Jun 172015
 
 June 17, 2015  Posted by at 11:09 am Finance Tagged with: , , , , , , , , , ,  


Theodor Horydczak Sheaffer fountain pen factory, Fort Madison, Iowa 1935

The Euro: Portrait Of A Devastating Failure (MarketWatch)
IMF “Defense” Of Its Actions vs Greeks Is An Unintended Confession (Bill Black)
Sovereign Debt Restructuring Needs International Supervision (Joseph Stiglitz)
Many Low-Income Americans Can’t Even Afford To Rent (MarketWatch)
What Is the Real US Unemployment Rate? (CH Smith)
US 2040 Deficit To Nearly Double As Percent Of Economy-CBO (Reuters)
Greek PM Tears Into Lenders As Eurozone Prepares For ‘Grexit’ (Reuters)
A Greek Paradox: Many Elderly Are Broke Despite Costly Pensions (Reuters)
Divorce Greece In Haste, Repent At Leisure (Martin Wolf)
Austrian Chancellor Sides With Greece In Debt Row (Reuters)
‘It’s Going To Be Bad, Whatever Happens’: Greeks Stash Cash At Home (Guardian)
Greek Central Bank Issues ‘Grexit’ Warning If Aid Talks Fail (Reuters)
Europe Asks the Impossible of Greece (Crook)
Merkel’s Bavarian Allies Say Greeks Act Like ‘Clowns’ In Debt Talks (Reuters)
Central Banks Enter The Unknown With Sub-Zero Rates (FT)
Russia Cuts US Debt Holding By More Than 40% Over Year (RT)
Five Million Reasons Why China Could Go to War (Bloomberg)
The Magical Content Tree (Dmitry Orlov)
Enter Jeb and Hil (Jim Kunstler)
The American Far-Right’s Trojan Horse In Westminster (Nafeez Ahmed)
More Than A Third Of The World’s Biggest Aquifers Are In Distress (FT)

The euro has been a devastating failure, costing nations both their independence and their economies.

The Euro: Portrait Of A Devastating Failure (MarketWatch

There’s a secret fear gripping the powerful across Europe nowadays. It has policy honchos lying awake at nights in Brussels. It has bankers in Berlin tossing feverishly on their silken sheets. It has eurocrats muttering into their claret. The fear? It isn’t that if Greece leaves the euro, the Greeks will then suffer a terrible economic meltdown. The fear is that if Greece leaves the euro, the country will return to prosperity — and then other countries might follow suit. Take a look at the chart. As you can see, Greece with the bad old drachma had double the economic growth of Greece under the euro. Double. And it wasn’t alone. Italy, Spain and Portugal tell similar stories.

Their economic growth back in the 1980s and 1990s, when they were “struggling” with the lira, the peseta, and the escudo, makes a mockery of their performance under the German-dominated euro. Apparently having control of your own national currency and your own monetary policy works well with having your own government and your own national sovereignty. Who knew? The data for this chart come from the IMF’s own database. They show real economic growth in four southern European currencies in the period before they embraced the euro, from 1980 to 1998, and the period since the single currency was launched at the start of 1999. (The numbers show the average annual growth in GDP, measured per capita, and in real, “purchasing power” terms to strip out inflation).

Of course many factors are involved. This isn’t just about the euro. On the other hand, the European single currency was sold to the people of these countries – when they were given a vote at all — as a magical project that would transform their economic fortunes. They were told to give up their sovereignty and independence in return for huge economic benefits. Instead, the euro “financialized” their economies – flooding them with tons of cheap, easy money, and creating gigantic paper Ponzi schemes that have now collapsed. The people of Europe were told the euro would bring stability. It hasn’t. They were told it would bring prosperity. It hasn’t. They were told it would bring growth. It hasn’t.

Are the Greeks really just a bunch of ouzo-sipping layabouts, as the Champagne-sipping layabouts in Brussels like to claim? Prior to embracing the euro, the Greeks managed real growth of 4% a year and an average unemployment rate of 7.7%. Since accepting the warm financial embrace of Brussels, Frankfurt and Berlin, Greece has managed growth of 2% a year and average unemployment rate of 14%. In other words, Greece under the euro has averaged half the growth, and double the unemployment, of Greece under the drachma. Some benefit.

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Good definition of what happened so far: “bleed the patient” to “heal” it”.

IMF “Defense” Of Its Actions vs Greeks Is An Unintended Confession (Bill Black)

The IMF, the heedless horseman of the troika that announced it would stop negotiating with the Greeks and go home, has attempted to justify its position through Olivier Blanchard, its “Economic Counsellor and Director of the Research Department.” Blanchard entitled his defense “Greece: A Credible Deal Will Require Difficult Decisions By All Sides.” That is a “serious person” title, but it is also economically illiterate – and no one knows that better than Blanchard. After all, it is the IMF’s deeply neo-liberal economists whose research has confirmed that the IMF’s austerity policies are self-destructive responses to the Great Recession and that fiscal stimulus programs are even more effective than economists had predicted.

That means that Blanchard and the IMF know that an economically-literate deal does not “require difficult decisions by all sides.” It requires, instead, the troika to cease its destructive demands that Greece “bleed the patient” to “heal” it. The troika’s austerity demands forced Greece into a Great Depression that is worse than the Great Depression of the 1930s in terms of sustained, obscene unemployment rates. And treating Greece in an economically rational manner would set a wonderful precedent that could be extended to Spain and Italy, which also have unemployment rates today that are near or even worse than they suffered in the Great Depression of the 1930s – seven years after the acute phase of the global financial crisis.

As we (UMKC economists and NEP bloggers) and Paul Krugman have explained repeatedly, the fiscal response to a Great Recession does not require “difficult decisions” and “sacrifices.” It requires funding worthwhile projects that provide an enormous “win-win” for the nations suffering from the Great Recession – and it helps their neighbors’ economies. Germany’s economy would be much stronger today if it had not insisted on forcing Greece, Spain, and Italy into Great Depressions. Because of the inherently flawed structure of the euro, this requires the ECB to be used far more aggressively than was contemplated by its inept architects, but it can be done. It would be an awkward, inelegant, bastardized system, but the problem in getting it done isn’t the economics, it’s the toxic interconnection of politics, economic dogmas spread by the troika and the credulous media, and disdain of the EU core for the peoples of the EU periphery that pose the insuperable problems.

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Not going to happen. If an attempt is made, it’ll be watered down so much nothing much changes. Plundering entire nations is just too profitable.

Sovereign Debt Restructuring Needs International Supervision (Joseph Stiglitz)

Governments sometimes need to restructure their debts. Otherwise, a country’s economic and political stability may be threatened. But, in the absence of an international rule of law for resolving sovereign defaults, the world pays a higher price than it should for such restructurings. The result is a poorly functioning sovereign-debt market, marked by unnecessary strife and costly delays in addressing problems when they arise. We are reminded of this time and again. In Argentina, the authorities’ battles with a small number of “investors” (so-called vulture funds) jeopardised an entire debt restructuring agreed to – voluntarily – by an overwhelming majority of the country’s creditors.

In Greece, most of the “rescue” funds in the temporary “assistance” programs are allocated for payments to existing creditors, while the country is forced into austerity policies that have contributed mightily to a 25% decline in GDP and have left its population worse off. In Ukraine, the potential political ramifications of sovereign-debt distress are enormous. So the question of how to manage sovereign-debt restructuring – to reduce debt to levels that are sustainable – is more pressing than ever. The current system puts excessive faith in the “virtues” of markets. Disputes are generally resolved not on the basis of rules that ensure fair resolution, but by bargaining among unequals, with the rich and powerful usually imposing their will on others. The resulting outcomes are generally not only inequitable, but also inefficient.

Those who claim that the system works well frame cases like Argentina as exceptions. Most of the time, they claim, the system does a good job. What they mean, of course, is that weak countries usually knuckle under. But at what cost to their citizens? How well do the restructurings work? Has the country been put on a sustainable debt path? Too often, because the defenders of the status quo do not ask these questions, one debt crisis is followed by another. Greece’s debt restructuring in 2012 is a case in point. The country played according to the “rules” of financial markets and managed to finalise the restructuring rapidly; but the agreement was a bad one and did not help the economy recover. Three years later, Greece is in desperate need of a new restructuring.

Distressed debtors need a fresh start. Excessive penalties lead to negative-sum games, in which the debtor cannot recover and creditors do not benefit from the larger repayment capacity that recovery would entail. The absence of a rule of law for debt restructuring delays fresh starts and can lead to chaos. That is why no government leaves it to market forces to restructure domestic debts. All have concluded that “contractual remedies” simply do not suffice. Instead, they enact bankruptcy laws to provide the ground rules for creditor-debtor bargaining, thereby promoting efficiency and fairness.

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You can say there are not enough low-income homes. Or you can say the housing bubble has made too many homes unaffordable.

Many Low-Income Americans Can’t Even Afford To Rent (MarketWatch)

The poorest Americans, who can’t afford to buy property, are increasingly priced out of rentals. There were only 28 adequate and available to rent homes for every 100 extremely low-income renters in 2013, down from 37 in 2000, according to the Urban Institute, a nonprofit and nonpartisan organization that focuses on social and economic policy. “This gap between supply and demand leaves 72% of the country’s poorest families burdened by the high cost of housing,” it found. Extremely low-income renters are households with incomes at or below 30% of the median income in that region. Not one county in the U.S. has enough affordable housing for all these renters.

Among the 100 largest counties, the number of affordable rental homes ranges from eight per 100 in Denton County, Texas, to 51 in Suffolk County, Mass. This regional disparity is partly due to federal assistance not keeping pace with population growth, says Erika Poethig, a director at the Urban Institute. Only nine of the 100 largest counties increased the number of affordable units for extremely low-income renters from 2000 to 2013. Between 2000 and 2013, the number of extreme low-income renter households soared 38% from 8.2 million to 11.3 million as the Great Recession pushed more families toward the lower end of the income bracket, the report found. Among the 100 largest counties, five of the 10 counties with the smallest affordability gap are in Massachusetts. Only one—San Francisco—is outside the Northeast.

“The geography of poverty is changing and federal housing policy has not kept up,” Poethig says, because the cost of living is so high in these areas. As a result, renters at this income level depend increasingly on programs run by the U.S. Department of Housing and Urban Development. Depending on the area of the country, extremely low-income translates to incomes of between approximately $12,600 and $32,800 for a family of four. Without federal housing assistance, the report found, the share of extremely low-income American households who could afford adequate housing in 2013 would have fallen to 5%.

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25% make too little from work to live on.

What Is the Real US Unemployment Rate? (CH Smith)

The BLS attempts to define a broader definition of under-employment and unemployment in its category U-6 Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force: this is 10.8% of the work force. Depending on how we calculate the work force, and if we count everyone with any earnings as employed, we get an unemployment rate of somewhere between 5.6% and 12.5%. If we use the BLS’s metric for including under-employment, this is in the range of 10% to 15%. Common sense suggests that we calculate employment/unemployment based on earnings, not just any income in any amount.

If we reckon that only those with earnings of $15,000 or more annually (roughly speaking, full-time work at minimum wage) are fully employed, then the numbers change dramatically. The $15,000 annual earnings are also a rough benchmark of self-supporting households: two wage-earners making $15,000 each would have a household income of $30,000–enough to get by in much of the country. About 50 million people earn less than $15,000 annually. This includes roughly 10 million self-employed and 40 million with part-time jobs or other sources of earned income. This suggests that only 100 million of the 160 million work force are fully employed in the sense of not just having a job but making enough to be self-supporting.

There are many caveats resulting from the way that government social welfare is not included in earnings: thus a household might have two part-time wage-earners making very modest sums monthly who are getting by because they qualify for Section 8 housing, SNAP food stamps, Medicaid healthcare, school lunch programs, and so on. These programs enable the working poor to support a household despite low earnings. Should we include those depending on social welfare programs as fully employed? By my reckoning, roughly 60% of the civilian work force is fully employed and 40% are marginally employed (i.e. earning less than $15,000 annually) or unemployed. Since full-time workers even at minimum wage earn close to $15,000 annually, I think it is fair to use that as the cut-off for fully employed.

