Jul 292019

Pablo Picasso Massacre in Korea 1951


It’s been a long time since I wrote anything at all about nuclear energy. And even then I thought the whole discussion had been wrapped up and thrown away. But I guess it’s inevitable that as the climate change debate develops, there’d be parties seeking to revive the nukes ‘discussion’, because there’s so much potential profit in there. And then today I came upon this report, and a few interpretations of it, that set me off again, and brought back the whole Yucca Mountain issue to mind.

Please note that in all that follows, there is ONE very obvious notion to keep in mind: nuclear energy is a huge economic loss-maker, no matter how and where you look.

And that makes nukes, right from the get-go, completely unfit to replace anything fossil-fuel based, because coal and oil and gas are sources that do the opposite: they generate huge profits while nukes generate huge losses, i.e.: you can’t run your economy on nuclear. You can not run an economy on any energy source that generates economic losses. It does NOT get simpler than that. It’s the economics of energy, and for once economics are right (though not economists, name me one who understands this. Hi, Steve!).

Mind you, you can’t run our present complex economies and societies on renewables either, no more than you can run them on nuclear. Much simpler economies, sure, but then you will have to figure out how you’re going to pay for that. It’s hard to comprehend to which extent fossil fuels have shaped our world, but we have no choice but to try, because this is one thing you don’t want to get wrong.

The report comes from the German Institute for Economic Research (DIW Berlin), which studied 674 nuclear power plants built since 1951. Their own abstract says the following:


Nuclear Power Is Not an Option for the Climate-Friendly Energy Mix

The debate on effective climate protection is heating up in Germany and the rest of the world. Nuclear energy is being touted as “clean” energy. Given the circumstances, the present study analyzed the historical, current, and future costs and risks of nuclear energy. The findings show that nuclear energy can by no means be called “clean” due to radioactive emissions, which will endanger humans and the natural environment for over one million years. And it harbors the high risk of proliferation. An empirical survey of the 674 nuclear power plants that have ever been built showed that private economic motives never played a role.

Instead military interests have always been the driving force behind their construction. Even ignoring the expense of dismantling nuclear power plants and the long-term storage of nuclear waste, private economy-only investment in nuclear power plant would result in high losses— an average of five billion euros per nuclear power plant, as one financial simulation revealed. In countries such as China and Russia, where nuclear power plants are still being built, private investment does not play a role either. Nuclear power is too expensive and dangerous; therefore it should not be part of the climate-friendly energy mix of the future.

In other words, nuclear energy is already a huge economic loser even before decommissioning and waste storage are taken into consideration, and those last two costs are by far the largest. So much so that it even makes precious little sense to calculate nuke costs without including decommissioning and waste storage costs. But people do it, and they get paid for that….

A site called Renew Economy, which appears to be Australian, has this comment on the DIW report (they’re one of the few I found that had any comment at all):


Nuclear Energy Is Never Profitable

A new study of the economics of nuclear power has found that nuclear power has never been financially viable, finding that most plants have been built while heavily subsidised by governments, and often motivated by military purposes, and is not a good approach to tackling climate change. The study has come from DIW Berlin, a leading German economic think-tank, and found that the average 1,000MW nuclear power plant built since 1951 resulted in an average economic loss of 4.8 billion euros ($7.7 billion AUD). The report comes amid a hot debate over the future of nuclear power in both Germany and Australia.

The report published by the German Institute for Economic Research (known as DIW Berlin) reviewed the development of 674 nuclear power plants built since 1951, finding that none of the plants was built using ‘private capital under competitive conditions’. “The results showed that in all cases, an investment would generate significant financial losses. The (weighted) average net present value was around minus 4.8 billion euros,” the study says. “Even in the best case, the net present value was approximately minus 1.5 billion euros. The authors included conservative assumptions with high electricity prices, low capital costs, and specific investment. Considering all assumptions regarding the uncertain parameters, nuclear energy is never profitable.”


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The report authors are also pessimistic about the future of nuclear power, concluding that nuclear power will remain unprofitable into the foreseeable future. Unlike Australia, Germany has a history of nuclear power use, which as recently as 2010, supplied around a quarter of Germany’s electricity. The government led by Angela Merkel has committed to the complete phase-out of nuclear power by 2022. The report found that when nuclear power plants were built using private investment, that “large state subsidies” were used to make the projects viable, and that in most cases, nuclear power stations were built at a loss.

DIW Berlin calculated that for every 1,000 Megawatts of nuclear power capacity that has been built since 1951, there were average economic losses of between 1.5 to 8.9 billion Euros. “Nuclear power was never designed for commercial electricity generation; it was aimed at nuclear weapons. That is why nuclear electricity has been and will continue to be uneconomical. Further, nuclear energy is by no means ‘clean.’ Its radioactivity will endanger humans and the natural world for over one million years,” Christian von Hirschhausen, co-author of the study said.



The DIW Berlin report stressed that governments should not be seduced by claims that nuclear power was a solution to the climate crisis. “Nuclear energy for climate protection” is an old narrative that is as inaccurate today as it was in the 1970s. Describing nuclear energy as “clean” ignores the significant environmental risks and radioactive emissions it engenders along the process chain and beyond,” the report concluded.

Another site called Recharge Transition finds basically the same:


Nuclear Has Never Been Economic And Is Dangerous

Nuclear power is economically unviable, dangerous and should not be labelled as a clean form of energy, the renowned German Institute for Economic Research (DIW Berlin) said, pointing to research it has carried out on the profitability of investments in nuclear power plants. DIW Berlin is one of the leading economic think tanks in Germany. According to “numerous scientific studies,” none of the world’s more than 600 nuclear power stations have ever been economically viable, and the plants could only be operated for years due to government subsidies, the institute claims.

“That nuclear energy has never been economically competitive comes as no surprise as electricity production has always only be a by-product. Military and geo-strategical interests have always come first and this energy source has been massively subsidised,” the study’s author Christian von Hirschhausen said. “Now it is also certain that it won’t be profitable in the future either to invest in atomic energy – neither in new nuclear power plants, nor in the extension of existing ones. “If in addition you consider that nuclear power absolutely isn’t safe, the fairy tale of a climate friendly alternative to fossil energy sources completely collapses.”

And you know what’s “funny” is that as mentioned before, the report never even talks about decommissioning and storage. For me, this was a closed topic, got it, move on. But I looked it up anyway. I couldn’t remember the dates the judge had set. I knew he had thrown out the EPA’s 10,000 years for guaranteed storage safety.

10,000 years is already way beyond man’s powers to guarantee anything at all, it’s pure hubris. According to YuccaMountain.org, the latest a judge mentioned is at least 300,000 years. You know, half-life and all that. I didn’t remember if it was 100,000 or 1 million, and it makes no difference at all, man can make no claim of being capable of doing either, or even 10,000.

The Court’s Ruling

On July 9, 2004, the Court of Appeals ruled on Nevada’s Yucca Mountain Lawsuits. The judges dismissed almost all of the State’s claims except a key challenge against the Environmental Protection Agency (EPA). The Court ruled that the EPA’s 10,000-year safety standard on radiation containment at the site was arbitrary and inconsistent with the congressionally-mandated recommendations of the National Academy of Sciences. The Court also struck down the Nuclear Regulatory Commission’s licensing standards insofar as they include a 10,000 year compliance limit.

The National Academy of Sciences said the radiation safety standard should be set at a higher limit, when the waste would be at its peak radiation levels – at least 300,000 years from the time the waste is sent to Yucca. The EPA was required by law to base its rule on NAS’ recommendation, but chose to set the standard at 10,000 years instead.

[..] State officials believe the ruling will significantly delay or even scrap the project. State Attorney General Brian Sandoval claimed a sound victory for Nevada, saying that the EPA would have to form a new rule with a tougher standard – a standard the Energy Department would not be able to meet due to Yucca Mountain’s inferior geology. This “is a fatal blow to the repository ,” Sandoval said. DOE itself has expressed doubts in the past about being able to meet a longer time limit. As quoted by the Court, former project director Lake Barrett wrote in 1999 that a safety standard significantly longer than 10,000 years would be “unworkable and probably unimplementable.”

Yeah, there are dozens of nuclear plants either under construction or in planning phases as we speak. We are told to see Chernobyl and Fukushima as unfortunate accidents, and there are plenty nuclear plants that never have accidents like those, but even then they are all of them gigantic economic loss-makers, and that’s before decommissioning and waste storage, which generate additional behemoth financial losses, and in the end are incapable of solving the problems they themselves generate. It’s all exclusively about profit, damn humans or other lifeforms, and damn the torpedoes.

And the little green Martians out there in space somewhere are watching us saying ”A potentially smart species. Too bad they’re doomed by their own ultimate hubris. But why would they volunteer to nuke their offspring?”

One more time: you can not run an economy on an energy source that generates economic losses. It is NOT an option. Our present economies have been made possible by fossil energy sources that gave us 10-100 times more energy than we put in to extract them. Those days are over. Please adjust your lifestyles accordingly.





May 072019

Robert Rauschenberg Collection 1954-55


Chelsea Manning Declares She will Never Cooperate with Grand Jury (SM)
Major Mueller Report Omissions Suggest Incompetence Or A Coverup (ZH)
Mnuchin Refuses To Release Trump’s Tax Returns To Congress (R.)
A Nuclear War? Over Venezuela? (Ron Paul)
Going South (Jim Kunstler)
Fed Flags High US Business Debt, Asset Prices In Financial Report (R.)
Vancouver Housing Bust Steepens, Bank of Canada Likes “Froth” Coming Off (WS)
Why Renewables Can’t Power Modern Civilization: They Were Never Meant To (F.)
Silent Spring’s Encore (CP)
Human Society Under Urgent Threat From Loss Of Earth’s Natural Life (G.)
Humanity Must Save Insects To Save Ourselves (G.)
Humans ‘Threaten 1 Million Species With Extinction’ (BBC)



Our best, bravest and brightest. Our conscience. Look what we do to them.

Chelsea Manning Declares She will Never Cooperate with Grand Jury (SM)

Today, attorney Moira Meltzer-Cohen filed a Motion for Chelsea Manning to be released on the basis that, as she will never be convinced to cooperate with the grand jury, further confinement serves no lawful purpose and must be terminated. According to Moira Meltzer-Cohen, attorney to Chelsea Manning: “A witness who refuses to cooperate with a grand jury subpoena may be held in contempt of court, and fined or incarcerated. The only permissible purpose for confinement under the civil contempt statute is to attempt to coerce a witness to comply with the subpoena, or “purge” their contempt. If it is no longer possible to purge the contempt, either because the grand jury is no longer in existence, or because the witness is un-coercible, then confinement has been transformed from coercive into punitive, in violation of the law.

“The key issue before Judge Hilton is whether continued incarceration could persuade Chelsea to testify. Many judges have complained of the “perversity” of this law: that a witness may win their freedom by persisting in their contempt of court. However, should he agree that Chelsea will never agree to testify, he will be compelled by the law to order her release. “Since Ms. Manning is not going to agree to give testimony before the grand jury, she argues, her confinement has exceeded its permissible scope, and she must be released.

“Letters of support were submitted to the Court by Ms. Manning’s friends, family, and colleagues, including from representatives of civil liberties organizations including the ACLU, the Freedom of the Press Foundation, the Electronic Frontier Foundation, and Fight for the Future. These letters reiterate that Chelsea is a person of great moral courage, who will not be swayed into betraying her principles, even in the face of great hardship. “That her confinement has already been so arduous gives credence to her claim that she will endure great hardship rather than agree to cooperate.”

Read more …

There are more oversights than this article mentions.

Major Mueller Report Omissions Suggest Incompetence Or A Coverup (ZH)

First, according to The Federalist’s Margot Cleveland (a former law clerk of nearly 25 years and instructor at the college of business at the University of Notre Dame) – the Mueller report fails to consider whether the dossier authored by former MI6 spy Christopher Steele was Russian disinformation, and Steele was not charged with lying to the FBI. The Steele dossier, which consisted of a series of memorandum authored by the former MI6 spy, detailed intel purportedly provided by a variety of Vladimir Putin-connected sources. For instance, Steele identified Source A as “a senior Russian Foreign Ministry figure” who “confided that the Kremlin had been feeding Trump and his team valuable intelligence on his opponents, including Democratic presidential candidate Hillary Clinton.”

Other supposed sources identified in the dossier included: Source B, identified as “a former top-level Russian intelligence officer still active inside the Kremlin”; Source C, a “Senior Russian Financial Officer”; and Source G, “a Senior Kremlin Official.” -The Federalist As Cleveland posits: “Given Mueller’s conclusion that no one connected to the Trump campaign colluded with Russia to interfere with the election, one of those two scenarios must be true—either Russia fed Steele disinformation or Steele lied to the FBI about his Russian sources.”

Mueller’s second major oversight is the special counsel’s portrayal of Maltese professor Joseph Mifsud was a Russian agent – when available evidence suggests he may have been a Western agent. Weeks after returning from Moscow, Mifsud – a self-described Clinton Foundation member – ‘seeded’ the rumor that Russia had ‘dirt’ on Hillary Clinton with Trump campaign adviser George Papadopoulos on April 26, 2016, according to the Mueller report. As Rep. Devin Nunes (R-CA) noted on Fox News on Sunday, “how is it that we spend 30-plus-million dollars on this, as taxpayers and they can’t even tell us who Joseph Mifsud is?” “…this is important, because, in the Mueller dossier, they use a fake news story to describe Mifsud. In one of those stories, they cherry- pick it,” Nunes added.

Read more …

“.. it lacks “a legitimate legislative purpose.” I do wonder what the purpose is. If it has to do with Russia collusion, the ground is very slippery post-Mueller.

Mnuchin Refuses To Release Trump’s Tax Returns To Congress (R.)

U.S. Treasury Secretary Steven Mnuchin on Monday denied a leading House Democrat’s request for President Donald Trump’s tax returns, setting the stage for a lengthy court battle between lawmakers and the Trump administration. In a May 6 letter, Mnuchin told House Ways and Means Committee Chairman Richard Neal that he would not comply with the Democrat’s April 3 request, saying it lacks “a legitimate legislative purpose.”

Read more …

Ron Paul has endorsed Tulsi Gabbard. Good.

A Nuclear War? Over Venezuela? (Ron Paul)

Is President Trump about to invade Venezuela? His advisors keep telling us in ever-stronger terms that “all options are on the table” and that US military intervention to restore Venezuela’s constitution “may be necessary.” Secretary of State Mike Pompeo was on the Sunday news programs to claim that President Trump could launch a military attack against Venezuela without Congress’s approval. Pompeo said that, “[t]he president has his full range of Article II authorities and I’m very confident that any action we took in Venezuela would be lawful.” The man who bragged recently about his lying, cheating, and stealing, is giving plenty of evidence to back his claim.

The president has no Constitutional authority to start a war with Venezuela or any other country that has not attacked or credibly threatened the United States without Congressional approval. It is that simple. How ironic that Pompeo and the rest of the neocons in the Trump Administration are ready to attack Venezuela to “restore their constitution” but they could not care less about our own Constitution! While Washington has been paralyzed for two years over disproven claims that the Russians meddled in our elections to elect Trump, how hypocritical that Washington does not even hesitate to endorse the actual overturning of elections overseas!

Without Congressional authority, US military action of any kind against Venezuela would be an illegal and likely an impeachable offense. Of course those Democrats who talk endlessly of impeaching Trump would never dream of impeaching of him over starting an illegal war. Democrats and Republicans both love illegal US wars.

Read more …

” The outcome of that was two Americas: the hipsterocracy of the coastal elites and the suicidal deplorables of Flyoverland. ”

Going South (Jim Kunstler)

Buying all those cheap toaster-ovens, patio loungers, sneakers, sheet-rock screws, alarm clocks, croquet mallets… well, you name it, naturally made it uneconomical for America to make the same stuff, with all our silly-ass sentimental attachment to union wages, eight-hour workdays, and pollution regs, so we just steadily let the lights go out and the roofs fall in, and ramped up the “financialized” economy, with Wall Street parlaying Federal Reserve largess into an alternative universe of Three-Card-Monte scams using multilayered derivatives of promises to repay loans (that have poor prospects of ever being paid back). The outcome of that was two Americas: the hipsterocracy of the coastal elites and the suicidal deplorables of Flyoverland.

The hipsterocracy sustains itself on the manufactured hallucinations of the holographic economy — that is, on the production of images, TV psychodramas, news media narratives, status competitions, public relations campaigns, law firm machinations, awards ceremonies, and other signaling systems to maintain the illusion that the financialized economy has everything under control as we transform into a nirvana of ultra high tech pleasure-seeking and endless leisure. Meanwhile, out in Flyoverland, the holograms aren’t selling so well anymore. Nobody has the scratch to pay for them, not even those indentured to the neo-feudal empires of WalMart and Amazon. The children keep coming, though it’s nearly impossible for a man to support them, and increasingly the fathers just take themselves out of the picture.

The women ferment in single-parent hopelessness. The children turn more feral by each generation. All remaining economic opportunity is diverted back into the leveraged buy-out mills of the Coastal Elsewhere. Even growing food out of the land was long ago converted into an Agri-Biz hustle based on practices with no future. And now the spring weather is drowning out that hustle and driving the corporatized farms into bankruptcy. The two Americas have turned a formerly workable political system into a divorce court and for the past three years nothing of value has come out of that negotiation except more mutual grievance and animus.

Read more …

First create them, than issue a warning. End the Fed.

Fed Flags High US Business Debt, Asset Prices In Financial Report (R.)

U.S. stock prices are “elevated” and business debt is at historic levels, but the financial system overall “appears resilient” with low levels of leverage and less of a destabilizing run in key markets, the Federal Reserve said in its latest report on financial stability. “Investor appetite for risk appears elevated by several measures, and the debt loads of businesses are historically high,” the Fed said on Monday in a report that noted the 20 percent growth in leveraged loans between the start of last year and this year, and other aspects of corporate debt.

The ratio of debt to assets among publicly traded, nonfinancial firms is near a 20-year high, the Fed noted, and the share of new loans going to the most indebted companies is near peaks reached in 2014 and just before the 2007 to 2009 financial crisis. While the Fed sees the system overall as healthy, the levels of corporate debt stand out, said Fed Governor Lael Brainard. “With financial volatility easing since the end of last year, the Federal Reserve Board’s Financial Stability Report suggests stretched asset valuations and risky corporate debt merit continued vigilance against a backdrop of low-to- moderate vulnerabilities in the household and banking sectors,” Brainard said in an emailed statement.

[..] As in the last edition of its now twice-yearly report on the financial sector, the Fed cited the rapid growth of business debt and leveraged lending to corporations as a source of possible concern, noting that it could leave weaker companies stressed if the economy softens. Business debt has grown faster than the overall economy for a decade, the Fed noted, and “the elevated level of debt could leave the business sector vulnerable to a downturn in economic activity or a tightening in financial conditions.”

Read more …

Wait till that “froth” turns out to be 30-40-50%.

Vancouver Housing Bust Steepens, Bank of Canada Likes “Froth” Coming Off (WS)

Across Greater Vancouver, British Columbia, sales of all types of homes so far this year through April plunged to 6,212 homes, the lowest count since 1986, as the market is freezing up. In the city of Vancouver, condo sales – the largest segment of the market – plunged 30% in April from April last year, to merely 348 condos, the lowest since 2001, even as inventory for sale jumped by 75% to 2,191 condos. At the current rate of sales, supply soared by 168% year-over-year to 6.4 months. And prices are descending at speeding-ticket velocities: • Average price: -19% year-over-year to C$786,981 • Median price: -17% year-over-year to C$651,000 • Average price per square foot: -14% yoy to $940.

“Buyers have become increasingly hesitant, particularly for unbuilt product such as pre-sale condo assignments and new unfinished development in general, says Steve Saretsky, a Vancouver Realtor and author behind Vancity Condo Guide, in his April report. “This is prompting condo developers to increase bonuses and incentives as unsold inventory begins to pile up at presale centers across the lower mainland.” The average price per square foot – historically “a very consistent and reliable price metric with much less volatility,” Saretsky says – has now dropped 16% from the peak in January 2018:

Sales of detached houses in the city of Vancouver dropped to 130 houses, the worst April in decades, down 69% from 2015. The chart below shows the number of sales for each April going back to the 1990s – a sign the market has frozen up, that buyers are unwilling to get anywhere near sellers’ aspirational asking prices, and deals are not happening:

Read more …

See my article yesterday.

Why Renewables Can’t Power Modern Civilization: They Were Never Meant To (F.)

Now comes a major article in the country’s largest newsweekly magazine, Der Spiegel, titled, “A Botched Job in Germany” (“Murks in Germany”). The magazine’s cover shows broken wind turbines and incomplete electrical transmission towers against a dark silhouette of Berlin. “The Energiewende — the biggest political project since reunification — threatens to fail,” write Der Spiegel’s Frank Dohmen, Alexander Jung, Stefan Schultz, Gerald Traufetter in their a 5,700-word investigative story (the article can be read in English here). Over the past five years alone, the Energiewende has cost Germany €32 billion ($36 billion) annually, and opposition to renewables is growing in the German countryside.

“The politicians fear citizen resistance” Der Spiegel reports. “There is hardly a wind energy project that is not fought.” In response, politicians sometimes order “electrical lines be buried underground but that is many times more expensive and takes years longer.” As a result, the deployment of renewables and related transmission lines is slowing rapidly. Less than half as many wind turbines (743) were installed in 2018 as were installed in 2017, and just 30 kilometers of new transmission were added in 2017. Solar and wind advocates say cheaper solar panels and wind turbines will make the future growth in renewables cheaper than past growth but there are reasons to believe the opposite will be the case.

Der Spiegel cites a recent estimate that it would cost Germany “€3.4 trillion ($3.8 trillion),” or seven times more than it spent from 2000 to 2025, to increase solar and wind three to five-hold by 2050. Between 2000 and 2018, Germany grew renewables from 7% to 39% of its electricity. And as much of Germany’s renewable electricity comes from biomass, which scientists view as polluting and environmentally degrading, as from solar. Of the 7,700 new kilometers of transmission lines needed, only 8% has been built, while large-scale electricity storage remains inefficient and expensive. “A large part of the energy used is lost,” the reporters note of a much-hyped hydrogen gas project, “and the efficiency is below 40%… No viable business model can be developed from this.”

Read more …

Almost 60 years ago. We’re blind deaf and dumb.

Silent Spring’s Encore (CP)

Rachel Carson’s famous and brilliant book Silent Spring (1962), which single-handedly ignited the environmental movement, has never been more relevant than it is today. A mimeo of Silent Spring is scheduled for publication by the UN, as the most comprehensive study of life on the planet ever undertaken, an 1,800-page study by the world’s leading scientists that spells out in detail the results of a massive study of the world’s ecosystems. The conclusion: Nature is in “steep decline.” According to Mike Barrett, WWF’s executive director of conservation and science: “All of our ecosystems are in trouble. This is the most comprehensive report on the state of the environment. It irrefutably confirms that nature is in steep decline.”

Interestingly enough, in days of yore, Silent Spring’s opening chapter, “A Fable for Tomorrow,” described a fictional flourishing town in the heartland of America with its splendid natural beauty; however, within only a few pages, that alluring picturesque community degenerates: “A grim specter has crept upon us almost unnoticed….” Thereafter, Silent Spring turns non-fictional as it informs its reading public, i.e., the radicalized Sixties, that 500 new chemicals “… annually find their way into actual use in the U.S. alone to which the bodies of men and animals are required somehow to adapt each year, chemicals totally outside the limits of biologic experience.”

Read more …

A few pieces on the UN report.

“The biomass of wild mammals has fallen by 82%, natural ecosystems have lost about half their area and a million species are at risk of extinction..”

Human Society Under Urgent Threat From Loss Of Earth’s Natural Life (G.)

Human society is in jeopardy from the accelerating decline of the Earth’s natural life-support systems, the world’s leading scientists have warned, as they announced the results of the most thorough planetary health check ever undertaken. From coral reefs flickering out beneath the oceans to rainforests desiccating into savannahs, nature is being destroyed at a rate tens to hundreds of times higher than the average over the past 10m years, according to the UN global assessment report. The biomass of wild mammals has fallen by 82%, natural ecosystems have lost about half their area and a million species are at risk of extinction – all largely as a result of human actions, said the study, compiled over three years by more than 450 scientists and diplomats.

Two in five amphibian species are at risk of extinction, as are one-third of reef-forming corals, and close to one-third of other marine species. The picture for insects – which are crucial to plant pollination – is less clear, but conservative estimates suggest at least one in 10 are threatened with extinction and, in some regions, populations have crashed. In economic terms, the losses are jaw-dropping. Pollinator loss has put up to $577bn (£440bn) of crop output at risk, while land degradation has reduced the productivity of 23% of global land. The knock-on impacts on humankind, including freshwater shortages and climate instability, are already “ominous” and will worsen without drastic remedial action, the authors said.

“The health of the ecosystems on which we and other species depend is deteriorating more rapidly than ever. We are eroding the very foundations of economies, livelihoods, food security, health and quality of life worldwide,” said Robert Watson, the chair of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (Ibpes). “We have lost time. We must act now.”

Read more …

Save insects? You want to have Monsanto lose its business?

“While we humans have doubled our population in the past 40 years, the number of insects has been reduced by almost half..”

“The rate of insect extinction is eight times faster than that of mammals, birds and reptiles. ”

Humanity Must Save Insects To Save Ourselves (G.)

Humanity must save insects, if not for their sake, then for ourselves, a leading entomologist has warned. “Insects are the glue in nature and there is no doubt that both the [numbers] and diversity of insects are declining,” said Prof Anne Sverdrup-Thygeson, at the Norwegian University of Life Sciences. “At some stage the whole fabric unravels and then we will really see the consequences.” On Monday, the largest ever assessment of the health of nature was published and warned starkly that the annihilation of wildlife is eroding the foundations of human civilisation. The IPBES report said: “Insect abundance has declined very rapidly in some places … but the global extent of such declines is not known.”

A Notch-horned Cleg, a type of horsefly. Photograph: Rebecca Cole/Alamy

It said the available evidence supports a “tentative” estimate that 10% of the 5.5m species of insect thought to exist are threatened with extinction. The food and water humanity relies upon are underpinned by insects but Sverdrup-Thygeson’s new book, Extraordinary Insects, spends many of its pages on how wonderful and weird insects are. “The first stage is to get people to appreciate these little creatures,” said Sverdrup-Thygeson. Many appear to defy the normal rules of life. Some fruit flies can be beheaded and live normally for several days more, thanks to mini-brains in each joint. Then there are the carpet beetles that can effectively reverse time, by reverting to younger stages of development when food is scarce.

