Aug 222017
 
 August 22, 2017  Posted by at 8:35 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Pierre Bonnard Nude in an Interior c1935

 

Periods Of Re-Pricing Are Usually Quick And Brutal (Roberts)
US House Price Bubbles 2.0 (Hanson)
QE Is Like Heroin, Says Former UK Treasury Official (G.)
UK Credit Card Lending Booms As Real Wages Fall (Ind.)
Cash is Not The Curse (Mark GB)
US Gross National Debt to Spike by $800 Billion in October? (WS)
Why Peter Costello Is Not Even Half Right On Housing (ND)
Diminishing Returns (Jim Kunstler)
What Would A US Civil War Look Like? (Copley)
Hate is the New Sex (Greer)
Greece Concerns Peak Amid Sudden Spike In Refugee Arrivals (K.)
US Farmers Confused By Monsanto Weed Killer’s Complex Instructions (R.)
UK Blasted Over ‘Shocking’ Export Of Deadly Weedkiller To Poorer Countries (G.)
The Blue Dogs of Mumbai (G.)

 

 

And the longer re-pricing is postponed, through QE etc., the steeper the fall will be.

Periods Of Re-Pricing Are Usually Quick And Brutal (Roberts)

1. Stock prices run in cycles. Periods of re-pricing are usually quick and powerful.

7. Your first loss will often be your best loss. No one is right all the time and you don’t have to be. There are market participants that are immensely profitable by being right only 30% of the time. It is good to have conviction in your investment thesis, but discipline should always trump conviction.

8. Optimism and pessimism in the stock market are contagious. Investor psychology often loses its logic and become emotional. The news media and the most recent price action play a particularly important role in developing moods of mass optimism or pessimism.

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Debt slaves.

US House Price Bubbles 2.0 (Hanson)

A big problem with house prices experiencing even a “moderate” correction of 10% to 20% — already underway in many of the most over-priced regions — is with between 40% and 50% of all house purchases for years being of the “less than 10% down” variety — and because it takes 8% to 10% equity to sell plus the 3% to 10% down payment on the new house — it doesn’t take much downside to swamp the nation in “NEGATIVE EQUITY” once again. And we know for certain that many homeowners rather pay their credit cards and car payments before their mortgage when they are underwater.

ITEM 1) Household income INCREASE needed to Buy the Median Priced House in Key Cities. Bottom Line: On a “national” basis the divergence isn’t too bad…6%. But, in the key cities that drive the US economy, Bubble 2.0 has blown large. This represents significant downside, especially in the sand states, just like in Bubble 1.0.

ITEM 2) DIVERGENCE between Actual Household Income & Income Needed to Buy the Median Priced House. Bottom Line: Here too, on a “national” basis the divergence isn’t too bad…-6%. But, in the key cities that drive the US economy, Bubble 2.0 has blown large.

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It’s worse, actually. Heroin cold turkey is doable though hard. QE cold turkey is definitely not.

QE Is Like Heroin, Says Former UK Treasury Official (G.)

A former senior Treasury mandarin has compared quantitative easing to heroin and called for an end to almost a decade of electronic money printing by central banks. Nick Macpherson was permanent secretary to the Treasury when Bank of England officials started buying UK government bonds to stimulate the economy following the financial crisis. On Monday, he said it was “time to move on” from QE, which is credited with helping Britain into recovery but remains in use nine years later amid concerns over Brexit. Threadneedle Street initially began pumping £200bn into the gilt market in 2009 to boost the economy, before expanding the programme to £435bn, including an extra £60bn following the EU referendum. The bond buying scheme is similar to massive stimulus packages used by other countries, such as the Fed’s $4.5tn of asset purchases (£3.5tn) and the ECB ’s €2.3tn (£2.1tn) plan.

Lord Macpherson’s call comes as pressure mounts on the world’s central bankers to give more clues about how they intend to exit QE in a process known as “normalisation” almost a decade on from the crash. Some indications could be given at a meeting of senior officials at Jackson Hole in the US later this week. Mario Draghi, the ECB governor, is expected to be the star turn at the event watched by global investors, although he is not thought to be preparing to announce the end of QE just yet. While QE is credited with lowering borrowing costs and helping banks to lend more to consumers and businesses, critics say such schemes inflate assets owned by the richest in society, while punishing savers without large amounts of wealth. Macpherson did not single out the specific bond-buying programme of a particular central bank. “QE like heroin: need ever increasing fixes to create a high. Meanwhile, negative side effects increase. Time to move on,” he wrote on Twitter.

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And after all the QE, people are poorer than before.

UK Credit Card Lending Booms As Real Wages Fall (Ind.)

UK consumers are increasingly purchasing goods on plastic with the number of transactions on credit and debit cards jumping 12% in the last year. The increase was the fastest annual rise in the number of card transactions since 2008 and comes after warnings from the Bank of England about the growth of personal debt. Shoppers spent 7.2% more on all types of cards in the year to the end of June, despite real wages falling over the period, data from industry body UK Finance showed. The total value of credit and charge card purchases increased 6.9% over the 12 months with credit card lending accelerating in April, May and June to an annual growth rate of 9%. During those three months, the number of people defaulting on their credit card bills and personal loans “increased significantly”, the Bank of England said in a recent report.

The rise comes as official figures show real earnings have declined. Average pay rose at an annual rate of 2.1% in the three months to June – well below the inflation rate of 2.6% in the year to the end of June. Overall consumer spending was up 1.3% in the year to July, the Office for National Statistics said in a separate release this month. Peter Tutton, head of policy at StepChange debt charity, expressed concern at the findings. “With our research estimating 3.2 million people are using credit cards to pay for everyday household expenses, the growing stock of credit card debt should focus attention on households in financial difficulties,” he said. Mr Tutton said the growth in credit card cash advances was particularly worrying. This type of borrowing is expensive and can be a warning sign that borrowers are facing financial difficulty.

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More on Ken Rogoff and Larry Summers’ crazy ideas of power over people’s money.