The BLS counts 121 million people as usually work full-time, but given only 100 million workers earn $15,000 or more, this doesn’t add up unless we include self-employed people earning very little who are counted as full-time workers. Based on income, I set the fully employed rate at 60%, and the marginally employed/unemployed rate at 40%. If we accept the BLS’s 121 million full-time jobs (which once again, this doesn’t make sense given even minimum wage full-time jobs earn $14,500, and 50 million people report earnings of less than $15,000), we still get a marginally employed/unemployed rate of 25%: work force of 160 million, 121 million fully employed.

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Better start spending, guys!

US 2040 Deficit To Nearly Double As Percent Of Economy-CBO (Reuters)

The U.S. budget deficit will more than double as a share of economic output by 2040 if current tax and spending laws remain unchanged, the Congressional Budget Office said on Tuesday. The CBO, releasing its annual long-term budget outlook, said however, that overall U.S. debt levels in 2040 will be slightly lower than estimates made a year ago for 2039 because of expectations of lower long-term interest rates. CBO said the 2040 deficit will reach 5.9% of gross domestic product, compared to 2.7% this year and 3.8% in 2025 based on its normal scoring methods. By contrast, the deficit reached nearly 10% of GDP in 2009 during the depths of the recent financial crisis.

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“..their aim was to “humiliate not only the Greek government – this would be the least important – but humiliate an entire people”.

Greek PM Tears Into Lenders As Eurozone Prepares For ‘Grexit’ (Reuters)

Prime Minister Alexis Tsipras lashed out at Greece’s creditors on Tuesday, accusing them of trying to “humiliate” Greeks, as he defied a drumbeat of warnings that Europe is preparing for his country to leave the euro. The unrepentant address to lawmakers after the collapse of talks with European and IMF lenders at the weekend was the clearest sign yet that the leftist leader has no intention of making a last-minute U-turn and accepting austerity cuts needed to unlock frozen aid and avoid a debt default within two weeks. Financial markets, for months indifferent to wrangling over releasing billions of euros of aid for Greece, reacted with mounting alarm.

European stock markets hit their lowest level since February and the risk premium on bonds of other vulnerable euro zone states leapt in one of the sharpest episodes of contagion since the height of Europe’s debt crisis in 2012. As the Austrian chancellor flew to Athens to warn Tsipras of the gravity of the situation and senior German lawmakers openly discussed the once-taboo prospect of a “Grexit” from the single currency area, Tsipras lambasted European and IMF policy. “I’m certain future historians will recognise that little Greece, with its little power, is today fighting a battle beyond its capacity not just on its own behalf but on behalf of the people of Europe,” he said in a televised speech to legislators in his SYRIZA party, drawing rousing applause.

Tsipras charged that the lenders were politically motivated in demanding pension cuts and tax hikes that hurt the poor, and their aim was to “humiliate not only the Greek government – this would be the least important – but humiliate an entire people”. The 40-year-old leader’s rhetoric left unclear whether he is preparing to default and risk economic collapse as the price of standing firm, or betting – wrongly according to the creditors – on a last-minute effort by Europe to save Greece. German Chancellor Angela Merkel, who has held repeated phone calls with Tsipras in recent weeks to press him to agree on reforms with EU/IMF negotiators, struck a despondent note, saying it was unclear if a deal could be found when euro zone finance ministers meet on Thursday in Luxembourg.

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“..45% of pensioners receive monthly payments below the poverty line of €665..” Yeah, cuts would be a great idea..

A Greek Paradox: Many Elderly Are Broke Despite Costly Pensions (Reuters)

The plight of 79-year-old Athenian Zina Razi and thousands like her strikes at the heart of why talks between Greece and its creditors have collapsed. She lives off a pension system that helps to consume a huge proportion of state spending and can appear overly indulgent – but still she’s broke. Razi barely keeps up with her power and water bills, and since her middle-aged son lost his job, supports him as well. “I am always in debt,” she said. “I can’t even imagine going to the cinema or the theatre like I did in the past.” This paradox goes a long way to explain why the leftist-led government and its creditors at the European Union and IMF have failed to bridge their differences over a cash-for-reform deal, leading to Sunday’s breakdown of talks.

Five years of austerity policies imposed at the creditors’ behest have helped to turn a recession into a full-blown depression, and still they want more. Athens has flatly refused to achieve further savings by raising value-added tax on essential items or, crucially, slashing pension benefits. As it inches closer to default and a potentially calamitous exit from the euro zone, the government has dismissed such demands as “absurd” or designed to pummel Greeks’ morale. To the lenders, the pension system is still too generous compared with what the country can afford. Greece spent 17.5% of its economic output on pension payments, more than any other EU country, according to the latest available Eurostat figures from 2012. With existing cuts, this figure has since fallen to 16%. [..]

To many Greeks, not least the Syriza party that stormed to power in January promising to push the clock back on austerity, the creditors’ demands are yet another way to clobber vulnerable people needlessly. The lenders have denied asking for specific pension cuts. But the Greek side said among their suggestions was slashing a top-up payment that supports some of the poorest pensioners. For Razi, that would mean losing €180 out of her €650 monthly pension. The average Greek pension is €833 a month. That’s down from €1,350 in 2009, according INE-GSEE, the institute of the country’s largest labour union. Moreover, 45% of pensioners receive monthly payments below the poverty line of €665, the government says. With more than a quarter of Greek workers jobless, many rely on parents and grandparents for financial support.

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Wolf makes sense on some things here, much less on others.

Divorce Greece In Haste, Repent At Leisure (Martin Wolf)

Some argue that Greece at least would be far better off after a default and exit. It is indeed theoretically possible that a default to its public creditors, combined with introduction of a new currency, a big devaluation (accompanied by sound monetary and fiscal policies), maintenance of an open economy, structural reforms and institutional improvements would mark a turn for the better. Far more likely is a period of chaos and, at worst, emergence of a failed state. A Greece that could manage exit well would have also avoided today’s plight. Neither side should underestimate the risks. It is also crucial to avoid the contempt so characteristic of the frayed nerves caused by failing negotiations.

Fecklessness may be a grievous fault, but grievously have the Greeks answered it. As the Irish economist, Karl Whelan, points out in a blistering response to Mr Giavazzi, the Greek economy has suffered a staggering collapse. From peak to trough, aggregate real gross domestic product fell by 27%, while real spending in the economy fell by a third. The cyclically-adjusted fiscal balance improved by 20% of GDP between 2009 and 2014 and the current account balance improved by 16% of GDP between 2008 and 2014. The unemployment rate reached 28% in 2013, while government employment fell by 30% between 2009 and 2014. Such a brutal adjustment would have shredded the politics of any country.

Europeans are now dealing with Syriza because of this calamity. But they are also dealing with Syriza because of the refusal to write down more of the debt in 2010. This was a huge error, made far worse by the subsequent collapse of the Greek economy. Indeed, the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors. Creditors, too, have a duty to take care. If they are careless, they risk big losses. If governments want to save them, their own taxpayers should be told to pay up.

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A voice of reason from an unexpected corner.

Austrian Chancellor Sides With Greece In Debt Row (Reuters)

Austrian Chancellor Werner Faymann expressed solidarity with Greek Prime Minister Alexis Tsipras before meeting the leader in Athens on Wednesday in a bid to end a standoff with international creditors over a rescue package. Faymann, a Social Democrat who has taken a relatively lenient line with Greece, told broadcaster ORF that Athens had to live up to commitments under its current bailout plan but needed support to keep it from leaving the euro zone. “I know there were a number of proposals, also from the (creditor) institutions, that I also don’t find in order,” Faymann said in the radio interview.

“High joblessness, 30-40% (with) no health insurance and then raising VAT on medicines. People in this difficult situation cannot understand that.” Faymann seemed to be wading into a row over what European Commission President Jean Claude Juncker has called misrepresentations by the Greek government over just what reforms the EU wants from Athens to unlock frozen loans. Faymann said the alternative was fighting fraud and ensuring all Greeks pay their fair share of taxes. Greece and Brussels have been locked in an increasingly bitter war of words as the clock ticks toward the end of June, when the current bailout accord runs out, exposing Greece to potential default that could usher it out of the currency bloc.

Faymann said it was never helpful when insults fly, adding: “I stand on the side of the Greek people who in this difficult position are being proposed more things detrimental to society.” He said he was confident he could support Juncker’s efforts to forge an agreement by using Austria as an example of a country where workers and pensioners get affordable health care. He acknowledged nerves were frayed but said the task was to “avoid a catastrophe.” Asked whether Greek leaders could be brought on board, he said: “I assume that someone who is elected lives up to his responsibility.”

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Troika-induced fear and panic.

‘It’s Going To Be Bad, Whatever Happens’: Greeks Stash Cash At Home (Guardian)

“Everybody’s doing it,” said Joanna Christofosaki, in front of a Eurobank cash dispenser in the leafy Athens neighbourhood of Kolonaki. “Our friends have all done it. Nobody wants their money to be worthless tomorrow. Nobody wants to be unable to get at it.” A researcher in the archaeology department at the Academy of Athens, Christofosaki said she knew plenty of people who had “€10,000 somewhere at home” and plenty of others who chose to keep their stash at the office. Was she among them? “If I was, I certainly wouldn’t tell you.” It was not too hard, in central Athens’ plushest district on Tuesday, to find people worried that the latest breakdown of talks between Greece and its creditors over a new aid-for-reforms deal may have implications for the security – and accessibility – of their savings.

With time fast running out to secure a desperately needed €7.2bn in new rescue funds before the end of the month, when Athens is due to repay €1.5bn in loans to the IMF, anxious Greeks have begun withdrawing money from their country’s banks at an unprecedented rate. Bank deposits have been falling steadily since October and now stand at their lowest level since 2004. Withdrawals in recent weeks have averaged €200-250m a day, but on Monday – after the shock collapse of last-ditch talks between the Greek government and its eurozone and international lenders – withdrawals surged to €400m. “People are very concerned,” said the owner of a small company who asked not to be named. “I think those who could, have already transferred some money abroad. And lots of others have taken out a few thousand, enough to see them through any immediate crisis. I have.”

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Broad strokes?!

Greek Central Bank Issues ‘Grexit’ Warning If Aid Talks Fail (Reuters)

The Greek central bank warned on Wednesday that the country would be put on a “painful course” towards default and exiting the euro zone if the government and its international creditors failed to reach an agreement on an aid-for-reforms deal. It also said Greece risked a renewed bout of recession and predicted that the current economic slowdown would accelerate in the second quarter of this year. The Greek economy had started growing again last year after being pounded by years of austerity, but fell back into negative growth in the first quarter of 2015, contracting by 0.2% y-o-y. The ongoing crisis has prompted an outflow of deposits of about €30 billion from Greek lenders between October and April, the central bank said.

Time is fast running out for Athens and its creditors to reach a deal before a €1.6 billion repayment by Greece to the IMF falls due at the end of the month. But neither side appears willing to give ground, with Greek Prime Minister Alexis Tsipras accusing the creditors of trying to “humiliate” his country by demanding more cuts. Despite the heated rhetoric, the central bank said that the two sides appeared to have reached a compromise on the main conditions attached to an aid agreement, and that little ground remained to be covered for a deal to stick. “Failure to reach an agreement would … mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and, most likely, from the EU,” the Bank of Greece said in a monetary policy report. “Striking an agreement with our partners is a historical imperative that we cannot afford to ignore.”

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“Yet with Tsipras gone, would the next Greek government be any more pliable – any more inclined to maintain the new rate of VAT or persist with the new round of pension cuts? I see no reason to think so.”

