withdrawn from global asset markets. In fact, it may have sold almost $9bn of bonds, (even adjusting for currency effects). This is a policy shift by Beijing. Premier Li Keqiang said in May that China’s $4 trillion foreign reserves are already so big they have become a “burden“. China bought $106bn as recently as the first quarter of 2014, so this is a very sudden shift. Yes, I know, China’s purchases of US Treasuries, Gilts, Bunds, French bonds, and Japanese JGBs are not quite the same as QE. There are complex sterilization effects. Yet there is a fungible effect whether the Fed is buying Treasuries or whether the Chinese central bank is buying them. It is all a form of global QE. It all helps to inflate asset prices, and vice versa if it reverses. This was really what Ben Bernanke meant when he first began talking of the “global savings glut“. The flood of money into the bond markets was compressing yields for everybody.

Hence the subprime debt crisis in the US, and hence too the Club Med debt bubble. The money had to go somewhere as the rising world powers boosted global FX reserves to $11.3 trillion from under $1 trillion in 2000. It went into safe-haven bonds, displacing that money into everything else. Over the latest quarter, almost every country has been choking back: the Bank of Korea has cut net purchases from $25bn to $9bn; the Reserve Bank of India from $43bn to $12bn; the petro-states have cut from $19bn in Q1 to $11bn. (That must surely turn steeply negative with oil at $86 a barrel). Net sellers were: China (-$9bn), Brazil (-$7bn), Singapore (-$7bn), Malaysia (-$5bn), Thailand (-$3bn), Turkey (-$1bn). Overall FX accumulation worldwide fell from $106bn to $22bn.

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Word: “we are all going to pay a terrible price for all this money-printing and debt.”

Jim Rogers: Sell Everything And Run For Your Lives (Zero Hedge)

From Bitcoin to the Swiss gold referendum, and from Chinese trade and North Korean leadership, Jim Rogers covers a lot of ground in this excellent interview with Boom-Bust’s Erin Ade. Rogers reflects on the end of the US bull market. citing a number of factors from breadth to the end of QE, adding that he agrees with Albert Edwards’ perspective that now is the time to “sell everything and run for your lives,” as the “consequences of [The Fed] are now being felt.” Most notably though, Rogers believes the de-dollarization is here to stay as Western sanctions force many nations to find alternatives. Simply put, Rogers concludes, “we are all going to pay a terrible price for all this money-printing and debt.” Excerpts:

On US stocks: This is the end of the bull market. Stocks will fall 20%. Market breadth is waning as evidenced by the lower number of stocks hitting new highs and trading above their 200-day moving averages. Small cap stocks have already corrected over 10 percent and almost half of the Nasdaq is down 20 percent – a bear market already. Where is this headed? Consolidation is the bare minimum. But, depending on the real economy, it could be worse. “Any pension plans, endowments, etc., are suffering because they invest for the futures and are finding that their situation has gotten worse,” he says.

On The Fed: “We are all going to pay a terrible price for all this money-printing… They are doing this at the expense of people who save and invest. They are doing it to bail out the people who borrowed huge amounts of money. The consequences are already being felt.”

On de-dollarization: The move away from the U.S. dollar is yet another reaction to Western sanctions placed on Russia since it annexed Crimea from Ukraine in March. Russia and Iran have agreed to use their own national currencies in bilateral trade transactions rather than the U.S. dollar. An original agreement to trade in rials and rubles was made earlier this month in a meeting between Russian Energy Minister Alexander Novak and Iranian Oil Minister Bijan Namdar Zanganeh. Similarly, Russia and China also agreed to trade with each other using the ruble and yuan in early September, following a Russian deal with North Korea in June to trade in rubles

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Yeah, but you would have expected a move into gold as well, and that never happened. Maybe there’s isn’t that much fear yet?!