Cash is Not The Curse (Mark GB)

There’s a pub in the Welsh hills, not far from where I live, called ‘The Tylers Arms’ – pronounced ‘tillers’. The name originated, I believe, in the 18th century. The local villagers, who all worked on the land, would go there to pick up their wages in the form of ‘tyles’ – some of which would be immediately exchanged for beer, and thus returned to the landowner…who also owned the pub…and the local store. Thus, the ‘tyles’ circulated regularly, providing employment & cheap produce for the villagers, a steady and almost ‘captive’ profit for the landowner, and stability for the community. As the industrial revolution progressed some of the larger UK manufacturers adopted a similar system, but using fiat currency – e.g. there is a ‘village’ in Birmingham known as Bourneville, which was built by the Cadbury family.

Now before anyone thinks I’ve got unresolved baggage on feudalism, a ‘downer’ on capitalism, or a yearning for socialism…hold your horses please…this is about something far more serious than the ‘isms’. This is about who controls the money. The folks who do that…can, and do, call the tune for the rest of us. And that’s what I want to talk about here.

These days our monetary masters are much more sophisticated – our ‘tyles’ are pieces of paper backed by government fiat. You can work for pretty much whomever you like, and you can buy from whomever you like, but one way or another the government will take a cut of everything you earn and everything you spend. You can do the odd ‘swapsie’ with your pals but you can’t pay taxes with home grown tomatoes – the IRS don’t do vegetables – they can’t digitise them or create them with a keystroke so veggies would confuse the poor dears.

What happens next is technical and varies between territories, so let’s just deal with the ‘myth’: The taxman’s ‘cut’ is used to boost the economy on your behalf by spending it on useful things like building roads and bridges. It also includes an ever-growing list of things that you didn’t even realise you need, like cruise missiles & other stuff that goes ‘BANG’, along with other seemingly ‘essential’ services like bribing foreign governments and funding ‘moderate rebels’ to remove the foreign governments that can’t be bribed. Clearly we’ve come a long way from tyles, especially in the case of the dollar, which can used to bribe governments on seven continents. The chap who owned the Tillers never dreamt of such power – this is considered to be progress…

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Now that Goldman rules the White House, default risk is definitely down.

US Gross National Debt to Spike by $800 Billion in October? (WS)

“There is zero chance, no chance we won’t raise the debt ceiling,” swore Senate Majority Leader Mitch McConnell (R., Ky.) at an event in Louisville, Kentucky, on Monday. He who couldn’t get his Republican ducks all lined up in a row to get any major legislation passed this year was confident that the Senate would pass a bill that would raise the debt ceiling so that the government could continue to pay for things that Congress told the Government to pay for, and so that the government could service its debts, rather than default on them. Treasury Secretary Steven Mnuchin was there with him, pleading once again for a “clean” debt-ceiling increase, according to the Wall Street Journal. His “magic super Treasury powers” that allow the government to conserve cash to avoid having to issue more debt will expire at the end of September, he said.

“This is not about spending money,” he said. “This is about paying for what we’ve spent, and we cannot put the credit of the United States on the line.” The debt ceiling is just under $20 trillion. While the government can issue bonds to redeem maturing bonds – and it does this all the time – it cannot allow the gross national debt to go beyond the debt ceiling. But because it has to continue to pay for things that Congress mandated in its various spending bills over the years, the Treasury scrounges up the money from other government accounts, robbing Peter to pay Paul, so to speak. For example it temporarily short-changes the Civil Service Retirement and Disability Fund. These “extraordinary measures,” as they’re called, or the “magic super Treasury powers,” as Mnuchin called it, run out after a while.

Mnuchin said in his last letter to Congress that the out-of-money-date is September 29. But as in the past, the real out-of-money date can probably be stretched into October. These shenanigans make the entire world shake its collective head and pray that Congress, after going through its charade, will for the umpteenth time raise the debt limit. The other option is a US default. Its global consequences are too ugly to even imagine. But this charade has some peculiar effects, beyond its entertainment value: for months on end, it covers up the true extent of US government debt, and the current surge of this debt. This chart shows the gross national debt going back to 2011, including the last two debt-ceiling fights. Note the long flat lines leading into October or November, followed each time by an enormous spike:

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A good example of exatly how stuck governments and central banks are after blowing housing bubbles. There was an Australian tycoon this week who said the Oz bubble won’t pop because people are too heavily invested in property…

Why Peter Costello Is Not Even Half Right On Housing (ND)

When former treasurer Peter Costello called on Monday for interest rates to be ‘normalised’ upwards to stop Australia’s credit bubble getting any larger, he was very nearly half right. As long as the Reserve Bank keeps the official cash rate at the record low of 1.5%, the economy will become increasingly “unbalanced”, as he put it. And although struggling families will protest that they can’t afford higher mortgage repayments, the other side of that coin is that each successive wave of first home owners is taking on even higher debts. The longer that super-low rates persist, the more debt the banks will be able to balance on the shoulders of new home buyers. That has already created huge property-based inequality. But Mr Costello’s comments weren’t focused on that imbalance – he’s worried about the impact that unstable house prices or teetering banks could have on economic growth more generally.

He told The Australian that “once [the price of] money returns to more normal levels” Australia could face a “big problem” with asset prices and the housing market. Quite right, but what could prevent that? A gradual increase in rates will not, in itself, ‘fix’ the housing market. To do that, two other abnormalities need to be addressed. The one mentioned most by Mr Costello’s side of politics is the availability of suitable dwellings – the ‘supply problem’. That is a wildly misunderstood problem, so I will look at it separately in coming days. But bigger than either low rates or the supposed ‘supply problem’ is the abnormality that Mr Costello himself created – tax laws that reward investors for making annual losses in the housing market, so as to reap lightly-taxed capital gains years down the track.

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“..an impenetrable smokescreen of legal blather in the service of racketeering.”

Diminishing Returns (Jim Kunstler)

These two words are the hinge that is swinging American life — and the advanced techno-industrial world, for that matter — toward darkness. They represent an infection in the critical operations of daily life, like a metabolic disease, driving us into disorder and failure. And they are so omnipresent that we’ve failed to even notice the growing failure all around us. Mostly, these diminishing returns are the results of our over-investments in making complex systems more complex, for instance the replacement of the 37-page Glass-Steagall Act that regulated American banking, with the 848 page Dodd-Frank Act, which was only an outline for over 22,000 pages of subsequent regulatory content — all of it cooked up by banking lobbyists, and none of which replaced the single most important rule in Glass-Steagall, which required the separation of commercial banking from trafficking in securities.