Others are bizarrely constructed. Some butterflies have ears in their mouths, one has an eye on its penis, while houseflies taste with their feet. Insect reproduction is also exotic. The southern green shield bug can maintain sex for 10 days, while another type of fruit fly produces sperm that are 20 times longer than its own body.

Read more …

Lip service will be paid.

Humans ‘Threaten 1 Million Species With Extinction’ (BBC)

Three years in the making, this global assessment of nature draws on 15,000 reference materials, and has been compiled by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). It runs to 1,800 pages. The brief, 40-page “summary for policymakers”, published today at a meeting in Paris, is perhaps the most powerful indictment of how humans have treated their only home. It says that while the Earth has always suffered from the actions of humans through history, over the past 50 years, these scratches have become deep scars. The world’s population has doubled since 1970, the global economy has grown four-fold, while international trade has increased 10 times over.

Getty Images

To feed, clothe and give energy to this burgeoning world, forests have been cleared at astonishing rates, especially in tropical areas. Between 1980 and 2000, 100 million hectares of tropical forest were lost, mainly from cattle ranching in South America and palm oil plantations in South East Asia. Faring worse than forests are wetlands, with only 13% of those present in 1700 still in existence in the year 2000. Our cities have expanded rapidly, with urban areas doubling since 1992. All this human activity is killing species in greater numbers than ever before. According to the global assessment, an average of around 25% of animals and plants are now threatened. Global trends in insect populations are not known but rapid declines in some locations have also been well documented.

All this suggests around a million species now face extinction within decades, a rate of destruction tens to hundreds of times higher than the average over the past 10 million years. “When we laid it all out together I was just shocked to see how extreme the declines are in terms of species and in terms of the contributions that nature is providing to people.” The assessment also finds that soils are being degraded as never before. This has reduced the productivity of 23% of the land surface of the Earth. Our insatiable appetites are producing a mountain of waste. Plastic pollution has increased ten-fold since 1980. Every year we dump 300-400 million tonnes of heavy metals, solvents, toxic sludge and other wastes into the waters of the world.

Read more …



Money doesn’t talk, it swears
– Bob Dylan





May 062019

Gustave Courbet The man made mad by fear 1844


If I’ve said once that those among us who tout renewable energy should pay more attention to the 2nd law of Thermodynamics, I must have said it a hundred times. But I hardly ever get the impression that people understand why. And it seems so obvious. A quote I often use from Herman Daly and Ken Townsend, when I talk about energy, really says it all:

“Erwin Schrodinger (1945) has described life as a system in steady-state thermodynamic disequilibrium that maintains its constant distance from equilibrium (death) by feeding on low entropy from its environment – that is, by exchanging high-entropy outputs for low-entropy inputs. The same statement would hold verbatium as a physical description of our economic process. A corollary of this statement is that an organism cannot live in a medium of its own waste products.”

Using energy produces waste. Using more energy produces more waste. It doesn’t matter -much- what kind of energy is used, or what kind of waste is produced. The energy WE use produces waste, in a medium of which WE cannot survive. The only way to escape this is to use less energy. And because we have used such an enormous amount of energy the past 100 years, we must use a whole lot less in the next 100.

We use about 100 times more energy per person, and a whole lot more in the west, than our own labor can produce. We use the equivalent of what 500 billion people can produce without the aid of fossil fuel-powered machines. We won’t solve this problem with wind turbines or solar panels. There really is one way only: cut down on energy use.

Because it’s exceedingly rare to see this discussed, even among physicists, who should know better since they know thermodynamics, it’s good to hear it from someone else. An article in Forbes today discusses a May 3 article in German magazine Der Spiegel on the problems with the Energiewende, the country’s drastic turn towards renewables.

The Forbes article is written by Michael Shellenberger, President of Environmental Progress and Time Magazine “Hero of the Environment.” (sigh..) Let’s take a walk through it:

The Reason Renewables Can’t Power Modern Civilization Is Because They Were Never Meant To

Over the last decade, journalists have held up Germany’s renewables energy transition, the Energiewende, as an environmental model for the world. “Many poor countries, once intent on building coal-fired power plants to bring electricity to their people, are discussing whether they might leapfrog the fossil age and build clean grids from the outset,” thanks to the Energiewende, wrote a New York Times reporter in 2014. With Germany as inspiration, the United Nations and World Bank poured billions into renewables like wind, solar, and hydro in developing nations like Kenya.

Oh well, perhaps we shouldn’t expect journalists and politicians to understand the world they live in. They’re mostly into feel-good items, that’s a job requirement.

But then, last year, Germany was forced to acknowledge that it had to delay its phase-out of coal, and would not meet its 2020 greenhouse gas reduction commitments. It announced plans to bulldoze an ancient church and forest in order to get at the coal underneath it. After renewables investors and advocates, including Al Gore and Greenpeace, criticized Germany, journalists came to the country’s defense.

“Germany has fallen short of its emission targets in part because its targets were so ambitious,” one of them argued last summer. “If the rest of the world made just half Germany’s effort, the future for our planet would look less bleak,” she wrote. “So Germany, don’t give up. And also: Thank you.” But Germany didn’t just fall short of its climate targets. Its emissions have flat-lined since 2009.

The stage is set: everybody’s favorite renewables producer has fallen flat on its face. And don’t forget, Angela Merkel, the Mutti behind the Energiewende, is a physicist by training. Thermodynamics must have been a class she missed.

Now comes a major article in the country’s largest newsweekly magazine, Der Spiegel, titled, “A Botched Job in Germany” (“Murks in Germany”). The magazine’s cover shows broken wind turbines and incomplete electrical transmission towers against a dark silhouette of Berlin. “The Energiewende — the biggest political project since reunification — threatens to fail,” write Der Spiegel’s Frank Dohmen, Alexander Jung, Stefan Schultz, Gerald Traufetter in their a 5,700-word investigative story (the article can be read in English here).

Germany has already spent $180 billion on its switch to renewables, only to find it doesn’t work. And much much more will be needed. But for what exactly?

Over the past five years alone, the Energiewende has cost Germany €32 billion ($36 billion) annually, and opposition to renewables is growing in the German countryside. “The politicians fear citizen resistance” Der Spiegel reports. “There is hardly a wind energy project that is not fought.” In response, politicians sometimes order “electrical lines be buried underground but that is many times more expensive and takes years longer.”



As a result, the deployment of renewables and related transmission lines is slowing rapidly. Less than half as many wind turbines (743) were installed in 2018 as were installed in 2017, and just 30 kilometers of new transmission were added in 2017. Solar and wind advocates say cheaper solar panels and wind turbines will make the future growth in renewables cheaper than past growth but there are reasons to believe the opposite will be the case. Der Spiegel cites a recent estimate that it would cost Germany “€3.4 trillion ($3.8 trillion),” or seven times more than it spent from 2000 to 2025, to increase solar and wind three to five-hold by 2050.

A total expenditure of some $150 billion per year, every year from 2025 to 2050. On a rapidly failing project. Note: the numbers are “flexible”: just above, it says “Over the past five years alone, the Energiewende has cost Germany €32 billion ($36 billion)” , and seven times that is much more than $150 billion annually. Later in the article, the author says “Germans, who will have spent $580 billion on renewables by 2025 ..” General rule of thumb: it will cost much more than any estimate will tell you.

Between 2000 and 2018, Germany grew renewables from 7% to 39% of its electricity. And as much of Germany’s renewable electricity comes from biomass, which scientists view as polluting and environmentally degrading, as from solar.

Of the 7,700 new kilometers of transmission lines needed, only 8% has been built, while large-scale electricity storage remains inefficient and expensive. “A large part of the energy used is lost,” the reporters note of a much-hyped hydrogen gas project, “and the efficiency is below 40%… No viable business model can be developed from this.”

Meanwhile, the 20-year subsidies granted to wind, solar, and biogas since 2000 will start coming to an end next year. “The wind power boom is over,” Der Spiegel concludes.

Think Mutti Merkel has read this?

.The earliest and most sophisticated 20th Century case for renewables came from a German who is widely considered the most influential philosopher of the 20th Century, Martin Heidegger. In his 1954 essay, “The Question Concerning Technology,” Heidegger condemned the view of nature as a mere resource for human consumption. The use of “modern technology,” he wrote, “puts to nature the unreasonable demand that it supply energy which can be extracted and stored as such..

But then starting around the year 2000, renewables started to gain a high-tech luster. Governments and private investors poured $2 trillion into solar and wind and related infrastructure, creating the impression that renewables were profitable aside from subsidies. Entrepreneurs like Elon Musk proclaimed that a rich, high-energy civilization could be powered by cheap solar panels and electric cars.

Journalists reported breathlessly on the cost declines in batteries, imagining a tipping point at which conventional electricity utilities would be “disrupted.” But no amount of marketing could change the poor physics of resource-intensive and land-intensive renewables. Solar farms take 450 times more land than nuclear plants, and wind farms take 700 times more land than natural gas wells, to produce the same amount of energy.

Note: these issues only arise when you talk about large-scale projects, but then those are the only ones even considered.

Efforts to export the Energiewende to developing nations may prove even more devastating. The new wind farm in Kenya, inspired and financed by Germany and other well-meaning Western nations, is located on a major flight path of migratory birds. Scientists say it will kill hundreds of endangered eagles. “It’s one of the three worst sites for a wind farm that I’ve seen in Africa in terms of its potential to kill threatened birds,” a biologist explained.

We are incapable of seeing an ecosystem as a whole and functioning entity, because we have never learned to look at things that way. So we see a landscape as containing an X-amount of animals and plant life, and can’t figure out why we must be careful with its balance. Landscapes to us look, first, empty, unless there’s -lots of- human activity.

Heidegger, like much of the conservation movement, would have hated what the Energiewende has become: an excuse for the destruction of natural landscapes and local communities. Opposition to renewables comes from the country peoples that Heidegger idolized as more authentic and “grounded” than urbane cosmopolitan elites who fetishize their solar roofs and Teslas as signs of virtue.

Germans, who will have spent $580 billion on renewables by 2025, express great pride in the Energiewende. “It’s our gift to the world,” a renewables advocate told The Times. Tragically, many Germans appear to have believed that the billions they spent on renewables would redeem them. “Germans would then at last feel that they have gone from being world-destroyers in the 20th century to world-saviors in the 21st,” noted a reporter.

Germany to save the world. Yeah, they would love that. Better find another project for that, though. Germany has an enormous car industry, and electric cars, as this article should by now have shown, won’t save the environment. They can’t. Only not driving a car can.

Shellenberger then finishes with a nice, almost philosophical conclusion, which is also his headline:

Many Germans will, like Der Spiegel, claim the renewables transition was merely “botched,” but it wasn’t. The transition to renewables was doomed because modern industrial people, no matter how Romantic they are, do not want to return to pre-modern life. The reason renewables can’t power modern civilization is because they were never meant to. One interesting question is why anybody ever thought they could.

The reason why anyone ever thought renewables could power modern civilization is the same that Angela Merkel thought that: we all learn from failing education systems and have a very poor understanding of even the most basic principles of physics, including by physicists. We want to feel good more than we want reality.

Schools, universities, media and politics are all geared towards believing in growth and progress, in unlimited quantities. Because we all want to believe that there will be energy in unlimited quantities, it’s in our genes.

But look at it this way: in Nate Hagens’ presentation Earth vs. The Amoeba, which I posted a few days ago, there’s a slide that says fossil fuels provide us with a labor subsidy of the equivalent of some 500 billion people, 100 people (energy slaves) for each of us in the global workforce, and many more in the west. Is there anyone amongst you who thinks wind and solar could ever do the same, even in the most ideal conditions imaginable?

If not, it would seem to be time to reconsider a few things. First of all: stop advocating renewables, start advocating the use of less energy. I’m not saying it will be much use, I have this deep-seated fear that we, as a species, won’t be able to stop until nature itself stops us. What you don’t use, someone else can and will. But renewables are now dead. So there. Thanks for making that clear, Mutti, even if you didn’t mean to.





Nov 112018
 November 11, 2018  Posted by at 10:39 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »

Paul Gauguin Christ in the garden of olives 1889


China Can Never Allow Its Housing Bubble To Burst (ZH)
One Thing Unites Britain (O.)
Four UK Ministers On Verge Of Quitting, EU Rejects Latest Plan (R.)
Top Tory Says Theresa May Is ‘Handing Power To EU’ In Brexit Deal (G.)
Khashoggi Murder Fails To Stop Britain Selling Arms To The Saudis (O.)
Saudi Arabia Wants To Cut OPEC Allies Oil Output By Up To 1 Million Bpd (R.)
Court Clears Rome’s Mayor Of Cronyism And Abuse Of Power (G.)
2 Koreas Complete The Disarming Of 22 Guard Posts (AP)
Moorside’s Atomic Dream Was An Illusion. Renewables Are The Future (G.)
Next Generation ‘May Never See The Glory Of Coral Reefs’ (G.)
Why Women Have Better Sex Under Socialism (G.)



50 million empty apartments. ‘Real’ estate holds 75% of Chinese private ‘assets’. There can hardly be a more dangerous concept for the global economy.

China Can Never Allow Its Housing Bubble To Burst (ZH)

Back in 2017, we explained why the “fate of the world economy is in the hands of China’s housing bubble.” The answer was simple: for the Chinese population, and growing middle class, to keep spending vibrant and borrowing elevated, it had to feel comfortable and confident that its wealth would keep rising. However, unlike the US where the stock market is the ultimate barometer of the confidence boosting “wealth effect”, in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested financial assets. Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble, hoping that the popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, “smooth landing” process.

For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the “Tier 1” home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets. How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China’s housing market: in addition to being the primary source of household net worth – and therefore stable and growing consumption – it has also been a key driver behind China’s economic growth, with infrastructure spending and capital investment long among the biggest components of the country’s goalseeked GDP.

One result has been China’s infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy. Meanwhile, in the process of reflating the latest housing bubble, another dire byproduct of this artificial housing “market” has emerged: tens of millions of apartments and houses standing empty across the country. According to Bloomberg, soon-to-be-published research will show that roughly 22% of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That amounts to more than 50 million empty homes.

Read more …

Britain is shrinking away from not just Europe, but the world, unable to focus on anything other than its domestic squabbles.

One Thing Unites Britain (O.)

[..] Theresa May has always hung on in the belief that, when it came to the crunch moment, when a deal was on offer that would take the UK out of the EU on 29 March next year, her party and the country would unite sufficiently behind her to allow a withdrawal agreement to pass through parliament. The country would rally behind her vision of Brexit. But instead, as people become more aware of what leaving the EU entails, many MPs believe the reverse may be happening. [..] With more Tory Remainers and Leavers now opposing her, May’s task is daunting. Downing Street’s immediate task is to get her deeply split cabinet to unite around the final unresolved element of a potential deal with the EU: the legally complex issue of how to avoid a hard border between Northern Ireland and the Republic after Brexit.

Downing Street knows it is in a race against time. May is desperate to put a motion before the House of Commons before Christmas, in the hope that, somehow, it will pass. No 10 has pencilled in a cabinet meeting for early this week, probably on Tuesday. But disagreements remain among her most senior ministers over how the UK would exit from the so-called “backstop” agreement, under which the whole of the UK would remain in the EU customs union until a final UK-EU trade deal is struck. Several cabinet ministers are unhappy with what they fear will be fudged wording in the withdrawal agreement that fails to chart a clear path to exit the backstop. They want to see the full legal advice and want guarantees that the EU will not be able to prevent the UK breaking free from its system once and for all, so that it can strike its own trade deals.

Read more …

It’s still the Irish hard border. And they’re still no closer to a solution.

Four UK Ministers On Verge Of Quitting, EU Rejects Latest Plan (R.)

Four British ministers who back remaining in the European Union are on the verge of quitting Theresa May’s government over Brexit, the Sunday Times reported, as pressures built on the prime minister from all sides. The newspaper also said that the European Union had rejected May’s plan for an independent mechanism to oversee Britain’s departure from any temporary customs arrangement it agrees. The newspaper sourced the development to British sources, and not sources in the EU team. May is trying to hammer out the final details of the British divorce deal but the talks have become stuck over how the two sides can prevent a hard border from being required in Ireland.

Britain has proposed a UK-wide temporary customs arrangement with the EU to resolve the issue but Brexiteers in her party want London to have the final say on when that arrangement would end, to prevent it from being tied indefinitely to the bloc. A senior cabinet minister was quoted in the paper as saying: “This is the moment she has to face down Brussels and make it clear to them that they need to compromise, or we will leave without a deal.” An EU diplomat told Reuters earlier on Saturday that they were cautiously hopeful that an EU summit could happen in November to endorse the deal but that the volatile situation in Britain made it very difficult to predict.

Read more …

Well, May herself doesn’t appear to know what to do with that power.

Top Tory Says Theresa May Is ‘Handing Power To EU’ In Brexit Deal (G.)

Theresa May was accused last night by a former cabinet colleague of planning the “biggest giveaway of sovereignty in modern times”, as she faced a potentially devastating pincer movement from Tory remainers and leavers condemning her Brexit plans. The day after Jo Johnson, the pro-remain brother of former foreign secretary Boris Johnson, resigned from the government and called for a second referendum on Brexit, former education secretary Justine Greening launched an attack on the prime minister, saying her plans would leave the country in the “worst of all worlds”. Piling yet more pressure on May, Greening – who resigned from the cabinet in January – backed the former transport minister’s call for another public vote and said MPs should reject the prime minister’s deal.

Greening told the Observer: “The parliamentary deadlock has been clear for some time. It’s crucial now for parliament to vote down this plan, because it is the biggest giveaway of sovereignty in modern times. “Instead, the government and parliament must recognise we should give people a final say on Brexit. Only they can break the deadlock and choose from the practical options for Britain’s future now on the table.” Greening added: “Like many of us, Jo Johnson is a pragmatist on Britain’s relationship with the EU. But Conservative MPs can increasingly see that this sovereignty giveaway from No 10 leaves our country with less say over rules that govern our lives … That is not in the national interest, it’s the worst of all worlds and it resolves nothing.”

Read more …

Even as the UK has also received the audio from Turkey.

Khashoggi Murder Fails To Stop Britain Selling Arms To The Saudis (O.)

Britain has pursued its assiduous courtship of Saudi Arabia despite the murder of the journalist Jamal Khashoggi, with diplomats and Ministry of Defence officials meeting their counterparts in the kingdom to discuss closer economic, military and political ties. The discussions have taken place as Britain enters the final phase of negotiations to sell more Typhoon jets to Riyadh. They are similar to those used in the Saudi-led bombing of Yemen in a war that has caused a humanitarian disaster.

Britain sells billions of pounds of weapons to the countries bombing Yemen and is keen to strengthen its ties after Brexit. In July last year, the government confirmed it had created a dedicated Gulf region working group to promote “high-level dialogue with key trading partners to progress our trade and investment relationships”. Since then, civil servants have regularly visited the region for confidential talks to prepare for future deals once Britain leaves the European Union. A delegation from the Department for International Trade visited the Eastern Province chamber of commerce in Dammam in Saudi Arabia on 2 October – the day Khashoggi was murdered.

Alastair Long, the UK’s deputy trade commissioner for the Middle East and director of trade for Saudi Arabia, stressed that Britain was keen to create alternative markets and that Saudi Arabia “is at the head of these markets”. On 31 October, another UK government delegation visited Riyadh for a meeting with the Gulf Cooperation Council secretariat. A press release from the council said the meeting discussed expanding “the horizons of political, security, military and commercial cooperation”

Read more …

Much discussed before: smaller producers have only one reaction to falling prices: produce more (if they can).

Saudi Arabia Wants To Cut OPEC Allies Oil Output By Up To 1 Million Bpd (R.)

Saudi Arabia is discussing a proposal to cut oil output by up to 1 million barrels per day by OPEC and its allies, two sources close to the discussions told Reuters on Sunday. The sources said the discussions were not finalized as much depended on the reduction in Iranian exports. “There is a general discussion about this. But the question is how much is needed to reduce by the market,” one of the sources said, speaking in Abu Dhabi where a market monitoring committee is due to be held on Sunday, attended by top exporters Saudi Arabia and Russia.

Asked by reporters in Abu Dhabi if the market is in balance, Saudi Energy Minister Khalid Al-Falih said: “We will find out. We have our meeting later.” Al-Falih last month said there could be a need for intervention to reduce oil stockpiles after increases in recent months. The United States this month imposed sanctions curtailing Iran’s oil exports as part of efforts to curb Tehran’s nuclear and missile programs as well as its support for proxy forces in Yemen, Syria, Lebanon and other parts of the Middle East.

Read more …

Smearing M5S has become less easy.

Court Clears Rome’s Mayor Of Cronyism And Abuse Of Power (G.)

The Rome mayor, Virginia Raggi, has been cleared of cronyism and abuse of power after a judge ruled that the alleged offence did not constitute a crime. Prosecutors had called for a 10-month jail term over allegations that Raggi, from the anti-establishment Five Star Movement, lied to investigators over the appointment of Renato Marra, the brother of one of her close aides, as Rome’s tourism chief. His brother Raffaele, the former head of staff at Rome city hall, faces separate corruption allegations. The accusations emerged not long after Raggi was elected as Rome’s first female mayor in June 2016. Had she been convicted she would have been forced to resign as mayor, in line with the Five Star Movement’s code of ethics.

She wept upon hearing the ruling, saying afterwards: “This sentence wipes out two years of mud-slinging. We’ll go forward with our heads held high for Rome, my beloved city, and for all citizens.” Luigi Di Maio, the Five Star Movement leader and Italy’s deputy prime minister, celebrated the court ruling while using the opportunity to criticise journalists whom he accused of “attacking Italy’s most massacred mayor” for two years and generating “fake news” to bring her down. “Go Virginia! I am happy for always having defended you and believed in you,” he wrote on Facebook.

Read more …

There are people who genuinely want peace. Get out of their way.

2 Koreas Complete The Disarming Of 22 Guard Posts (AP)

The North and South Korean militaries completed withdrawing troops and firearms from 22 front-line guard posts on Saturday as they continue to implement a wide-ranging agreement reached in September to reduce tensions across the world’s most fortified border, a South Korean Defense Ministry official said. South Korea says the military agreement is an important trust-building step that would help stabilize peace and advance reconciliation between the rivals. But critics say the South risks conceding some of its conventional military strength before North Korea takes any meaningful steps on denuclearization — an anxiety that’s growing as the larger nuclear negotiations between Washington and Pyongyang seemingly drift into a stalemate.

South Korea reportedly has about 60 guard posts — bunker-like concrete structures surrounded with layers of barbed-wire fences and manned by soldiers equipped with machine guns — stretched across the ironically named Demilitarized Zone. The 248-kilometer (155-mile) border buffer peppered with millions of land mines has been the site of occasional skirmishes between the two forces since the 1950-53 Korean War. The North is believed to have about 160 guard posts within the DMZ.

In this Nov. 4, 2018, photo provided by South Korea Defense Ministry, a yellow flag is raised at a guard post of South Korea in the demilitarized zone, South Korea. A South Korean Defense Ministry official said on Saturday, Nov. 10, 2018, the North and South Korean militaries have completed withdrawing troops and firearms from 22 front-line guard posts as they continue to implement a wide-ranging agreement reached in September to reduce tensions. The flag marks the post that is to be dismantled so that each side can observe the work in progress.

Read more …

Sorry, but no. Using much less energy of any kind is the future. Voluntarily or forced. That’s what we should prepare our societies for.

Moorside’s Atomic Dream Was An Illusion. Renewables Are The Future (G.)

Toshiba’s decision to pull out of building a nuclear power station in Cumbria last week will cause shockwaves far beyond the north-west of England. The outcome is a disaster for the surrounding area, which is heavily reliant on the nuclear industry for jobs and prosperity. Local politicians admit it is a blow and a disappointment for Cumbrians hoping for roles at the proposed Moorside plant. They say they genuinely believe a new buyer for the site will come forward. But that looks like wishful thinking. To an extent, the demise of Moorside can be attributed to problems with it as a specific project. It has looked doomed since Toshiba’s US nuclear unit, Westinghouse, declared bankruptcy in 2017 and the company ruled out new nuclear investments outside of Japan.

Efforts to woo the South Korean energy company Kepco as a buyer then floundered. The executive leading the sale for Toshiba blamed the failure to find a buyer on being “caught between a series of unplanned and uncontrollable events”. But the end of Moorside is also emblematic of the wider challenges that new nuclear faces. It took a decade from Tony Blair signalling the UK’s renewed interest in nuclear power in 2006 for France’s EDF Energy and the British government to sign a generous subsidy deal and green-light Hinkley Point C, the UK’s first new nuclear plant in a generation. In all likelihood, it will not be generating electricity until 2027. Ministers insist new nuclear power stations are still an essential way of hitting the country’s greenhouse gas emission targets and providing energy security as old plants are switched off in the 2020s.

Losing Moorside means there are just five other new nuclear projects planned, including Hinkley Point C. Eyes will now turn to Hitachi’s proposed Wylfa Newydd plant on Anglesey. The project is the furthest along the line after Hinkley, but it’s far from a done deal. The new nuclear drive was meant to be solely funded by the private sector, but the government has already made a striking exception in the case of Wylfa. Ministers have promised Hitachi they will use public money to take a £5bn stake in the scheme. Such a dramatic U-turn on policy is explained by the fact that Wylfa is about more than the UK’s desire for new nuclear: it is also about cooperation with Tokyo and bringing forth other investment from Japanese firms, such as carmakers, after Brexit.

Read more …

We get the drift, but we also know only a small part of 1 or 2 generations of mankind have ever ‘seen’ coral reefs. And most people only do ‘see’ them in pics and movies. You might want to think about that. it’s definitely not about you ‘seeing’ coral reefs or rhino’s or orangutans. It’s about something else.

Next Generation ‘May Never See The Glory Of Coral Reefs’ (G.)

Children born today may be the last generation to see coral reefs in all their glory, according to a marine biologist who is coordinating efforts to monitor the decline of the world’s most colourful ecosystem. Global heating and ocean acidification have already severely bleached 16 to 33% of all warm-water reefs, but the remainder are vulnerable to even a fraction of a degree more warming, said David Obura, chair of the Coral Specialist Group in the International Union for the Conservation of Nature. “It will be like lots of lights blinking off,” he told the Observer. “It won’t happen immediately but it will be death by 1,000 blows. Between now and 2 degrees Celsius, we will see more reefs dropping off the map.”

Obura added: “Children born today may be the last generation to see coral reefs in all their glory. Today’s reefs have a history going back 25 million to 50 million years and have survived tectonic collisions, such as that of Africa into Europe, and India into Asia. Yet in five decades we have undermined the global climate so fundamentally that in the next generation we will lose the globally connected reef system that has survived tens of millions of years.”

Read more …

Headline obviously for effect. But interesting theme. Still, is it capitalism that is to blame for suppressing women, or patriarchy?

Why Women Have Better Sex Under Socialism (G.)