The Return Of The ‘Fear Trade’ (MarketWatch)

Halloween came early this October. A vicious midweek selloff shows that investors can be still be scared out of their wits, at least for a few hours. And while the monster is now back in its cage, it is unlikely the “fear trade” has completely run its course. But first, what triggered the carnage? For once, few pundits were offering a pat, one-size-fits-all answer. That’s because there wasn’t one. Instead, it came down to a combination of nagging but interrelated worries surrounding Europe, collapsing oil prices, the threat of global deflation, and the Fed’s rate path. Throw in a steady drumbeat of Ebola headlines and suddenly folks were streaming toward the exits. But the most attention-grabbing moment occurred in the bond market. The rally in Treasurys that accompanied the stock-market selloff, temporarily dropped the yield on the 10-year note below 2%. While a flight to quality would be expected, the sharp one-third of a point drop in the yield had market veterans scratching their heads.

Yields have since rebounded as Treasurys gave back most of the Wednesday rally. Wall Street is enjoying a sharp Friday rebound as oil prices bounce from multiyear lows. But that still leaves traders to make sense of the mayhem. In a note, Eric Green, head of U.S. rates at TD Securities, succinctly summarized the midweek market turmoil as the extension of two competing forces: One was the continuation of a post-quantitative-easing correction in stocks “that should be viewed as healthy.” The other “is a fear trade that has been gathering momentum over the past several weeks, one that has its roots in a global recovery that looks to be weakening outside of the U.S., especially in Europe.” Indeed, Europe is still a primary source of anxiety. And for a good reason.

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First, let’s see you fog that mirror!

Fannie, Freddie Plan Measures to Ease Lending to Riskier Borrowers (Bloomberg)

Fannie Mae, Freddie Mac and their regulator are nearing agreement with mortgage issuers on efforts to boost lending and ease banks’ concerns that they will get stuck with bad loans when borrowers default. The initiatives include a consensus on when defaulted loans are so flawed that lenders must buy them back from the two mortgage-finance companies, a key sticking point in efforts to unlock credit, according to three people familiar with the discussions. The steps are part of a broader push to increase lending after banks had to repurchase billions of dollars of mortgages that were issued during the housing bubble. The banks’ reticence has kept first-time homebuyers and others with weak credit out of the real-estate market and created a drag on the fragile housing recovery.

Melvin L. Watt, the director of the Federal Housing Finance Agency, will clarify in a Oct. 20 speech at the Mortgage Bankers Association conference in Las Vegas how some loans can be permanently exempted from the threat of buybacks, said the people, who asked not to be identified because the plans aren’t public. Watt will also discuss an effort that would allow borrowers to put down as little as three% of the purchase price on loans backed by Fannie Mae and Freddie Mac, enabling borrowers with lower incomes to access the mortgage market, the people said. The two companies currently require a 5% down payment on most loans.

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Loading up on Treasuries. Sure, risky down the line, but a bit overdone here.

Why US Banks Are Now Extremely Vulnerable (Simon Black)

For a casual observer of the US economy (most “experts”), you could say that things look pretty good. Unemployment is at its lowest rate in six years. Earnings of S&P 500 companies are higher than ever, while their debt is lower than it’s been in the last 24 years. Nonetheless, rather than getting excited for good economic times, the big commercial banks are all battening down the hatches. They’re preparing for bad times ahead. I often stress the importance of being prepared, so in theory, that should be a great sign. But then, you look at what they are “defensively” investing in, and you see that what they consider as prudence is simply insanity. What banks are stockpiling these days are US government bonds, and they’re not doing this casually, they’re going nuts for them. In just the last month alone American banks increased their holdings of US treasuries by $54 billion, to a record $1.99 trillion. Citigroup, for example, held $103.8 billion worth of bonds at the end of June, up 19% from the end of last year.

This is like preparing for an earthquake by running out and buying whole new sets of porcelain dishes and glass vases. All it’s going to do is make things more dangerous, and even if you somehow make it through the disaster, you have a million more shards to clean up. With government bonds you are guaranteed to lose both in the short-term and the long-term. Bonds keep you consistently behind inflation (even the deceptively named TIPS—Treasury Inflation Protected Securities), so the value of your savings is slowly being chipped away. But that’s nothing compared to the long-term threats of the US government not being able to repay the loans. Facing $127 trillion in unfunded liabilities – which is nearly double 2012’s total global output – and with no inclination to reduce those numbers at all, at this point disaster for the US is entirely unavoidable. Never before in history has a government stretched itself so thin and accumulated anywhere close to this amount of debt.