Dodd-Frank was a colossal act of misdirection of the public’s attention, an impenetrable smokescreen of legal blather in the service of racketeering. For Wall Street, Dodd-Frank aggravated the conditions that allow stock indexes to only move in one direction, up, for nine years. During the same period, the American economy of real people and real stuff only went steadily down, including the number of people out of the work force, the incomes of those who still had jobs, the number of people with full-time jobs, the number of people who were able to buy food without government help, or pay for a place to live, or send a kid to college. When that morbid tension finally snaps, as it must, it won’t only be the Hedge Funders of the Hamptons who get hurt. It will be the entire global financial system, especially currencies (dollars, Euros, Yen, Pounds, Renminbi) that undergo a swift and dire re-pricing, and all the other things of this world priced in them.

And when that happens, the world will awake to a new reality of steeply reduced possibilities for supporting 7-plus billion people. The same over-investments in complexity have produced the racketeering colossus of so-called health care (formerly “medicine”), in case you’re wondering why the waiting room of your doctor’s office now looks exactly like the motor vehicle bureau. Meanwhile, it’s safe to say that the citizens of this land have never been so uniformly unhealthy, even as they’re being swindled and blackmailed by their “providers.” The eventual result will be a chaotic process of simplification, as giant hospital corporations, insurance companies, and overgrown doctors’ practices collapse, and the braver practitioners coalesce into something resembling Third World clinics.

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“..such a conflict – physical or political – could, equally, lead to a victory for nationalism over globalism, and to the protection of currencies and values.”

What Would A US Civil War Look Like? (Copley)

There is little doubt that the US, despite the evidence that economic recovery is at hand, could spiral into a self-destructive descent of dysfunction, dystopia, and anomie. The path toward a “second civil war” has significant parallels with the causes of the first US Civil War (1861-65). Both events — the 19th Century event and a possible 21st Century one — saw the polarization of a fundamentally urban, abstract society against a fundamentally regional, traditional society. In some respects, it is a conflict between people with long memories (even if those memories are flawed and selective) and people to whom memories and history are irrelevant. Equally, it is a conflict between identity and materialism, with the abstract social groups (the urban populations) the most preoccupied with short-term material gain.

I have covered the US for 50 years, and my earliest view of it was, a half century ago, that its populations would inevitably polarize into protective islands of self-interest, surrounded by seas of unthinking locusts. What is ironic is that the present islands of wealth and power — the cities — have come to represent short-term materialism, as cities have throughout history. But what is interesting is that, despite the global attention on the political/geographic polarizations occurring in the US and other parts of the Western world, there has been a reversion in other parts of the world to a sense of Westphalian or pre-Westphalian nationalism. The fact that “the West” may have ring-fenced Iran, Russia, and so on, with sanctions and other forms of isolation may well be what ensures their enduring status.

They have avoided the contagion of globalism. Russia, indeed, recovered from the Soviet form of globalism in 1991. An urban globalist “victory” over Trump and Brexit would trigger that meltdown toward a form of civil societal collapse – civil war in some form or other – as the regions disavow the diktats of the cities. That would, in turn, bring about the global economic uncertainty which could impact the PRC and then the en-tire world. But such a conflict – physical or political – could, equally, lead to a victory for nationalism over globalism, and to the protection of currencies and values. We have seen this cycle repeated for millennia. It is the eternal battle.

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The Archdruid from a few weeks ago.

Hate is the New Sex (Greer)

It occurred to me the other day that there’s a curious disconnect between one of the most common assumptions most of us make about how to make the world better, on the one hand, and the results that this assumption has had when put into practice, on the other. It’s reminiscent of the realization that led James Hillman and Michael Ventura to title a once-notorious book of theirs We’ve Had A Hundred Years Of Psychotherapy And The World’s Getting Worse. In this case as in that one, something that’s supposed to make things better doesn’t seem to be doing the trick—in fact, quite the opposite—and it’s time that we talked about that. You know the assumption I have in mind, dear reader. It’s the conviction that certain common human emotions are evil and harmful and wrong, and the way to make a better world is to get rid of them in one way or another.

That belief is taken for granted throughout the industrial societies of the modern West, and it’s been welded in place for a very long time, though—as we’ll see in a moment—the particular emotions so labeled have varied from time to time. Just now, of course, the emotion at the center of this particular rogue’s gallery is hate. These days hate has roughly the same role in popular culture that original sin has in traditional Christian theology. If you want to slap the worst imaginable label on an organization, you call it a hate group. If you want to push a category of discourse straight into the realm of the utterly unacceptable, you call it hate speech. If you’re speaking in public and you want to be sure that everyone in the crowd will beam approval at you, all you have to do is denounce hate.

At the far end of this sort of rhetoric, you get the meretricious slogan used by Hillary Clinton’s unsuccessful presidential campaign last year: LOVE TRUMPS HATE. I hope that none of my readers are under the illusion that Clinton’s partisans were primarily motivated by love, except in the sense of Clinton’s love for power and the Democrats’ love for the privileges and payouts they could expect from four more years of control of the White House; and of course Trump and the Republicans were head over heels in love with the same things. The fact that Clinton’s marketing flacks and focus groups thought that the slogan just quoted would have an impact on the election, though, shows just how pervasive the assumption I’m discussing has become in our culture.

Now of course most people these days, when confronted with the sort of things I’ve just written, are likely to respond, “Wait, are you saying that hate is good?”—as though the only alternatives available are condemning something as absolutely bad or praising it as absolutely good. Let’s set that simplistic reaction to one side for the moment, and ask a different question: what happens when people decide that some common human emotion is evil and harmful and wrong, and decide that the way to make a better world is to get rid of it?

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Watch Erdogan. German elections coming up.