Europe Asks the Impossible of Greece (Crook)

Suppose for a moment that the European Union gets what it’s demanding from Greek Prime Minister Alexis Tsipras. It doesn’t look as though that will happen, but let’s imagine that Tsipras surrenders. How long, I’m wondering, would this smell like victory? Tsipras has agreed to the EU’s new, less demanding targets for Greece’s primary budget surplus over the next few years. The sticking point is that the measures he would use to hit those targets aren’t enough. Instead of raising the rate of value-added tax (a kind of sales tax) and/or collecting it on a wider range of goods, Tsipras says he’ll attack tax evasion and fraud. That’s won’t raise enough money, says Europe. The EU wants more cuts to public spending on pensions as well, which Tsipras refuses to consider.

For some reason, Europe has also been insisting on further labor-market reforms. These would doubtless be desirable, but they’re unlikely to yield extra growth in the short term and therefore have no fiscal implications in the relevant timescale. Tsipras’s numbers don’t add up, says Europe: They aren’t credible. Suppose, as I say, he did agree to raise VAT and cut pension spending. How credible would that be? Chances are good that it would be his last act as prime minister. He’d be breaking election promises and, aside from that, would enrage the faction of his own party that thinks he’s already conceded too much. Good riddance, you might say.

Yet with Tsipras gone, would the next Greek government be any more pliable – any more inclined to maintain the new rate of VAT or persist with the new round of pension cuts? I see no reason to think so. In short, if Tsipras capitulated and gave the EU what it wants, that wouldn’t be credible either. Let’s pursue this “Europe wins” thought experiment one step further. Suppose that Tsipras capitulated, and that he was able somehow to stay in power long enough to keep his promises – or that the successor government was reliably conservative on fiscal policy. Would this be sufficient to put Greek public finances on the path to sustainability? The sustainability of Greek debt, you may recall, is Europe’s main purpose in all this.

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Germans think it’s about money. Well, maybe it’s time for Deutsche to crash. And/or the Landesbanken.

Merkel’s Bavarian Allies Say Greeks Act Like ‘Clowns’ In Debt Talks (Reuters)

German Chancellor Angela Merkel’s Bavarian allies have accused the Greek government of not having grasped the seriousness of the situation in the debt talks yet, with CSU Secretary-General Andreas Scheuer calling ruling politicians in Athens “clowns”. The remarks were the latest sign of hardening positions towards Greece among European politicians, on the eve of a meeting of euro zone ministers that could be the last chance to rescue Greece from default at the end of the month. Scheuer said in an interview with Rheinische Post newspaper published on Wednesday that Greece had done too little so far to stay in the euro and there would be no “careless compromises” just for the sake of keeping Greece in the single currency bloc.

“The Greek government apparently hasn’t realized the seriousness of the situation yet,” Scheuer said. “They are behaving like clowns sitting in the back of the class room, although they have received explicit warnings from all sides that they might fail to pass to the next grade.” German Chancellor Angela Merkel said on Tuesday she was willing to do all she could to keep Greece in the euro zone but insisted the onus remained on Athens and its creditors to break a deadlock and reach a deal. Merkel is facing growing opposition among her ruling conservatives to granting Greece any further bailout funds. Germany is Greece’s biggest creditor and the biggest contributor to the EU budget and the euro zone bailout fund.

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All the central bankers have left is uncharted territory. And that’s a scarier thought than anyone cares to admit.

Central Banks Enter The Unknown With Sub-Zero Rates (FT)

For years, central bankers have treated the fabled interest rate known as the “zero lower bound” as if it were a physical barrier. Like the notion that temperatures cannot fall below absolute zero, policy makers thought they could not impose negative borrowing costs, as depositors would simply withdraw their money and hoard the cash. However, as the risk of deflation has pushed central banks in the eurozone, Denmark, Sweden and Switzerland to venture below zero, the question has shifted from whether negative rates are possible to how low they can go. Critics fear the unprecedented experiment of negative rates could have unwarranted side effects, including the formation of asset bubbles and deep disruption to the operation of the banking system.

“Negative rates are the policy for which we know least,” said Lucrezia Reichlin, an economist at London Business School. “They may create distortions and have undesirable distributional effects, so they should be considered an emergency, temporary measure.” Denmark’s Nationalbanken was the first central bank in Europe to experiment properly with negative rates after the global financial crisis. In July 2012, the DNB began charging lenders 0.2% for some of the cash parked in its deposit facility – a measure needed to defend the longstanding peg between the krone and euro. But this experiment acquired a whole different scale at the start of the year, when the ECB launched a programme of quantitative easing, having already cut its deposit rate to -0.2%.

This forced neighbouring central banks to slash their own rates deep into negative territory to stem the risk of large-scale capital inflows. In January, Switzerland dropped its deposit rate to as low as -0.75%, while Sweden’s Riksbank moved its main repo rate to -0.25% in March. The DNB, which had briefly raised the deposit rate back into positive territory, is now charging banks 0.75% for their excess reserves. Economists say that the possibility of negative rates arises because there are costs to storing and insuring cash. Savers will continue to keep their money in a deposit so long as this costs less than moving it into a safe. In fact, depositors may be willing to pay even more than that, as it is far easier to handle money from a bank account than it is from a vault.

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“Yuan-ruble trade in Russia has grown 800% between January and September 2014..”

Russia Cuts US Debt Holding By More Than 40% Over Year (RT)

Russia held US Treasury bills worth $66.5 billion as of April this year, according to the latest monthly report from the US Treasury. That compares with the $116.4 billion held a year ago. From March to April 2015, Russia sold $3.4 billion in US Treasury bonds,reported US Department of the Treasury Monday. Since August 2014, the value of US bonds in the Russian government portfolio has been steadily declining and the volume of Russian investments in US bonds dropped dramatically. Russia is now only 22nd on the list of the major US debt holders, compared to twelfth place in April 2014.

The Western sanctions imposed against Russia last year over re-unification with Crimea and its position in Ukrainian crisis have pushed Moscow to cut its dependence on the US dollar and build a more self-sufficient financial system. Western sanctions have encouraged Russia to work more actively with Asia, as the Asia-Pacific region and BRICS, as they make up 60% of the world GDP, said Russian Prime Minister Dmitry Medvedev last week. The BRICS summit in Russia this July will see the opening of the $100 billion New Development Bank, intended to compliment the World Bank and sponsor infrastructure projects within the group. Another project to be launched is currency pool worth another $100 billion, expected to guard the group from exchange rate volatility, said Russian President Vladimir Putin in May.

More than 40 countries and associations have said they would like to boost trade with the Russia-led economic block known as the Eurasian Economic Union (EEU). Vietnam became the first country out of the EEU to sign a free trade zone deal with the block in May and is considering switching to local currencies in bilateral trade. Russian Prime Minister Dmitry Medvedev said Moscow was ready to consider a currency union across the EEU. Russia s largest bank, Sberbank, issued its first credit guarantees in yuan this June, which marked another step in its de-dollarizing policy. Yuan-ruble trade in Russia has grown 800% between January and September 2014, and accounts for 7% of bilateral trade, with a huge potential to grow, according to May data.

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World power.

Five Million Reasons Why China Could Go to War (Bloomberg)

With five million citizens to protect and billions of investment dollars at stake, China is rethinking its policy of keeping out of other countries’ affairs. China has long made loans conditional on contracts for its companies. In recent years it has sent an army of its nationals to work on pipelines, roads and dams in such hot spots as South Sudan, Yemen and Pakistan. Increasingly, it has to go across borders to protect or rescue them. That makes it harder to stick to the policy espoused by then-premier Zhou Enlai in 1955 of not interfering in “internal” matters, something that has seen China decline to back international sanctions against Russia over Ukraine or the regime of Syrian President Bashar al-Assad.

As President Xi Jinping’s “Silk Road” program of trade routes gets under way, with infrastructure projects planned across Central Asia, the Indian Ocean and the Middle East to Europe, China’s footprint abroad will expand from the $108 billion that firms invested abroad in 2013, up from less than $3 billion a decade earlier. That is forcing China to take a more proactive approach to securing its interests and the safety of its people. With more engagement abroad there’s a risk that China, an emerging power with a military to match, is sucked into conflicts and runs up against the U.S. when tensions are already flaring over China’s disputed claims in the South China Sea.

“It is going to be a long, hard haul,” said Kerry Brown, director of the University of Sydney’s China Studies Centre. “You either have disruption as a new power rips up the rule book and causes bedlam or you’ve got a gradual transition where China is ceded more space but also expected to have more responsibility.” For more than a half century China stuck to Zhou’s policy predicated on non-interference and respect for the sovereignty of others. The policy partly reflected a focus on domestic stability and economic development by governments that lacked the means or interest to play a more active role offshore. It also led President Barack Obama to last year describe China’s leaders as “free riders” while others carried the global security burden. [..]

Parello-Plesner and Mathieu Duchatel, who co-wrote “China’s Strong Arm: Protecting Citizens and Assets Abroad” estimate there are five million workers offshore, based on research and interviews with officials, a figure that’s about five times larger than that given by the Ministry of Commerce. The official data reflect a lack of systemic consular registration and the absence of formal reporting by subcontractors sending workers abroad, according to the writers, who estimate about 80 Chinese nationals were killed overseas between 2004 and 2014. “There are now several countries that – in terms of the number of Chinese citizens there – are ‘too big to fail’,” said Parello-Plesner. “The business-oriented ‘going-out’ strategy now has to be squared with broader strategic calculations.”

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Great angle, great insight.

The Magical Content Tree (Dmitry Orlov)

A long, long time ago books were very expensive. They were produced by copying them by hand, page by page, onto parchment, by very poor monks toiling in their monastic scriptoria, but the books they produced turned out to be expensive anyway. The aristocracy could afford them, and, of course, the clergy, but the laymen had little access to the written word. Things were somewhat better in other, more technologically advanced parts of the world. The Chinese invented paper shortly before 200 BC, and by 200 AD lots of Buddhist texts were being mass produced using wood block printing. This know-how slowly diffused west, reaching Moslem Spain a few centuries later. By 1400 AD the art of paper-making made it all they way to the most backward of European provinces—Germany.

But then came a surprise: a German craftsman by the name of Johannes Gutenberg introduced moveable type: the ability to compose printed pages using reusable letters cast from lead. His legacy is still with us: the people who compose text for printing are still called “typesetters,” because once upon a time they physically set type, and the gaps between lines of text are still referred to as “leading,” because they used to be produced by inserting thin strips of lead. This innovation reduced the cost of producing books by orders of magnitude, making it possible for people of modest means to acquire a library. Gutenberg’s breakthrough is one of the most important bits of disruptive technology to come around, along with the steam engine and the nuclear bomb.

But an even bigger disruptive transformation occurred with the advent of the internet, which entirely decoupled the act of reproducing a work from the act of producing it in the first place. In effect, by investing in computing hardware and by paying for an internet connection, everybody gets access to a printing press. Once the equipment has been paid for, the incremental cost of producing another copy of something is zero. The overall cost is, of course, higher than ever; there is a good reason why Microsoft made fantastic fortunes with their mediocre, buggy products, or why Apple Computer is the public company with the highest market capitalization.

If you look at cost versus utility, many families now spend hundreds of dollars a month on smartphones, tablet computers, laptops, e-book readers, internet services, cellular phone services and so on. Were they to spend an equivalent amount on paper books and periodicals, they would amass a fantastically huge library in no time. Some people also pay for content—they purchase e-books, subscribe to premium services and so on—but most of the “content” they “consume” is free, paid for by advertising, or by promises of future revenue or increased market share, or by some other intangible, or—the most important category of all—by nothing at all.

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Jim in fine form.

Enter Jeb and Hil (Jim Kunstler)

The Floridian clod seeking to don the mantle of Millard Fillmore made an amazing foreign policy speech at an economic conference in Berlin last week. Inveighing against Russian President Vladimir Putin, he gave a very vivid impression of a man who has no idea what he is talking about.

“Russia must respect the sovereignty of all of its neighbors. And who can doubt that Russia will do what it pleases if its aggression goes unanswered?”

Jeb Bush was averring elliptically to the failed state formerly known as Ukraine, trying to put over the shopworn story that Russia was needlessly making war on its neighbor (and former province).