So when the day comes, it won’t be a minor rumble. It will be completely off the Richter scale. These facts about the US government are in no way secret. Every bank out there knows it, yet they keep piling in. Why do they keep buying bonds that they know the government will never be good for? Even though people know in their guts that the government has no earthly possibility to ever repay its debt, on paper it’s a no risk investment. The US government’s sovereign debt has an AA+ rating after all. They might not make money off it, but no fund manager and investment banker is going to get fired for investing in “risk-free” US government debt.

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What is the truth in refinancing these days? Two articles that leave a lot of questions:

Just Try to Refinance. I Dare You (Ritholtz)

The bond market seems to have had its own flash crash this week. The yield on the 10-year U.S. Treasury bond dipped briefly below 2%, as panicked equity sellers looked for a safe place to park their cash. Treasuries, of course, are the world’s option of choice, the safest and most liquid port during the storm. Demand for bonds has helped drive down mortgage rates as well. Bloomberg News reported that “U.S. mortgage rates plunged, sending borrowing costs for 30-year loans below 4% for the first time in 16 months, as signs of a slowing global economy drove investors to the safety of government bonds.” Almost immediately, lower rates worked their way through the entire credit complex. The average rate on 30-year fixed home loan is now 3.97%. To put this into context, the median U.S. home price is $219,800. Put down 10% and that $200,000 mortgage costs the homebuyer $951 a month. A decade ago the same mortgage would have cost this buyer as much as 6.34%. The monthly payment would have been more than 25% higher at $1,243.

Under normal circumstances, this decrease in rates should have far reaching and beneficial effects on the economy. It would spur increased investment in real estate. Mortgage refinancings also would rise, and that would put a little more discretionary cash in the hands of consumers each month. As rates fall, one would expect sales of new and existing homes to rise. Lower financing costs should mean higher sales volume, along with some price increases as well. An increase in home sales tends to boost purchases of washing machines, furniture, TVs, cars and other durable goods. The increased economic activity eventually results in more hiring, increased wages, higher spending, all leading to a virtuous cycle. The key phrase in the prior paragraph is “Under normal circumstances.” These are decidedly not normal circumstances today, thus the unsatisfying economic growth we confront today.

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Rates Below 4% Leave U.S. Refinancing Banker Sleepless (Bloomberg)

The drop in mortgage rates below 4% has cut into Debra Shultz’s sleep. The New York City banker is busier than she’s been in months, working with three dozen homeowners eager to lower their payments. Shultz helped a Greenwich Village homeowner on Wednesday lock in a 3.63% interest rate for a 30-year fixed jumbo mortgage of more than $900,000. An hour later, the rate jumped to 3.75%. One lender changed its rate sheet six times that day. “It just went crazy,” said Shultz, a senior vice president of mortgage lending at Guaranteed Rate in New York. “I sent out a blast e-mail to 1,600 clients and had 30 responses right away.” Mortgage rates are following a slide in 10-year Treasury yields as weaker-than-expected economic data from Germany to China combine with concern about the Ebola virus, sparking demand for safe investments.

The average rate for a 30-year fixed mortgage dropped to 3.97%, the lowest since June 2013, Freddie Mac said yesterday. Borrowing costs spiked in September before dropping for the last four weeks, giving owners a new opportunity to refinance. “This is bizarro world,” said Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Virginia. “Usually we associate lower interest rates with lower volatility. Now you’re seeing the opposite.” A gauge of U.S. mortgage refinancing jumped 10.6% last week, the most since early June, the Mortgage Bankers Association said Wednesday. The share of home-loan applicants seeking to refinance climbed to 58.9%, the highest since mid-February, from 56.4%, the group said. In December of 2012, after the 30-year average rate hit a record low of 3.31% in November, borrowers wanting to refinance accounted for 84% of applications.

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Times turn desperate.