This book has a simple premise: “Unregulated capitalism is bad for women,” Kristen Ghodsee argues, “and if we adopt some ideas from socialism, women will have better lives.” Ghodsee is an ethnographer who has researched the transition from communism to capitalism in eastern Europe, with a particular focus on gender-specific consequences. “The collapse of state socialism in 1989 created a perfect laboratory to investigate the effects of capitalism on women’s lives,” she writes. Less regulated economies, she finds, place a disproportionate burden on women. Women subsidise lower taxes through their unpaid labour at home. Cuts to the social safety net mean more women have to care for children, the elderly and the sick, forcing them into economic dependence.

Ghodsee contends that without state intervention, the private sector job market punishes those who bear and raise children and discriminates against those who might one day do so. The government is better at ensuring wage parity across different groups than the private sector, and economies with more public sector jobs tend to have more gender equality, too. Women bear the brunt of capitalism’s cyclical instability, and are often the last to be hired and the first to be fired in economic downturns. They are paid less, they have less representation in government and, she writes, all of this affects their sexuality. The less economic independence women have, the more sexuality and sexual relationships conform to the marketplace, with those who are disadvantaged in the free market pursuing sex not for love or pleasure but for a roof over their heads, health insurance, or access to the wealth or status that capitalism denies them.

Read more …

Aug 232017
 August 23, 2017  Posted by at 9:17 am Finance Tagged with: , , , , , , , ,  5 Responses »

William Merritt Chase Back Of A Nude 1888


Banks Earn Record Profits in Q2, Savers Sacrificed: FDIC (WS)
The Silent Crisis in US Housing Finance (Whalen)
The New Economic Science Of Capitalism’s Slow-Burn Energy Collapse (Ahmed)
Switch to Renewables Won’t End the Geopolitics of Energy (BBG)
No U.S.-Russia Cyber Unit Without Trump Notifying Congress (R.)
The Imperial Collapse Clock Ticks Closer to Midnight (Krieger)
The Confederate General Who Was Erased (Dailey)
EU Opens Probe Into Bayer Takeover Of Monsanto (AFP)
Schaeuble Wants To Allow Eurozone Countries To Tap ESM For Investments (R.)
Fears Of Tensions As Refugee Arrivals in Greece Rise Again (K.)



And who are you going to turn to to protest this? Not your politicians, they’re in on it.

Banks Earn Record Profits in Q2, Savers Sacrificed: FDIC (WS)

Savers have been shanghaied into doing an enormous job, in small increments, day after day, for nine years: Recapitalizing the collapsed US banking system and making it immensely profitable again, leading to high core-capital ratios, record bonuses, big-fat dividends, and massive share-buybacks. And the FDIC, in its Quarterly Banking Profile released today, shows how. The total number of FDIC-insured commercial banks and savings institutions fell by 271 to 5,787 by the end of the second quarter. Of them, 5,338 were community banks. Most of this shrinkage was due to consolidation. But there were a handful of bank failures: in 2016, five banks failed. So far this year, six banks failed. The remaining banks get a bigger slice of the pie.

Here’s the good news: Almost everything in the report is good news! That is, unless you’re a saver whose income stream has been confiscated in order to make this good news possible. FDIC-insured banks and savings institutions booked a combined net income of $48.3 billion in the second quarter 2017, a post-crisis high. That’s up by $4.7 billion, or 10.7%, from a year ago (chart via FDIC):

This $4.7-billion increase in earnings was caused by a jump in net interest income of $10.3 billion (9.1%). Net interest income is the difference between a bank’s revenues generated by interest-bearing assets, such as loans, and the costs of its liabilities, mainly deposits but also bonds and the like. Currently banks borrow money from depositors at near zero cost. And it’s a lot of money. At the end of Q2, all commercial banks held $11.2 trillion in domestic deposits. Of that, $9.1 trillion were savings deposits. This is money that banks owe savers. A lot of nearly free money. [..] One of the most important performance metrics for banks is Return On Assets. In Q2, for all FDIC-insured banks combined, the Average ROA reached 1.14%, the highest since Q2 2007. Yes, thank you hallelujah dear savers (chart via FDIC):

Read more …

Nothing to do with inflation (we know because money velocity is way down), but with trapping people into debt: “Even adjusted for inflation, the median home price in 1940 would only have been $30,600 in 2000 dollars”.

The Silent Crisis in US Housing Finance (Whalen)

The big picture on housing reflected in the mainstream media is one of caution, as illustrated in The Wall Street Journal. Borodovsky & Ramkumar ask the obvious question: Are US homes overvalued? Short answer: Yes. Send your cards and letters to Janet Yellen c/o the Federal Open Market Committee in Washington. As we’ve discussed in several forums over the past few years, home valuations are one of the clearest indicators of inflation in the US economy. While members of the tenured world of economics somehow rationalize understating or ignoring the fact of double digit increases in home prices along the country’s affluent periphery, sure looks like asset price inflation to us. In fact, since WWII home prices in the US have gone up four times the official inflation rate.

“Houses weren’t always this expensive,” notes CNBC. “In 1940, the median home value in the U.S. was just $2,938. In 1980, it was $47,200, and by 2000, it had risen to $119,600. Even adjusted for inflation, the median home price in 1940 would only have been $30,600 in 2000 dollars, according to data from the U.S. Census.” Inflation, just to review, is defined as too many dollars chasing too few goods, in this case bona fide investment opportunities. A combination of slow household formation and low levels of new home construction are seen as the proximate cause of the housing price squeeze, but higher prices also limit the level of existing home sales. Many long-time residents of high priced markets like CA and NY cannot move without leaving the community entirely. So they get a home equity line or reverse mortgage, and shelter in place, thereby reducing the stock of available homes.

Two key indicators that especially worry us in the world of credit is the falling cost of defaults and the widening gap between asset pricing and cash flow. Credit metrics for bank-owned single-family and multifamily loans are showing very low default rates. More, loss-given default (LGD) remains in negative territory for the latter, suggesting a steady supply of greater fools ready to buy busted multifamily property developments above par value. We can’t wait for the FDIC quarterly data for Q2 2017 to be released next week as we expect these credit metrics to skew even further. Single-family exposures are likewise showing very low default rates and LGDs at 30-year lows, again suggesting a significant asset price bubble in 1-4 family homes. The fact that many of these properties are well under water in terms of what the property could fetch as a rental also seasons our view that we are in the midst of a Fed-induced investment mania.

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Nice and interesting, but don’t present it as something new. At best all the scientists et al quoted have only recently found out. And as the Automatic Earth has said forever, don’t say the 2007/8 crisis was caused by energy issues. The financial world didn’t need any help causing it.

The New Economic Science Of Capitalism’s Slow-Burn Energy Collapse (Ahmed)

Recent studies suggest that the EROI of fossil fuels has steadily declined since the early 20th century, meaning that as we’re depleting our higher quality resources, we’re using more and more energy just to get new energy out. This means that the costs of energy production are increasing while the quality of the energy we’re producing is declining. But unlike previous studies, the authors of the new paper [..] have removed any uncertainty that might have remained about the matter. Court and Fizaine find that the EROI values of global oil and gas production reached their maximum peaks in the 1930s and 40s. Global oil production hit peak EROI at 50:1; while global gas production hit peak EROI at 150:1. Since then, the EROI values of oil and gas-the overall energy we’re able to extract from these resources for every unit of energy we put in- is inexorably declining.

Even coal, the only fossil fuel resource whose EROI has not yet maxed out, is forecast to undergo an EROI peak sometime between 2020 and 2045. This means that while coal might still have signficant production potential in some parts of the world, rising costs of production are making it increasingly uneconomical. Axiom: Aggregating this data together reveals that the world’s fossil fuels overall experienced their maximum cumulative EROI of approximately 44:1 in the early 1960s.

Since then, the total value of energy we’re able to extract from the world’s fossil fuel resource base has undergone a protracted, continuous and irreversible decline. At this rate of decline, by 2100, we are projected to extract the same value of EROI from fossil fuels as we were in the 1800s. Several other studies suggest that this ongoing decline in the overall value of the energy extracted from global fossil fuels has played a fundamental role in the slowdown of global economic growth in recent years. In this sense, the 2008 financial crash did not represent a singular event, but rather one key event in an unfolding process. [..] Going back to the new EROI analysis by French economists, Victor Court and Florian Fizaine, the EROI of oil is forecast to reduce to 15:1 by 2018. It will continue to decline to around 10:1 by 2035. They broadly forecast the same pattern for gas and coal: Overall, their data suggests that the EROI of all fossil fuels will hit 15:1 by 2060, and decline further to 10:1 by 2080.

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Whole new resources wars lie ahead.

Switch to Renewables Won’t End the Geopolitics of Energy (BBG)

Yes, there are many reasons to be enthusiastic about a shift toward renewables. Unfortunately, an escape from energy geopolitics is not likely to be among them. [..] Among the most interesting of possible trends we highlight is the idea that a more renewable-heavy future will likely bring with it new forms of the “resource curse” – the phenomenon that political and economic development in many resource-wealthy countries seems stymied when compared to resource-poor ones. In many resource-rich nations, economic growth is actually slower and political institutions are more likely to be repressive and nondemocratic. In the world of fossil fuels, this curse has generally applied to big producers of oil and gas.

In a world heavier on renewables, the curse will probably not be so relevant for producers of power; solar, wind and geothermal energy are more likely to be generated and consumed within the borders of a country than to become profitable exports and generators of huge windfall cash flows. Rather, we may see this curse surface in countries rich in the materials required to produce the components that make renewable energy possible. Many of these resources are rare-earth metals and other commodities deep underground. For example, indium and cobalt – neither is technically a rare-earth metal, but they are still relatively hard to come by – are essential for making solar panels and batteries.

China provides approximately half of the indium consumed globally today, whereas the Democratic Republic of the Congo is the source of more than half the world’s cobalt. The big producers of lithium, another material essential for the production of batteries, are Argentina, Australia, Chile and China. Yet Bolivia’s large untapped reserves of lithium could catapult it into this league in the future. Tellurium is not a rare-earth mineral, but it is another key component of solar panels. The U.S. has imported most of this material from Canada, but relies to some extent on Belgium, China and the Philippines. By some estimates, China supplies as much as 95% of all the rare-earth elements in the global market. Given Beijing’s dominant position, the world should expect repeats of the 2010 episode when China halted the sale of rare earths to Japan – where they are vital for the production of solar panels and batteries – in the wake of a maritime dispute.

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Whatever anyone thinks of this, do note that one political freely body voting itself the powers of another is scary.

No U.S.-Russia Cyber Unit Without Trump Notifying Congress (R.)

U.S. President Donald Trump would be required to notify U.S. lawmakers before creating a joint U.S.-Russia cyber security unit – an idea that has drawn criticism across the political spectrum – under legislation advancing in Congress. The proposal, if it became law, would be the latest in a series of maneuvers by Congress that either limit the president’s authority on Russia matters or rebuke his desire to warm relations with Moscow. A provision contained within the annual Intelligence Authorization Act and passed by the U.S. Senate Intelligence Committee 14-1 would require the Trump administration to provide Congress with a report describing what intelligence would be shared with Russia, any counterintelligence concerns and how those concerns would be addressed.

The bill, which grants congressional approval for clandestine operations carried out by the CIA and other U.S. intelligence agencies, passed the Senate Intelligence Committee in July, but its text was only recently made public because it involves sensitive intelligence operations. Trump last month said on Twitter that he and Russian President Vladimir Putin had discussed establishing “an impenetrable Cyber Security unit” to address issues like the risk of cyber meddling in elections. Trump quickly backpedaled on the idea, which was criticized by Democrats, senior Republicans and the National Security Agency director. [..] Trump wants to improve relations with Russia, a desire that has been hamstrung by the conclusions of U.S. intelligence agencies that Russia interfered in the 2016 presidential election to help Republican Trump against Democrat Hillary Clinton.

U.S. congressional panels and a special counsel are investigating the interference and possible collusion between Russia and members of Trump’s campaign. Moscow has denied any meddling and Trump has denied any collusion. Previously, Congress tied the president’s hands on Russia by passing a bill that Trump cannot ease the sanctions against Russia unless he seeks congressional approval. In August, the Senate blocked Trump from being able to make recess appointments while lawmakers were on break, fearing the president would fire Attorney General Jeff Sessions over his handling of the Russian probe. Lawmakers have also introduced legislation to stop Trump from having the ability to fire Robert Mueller, the special counsel appointed to determine whether there was collusion between Trump’s 2016 presidential campaign and Moscow.

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The Imperial Collapse Clock Ticks Closer to Midnight (Krieger)

If you haven’t watched Trump’s Afghanistan speech by now you really should. It’s not good enough to read anyone else’s summary, you need to hear it for yourselves. It’s only 25 minutes long. As I started listening, I sensed myself getting angry. It was the same empty, bullshit propaganda I’ve been hearing from U.S. Presidents my entire life. This broken record of disingenuousness has become simply unbearable, and even worse, I know it’s going to work on millions upon millions of Americans. We refuse to think for ourselves, and we refuse to admit the obvious. There will be hell to pay for this ignorance and denial. [..] towards the end of the speech, Trump says the following:

“In every generation we have faced down evil, and we have always prevailed. We prevailed because we know who we are and what we are fighting for.”

Unfortunately, here’s the cold hard truth: We have no idea who we are, and we have no idea what we are fighting for. We’ve become the very evil he claims to be fighting against as the nation morphed into a pernicious, destructive, and immoral empire. This is the heart of the problem — we are constantly lying to ourselves. Of course, we’ll never set things on the right track if we can’t diagnose the disease in the first place. We’ve torched our national treasure and goodwill by running around the world trying to push everybody around, and simultaneously institutionalized a corrupt and predatory neo-feudal society at home. We’ve ignored our own people in a foolish and self-destructive quest to maintain and grow empire and the results will not be pretty.

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Good story. The world is not black and white, there are simply people who don’t want to see color.

The Confederate General Who Was Erased (Dailey)

A native Virginian, a railroad magnate, a slaveholder, and an ardent secessionist, Mahone served in the Confederate army throughout the war. He was one of the Army of Northern Virginia’s most able commanders, distinguishing himself particularly in the summer of 1864 at the Battle of the Crater outside Petersburg. After the war, Robert E. Lee recalled that, when contemplating a successor, he thought that Mahone “had developed the highest qualities for organization and command.” General William Mahone has not been forgotten entirely. Rather, he has been selectively remembered. There is a Mahone Monument, for example, erected by the Daughters of the Confederacy, at the Crater Battlefield in Petersburg, and Civil War scholars have treated Mahone’s military career with respect.

There is an able biography. The problems posed by William Mahone for many Virginians in the past — and what makes it worthwhile for us to think about him in the present — lie in his postwar career. Senator William Mahone was one of the most maligned political leaders in post-Civil War America. He was also one of the most capable. Compared to the Roman traitor Cataline (by Virginia Democrats), to Moses (by African American congressman John Mercer Langston), and to Napoleon (by himself), Mahone organized and led the most successful interracial political alliance in the post-emancipation South. Mahone’s Readjuster Party, an independent coalition of black and white Republicans and white Democrats that was named for its policy of downwardly “readjusting” Virginia’s state debt, governed the state from 1879 to 1883.

During this period, a Readjuster governor occupied the statehouse, two Readjusters represented Virginia in the United States Senate, and Readjusters represented six of Virginia’s ten congressional districts. Under Mahone’s leadership, his coalition controlled the state legislature and the courts, and held and distributed the state’s many coveted federal offices. A black-majority party, the Readjusters legitimated and promoted African American citizenship and political power by supporting black suffrage, office-holding, and jury service. To a degree previously unseen in Virginia, and unmatched anywhere else in the nineteenth-century South, the Readjusters became an institutional force for the protection and advancement of black rights and interests.

At the state level, the Readjusters separated payment of the school tax from the suffrage, thereby enfranchising thousands of Virginia’s poorest voters. They restored and reinvigorated public education in the state, and they lowered real estate and personal property taxes. They banned the chain gang and the whipping post. At the municipal level, Readjuster governments paved streets, added sidewalks, and modernized water systems.

The Readjusters lost power in 1883 through a Democratic campaign of violence, electoral fraud, and appeals to white solidarity. While Democrats suppressed progressive politics in the state, other groups of elite white Virginians worked fast to eradicate the memory of Virginia’s experiment in interracial democracy. These were mutually reinforcing projects. Convinced that black enfranchisement was “the greatest curse that ever befell this country,” members of the Association for the Preservation of Virginia Antiquities (APVA), founded in 1889, equated the Readjuster’ rule with “mobocracy” and called for radical pruning of the electorate. After 1900, William Mahone was characterized by whites in Virginia as a demagogic race traitor with autocratic tendencies. This representation was so powerful that as late as the 1940s the worst charge that could be brought against an anti-Democratic opposition candidate was that he had been associated with Mahone and the Readjusters.

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Monopolizing food should be fought for reasons much more profound than legal or economic ones.

EU Opens Probe Into Bayer Takeover Of Monsanto (AFP)

The European Commission said Tuesday that it was opening an in-depth investigation into the proposed $66 billion (56-billion-euro) takeover of US seed and pesticide supplier Monsanto by Germany’s Bayer, citing concerns it could reduce competition in key products for farmers. “Seeds and pesticide products are essential for farmers and ultimately consumers,” said EU Competition Commissioner Margrethe Vestager. “We need to ensure effective competition so that farmers can have access to innovative products, better quality and also purchase products at competitive prices.” In its own statement, Leverkusen-based Bayer said it “believes that the proposed combination will be highly beneficial for farmers and consumers.” The firm “will continue to work closely and constructively with the European Commission” and still aims to receive approval for the deal by the end of the year, it added.

After a months-long pursuit in which it raised its offer price several times, Bayer won over Monsanto’s management in September for the deal, which would create the world’s largest integrated pesticides and seeds company. If the tie-up goes ahead, the new company would have some 140,000 employees around the world with combined annual revenues from agriculture alone of about €23 billion. But the deal has drawn criticism from environmental groups because of Monsanto’s long history of promoting genetically modified crops. “There’s not much to investigate. One monster corporation controlling our food is a bad idea for farmers and citizens everywhere,” said Nick Flynn of the Avaaz advocacy group. “Over a million people are hoping Commissioner Vestager comes back with a long-term rejection of Monsanto and Bayer’s marriage from hell.”

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Schaeuble Wants To Allow Eurozone Countries To Tap ESM For Investments (R.)

German Finance Minister Wolfgang Schaeuble is working on a proposal that would allow southern eurozone countries to tap into the single currency bloc’s bailout fund to boost investments during recessions, a newspaper said on Wednesday. If the unsourced report in the mass-selling German daily Bild is confirmed, the plan would mark a major change of policy for Schaeuble who had until recently always opposed transfers from richer eurozone countries to poorer members like Greece. Germany is the biggest contributer to the European Stability Mechanism, the eurozone’s bailout fund. Bild said Schaeuble intended to make the proposal after Germany’s Sept.24 election, which his conservatives led by Chancellor Angela Merkel are expected to win. In exchange for more flexible access to the ESM, Schaeuble wants the fund to have more say over national debt and budgets.

Bild added that the proposal was a goodwill gesture toward French President Emmanuel Macron who has vowed to work with Merkel on a roadmap for closer eurozone integration. Schaeuble said earlier this year that he shared Macron’s view that financial transfers from richer to poorer states are necessary within the eurozone. A joint eurozone budget and a common finance minister are among ideas for deeper European Union integration around the single currency after Britain leaves the EU in 2019. Completing a banking union has also been proposed. Schaeuble is loathed in many southern eurozone countries and especially in Greece, for insisting on tough austerity measures in exchange for bailout funds during the bloc’s debt crisis that started seven years ago.

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Time for Greece to get scared again.

Fears Of Tensions As Refugee Arrivals in Greece Rise Again (K.)

Authorities on the islands of the eastern Aegean were unnerved on Tuesday by the arrival of 397 undocumented migrants in just one day, though it remained unclear whether a recent spike in newcomers is the beginning of a new, stronger influx from neighboring Turkey. The 397 new arrivals – 225 on Chios, 61 on Samos, 93 on Leros and 18 on Kos – came on the heels of 643 who landed on the islands over the weekend. August has seen the people smugglers intensify their operations, with more than 2,400 migrants landing on Greek shores following journeys aboard smuggling vessels from Turkey. The renewed influx is putting further pressure on already overcrowded migrant reception facilities on the islands, with authorities acknowledging that a key problem is the slow rate at which hundreds of asylum applications are being processed.

“There has been a noticeable increase in refugee and migrant arrivals over the past few days, which underlines the need for asylum services to be boosted immediately so that the the process is completed more quickly and the islands can be decongested,” the regional governor for the northern Aegean, Christina Kalogirou, told Kathimerini. Most migrants who see their inital asylum claims rejected lodge appeals, which drags out the process even longer, Kalogirou said, adding that the presence of hundreds of migrants in crowded venues for months on end leads to “aggravated situations, tension and even outbreaks of violence.”

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Jun 262017
 June 26, 2017  Posted by at 11:49 am Finance Tagged with: , , , , , , , , , ,  12 Responses »

Paul Klee Ghost of a Genius 1922


The Automatic Earth has written many articles on the topic of EROEI (Energy Return on Energy Invested) through the years, there’s a whole chapter on it in the Automatic Earth Primer Guide 2017 that Nicole assembled recently, which contains 17 different articles.

Still, since EROEI is the most important energy issue there is at present, and not the price of oil or some new gas find or a set of windmills or solar panels or thorium, it can’t hurt to repeat it once again, in someone else’s words and from someone else’s angle. This one comes from Brian Davey on his site CredoEconomics, part of his book “Credo”.

It can’t hurt to repeat it because not nearly enough people understand that in the end everything, the survival of our world, our way of life, is all about the ‘quality’ of energy, about what we get in return when we drill and pump and build infrastructure, what remains when we subtract all the energy used to ‘generate’ energy, from (or at) the bottom line.

Anno 2017, our overall ‘net energy’ is nowhere near where it was for the first 100 years or so after we started using oil. And there’s no energy source that comes close to -conventional- oil (and gas) when it comes to what we are left with once our efforts are discounted, in calories or Joules.

The upshot of this is that even if we can ‘gain’ 10 times more than we put in, in energy terms, that won’t save our complex societies. To achieve that, we would need at least a 15:1 ratio, a number straight from our friend Charlie Hall, which is probably still quite optimistic. And we simply don’t have it. Not anymore.

Also, not nearly enough people understand that it has absolutely nothing to do with money. That you can’t go out and buy more or better energy sources. Which is why we use EROEI instead of EROI (Energy Return on Investment), because the latter leaves some sort of financial interpretation open that doesn’t actually exist, it suggests that a financial price of energy plays a role.

First, here’s Nicole from the Automatic Earth Primer Guide 2017. Below that, Brian Davey’s article.



Nicole Foss: Energy is the master resource – the capacity to do work. Our modern society is the result of the enormous energy subsidy we have enjoyed in the form of fossil fuels, specifically fossil fuels with a very high energy profit ratio (EROEI). Energy surplus drove expansion, intensification, and the development of socioeconomic complexity, but now we stand on the edge of the net energy cliff. The surplus energy, beyond that which has to be reinvested in future energy production, is rapidly diminishing.

We would have to greatly increase gross production to make up for reduced energy profit ratio, but production is flat to falling so this is no longer an option. As both gross production and the energy profit ratio fall, the net energy available for all society’s other purposes will fall even more quickly than gross production declines would suggest. Every society rests on a minimum energy profit ratio. The implication of falling below that minimum for industrial society, as we are now poised to do, is that society will be forced to simplify.

A plethora of energy fantasies is making the rounds at the moment. Whether based on unconventional oil and gas or renewables (that are not actually renewable), these are stories we tell ourselves in order to deny that we are facing any kind of future energy scarcity, or that supply could be in any way a concern. They are an attempt to maintain the fiction that our society can continue in its current form, or even increase in complexity. This is a vain attempt to deny the existence of non-negotiable limits to growth. The touted alternatives are not energy sources for our current society, because low EROEI energy sources cannot sustain a society complex enough to produce them.



Using Energy to Extract Energy – The Dynamics of Depletion


Brian Davey: The “Limits to Growth Study” of 1972 was deeply controversial and criticised by many economists. Over 40 years later, it seems remarkably prophetic and on track in its predictions. The crucial concept of Energy Return on Energy Invested is explained and the flaws in neoclassical reasoning which EROI highlights.

The continued functioning of the energy system is a “hub interdependency” that has become essential to the management of the increasing complexity of our society. The energy input into the UK economy is about 50 to 70 times as great as what the labour force could generate if working full time only with the power of their muscles, fuelled up with food. It is fossil fuels, refined to be used in vehicles and motors or converted into electricity that have created power inputs that makes possible the multiple round- about arrangements in a high complex economy. The other “hub interdependency” is a money and transaction system for exchange which has to continue to function to make vast production and trade networks viable. Without payment systems nothing functions.

Yet, as I will show, both types of hub interdependencies could conceivably fail. The smooth running of the energy system is dependent on ample supplies of cheaply available fossil fuels. However, there has been a rising cost of extracting and refining oil, gas and coal. Quite soon there is likely to be an absolute decline in their availability. To this should be added the climatic consequences of burning more carbon based fuels. To make the situation even worse, if the economy gets into difficulty because of rising energy costs then so too will the financial system – which can then have a knock-on consequence for the money system. The two hub interdependencies could break down together.

“Solutions” put forward by the techno optimists almost always assume growing complexity and new uses for energy with an increased energy cost. But this begs the question- because the problem is the growing cost of energy and its polluting and climate changing consequences.


The “Limits to Growth” study of 1972 – and its 40 year after evaluation

It was a view similar to this that underpinned the methodology of a famous study from the early 1970s. A group called the Club of Rome decided to commission a group of system scientists at the Massachusetts Institute of Technology to explore how far economic growth would continue to be possible. Their research used a series of computer model runs based on various scenarios of the future. It was published in 1972 and produced an instant storm. Most economists were up in arms that their shibboleth, economic growth, had been challenged. (Meadows, Meadows, Randers, & BehrensIII, 1972)

This was because its message was that growth could continue for some time by running down “natural capital” (depletion) and degrading “ecological system services” (pollution) but that it could not go on forever. An analogy would be spending more than one earns. This is possible as long as one has savings to run down, or by running up debts payable in the future. However, a day of reckoning inevitably occurs. The MIT scientists ran a number of computer generated scenarios of the future including a “business as usual” projection, called the “standard run” which hit a global crisis in 2030.