Greece Concerns Peak Amid Sudden Spike In Refugee Arrivals (K.)

A sudden spike in the number of undocumented migrants arriving from neighboring Turkey has led to concern on the part of Greek authorities, who expect the next few days to reveal whether the rapid increase is a random occurence or the beginning of a new trend. A total of 643 migrants who had set out from the Turkish coast landed on the islands of the eastern Aegean between Friday and Monday morning, according to government figures. Another 114 people arrived in two separate smuggling boats later on Monday, putting authorities on alert.

Early on Monday, a vessel belonging to the European Union’s border monitoring agency Frontex spotted a smuggling boat off the coast of Chios and intercepted the 53 migrants who had been aboard. Later in the day another 61 migrants were found in a boat that had reached Samos and were also detained. Tensions are already high in reception centers on several Aegean islands. Most of the facilities are at around twice their capacity as hundreds of migrants and refugees await the outcome of asylum applications or deportation orders. Tolerance has been tested in several island communities as dozens of migrants continue to arrive daily from nearby Turkish shores. There are currently more than 14,400 migrants living on camps on Lesvos, Chios, Samos, Kos and Leros.

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Confused? The instructions are impossible to follow, not confusing.

US Farmers Confused By Monsanto Weed Killer’s Complex Instructions (R.)

With Monsanto’s latest flagship weed killer, dicamba, banned in Arkansas and under review by U.S. regulators over concerns it can drift in the wind, farmers and weed scientists are also complaining that confusing directions on the label make the product hard to use safely. Dicamba, sold under different brand names by BASF and DuPont, can vaporize under certain conditions and the wind can blow it into nearby crops and other plants. The herbicide can damage or even kill crops that have not been genetically engineered to resist it. To prevent that from happening, Monsanto created a 4,550-word label with detailed instructions. Its complexity is now being cited by farmers and critics of the product. It was even singled out in a lawsuit as evidence that Monsanto’s product may be virtually impossible to use properly.

At stake for Monsanto is the fate of Xtend soybeans, it largest ever biotech seed launch. Monsanto’s label, which the U.S. Environmental Protection Agency (EPA) reviewed and approved, instructs farmers to apply the company’s XtendiMax with VaporGrip on its latest genetically engineered soybeans only when winds are blowing at least 3 miles per hour, but not more than 15 mph. Growers must also spray it from no higher than 24 inches above the crops. They must adjust spraying equipment to produce larger droplets of the herbicide when temperatures creep above 91 degrees Fahrenheit. After using the product, they must rinse out spraying equipment. Three times. “The restriction on these labels is unlike anything that’s ever been seen before,” said Bob Hartzler, an agronomy professor and weed specialist at Iowa State University. The label instructions are also of interest to lawyers for farmers suing Monsanto, BASF and DuPont over damage they attribute to the potent weed killer moving off-target to nearby plants.

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It’s not ‘shocking’, it’s criminal.

UK Blasted Over ‘Shocking’ Export Of Deadly Weedkiller To Poorer Countries (G.)

Paraquat, a pesticide so lethal that a single sip can be fatal, has caused thousands of accidental deaths and suicides globally, and was outlawed by EU states in 2007. But Swiss pesticide manufacturer Syngenta is exporting thousands of tonnes of the substance to other parts of the world from an industrial plant in Huddersfield. Campaigners have condemned the practice as an “astonishing double standard”, while a UN expert said it was deeply disquieting that the human rights implications of producing a substance for export that is not authorised in the EU were being ignored. “The fact that the EU has decided to ban the pesticide for health and environmental reasons, but they still export it to countries with far weaker regulation and far weaker controls, is shocking to me,” said Baskut Tuncak, the UN special rapporteur on toxic wastes.

Syngenta is responsible for 95% of Europe’s exports of paraquat, which it sells under the brand name Gramoxone. The substance can be absorbed through the skin and has been linked with Parkinson’s disease. Syngenta has exported 122,831 tonnes of paraquat from the UK since 2015, an average of 41,000 tonnes a year, according to export licensing data analysed by the Swiss NGO Public Eye and shared with the Guardian. Since 2015, when a facility in Belgium stopped exporting paraquat, all EU exports of the pesticide have come from Syngenta’s UK base, according to Public Eye. Almost two-thirds of these exports by volume – 62% – go to poor countries, including Brazil, Mexico, Indonesia, Guatemala, Venezuela and India. A further 35% is exported to the US, where paraquat can only be applied by licensed users.

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We are a brilliant species.

The Blue Dogs of Mumbai (G.)

Authorities in Mumbai have shut down a manufacturing company after it was accused of dumping untreated industrial waste and dyes into a local river that resulted in 11 dogs turning blue. The group of strangely coloured canines was first spotted on 11 August, according to the Hindustan Times, prompting locals to complain to the Maharashtra Pollution Control Board about dyes being dumped in the Kasadi river, where the animals often swim. Footage shows the animals roaming the streets with bright blue fur. “It was shocking to see how the dog’s white fur had turned completely blue,” said Arati Chauhan, head of the Navi Mumbai Animal Protection Cell, told the Times. “We have spotted almost five such dogs here and have asked the pollution control board to act against such industries.”

Chauhan had posted images of the blue dogs on the group’s Facebook page, saying the “pollutants from Taloja Industrial area not only ruining the water bodies affecting humans there but also affecting animals, birds, reptiles”. The board investigated, shutting down the company on Wednesday after confirming that canines were turning blue due to air and water pollution linked to the plant. An animal welfare agency managed to capture one of the dogs and wash some of the blue dye off. The group concluded that animal seemed unharmed in all other ways. The Kasadi River flows through an area with hundreds of factories.