ECB Policymakers Clash Over How To Treat Eurozone (Reuters)

European Central Bank policymakers clashed on Friday over what policy medicine to administer to the sickly euro zone economy, laying bare deep-seated tensions within the Governing Council. Bundesbank President Jens Weidmann said he saw no need for fiscal stimulus in Germany, rejecting a thinly veiled appeal from ECB President Mario Draghi for Berlin to increase its public investment levels to help support the euro zone. Germany, a strong advocate of fiscal austerity, has come under pressure from other countries including the United States, and finance officials around the globe to use its large current account surplus and budgetary room for manoeuvre to invest. Earlier, Draghi’s lieutenant at the ECB, Benoit Coeure, said governments could help counteract lower prices with “fiscal policy, when it is available without questioning long-term debt sustainability” – a cue for governments like Germany to invest.

The discord between the hawkish Weidmann and policymakers closer to Draghi such as Coeure highlights deep divisions within the Council about how far the ECB should go to support the economy, and comes just as jittery markets look for reassurance.
Weidmann brushed off the suggestion that more German public investment could help other euro zone economies, and also took aim at ECB plans to buy asset-backed securities, or bundled loans — a dig that a further ECB policymaker rejected. “The boost to the peripheral countries from an increase in German public investment is … likely to be negligible,” Weidmann told a conference in Riga, where Coeure also spoke. “And with the economy operating at normal capacity utilisation, Germany is not in need of stimulus either – and this will remain the case with the revised forecasts that still foresee growth in line with potential,” he added. On Tuesday, German Chancellor Angela Merkel rejected calls for Berlin to ditch its plans for a balanced budget next year.

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A great overview of five years of utter failure.

Eurozone: Five Years Of Bailouts, Market Turmoil And Protests (Guardian)

The eurozone crisis didn’t emerge from a clear blue sky five years ago. Greece’s economic problems were well known; in 2004, it admitted fudging its deficit figures to qualify for euro membership, and a year later Athens brought in an austerity budget to, it hoped, bring down borrowing. But the left-wing Pasok government still shocked the financial markets and its EU neighbours on 18 October. Fresh from winning a general election, it announced that Greece’s budget problems were far worse than imagined; a deficit equal to 12% of national output, not the 6% forecast by the previous government. That admission triggered market panic, tumbling share prices, credit rating downgrades – setting the tone for the years ahead.

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They signal the hopelessness of the whole project, of the idea that Greece will be as rich as Germany.

Greece’s Latest Woes Signal Next Stage Of The Eurozone Crisis (Telegraph)

If Greece is the canary in the coal mine, then we are all in trouble. Interest rates on Greek debt have jumped in recent days, rocketing to around 9pc on 10-year bonds, an unsustainable financing cost for such a troubled government. The last time this sort of thing happened, in 2010, the eurozone was soon plunged into near-fatal crisis. Four years later, the debt crisis in the eurozone’s periphery was meant to be over, so Greece’s sudden relapse is one reason why so many equity, bond and commodity investors are running for the hills. Unlike last time, no hidden debt has been discovered, and Greece’s budget deficit has actually fallen significantly. While not quite a model student, Greece had at least been trying to mend its ways. The proximate trigger for the surge in bond yields is that the Athens government had been over-exuberant since the start of the year, hoping to leave the bail-out programme early, partly for the wrong, anti-austerity reasons.

None of this will now happen, and the European Central Bank has promised to help out, which may temporarily calm matters down. The stark reality is that Greece is not out of the woods, contrary to what many had claimed – yet its crisis is containable. Its economy is too small; even under a worst-case scenario it would not be able to take down the whole of the eurozone. But what this latest flare-up confirms is that merely reducing budget deficits is not enough. Having an excessive national debt remains a major problem, especially now that economists are slashing their growth forecasts for the eurozone as a whole and continent-wide deflation is looming. In such a Japanese-style scenario, the traditional debt-eroding mechanisms of inflation and growth no longer apply. Falling prices – caused by a defective, one-size-fits-all monetary policy, and thus insufficient demand – will push up debt ratios as a share of GDP, especially when economic output is stagnating at best.

As Capital Economics points out, any eurozone country with high and rising debt ratios is vulnerable; Italy and Portugal, which both have debt to GDP ratios of about 130pc, could be next in the firing line. Once again, excess debt is the problem – though this time, burdens are rising for partly different reasons. The euro has seen its value slide by 5pc against a trade-weighted basket of currencies since March, with Citigroup predicting that the total depreciation will hit 10pc over the next 12 months. In the past, this would have generated a 5pc boost to exports, translating to a 1pc rise in GDP over three years. Sadly, the impact this time around is likely to be far more muted. Demand for the sorts of goods the eurozone exports has weakened significantly. A greater share of the value of the region’s exports is in turn made up of imported components or raw materials, limiting the beneficial impact of the weaker euro, Citigroup correctly points out.