It is now over 40 years since the original Limits to Growth study was published so it is legitimate to compare what was predicted in 1972 against what actually happened. This has now been done twice by Graham Turner who works at the Australian Commonwealth Scientific and Industrial Research Organisation (CSIRO). Turner did this with data for the rst 30 years and then for 40 years of data. His conclusion is as follows:

The Limits to Growth standard run scenario produced 40 years ago continues to align well with historical data that has been updated in this paper following a 30-year comparison by the author. The scenario results in collapse of the global economy and environment and subsequently, the population. Although the modelled fall in population occurs after about 2030 – with death rates reversing contemporary trends and rising from 2020 onward – the general onset of collapse first appears at about 2015 when per capita industrial output begins a sharp decline. (Turner, 2012)

So what brings about the collapse? In the Limits to Growth model there are essentially two kinds of limiting restraints. On the one hand, limitations on resource inputs (materials and energy). On the other hand, waste/pollution restraints which degrade the ecological system and human society (particularly climate change).

Turner finds that, so far it, is the former rather than the latter that is the more important. What happens is that, as resources like fossil fuels deplete, they become more expensive to extract. More industrial output has to be set aside for the extraction process and less industrial output is available for other purposes.

With signficant capital subsequently going into resource extraction, there is insufficient available to fully replace degrading capital within the industrial sector itself. Consequently, despite heightened industrial activity attempting to satisfy multiple demands from all sectors and the population, actual industrial output per capita begins to fall precipitously, from about 2015, while pollution from the industrial activity continues to grow. The reduction of inputs produced per capita. Similarly, services (e.g., health and education) are not maintained due to insufficient capital and inputs.

Diminishing per capita supply of services and food cause a rise in the death rate from about 2020 (and somewhat lower rise in the birth rate, due to reduced birth control options). The global population therefore falls, at about half a billion per decade, starting at about 2030. Following the collapse, the output of the World3 model for the standard run (figure 1 to figure 3) shows that average living standards for the aggregate population (material wealth, food and services per capita) resemble those of the early 20th century.(Turner, 2012, p. 121)


Energy Return on Energy Invested

A similar analysis has been made by Hall and Klitgaard. They argue that to run a modern society it is necessary that the energy return on energy invested must be at least 15 to 1. To understand why this should be so consider the following diagram from a lecture by Hall. (Hall, 2012)


The diagram illustrates the idea of the energy return on energy invested. For every 100 Mega Joules of energy tapped in an oil flow from a well, 10 MJ are needed to tap the well, leaving 90 MJ. A narrow measure of energy returned on energy invested at the wellhead in this example would therefore be 100 to 10 or 10 to 1.

However, to get a fuller picture we have to extend this kind of analysis. Of the net energy at the wellhead, 90 MJ, some energy has to be used to refine the oil and produce the by-products, leaving only 63 MJ.

Then, to transport the refined product to its point of use takes another 5 MJ leaving 58MJ. But of course, the infrastructure of roads and transport also requires energy for construction and maintenance before any of the refined oil can be used to power a vehicle to go from A to B. By this final stage there is only 20.5 MJ of the original 100MJ left.

We now have to take into account that depletion means that, at well heads around the world, the energy to produce energy is increasing. It takes energy to prospect for oil and gas and if the wells are smaller and more difficult to tap because, for example, they are out at sea under a huge amount of rock. Then it will take more energy to get the oil out in the first place.

So, instead of requiring 10MJ to produce the 100 MJ, let us imagine that it now takes 20 MJ. At the other end of the chain there would thus, only be 10.5MJ – a dramatic reduction in petroleum available to society.

The concept of Energy Return on Energy Invested is a ratio in physical quantities and it helps us to understand the flaw in neoclassical economic reasoning that draws on the idea of “the invisible hand” and the price mechanism. In simplistic economic thinking, markets should have no problems coping with depletion because a depleting resource will become more expensive. As its price rises, so the argument goes, the search for new sources of energy and substitutes will be incentivised while people and companies will adapt their purchases to rising prices. For example, if it is the price of energy that is rising then this will incentivise greater energy efficiency. Basta! Problem solved…

Except the problem is not solved… there are two flaws in the reasoning. Firstly, if the price of energy rises then so too does the cost of extracting energy – because energy is needed to extract energy. There will be gas and oil wells in favourable locations which are relatively cheap to tap, and the rising energy price will mean that the companies that own these wells will make a lot of money. This is what economists call “rent”. However, there will be some wells that are “marginal” because the underlying geology and location are not so favourable. If energy prices rise at these locations then rising energy prices will also put up the energy costs of production. Indeed, when the energy returned on energy invested falls as low as 1 to 1, the increase in the costs of energy inputs will cancel out any gains in revenues from higher priced energy outputs. As is clear when the EROI is less than one, energy extraction will not be profitable at any price.

Secondly, energy prices cannot in any case rise beyond a certain point without crashing the economy. The market for energy is not like the market for cans of baked beans. Energy is necessary for virtually every activity in the economy, for all production and all services. The price of energy is a big deal – energy prices going up and down have a similar significance to interest rates going up or down. There are “macro-economic” consequences for the level of activity in the economy. Thus, in the words of one analyst, Chris Skrebowski, there is a rise in the price of oil, gas and coal at which:

the cost of incremental supply exceeds the price economies can pay without destroying growth at a given point in time.(Skrebowski, 2011)

This kind of analysis has been further developed by Steven Kopits of the Douglas-Westwood consultancy. In a lecture to the Columbia University Center on Global Energy Policy in February of 2014, he explained how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in “conventional oil” production but has merely served to slow what would otherwise have been a faster decline.

More specifically, the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that amount, $3.5 trillion was spent on the “legacy” oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production, it fell by 1 million barrels a day. By way of comparison, investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies cannot cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening. Another story provides a better metaphor – that story is “Catch 22”. According to Kopits, the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel.

But it is these oil prices that drag down the economies of the OECD economies. For several years, however, there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Since the oil price is never “just right” it follows that it must oscillate between a price that is too high for macro-economic stability or too low to make it a paying proposition for high cost producers of oil (or gas) to invest in expanding production. In late 2014 we can see this drama at work. The faltering global economy has a lower demand for oil but OPEC, under the leadership of Saudi Arabia, have decided not to reduce oil production in order to keep oil prices from falling. On the contrary they want prices to fall. This is because they want to drive US shale oil and gas producers out of business.

The shale industry is described elsewhere in this book – suffice it here to refer to the claim of many commentators that the shale oil and gas boom in the United States is a bubble. A lot of money borrowed from Wall Street has been invested in the industry in anticipation of high profits but given the speed at which wells deplete it is doubtful whether many of the companies will be able to cover their debts. What has been possible so far has been largely because quantitative easing means capital for this industry has been made available with very low interest rates. There is a range of extraction production costs for different oil and gas wells and fields depending on the differing geology in different places. In some “sweet spots” the yield compared to cost is high but in a large number of cases the costs of production have been high and it is being said that it will be impossible to make money at the price to which oil has fallen ($65 in late 2014). This in turn could mean that companies funding their operations with junk bonds could find it difficult to service their debt. If interest rates rise the difficulty would become greater. Because the shale oil and gas sector has been so crucial to expansion in the USA then a large number of bankruptcies could have wider repercussions throughout the wider US and world economy.


Renewable Energy systems to the rescue?

Although it seems obvious that the depletion of fossil fuels can and should lead to the expansion of renewable energy systems like wind and solar power, we should beware of believing that renewable energy systems are a panacea that can rescue consumer society and its continued growth path. A very similar net energy analysis can, and ought to be done for the potential of renewable energy to match that already done for fossil fuels.


Before we get over-enthusiastic about the potential for renewable energy, we have to be aware of the need to subtract the energy costs particular to renewable energy systems from the gross energy that renewable energy systems generate. Not only must energy be used to manufacture and install the wind turbines, the solar panels and so on, but for a renewable based economy to be able to function, it must also devote energy to the creation of energy storage. This would allow for the fact that, when the wind and the sun are generating energy, is not necessarily the time when it is wanted.

Furthermore, the places where, for example, solar and wind potential are at this best – offshore for wind or in deserts without dust storms near the equator for solar – are usually a long distance from centres of use. Once again, a great deal of energy, materials and money must be spent getting the energy from where it is generated to where it will be used. For example, the “Energie Wende” (Energy Transformation) in Germany is involving huge effort, financial and energy costs, creating a transmission corridor to carry electricity from North Sea wind turbines down to Bavaria where the demand is greatest. Similarly, plans to develop concentrated solar power in North Africa for use in northern Europe which, if they ever come to anything, will require major investments in energy transmission. A further issue, connected to the requirement for energy storage, is the need for energy carriers which are not based on electricity. As before, conversions to put a current energy flux into a stored form, involve an energy cost.

Just as with fossil fuels, sources of renewable energy are of variable yield depending on local conditions: offshore wind is better than onshore for wind speed and wind reliability; there is more solar energy nearer the equator; some areas have less cloud cover; wave energy on the Atlantic coasts of the UK are much better than on other coastlines like those of the Irish Sea or North Sea. If we make a Ricardian assumption that best net yielding resources are developed first, then subsequent yields will be progressively inferior. In more conventional jargon – just as there are diminishing returns for fossil energy as fossil energy resources deplete, so there will eventually be diminishing returns for renewable energy systems. No doubt new technologies will partly buck this trend but the trend is there nonetheless. It is for reasons such as these that some energy experts are sceptical about the global potential of renewable energy to meet the energy demand of a growing economy. For example, two Australian academics at Monash University argue that world energy demand would grow to 1,000 EJ (EJ = 10 18 J) or more by 2050 if growth continued on the course of recent decades. Their analysis then looks at each renewable energy resource in turn, bearing in mind the energy costs of developing wind, solar, hydropower, biomass etc., taking into account diminishing returns, and bearing in mind too that climate change may limit the potential of renewable energy. (For example, river flow rates may change affecting hydropower). Their conclusion: “We nd that when the energy costs of energy are considered, it is unlikely that renewable energy can provide anywhere near a 1000 EJ by 2050.” (Moriarty & Honnery, 2012)

Now let’s put these insights back into a bigger picture of the future of the economy. In a presentation to the All Party Parliamentary Group on Peak Oil and Gas, Charles Hall showed a number of diagrams to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff. Some of the production is consumer goods, either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production i.e. investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems, more and more production must go into energy acquisition, infrastructure and maintenance. Less and less is available for consumption, and particularly for discretionary consumption.


Whether the economy would evolve in this way can be questioned. As we have seen, the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices. However, the rest of the economy cannot actually pay this extra without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline would likely drag down the whole economy.

Over the last few years, central banks have had a policy of quantitative easing to try to keep interest rates low. The economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth, it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis and it will get a lot worse when oil production starts to fall more rapidly as a result of investment cut backs. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability, this is still a dead end and, at some point, people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why degrowth is needed.

Further ideas can be extrapolated from Hall’s way of presenting the end of the road for the growth economy. The only real option as a source for extra resources to be ploughed into changing the energy sector is from what Hall calls “discretionary consumption” aka luxury consumption. It would not be possible to take from “staples” without undermining the ability of ordinary people to survive day to day. Implicit here is a social justice agenda for the post growth – post carbon economy. Transferring resources out of the luxury consumption of the rich is a necessary part of the process of finding the wherewithal for energy conservation work and for developing renewable energy resources. These will be expensive and the resources cannot come from anywhere else than out of the consumption of the rich. It should be remembered too that the problems of depletion do not just apply to fossil energy extraction coal, oil and gas) but apply across all forms of mineral extraction. All minerals are depleted by use and that means the grade or ore declines over time. Projecting the consequences into the future ought to frighten the growth enthusiasts. To take in how industrial production can hit a brick wall of steeply rising costs, consider the following graph which shows the declining quality of ore grades mined in Australia.


As ores deplete there is a deterioration of ore grades. That means that more rock has to be shifted and processed to refine and extract the desired raw material, requiring more energy and leaving more wastes. This is occurring in parallel to the depletion in energy sources which means that more energy has to be used to extract a given quantity of energy and therefore, in turn, to extract from a given quantity of ore. Thus, the energy requirements to extract energy are rising at the very same time as the amount of energy required to extract given quantities of minerals are rising. More energy is needed just at the time that energy is itself becoming more expensive.

Now, on top of that, add to the picture the growing demand for minerals and materials if the economy is to grow.

At least there has been a recognition and acknowledgement in recent years that environmental problems exist. The problem is now somewhat different – the problem is the incredibly naive faith that markets and technology can solve all problems and keep on going. The main criticism of the limits to growth study was the claim that problems would be anticipated in forward markets and would then be made the subject of high tech innovation. In the next chapter, the destructive effects of these innovations are examined in more depth.



Jun 272015

Lewis Wickes Hine Workshop of Sanitary Ice Cream Cone Co., OK City 1917

A Gay-Rights Decision for the Ages (Bloomberg)
An End to the Blackmail (Alexis Tsipras)
Tsipras Calls Referendum on Greek Debt Deal for July 5 (Bloomberg)
An Alternative Version Of How The Greek Crisis Could Have Played Out (Whelan)
“With The Euro, We’ll Forever Have A Noose Around Our Necks” (WSJ)
Creditors To Ringfence Greek Economy If Tsipras Refuses To Give In (Guardian)
Why It Won’t Be a Default If Greece Misses IMF Payment Next Week (Bloomberg)
Is The Greek Crisis Too Big For Europe’s Most Powerful Woman? (Augstein)
Tsipras Rejects Bailout Extension, “Won’t Be Blackmailed” (ZH)
Paul Craig Roberts: Greek Government May Be Assassinated If They Pivot East (KWN)
There Will Be No “Grexit” (Jim Rickards)
Greece Will Survive, But Will The Euro Or The EU? (MarketWatch)
Euro-Area Bank Lending Grows at Fastest Pace Since February 2012 (Bloomberg)
China Politburo Opines On Market Crash: “Black Friday Massacre” (Zero Hedge)
For The First Time Ever, QE Has Officially Failed (Zero Hedge)
Dutch City Utrecht To Try Out Universal, Unconditional ‘Basic Income’ (Ind.)
Half Of Europe’s Electricity Set To Be From Renewables By 2030 (Guardian)

Wow, look at that. Even Bloomberg manages to get it right. Congrats to all my gay friends- happy to say they are plentiful. Big day no matter how you look at it.

A Gay-Rights Decision for the Ages (Bloomberg)

This one is for the ages. Justice Anthony Kennedy’s opinion for the U.S. Supreme Court announcing a right to gay marriage in Obergefell v. Hodges will take its place alongside Brown v. Board of Education and Loving v. Virginia in the pantheon of great liberal opinions. The only tragic contrast with those landmarks in the history of equality is that both of those were decided unanimously. Friday’s gay-rights opinion went 5-4, with each of the court’s conservative justices writing a dissent of his own. Eventually, legal equality for gay people will seem just as automatic and natural as legal equality for blacks. But history will recall that when decided, Obergefell didn’t reflect national consensus, much less the consensus of the court itself.

Kennedy’s opinion offered two different yet interrelated constitutional rationales, one focused on the institution of marriage, the other on the equality of gay people. First, he made the case that marriage is a fundamental liberty right under the due process clause of the Constitution, which says no one may be deprived of life, liberty or property without due process of law. Applying what’s known as “substantive” due process analysis, Kennedy held that the government may not infringe the liberty to marry absent a compelling interest and along narrowly tailored lines to achieve that interest. Because no such interest exists, gay people as well as straight people must have the right to marry. This same approach was used by the court in the Loving case, which struck down laws barring interracial marriage.

It was symbolically important for Kennedy to connect same-sex marriage to marriage between the races. Kennedy’s favorite concept of dignity figured large in the finding that marriage is a fundamental right. “The lifelong union of a man and a woman always has promised nobility and dignity to all persons, without regard to their station in life.” The reference to dignity connected the decision to Kennedy’s earlier gay-rights decisions, which featured the concept centrally. It is now an important part of our constitutional law — no matter that it doesn’t appear in the Constitution. Another crucial feature of the opinion was Kennedy’s recognition that marriage has evolved over time. This acknowledgement counteracted the conservatives’ emphasis on tradition in their dissents.

It also resonated with the doctrine of due process, which looks to evolving tradition to identify the content of protected liberty. When it came to equality, Kennedy avoided announcing that laws burdening gay people would be subject to especially strict scrutiny, like laws burdening racial minorities, or even what’s called intermediate scrutiny, like laws differentially burdening the sexes. Instead, he spoke of the “synergy” between due process and equality. In legal terms, this almost certainly meant that once a fundamental right is invoked, any distinction between people for any reason requires strict scrutiny – a longtime doctrinal norm.

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Integral text. Worth the space.

An End to the Blackmail (Alexis Tsipras)

Televized speech, Athens, June 27, 2015, 1 AM local time. For six months now the Greek government has been waging a battle in conditions of unprecedented economic suffocation to implement the mandate you gave us on January 25. The mandate we were negotiating with our partners was to end the austerity and to allow prosperity and social justice to return to our country. It was a mandate for a sustainable agreement that would respect both democracy and common European rules and lead to the final exit from the crisis. Throughout this period of negotiations, we were asked to implement the agreements concluded by the previous governments with the Memoranda, although they were categorically condemned by the Greek people in the recent elections. However, not for a moment did we think of surrendering, that is to betray your trust.

After five months of hard bargaining, our partners, unfortunately, issued at the Eurogroup the day before yesterday an ultimatum to Greek democracy and to the Greek people. An ultimatum that is contrary to the founding principles and values of Europe, the values of our common European project. They asked the Greek government to accept a proposal that accumulates a new unsustainable burden on the Greek people and undermines the recovery of the Greek economy and society, a proposal that not only perpetuates the state of uncertainty but accentuates social inequalities even more. The proposal of institutions includes: measures leading to further deregulation of the labor market, pension cuts, further reductions in public sector wages and an increase in VAT on food, dining and tourism, while eliminating tax breaks for the Greek islands.

These proposals directly violate the European social and fundamental rights: they show that concerning work, equality and dignity, the aim of some of the partners and institutions is not a viable and beneficial agreement for all parties but the humiliation of the entire Greek people. These proposals mainly highlight the insistence of the IMF in the harsh and punitive austerity and make more timely than ever the need for the leading European powers to seize the opportunity and take initiatives which will finally bring to a definitive end the Greek sovereign debt crisis, a crisis affecting other European countries and threatening the very future of European integration.

Fellow Greeks, right now weighs on our shoulders the historic responsibility towards the struggles and sacrifices of the Greek people for the consolidation of democracy and national sovereignty. Our responsibility for the future of our country. And this responsibility requires us to answer the ultimatum on the basis of the sovereign will of the Greek people. A short while ago at the cabinet meeting I suggested the organization of a referendum, so that the Greek people are able to decide in a sovereign way. The suggestion was unanimously accepted.

Tomorrow the House of Representatives will be urgently convened to ratify the proposal of the cabinet for a referendum next Sunday, July 5 on the question of the acceptance or the rejection of the proposal of institutions. I have already informed about my decision the president of France and the chancellor of Germany, the president of the ECB, and tomorrow my letter will formally ask the EU leaders and institutions to extend for a few days the current program in order for the Greek people to decide, free from any pressure and blackmail, as required by the constitution of our country and the democratic tradition of Europe.

Fellow Greeks, to the blackmailing of the ultimatum that asks us to accept a severe and degrading austerity without end and without any prospect for a social and economic recovery, I ask you to respond in a sovereign and proud way, as the history of the Greek people commands. To authoritarianism and harsh austerity, we will respond with democracy, calmly and decisively. Greece, the birthplace of democracy will send a resounding democratic response to Europe and the world. I am personally committed to respect the outcome of your democratic choice, whatever that is. And I’m absolutely confident that your choice will honor the history of our country and send a message of dignity to the world.

In these critical moments, we all have to remember that Europe is the common home of peoples. That in Europe there are no owners and guests. Greece is and will remain an integral part of Europe and Europe is an integral part of Greece. But without democracy, Europe will be a Europe without identity and without a compass. I invite you all to display national unity and calm in order to take the right decisions. For us, for future generations, for the history of the Greeks. For the sovereignty and dignity of our people.

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Still no debt relief proposed, though troika has knpwn all along that would break any deal. Not in good faith.

Tsipras Calls Referendum on Greek Debt Deal for July 5 (Bloomberg)

Greek Prime Minister Alexis Tsipras called a referendum on the terms offered by creditors for the latest aid package, saying they’re seeking to humiliate the Greek people who must provide a democratic response. The vote will take place on July 5, Tsipras said in a televised address in the early hours of Saturday. A Greek government official said the country’s banks will open as normal on Monday and no capital controls are planned, asking not to be identified in line with policy. Tsipras said that German Chancellor Angela Merkel and European Central Bank chief Mario Draghi have been informed of the plan, and he’ll request an extension of Greece’s existing bailout, due to end June 30, by a few days to permit the vote. Further details weren’t immediately clear.

Later on Saturday, European finance ministers were due to discuss details of their latest proposal, which would unlock €15.5 billion and extend Greece’s program through November, in return for a commitment to pension cuts and higher taxes that Tsipras opposes. While German Chancellor Angela Merkel touted the five-month bailout extension as “very generous,” Tsipras compared its terms to an “ultimatum” and “blackmail.” It doesn’t include the debt relief that his government seeks.

Tsipras came to power with a mandate to end the austerity imposed by Greece’s creditors while keeping the country in the euro. By calling a referendum on the latest EU offer, his government “will argue that it does not have the mandate to sign it without consulting the Greek people,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “I am convinced that such a referendum would be comfortably won,” he said. “However, it will be risky as the uncertainty is likely to see deposits flee and deposit controls imposed until the result.” Failure to reach a Greek deal also puts at risk a payment due June 30 to the International Monetary Fund.

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Must read.

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

The Grexit scenario relies crucially on the Eurozone not having a proper lender of last resort or a functioning banking union. It is easy to imagine an alternative scenario to the current one. Consider the following alternative version of how the Greek crisis could have played out. As tension builds up in Greece prior to the Greek election in early 2015, Mario Draghi assures depositors in Greece that the ECB has fully tested the Greek banks and they do not have capital shortfalls. For this reason, their money is safe. Draghi announces that the ECB will thus provide full support to the Greek banks even if the government defaults on its debts, subject to those banks remaining solvent.

Eurozone governments agree that, should Greek banks require recapitalisation to maintain solvency, the European Stabilisation Mechanism (ESM) will provide the capital in return for an ownership stake in the banks. Provided with assurances of liquidity and solvency support, there is no bank run as Greek citizens believe there banking system is safe even if the government’s negotiations with creditors go badly. The ECB stays out of the negotiations for a new creditor deal for Greece (because they are not a political organisation and are not involved in directly loaning money to the government) and its officials assure everyone that the integrity of the common currency is in no way at stake. There are no legal impediments to this scenario.

Despite the constant blather from ECB officials about how it is constantly constrained by its own persnikety rules, it is well known that the ECB can stretch these rules pretty much as far as it likes. Supporting banks that you have deemed solvent is pretty standard central banking practice. So Draghi’s ECB could have provided full and unequivocal support to the Greek banks if they wished. They just chose not to. Similarly, procedures are in place for the ESM to invest directly in banks so a credible assurance of solvency could have been offered. Why did this not happen? Politics. European governments did not feel like providing assurances to Greek citizens about their banking system at the same time as their government was openly discussing the possibility of not paying back existing loans from European governments. Indeed, the ability to unleash the bank-driven Grexit mechanism has been the ace in the creditors’ pack all along.

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And you children too.

“With The Euro, We’ll Forever Have A Noose Around Our Necks” (WSJ)

CHALKIDA, Greece—This small city once had a major cement plant, timber mill and ironworks. All are gone. It is trying to develop a tourism industry, but there is no money to upgrade hotels or roads. This week, as with most places in Greece, it is waiting for the country’s future to be decided in meeting rooms in Brussels. Many here are urging Prime Minister Alexis Tspiras to stand firm in his battle with Europe. “He’s doing the right thing,” said Yannis Liopides, a retired electrician in a textile factory, sitting in a square on Thursday afternoon. The square abuts a promenade fronting onto a crystalline sea. “If Tsipras doesn’t do anything, the only ones left are Golden Dawn,” he said, referring to the far-right party whose leaders are on trial for allegedly running a criminal organization.

Mr. Tsipras may be isolated in negotiations with his fellow European leaders, but he still has plenty of friends here. Many Greeks—and many well beyond Mr. Tsipras’s coterie on the far left—have adopted a mood of resistance, forged by a perception that the country’s European creditors are pushing their demands too far. Europe and the IMF “want a country that is a colony,” said Thanasis Stratis, a cement-plant worker laid off in September. “They want to squeeze every last drop from it.” Chalkida sits at the neck of a narrow sea channel that separates a long island from the Greek mainland. Outside the city, patchwork fields lead to pine forests and on to rocky mountains. Along the coast is a port and shipyards and the hulking cement plant where Mr. Stratis once worked in the accounting department.

A big wave of industrialization came to Chalkida in the 1970s, said Mayor Christos Pagonis. Deindustrialization began in the 1990s and accelerated. “It has created thousands of unemployed,” said Mr. Pagonis, who puts the unemployment rate at more than 30%. The cement plant shut in spring 2013. The economic crisis had all but stopped construction activity in Greece. The plant was incurring losses, said a spokeswoman for Lafarge SA, which owned the facility. At the time, the company estimated that closure would save it €18 million ($20 million) a year. Prevented by Greek labor law from firing the 236 workers en masse, the French industrial company instead has laid them off in small chunks of a dozen or so each month. Only a few remain on the payroll to guard the now-quiet plant, where dogs nap in the sun and eucalyptus trees flutter in the sharp breeze.

Mr. Stratis and a handful of other plant workers man a kiosk in the city center, where they post the number of days the plant has been closed (821, as of Thursday). The names of the laid-off workers are stapled to the wall on 16 laminated sheets. Elias Koukouras, the union president and one of the few still remaining on the payroll, said Greece should quit the eurozone. “The country needs to be rebuilt. With the euro, we’ll forever have a noose around our necks.”

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Wishful fencing.

Creditors To Ringfence Greek Economy If Tsipras Refuses To Give In (Guardian)

Eurozone finance ministers and Greece’s creditors are to draw up plans for emergency measures to ringfence the country’s financial system unless the Greek prime minister, Alexis Tsipras, accepts the creditors’ terms for a five-month extension of Athens’ bailout on Saturday. Greece has its last chance to bow to the lenders’ terms following five months of stalemate at a meeting of eurozone finance ministers in Brussels on Saturday afternoon, the fifth such session in 10 days. Fearing a financial implosion and social unrest in the event of the negotiations collapsing, the ministers are scheduled to draw up plans on Saturday that could involve Greece imposing capital controls, including curbs on ATM withdrawals, to stem a flood of funds out of the ailing Greek financial system.