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Feb 132017
 
 February 13, 2017  Posted by at 10:49 am Finance Tagged with: , , , , , , , , ,  10 Responses »
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New York City Under 26 Inches Of Snow, 1947

 

Why Does Economic Growth Keep Slowing Down? (StLouisFed)
The Market Will Be Repricing Dramatically Downward – Stockman (CNBC)
Jim Rogers: “A Lot Of People Will Disappear” (ZH)
US Trade Deficit Last Year Was Widest Since 2012 (WSJ)
Trump Reviews Top White House Staff After Tumultuous Start (Pol.)
Mike Flynn’s Position as National Security Adviser Grows Tenuous (WSJ)
Refugee-Embracing Trudeau Set to Bite His Tongue on Trump Visit (BBG)
Romania Protests Enter Day 13, Call For Government Of ‘Thieves’ To Resign (G.)
Germany Repatriates Gold Faster Than Planned As Faith In Euro Plunges (RT)
Brussels’ Hypocrisy Over The Closing Of Borders (Nikos Devletoglou)
Greece: The Low-Noise Collapse Of An Entire Country (FE)

 

 

Even though the St. Louis Fed people can’t seem to read their own numbers properly, or at least interpret them, here it is. As the Automatic Earth has said for many years: the peak of our wealth was sometime in the 1970’s or even late 1960’s.

Everything after that was borrowed or printed. Here’s the proof. Sent this to Nicole earlier saying ‘We’ve been vindicated by the Fed itself.’ “Real GDP growth fell and leveled off in the mid-1970s, then started falling again in the mid-2000s”

Why Does Economic Growth Keep Slowing Down? (StLouisFed)

The U.S. economy expanded by 1.6% in 2016, as measured by real GDP. Real GDP has averaged 2.1% growth per year since the end of the last recession, which is significantly smaller than the average over the postwar period (about 3% per year). These lower growth rates could in part be explained by a slowdown in productivity growth and a decline in factor utilization. However, demographic factors and attitudes toward the labor market may also have played significant roles. The figure below shows a measure of long-run trends in economic activity. It displays the average annual growth rate over the preceding 40 quarters (10 years) for the period 1955 through 2016. (Hence, the first observation in the graph is the first quarter of 1965, and the last is the fourth quarter of 2016.)

Long-run growth rates were high until the mid-1970s. Then, they quickly declined and leveled off at around 3% per year for the following three decades. In the second half of the 2000s, around the last recession, growth contracted again sharply and has been declining ever since. The 10-year average growth rate as of the fourth quarter of 2016 was only 1.3% per year. Total output grows because the economy is more productive and capital is accumulated, but also because the population increases over time. The next figure compares long-run growth rates of real GDP and real GDP per capita. Both series display similar behavior. Although population growth has been slowing, the effect is not big enough to change the qualitative results described above. The third figure adds long-run growth rates of real GDP divided by the labor force. Dividing by the labor force instead of the total population accounts for the effects of changing demographics and labor market attachment.

From the 1970s until the 2000s, long-run growth rates of real GDP divided by the labor force remained well below those of real GDP per capita. There are two main factors that explain this: 1) Lower fertility and longer lifespans steadily increased the potential labor force relative to the total population. 2) Labor force participation increased significantly from the 1960s until 2000, largely driven by increased female labor force participation. When accounting for both of these factors, economic activity from 1975 to 1985 looks more depressed than in the two decades that followed. This seems consistent with the negative effects that the 1970s oil shocks and efforts to reduce inflation in the early 1980s had on the economy.

The trend in labor force participation reversed in 2000, as participation rates have been steadily decreasing since then. This explains why real GDP divided by labor force growth rates are now higher than real GDP per capita growth rates. Having accounted for the long-term effects of changes in demographics and labor market attitudes, we can now look at the effects of productivity growth and factor utilization. The final figure compares long-run growth rates in real GDP divided by the labor force with long-run growth rates in total factor productivity and long-run averages of capacity utilization (i.e., the actual use of installed capital relative to potential use). Note that data for capacity utilization are only available since 1967.

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“The market is apparently pricing in a huge Trump stimulus. But if you just look at the real world out there, the only thing that’s going to happen is a fiscal bloodbath and a White House train wreck like never before in U.S. history.”

The Market Will Be Repricing Dramatically Downward – Stockman (CNBC)

Stocks are booming under President Donald Trump, but long-time critic David Stockman warns traders are living in a “fantasy land” that can’t last —and Trump’s policies will derail the market for years to come. The former Reagan administration OMB director appeared on CNBC’s “Futures Now”last week to emphasize that Trump has become seemingly distracted by issues other than his proposed economic agenda. That should be a particular point of worry for investors, who Stockman argued have been far more optimistic about Trump’s presidency than might be warranted by the facts. In other words, while all three major market indexes continued to hit record highs last week, the former Reagan aide sees the current market rally as moot and not reflective of the current political climate.

“What’s going on today is complete insanity,” said Stockman. “The market is apparently pricing in a huge Trump stimulus. But if you just look at the real world out there, the only thing that’s going to happen is a fiscal bloodbath and a White House train wreck like never before in U.S. history.” Since the election, the S&P 500 Index has rallied more than 8%, the Nasdaq about 6% and the Dow Jones Industrial Average a whopping 10%. Last week, all three benchmarks rallied to new record highs. Yet if anything, according to Stockman’s predictions, those gains may be lost. Most of Trump’s actions “[have] nothing to do with the economic agenda” he’s proposed, Stockman told CNBC. That, along with a debt ceiling debate that will take place on March 15 in Congress, and a market rally that has gone on for a while, leads Stockman to think that a big downturn is on the way.

“There’s going to be no tax action this year,” said Stockman, echoing the concerns of Goldman Sachs and a few other Wall Street economists who say Trump’s plans for the economy are facing mounting political risks. Last week, the president vowed that tax reform could happen this year, and promised an announcement within the next few weeks. “If there’s any next year it will be deficit neutral, which means it’s not going to add the $15 to earnings like these people expect,” Stockman said, speaking of the rosy expectations of some analysts who think tax reform could boost corporate earnings in the medium-term. “My argument is there is not going to be any economic rebound, there is not going to be any profit surge,” Stockman added. “Therefore the market will be repricing dramatically downward once it’s clear that that’s the case.”

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Rogers adds a new dimension of doom: “..a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear.”