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“The biggest bottleneck for growth in the euro area is not monetary policy, nor is it the lack of fiscal stimulus: it is the structural barriers that impede competition, innovation and productivity ..” Eh, what about the debt, Mr Weidmann?

Kudos To Herr Weidmann For Uttering Three Truths In One Speech (Stockman)

Once in a blue moon officials commit truth in public, but the intrepid leader of Germany’s central bank has delivered a speech which let’s loose of three of them in a single go. Speaking at a conference in Riga, Latvia, Jens Weidmann put the kibosh on QE, low-flation and central bank interference in pricing of risky assets. These days the Keynesian chorus in favor of policy activism is so boisterous that a succinct statement to the contrary rarely gets through – especially at Rupert Murdoch’s Wall Street yarn factory. But here’s what penetrated even Brian Blackstone’s filters:

“The biggest bottleneck for growth in the euro area is not monetary policy, nor is it the lack of fiscal stimulus: it is the structural barriers that impede competition, innovation and productivity,” he said.

Needless to say, that is not only the truth but its one that is distinctly unwelcome to the policy apparatchiks in Brussels and the politicians in virtually every European capital. Self-evidently, printing money and running up the public debt are pleasurable and profitable tasks for agents of state intervention. But reducing “structural barriers” like restrictive labor laws, private cartel arrangements and inefficiency producing crony capitalist raids on the public till are a different matter altogether. In the political arena, they involve too much short-term pain to achieve the long-run gain.

But implicit in Weidmann’s plain and truthful declaration is an even more important proposition. Namely, rejection of the mechanistic Keynesian notion that the state is responsible for every last decimal point of the GDP growth rate. Indeed, the latter has now become such an overwhelming consensus in the political capitals that to suggest doing nothing on the “stimulus” front sounds almost quaint – a throwback to the long-ago and purportedly benighted times of laissez faire. But perhaps stolid German statesmen like Weidmann remember a thing or two about history, and have noted that what is failing in the present era is not private capitalism, but the bloated omnipresent public state. And having almost uniquely among DM nations resisted the siren song of Keynesian activism, Germans can also observe that their economy has not plunged into some depressionary dark hole for want of sufficient fiscal activism.

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A line that will soon return (stress test results due out October 26): “It was not the governing council’s job to keep afloat banks that were awaiting recapitalization and were not currently solvent .. ”

Before Bailout, ECB Had Doubts Over Keeping a Cyprus Bank Afloat (NY Times)

As the Cypriot economy reeled from the collapse of its second-largest bank in 2013, the European Central Bank faced a thorny question: Should it keep the institution, Cyprus Popular Bank, alive with short-term loans or pull the plug? By many financial measures, the bank was failing. Stung by a disastrous bet on Greek government bonds, Cyprus Popular Bank had been in trouble for the better part of 2012 and depositors were withdrawing their savings in ever larger numbers. It needed cash and fast. Under E.C.B. rules, troubled banks that can no longer raise funds on the open markets are allowed to borrow from their national central bank, which assumes responsibility for this so-called emergency liquidity assistance, or E.L.A. Still, strict rules govern this process. The bank in question must be solvent. And if the loans surpass 2 billion euros, or $2.56 billion, the E.C.B. reserves the right to refuse additional requests for money. The methodology for valuing the collateral used to secure the credit also has to be disclosed.

Fearing possible contagion if the bank failed, the E.C.B.’s governing council, a decision-making arm consisting of 24 members, had approved an emergency loan request by one its members, the Central Bank of Cyprus, in late 2011. As 2013 approached, the short-term loans to Cyprus Popular Bank had grown to €9 billion, about two thirds the size of the Cypriot economy, and Jens Weidmann, the hawkish head of the German Bundesbank, had begun to forcefully argue that this exposure was too large, according to the minutes of governing council meetings. By approving the loans – which were disbursed by the central bank of Cyprus – Mr. Weidmann said that the E.C.B. was violating a core tenet. That rule holds that banks on the verge of failure should not be bailed out with additional loans. “It was not the governing council’s job to keep afloat banks that were awaiting recapitalization and were not currently solvent,” he said at a meeting in December 2012, according to internal documents from the bank.