“Game over”, said senior EU officials engaged in back-to-back meetings and negotiations for the past 10 days, as the brinkmanship in the Greek negotiations reached breaking point. If no deal is agreed at the weekend, Greece will miss a €1.6bn payment due to the International Monetary Fund next Tuesday, along with access to emergency support from the ECB that is keeping the Greek banking system afloat. The creditors have prepared a new funding offer, providing a lifeline to keep Greece afloat until the end of November by extending the bailout by five months and supplying €15.5bn in loans tied to budget cuts and tax rises.

As a two-day EU leaders’ summit ended in Brussels on Friday, several senior officials said Tsipras had to make a choice between accepting the creditors’ ultimatum or embarking on a road that could take Greece out of the euro. The chances of saving Greece were put at 50-50. Angela Merkel, the German chancellor, who talked privately with the Greek leader in Brussels on Friday morning, urged him to go the “extra step” and accept what she described as “a very generous offer”. She ruled out any more emergency summits on the Greek crisis and delivered a pointed message to Tsipras by stressing how, during the Cyprus bailout two years ago, Cypriot banks had to be closed “for a few days”, forcing the political leaders to come to Brussels to deal with the creditor institutions and the Eurogroup finance ministers in order to resolve the issue.

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The refrendum trumps all this. Let’s see of Lagarde has the guts to get even more political.

Why It Won’t Be a Default If Greece Misses IMF Payment Next Week (Bloomberg)

If Greece fails to pay the $1.7 billion it owes the IMF on Tuesday, it might be worse for the lender than for Greece. There’s a difference between missing a payment to bond investors, and to an official institution such as the IMF. Under the fund’s policy, countries that miss payments are deemed to be in “arrears.” The lender plans to stick to that language, rather than using the term “default,” IMF spokesman Gerry Rice said Thursday. The three major credit-rating companies have also said failure to pay the IMF wouldn’t constitute a formal default. So while the practical consequences for Greece may be temporary and small as long as the nation remains in talks with creditors for an accord, the blow to the IMF’s reputation as the world’s lender of last resort could be longer-lasting, making it tougher for the fund to win support for some future bailouts.

“There’s going to be severe scrutiny of interventions in countries that can either be considered wealthy in their own right or are part of a larger geo-economic structure like the euro zone,” Benn Steil, director of international economics at the Council on Foreign Relations in New York. Non-payment would land Greece in a club of countries in arrears that currently includes Zimbabwe, Sudan and Somalia. The three nations have combined overdue payments of about $1.8 billion. The bottom line is that a missed IMF payment probably won’t trigger a wave of defaults on other loans provided by the country’s other official creditors or debt held by private investors. “Non-payment of the IMF is unlikely to cause a catastrophic cascade of other liabilities,” said Zoso Davies, a credit strategist at Barclays Plc in London.

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Good to see some incisive words on the disaster that’s fast enveloping Merkel and her legacy. Can you save that legacy in the next 7 days?

Is The Greek Crisis Too Big For Europe’s Most Powerful Woman? (Augstein)

nngela Merkel has recently been making much use of the old cliche, “Where there’s a will, there’s a way”. She has rolled it out to Alexis Tsipras and the Greek people, and David Cameron has heard it fall from her lips at least once – because, of course, she knows all too well that a Greek exit from the euro would hardly bolster Britain’s enthusiasm for the EU. The Greek crisis is the biggest challenge Merkel has had to face in the 10 years of her chancellorship. If Greece had to exit the single currency, Merkel would go down in history as the one politician who had the power to stop the EU’s decline but failed to do so. Some experts believe that to a large extent she contributed to the crisis: had she wholeheartedly backed a full bailout in 2010, the collapse of the Greek economy might have been averted.

Instead, Merkel involved the IMF– against the advice of her finance minister, Wolfgang Schäuble. Those well disposed towards the German chancellor say she brought in the IMF to prevent Greece from putting the European commission under too much pressure. But at least as important is the less flattering interpretation: that the most powerful woman in Europe (if not the world) shied away from taking sole responsibility for Greece’s fate because sharing it out among as many players as possible was a way of protecting herself from any blame. Unlike her mentor, the former German chancellor Helmut Kohl, Merkel did not embark on her political career with much instinctive passion for the European project.

During her childhood in the GDR, her mother’s praise of the west coloured Merkel’s view of the world – but the west then was the United States. Realising that the EU is worth every political effort has been something she has had to learn. Added to the reticence with which Merkel approaches any momentous decision, it is easy to see why the German government did so little to nip the Greek crisis in the bud. Acting in unison, the German leader and her finance minister, the IMF, the European commission and the European Central Bank forced an austerity programme on the Greek people based on the principles of neoliberal economics. In the former eastern bloc states such shock therapy had succeeded in returning struggling economies to growth. However, it generated immense hardship and created profound social divisions: the well-off benefited because investments became cheaper, but the bulk of the population suffered.

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“We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow.”

Tsipras Rejects Bailout Extension, “Won’t Be Blackmailed” (ZH)

Update: Protothema now says the Greek parliament will meet on Saturday and a referendum will be called as early as next week. Whether this is simply a last minute attempt to put pressure on EU finance ministers ahead of Saturday’s Eurogroup meeting remains to be seen, but one thing is for sure: Tsipras is playing a dangerous game with the ECB ahead of a difficult week that could very well see the imposition of capital controls. Update: Protothema is reporting that Tsipras has confided in a fellow EU official that if the country’s creditors insist on sticking to pension and VAT red lines and if Friday’s bailout extension proposal (which the Greek government apparently views as a patronizing stopgap) is the troika’s final offer, he is prepared to call for snap elections. Via Protothema (Google translated):

“The dramatic developments of the last few hours, following the government’s move to reject the proposal of the creditors may conceal preparation for use of the popular verdict, a decision which is expected to be finalized in the next few hours if the lenders do not move from its rigid positions. According secure information protothema.gr, a few hours ago he Prime Minister Alexis Tsipras European leader confided in Eurozone member country adjacent friendly in Greece that the data are up to this moment is ready even to call early elections. This revelation of thought by the Greek prime minister to the foreign leader can be interpreted in two ways: Either Mr. Tsipras is ready for “plan B” if tomorrow the negotiation fails or leaked deliberately in order to exert indirect pressure on lenders to mitigate their requirements.

Upon completion of the meeting Mr. Tsipras with Angela Merkel and Francois Hollande, the Greek side revealed that the Prime Minister pointed out to the leaders of Germany and France that he does not understand why the institutions insist on so hard measures. The prime minister insisted his decision to reject the proposal of the creditors for a five-month extension of the existing agreement with a funding of €15.5 billions. “The proposal does not cover us, because the financial part of barely meets the needs for payment of installments to the lenders, not help anywhere else the economy,” emphasized a close associate of Alexis Tsipras and adds: “We will not accept the proposal, as we said, we were waiting to bring us another proposal tomorrow.”

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And then there’s this.

Paul Craig Roberts: Greek Government May Be Assassinated If They Pivot East (KWN)

The Greek people and the Greek government have before them the unique opportunity to prevent World War III. All the Greek government needs to do, if the Greek people will get behind the government, is to default on the loans, resign from the EU and from NATO, and accept the deal that the Russians have offered them This would begin the unraveling of NATO. Very quickly Spain and Italy would follow. So southern Europe would desert NATO and so would Austria, Hungary and the Czech Republic. NATO is the mechanism that Washington uses to cause conflict with Russia. So as the EU and NATO unravel, the ability of Washington to produce this conflict disappears. The Greek government understands that what is being imposed on Greece is not workable.

Since the (implementation of) austerity the Greek economy has declined by 27%. That’s a depression. And they keep hoping that the Germans wake up one day and realize that austerity is not the way you cure debt, and that the Greek government cannot agree to conditions that drive the Greek population into the ground. They (the troika) are talking about (a) genocide (of the Greek population). The Russians understand that Greece is being plundered by the West and met with the leader of Greece and offered him a deal. They said: “We’ll finance you. But not to pay off the German and Dutch banks, the New York hedge funds or the IMF”. [..]

The troika has no interest in the facts of the matter. They have another agenda that we already discussed. And the Greek government has to see that there is no interest on the part of the troika to resolve the issue. That does suggest they understand that the real solution is not open to them. That they will not be permitted to leave the EU and NATO and make this deal with the Russians. I wouldn’t be surprised if they have simply been told, ‘You can make a good show of it, but if you leave (the EU,) you are dead.’

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Don’t think this is Jim’s strongest field.

There Will Be No “Grexit” (Jim Rickards)

Let me spend a minute on what I call the game theoretic approach. It will show why this scenario is unlikely. Europe would like to tell Greece to just put up or shut up. And Greece would like to tell Europe that they’re not going to put up with any more austerity. But what you have to do is you have to think two or three moves ahead. You have to say, “What would that actually mean? How will that actually play out? If one side acts that way, what does it mean for their constituency? Or other people — will the rest of the European Union or, for that matter, Austrian, Dutch, or German citizens be on the receiving end of any bad consequences?” Some analysts claim “Greece leaving the euro is no big deal.” I couldn’t disagree more.

Think of such a situation three steps ahead from the Institutions’ perspective. It is true that Greece is not a big part of the world economy. It is true that if Greece’s GDP disappeared, that, by itself, it wouldn’t make that large of an impact on the world. But that’s not the danger. The danger is contagion. The danger is that dominos that start falling. Going back to 2007, 2008, I remember when JPMorgan rescued Bear Stearns in March 2008. Everyone said, “The crisis is over.” Then Fannie and Freddie were rescued in July of 2008, and everybody said, “The crisis is over.” And I kept looking at the situation and saying, “This crisis is not over. These are dominoes that are falling. Each one’s hitting the next one and taking the crisis further. We don’t have resolution.”

As I expected, Lehman Brothers was next, and then AIG behind that. Then we saw how bad things got between October of 2008 and the stock market bottom in March 2009 when investors lost 30 to 50 percent of their net worth on that market decline. Not just stocks, but real estate and other assets across the board. So I see these dominos falling if Greece goes. It’s not about Greece — it’s about Spain, Italy, Portugal, Ireland. It’s about the whole eurozone. It’s about confidence. That doesn’t mean that if Greece quits the euro, that the next day Italy says, “Oh, we’re quitting too.” I’m not saying that. What I’m saying is that markets will do the job for them.

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“This artificial construct foisted on a European public by a political elite far less idealistic than it pretended is wearing out its welcome.”

Greece Will Survive, But Will The Euro Or The EU? (MarketWatch)

Whatever happens with the bailout talks, the one certain thing is that Greece will survive, in or outside the eurozone. One of the most beautiful countries in the world in an incredibly strategic location, it will remain a world-class tourist destination and a sought-after ally. In the past century alone, the country has survived Nazi occupation, civil war, military dictatorship, and decades of a political class riven with corruption. It will survive European Union’s austerity policies, or Grexit, or default. So don’t cry for Greece — the country has been there for millennia and it’s not going anywhere. What is far less certain is whether the euro and the EU will survive. This artificial construct foisted on a European public by a political elite far less idealistic than it pretended is wearing out its welcome.

With its bloated and corrupt bureaucracy in Brussels, the craven submission of its political leaders to a dominant reunified Germany, its increasingly obvious disrespect for democratic principles, the EU has strayed far from the founders’ concept of a free-trade zone designed to contain a defeated Germany. It is not just about Greece — or Portugal, which MarketWatch columnist Matthew Lynn identified as the next country to fall, or Spain, or Italy — but about the whole concept of political and economic integration across the entire continent, the so-called “European project.” It is difficult to see how Britain can retreat from David Cameron’s rejection of the “ever closer union” enshrined in the EU treaties as he seeks to renegotiate the terms of his country’s membership.

And without this goal — or without Britain — how can the EU hope for anything but sliding back into a loose trade confederation? The British are so done with the EU, as the Greek debacle confirms all their worst fears about the ever closer union and the joint currency. Last week, former Chancellor of the Exchequer Norman Lamont celebrated his decision in 1991 to opt out of the euro in an op-ed titled “The euro was doomed from the start.” “The creation of the euro has been an error of historic dimensions and done great harm to the EU,” Lamont wrote in The Telegraph. The early decades of European integration helped bring prosperity to Europe, Lamont continued, as rich and poor countries alike benefited from lower tariffs and increased internal trade.

“Britain is extremely fortunate that it is not at the ‘heart of Europe,’” this Conservative politician wrote, “but it still needs a real, robust renegotiation to make sure it is protected against Europe’s dangerous dreams and visions.” Telegraph columnist Ambrose Evans-Pritchard, a longtime opponent of monetary union, was even less measured in his comments on the bullying tactics employed against Greece by the EU, the ECB and the IMF. “Rarely in modern times have we witnessed such a display of petulance and bad judgment by those supposed to be in charge of global financial stability, and by those who set the tone for the Western world,” he railed in a column last week.

He took particular umbrage at the report from the Greek central bank — a component after all of the European System of Central Banks — that undermined the government’s negotiating position by warning that failure to reach a deal could lead to an “uncontrollable crisis.” The report, as it no doubt was intended to do, drove capital flight out of Greece to a new level, an unconscionable act of sabotage, Evans-Pritchard felt, by an institution that is supposed to be a “guardian of financial stability.” “If we want to date the moment when the Atlantic liberal order lost its authority — and when the European Project ceased to be a motivating historic force — this may well be it,” he concluded.

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The new normal doesn’t look very solid. If the recovery must be borrowed, then where are we?

Euro-Area Bank Lending Grows at Fastest Pace Since February 2012 (Bloomberg)

Euro-area banks expanded lending at the fastest pace in more than three years in a sign that credit is starting to support the region’s recovery. Bank loans to companies and households increased 0.5% in May from a year earlier, the most since February 2012, ECB data showed on Friday. Loans posted annual declines every month from May 2012 until February 2015. The ECB has deployed a range of unconventional tools to promote lending, including targeted long-term loans to banks and government-bond purchases that cut market borrowing costs. After deleveraging since the financial crisis, banks are showing an increasing appetite for supplying credit to the region’s fragile recovery.

“The lending aggregates to the real economy still have ample scope to improve in the months ahead, so financial conditions should support growth,” said Colin Bermingham, an economist at BNP Paribas SA in London. In June, euro-area banks took up almost €74 billion of targeted central-bank loans, known as TLTROs, that they can access if they increase lending to companies and households. Since the start of the program last year, the ECB has handed out €384 billion in total. The ECB’s measures have contributed to “more favorable borrowing conditions for firms and households,” ECB President Mario Draghi said in a press conference on June 3. “The effects of these measures are working their way through to the economy and are contributing to economic growth, a reduction in economic slack, and money and credit expansion.”

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Monday will be interesting.

China Politburo Opines On Market Crash: “Black Friday Massacre” (Zero Hedge)

[..] as Xinhua reports (via Google Translate): Shanghai and Shenzhen stock markets plunged more than 7% today fall 4200, over 1500 stocks daily limit. Will this “roller coaster” market stop there? Will history continue to repeat itself? How much further will it fall after the massacre on the A-share stock market day and after. In this rampant speculation, full of legends of the stock market wealth, wealth and opportunities and risks coexist forever; while everyone wants to share the wealth with this situation in the stock market to make a profit, we hope investors can have more risk awareness!

Local analysts are much more concerned… “It’s a do-or-die moment for all investors,” said Dong Jun, a Shanghai-based hedge fund manager. “If retail investors become skittish now, panic selling will continue next week.” “I think this is a very dangerous moment,” says Anne Stevenson-Yang of J Capital Research, the Beijing-based research firm. She’s right. Not only are there the technical liquidity factors she cites, but anything could further rock confidence. “The tide is going to go out, and there’s going to be a lot of people without their swimming trunks on,” Ewen Cameron Watt, chief investment strategist at BlackRock — which oversees $4.8 trillion as the world’s biggest money manager — said in an interview on Bloomberg Television in London. “We’re seeing it deflating quite rapidly.”

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Unofficially, it has done nothing else.

For The First Time Ever, QE Has Officially Failed (Zero Hedge)

Over two years ago in “Desperately Seeking $11.2 Trillion In Collateral”, Zero Hedge first warned that as a result of relentless central bank monetization of debt, liquidity in bond markets would decline at an ever faster pace even as, paradoxically, these same central banks added “phantom liquidity” (the topic of another post from two years ago) to equity markets in their attempt to artificially inflate stock prices to record levels without fundamental justification. Sure enough, with the usual 2-5 year delay, in 2015 the primary financial topic sweeping the mainstream financial media and all the “serious” pundits, is the collapse in bond market liquidity. Some, the more naive ones, blame regulation.

Others, such as iconic Citigroup credit strategist Matt King strategist explained – once again – that Dodd Frank is a negligible reason for the total plunge in bond market liquidity which is the result of, just as we warned, central bank intervention and the relentless ascent of algorithmic trading. But even as everyone is finally arguing about the cause of the plunging bond market liquidity and has no clue how to resolve this biggest nightmare for what once used to be the deepest and most liquidity of markets (at least not without forcing central banks to sell the trillions in bonds they hold, a step which would free up collateral but also result in the biggest market crash ever), a far more ominous question has reappeared. One which, as usual, we asked nearly three years ago: what happens when central banks soak up too much liquidity.

Our answer, at that point, QE will have officially failed, because instead of lowering bond yields – which as a reminder is the primary QE transmission mechanism, one which forces investor to reach not only for yield but also for risk in other asset classes such as equities – any incremental bond purchases will start raising yields as the adverse impact from the illiquidity “premium” surpasses the price appreciation benefit from frontrun central bank buying. Impossible, you say? Not only not impossible but in one country it just happened. Sweden, and as Bloomberg sarcastically notes, “It’s probably not what the Riksbank expected.”

What is “it”? Precisely what we said would happen three years ago: Quantitative easing is supposed to drive down longer-dated yields. But as investors obsess over market depth, the Riksbank’s bond purchases are undermining liquidity and driving Swedish yields higher. The financial conditions — the currency and the bond yields — are moving in the wrong direction,” Roger Josefsson, chief economist at Danske Bank A/S in Stockholm, said by phone. The assumption is that “the Riksbank wants yields to go down and the krona to weaken, but it’s been the opposite direction recently. That should pose a problem.”

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This should be a huge, widespread project all over Europe. Greece and Italy!

Dutch City Utrecht To Try Out Universal, Unconditional ‘Basic Income’ (Ind.)

The Dutch city of Utrecht will start an experiment which hopes to determine whether society works effectively with universal, unconditional income introduced. The city has paired up with the local university to establish whether the concept of ‘basic income’ can work in real life, and plans to begin the experiment at the end of the summer holidays. Basic income is a universal, unconditional form of payment to individuals, which covers their living costs. The concept is to allow people to choose to work more flexible hours in a less regimented society, allowing more time for care, volunteering and study. University College Utrecht has paired with the city to place people on welfare on a living income, to see if a system of welfare without requirements will be successful.

The Netherlands as a country is no stranger to less traditional work environments – it has the highest proportion of part time workers in the EU, 46.1%. However, Utrecht’s experiment with welfare is expected to be the first of its kind in the country. Alderman for Work and Income Victor Everhardt told DeStad Utrecht: “One group is will have compensation and consideration for an allowance, another group with a basic income without rules and of course a control group which adhere to the current rules.” “Our data shows that less than 1.5% abuse the welfare, but, before we get into all kinds of principled debate about whether we should or should not enter, we need to first examine if basic income even really works. ”

What happens if someone gets a monthly amount without rules and controls? Will someone be sitting passively at home or do people develop themselves and provide a meaningful contribution to our society?” The city is also planning to talk to other municipalities about setting up similar experiments, including Nijmegen, Wageningen, Tilburg and Groningen, awaiting permission from The Hague in order to do so.

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Don’t believe the hype.

Half Of Europe’s Electricity Set To Be From Renewables By 2030 (Guardian)

Europe will likely get more than half of its electricity from renewable sources by the end of the next decade if EU countries meet their climate pledges, according to a draft commission paper. A planned overhaul of the continent’s electricity grids will now need to be sped up, says the leaked text, seen by the Guardian. “Reaching the European Union 2030 energy and climate objectives means the share of renewables is likely to reach 50% of installed electricity capacity,” says the consultation paper, due to be published on 15 July. “This means that changes to the electricity system in favour of decarbonisation will have to come even faster.”

The EU has set itself a goal of cutting emissions 40% on 1990 levels by 2030, and an aspiration for a 27% share for renewables across Europe’s full energy mix, which includes sectors such as transport, agriculture and buildings that do not necessarily rely on electricity. Around a quarter of Europe’s electricity currently comes from renewable sources. Oliver Joy, a spokesman for the European Wind Energy Association welcomed the draft text but noted the 27% goal for 2030 was non-binding, and some countries were looking likely to even miss an earlier goal, for 2020, that is binding. “Even with a binding provision, we are seeing the Netherlands, UK and France potentially missing their 2020 target [to source a fifth of energy provision from renewables].”

Joy called for the commission to deliver a governance system for renewables that prevented slacker states from hiding behind the more fast-moving ones. Downing Street would almost certainly resist more stringent oversight from Brussels on renewable energy. Other measures put up for discussion in the paper could be an anathema to the government’s eurosceptic backbenchers.

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Jan 132015
 January 13, 2015  Posted by at 8:26 am Finance Tagged with: , , , , , ,  13 Responses »

DPC Market Street from Montgomery Street, San Francisco, after the earthquake 1906

Filed under Be Careful What You Wish For, once again here’s our friend Euan Mearns, this time on how well-intentioned green initiatives may bankrupt and eviscerate entire nations. Euan’s site is Energy Matters.

Euan Mearns: I last looked into the details and consequences of Scottish energy policy in the pre-referendum post Scotch on the ROCs. The expansion of Scottish renewables is progressing at breakneck speed and the purpose of this post is to update on where we are and where we are heading whether anyone likes it or not (Figure 1). Objections to wind power normally come from rural dwelling country folks whose lives are impacted by the construction of wind turbine power stations around them. My objections tend to be rooted more in the raison d’être for renewables (CO2 reduction), their cost, grid reliability and gross environmental impact. One issue I want to draw attention to is the vast electricity surplus that Scotland will produce on windy days in the years ahead. That surplus has to be paid for. Where will it go and how will it be used?

Figure 1 The rapidly changing face of electricity generation in Scotland. Wind power seems destined to grow from virtually nothing in 2010 to 15.8 GW come 2020. Maximum power demand in Scotland is 6 GW (red line).

This post was prompted by a couple of emails in the wake of my recent post on WWF Masters of Spin that brought my attention to two short reports prepared by Professor (emeritus) Jack Ponton that describe how operational and consented wind farms will already take Scotland beyond its 2020 target. The small pdfs can be downloaded here and here and the two key charts are reproduced below.

Figure 2 The status of operational, consented and pending wind farms in Scotland as of August 2014.

Figure 3 The status of operational, consented and pending wind farms in Scotland as of October 2014.

Figure 2 shows how in August 2014 operational and consented wind farms already had the capacity to meet the Scottish Government target of 100% electricity from renewables by 2020. Subsequent to that there has been a new round of wind power stations consented that takes us way beyond the target (Figure 3). So what is there to worry about?

Figure 1 shows the status of Scottish electricity generating capacity in 2010, 2015 and 2020 (it’s reproduced below to ease inspection). There has been an astonishing transformation.


The status in 2010, that doesn’t seem that long ago, shows two nuclear, two coal and one gas fired power station, a suite of hydro electric power stations and barely any wind turbine power stations. The red line shows approximate peak demand in Scotland of 6 GW and with 8.4 GW despatchable power, Scotland’s electricity needs were safe and secure


By 2015 a major transformation has already taken place. Cockenzie coal fired power station has been closed. But we still have 6752 GW of dispatchable power, comfortably in excess of peak demand but susceptible to a nuclear outage. Peterhead gas now has a standby role with reduced capacity. Part of that power station may also be developed for carbon capture and storage (CCS). But the transformation is the expansion of wind to 7.1 GW, most of which is onshore. Flexible dispatchable power (coal+gas+hydro) totals 4.7 GW. Hence, when the wind blows hard we still have power to switch off and of course we have about 3.3 GW of interconnection with England. In 2010 we had 8.6 GW of generating capacity and today we have 13.9 GW generating capacity, that’s up 62%. The system is still safe and secure and expensive, testified by the fact that my lights are still on.


The 2020 configuration assumes that all the 8.68 GW already consented wind is built (Figure 3). The future of the Longannet coal fired power plant is currently being discussed by its owners and the Scottish Government. Given the massive over capacity that we already have, it seems likely it will close down. This is probably Scotland’s cheapest electricity supply.

The two nuclear plants should still be operational. We will still have 4.4 GW of dispatchable power, 1.6 GW below the safe threshold. But 15.8 GW of wind operating above 9% capacity will cover that for most of the time, any shortfalls should be met by importing dispatchable power from England, but that will depend on how the capacity margin in England evolves. The reality will be that 2.07 GW of nuclear power will provide the stable system base load 24/7/365. When one of these plants is off line for scheduled or unscheduled maintenance we will be more heavily dependent upon imports. Unless of course Longannet coal is kept on permanent standby.

The problem therefore in 2020 is not so much risk of blackouts but what will happen to the vast surplus of power we will produce when the wind blows hard as it has been doing in recent days. In the UK as a whole, peak demand is always around 6 pm on a week day in winter and minimum demand is always at night at the weekend in Summer (Figure 4). The minimum is about 38% of peak, in Scotland, roughly 2.3 GW. Night time summer demand for electricity, therefore, may be almost met by our two nuclear power stations.

Figure 4 The pattern of UK electricity demand. Peak demand is always during a week day in winter at around 6 pm. Minimum demand is always at night during the weekend in Summer.

At this point we need to remind ourselves about how the renewable merit order and subsidy system works. In short, the producers get paid their elevated guaranteed price regardless of whether or not there is demand for the power. According to Prof. Ponton’s calculation we are on schedule to produce 6.1 TWh annual surplus of wind power [17.7 TWh operational+25 TWh consented -36.6 TWh total annual demand =6.1 TWh wind surplus]. To this needs to be added approximately 16 TWh of nuclear and hydro giving us a total annual surplus of 22 TWh. How is this surplus going to be used?


Plans are progressing to increase the interconnector capacity to England to 6 GW which is an interesting number since this is the same as Scotland’s peak demand. Part of “The Plan” is evidently for Scotland to export its surpluses. The snag is that when the wind blows hard it is often blowing hard in England and Europe too. At those times spot power prices are rock bottom and there is high chance that neighbouring countries will be gagging on surplus wind power at the same time. When the wind blows hard Scotland may be producing a 10 GW surplus that has nowhere to go.


The Scottish Government often talks fondly of the hydrogen economy where surplus renewable electricity may be used to make hydrogen, normally by the electrolysis of water. The trouble with this, which is conveniently ignored, is that in making the hydrogen about 30% of the renewable energy input is lost, with a further 30% lost on energy recovery when the hydrogen is combusted or used in a fuel cell (estimates vary according to whether or not waste heat is recovered and used). Very quickly, 50% of the expensive subsidised and paid for wind power is lost. This is a short cut to bankrupting the country.