“Bush called for increased clarity on what type of sanctions would be imposed on the country if Prime Minister Vladimir Putin does not back down against a united international front…. ‘I don’t think we should be reacting to bad behavior [Bush said]. By being clear what the consequences of “bad behavior” is in advance, I think we will deter the kind of aggression that we fear from Russia. But always reacting, and giving the sense we’re reacting in a tepid fashion, only enables the bad behavior of Putin.’”

Note, by the way, that here is yet another scion of the Bush clan who was inexplicably brought up speaking Ebonics: “What the consequences… is?” Say what?

Ukraine became a failed state due to a coup d’état engineered by Barack Obama’s state department. US policy wonks did not like the prospect of Ukraine joining Russia’s regional trade group called the Eurasian Customs Union instead of tilting toward NATO and the European Union. So, we paid for and enabled a coalition of crypto-fascists to rout the duly elected president. One of the first acts of the US-backed new regime was to declare punishment of Russian language speakers, and so the predominately Russian-speaking people in eastern Ukraine revolted. Russia reacted to all this instability by seizing the Crimean peninsula, which had been part of Russia proper both before and through the Soviet chapter of history. The Crimea contained Russia’s only warm water seaports and naval bases. What morons in the US government ever thought Russia would surrender those assets to a newly-failed neighbor state?

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A look behind the Sunday Times Snowden article.

The American Far-Right’s Trojan Horse In Westminster (Nafeez Ahmed)

There is a violent extremist fifth column operating at the heart of power in Britain, and they stand against everything we hold dear in Western democracies: civil liberties, equality, peace, diplomacy and the rule of law. You wouldn’t think so at first glance. In fact, you might be taken in by their innocuous-looking spokespeople, railing against the threat of Muslim extremists, defending the rights of beleaguered Muslim women, championing the principle of free speech – regularly courted by national TV and the press as informed experts on global policy issues. But peer beneath the surface, and an entirely different picture emerges: a web of self-serving trans-Atlantic elites who are attempting to warp public discourse on key issues that pose a threat not to the public interest, but to their own vested interests.

One key organisation at the centre of this web is the Henry Jackson Society (HJS), an influential British think-tank founded a decade ago, ostensibly to promote noble ideals like freedom, human rights and democracy. But its staff spend most of their energies advancing the very opposite. More recently, HJS has turned to demonising Edward Snowden supporters and privacy advocates as accomplices with al-Qaeda and Islamic State (IS) – as is also being done by Rupert Murdoch s Sunday Times, with its hole-ridden story claiming Snowden’s revelations had allowed Russia and China to identify active MI6 agents. Journalists who have reviewed the Snowden files say that there was nothing in them that would permit MI6 operatives to be identified.

Former senior CIA official Robert Steele, whose books have received endorsements from the past and then serving Chairman of the Select Committee on Intelligence, said: “I can state categorically that there could not have been names of either intelligence officers or agents in the Snowden materials. The system simply does not work that way.” But the two-week time period between the publication of HJS report, and the Sunday Times hit-piece, is unlikely to be a coincidence. Like the Times piece, the latest HJS report damning Snowden draws almost entirely on anonymous intelligence sources along with unsubstantiated claims from the very officials responsible for mass surveillance, to claim that Snowden’s revelations had crippled the war on terror.

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Lots of places are going to be uninhabitable for lack of water.

More Than A Third Of The World’s Biggest Aquifers Are In Distress (FT)

More than a third of the world’s biggest aquifers, a vital source of fresh water for millions, are “in distress” because human activities are draining them, according to satellite observations. Scientists from Nasa, the US space agency, and the University of California, Irvine, analysed 10 years of data from the twin Grace satellites, which measure changes in groundwater reserves by the way they affect Earth’s gravitational pull. “Twenty-one of the world’s 37 biggest aquifers have passed sustainability tipping points … they are being depleted,” said Jay Famiglietti, the study leader. “Over a third [13] are so bad that they are experiencing exceptionally high levels of stress.” The problem is most serious in regions where rainfall and snowmelt cannot make up for water extracted for agriculture, industry, drinking and other human purposes.

The scientists determined aquifers’ overall stress rates on the basis of their depletion over 10 years of satellite measurements, together with their potential for replenishment, taking account of regional climate and human activities. The results, published in the Water Resources Research journal, show that the Arabian Aquifer System, an important water source for more than 60 million people, is the most “overstressed” in the world. It is followed by the Indus Basin aquifer of India and Pakistan and the Murzuq-Djado Basin in northern Africa. California’s Central Valley, currently at the center of a political battle over water rights, was classed as “highly stressed” and suffering rapid depletion mainly for agriculture.

Although many of the world’s great aquifers are being drained rapidly, there is “little to no accurate data about how much water remains in them,” the researchers added. Professor Famiglietti said: “Available physical and chemical measurements are simply insufficient. Given how quickly we are consuming the world’s groundwater reserves, we need a co-ordinated global effort to determine how much is left.” By comparing their satellite-derived groundwater loss rates to the limited data on groundwater availability, the researchers found huge discrepancies in projected times to total depletion of the aquifers. In the Northwest Sahara Aquifer System, for example, such times fluctuated between 10 and 21,000 years. The study noted that a dearth of groundwater was leading to severe ecological damage, including rivers running dry, water quality deteriorating and land subsiding.

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Jun 152015
 
 June 15, 2015  Posted by at 9:14 am Finance Tagged with: , , , , , , , , , ,  


DPC City Hall and Market Street and west from 11th, Philadelphia 1912

Tsipras Hardens Greek Stance After Collapse of Talks (Bloomberg)
Greece Has Nothing To Lose By Saying No To Creditors (Münchau)
Varoufakis: Debt Restructuring Is The Only Way Forward (Reuters)
Syriza Left Demands ‘Icelandic’ Default As Greek Defiance Stiffens (AEP)
IMF ‘Blocked EU Compromise Proposal’ To Let Greece Cut Military Spending (AFP)
Doctors At Greek State-Run Hospitals At Risk Of Burnout (Kathimerini)
Finland’s Problem Is The Same As Greece’s (Forbes)
The Futility of Our Global Monetary Experiment (David Stockman)
The Sunday Times’ Snowden Story Is Journalism At Its Worst (Glenn Greenwald)
Five Reasons the MI6 Story is a Lie (Craig Murray)
Let Me Be Clear – Edward Snowden Is A Hero (Shami Chakrabarti)
US And Poland In Talks Over Weapons Deployment In Eastern Europe (Guardian)
The Oil Cash-and-Carry Trade Does The Shipping Tanker Contango (Dizard)
China To Inject Billions Into European Infrastructure Fund (Reuters)
China’s Stock Market Value Tops $10 Trillion for First Time (Bloomberg)
China’s MSCI Reality Check Is Too Big To Ignore (MarketWatch)
Stand Back: China’s Bubble Will Burst (Clive Crook)
How Obama’s “Trade” Deals Are Designed To End Democracy (Eric Zuesse)
Inside The Crazy World Of Canada’s Peak Real Estate (MacLean’s)
Australian Banks And Real Estate: A Ponzi Scheme That Could Ruin Us? (ABC.au)
Just 16% Of Hurricane Sandy Funds Given Out By 2014 (NY Post)
‘Stop Over-The-Counter Sales of Monsanto’s Round-Up’ – French Minister (RT)
An Immigrant Is Worth More Than Drugs (Beppe Grillo’s blog)

“One can only read political motives in the creditors’ insistence on new cuts to pensions..”

Tsipras Hardens Greek Stance After Collapse of Talks (Bloomberg)

Greece and its creditors swapped recriminations over who was to blame for the breakdown of bailout talks, as each side hardened its position after the latest attempt to bridge differences collapsed in acrimony. With markets plunging in Asia and in Europe, Prime Minister Alexis Tsipras portrayed Greece as the torchbearer of democracy faced with unrealistic demands, while the caucus leader of Chancellor Angela Merkel’s parliamentary bloc said Greeks had to “finally reconcile themselves with reality.” “One can only read political motives in the creditors’ insistence on new cuts to pensions after five years of plundering them under the memorandum,” Tsipras was cited as saying in a statement in Efimerida Ton Syntakton newspaper on Monday. “We will wait patiently for the institutions to move toward realism.”

The euro dropped in early trading after the European Commission said negotiations in Brussels had broken up on Sunday after just 45 minutes with the divide between what creditors asked of Greece and what its government was prepared to do unbridged. The focus now shifts to a June 18 meeting in Luxembourg of euro-area finance ministers that may become a make-or-break session deciding Greece’s ability to avert default and its continued membership in the 19-nation euro area. “In the end, this is not the kind of situation where you can have a mechanical agreement for some kind of numbers, where you meet in the middle or something similar,” Valdis Dombrovskis, EC vice president for euro policy, said on Latvian television Monday. “To reach an agreement Greece has to do the work that is necessary.”

The latest failed attempt to find a formula to unlock as much as €7.2 billion in aid for the anti-austerity Syriza-led government brings Greece closer to the abyss. With two weeks until its euro-area bailout expires and no future financing arrangement in place, creditors had set June 14 as a deadline to allow enough time for national parliaments to approve an accord. “If some interpret the government’s honest willingness to reach compromise and the steps it has taken to bridge the differences as weakness, they should consider this: we don’t just carry a heavy history of struggles,” said Tsipras. “We’re carrying on our backs the dignity of a people, but also the hopes of the people of Europe. It’s too heavy a burden to ignore. It’s not a question of ideological stubbornness. It’s a question of democracy.”

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“Greece would default on all official creditors, and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later.”

Greece Has Nothing To Lose By Saying No To Creditors (Münchau)

So here we are. Alexis Tsipras has been told to take it or leave it. What should he do The Greek prime minister does not face elections until January 2019. Any course of action he decides on now would have to bear fruit in three years or less. First, contrast the two extreme scenarios: accept the creditors’ final offer or leave the eurozone. By accepting the offer, he would have to agree to a fiscal adjustment of 1.7% of GDP within six months. My colleague Martin Sandbu calculated how an adjustment of such scale would affect the Greek growth rate. I have now extended that calculation to incorporate the entire four-year fiscal adjustment programme, as demanded by the creditors.

Based on the same assumptions he makes about how fiscal policy and GDP interact, a two-way process, I come to a figure of a cumulative hit on the level of GDP of 12.6% over four years. The Greek debt-to-GDP ratio would start approaching 200%. My conclusion is that the acceptance of the troika’s programme would constitute a dual suicide – for the Greek economy, and for the political career of the Greek prime minister. Would the opposite extreme, Grexit, achieve a better outcome? You bet it would, for three reasons. The most important effect is for Greece to be able to get rid of lunatic fiscal adjustments. Greece would still need to run a small primary surplus, which may require a one-off adjustment, but this is it.

Greece would default on all official creditors, and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later. The second reason is a reduction of risk. After Grexit, nobody would need to fear a currency redenomination risk. And the chance of an outright default would be much reduced, as Greece would already have defaulted on its official creditors and would be very keen to regain trust among private investors.

The third reason is the impact on the economy’s external position. Unlike the small economies of northern Europe, Greece is a relatively closed economy. About three quarters of its GDP is domestic. Of the quarter that is not, most comes from tourism, which would benefit from devaluation. The total effect of devaluation would not be nearly as strong as it would be for an open economy such as Ireland, but it would be beneficial nonetheless. Of the three effects, the first is the most important in the short term, while the second and third will dominate in the long run.

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Always was.

Varoufakis: Debt Restructuring Is The Only Way Forward (Reuters)

Greece Finance Minister Yanis Varoufakis said he could rule out a ‘Grexit’ because it would not be a sensible solution to the Greek debt crisis and in a German newspaper interview on Monday also said a debt restructuring was the only way forward. “I rule out a ‘Grexit’ as a sensible solution,” Varoufakis told mass circulation Bild newspaper, referring to a possible Greek exit from the euro zone. “But no one can rule out everything. I can’t even rule out a comet hitting earth.” Talks on ending the deadlock between Greece and its international creditors broke up in failure, with European leaders venting frustration as Athens stumbled towards a debt default that threatens its future in the euro.