Jim Rogers: “A Lot Of People Will Disappear” (ZH)

On the Greater Depression… …get prepared because we’re going to have the worst economic problems we’ve had in your lifetime or my lifetime and when that happens a lot of people are going to disappear. In 2008 Bear Stearns disappeared, Bear Stearns had been around over 90 years. Lehman Brothers disappeared. Lehman Brothers had been around over 150 years. A long, long time, a long glorious history they’ve been through wars, depression, civil war they’ve been through everything and yet they disappear. So the next time around it’s going to be worse than anything we’ve seen and a lot of institutions, people, companies even countries, certainly governments and maybe even countries are going to disappear.

I hope you get very worried. When you start having bear markets as you I’m sure well know one bad thing happens and another bad thing happens and these things snowball just like in bull markets good news comes out then more good news comes out the next thing you know you’re five or six or seven years into a bull market. Well bear markets do the same thing and so we have a lot of bad news on the horizon. I haven’t even gotten to war. I haven’t even gotten to trade war or anything like that but you know things do go wrong.

On Trump and the possibility of trade wars…and real wars Mr. Trump has also said he’s going to have trade war with China, Mexico, Japan, Korea a few other people that he has named. He swore that on his first day in office he would impose 45% tariffs against China. He’s been there three weeks, two or three weeks and he hasn’t done it yet but he still got it in his head I’m sure or maybe he’s just another politician like all the rest of them. He says one thing and he doesn’t mean it at all but he does have at least three people in high levels in his group who are very, very keen to have trade wars with China and other people.

If he does that Eric, it’s all over. I mean history is very clear that trade wars always lead to problems, often to disaster, sometimes even to real war, a shooting war. So I don’t know, I’m not sure Mr. Trump knows. He said so many things and many of the things are contradictory. Now if he’s not going to have trade wars with various people then chances are for a while happy days are here… [The dollar is] going to go too high, may turn into a bubble, at which point I hope I’m smart enough to sell it because at some point the market forces are going to cause the dollar to come back down because people are going to realize, oh my gosh, this is causing a lot of turmoil, economic problems in the world and it’s damaging the American economy. At that point the smart guys will get out. I hope I’m one of them.

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Sputtering engines all around.

US Trade Deficit Last Year Was Widest Since 2012 (WSJ)

The U.S. logged a $502.25 billion trade deficit in 2016, the largest in four years and a gap President Donald Trump is setting out to narrow to bolster the U.S. economy. The new president faces obstacles in the coming months and years, including the potential for a stronger dollar, larger federal budget deficits and low national saving rates compared with much of the rest of the world, all of which could force trade deficits to widen. As in past years, the 2016 gap reported Tuesday by the Commerce Department reflected a large deficit for U.S. trade in goods with other countries, offset in part by a trade surplus for services. The gap in terms of goods only was $347 billion with China last year, $69 billion with Japan, $65 billion with Germany and $63 billion with Mexico.

For December, the total trade gap decreased 3.2% from November to a seasonally adjusted $44.26 billion. Exports rose 2.7%, including increased sales of civilian airplanes and aircraft engines. Imports were up 1.5% in December, including a rise in car imports. [..] The interplay between trade, growth and employment is complex and difficult to manage. The U.S. has run trade deficits for decades, during periods of expansion and low unemployment as well as during recessions and high unemployment. The gap widened starting in the late 1990s with China’s emergence as a world trading power and recent research shows a surge of imports from China put downward pressure on U.S. wages and manufacturing employment.

Economists generally say trade has overall if uneven benefits, including lower prices for consumers.In 2016, the total deficit rose modestly from the prior year to its highest dollar level since 2012. But it shrank slightly to 2.7% as a share of U.S. economic output after hovering at 2.8% of GDP in 2013 through 2015. The gap fundamentally reflects the fact that Americans consume more than they produce relative to the rest of the world. To shrink the gap, they would either have to produce more or consume less. If Americans consumed less, the deficit could contract along with the broader economy, as happened during the 2001 and 2007-2009 recessions, leaving workers no better off. To produce more, U.S. firms could export more or take market share from imports. Tariffs could help that happen, but other countries might retaliate.

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This was always going to happen. It’s been clear from the start that not all these people would last very long. It’s Trump-style: throw out some stuff and see what sticks. And this is where the anti-Trump stance of the media bites: WaPo or CNN or NYT or in this case Politico have lost any and all signs of objectiveness. Which colors their reporting on this too, or so one must assume. We could have done with some credible sources.

Trump Reviews Top White House Staff After Tumultuous Start (Pol.)

President Donald Trump, frustrated over his administration’s rocky start, is complaining to friends and allies about some of his most senior aides — leading to questions about whether he is mulling an early staff shakeup. Trump has told several people that he is particularly displeased with national security adviser Michael Flynn over reports that he had top-secret discussions with Russian officials about and lied about it. The president, who spent part of the weekend dealing with the Flynn controversy, has been alarmed by reports from top aides that they don’t trust Flynn. “He thinks he’s a problem,” said one person familiar with the president’s thinking. “I would be worried if I was General Flynn.”

Yet Trump’s concern goes beyond his embattled national security adviser, according to conversations with more than a dozen people who have spoken to Trump or his top aides. He has mused aloud about press secretary Sean Spicer, asking specific questions to confidants about how they think he’s doing behind the podium. During conversations with Spicer, the president has occasionally expressed unhappiness with how his press secretary is talking about some matters — sometimes pointing out even small things he’s doing that he doesn’t like. Others who’ve talked with the president have begun to wonder about the future of Chief of Staff Reince Priebus. Several Trump campaign aides have begun to draft lists of possible Priebus replacements, with senior White House aides Kellyanne Conway and Rick Dearborn and lobbyist David Urban among those mentioned.

Gary Cohn, a Trump economic adviser who is close with senior adviser Jared Kushner, has has also been the subject of chatter. For now, Priebus remains in control as chief of staff. He was heavily involved in adviser Stephen Miller’s preparation for appearances on Sunday morning talk shows, which drew praise from the president. If there is a single issue where the president feels his aides have let him down, it was the controversial executive order on immigration. The president has complained to at least one person about “how his people didn’t give him good advice” on rolling out the travel ban and that he should have waited to sign it instead of “rushing it like they wanted me to.” Trump has also wondered why he didn’t have a legal team in place to defend it from challenges.