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It’s not just increased competition, the economy is reeling. But that is largely overlooked.

Moody’s Report Makes Grim Reading For British Supermarkets (Guardian)

Britain’s big four supermarkets will be forced to cut prices further in a race to the bottom with the German discounters Aldi and Lidl, according to a report from the credit ratings agency Moody’s. Tesco, Sainsbury’s, Morrisons and Asda will have to reduce prices to slow the pace of falling sales and loss of business to Aldi and Lidl, Moody’s said. But the big grocers will not win the war as their operating margins halve from their historical averages, Moody’s said. Despite the expected price cuts, the discounters will continue to take market share from the big four. Though Aldi’s and Lidl’s sales growth will probably slow, they will open more branches, putting extra pressure on the big grocers’ larger stores, which shoppers are abandoning, Moody’s predicted.

Moody’s analysts Sven Reinke and Michael Mulvaney said in the report: “We believe the big four will have to cut prices further to stem their sales declines and slow market share losses… We believe Aldi and Lidl are now entrenched and their combined market share could reach 10% over the next couple of years from 8.3% today. Over time the discounter’s UK market share could be similar to that of discounters in other European countries at around 12%-15%.” After decades of growth, Britain’s supermarkets are in crisis as they battle to compete with Aldi and Lidl. Customers changed their habits during the recession and started shopping locally, and little and often to reduce waste. Squeezed by falling real wages, they opted to save money at the German discounters’ small branches instead of making a weekly trip to the big four’s vast stores.

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[..] … “certain participants” had taken an “absolutely biased, non-flexible, non-diplomatic” approach to Ukraine …

Putin Talks With EU, Ukraine ‘Difficult, Full Of Misunderstandings’ (Reuters)

Talks between Russia, Ukraine and European governments on Friday were “full of misunderstandings and disagreements”, the Kremlin said, undercutting more upbeat messages from leaders hoping for a breakthrough in the Ukraine crisis. Russian President Vladimir Putin shook hands with his Ukrainian counterpart Petro Poroshenko at the start of a meeting with European leaders aimed at patching up a ceasefire in eastern Ukraine and resolving a dispute over gas supplies. The various leaders emerged an hour later telling reporters some progress had been made and promising further talks. “It was good, it was positive,” a smiling Putin told reporters after the meeting, held on the margins of a summit of Asian and European leaders in Milan.

However, Kremlin spokesman Dmitry Peskov later poured cold water on hopes of any breakthrough, saying “certain participants” had taken an “absolutely biased, non-flexible, non-diplomatic” approach to Ukraine. “The talks are indeed difficult, full of misunderstandings, disagreements, but they are nevertheless ongoing, the exchange of opinion is in progress,” he said. A similar message emerged overnight after Putin met German Chancellor Angela Merkel, a formerly cordial relationship that has come under heavy strain from Moscow’s support for pro-Russian rebels in eastern Ukraine. The meeting was reported by both sides to have made little progress, with the Kremlin saying “serious differences” remained in their analysis of a crisis. Putin, Poroshenko, Merkel and French President Francois Hollande were due meet later in the day, their aides said.

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They all just seem to want Putin to say he did it. Not going to happen. There’s still zero proof.

West Unwilling To Be Objective On Ukraine, Says Russia (WSJ)

German Chancellor Angela Merkel sparred with Russian President Vladimir Putin over Ukraine in front of other world leaders Friday, as the most intense diplomatic effort in months aimed at defusing tensions there ended with little sign of progress. Mr. Putin’s arrival in Milan late Thursday for a two-day summit of Asian and European leaders spurred a flurry of top-level meetings over the crisis in Ukraine, but both sides sounded pessimistic afterward. “On this, I can’t see any kind of breakthrough whatsoever,” Ms. Merkel said at a news conference Friday, referring to differences over implementing the cease-fire and peace plan signed Sept. 5 between Ukraine and Russia-backed rebels. Kremlin spokesman Dmitry Peskov said Friday that “there was a complete unwillingness to be objective on the part of some participants.”