Varoufakis said he believed it could be possible for Greece to reach an agreement with creditors quickly. He said the only way Greece would be able to repay its debts was if there was a restructuring and a deal could be possible if Chancellor Angela Merkel took part in the talks. “We don’t want any more money,” he told the German daily that has been especially critical of the rescue efforts, adding Germany and the rest of the eurozone had already given Greece “far too much” money. “An agreement could be reached in one night. But the chancellor would have to take part.”

He said the austerity program had failed. “There’s no way around it: We have to start all over again. We have to make a clean sweep,” Varoufakis said. He added that his government wanted to prevent a ‘Grexit’ but needed “a restructuring. That’s the only way possible that we can guarantee and also afford to repay so much debt.”

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No, they’re not kidding.

Syriza Left Demands ‘Icelandic’ Default As Greek Defiance Stiffens (AEP)

The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe’s creditor powers. Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma. The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or ‘Left Platform’, as well as other hard-line groupings in Syriza’s spectrum.

It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be. “This goes well beyond the Left Platform. We are talking serious numbers,” said one Syriza MP involved in the draft. “We are all horrified by the idea of surrender, and we will not allow ourselves to be throttled to death by European monetary union,” he told the Telegraph. The militant views on the Left show how difficult it could be for premier Alexis Tsipras to rally his party’s support for any deal that crosses Syriza’s electoral ‘red-lines’ on pensions, labour rights, austerity, and debt-relief. Yet they also strengthen his hand as talks with EMU creditors turn increasingly dangerous. Talks between Greece and its EU creditors fell apart once again on Sunday, leaving a final decision on a default to eurozone finance ministers.

Mr Tsipras warned over the weekend in the clearest terms to date that Greece’s creditors should not push him too far. “Our only criterion is an end to the ‘memoranda of servitude’ and an exit from the crisis,” he said. “If Europe wants the division and the perpetuation of servitude, we will take the plunge and issue a ‘big no’. We will fight for the dignity of the people and our sovereignty,” he said. It may soon be too late to push any accord through the German Bundestag and other EMU parliaments before June 30, when Greece faces a €1.6bn payment to the IMF. The interior ministry has already ordered governors and mayors to transfer their cash reserves to the central bank as a precaution, but even this is not enough to avert default without a deal. Yet an official document released this evening in Athens appeared to throw down the gauntlet.

“The government reiterates, in no uncertain terms, that no reduction in pensions and wages or increases, through VAT, in essential goods – such as electricity – will be accepted. No recessionary measure that undermines growth – the experiment has lasted long enough,” it said. European officials examined ‘war game’ scenarios of a Greek default in Bratislava on Thursday, admitting for the first time that they may need a Plan B after all. “It was a preparation for the worst case. Countries wanted to know what was going on,” said one participant to AFP. The creditors argue that ‘Grexit’ would be suicidal for Greece. They have been negotiating on the assumption that Syriza must be bluffing, and will ultimately capitulate. Little thought has gone into possibility that key figures in Athens may be thinking along entirely different lines.

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Cutting military spending is a thorny topic. The IMF knows who the paymasters are. Hilarious that they claim to be opposed to “any such “bartering”; it’s all they been doing since January.

IMF ‘Blocked EU Compromise Proposal’ To Let Greece Cut Military Spending (AFP)

The IMF “torpedoed” a recent attempt by European Commission chief Jean-Claude Juncker to offer Athens a compromise proposal in tortuous debt talks, a German daily reported. Citing a “negotiator” as its source, the Frankfurter Allgemeine Zeitung said there had been “tensions” between the EU Commission and the IMF in recent days as Greece and its creditors race against the clock to come up with a debt deal to avert a catastrophic default by Athens. The compromise that Juncker wanted to present to Greek Prime Minister Alexis Tsipras would have allowed Athens to postpone some €400 million in pension cuts in return for making similar savings on military spending, the newspaper said in its Sunday edition.

But the IMF was opposed to any such “bartering”, the source was quoted as saying in the report. Tsipras meanwhile warned Greece on Saturday to prepare for a “difficult compromise” with its EU-IMF creditors, who are demanding tough reforms in return for unlocking the last tranche of desperately-needed bailout funds ahead of key deadlines at the end of the month. Top Eurozone officials upped the pressure on Friday, saying they were preparing the ground for an Athens default, which could see Greece crashing out of the Eurozone.

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Tragedy.

Doctors At Greek State-Run Hospitals At Risk Of Burnout (Kathimerini)

There are a number of specializations that are especially demanding. For the past four months, the recently opened thoracic surgery clinic at the Attikon Hospital in Athens has been operating with a staff of two. “I have applied for an assistant, someone who is specialized in what we do here, to be temporarily reassigned from another hospital, but what can they do when every hospital is understaffed?” noted the clinic’s director, Pericles Tomos. He has one intern when the work calls for four. Over three months, the two of them conducted 37 surgeries, and they work more than 12 hours a day. The shortage of thoracic surgeons has also hit other hospitals in the country. Over 70% of the positions for this specialization remain open as young doctors with expertise prefer to work abroad.

Similar shortages in other specializations put a greater burden on doctors working at public hospitals. At the capital’s Evangelismos Hospital, heart surgeon Panagiotis Dedeilias works more than 80 hours a week. “I have often felt completely exhausted after working for 36 hours straight,” he told Kathimerini. “I have had interns faint in the operating room because of exhaustion, while I have also seen others growing indifferent toward the job. They may not have lost their ability to diagnose a patient and do what they need to do, but they are cold toward patients’ relatives and seem to be losing their ambition.” Dedeilias has never taken a day off after being on emergency duty for 24 hours. “You can’t leave a patient behind when you know there’s no one to replace you,” said Giorgos Marinos, a doctor who is in charge of running the emergency room at the Laiko Hospital, also in Athens.

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It shouldn’t be in the eurozone.

Finland’s Problem Is The Same As Greece’s (Forbes)

Finland’s central bank governor, Erkki Liikanen, tells us that Finland is going to have to work hard to get through this current difficult economic situation. The country’s GDP is still significantly below pre-crisis levels and it’s likely to be a number of years before there’s a full recovery. But the real point behind this story is that it just doesn’t have to be this way. As Paul Krugman has been pointing out recently and as many others of us have been shouting for years. Finland simply should never have joined the euro, as Greece should not have. As, in fact, pretty much most of the current members should not have joined the single currency.

Further, none of this is a surprise. It’s inherent in the very design of said currency, indeed it was pointed to by Robert Mundell, the man who worked out the economics of single currencies. That it would all go wrong is exactly what the warning about the euro was. It is going wrong, has gone wrong, and for exactly the reason predicted:

Finland is in trouble, and in the words of the central bank this week, the situation is “grave”. While France has often been branded Europe’s “sick man” and Greece’s problems are well known, Finland’s economy is still 5pc smaller than before the financial crisis. The country will barely crawl out of a three-year recession this year, while unemployment is forecast by the OECD to grow in 2015.

Faced with a bloated state, below-par growth, and prices and costs that have risen at a much faster pace than the rest of the eurozone, the medicine is a familiar one. What Finland has to do is have an internal devaluation. That is, it’s got to force down labour prices. That’s something that is difficult and something that can only be done with considerable economic pain. It’s also what Spain, Portugal and the extreme case of Greece have all also had to do. And the reason is that they’re in the euro. As Paul Krugman points out:

What’s going on? Well, in the case of Finland we’re seeing the classic problems of asymmetric shocks in a currency area that isn’t optimal. Finland’s two main export sectors, forest products and Nokia, have tanked; this creates the need for a sharp fall in relative wages to make up for the lost markets, but because Finland doesn’t have its own currency anymore this adjustment must take the form of a slow, grinding internal devaluation (which is, by the way, why the garbled discussion of wages turns the story into nonsense).

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“It was digital money conjured out of thin air and they certainly haven’t destroyed or repealed the law of supply and demand.”

The Futility of Our Global Monetary Experiment (David Stockman)

If they don’t raise the interest rate in June — and I think all the signals now are pretty clear they’re going to find another reason to delay — that will mean seventy-eight straight months of zero rates in the money market. As I always say, the money-market price, that is the Federal Funds Rate or Overnight Money or a short term treasury bill, is the most important price in all of capitalism because that determines the cost of carry, the cost of speculation and gambling. When you conduct a monetary policy that says to the speculators, to the gamblers, “come and get it,” you are guaranteed free money to carry your positions, whether you’re buying German Bonds or you’re buying the S&P 500 Stock Index or the whole array of yielding or price gaining assets that are available in the financial market.

This monetary policy also sends the message that you can leverage and carry those positions for free and roll it day after day without worry because the central bank has pegged your cost and production, and in a sense has pledged on its solemn honor that it will not change without many months of warning. And that’s what this whole thing is about — changing the language and so forth. I think you have created a massive distortion in the very heart of capitalism in the financial system. Second, I think even though they stopped actually adding to their balance sheet in October — when QE supposedly ended in a technical sense — the Fed has put $3.5 trillion worth of basic financial fraud into the world financial system and economy.

After all, when they bought all of that treasury debt and all of those GSE securities, what did they use to pay for it with? It was digital money conjured out of thin air and they certainly haven’t destroyed or repealed the law of supply and demand. So, if you put $3.5 trillion of demand into the fixed income market at points along the yield curve all the way from two years to thirty years, that is an enormous fat sum on the scale. That is an enormous distortion of pricing because you can’t have that much demand without affecting the price. Now, with the ECB at full throttle, and with Japan being almost a lunatic in its mimicking of QE, you are creating the greatest distortion of fixed income pricing or bond market pricing in the history of the world, and the bond market is the monster of the midway.

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Essential reading.

The Sunday Times’ Snowden Story Is Journalism At Its Worst (Glenn Greenwald)

Western journalists claim that the big lesson they learned from their key role in selling the Iraq War to the public is that it’s hideous, corrupt and often dangerous journalism to give anonymity to government officials to let them propagandize the public, then uncritically accept those anonymously voiced claims as Truth. But they’ve learned no such lesson. That tactic continues to be the staple of how major US and British media outlets “report,” especially in the national security area. And journalists who read such reports continue to treat self-serving decrees by unnamed, unseen officials – laundered through their media – as gospel, no matter how dubious are the claims or factually false is the reporting.

We now have one of the purest examples of this dynamic. Last night, the Murdoch-owned Sunday Times published their lead front-page Sunday article, headlined “British Spies Betrayed to Russians and Chinese.” Just as the conventional media narrative was shifting to pro-Snowden sentiment in the wake of a key court ruling and a new surveillance law, the article claims in the first paragraph that these two adversaries “have cracked the top-secret cache of files stolen by the fugitive US whistleblower Edward Snowden, forcing MI6 to pull agents out of live operations in hostile countries, according to senior officials in Downing Street, the Home Office and the security services.” It continues:

Western intelligence agencies say they have been forced into the rescue operations after Moscow gained access to more than 1m classified files held by the former American security contractor, who fled to seek protection from Vladimir Putin, the Russian president, after mounting one of the largest leaks in US history. Senior government sources confirmed that China had also cracked the encrypted documents, which contain details of secret intelligence techniques and information that could allow British and American spies to be identified. One senior Home Office official accused Snowden of having “blood on his hands”, although Downing Street said there was “no evidence of anyone being harmed”.

Aside from the serious retraction-worthy fabrications on which this article depends – more on those in a minute – the entire report is a self-negating joke. It reads like a parody I might quickly whip up in order to illustrate the core sickness of western journalism. Unless he cooked an extra-juicy steak, how does Snowden “have blood on his hands” if there is “no evidence of anyone being harmed?” As one observer put it last night in describing the government instructions these Sunday Times journalists appear to have obeyed: “There’s no evidence anyone’s been harmed but we’d like the phrase ‘blood on his hands’ somewhere in the piece.”

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The Sunday Times may yet regret having run it. Already, a vital accusation was silently removed from the digital version.

Five Reasons the MI6 Story is a Lie (Craig Murray)

The Sunday Times has a story claiming that Snowden’s revelations have caused danger to MI6 and disrupted their operations. Here are five reasons it is a lie.