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A very strange position to be in for a career intelligence man.

Mike Flynn’s Position as National Security Adviser Grows Tenuous (WSJ)

The White House is reviewing whether to retain National Security Adviser Mike Flynn amid a furor over his contacts with Russian officials before President Donald Trump took office, an administration official said Sunday. Mr. Flynn has apologized to White House colleagues over the episode, which has created a rift with Vice President Mike Pence and diverted attention from the administration’s message to his own dealings, the official said. “He’s apologized to everyone,” the official said of Mr. Flynn. Mr. Trump’s views toward the matter aren’t clear. In recent days, he has privately told people the controversy surrounding Mr. Flynn is unwelcome, after he told reporters on Friday he would “look into” the disclosures.

But Mr. Trump also has said he has confidence in Mr. Flynn and wants to “keep moving forward,” a person familiar with his thinking said. Close Trump adviser Steve Bannon had dinner with Mr. Flynn over the weekend, according to another senior administration official, and Mr. Bannon’s view is to keep him in the position but “be ready” to let him go, the first administration official said. Mr. Trump’s son-in-law and senior adviser, Jared Kushner, as of Sunday evening hadn’t yet weighed in, the official said. Mr. Flynn initially said that in a conversation Dec. 29 with the Russian ambassador, Sergey Kislyak, he didn’t discuss sanctions imposed that day by the outgoing Obama administration, which were levied in retaliation for alleged Russian interference in the 2016 presidential election.

Mr. Flynn now concedes that he did, administration officials said, after transcripts of his phone calls show as much. He also admits he spoke with the ambassador more than once on Dec. 29, despite weeks of the Trump team’s insisting it was just one phone call, officials said. Mr. Pence, in television interviews, vouched for Mr. Flynn, based on a private conversation, and he was angered he repeated information publicly that turned out to be untrue, administration officials said. Messrs. Pence and Flynn spoke twice on Friday, one official said. If Mr. Flynn had promised any easing of sanctions once Mr. Trump took office, he may have violated a law that prohibits private citizens from engaging in foreign policy, legal experts have said.

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Who does the headlines at Bloomberg?

Refugee-Embracing Trudeau Set to Bite His Tongue on Trump Visit (BBG)

More than two decades ago, with Donald Trump already atop a real-estate empire, a young Justin Trudeau set out to explore the world. He toured Europe and Africa with friends, hiding their beer from customs agents before boarding the Trans-Siberian railway to China. On the train, he sketched, read “War and Peace” and gazed at the remnants of the Soviet Union. It was a defining trip, he’d later write, that left him praising both diversity and compromise. Both values will be tested Monday. The now-45-year-old Canadian prime minister – hailed by Joe Biden as one of the last champions of liberalism – heads to Washington for his first meeting with the new U.S. president, 70, whose bellicose statements and immigration restrictions reveal a deep gulf between the two leaders. But U.S. liberals hoping for Trudeau to emerge as Trump’s foil shouldn’t hold their breath.

He’s already bit his tongue and focused almost exclusively on an economic relationship that accounts for three-quarters of Canada’s exports. The White House visit will test just how far Trudeau can go to woo the president and preserve trade without selling out his core values. “We both got elected on commitments to strengthen the middle class, and support those working hard to join it,” Trudeau said last week. “And that’s exactly what we’re going to be focused on.” He has little choice. Nearly two-thirds of all Canadian trade is with the U.S., the highest ratio of Group of 20 nations and quadruple all but Mexico. Almost all of Canada’s oil goes to the U.S. and most of the country’s manufacturing is geared toward meeting U.S. demand. Americans hold C$2.3 trillion ($1.8 trillion) in Canadian assets, almost exactly the same amount held by Canadians in the U.S. A Deutsche Bank report this month that looked at the potential impact of Trump policies on all the U.S.’s major partners found Canada would be among the hardest hit, forcing the country to cede about $70 billion in trade to the U.S. [..]

The threats to Canada from Trump’s agenda go beyond trade. Trump has shown an interest in overhauling the U.S. tax system in a way that would impose financial disincentives against imports. The border-adjusted tax plan would focus levies on domestic income and imports while exempting exports and offshore income. It has met opposition from retailers and oil refiners but is supported by major exporters. It’s unclear whether the president fully favors that approach. All this, however, is unlikely to be detailed Monday. Instead, Trudeau will seek to lay out a joint economic narrative with Trump. The prime minister’s conciliatory spirit traces back to that Trans-Siberian railway trip. On New Year’s Eve 1994, Trudeau drank vodka with the conductor, captivated by stories but abhorred by “his casual racism to our fellow passengers,” he wrote in his autobiography.

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Corruption interrupted.

Romania Protests Enter Day 13, Call For Government Of ‘Thieves’ To Resign (G.)

Tens of thousands of Romanians have braved the cold and returned to the streets in protest, calling on the government to resign as they accused it of attempting to water down anti-corruption laws. “Thieves! Resign!” chanted protesters gathered in front of the seat of government in Bucharest on Sunday night, as they used the lights from their mobile phones to project the blue, yellow and red colours of the Romanian flag. Up to 50,000 protesters took part in the Bucharest march, according to Romanian media reports. The authorities did not give any estimate of their own. Some 20,000 more took to the streets in other major cities, calling on the government to stand down. “We want to give the government a red card,” one of the protesters, 33-year-old businessman Adrian Tofan, said.

Sunday’s demonstrations, the 13th consecutive day of protests against the government, took place despite the administration backing down over a planned controversial decree which would have made abuse of power a crime punishable by jail only if the sums involved exceeded 200,000 lei ($47,500). The demonstrations, the largest since the ousting and summary execution of communist dictator Nicolae Ceausescu in 1989, have continued despite the resignation on Thursday of justice minister Florin Iordache. “The justice minister’s resignation isn’t enough after what they tried to do,” said Tofan. Another demonstrator also said he had completely lost faith in the government. “We want this government to stand down. We don’t trust it, they want us to go backwards,” said Bogdan Moldovan, a doctor.