Pumped hydro storage is a more feasible and scalable option and the Coire Glas scheme that has been approved but awaiting a final investment decision presents an ideal case study. In my post The Coire Glas pumped storage scheme – a massive but puny beast, I drew attention to how impotent Coire Glas would be in providing backup power to the UK. Let’s skin the cat another way at the Scottish scale.

Coire Glas will have storage capacity of 30 GWh. How many times would it have to be filled and emptied to store the 22 TWh surplus that Scotland is shaping up to produce?

22 TWh annual surplus / 30 GWh storage capacity = 733 cycles

With 50 hours generating capacity it is going to take about 1 week at optimum conditions to fill and then empty this massive beast. And so we are talking roughly 14 of these beasts (733 cycles / 52 weeks = 14.1 Coire Glas schemes required) to cope with the annual Scottish electricity surplus. This may sound feasible, but Coire Glas alone creates hydrology problems on the Lochs on the Great Glen that will act as the lower pumping reservoir. It is simply doubtful that Scotland will have 14 sites on the scale of Coire Glas that can each be filled and emptied 52 times each year without totally wrecking the hydrology of the lochs and river systems that are involved. If there is a concrete plan that shows how wind can be stored and delivered via pumped hydro storage then I’d like to see it.


Another option for consuming this surplus is to reconfigure the nation’s heating requirements away from natural gas to electric heating. Norway for example uses cheap hydro electric power as its main source of domestic and industrial heat. It’s just a pity that wind is currently one of the most expensive forms of electrical power that we have. Overproduction of expensive energy is quite simply a bad idea.


  • In 2010 Scotland had a self contained reliable diversified electricity supply system that created a dispatchable surplus that was exported to England.
  • Come 2020 the Scottish system will be dominated by non-dispatchable wind power.
  • When the wind does not blow Scotland will become an energy parasite dependent upon imports of dispatchable power from England, assuming that England has that dispatchable capacity to spare.
  • When the wind blows hard, Scotland will generate a vast wind power surplus that will have low / no value and that no one will want / be able to use. The only way to make this plan remotely sensible is to deploy large scale pumped hydro storage. A detailed feasible plan for which, as far as I am aware, is lacking.
  • The uncontrolled expansion of wind power that has effectively already caused a glut of non-dispatchable renewable electricity must surely undermine future development and deployment of marine renewables, some of which may have made more sense than wind.
  • If you are objecting to wind turbine power stations being erected on your hill or glen, you should make clear in your objection that the wind power being generated is surplus to Scotland’s requirement. Some of it may be used at home, some of it will be exported and much of it may simply be wasted. It seems likely that Scotland’s beautiful landscape is being wrecked in pursuit of an ideological, empty dream.
Nov 102014
 November 10, 2014  Posted by at 10:30 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle November 10 2014

DPC Wanted: 500 men to eat frankfurters, Bowery, Rockaway, NY 1905

US Economic Growth Is All An Illusion (John Crudele)
The System Is Terminally Broken (Investment Research Dynamics)
Buybacks Biggest “Source Of Equity Demand In Recent Years” (Zero Hedge)
Myopic Domestic Delusion or Planned Monetary Demolition? (De Landevoisin)
What Stocks Say About The State Of The Global Economy (Zero Hedge)
China Factory-Gate Prices Decline for Record 32nd Month (Bloomberg)
Xi Dangles $1.25 Trillion as China Counters U.S. Refocus (Bloomberg)
China’s Stock Markets Change Forever Next Week (MarketWatch)
China’s $9 Trillion Untapped Market Spurs U.S. ETF Frenzy (Bloomberg)
Russia, China Add to $400 Billion Gas Deal With Accord (Bloomberg)
Russian Ruble Firms On Putin’s Backing (Reuters)
Banks Face 25% Loss Buffer as FSB Fights Too-Big-to-Fail (BW)
Jean-Claude Juncker Needs to Go (Bloomberg Ed.)
Draghi Summons Banking Know-How for Top Posts as ECB Role Shifts (Bloomberg)
Over 80% of Catalans Vote Yes at Independence Poll (RIA)
Letter Reveals 2010 ECB Funding ‘Threat’ To Ireland (BreakingNews.ie)
GM Ordered New Ignition Switches Long Before Recall (WSJ)
A 700-Kilometre Surveillance Fence Along The Canada-US Border (NPost)
Australia ‘Giving Up’ On Renewables (BBC)
Australia Renewables Investment Drops 70% From Last Year (Tim Flannery)
Why It’s Not Enough to Just Eradicate Ebola (NBC)

Haven’t seen anything by Crudele in a long time. My bad. Then again, he hides out at the NY Post of all places.

US Economic Growth Is All An Illusion (John Crudele)

As voters were coming out of the polls on Tuesday, pesky reporters were asking why they voted the way they did — and what was going through their heads The most popular response — from 45% of the voters — was the economy. Only 28% said their families were doing better financially. The economy is always the major issue in an election during times like these. So no one should have been shocked that voters took their anger out on the party that controls the White House, even though Republicans are just as much to blame for our economy’s failures. John Harwood, a political reporter for CNBC, asked a very good question before the votes were counted: Why? As in, “Why did people appear so angry and unhappy when the stock market was at record levels, the unemployment rate is down sharply, inflation is subdued and the number of jobs is increasing?”

Harwood’s explanation was that the benefits of this economic growth weren’t being evenly distributed and were being felt only by the blessed in the American economy — the upper 1%, if you will. Harwood is only a little right. Yes, the economy is blessing the few and leaving the rest of us in limbo. What Harwood and the rest of the folks who rely solely on Washington’s mainstream thinkers and Wall Street boosters for their information don’t realize is this: The economy isn’t really doing what the statistics say it is doing. Our nation’s economic statistics are nipped and tucked, massaged, managed, fabricated and dolled up. In short, our statistics are wrong and Main Street folks know it. Here’s what a Wall Street hedge fund mogul, Paul Singer, head of Elliott Management Corp., told his clients the other day: “Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth,” Singer wrote.

“When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.” I’m glad someone is reading my column. But it’s not like Singer — whom I don’t know — was willing to say that out loud so that everyone could understand. He wrote that in his newsletter to his clients. So, shhhhh! It’s a secret. Don’t tell Americans that the economy isn’t doing so well. (Oh, that’s right, they’ve already caught on.) I won’t get into the year-long investigation I have been conducting into the Census Bureau’s faulty economic data. Now that the Republicans control both houses of Congress, I’m sure what is going on at Census will be looked at very carefully. But fabrication of data isn’t the only problem. Put enough academics and statisticians in a room and they can turn any statistic into something it isn’t.

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Word: “What would happen if the Fed decided to “experiment” by removing this massive dead-pool of money from the banks? The money isn’t really “dead,” it’s keeping the banks from collapsing.”

The System Is Terminally Broken (Investment Research Dynamics)

The Fed has formally “ended” QE, but it hasn’t really. The Fed will continue reinvesting interest on its portfolio in more bonds and it will rollover maturities. We saw what happens to the stock market a few weeks ago when Fed official James Bullard asserted that the Fed needs to start raising rates: the S&P 500 quickly dropped 8%. Right at the bottom of the drop, the very same Bullard issued a statement suggesting that QE should be extended. This triggered an insanely abrupt “V” move back up to a new record high for the S&P 500. Bullard either did this intentionally or is a complete idiot. The stock market can’t function without Federal Reserve intervention. The stock market lost 8% quickly on just the thought that the Fed might start raising rates. Imagine what would happen if the Fed decided to “experiment” by shutting down its market intervention operations – both verbal and physical – for a month…

As for QE, if the Fed has achieved its objective of stimulating the economy, why doesn’t it start removing the $2.6 trillion of liquidity that it has injected into its member banks? This was money that was supposed to be directed at the economy. How come it’s sitting on bank balance sheets earning .25% interest? That’s $6.5 billion in free interest the Fed continues to inject into the Too Big To Fail banks. But why? What would happen if the Fed decided to “experiment” by removing this massive dead-pool of money from the banks? The money isn’t really “dead,” it’s keeping the banks from collapsing. I’m interested to watch the Government Treasury bond auctions now that the Fed is not there to soak up anywhere from 50-100% of each issue. I wonder if the banks will be moving their $2.6 trillion in Excess Reserves into new Treasury issuance. Obama is going around broadcasting the lie that the Government’s spending deficit in FY 2014 was something like $600 billion.

Yet, the amount of new Treasury bonds issued increased by $1 trillion over the same period. Either Obama is lying or the accountants at the Treasury committed a big typo. Either the Fed has found a way to continue opaquely monetizing new Government debt issuance, or the market is soon going to force U.S. interest rates up much higher.

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Time to raise rates, or companies will own all their own stock. Sort of like BOJ buying up all Japanese sovereign bonds. Snake eats tail.

Buybacks Biggest “Source Of Equity Demand In Recent Years” (Zero Hedge)

Spoiler alert: it’s not the Fed, even though the portfolio rebalancing channel courtesy of a $4.5 trillion Fed balance sheet certainly assured that the artificially inflated bubble in stocks, as a result of the Fed’s own purchases of bonds, is unlike anything seen before (and to all those debating whether the bubble is in bonds or stocks, here is the answer: it is in both). The answer, according to Goldman’s David Kostin is the following: “From a strategic perspective, buybacks have been the largest source of overall US equity demand in recent years.”

In other words, not only has the Fed made a mockery of fundamentals, the resulting ZIRP tsunami means that corporations can issue nearly-unlimited debt to yield chasing “advisors” managing other people’s money, and use it to buyback vast amounts of stock, which brings us to the latest aberation of the New Abnormal: the “Pull the S&P up by the Bootstaps” market, in which the only relevant question is which company can buyback the most of its own stock. Some further observations on the only thing that matters for equity demand in a world in which the Fed is, for the time being, sidelined:

Since the start of 4Q, a sector-neutral basket of 50 stocks with the highest buyback yields has outpaced the S&P 500.

And sure enough, with the market once again rewarding stock buybacks… companies will focus exclusively on stock repurchases in lieu of actual growth-promoting capital allocation such as CapEx (as predicted in April 2012):

We forecast S&P 500 cash spent on repurchases will rise by 18% in 2015 following a 26% jump in 2014.

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Very much worth a read. People leap into assumptions about Fed and IMF goals far too easily, if you ask me.

Myopic Domestic Delusion or Planned Monetary Demolition? (De Landevoisin)

So where is the impasse I point to? Well, as stated above, I am not quite so sanguine as Mr. Stockman is regarding the reasons behind our apparent self induced economic undoing. It is my contention that there exists ample motive behind the apparent policy insanity we are indeed witnessing and actually navigating through. What is being done is quite simply too plainly preposterous to be so innocently and readily dismissed. One has to consider what else may be driving the continuous and relentless stoking of a glaring, oncoming, head on collision train wreck dead ahead. No locomotive engineer can simply be assumed to be this brain dead, so completely out to lunch, it just doesn’t add up. Something else is at the heart of this mainlined monetary mayhem.

Call me a jaded cynic or even worse, a crackpot conspiracist, but when I see a country as majestic and powerful as the United States which has always stood for liberty and the pursuit of free enterprise, knowingly, willfully and conspicuously being undermined, as if being herded over a cliff like baffled buffaloe on the great plains, I smell a dubious dirty rat. Let us bear in mind, that the IMF Multinational Central Bankers are waiting in the wings to pick up the pieces of the train wreckage, with their deliberate SDR regime preparations. They are qualifying themselves to take on the existing immense capital account imbalances between the debtor and creditor nations. That will be a critical aspect of the developing picture.

As a new global monetary order begins to emerge and impose itself, the SDR composite will be expanded so as to address these utterly unsustainable trade imbalance. The envisaged multilateral SDR monetary instrument will be positioned to buy out the existing unserviceable sovereign debt loads, whereby the massively indebted nations of the developed world will cede a measure of influence to the creditor nations of the emerging world.

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What Stocks Say About The State Of The Global Economy (Zero Hedge)

The following two charts cut right through the headline propaganda and show all there is to know about the state of the global economy. The first is a chart of Global Cyclical stocks (Goldman ticker GSSBGCYC). The second shows Global Defensives (Goldman ticker GSSBGDEF). The resulting picture is worth 1000 Op-Eds welcoming you to yet another “global recovery.”

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And that economy is still supposed to grow at 7%?

China Factory-Gate Prices Decline for Record 32nd Month (Bloomberg)

China’s factory-gate prices fell for a record 32nd month in October and consumer prices remained subdued, raising pressure on policymakers to bolster the world’s second-largest economy as disinflation spreads. The producer-price index dropped 2.2% from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the median projection of a 2% decline in a survey of analysts by Bloomberg News. Consumer prices rose 1.6% and the rate was unchanged from the prior month and matched economists’ estimates. China’s economy, burdened by overcapacity and weak domestic demand, is headed for the slowest full-year growth in more than two decades. Lower oil and metals prices are cutting costs at the factory gate, allowing China’s exporters to reduce prices and adding to deflationary pressures globally.

“China’s domestic demand remained soft and dis-inflationary risks are on the rise on the back of falling global commodity prices,” said Chang Jian, chief China economist at Barclays. “Subdued inflation offers room for more PBOC easing, but broad-based monetary easing will more likely to be triggered by disappointing growth numbers, which we will likely see in the coming months.” Chang said she expects the PPI drop will continue to 2015. Purchasing prices of fuels fell 3.8% in October from a year earlier, while ferrous metals costs dropped 6.9%, the NBS data showed. Prices of all nine components dropped. Oil prices have slumped into a bear market amid speculation of a global glut, slowing drilling at U.S. shale formations. Producers in OPEC countries are responding by cutting prices, resisting calls to reduce supply as they compete with the highest U.S. output in three decades.

“The extended drop in the PPI is affected by the prolonged decline of global oil prices and overcapacity in some domestic industries,” Yu Qiumei, a senior statistician at the NBS, said in a statement today. Eighteen of China’s 31 provinces and municipalities reported a nominal growth rate lower than the price-adjusted level for the first nine months of this year, signaling deflation. China’s imports moderated to a 4.6% increase in October from September’s 7% gain, according to data released by General Administration of Customs over the weekend.

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Ahem: “China’s development will generate huge opportunities and benefits and hold lasting and infinite promise.”

Xi Dangles $1.25 Trillion as China Counters U.S. Refocus (Bloomberg)

President Xi Jinping sought to counter U.S. efforts aimed at boosting influence in Asia by flexing China’s economic muscle days before a Beijing summit with his counterpart Barack Obama. Speaking to executives at a CEO gathering in Beijing, Xi outlined how much the world stands to gain from a rising China. He said outbound investment will total $1.25 trillion over the next 10 years, 500 million Chinese tourists will go abroad, and the government will spend $40 billion to revive the ancient Silk Road trade route between Asia and Europe. “China’s development will generate huge opportunities and benefits and hold lasting and infinite promise,” Xi said. “As China’s overall national strength grows, China will be both capable and willing to provide more public goods for the Asia Pacific and the world.”

China has used the Asia-Pacific Economic Cooperation forum summit under way in Beijing to put forward its own trade and economic proposals to strengthen its sway in Asia. Those incentives complement a greater assertiveness in territorial disputes and moves to upgrade its military after decades of U.S. dominance in the region. China is rolling out counteroffers for each promise made by President Barack Obama, whom he’ll meet this week in Beijing as part of the summit. Xi is pushing the Free Trade Area of the Asia-Pacific in response to the U.S.-backed Trans-Pacific Partnership, which excludes China. An Asia Infrastructure Investment Bank mostly financed with money from Beijing is seen as an answer to the Asian Development Bank and other multinational lenders where the U.S. and Japan have the most influence.

“Any time they have the chance to shape international economic rules or norms they are going to do that,” said Andrew Polk, resident economist at the Conference Board China Center for Economics and Business in Beijing. “It’s a bifurcated kind of response – there’s a reactive response to the developed world but trying to take a leadership role among other emerging economies.” While spelling out his message, Xi also made clear China is ready to accept a lower rate of growth, assuring executives that the economy is more resilient than ever and his government can safely guide the country through any slowdown. China’s economy is targeted to grow at about 7.5% this year, the slowest since 1990, and Xi said a growth rate around 7% would still make the country a top performer.

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Big deal, but with China doing far worse than they let on, what possible outcomes are there?

China’s Stock Markets Change Forever Next Week (MarketWatch)

When MarketWatch covers Chinese stocks, we usually focus on those listed in Hong Kong. The reason for this is that few outside of China – mainly just institutional investors with approved quotas – are able to buy what’s sold in Shanghai, Shenzhen and the other mainland Chinese bourses, while any investor in the world can buy Hong Kong-listed names. But this is all about to change in a big way next Monday, when China launches its game-changing “Shanghai-Hong Kong Stock Connect” program. For the first time ever, retail investors around the world will be able to invest in mainland Chinese equities.

In some high-profile cases, the same companies have stock listing in both Shanghai (known as “A-shares” when denominated in yuan) and Hong Kong (“H-shares”), though here too, opportunities exist in the form of arbitrage, as a given company’s A-shares and H-shares rarely trade at the same level. “Many international investors are completely excited,” Charles Li, the chief executive of bourse operator Hong Kong Exchanges & Clearing (HKEx) told MarketWatch at a recent media availability. “This is probably the last frontier market that has yet to open,” Li said, “and they [global investors] probably have never seen a rebalancing possibility like this scale anytime in past history.”

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I smell a huge rat. This has the potential to hide away the reality of global financial markets for a while. However, it also brings western scrutiny closer to China’s numbers.

China’s $9 Trillion Untapped Market Spurs U.S. ETF Frenzy (Bloomberg)

The race is on to give U.S. exchange-traded fund investors access to $9 trillion of stocks and bonds in mainland China. Money managers including BlackRock and CSOP have now registered almost 40 ETFs tracking the country’s domestic shares and debt with U.S. regulators, six times the number of existing funds. The products allow anyone with a U.S. brokerage account to gain exposure to Chinese securities that were previously off limits to all but a few qualified institutions. Equities in the biggest emerging market are heading for the best annual gain since 2009, outpacing shares of mainland companies listed overseas amid speculation government plans to ease capital controls will narrow the valuation discount on domestic securities. As programs including a planned bourse link between Hong Kong and Shanghai help open up China’s markets, fund providers are rushing to stake claims to the fees they hope will come from new investors.

“There is so much potential, you just can’t ignore China,” Patricia Oey, a senior analyst at investment data provider Morningstar Inc. in Chicago, said in a telephone interview. Fund companies “want to have a foot into a very big market. China is opening up and they want to be there.” BlackRock, the world’s largest money manager, is seeking to introduce its first U.S. exchange-traded fund that would invest directly in equities traded in Shanghai and Shenzhen, according to a Sept. 15 regulatory filing. CSOP, which runs a $6 billion ETF of China’s yuan-denominated A shares out of Hong Kong, filed to create a U.S. version three days later. While only a fraction of Chinese companies are listed or sell debt offshore, U.S. investors have piled almost $10 billion into ETFs that exclusively buy securities trading abroad, until recently one of the only ways for individuals to gain exposure to businesses from the world’s second-largest economy.

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“Together we have carefully taken care of the tree of Russian-Chinese relations. Now fall has set in, it’s harvest time, it’s time to gather fruit.”

Russia, China Add to $400 Billion Gas Deal With Accord (Bloomberg)

China has secured almost a fifth of the natural gas supplies it will need by the end of the decade after striking a second major deal with Russia. Russian President Vladimir Putin and Chinese President Xi Jinping signed the gas-supply agreement in Beijing the day before U.S. President Barack Obama arrived in the Chinese capital for the Asia-Pacific Economic Cooperation summit. The deal is slightly smaller than the $400 billion accord reached earlier this year, shortly after Russia’s annexation of Crimea. Russia’s Gazprom is negotiating the supply of as much as 30 billion cubic meters of gas annually from West Siberia to China over 30 years, it said yesterday. Another Russian company is discussing the sale of a 10% stake in a Siberian unit to state-owned China National Petroleum Corp.

Russia has turned to China to diversify its market and spur its economy as relations soured with the U.S. and Europe over the Ukraine crisis. The initial accord “will make Russia rely more on China both economically and politically,” Lin Boqiang, director of the Energy Economics Research Center at Xiamen University, said by phone. “China is probably the only country in the world that has both the financial ability and the market capacity to consume Russia’s huge energy exports on a sustainable basis over a long period of time,” said Lin. It gives Putin an opportunity to show Europe and the U.S. that his country won’t be isolated over Ukraine, he said. The two deals could account for almost 17% of China’s gas consumption by 2020, Gordon Kwan at Nomura wrote.

Russia may start selling gas to China within four to six years as part of the agreement with CNPC, Gazprom Chief Executive Officer Alexey Miller told reporters in Beijing. When the new supply deal begins, China will surpass Germany to become Russia’s biggest natural gas customer, according to CNPC’s website. “Together we have carefully taken care of the tree of Russian-Chinese relations,” Chinese President Xi Jinping said yesterday at a meeting with Putin at the economic forum. “Now fall has set in, it’s harvest time, it’s time to gather fruit.”

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It’s one sunny message after the other at the APEC summit.

Russian Ruble Firms On Putin’s Backing (Reuters)

The ruble firmed broadly on Monday after President Vladimir Putin said there were no reasons for the slide in the Russian currency. After a dramatic fall in previous week and volatile swings of 6% in its rate on Friday, the rouble traded 1.9% higher at 45.77 to the dollar at 0735 GMT. The Russian currency was 1.7% stronger at 57.07 against the euro. The Russian central bank said on Monday that it expects zero economic growth in 2015 and only 0.1% growth in 2016, in a three-year monetary policy strategy that anticipates Western sanctions against Russia will remain until the end of 2017. The central bank said that it was also calculating its base forecasts on the Urals oil price recovering to an average of $95 in 2015 but falling to $90 by the end of 2017, a long-term downward trend which it said would constrain economic growth.

Putin, wooing Asian investors on Monday at the Asia-Pacific Economic Cooperation summit in Beijing, said he was hopeful that speculation against the rouble would stop soon and that there was no fundamental economic reason for the currency’s slide. The rouble has slumped nearly 30% against the dollar this year as plunging oil prices and Western sanctions over the Ukraine crisis shrivelled Russia’s exports and investment inflows. Russia’s central bank, which limited its support for the rouble last week by cutting the size of its interventions to $350 million a day, said on Friday it would still intervene to support the rouble it sees threats to financial stability. Putin also said Russia and China intend to increase the amount of trade that is settled in yuan, as he ruled out capital controls for Russia.

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Long overdue and even now just a plan.

Banks Face 25% Loss Buffer as FSB Fights Too-Big-to-Fail (BW)

The world’s largest banks will have to build up their loss-absorbing liability buffers to see them through a crisis, as regulators tackle too-big-to-fail lenders six years after the collapse of Lehman Brothers Holdings Inc. The Financial Stability Board, led by Bank of England Governor Mark Carney, said today that the biggest banks may be required to have total loss absorbing capacity equivalent to as much as a quarter of their assets weighted for risk, with national regulators able to impose still tougher standards. The FSB is seeking comment on the rule, known as TLAC, which would apply at the earliest in 2019. Carney said the plans are a “watershed” in regulators’ mission to end the threat posed by banks whose size and systemic importance mean their failure would be catastrophic for the global economy.

“Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system,” he said. The rules are the latest step by the FSB in a five-year quest to boost banks’ resilience in the face of financial shocks. Agreement has already been reached on measures including tougher capital requirements and enhanced scrutiny by supervisors. The TLAC rules would apply to the FSB’s register of global systemically important banks. The latest list, published last week, contains 30 banks, with HSBC and JPMorgan identified as the most significant. The draft requirements announced by the FSB would measure banks’ ability to absorb losses in a crisis, shielding taxpayers from bailouts.

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For once, I agree with the Bloomberg editors.

Jean-Claude Juncker Needs to Go (Bloomberg Ed.)

Jean-Claude Juncker, the new president of the European Commission, was always a bad choice for the job, foisted on the bloc’s 28 national governments by a European Parliament eager to expand its powers. It’s becoming clear now just how poor a decision that appointment was. Juncker was the prime minister of Luxembourg, a tiny nation with a population 1/17th the size of London’s, for almost two decades. In that time, he oversaw the growth of a financial industry that became a tax center for at least 340 major global companies, not to mention investment funds with almost €3 trillion ($3.7 trillion) in net assets – second only to the U.S. Partly as a result of the Swiss-style bank secrecy rules and government-blessed tax avoidance schemes that helped draw so much capital, the people of Luxembourg have become the world’s richest after Qatar.

The tax arrangements, described in leaked documents provided by the International Consortium of Investigative Journalists, allegedly enabled multinationals, from Apple to Deutsche Bank, to reduce their tax liabilities on profits earned in other countries: The effective Luxembourg tax rates that resulted were as little as 0.25%. The countries where the money was made received nothing. It’s telling that these arrangements have long been shrouded in secrecy. (Only last month did Luxembourg’s government drop its opposition to new EU rules on banking transparency.) Juncker, you could say, made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve.

The commission was already conducting an investigation of Luxembourg’s tax arrangements. Juncker says he won’t interfere – but he won’t recuse himself, either. Indeed, his spokesman says he is “serene” in the face of the revelations. He shouldn’t be. At this point, he could best serve the European project by resigning. Juncker’s position as the head of the body investigating the tax practices he oversaw as prime minister is a clear conflict of interest. It’s possible the commission will find nothing improper about Luxembourg’s tax-avoidance paradise: The EU allows member governments wide latitude in taxing companies, so long as they don’t favor some over others. But with Juncker in charge of the commission, any such exoneration will fail to command public confidence.

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“Oh, jeez: “This macroprudential policy was born out of the gradual recognition that the financial system isn’t always rational.”

Draghi Summons Banking Know-How for Top Posts as ECB Role Shifts (Bloomberg)

Mario Draghi is seeking economists who understand banks, and he’s not afraid to look outside Frankfurt to find them. As the European Central Bank assumes the mantle of euro-area financial supervisor, its president has just staffed two key monetary-policy posts with non-ECB experts on how lenders function in the economy. The appointments mark a trend of turning to outsiders as the 16-year-old institution struggles to meet its changing responsibilities with existing staff. “People like Draghi have much more interest in how markets and supervision affect monetary policy than the old school,” said Anatoli Annenkov, senior European economist at Societe Generale SA in London. “It’s a reflection of the problems that the ECB is facing.” Sergio Nicoletti Altimari, a Bank of Italy financial-markets official who worked closely with Draghi during the latter’s time as governor there, will become director general for macroprudential policy and financial stability from Jan. 1.