1) The alleged Downing Street source is quoted directly in italics. Yet the schoolboy mistake is made of confusing officers and agents. MI6 is staffed by officers. Their informants are agents. In real life, James Bond would not be a secret agent. He would be an MI6 officer. Those whose knowledge comes from fiction frequently confuse the two. Nobody really working with the intelligence services would do so, as the Sunday Times source does. The story is a lie.

2) The argument that MI6 officers are at danger of being killed by the Russians or Chinese is a nonsense. No MI6 officer has been killed by the Russians or Chinese for 50 years. The worst that could happen is they would be sent home. Agents’ – generally local people, as opposed to MI6 officers – identities would not be revealed in the Snowden documents. Rule No.1 in both the CIA and MI6 is that agents’ identities are never, ever written down, neither their names nor a description that would allow them to be identified. I once got very, very severely carpeted for adding an agents’ name to my copy of an intelligence report in handwriting, suggesting he was a useless gossip and MI6 should not be wasting their money on bribing him. And that was in post communist Poland, not a high risk situation.

3) MI6 officers work under diplomatic cover 99% of the time. Their alias is as members of the British Embassy, or other diplomatic status mission. A portion are declared to the host country. The truth is that Embassies of different powers very quickly identify who are the spies in other missions. MI6 have huge dossiers on the members of the Russian security services – I have seen and handled them. The Russians have the same. In past mass expulsions, the British government has expelled 20 or 30 spies from the Russian Embassy in London. The Russians retaliated by expelling the same number of British diplomats from Moscow, all of whom were not spies! As a third of our “diplomats” in Russia are spies, this was not coincidence. This was deliberate to send the message that they knew precisely who the spies were, and they did not fear them.

4) This anti Snowden non-story – even the Sunday Times admits there is no evidence anybody has been harmed – is timed precisely to coincide with the government’s new Snooper’s Charter act, enabling the security services to access all our internet activity. Remember that GCHQ already has an archive of 800,000 perfectly innocent British people engaged in sex chats online.

5) The paper publishing the story is owned by Rupert Murdoch. It is sourced to the people who brought you the dossier on Iraqi Weapons of Mass Destruction, every single “fact” in which proved to be a fabrication. Why would you believe the liars now?

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Second that.

Let Me Be Clear – Edward Snowden Is A Hero (Shami Chakrabarti)

Who needs the movies when life is full of such spectacular coincidences? On Thursday, David Anderson, the government’s reviewer of terrorism legislation, condemned snooping laws as “undemocratic, unnecessary and – in the long run – intolerable”, and called for a comprehensive new law incorporating judicial warrants – something for which my organisation, Liberty, has campaigned for many years. This thoughtful intervention brought new hope to us and others, for the rebuilding of public trust in surveillance conducted with respect for privacy, democracy and the law. And it was only possible thanks to Edward Snowden. Rumblings from No 10 immediately betrayed they were less than happy with many of Anderson’s recommendations – particularly his call for judicial oversight.

And three days later, the empire strikes back! An exclusive story in the Sunday Times saying that MI6 “is believed” to have pulled out spies because Russia and China decoded Snowden’s files. The NSA whistleblower is now a man with “blood on his hands” according to one anonymous “senior Home Office official”. Low on facts, high on assertions, this flimsy but impeccably timed story gives us a clear idea of where government spin will go in the coming weeks. It uses scare tactics to steer the debate away from Anderson’s considered recommendations – and starts setting the stage for the home secretary’s new investigatory powers bill. In his report, Anderson clearly states no operational case had yet been made for the snooper’s charter. So it is easy to see why the government isn’t keen on people paying too close attention to it.[..]

So let me be completely clear: Edward Snowden is a hero. Saying so does not make me an apologist for terror – it makes me a firm believer in democracy and the rule of law. Whether you are with or against Liberty in the debate about proportionate surveillance, Anderson must be right to say that the people and our representatives should know about capabilities and practices built and conducted in our name. For years, UK and US governments broke the law. For years, they hid the sheer scale of their spying practices not just from the British public, but from parliament. Without Snowden – and the legal challenges by Liberty and other campaigners that followed – we wouldn’t have a clue what they were up to.

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The narrative machine.

US And Poland In Talks Over Weapons Deployment In Eastern Europe (Guardian)

The US and Poland are discussing the deployment of American heavy weapons in eastern Europe in response to Russian expansionism and sabre-rattling in the region in what represents a radical break with post-cold war military planning. The Polish defence ministry said on Sunday that Washington and Warsaw were in negotiations about the permanent stationing of US battle tanks and other heavy weaponry in Poland and other countries in the region as part of Nato’s plans to develop rapid deployment “Spearhead” forces aimed at deterring Kremlin attempts to destabilise former Soviet bloc countries now entrenched inside Nato and the EU. Tomasz Siemoniak, the Polish defence minister, had talks on the issue at the Pentagon last month.

Warsaw said on Sunday that a decision whether to station heavy US equipment at warehouses in Poland would be taken soon. Nato’s former supreme commander in Europe, the American admiral James Stavridis, said the decision marked “a very meaningful policy shift”, amid eastern European complaints that western Europe and the US were lukewarm about security guarantees for countries on the frontline with Russia following Vladimir Putin’s seizure of parts of Ukraine. “It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full time on the ground, of course,” the retired admiral told the New York Times.

Nato has been accused of complacency in recent years. The Russian president’s surprise attacks on Ukraine have shocked western military planners into action. An alliance summit in Wales last year agreed quick deployments of Nato forces in Poland and the Baltic states. German mechanised infantry crossed into Poland at the weekend after thousands of Nato forces inaugurated exercises as part of the new buildup in the east. Wary of antagonising Moscow’s fears of western “encirclement” and feeding its well-oiled propaganda effort, which regularly asserts that Nato agreed at the end of the cold war not to station forces in the former Warsaw Pact countries, Nato has declined to establish permanent bases in the east.

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“..one of those phenomena you hear about in airport lounges just around the time it is nearly over.”

The Oil Cash-and-Carry Trade Does The Shipping Tanker Contango (Dizard)

The oil cash-and-carry trade is one of those phenomena you hear about in airport lounges just around the time it is nearly over. At the risk of repeating what your taxi driver told you this morning, oil cash-and-carries are about buying 2m barrels of oil with money borrowed from a “too big to fail” bank, storing it in a very large crude carrier, leaving it at anchor for, say, a year and then selling the oil at a higher price. Easy to understand, if you are the billionaire industrialists the Koch brothers. The cycles of this trade tell us a lot about macro-trade hype, the prospects for interest rates and ship owners’ financing. They can also mislead people about the prospects of the oil price.

I am not worried that the Koch brothers themselves will be tempted by the lure of fast money to overcommit their credit lines to the oil carry trade. I would be more concerned that the investing public, or the “smart money” of private equity funds, will continue to buy bits of crude or tankers, or shares in the companies that own them, in the hope of profiting from a growing market for oil storage. Even as the shares of companies owning bulk carriers have sunk to the bottom of the Mariana trench, tanker equities have steamed ahead. For example, Scorpio Bulkers is down 76% over the past year, while Nordic American Tankers is up over 56%.

No doubt some analyst could point to perceived differences in management quality, but for most investors these are commodity plays: bulkers = China raw material imports; tankers = oil contango. A contango, or a series of prices for future delivery of a commodity that increases over time, can tell a counterintuitive story, particularly for oil. For many, it appears to predict that the price is going up. Most of the time, though, crude oil prices are in backwardation, meaning near-term prices are higher than prices for future delivery. This makes sense when you consider it; if refiners only need oil a couple of months in advance, why not leave it in the ground rather than pay storage and financing costs on that position?

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Europe can’t afford to pay for its own infrastructure anymore.

China To Inject Billions Into European Infrastructure Fund (Reuters)

China will pledge a multi-billion dollar investment in Europe’s new infrastructure fund at a summit on June 29 in Brussels, according to a draft communique seen by Reuters – Beijing’s latest round of chequebook diplomacy to win greater influence. While the exact amount is still to be decided, the pledge will mark the latest step in China’s efforts to shape global economic governance at the expense of the United States, and follows major EU governments’ decision to join the Chinese-led Asian Infrastructure Investment Bank (AIIB) in defiance of Washington. It is expected to come with a request for return investment in China’s westward infrastructure drive – the “One Belt, One Road” initiative – constructing major energy and communications links across Central, West and South Asia to as far as Greece.

“China announced that it would make (X amount) available for co-financing strategic investment of common interest across the EU,” the draft final statement says, adding that agreements will be finalised at another meeting in September. An EU diplomat said the Chinese contribution was likely to be “in the billions”. EU and Chinese officials have told Reuters that Chinese banks are looking mainly at telecoms and technology projects. Chinese Premier Li Keqiang, who will attend the summit in Brussels, will agree with EU leaders that the €315 billion fund will “create opportunities for China to invest in the EU, in particular in infrastructure and innovation sectors”. If sealed, the deal will be a success for EC President Jean-Claude Juncker, who faced scepticism last year when he proposed the European Fund for Strategic Investment (EFSI), because EU governments are putting in little seed money.

France, Germany, Italy and Poland have each announced they will contribute 8 billion euros, while Spain and Luxembourg have pledged smaller contributions. The bloc is relying mainly on private investors and development banks to fund projects selected from an initial list of almost 2,000 submitted by the 28 member states, from airports to flood defenses, that are together worth 1.3 trillion euros. A big Chinese investment might raise questions about governance of the fund, which is so far strictly a European institution. An EU diplomat said it was not known whether China would seek representation commensurate with its stake. The decision to invite China into an EU fund could cause some friction with Washington, which is wary of Beijing’s rising influence and upset that Europe rebuffed its calls to stay out of the AIIB.

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What can you say to this other than ‘don’t look down’?

China’s Stock Market Value Tops $10 Trillion for First Time (Bloomberg)

The value of Chinese stocks rose above $10 trillion for the first time, the latest milestone for the nation’s world-beating rally. Companies with a primary listing in China are valued at $10.05 trillion, an increase of $6.7 trillion in 12 months, according to data compiled by Bloomberg. The gain alone is more than the $5 trillion size of Japan’s entire stock market. The U.S. is the biggest globally, at almost $25 trillion. No other stock market has grown as much in dollar terms over a 12-month period, as Chinese individuals piled into the nation’s equities using borrowed funds to bet gains will continue. Valuations are now the highest in five years and margin debt has climbed to a record, all while the economy is mired in its weakest expansion since 1990.

“This a reflection of the risk-taking attitude of the public,” Hao Hong at Bocom International in Hong Kong, said. “People are taking on an unreasonable amount of risk for deteriorating economic growth.” Outside of China, investors aren’t showing the same enthusiasm toward the nation’s equities. Funds pulled a net $6.8 billion out of Chinese stock funds in the seven days through Wednesday, Barclays Plc. said in a research note, citing EPFR Global data. Dual-listed Chinese shares cost more than twice as much on average on mainland exchanges than they do in Hong Kong. MSCI’s June 9 decision against including mainland equities in its benchmark gauge had little impact on the Shanghai Composite Index, which climbed 2.9% last week to its highest level since January 2008.

Foreigners are limited by quotas when buying shares in Shanghai via an exchange link with Hong Kong, while similar access to Shenzhen-traded stocks will likely start this year, according to the Hong Kong bourse. The Shanghai gauge has rallied 152% in the past 12 months, the most among global benchmark indexes tracked by Bloomberg, and trades at about 26 times reported earnings. Less than a year ago, the gauge was valued at about 9.6 times, the lowest since at least 1998. The Shenzhen Composite Index, tracking stocks on the smaller of China’s two exchanges, trades at 77 times profits after surging 194%.

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No confidence.