The mood was illustrated by what two European officials described a curt exchange between Ms. Merkel and Mr. Putin at a private retreat with Asian and European leaders. Mr. Putin had spoken of Russia’s annexation of Ukraine’s Crimea region in March as being lawful, and Ms. Merkel contested that in front of the other leaders, said one senior European Union official. Another official confirmed a terse exchange between the two. In a news briefing after the talks, Mr. Putin referred several times to the rebels in eastern Ukraine as representatives of “Novorossiya,” a tsarist-era term that spans large swaths of what is now southern and eastern Ukraine. The term has been widely used by Russian nationalists to justify claims on much of Ukraine’s territory.

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Capitalism at war with the planet.

1,000 Years Of Dust Bowls Now Inevitable (Paul B. Farrell)

Yes, capitalism’s at war, fighting against all efforts to limit global warming and climate change. This is WWIII, the defining moment of the 21st century. Why? “One word in the latest draft report from the United Nations Intergovernmental Panel on Climate Change (IPCC) sums up why climate inaction is so uniquely immoral: Irreversible.” Irreversible? Not to capitalists. They’re betting the future of the human race they’re right. Big Oil, the GOP and right-wing fundamentalists are all climate-science deniers, absolutely certain they are right, they will win WWIII: Exxon Mobil is spending $37 billion annually on new drilling. U.S. Chamber of Commerce CEO Tom Donohue says we have enough oil to last over two centuries. Texas Gov. Rick Perry’s a Luddite. Oklahoma GOP Senator Jim Inhofe published “The Greatest Hoax: How the Global Warming Conspiracy Threatens Your Future.” But, what if the Right is wrong? What if global warming really is irreversible? What if their gamble doesn’t pay off? Too bad. Too late. Capitalism has no Plan B.

So billions of humans just won’t survive the 1,000-year Dust Bowl that’s ahead if Plan A fails. Yes, it’s that huge a bet. The damage to our civilization is irreversible. And inaction is immoral. Soon we’ll pass a point of no return. After that, the damage takes 1,000 years to repair, warns ClimateProgress editor Joe Romm. Why? Because of today’s “ongoing failure to cut carbon pollution: The catastrophic changes in climate we are voluntarily choosing to impose on our children and grandchildren, and countless generations after them, cannot be undone for hundreds of years or more.” Conservative opposition is based on the economics of Big Oil and the energy industry. They believe any regulations or taxation of carbon emissions will have a negative impact on corporate earnings, shareholder dividends, production costs. As California Gov. Jerry Brown put it: There’s “virtually no Republican” in Washington that accepts climate science. And most GOP governors “openly deny climate science” despite widespread scientific evidence. Worse, Big Oil deniers spend hundreds of millions annually on lobbying for GOP votes.

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“That would be like a bad science fiction movie”.

‘We Have A Worst-Case Ebola Scenario, And You Don’t Want To Know’ (Bloomberg)

There could be as many as two dozen people in the U.S. infected with Ebola by the end of the month, according to researchers tracking the virus with a computer model. The actual number probably will be far smaller and limited to a couple of airline passengers who enter the country already infected without showing symptoms, and the health workers who care for them, said Alessandro Vespignani, a Northeastern University professor who runs computer simulations of infectious disease outbreaks. The two newly infected nurses in Dallas don’t change the numbers because they were identified quickly and it’s unlikely they infected other people, he said.

The projections only run through October because it’s too difficult to model what will occur if the pace of the outbreak changes in West Africa, where more than 8,900 people have been infected and 4,500 have died, he said. If the outbreak isn’t contained, the numbers may rise significantly. “If by the end of the year the growth rate hasn’t changed, then the game will be different,” Vespignani said. “It will increase for many other countries.” The model analyzes disease activity, flight patterns and other factors that can contribute to its spread. “We have a worst-case scenario, and you don’t even want to know,” Vespignani said. “We could have widespread epidemics in other countries, maybe the Far East. That would be like a bad science fiction movie.”

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