Luc Laeven, a Belgian economist at the International Monetary Fund with a track record of analyzing financial crises, will become director general for research by March. Draghi is seeking people who can handle the new powers the ECB gained when it became the euro-area banking supervisor on Nov. 4. About 900 new staff have been hired so far who will be dedicated to oversight, and the role also brings the authority to promote financial stability throughout the economy with measures such as higher capital buffers or increased risk-weightings on lenders’ assets. This macroprudential policy was born out of the gradual recognition that the financial system isn’t always rational, and so someone needs to be watching for the emergence of risks that could escalate and broaden.

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Add this to the recent revelations of the corruption agonizingly close to Rajoy and his government, and Catalunya must feel stronger every day.

Over 80% of Catalans Vote Yes at Independence Poll (RIA)

An overwhelming majority of Catalans has supported the region’s independence, vice president of the autonomy’s government Joana Ortega said early Monday. There have been two question in the ballots: “Would you like Catalonia to become a state?” and “If yes, would you like Catalonia to become an independent state?” With 88.44% of the ballots counted, 80.72% of voters answered yes to both questions in the ballot, and 10.11% answered yes only to the first questions, according to Ortega. As few as 4% of the voters said no to both questions.

More than 2.25 million people out of 5.4 million eligible voters in the wealthy breakaway region of Catalonia in northeastern Spain voted on Sunday in the unofficial independence poll. Results of the vote are expected to come on Monday morning. Spanish government sees the voting as illegal and tried to block it by filing complaints to the Constitutional Court. However Catalan President Artur Mas has stated that Catalonia would carry out the consultation despite the central government’s protests. Earlier on Sunday the central government dismissed the vote as “useless” and unconstitutional.

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The ECB is no more beyond blackmail than the rest of Brussels is.

Letter Reveals 2010 ECB Funding ‘Threat’ To Ireland (BreakingNews.ie)

A top-level threat to cut emergency European funding to Ireland days before the humiliating international bailout will shock people, Public Expenditure Minister Brendan Howlin has said. Letters released today by the European Central Bank (ECB) confirm the Government was warned crisis funds propping up collapsed banks in 2010 would be withdrawn unless they asked for an €85bn rescue package. The missive from then-ECB president Jean Claude Trichet to the late former Finance Minister Brian Lenihan also demanded a written commitment to punishing austerity measures, spending cutbacks and an overhaul of the financial industry. Irish high-street banks were surviving on emergency funding – known as emergency liquidity assistance (ELA) – at the time and if stopped, it could have effectively shut down the property crash-ravaged lenders.

Mr Trichet urged a speedy response to his proposals, which have been interpreted by some as the Frankfurt central bank pushing Ireland into a bailout. “It is the position of the (ECB) Governing Council that it is only if we receive in writing a commitment from the Irish government vis-a-vis the Eurosystem on the four following points that we can authorise further provisions of ELA (Emergency Liquidity Assistance) to Irish financial institutions,” Mr Trichet wrote. The four points included Ireland seeking a bailout, agreeing to austerity, reforming banks and guaranteeing to repay emergency funds. Two days after the letter was sent on November 19 Ireland officially requested a rescue package from the ECB, the International Monetary Fund and the European Commission. Minister Howlin said the letters – published after a years-long campaign for their release – would “come as a shock to many people”.

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OK, now we know this, go get ’em! Take ’em to court already!

GM Ordered New Ignition Switches Long Before Recall (WSJ)

General Motors ordered a half-million replacement ignition switches to fix Chevrolet Cobalts and other small cars almost two months before it alerted federal safety regulators to the problem, according to emails viewed by The Wall Street Journal. The parts order, not publicly disclosed by GM, and its timing are sure to give fodder to lawyers suing GM and looking to poke holes in a timetable the auto maker gave for its recall of 2.5 million vehicles. The recall concerns a switch issue that is now linked to 30 deaths and has led to heavy criticism of the auto giant’s culture and the launch of a Justice Department investigation.

The email exchanges took place in mid-December 2013 between a GM contract worker and the auto maker’s ignition-switch supplier, Delphi Automotive. The emails indicate GM placed a Dec. 18 “urgent” order for 500,000 replacement switches one day after a meeting of senior executives. GM and an outside report it commissioned have said the executives discussed the Cobalt at the Dec. 17 meeting but didn’t decide on a recall. The emails show Delphi was asked to draw up an aggressive plan of action to produce and ship the parts at the time. In the months that followed, the size of the recall announced Feb. 7 would balloon and spark an auto-safety crisis, casting a shadow over the industry and leading to widespread calls for faster action by auto makers addressing safety concerns.

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” … the Border Integrity Technology Enhancement Project.” Alternatively, they could just burn the $92 million. Or give it to people who need it.

A 700-Kilometre Surveillance Fence Along The Canada-US Border (NPost)

A massive intelligence-gathering network of RCMP video cameras, radar, ground sensors, thermal radiation detectors and more will be erected along the U.S.-Canada border in Ontario and Quebec by 2018, the Mounties said Tuesday. The $92-million surveillance web, formally known as the Border Integrity Technology Enhancement Project, will be concentrated in more than 100 “high-risk” cross-border crime zones spanning 700 kilometres of eastern Canada, said Assistant Commissioner Joe Oliver, the RCMP’s head of technical operations. Airport search not racial profiling when based on customs officers’ on-the-job experience: court Customs officers are not guilty of racial profiling when they use on-the-job experience to decide who to stop and search at Canada’s airports, the Federal Court of Appeal has ruled.

“Officers on the front line, such as the officer herein, cannot be expected to leave their experience — acquired usually after many years of observing people from different countries entering Canada — at home,” Justice Marc Nadon said, writing on behalf of a three-person appeal panel. Justice Nadon made the comment in overturning a tribunal decision that quashed an $800 fine imposed against an Ottawa woman, Ting Ting Tam, who failed to declare some pork rolls in her luggage. “The concept involves employing unattended ground sensors, cameras, radar, licence plate readers, both covert and overt, to detect suspicious activity in high-risk areas along the border,” Assistant Commissioner Oliver told security industry executives attending the SecureTech conference and trade show at Ottawa’s Shaw Centre. “What we’re hoping to achieve is a reduction in cross-border criminality and enhancement of our national security.”

The network of electronic eyes is to run along the Quebec-Maine border to Morrisburg, Ont., then along the St. Lawrence Seaway, across Lake Ontario, and ending just west of Toronto in Oakville. The project was announced under the 2014 federal budget, but framed solely as a measure to improve the RCMP’s ability to combat contraband cigarette smuggling. The network will be linked to a state-of-the-art “geospatial intelligence and automated dispatch centre” that will, among other things, integrate the surveillance data, issue alerts for high-probability targets, issue “instant imagery” to officers on patrol and produce predictive analysis reports.

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The OZ government doesn’t seem to be in sync with its people.

Australia ‘Giving Up’ On Renewables (BBC)

Investment into renewable energy projects in Australia has dropped by 70% in the last year, according to a new report by a climate change body. The Climate Council says foreign investors are going to other countries because Australia’s government has no clear renewable energy policy. Australia has gone from “leader to laggard” in energy projects, it added. Another new report says Australia will need to raise its carbon emission reduction target to 40% by 2025. The damning report on the state of renewable energy, entitled Lagging Behind: Australia and the Global Response to Climate Change, said the country was losing out on valuable business. Investment that could be coming to Australia was going overseas “to countries that are moving to a renewables energy future”, said Tim Flannery, one of the report’s authors. He said most countries around the world had accelerated action on climate change in the last five years because the consequences had become more and more clear.

The report found China had retired 77 gigawatts of coal power stations between 2006 and 2010 and aimed to retire a further 20GW by next year. It also said the US was “rapidly exploiting the global shift to renewable energy” by introducing a range of incentives and initiatives to investors. The future of Australia’s renewable energy industry remains highly uncertain, the report concluded, because of a lack of clear federal government renewable energy policy. “Consequently investment in renewable energy in 2014 has dropped by 70% compared with the previous year,” it said. The second new report, by the Climate Institute, calls on Australia’s government to announce an “independent, transparent” process for setting the post 2020 carbon emission reduction targets. Erwin Jackson, deputy chief executive of the climate body, said too much of the political debate had “ignored growing scientific, investment and international realities”.

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With the amounts being thrown around, it looks risky to pull out.

Australia Renewables Investment Drops 70% From Last Year (Tim Flannery)

Australia’s most important trading partners and allies, such as China, the US and the European Union are strengthening their responses to climate change. Australia will be left in the wake of these big economies (and big emitters), according to the latest Climate Council report Lagging Behind: Australia and the Global Response to Climate Change. Australia’s retreat from being a global leader at tackling climate change is as impressive as our recent performances at the cricket. Looking on the bright side, even countries not known for their sunshine like Germany are going solar in a big way. Global momentum is building as more and more countries invest in renewable energy and put a price on carbon. 39 countries are putting a price on carbon. The EU and China (now with seven pilot schemes up and running) are home to the two largest carbon markets in the world, together covering over 3,000m tonnes (MtCO2) of carbon dioxide emissions.

There’s also plenty of action in the US: 10 states with a combined population of 79 million are now using carbon pricing to drive down emissions, including California, the world’s ninth largest economy. Yet, here in Australia, we now hold the dubious distinction of being the first country to repeal an operating and effective carbon price. Like carbon pricing, support for renewables is also advancing worldwide. In the last year, more renewable energy capacity was added than fossil fuels. Globally renewables attracted greater investment with US$192bn spent on new renewable power compared to US$102bn in fossil fuel plants. China is leading the charge on expanding renewable capacity. At the end of last year, China had installed a whopping 378GW of renewable energy capacity – about a quarter of renewables capacity installed worldwide, and over seven times Australia’s entire grid-connected power capacity.

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Don’t let the GOP find out Obama spends $6 billion on African health care systems.

Why It’s Not Enough to Just Eradicate Ebola (NBC)

The new U.S. plan to spend $6 billion fighting Ebola has a hidden agenda that aid workers approve of: not only stamping out the epidemic in West Africa, but starting to build a health infrastructure that can prevent this kind of thing from happening again. President Barack Obama’s $6.18 billion request is an enormous amount of money – six times what the U.S. has already committed and far more even than what the World Health Organization says is needed. Most is going for full frontal assault on Ebola – one that hasn’t really gotten off the ground yet, months into an epidemic that has been out of control despite an outcry from international groups and governments alike. But billions are also being quietly allocated to building a health care system in the countries suffering the most – a less sexy approach that could prevent another epidemic in the future. Most aid groups are focused on eradicating the virus, which has infected at least 13,000 people, probably more, and killed at least 5,000 of them.

That’s where the public support is; donors and taxpayers alike prefer to focus on a specific goal, and an emergency always gets attention. “Had we had those things in place, we would have detected this a lot earlier.” “We are not really a developmental organization,” said Dr. Armand Sprecher of Médecins Sans Frontières (Doctors Without Borders), one of the main groups fighting Ebola in West Africa. MSF focuses on providing targeted medical care. And while that has to be the first priority, it’s important to keep an eye on the long game, says Dr. Raj Panjabi, a founder and CEO of Last Mile Health, an aid group focused on helping people in the most remote corners of the world. “The goal has to be to not just contain Ebola,” Panjabi told NBC News. Ebola spread silently in villages and remote communities where there were no health care workers to diagnose Ebola and no way for them to report it even if they did catch it. “Had we had those things in place, we would have detected this a lot earlier,” said Panjabi.

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Jul 102014
 July 10, 2014  Posted by at 2:48 pm Finance Tagged with: , , ,  17 Responses »

Gottscho-Schleisner Rockefeller Center NYC, RCA Building Sep 1 1933

As fear begins to scare the vanguard of the herd into what may develop into a rampage, the eurocrisis is back with a vengeance. Portuguese bank Esperito Santo leads the way down through missed payments, bringing the Lisbon exchange to its knees with a -4.5% plunge as I write this, with northern EU exchanges showing -1.5% losses and southern ones -2.5%. Markets start to realize than all PIIGS now have much higher state debts than before the crisis started, and that they still are very much big risks, no matter what Draghi and his never fired bazooka say. The same Draghi who, by the way, reiterated once again that Brussels should be given more – and more centralized – power. As if the May election never happened. Of course EU finances were always a mess; it’s just that now we can see it.

So, that taken care of, let’s turn to another mess: energy. Ambrose Evans-Pritchard has a nice piece out in which he labels the oil, gas and coal industry “the subprime of this cycle”. And as always, he has a lot of interesting data, and undermines them with his own analysis. It’s what he does. Still, if we simply ignore his personal views, there is plenty to “enjoy”. It’s not as if The Automatic Earth hasn’t but the energy market, especially shale, down to size sufficiently, but it’s always nice to have some new numbers, certainly when they’re absurdly large:

Fossil Industry Is The Subprime Danger Of This Cycle

The epicentre of irrational behaviour across global markets has moved to the fossil fuel complex of oil, gas and coal. This is where investors have been throwing the most good money after bad. [..] Data from Bank of America show that oil and gas investment in the US has soared to $200 billion a year. It has reached 20% of total US private fixed investment, the same share as home building.

This has never happened before in US history, even during the Second World War when oil production was a strategic imperative. The International Energy Agency (IEA) says global investment in fossil fuel supply doubled in real terms to $900 billion from 2000 to 2008 as the boom gathered pace. It has since stabilised at a very high plateau, near $950 billion last year.

All that investment looks for production that more and more vanishes beyond a receding horizon. That’s why there is so much of it: it gets more expensive, fast, to find new reserves that can actually be produced. Whether they can, if they are found at all, be produced at an economically viable level is quite another question, and one to which answers are mostly kept conveniently opaque. Big Oil is in a big bind, but oil and gas is what they do, whether it’s available or not. These companies are fighting a bitter fight just to stay alive, and given their economic and political power, that fight is sure to get very ugly.

The cumulative blitz on exploration and production over the past six years has been $5.4 trillion, yet little has come of it. Output from conventional fields peaked in 2005. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years.

“What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14%,” said Mark Lewis, from Kepler Cheuvreux. The damage has been masked so far as big oil companies draw down on their cheap legacy reserves. “They are having to look for oil in the deepwater fields off Africa and Brazil, or in the Arctic, where it is much more difficult. The marginal cost for many shale plays is now $85 to $90 a barrel.”

Upstream costs are up 200%, output rose just 14%. That’s just plain nasty. A few days ago we saw a report that said a joint Shell and Aramco gas project in Saudi Arabia, which cost tens of billions of dollars, came up utterly empty handed, despite the fact that the IEA claims there are trillions of cubic feet in reserves “available” there. That’s the kind of issue Big Oil runs into. And then they invest more. I think it was the Marcellus play that saw its estimates cut by 95% or so recently. Much of the industry runs on insanely optimistic estimates these days, lest nobody wants to fund their exploits any longer. You better look good than feel good.

A report by Carbon Tracker says companies are committing $1.1 trillion over the next decade to projects that require prices above $95 to break even. The Canadian tar sands mostly break even at $80-$100. Some of the Arctic and deepwater projects need $120. Several need $150. Petrobras, Statoil, Total, BP, BG, Exxon, Shell, Chevron and Repsol are together gambling $340 billion in these hostile seas.

Martijn Rats, from Morgan Stanley, says the biggest European oil groups (BP, Shell, Total, Statoil and Eni) spent $161 billion on operations and dividends last year, but generated $121 billion in cash flow. They face a $40 billion deficit even though Brent crude prices were buoyant near $100, due to disruptions in Libya, Iraq and parts of Africa. “Oil development is so expensive that many projects do not make sense,” he said.

The word “gambling” is well chosen. Thousands of billions are laid out on the crap table. Big Oil wants nothing more than rising gas prices. But western economies – plus China, Japan – would implode if prices went even “just” to $150 a barrel. The price itself would increase their profits, but the economic collapse it would cause would take those profits away again.

… the sheer scale of “stranded assets” and potential write-offs in the fossil industry raises eyebrows. IHS Global Insight said the average return on oil and gas exploration in North America has fallen to 8.6%, lower than in 2001 when oil was trading at $27 a barrel.

A large chunk of US investment is going into shale gas ventures that are either underwater or barely breaking even, victims of their own success in creating a supply glut. One chief executive acidly told the TPH Global Shale conference that the only time his shale company ever had cash-flow above zero was the day he sold it – to a gullible foreigner.

The Oxford Institute for Energy Studies says the Eagle Ford Dry Gas field, the Marcellus WC T2 and “C” Counties, Powder River, Cotton Valley, among others, are all losing money at the current Henry Hub spot price of $4.50. “The benevolence of the US capital markets cannot last forever,” it said.

In 2001, when prices were a quarter of what they are, profit margins were higher. That’s how much production costs have gone up in just 13 years. Many if not most shale plays are already losing money, kept alive by financial speculation, not energy returns. But it may take a while before people understand how that works: shale is still lauded as the big savior. Even Ambrose begs to differ:

This does not mean shale has been a failure. Optimists still hope it will reach a “positive inflexion point” in five years or so, the typical pattern for a fledgling industry. … the low-hanging fruit has been picked and the costs are ratcheting up. Three Forks McKenzie in Montana has a break-even price of $91.

Nor does it mean that America has made a mistake. Shale has been a timely shot in the arm, helping the US economy achieve “escape velocity” from the Great Recession, unlike Europe, which lurched back into a double-dip recession. It has whittled down the US current account deficit, now just 2% of GDP. Cheap gas costs – a third of EU prices and a quarter of Asian prices – has brought US industry back from near death, perhaps for long enough to give America another two decades of superpower ascendancy. But making money out of shale is another matter.

Ambrose needs to read up on depletion rates for shale wells. Shale is a financial play, not an energy source. At least, not for more than a few years. “Another two decades of superpower ascendancy” is just silly. And he himself quoted the Oxford Institute for Energy Studies, which states very clearly why that is: “The benevolence of the US capital markets cannot last forever.” Nor the benevolence of other capital markets, for that matter.

Then he turns to another issue that faces Big Oil:

Even if the fossil companies navigate the next global downturn more or less intact, they are in the untenable position of booking vast assets that can never be burned without violating global accords on climate change. The IEA says that two-thirds of their reserves become fictional if there is a binding deal limit to CO2 levels to 450 particles per million (ppm), the maximum deemed necessary to stop the planet rising more than two degrees centigrade above pre-industrial levels. It crossed the 400 ppm threshold this spring, the highest in more than 800,000 years.

“Under a global climate deal consistent with a two degrees centigrade world, we estimate that the fossil fuel industry would stand to lose $28 trillion of gross revenues over the next two decades, compared with business as usual,” said Mr Lewis. The oil industry alone would face stranded assets of $19 trillion, concentrated on deepwater fields, tar sands and shale.

Now those are numbers! Now we’re getting somewhere. Can anyone imagine Shell and ExxonMobil giving up on $1.4 trillion in revenue, year after year, for 20 years? I sure can’t. Look, Germany is supposed to be this green economy, but they’ve increased their – brown – coal use substantially recently, to make up for lost nuclear power. It’s nice to talk about ideals, Obama is increasingly chiming in, but legislating Big Oil out of existence is a whole other thing. And so is collapsing your own economy through $15 a gallon prices at the pump.

By their actions, the oil companies implicitly dismiss the solemn climate pledges of world leaders as posturing, though shareholders are starting to ask why management is sinking so much their money into projects with such political risk. This insouciance is courting fate. President Barack Obama’s new Climate Action Plan aims to cut US emissions by 30% below 2005 levels by 2030. His Clean Air Act is a drastic assault on coal-fired power plants, “industrial sabotage by regulatory means” in the words of the industry lobby.

China too is trying to break free of coal after anti-smog protests across the cities of the Eastern Seaboard. It is shutting down its coal-fired plants in Beijing this year. There is a ban on new coal plants in key regions. The Communist Party’s Five-Year Plan aims to cap demand at 3.9 billion tonnes a year up to 2015. Since the country consumes half the world’s coal supply, this has left Australia’s coal industry high and dry, Exhibit number one of assets stranded by a sudden policy change. Peak coal demand is in sight.

Sounds nice, and – almost – believable, but what are we, and our leaders, going to do when these measures raise energy prices beyond affordability? What will be our priority? Cleaner and poor, and richer and dirty? At best, we won’t know the answer to that until we’re forced to provide it; answering it today, from a position of affluence, doesn’t count. As for coal: the harder it gets to find more oil, the more attractive it will seem to switch to the most abundant fossil to keep our feet and our children warm.

In any case, staggering gains in solar power – and soon battery storage as well – threatens to undercut the oil industry with lightning speed, perhaps in a race with cheap nuclear power from a coming generation of molten salt reactors. The US National Renewable Energy Laboratory has already captured 31.1% of the sun’s energy with a solar chip, but records keep being broken. Brokers Sanford Bernstein say we are entering an era of “global energy deflation” where gains in solar technology must relentlessly erode the viability of the fossil nexus, since it goes only in one direction.

Deep sea drilling will become pointless. We can leave the Arctic alone. Once the crossover point is reached – and photovoltaic energy already competes with oil, diesel and liquefied natural gas in much of Asia without subsidies – it must surely turn into a stampede. My guess is that the world energy landscape will already look radically different in the early 2020s.

Sure, renewables are developing, but there are so many issues left to conquer that evoking an 10 year timeline for a “radically different energy landscape” looks wild. Our economies, which are very far from healthy, would need to cough up tens of trillions of dollars to build both equipment and infrastructure, and we don’t and won’t have that kind of money available; we’d need to borrow it, and add to our Andes-high pile of existing debt. The switch, if it ever happens, will take much longer, so long that it’s highly doubtful it will ever happen.

And besides, as mentioned above, who among us is going to tell Big Oil, and all of its major shareholders and highly-placed supporters in Congress and other parliaments, that they’re going to have to leave $28 trillion on the table and walk away? And what do we think their answer will be? They’re zombies, but they have a direct line into the blood of both you and the people you vote for.

it’s nice and all to think up cute little scenarios of how we’re all going to have solar panels and windmills and live in a blessed clean world, but in the real world we live in today, there are deeply entrenched economic and political power divisions and equally deeply vested interests that are not simply going to walk peacefully into the sunset and leave the world’s biggest fortune behind, just so we can do what we want. Reality is always dirtier, and in more than one way, than we like to think.

More importantly, we simply don’t have the wealth left that would allow us to make “the switch” from fossils to renewables. The plunging US markets I see now that I’m finishing this piece are just one more confirmation of that.

If Ever The Stock Market Flashed A ‘Sell’ Signal, It’s Now (MarketWatch)

I know what you’re thinking. You’re thinking: Is this market going to go up another 10%? I have no idea. But this being a powerful market that can blow your account clean off if you’re wrong, you’ve gotta ask yourself: “Do I feel lucky?” Most investors seem to feel pretty confident that this market will never go down. But if you’ve studied bear markets, you know how this story will end. Don’t forget: Human nature never changes.At the point of maximum giddiness (or pain if you’re short-selling), the market always teaches investors a costly lesson. Right now, investors are chasing yield, but all it takes is one bad day to wipe out a year’s worth of gains. Sentiment indicators such as Investors Intelligence are at historic highs (that is bearish), and the RSI Wilder indicator is telling us the market is seriously overbought.

Yes, the market can still go higher, but it’s on borrowed time. Don’t believe me? When you are standing 17,000 points in the air at the top of Dow Mountain, and the market is priced for perfection, there is nowhere to go but down. Although the market still has room to rise, so do interest rates. In fact, the odds are very good that interest rates will creep higher, and this will affect bonds and stocks. There is also an 800-pound gorilla in the room, and that is inflation. Shoppers already know that inflation is spreading. For example, cereal boxes are getting smaller while prices are rising. The price of orange juice and other commodities are skyrocketing. I could give a dozen more examples.

The Fed seems to want inflation, as if it’s desirable. Here’s what I say to the Fed: Be careful what you wish for. Here’s how the market odds look to me: At the most, the upside is 5% or 10%, while the downside is potentially 25% or 30%. I’m not saying the market is going to fall that much, but in previous bear markets that’s exactly what happened (or worse) over several months or years. Like the game of three-card monte, while most investors are celebrating the all-time highs, prudent investors are looking underneath the hood. For example, the number of stocks making new highs is shrinking every week. And the stocks that are making new highs are not leading stocks, but many unknowns. That’s a red flag.

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What else is there?

Art Cashin: ‘Ultra High’ Level Of Leverage In Stock Market (CNBC)

Big moves in a handful of stocks provided traders with a worrying signal—an “ultra-high” level of leverage in the stock market, veteran trader Art Cashin told CNBC on Wednesday. The trend could mean more volatility going forward, he added. Cashin said he saw a dozen stocks make 7% to 8% moves on Tuesday without any specific headlines to justify those swings. That left traders curious, and Cashin said they settled on high levels of leverage as a culprit behind the moves. “People must be three or four times normal leverage,” Cashin said. “We’ve seen margin accounts go up. We knew the hedge funds were playing. But to see extreme moves like that on nonspecific news tells me there’s a lot of leverage out there. … If we start to get a protracted move, it could get very volatile.”

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Buyback Plunge Another Sign Bull Market Is Nearing Its End (MarketWatch)

Here’s another sign the bull market in stocks may be nearing an end: Companies have dramatically reduced share repurchases. New stock buybacks fell to $23.2 billion in June, the lowest level in a year and a half, according to fund tracker TrimTabs Investment Research. In May, the total was just $24.8 billion, and the monthly average in 2013 was $56 billion. That’s worrisome, according to TrimTabs CEO David Santschi, because “buyback volume has a high positive correlation with stock prices.” How high? Consider the correlation coefficient, a statistic that reflects the degree to which two series tend to zig and zag in lockstep. It ranges from plus 1 (which means the two series are perfectly correlated) to minus 1 (the two move inversely to each other). A zero correlation coefficient would mean there is no detectable relationship between the two series.

According to Santschi, the correlation coefficient between monthly buyback volume and the stock market’s level, for the period from 2006 until this spring, was 0.61. That’s highly statistically significant. A high correlation also makes theoretical sense. That’s because, when a company announces a share-repurchase program, it sends a strong signal that its management really thinks its stock is undervalued — so much so that it’s willing to put its money where its mouth is. So it’s bullish for the overall market when lots of companies are simultaneously announcing such programs. To be sure, the monthly buyback data are quite volatile, so two months of anemic numbers don’t automatically doom the market. Santschi, for one, says that, if the slow pace continues through July, “we will become very concerned.”

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If borrowed money is debt, what is borrowed time called?