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Highly speculative, but….“..some economists in Germany say the repatriated gold may be needed to back a new deutschmark should the eurozone collapse..”

Germany Repatriates Gold Faster Than Planned As Faith In Euro Plunges (RT)

Berlin is bringing home its gold reserves stored in New York, London and Paris faster than scheduled, Germany’s central bank said Thursday. The move is linked to surging euroskepticism, as new governments in France and Italy may ditch the single currency. The German Bundesbank has already moved 583 tons of gold out of New York and Paris, planning to have a half of its gold back in Germany by the end of 2017, which is ahead of the 2020 plan. The rest will be split between the Federal Reserve Bank of New York and the Bank of England. “We have a lot of discussions about Trump, regarding implications on monetary policy, macroeconomics, etc., but we trust the central bank of the US,” Bundesbank board member Carl-Ludwig Thiele told a news conference. “Trump has not triggered a discussion about the storage facility in New York,” he said.

As French presidential candidate Marine Le Pen and Italy’s 5-Star Movement are openly calling to pull out of the euro, some economists in Germany say the repatriated gold may be needed to back a new deutschmark should the eurozone collapse. During the Cold War, 98% of Germany’s bullion was stored abroad, and so far the biggest repatriation was in 2000 when the Bundesbank repatriated 931 tons from the Bank of England. When the relocation is complete, Germany will still have 1,236 tons in New York, 432 tons in London and the rest in Frankfurt. The current repatriation involves moving 300 tons from New York and 374 tons from Paris. The Bundesbank said it is not worried about keeping gold in England despite Brexit, as London remains a key gold trading market and a safe place. Germany has the second-largest gold reserves in the world after the US with 3,381 tons.

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Amen.

Brussels’ Hypocrisy Over The Closing Of Borders (Nikos Devletoglou)

Sir, It seems remarkable that today’s leaders of the EU, encouraged by the overreaction of the global mass media, reserve for themselves the appearance of virtue and goodness and generally resent the refreshing American principle summed up by president Donald Trump as America First. Americans have shed blood, along with vast material expense, defending human rights in Europe — regardless of ethnicity, geography, culture or religion, demonstrably having guaranteed the continent’s survival in freedom and subsequent prosperity, including that of Germany, after the second world war.

The EU’s hypocrisy offends. Indeed, it remains a mystery how Brussels feels justified in its heavy criticism of America’s increasing vigilance over its own borders when the EU itself continues to turn a blind eye to the formidable barbed-wire militarised fortifications erected all along the northern frontiers of Greece by its neighbours, pitilessly blocking the passage of hundreds of thousands refugees desperately fleeing the war in Syria. These refugees still dearly hope to reach Germany first and eventually other parts of Europe, but are instead inhumanely trapped in Greece practically under the authority of the EU — which, further, even condones the closing of borders in Austria and Hungary. These are provocative double standards. The scant remaining resources in Greece are already stretched to their limits.

Previously prosperous islands in the Aegean Sea – Chios, Samos and Lesbos were until recently celebrated high-profile tourist destinations worldwide – are currently overrun by multitudes of refugees, understandably aggressively inclined by now, at the expense of social cohesion elsewhere in Greece as well. Still worse, the country remains undeservedly caught in a deepening economic and financial crisis, a result of blind austerity policies inspired by Germany that the EU rigorously enforces to this day, manifestly ruling out growth and prosperity in Greece any time soon. Both the IMF and the European authorities still fail to appreciate that reducing Greek debt by one-third in the present circumstances would consistently reflect the social, economic and financial damage they themselves have caused by arbitrarily depressing the Greek economy since 2010.

Nicos E Devletoglou, Emeritus Professor of Economics, University of Athens, Greece

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Bitter, bitter tragedy. “The human and social cost of this austerity policy is not included in the Excel tables of the Eurogroup. But it is paid cash by the population.”

Greece: The Low-Noise Collapse Of An Entire Country (FE)

European officials may argue that their bailout is working, they welcome the recovery of Greece and the budget surpluses, but the situation is quite different: passively we are witnessing the low-noise collapse of a whole country. While forecasts foresee a rebound of the Greek economy in 2016, with growth of at least 2.6%, these risks once again prove to be false. If a slight start was recorded at the beginning of the year, it continued to slacken. In the last few months, the engine seems to have stalled. According to Markit figures published on February 1st, manufacturing activity recorded its largest decline in 15 months. “The decline is related to both the decline in production and new orders. While rising import prices have accelerated to their highest level in 70 months, companies nevertheless lower their selling prices,” explains the economic and financial institute, pointing to the fall in consumption and the lack of outlets.

In seven years Greece’s GDP decreased by a third. Unemployment affects 25% of the population and 40% of young people between 15 and 25 years. One third of companies have disappeared in five years. Successive cuts imposed everywhere in the name of austerity now bite in all regions. There are no more trains, no more buses in whole parts of the country. No more schools, sometimes. Many secondary schools had to close in the most remote corners because of lack of funding. Per capita spending on health has declined by a third since 2009, according to the OECD. More than 25,000 doctors were dismissed. Hospitals lack personnel, medicines, everything. The human and social cost of this austerity policy is not included in the Excel tables of the Eurogroup.

But it is paid cash by the population. One fifth of the population lives without heating or telephone. 15% of the population has now fallen into extreme poverty compared to 2% in 2009. The Bank of Greece, which cannot be suspected of complacency, has drawn up a report on the health of the Greek population, published in June 2016. The figures it gives are overwhelming: 13% of the population are excluded medical care; 11.5% cannot buy prescription drugs; People with chronic health problems are up to 24.2%. Suicides, depression, mental illness show exponential increases. Worse: while the birth rate has fallen by 22% since the beginning of the crisis, the infant mortality rate almost doubled in a few years to reach 3.75% in 2014.

After seven years of crisis, austerity and European plans, the country is exhausted, financially, economically and physically. “The situation is getting worse. What we need most now is food. This shows that the problems relate to the essential and not the quality of life. It’s about subsistence,” says Ekavi Valleras, head of the NGO Desmos. And it is to this country that Europe asks moreover to assume alone or almost the reception of the refugees coming to Europe.

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