China’s MSCI Reality Check Is Too Big To Ignore (MarketWatch)

In recent weeks, much of the debate on China has centered on the idea that it is “too big to be ignored,” meaning the rest of the world would inevitably need to own its equities and currency. But now it’s set for a reality check. In the same week that Chinese A-shares failed to be included in MSCI’s emerging-market benchmark, it was also revealed that global investors pulled $7.9 billion out of Asia. This was the biggest weekly withdrawal in almost 15 years, according to data provider EPFR Global, and the majority reportedly related to China. Take this as a cue to look past China’s size and, instead, consider again its questionable fundamentals.

So far this year, concerns over a potential debt crisis have been drowned out by the roar of China’s domestic equity bull market – the best performing in the world this year by a long margin. But last week’s decision by MSCI tells us it’s too early to consider China a mainstream asset class. Despite much talk of reform, Beijing’s efforts to open its capital markets or make its financial system more transparent have been limited. Yuan internationalization might be accelerating, but a capital-account opening still looks like a distant promise. The decision against effectively forcing global fund managers to benchmark against an index they can still not freely buy and sell, in a currency that is not freely traded, is hard to take issue with.

As well as A-shares, Beijing has been angling to have the yuan recognized as one of the IMF’s benchmark currencies. This again follows the “too big to be ignored” line of thinking for the world’s second-largest economy. But this could be similarly premature when the yuan’s value is still determined by Beijing and not the market. The fact that the PBoC doesn’t issue currency notes larger than 100 yuan ($16) suggests it’s still preoccupied with the risk of capital flight. Rather than IMF technical tests, a simple one would be whether the Communist Party is willing to test its own people’s confidence in the yuan by letting it be freely exchanged? After that, it might be time to consider its merits as a global reserve currency, or whether Chinese shares should become cornerstone holdings in global equities.

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“..two-thirds of the country’s newcomers to investing left school before the age of 15..”

Stand Back: China’s Bubble Will Burst (Clive Crook)

Singapore, which I’m visiting at the moment, opens your mind to the highly improbable. Rich, ethnically diverse, cheerfully efficient, globalized in the extreme, it’s a man-made economic miracle — astonishing proof of what market forces combined with superb top-down direction can achieve. Even in Singapore, though, there are limits to what you can believe. I struggle to imagine, for instance, that China’s stock market isn’t a bubble. China’s leadership has long been impressed with the Singapore model. Since Deng Xiaoping, its government has been much more interested in capitalism in the style of Lee Kuan Yew than class struggle in the style of Karl Marx. In China, the mix of markets and smart management has indisputably worked another miracle, and on a vastly larger scale than Lee’s.

It’s a record that can make investors credulous. Lately, the government has defied predictions of an economic hard landing: The economy has slowed, but hasn’t crashed. Beijing wanted a gentle slowdown – part of its effort to rebalance the economy toward consumption and away from exports and investment – so it pulled some fiscal and monetary levers and that’s what happened. Targeted growth of 7% in GDP this year, fast by any other country’s standards, looks achievable. Many investors seem to think officials can direct the stock market just as precisely. It’s only a matter of time before they’re proved wrong. You could argue, in fact, that they already have been. The government wants a strong stock market for several reasons, including to support demand as property prices sag and growth in credit and investment slow.

It has been talking up share prices. Official news outlets extoll the virtues of stock ownership. But the government surely can’t have wanted the frenzy that in recent months has pushed the valuations of many companies to preposterous levels. Manic episodes rarely end well – and in many respects, this is mania. The Shenzhen market is up almost 200% over the past year. Its price-earnings ratio stands at a little less than 80. (Standard & Poor’s 500 Index is up 9% and has a ratio of 19.) Much of the demand for Chinese shares is credit-fuelled and comes from small investors new to the game. In one week in April Chinese investors opened 4 million new brokerage accounts – and two-thirds of the country’s newcomers to investing left school before the age of 15.

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“..an international conquest of democracy, by international corporations.”

How Obama’s “Trade” Deals Are Designed To End Democracy (Eric Zuesse)

U.S. President Barack Obama has for years been negotiating with European and Asian nations — but excluding Russia and China, since he is aiming to defeat them in his war to extend the American empire (i.e, to extend the global control by America’s aristocracy) — three international ‘trade’ deals (TTP, TTIP, & TISA), each one of which contains a section (called ISDS) that would end important aspects of the sovereignty of each signatory nation, by setting up an international panel composed solely of corporate lawyers to serve as ‘arbitrators’ deciding cases brought before this panel to hear lawsuits by international corporations accusing a given signatory nation of violating that corporation’s ‘rights’ by its trying to legislate regulations that are prohibited under the ’trade’ agreement,

such as by increasing the given nation’s penalties for fraud, or by lowering the amount of a given toxic substance that the nation allows in its foods, or by increasing the percentage of the nation’s energy that comes from renewable sources, or by penalizing corporations for hiring people to kill labor union organizers — i.e., by any regulatory change that benefits the public at the expense of the given corporations’ profits. (No similar and countervailing power for nations to sue international corporations is included in this: the ‘rights’ of ‘investors’ — but really of only the top stockholders in international corporations — are placed higher than the rights of any signatory nation.)

This provision, whose full name is “Investor State Dispute Resolution” grants a one-sided benefit to the controlling stockholders in international corporations, by enabling them to bring these lawsuits to this panel of lawyers, whose careers will consist of their serving international corporations, sometimes as ‘arbitrators’ in these panels, and sometimes as lawyers who more-overtly represent one or more of those corporations, but also serving these corporations in other capacities, such as via being appointed by them to head a tax-exempt foundation to which international corporations ‘donate’ and so to turn what would otherwise be PR expenses into corporate tax-deductions. In other words: to be an ‘arbitrator’ on these panels can produce an extremely lucrative career.

These are in no way democratic legal proceedings; they’re the exact opposite, an international conquest of democracy, by international corporations.

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The harder they come.

Inside The Crazy World Of Canada’s Peak Real Estate (MacLean’s)

A huge chunk of Canadians’ assets are tied up in real estate (roughly 35% in principal residences and another 10% in second properties), and their value has exploded. Some $1.7 trillion in net new wealth has been created from Canadian real estate since 2000. In fact, a growing number of Canadians expect their home to pay for their retirement. Is it any wonder, then, that with so much at stake, emotions run high and disputes turn ugly? “Real estate is seen as a commodity in scarce supply—while there’s actually a lot of it out there, it’s scarce if we can’t afford it,” says John Andrew, an adjunct assistant professor who studies real estate at Queen’s University. “It’s inevitable that you start to see these conflicts. It tends to bring out the worst in people.”

It’s not just battles over monster homes. While bidding wars have become an unwelcome rite of passage in the quest for home ownership in Canada over the past decade, the battles have grown even more irrational and vicious of late as buyers compete for the privilege of owning dilapidated, inner-city homes that often need to be gutted to be saved. As for those priced out of the housing market altogether, there are growing calls for politicians to do something—anything—to bring down the cost of owning a home in Canada. That’s led to a NIMBYish dispute in Calgary over legal basement suites and quasi-xenophobic discussions in Vancouver about the need to clamp down on foreign property buyers—read: mainland Chinese.

One local urban planner has even dubbed Vancouver a “hedge city,” suggesting its single-family homes are little more than a place for wealthy foreigners to park their cash. With all the rage, greed and animosity, the country’s already overheated housing market has hit yet another level—one where desperate, would-be buyers clamour, wild-eyed, for a slice of the action, while existing homeowners go to extreme lengths to protect their property nest eggs. Meanwhile, the rest of the world looks on and wonders: Has Canada gone crazy?

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You betcha.

Australian Banks And Real Estate: A Ponzi Scheme That Could Ruin Us? (ABC.au)

Madness has gripped Sydney’s and parts of Melbourne’s property market; a malaise that, if allowed to continue, could have dire consequences for the nation. So far, much of the debate around the rampant real estate market has revolved around affordability and the worrying concern that we are in the process of creating a class system based upon land ownership as wealth is transferred from a generation entering the workforce to those about to exit it. But a far greater and more immediate danger lurks in the shadows. The prospect of a reversal – of a sudden decline in property values in the two major capitals – would be enough to tip the nation into a severe economic crisis.

It’s not as though it hasn’t happened elsewhere. The collapse in American property markets in 2007 sparked the worst global recession in generations. The UK endured its own crisis borne from overly exuberant real estate speculation. The same thing happened across Europe. The east coast capital city property bubble is being driven by investors who borrowed $11.5 billion in April, a 23.5% rise from a year earlier. They sidelined owner occupiers, who borrowed $9.8 billion. None of this is being fuelled by wages growth. Beneath this month’s GDP figures – which superficially showed an encouraging 0.9% lift for the March quarter – lay the real story. Nominal GDP – a much better proxy for earnings and wages – grew just 0.4% for the quarter and an anaemic 1.2% for the year.

In the past fortnight, the Prime Minister and the Treasurer have been assailed by the nation’s three most powerful economic mandarins, each of whom has directly contradicted the Government mantra on rising property prices. Treasury head John Fraser, Reserve Bank chief Glenn Stevens and financial system inquiry author David Murray have all expressed alarm at recent developments in the eastern states capital city housing markets. They have yet to detail the mechanism by which their unfolding fears could play out if the Sydney and Melbourne housing bubble is not deflated. But here is a likely scenario over how an unfettered boom could wreck the economy.

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Katrina, Sandy, big words but..

Just 16% Of Hurricane Sandy Funds Given Out By 2014 (NY Post)

Just 16% of the money given to the city for Hurricane Sandy projects was doled out in contracts by the end of 2014 even though the storm ravaged the area more than two years before, according to a new analysis. Some Sandy projects were added late in the planning process and the feds had not appropriated all the funding by that time, the Independent Budget Office found. The funding was worth a total $9.7 billion. The MTA said much of the rebuilding and strengthening of the transit system still has to be done such as work on the Cranberry Tube, used by the A and C lines, and the L train s Canarsie Tube.

Those Sandy projects which have been funded are progressing rapidly, rep Kevin Ortiz said. The IBO also said that when the MTA s last capital plan wrapped up it had spent less than half of its funds. The plan ran between 2010 and 2014, and cost $31.9 billion. Many of the projects and contracts expand beyond the four years of the last plan, according to the report. The MTA is facing a $14 billion deficit for its next plan, which funds big-ticket items like new subway cars.

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How can France sign up to the TTIP if it does this?

‘Stop Over-The-Counter Sales of Monsanto’s Round-Up’ – French Minister (RT)

French environment and energy minister Segolene Royal has asked garden centers to stop self-service sales of Monsanto’s Roundup weed killer to fight the harmful effects of pesticide. “France must be offensive on stopping pesticides,” Segolene Royal told France 3 television on Sunday. “I have asked garden shops to stop over-the-counter sales of Monsanto’s Roundup.” The US agribusiness giant’s weed killer came back under scrutiny in March, after its main active ingredient, glyphosate, was branded “probably carcinogenic to humans” by the International Agency for Research on Cancer (IARC), part of the World Health Organization (WHO).

Earlier this month, the French consumer association CLCV asked authorities to ban glyphosate herbicides, which are used domestically by amateur gardeners in France. On Thursday Royal and the Minister of Agriculture made a joint statement announcing that phytosanitary products used to control plant diseases would only be available to amateur gardeners “through an intermediary or a certified seller” from January 2018. France plans to introduce a full ban on the use of pesticides by home gardeners from 2022, according to the statement made by the environment and energy ministry in April.

In response to the minister’s statement, Monsanto said on Sunday it had no information about a change in authorization for selling Roundup. “Under the conditions recommended on the label, the product does not present any particular risk for the user,” the company said in an email sent to Reuters. Glyphosate is the most-produced weed killer in the world, with applications in agriculture, forestry, industrial weed control, as well as lawn, garden, and aquatic environments, according to the IARC. Monsanto has strongly contested IARC’s classification, saying that “relevant, scientific data was excluded from review.” In the US, the herbicide has been considered safe since 2013, when Monsanto received approval for increased tolerance levels for glyphosate from the US Environmental Protection Agency (EPA).

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Immigrants get more money than many residents.