‘Rotten Rotation’ Signals Bull Market Living On Borrowed Time (The Tell)

Market bulls, beware.The stock market’s push to another round of record highs has hidden a “rotten rotation” that belies investor fears that the economic-growth story isn’t all it’s cracked up to be, argues Mike Ingram, market strategist at London-based BGC Brokers, in a note. Ingram highlights how bulls are now arguing that there is more equity volatility than indexes suggest. It might seem odd that bulls are actively talking up the kind of volatility that investors — often wrongly, according to Ingram — equate with increased risk. But their conclusion is always “unambiguously upbeat,” he says, with bulls arguing that markets aren’t complacent and that investors are very much engaged and placing active bets on future growth. Needless to say, Ingram isn’t convinced:

It is notable that some of the best-performing sectors in equity markets this year are highly defensive — utilities and health care — while more economically sensitive sectors such as industrials and banks have struggled. In this regard at least, markets have yet to reflect the recovery that economists have been forecasting. Indeed the consensus view that investors position themselves in more cyclically exposed names did little better than pace the market in Q1 2014 and actually underperformed in the last quarter, even in the U.S. where growth seems reasonably entrenched.

He also notes that value stocks are still struggling to outperform growth stocks, which is worrying “because one would normally expect ‘value’ to re-rate as economic growth broadens out and the premium that investors are willing to pay for growth stocks falls.” “This hasn’t really happened,” Ingram says. He observes that even after the occasional “growth scare” over the past few months, notably on the tech-heavy, and therefore growth-heavy, Nasdaq Composite, the index is still poised to challenge its 14-year-old, dot-com-era high. It’s not just equities that are flashing cautious signals, he says. Long-term bonds have defied predictions for a rout to instead rally this year.

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Fed Moves Closer to Choosing Main Stimulus-Exit Tool (Bloomberg)

Federal Reserve officials moved closer to deciding on the main tool they will use to tighten monetary policy when the time comes, most likely next year. Most participants at the Federal Open Market Committee’s June meeting agreed that the interest rate on excess reserves banks keep on deposit at the Fed “should play a central role” in the exit from extraordinary monetary stimulus, according to minutes released today in Washington. Another tool, known as the overnight reverse repurchase facility, “could play a useful supporting role,” according to the minutes. The tool could be used to set the lowest rate at which holders of cash would be willing to lend.

The Fed now pays 0.25% interest on bank reserves deposited overnight at the central bank. By contrast, it pays 0.05% on cash it borrows through its reverse repo facility, which is used by institutions such as money-market funds, which can’t deposit money at the Fed. Many members of the FOMC judged at the June meeting that “a relatively wide spread — perhaps near or above the current level of 20 basis points — would support trading in the federal funds market and provide adequate control over interest rates,” according to the minutes. A narrower spread between the two rates would give the reverse repo facility a bigger role by increasing incentives for depositors to pull cash out of banks and put it in money-market funds in search of higher interest.

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Well, now you know. Want to keep your dough in shares?

Fed Plans To End Bond Purchases In October (MarketWatch)

Federal Reserve revealed in the minutes of its June meeting released Wednesday that it has decided to end its asset-purchase program in October if the economy stays on track. According to the new plan, the Fed will make a $15 billion final reduction at its October meeting, after trimming it by $10 billion at each meeting up to that point. Fed officials said that members of the public had asked them if the Fed would end the program in October or with a final $5 billion reduction in December. Most Fed officials said that the exact end of the tapering issue will have no bearing on the timing of the first rate hike.

The Fed has said that rates would remain near zero for a “considerable time” after the Fed halts its program of bond purchases. An end of the asset purchases will “set the clock on eventual tightening — which we think could start as soon as March 2015,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. Stocks dipped immediately after the Fed minutes were released but quickly moved higher. Bond yields also had a brief move higher after the report. The minutes also reveal that Fed officials had a lengthy discussion of its exit strategy. The central bankers generally agreed to keep reinvesting the proceeds of securities that mature on its balance sheet until after it had hiked interest rates.

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Controlled demolition.

Rate Rise Chatter Grows As Bond Yields Climb (FT)

The radar screens of investors have long been clear of the one blip guaranteed to sound the alarm for risk taking and financial complacency: interest rate rises by central banks. In the UK and US, economists and bond traders are monitoring when the long period of near zero official rates set by the Federal Reserve and the Bank of England will finally end, a moment that may matter greatly for roaring equity and credit bull markets. Since the financial crisis peaked in early 2009, investors, homeowners and companies have greatly benefited from aggressive monetary policy actions in the US and UK that have lowered the cost of borrowing and muted market volatility.

Asset prices have boomed with risk taking in stocks and credit approaching levels last seen at the height of the prior boom in 2007, as bullish sentiment has been nurtured by the easy money policies of key central banks. Such investor complacency has not escaped the attention of policy makers, with this week’s Fed meeting minutes from June raising the topic. That comes after Mark Carney, governor of the BoE, caused a stir by saying the first rate hike “could happen sooner than markets currently expect”. While central bankers, including Mr Carney, stress they are in no rush to tighten policy in the absence of real wage growth, chatter about the timing of rate increases stands to grow a lot louder should economic activity continue to pick up over the summer.

Stronger employment figures in the UK and US have already driven policy-sensitive short-dated bond yields noticeably higher in recent weeks. The two-year UK Gilt yield has led the charge, touching its highest level since the summer of 2011, while on Wednesday the US equivalent briefly eclipsed last September’s peak of 0.53%, the high water mark of last year’s interest rate rout. “There is scope for markets to be surprised should the BoE and Fed change course, that’s the nature of monetary policy,” says Paul Ashworth of Capital Economics. But unlike past rate hike periods, he says the eventual peak will be lower. “Both BoE and Fed officials have stressed that they will raise rates gradually and the neutral rate will be lower.

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Yes. They are.

Are Bond Managers Getting Antsy? (CNBC)

Markets have frustrated widespread expectations for bond yields to rise this year, but some bond managers are still antsy and are looking to protect their portfolios’ liquidity against sudden market moves. “A sudden rise in U.S. short rates could easily entice fast outflows from higher yielding bond funds,” Jan Loeys, head of global asset allocation at JPMorgan, said in a note last month. In the post-financial crisis era, tougher regulations mean banks can’t step in to take advantage of fire sales and parts of the credit market could potentially freeze up in a worst-case scenario, he said. The possibility is one that other credit managers considered. “That risk is always there,” said Harsh Agarwal, head of Asia credit research at Deutsche Bank. “With the heavy amount of supply we’ve seen so far this year, there might not be takers on the way down when things turn,” Agarwal said.

But he noted that analysts now expect interest rates won’t rise until 2015, pushing the risks further out. That hasn’t stopped some fund managers from starting to prepare the decks. JPMorgan is trimming the long exposure to bonds in its model portfolio in favor of more liquid assets, such as equities, Loeys said. It isn’t alone in worrying about the risks to bond market liquidity once interest rates begin rising. “We definitely recognize the situation,” said Jonathan Liang, senior portfolio manager for fixed income at AllianceBernstein. “We got a small taste of that last year between May and June with when people panicked.” Since then, AllianceBernstein has bolstered the liquidity management measures in its open-ended mutual funds, he said.

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Abe should be sent to Elba.

Japan Machinery Orders Fall 19.5% On Month In May (Reuters)

Japan’s core machinery orders unexpectedly fell 19.5% in May from the previous month, government data showed on Thursday, casting doubt over the outlook for a pickup in capital spending. The month-on-month decrease in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, compared with economists’ median estimate of a 0.7% gain in a Reuters poll of economists. That followed a 9.1% fall in April, data compiled by the Cabinet Office showed. Compared with a year earlier, core orders, which exclude ships and electric power utilities, declined 14.3% in May, versus a 9.5% gain expected. The Cabinet Office cut its assessment on machinery orders, saying the increasing trend was seen stalling.

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Why trust any number coming out of Beijing?

China Trade Picture Improves, But Data Underwhelm (CNBC)

China released improved trade data that missed expectations on Thursday, figures that suggest external demand remains weak and domestic recovery fragile, analysts say. The country’s exports rose 7.2% from the year ago period, lower than the 10.6% rise predicted by a Reuters poll and after gaining 7% in May. Imports climbed an annual 5.5%, versus Reuters’ forecast for a 5.8% rise but reversing a 1.6% contraction in May. That brings trade balance to a surplus of $31.6 billion, compared with $35.92 billion logged in May. “June export growth was somewhat disappointing given that most had expected a weak base for comparison to push it into double digit territory.

That said, it remains stronger than import growth, which continues to be affected by the slowdown in the property sector,” Julian Evans-Pritchard, China economist with Capital Economics, said it a note. The Australia dollar eased following the news, while most Asian stocks gave up earlier gains while Japan’s Nikkei extended losses. China’s exports gained traction in recent months, helped by an improving U.S. economy and as the government took measures to aid exporters, including providing more tax breaks, credit insurance and currency hedging options. But imports have remained weak on sluggish demand. “We think the downside surprise in June export growth suggests a softer-than-expected pickup in China’s external demand, while the uptick in import growth points to a modest recovery in domestic demand,” said Jian Chang, analyst with Barclays.

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Did we mention China’s as corrupt as can be?

China Said to Probe Alleged Bank of China Money Laundering (Bloomberg)

China’s central bank and currency regulator are investigating a state media report that alleged Bank of China Ltd. broke rules on transferring money overseas, two government officials familiar with the matter said. The probe focuses on whether Bank of China violated regulations in its operations or aided money laundering, the people said, asking not to be named as they aren’t authorized to speak publicly on the matter. Starting an investigation doesn’t mean the Beijing-based bank has done anything wrong, they said. Bank of China, the nation’s largest foreign-exchange lender, yesterday denied a report by China Central Television claiming that it circumvented the rules by helping customers transfer unlimited amounts of yuan overseas and convert it into other currencies through a product called “Youhuitong.”

The bank said it introduced a cross-border yuan transfer service in 2011 with the knowledge of authorities. Chinese foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert into other currencies at $50,000 each year and ban them from transferring yuan abroad directly. Policy makers have taken steps in recent years including allowing freer movements of capital in and out of China as they seek to boost the global stature of the yuan. Media reports referring to “an ‘underground bank’ and ‘money laundering’ are inconsistent with the facts,” Bank of China said in a statement on its website yesterday. The cross-border yuan transfer service only allows money to be moved for emigration and overseas property investment, it said. Youhuitong targets customers who wish to invest in or migrate to North America, Australia and some European countries, CCTV reported, referring to documents shown by unidentified Bank of China employees.

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Yay! 1000% more debt!

China Debt Seen Jumping Tenfold as Stocks Overtake Japan by 2030 (Bloomberg)

China’s corporate bond issuance will surge 10-fold by 2030 and the nation’s stock market will overtake the U.K. and Japan to become the world’s second largest, according to Credit Suisse. Bond sales in the biggest developing country will increase to $32 trillion, while the market value of stocks will jump to $54 trillion, lagging only the U.S., the Swiss bank’s research institute said in a report yesterday. Emerging markets’ share of global equity market capitalization will increase to 39% by 2030 from 22% now, the bank said. With the benchmark Shanghai Composite Index down 66% from its peak in 2007, the government has been opening up its capital markets by doubling the daily trading band of the yuan and allowing foreign investors to buy the nation’s shares through Hong Kong’s stock exchange.

China’s $9 trillion economy is already the world’s second largest behind the U.S. “The disparity between developed and emerging nations in the global capital market universe will close by 2030,” Stefano Natella, the global head of equity research at Credit Suisse in New York, said in a statement. “This should be driven by a disproportionately large contribution from emerging market equity and corporate bond supply and demand.” China’s equity market is the world’s fifth largest with a market capitalization of $3.4 trillion, according to data compiled by Bloomberg. The U.S. is the biggest at $23.5 trillion.

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Catch fire with fire.

US Uses New Tactic To Crack Laundering Cases (Reuters)

U.S. prosecutors are using a new tactic to crack down on banks that fail to fight money laundering: systematically asking suspects in a wide range of criminal cases to help them follow the money back to their bankers. The efforts are paying off in probes of banks and other financial institutions now filling the prosecution pipeline, according to Jonathan Lopez, who last month left his post as deputy chief of the Justice Department’s Money Laundering and Bank Integrity Unit (MLBIU). “Asking criminals the simple question ‘Who is moving your money?’ can lead the Department of Justice to a financial institution’s doorstep,” said Lopez, who declined to identify specific targets. The department confirmed the stepped up reliance on criminal informants in anti-money laundering investigations, but also declined to discuss probes underway.

The four-year-old MLBIU, which includes a dozen prosecutors, is responsible for insuring that financial institutions adhere to U.S. laws including the main U.S. anti-money laundering law, the Bank Secrecy Act (BSA). It has filled in an enforcement gap among federal financial regulators who lack the capacity or expertise to aggressively pursue money-laundering cases. The Justice Department has begun seeking banking information not only from perpetrators of fraud and drug traffickers, but also from suspects linked to the full range of criminal activity, said Lopez, who is now an attorney at Orrick, Herrington & Sutcliffe LLP in Washington. Many criminals seeking reduced punishment have pointed fingers at banks, casinos, money transfer businesses, check cashers, broker-dealers and other financial institutions, he said.

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Kick the loonie!

The Market Could Be Shocked By The Bank Of Canada (CNBC)

The Bank of Canada has a problem: Bank Governor Stephen Poloz was counting on a weak currency to boost exports and drive the economic recovery but things haven’t gone entirely his way. The USD/CAD started the year around 1.06, rose to about 1.12 in March and has since fallen back to around 1.06. In Q1 the CAD was the world’s worst performing major currency, with a total return of -3.5% vs USD; in Q2 it was the best performing G-10 currency, with a total return of +3.8%. The reason for the currency’s good performance is that investors became more confident about Canada’s outlook as the U.S. economy accelerated and energy prices turned up. According to the Commodity Futures Trading Commission (CFTC) Commitment of Traders report, speculators had been considerably short CAD since early 2013, but in the most recent reporting week they flipped to being a tiny bit long (about 2,700 contracts). It’s not much, but the fact that they’re no longer short is significant.

However, this could be the case of a self-destroying prophecy. Everyone knows a self-fulfilling prophecy: when all investors think something is likely to happen, for example that gold is going to go up, then they buy gold and of course it go up! A self-defeating prophecy would be the opposite: one that might go right, but since everyone acts on it, it goes wrong. That’s what I believe is going to happen here. The Canadian economy is indeed improving, but a good part of that improvement is due to exports. The latest Business Outlook Survey showed that the Canadian economy’s biggest hope remains overseas demand, particularly from the U.S. Exporters seemed notably more optimistic about the future than companies supplying the domestic market. So the Bank of Canada has to keep the currency from appreciating in order to keep the recovery going. Governor Poloz, who was previously the head of Canada’s export-promotion agency Export Development Canada, naturally understands this.

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Draghi’s a fool. Get out of the EU!

Draghi Says Brussels Needs Higher Powers as Leaders Quarrel (Bloomberg)

European Central Bank President Mario Draghi said the region needs more-centralized powers to push governments to overhaul their economies. “There is a case for some form of common governance over structural reforms,” Draghi said in a speech in London yesterday. “This is because the outcome of structural reforms, a continuously high level of productivity and competitiveness, is not merely in a country’s own interest. It is in the interest of the union as a whole.” Draghi has repeatedly said the ECB’s ultra-loose monetary policy isn’t sufficient to sustain the euro area’s fragile recovery if governments backslide.

European Union finance ministers meeting in Brussels this week signaled a willingness to give politicians extra leeway so long as they take measures to fix their economies. They then clashed as Italian Prime Minister Matteo Renzi pushed back against austerity measures. “Historical experience, for example of the International Monetary Fund, makes a convincing case that the discipline imposed by supranational bodies can make it easier to frame the debate on reforms at the national level,” Draghi said. “I would see merits in initiating, as a one-off, a new convergence process within the euro area – one which ensures that all countries are truly in a position to benefit from membership.”

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Bail in your banker’s bonus.

Germany to Force Creditors to Prop Up Struggling Banks in 2015 (WSJ)

Germany plans to force creditors into propping up struggling banks beginning in 2015, one year earlier than required under European-wide plans that set rules for failing financial institutions, according to a senior German finance ministry official.From next year, struggling bank creditors, in addition to shareholders, will have to help financial institutions, covering up to 8% of liabilities, before the banks can tap Germany’s financial markets stabilization fund SoFFin, said the official, who declined to be identified. Germany also plans to operate the SoFFin rescue fund until the end of 2015 to bridge the time until a European-wide restructuring fund is in place. The stabilization fund was scheduled to be dissolved this year. The plan comes as Europe’ banking supervisor, the European Banking Authority, conducts a new round of stress tests aimed at making the European Union’s financial sector more resilient. The results, expected for the end of October, might reveal a need for fresh capital.

Banks failing the tests have then up to six months to raise fresh capital from private investors. Bankers say that keeping SoFFin alive longer is a sign that the government wants to make sure that the country’s regional public-sector lenders, or Landesbanken, would have a last resort should the stress test unveil a capital shortfall. The move also underscores that the separate institution winding down the bad assets from former German lender Hypo Real Estate needs to continue its work. Germany’s government earlier this year halted the planned sale of Hypo Real Estate’s Dublin-based Depfa Bank unit, choosing instead to wind down the unit. Germany’s new bail-in rules are part of a package of German legislation on the European banking union, an ambitious project to centralize bank supervision in the euro zone and, when banks fail, to organize their rescue or winding-up at a European level.

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You betcha.

Mortgage Deals Leave Thousands Vulnerable If House Prices Fall (Telegraph)

A “glut” of mortgage deals aimed at buyers with small deposits pushed the number of homeowners vulnerable to a slump in property prices to a post-crisis high in June, according to the UK’s biggest chartered surveyor. The number of households that took out mortgages with deposits of 15pc or less of a property’s value rose to 10,898 in June, up from 9,750 in May and 7,166 a year ago, according to e.surv. This means that high loan-to-value (LTV) lending now accounts for one in five of all new mortgages, the highest level since April 2008. This compares with just one in nine mortgages a year ago.

The e.surv data also revealed a prominent north-south divide in high LTV lending in June. More than a quarter of borrowers in the North West and Yorkshire took out high LTV loans, compared with just 7pc in London. It said lower wages in these regions meant an increasing number of borrowers were struggling to save for a deposit. While the current levels are below those seen pre-crisis, when the number of high LTV loans reached 41,745 in February 2007 – or one in three loans – it means a growing number of households are at risk of falling into negative equity should prices fall sharply. Negative equity occurs when the size of a mortgage exceeds the price of the property it is secured against. Many homeowners were plunged into negative equity after the financial crisis because they took out high LTV mortgages only for property prices to fall in the downturn.

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Lots of economies hide unemployment rates inside “self-employment”.

Fall In UK Wages 20% Steeper Than Thought (Guardian)

Average wages in Britain have fallen further than official figures show after a huge shift into low-paid self-employment since the financial crash, according to a report by a leading thinktank. The fall in wages could be 20% greater than currently estimated across the whole workforce once Britain’s 4.5 million self-employed people are included in pay figures, said the Resolution Foundation. A real-terms fall of 10% in average wages since 2008 would increase to more than 12% if a 27% fall in self-employed incomes is taken into account. Before the Bank of England’s decision on interest rates at its monthly meeting, the thinktank said the exclusion of pay figures for the self-employed gave a skewed picture of the health of the UK’s labour market.

Officials on the Bank’s monetary policy committee, which sets interest rates, are understood to be concerned that the exclusion of self-employed incomes from official figures hampers their efforts to gauge when to increase the cost of credit. Laura Gardiner, a senior analyst at the Resolution Foundation and the author of the paper, said official figures used by the Bank and other policymakers gave “a picture that’s incomplete at best and sometimes misleading”. She said: “What we know about earnings is central to our understanding of the recovery and the timing of interest rate rises so it’s crucial that we equip ourselves with the best possible wage measure.” More than 700,000 people have declared themselves self-employed since 2008, bringing the total number of people who work for themselves to 4.5 million or one in seven of the total. Over the same period only 260,000 workers have been added to the ranks of the employed on a net basis, said the report.

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Price Of UK Electricity To Double Over Next 20 Years (Guardian)

The price of electricity could double over the next two decades, according to forecasts published on Thursday by the National Grid, the company responsible for keeping Britain’s lights on. The current price of wholesale electricity is below £50 per megawatt hour but could soar to over £100 by 2035 under a “high case” example used in the Grid’s UK Future Energy Scenarios report. The group, which is the main pipes and pylons operator in England and Wales, predicts the wholesale gas price could rise from 70p per therm to around 100p per therm under another high case scenario. The cost of electricity has already risen 20% since 2009 and the company blames future increases on the number of coal-fired power stations being closed plus the cost of subsidising wind farms.

“Electricity prices for the high case and base case scenarios are assumed to increase over the next few years due to decreasing margins as coal-fired plants retire due to the Large Combustion Plants Directive [European anti-pollution] legislation and some gas-fired plants are mothballed,” says the document. “All prices increase post-2020 as the costs of low carbon generation increasingly factor into the power price,” it adds. The Grid admits the estimates are based on the lowest “baseload” cost at which the electricity is available rather than any “peak” costs during periods of high demand. The latest forecasts – although combined with more modest price rises under different scenarios – will worry householders and energy-intensive businesses already struggling with the impact of higher bills.

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Fossil Industry Is The Subprime Danger Of This Cycle (AEP)

The epicentre of irrational behaviour across global markets has moved to the fossil fuel complex of oil, gas and coal. This is where investors have been throwing the most good money after bad. They are likely to be left holding a clutch of worthless projects as renewable technology sweeps in below radar, and the Washington-Beijing axis embraces a greener agenda. Data from Bank of America show that oil and gas investment in the US has soared to $200bn a year. It has reached 20pc of total US private fixed investment, the same share as home building. This has never happened before in US history, even during the Second World War when oil production was a strategic imperative. The International Energy Agency (IEA) says global investment in fossil fuel supply doubled in real terms to $900bn from 2000 to 2008 as the boom gathered pace. It has since stabilised at a very high plateau, near $950bn last year.

The cumulative blitz on exploration and production over the past six years has been $5.4 trillion, yet little has come of it. Output from conventional fields peaked in 2005. Not a single large project has come on stream at a break-even cost below $80 a barrel for almost three years. “What is shocking is that upstream costs in the oil industry have risen threefold since 2000 but output is up just 14pc,” said Mark Lewis, from Kepler Cheuvreux. The damage has been masked so far as big oil companies draw down on their cheap legacy reserves. “They are having to look for oil in the deepwater fields off Africa and Brazil, or in the Arctic, where it is much more difficult. The marginal cost for many shale plays is now $85 to $90 a barrel.”

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Flint is Michael Moore territory. Been a desert for ages.

After Detroit, Another City Ponders Bankruptcy (AP)

As Detroit works to emerge from bankruptcy following a court-supervised overhaul, another Michigan city with strong auto industry bonds could be on the brink of beginning the same process, the latest sign that the spate of municipal defaults may not have ended. Flint, which was the birthplace of General Motors and once had 200,000 residents, also has suffered a spectacular drop in population and factory jobs and a corresponding rise in property abandonment, much like its insolvent big brother an hour’s drive south. If a judge rules against Flint’s effort to cut its retiree health care benefits, the city is expected to join about a dozen cities or counties to seek court relief since the beginning of the recession. “If we don’t get any relief in the courts … we are headed over the same cliff as Detroit,” said Darnell Earley, the emergency manager appointed by Gov. Rick Snyder to manage Flint’s finances. “We can’t even sustain the budget we have if we have to put more money into health care” for city workers.

Before Detroit, the largest local government bankruptcy filing was in Jefferson County, Alabama in November 2011. The county emerged last year after reorganization of its $4 billion in debt. Court proceedings continue for the California cities of Stockton, San Bernardino, and Mammoth Lakes, all of which filed in 2012. The greatest threat of new cases may be in Michigan, where about a dozen cities, many of them small, and four school districts are under state control. The state unemployment rate still is 7.3%, and some entities remain saddled with underfunded pension plans. That Flint might follow Detroit, which filed in July 2013, isn’t surprising given their shared circumstances. Both once were boomtowns brimming with auto jobs for collars white and blue. General Motors employed about 80,000 in the area in the early 1970s. Fewer than 8,000 GM jobs remain. The city’s population has fallen to just below 100,000.

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Anyone surprised?

Second Silent Spring? Bird Declines Linked to Popular Pesticides (NatGeo)

Pesticides don’t just kill pests. New research out of the Netherlands provides compelling evidence linking a widely used class of insecticides to population declines across 14 species of birds. Those insecticides, called neonicotinoids, have been in the news lately due to the way they hurt bees and other pollinators. This new paper, published online Wednesday in Nature, gets at another angle of the story—the way these chemicals can indirectly affect other creatures in the ecosystem. Scientists from Radboud University in Nijmegen and the Dutch Centre for Field Ornithology and Birdlife Netherlands (SOVON) compared long-term data sets for both farmland bird populations and chemical concentrations in surface water. They found that in areas where water contained high concentrations of imidacloprid—a common neonicotinoid pesticide—bird populations tended to decline by an average of 3.5% annually.

“I think we are the first to show that this insecticide may have wide-scale, significant effects on our environment,” said Hans de Kroon, an expert on population dynamics at Radboud University and one of the authors of the paper. Pesticides and birds: If this story sounds familiar, it’s probably because Rachel Carson wrote about it back in 1962. Carson’s seminal Silent Spring was the first popular attempt to warn the world that pesticides were contributing to the “sudden silencing of the song of birds.” “I think there is a parallel, of course,” said Ruud Foppen, an ornithologist at SOVON and co-author of the Nature paper. Foppen says that while Carson battled against a totally different kind of chemicals—organophosphates like DDT—the effects he’s seeing in the field are very much the same. Plainly stated, neonicotinoids are harming biodiversity. “In this way, we can compare it to what happened decades ago,” he said. “And if you look at it from that side, we didn’t learn our lessons.”

In the past 20 years, neonicotinoids (pronounced nee-oh-NIK-uh-tin-oyds) have become the fastest growing class of pesticides. They’re extremely popular among farmers because they’re effective at killing pests and easy to apply. Instead of loading gallons and gallons of insecticide into a crop duster and spraying it over hundreds of acres, farmers can buy seeds that come preloaded with neonicotinoid coatings. Scientists refer to neonicotinoids as “systemic” pesticides because they affect the whole plant rather than a single part. As the pretreated seed grows, it incorporates the insecticide into every bud and branch, effectively turning the plant itself into a pest-killing machine.

This lock, stock, and barrel approach to crop protection means that no matter where a locust or rootworm likes to nibble—the root, the stem, the flower—the invader winds up with a bellyful of neurotoxins. “The plants become poison not only for the insects that farmers are targeting, but also for beneficial insects like bees,” said Jennifer Sass, a senior scientist with the Natural Resources Defense Council (NRDC) who’s been building a case against the widespread use of neonicotinoids. The pesticide’s top-to-bottom coverage means the plants’ flowers, pollen, and nectar are all poisonous too. Worse still, Sass says, neonicotinoids can persist in the soil for years. This gives other growing things a chance to come into contact with and absorb the chemicals.

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