An Immigrant Is Worth More Than Drugs (Beppe Grillo’s blog)

Giovanni Falcone said “Follow the money and you’ll find the mafia”. Every immigrant arriving in Italy has the right to €1,050 a month to live on. Of this, a percentage goes to the mafia. Judging from the wiretapped conversations that amount ranges from one to two euros a day. For the mafia, immigrants are a source of income. They’re worth more than drugs. A boatload of Africans is worth more than a boatload of cocaine. And so it’s in their interests to get as many as possible to come. The boat handlers are paid by the immigrants – about a thousand euro per person. But who’s really paying the boat handlers?

Is it really the immigrants that, back home, would get by on that amount for years? Or someone else? Is the immigrant getting into a lifetime of debt to get a place on board a boat? And to whom is he indebted? It’s not realistic to think that people who “have lost everything“, who are destitute, who don’t even have the money for a change of clothes, can easily get hold of a thousand euro or even more. Where’s this money coming from? The most obvious response is that the ones paying out are the ones that are making money – htus the mafias.

And that’s how they close the circle – with the boat handlers, the mafias and the immigrants. To be sure, there are also the political parties that create “the moments of crisis” so that they can open up “welcome centres” that can be used to cream off money for themselves and for the mafias. Mafiacapitale is just the tip of the iceberg. Where there are immigrants, there’s the smell of money. It’s a resource to be added to the GDP together with drugs and prostitution. After Rome, there’ll be other cities, other kickbacks, and other politicians. It’s just a matter of time. To resolve the imigration issue, the associated flow of money needs drying up.

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Jun 062015
 
 June 6, 2015  Posted by at 11:19 am Finance Tagged with: , , , , , , ,  


NPC L.E. White Coal Co. yards, Washington 1922

America Is A Ponzi Scheme: A Commencement Speech For The Scammed (Tom)
IMF Has Betrayed Its Mission In Greece, Captive To Eurozone Creditors (AEP)
Why The Battle Between Athens And Brussels Matters To All Of You (Andreou)
Greece’s Creditors Need A Dose Of Reality (Joe Stiglitz)
Greece: Time For Default And Debt Restructuring (Forbes
Greek PM Rejects ‘Absurd’ Proposal From Creditors (Reuters)
EU To Lend Greece €35 Billion If It Agrees To Reforms – Juncker (RT)
Leaked: Greece’s New Debt Restructuring Plan (FT)
The Blindness Of The European Powers (Jacques Sapir)
The Economic Consequences Of Austerity (Amartya Sen)
The Ready Cyclist And Our Great Collision (Nikos Konstandaras)
Could A Digi-Drachma Avert A Grexit? (Reuters)
New Zealand Heading Toward ‘Social And Housing Apartheid’ (NZ Herald)
UK Housing: The £24 Billion Property Puzzle (FT)
Japan’s Peter Pan Problem (Pesek)
Emerging Markets Are Caught Up In The Bond Rout (CNBC)
‘Russia Would Attack NATO Only In A Mad Person’s Dream’ – Putin (RT)
60% of China’s Underground Water ‘Not Fit For Human Contact’ (RT)

Does America understand how it’s dumbing itself down? If you make education, what future do you have?

America Is A Ponzi Scheme: A Commencement Speech For The Scammed (Tom)

It couldn’t be a sunnier, more beautiful day to exit your lives — or enter them — depending on how you care to look at it. After all, here you are four years later in your graduation togs with your parents looking on, waiting to celebrate. The question is: Celebrate what exactly? In possibly the last graduation speech of 2015, I know I should begin by praising your grit, your essential character, your determination to get this far. But today, it’s money, not character, that’s on my mind. For so many of you, I suspect, your education has been a classic scam and you’re not even attending a “for profit” college — an institution of higher learning, that is, officially set up to take you for a ride.

Maybe this is the moment, then, to begin your actual education by looking back and asking yourself what you should really have learned on this campus and what you should expect in the scams — I mean, years — to come. Many of you — those whose parents didn’t have money — undoubtedly entered these stately grounds four years ago in relatively straitened circumstances. In an America in which corporate profits have risen impressively, it’s been springtime for billionaires, but when it comes to ordinary Americans, wages have been relatively stagnant, jobs (the good ones, anyway) generally in flight, and times not exactly of the best. Here was a figure that recently caught my eye, speaking of the world you’re about to step into: in 2014, the average CEO received 373 times the compensation of the average worker. Three and a half decades ago, that number was a significant but not awe-inspiring 42 times.

Still, you probably arrived here eager and not yet in debt. Today, we know that the class that preceded you was the most indebted in the history of higher education, and you’ll surely break that “record.” And no wonder, with college tuitions still rising wildly (up 1,120% since 1978). Judging by last year’s numbers, about 70% of you had to take out loans simply to make it through here, to educate yourself. That figure was a more modest 45% two decades ago. On average, you will have rung up least $33,000 in debt and for some of you the numbers will be much higher. That, by the way, is more than double what it was those same two decades ago.

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Eye-opening critique by Ambrose.

IMF Has Betrayed Its Mission In Greece, Captive To Eurozone Creditors (AEP)

The International Monetary Fund is in very serious trouble. Events have reached a point in Greece where the Fund’s own credibility and long-term survival are at stake. The Greeks are not withholding a €300m payment to the IMF because they have run out of money, though they soon will do. Five key players in the radical-Left Syriza movement – meeting in the Maximus Mansion in Athens yesterday – took an ice-cold, calculated, and carefully-considered decision not to pay. They knew exactly what they were doing. The IMF’s Christine Lagarde was caught badly off guard. Staff officials in Washington were stunned. On one level, the “bundling” of €1.6bn of payments due to the IMF in June is just a technical shuffle, albeit invoking a procedure last used by Zambia for different reasons in the 1980s.

In reality it is a warning shot, and a dangerous escalation for all parties. Syriza’s leaders are letting it be known that they are so angry, and so driven by a sense of injustice, that they may indeed default to the IMF on June 30 and in doing so place the institution in the invidious position of explaining to its 188 member countries why it has lost their money so carelessly, and why it has made such a colossal hash of its affairs. The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund’s own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard. Greece’s public debt is 180pc of GDP. The loans are in a currency that the country does not control. It is therefore foreign currency debt.

The IMF knows that Greece cannot possibly pay this down by draconian austerity – the policy already implemented for five years with such self-defeating effects – and the longer it pretends otherwise, the more its authority drains away. It is has pushed for debt relief behind closed doors but only half-heartedly, unwilling to confront the EMU creditor powers head on. Objectively, it is acting as an imperialist lackey – as Greek Marxists might say. Indeed, it has brought about the worst possible outcome. The Fund’s man on the ground in Athens – Poul Thomsen – has pushed the austerity agenda with a curious passion that shocks even officials in the European Commission, pussy cats by comparison. This would be justifiable (sort of) if the other side of the usual IMF bargain were available: debt relief and devaluation.

This is how IMF programmes normally work: impose tough reforms but also wipe the slate clean on debt and restore crippled countries to external viability. It is a very successful formula. On the rare occasion when the IMF goes wrong it is usually because it tries to prop up a fixed change rate long past its sell-by date. All of this went out of the window in Greece. The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6pc contraction of GDP in 2010 followed by brisk recovery. What in fact happened was six years of depression, a deflationary spiral, a 26pc fall GDP, 60pc youth unemployment, mass exodus of the young and the brightest, chronic hysteresis that will blight Greece’s prospects for a decade to come, and to cap it all the debt ratio exploded because of the mathematical – and predictable – denominator effect of shrinking nominal GDP..

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“..whether democratic change is possible or violent revolution is in fact the only effective option.”

Why The Battle Between Athens And Brussels Matters To All Of You (Andreou)

Conclusion: The EU/IMF have played their hand badly. By calling a bluff that wasn’t a bluff they have played themselves into a situation in which they have no win scenario and no exit strategy. They will lose. The only question now is whether they lose badly or not and whether they take Greece down with them. If this intransigence is played out, they force Greece into a new election, possible Grexit, instability, and plunge the entire continent back into recession. If they back down, Greece is seen as victorious, Podemos wins in Spain and they start the same negotiations with Iglesias, only the sums involved are larger and a resistance front in Southern Europe pushing back against imposed market liberalisation and austerity becomes a serious challenge.

They have, I think, realised this, but are still locked in a self-destructive raising of the stakes. Merkel and Hollande have noted this, which is why they have taken charge of negotiations increasingly away from the Eurogroup. The reason this matters to all is twofold. First, it forces out into the open and brings into sharp contrast the increasing divergence between the wellbeing of markets and the wellbeing of populations. Second, it marks a clear act of economic blackmail by a global de facto establishment – let’s call it “The Davos Set” – unhappy at a democratic people opting for an alternative to neoliberalism. How these tensions resolve themselves will determine whether national elections remain meaningful in any way; whether democratic change is possible or violent revolution is in fact the only effective option.

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They don’t have the know-how or intelligence to change position. All they can do is dig in their heels.

Greece’s Creditors Need A Dose Of Reality (Joe Stiglitz)

EU leaders continue to play a game of brinkmanship with the Greek government. Athens has met its creditors’ demands more than halfway. Yet Germany and Greece’s other creditors continue to demand that the country sign on to a programme proven to be a failure, and that few economists ever thought could, would, or should be implemented. The swing in Greece’s fiscal position from a large primary deficit to a surplus was almost unprecedented, but the demand that the country achieve a primary surplus of 4.5% of GDP was unconscionable. Unfortunately, at the time that the “troika” first included this irresponsible demand in the international financial programme for Greece, the country’s authorities had no choice but to accede to it.

The folly of continuing to pursue this programme is particularly acute, given the 25% decline in GDP that Greece has endured since the beginning of the crisis. The troika badly misjudged the macroeconomic effects of the programme they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability. The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed programme.

Having said that, there is room for a deal: Greece has made clear its willingness to engage in continued economic overhaul, and has welcomed Europe’s help in implementing some of them. A dose of reality on the part of Greece’s creditors – about what is achievable and about the macroeconomic consequences of different fiscal and structural changes – could provide the basis of an agreement that would be good not only for Greece, but for all of Europe. Some in Europe, especially in Germany, seem nonchalant about a Greek exit from the eurozone. The market has, they claim, already “priced in” such a rupture. Some even suggest it would be good for the monetary union. I believe such views significantly underestimate the current and future risks involved. A similar degree of complacency was evident in the US before the collapse of Lehman Brothers in September 2008.

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“Ideally, a default by the Greek government should be the first step of a wonderful era of recovery and prosperity..”

Greece: Time For Default And Debt Restructuring (Forbes

[..] who was getting “bailed out”? It was mostly foreign banks. Over time, as the Greek debt matured (instead of a default and 50% writedown), holders of the debt were paid in full, and the Greek government’s debt was gradually transferred to the “troika” lenders, and indirectly the bag-holding taxpayers of Europe. Not surprisingly, some members of the Greek parliament are now arguing that at least some of the Greek government’s debt constitutes “odious debt,” a legal term which justified the government of Ecuador’s debt default in 2009. In addition, the Greek government in 2012 conducted a recapitalization of Greek banks, totaling €48.2 billion, or 24.8% of GDP.

The Greek government did get some equity in trade for its €48 billion (which it obtained in the form of troika “bailout” loan), although this equity is likely to go to zero if the Greek government defaults on its bonds, likely resulting in terminal insolvency among Greek banks, if existing insolvency and deposit flight doesn’t kill them first. Who was bailed out? Where did the €48 billion go? To the banks’ creditors, including foreign banks.Odious? I have to hold my nose just to write this stuff down. None of it is new either; you would find most of the same elements in the Latin American sovereign debt crises of the 1980s.

The end result of all this is that the Greek government’s debt today, totaling €313 billion, consists of €64 billion of domestically-issued bonds, €15 billion of short-term notes, €2.7 billion of foreign-issued bonds and securitizations, €212 billion of “bailout” loans, and €5.0 billion of other external loans. In short, the total foreign exposure by private entities (banks) to the Greek government is, today, about €7.6 billion. Thus, if this swelling pile of debt is eventually written down by 70%, the €220 billion loss will get eaten by the innocent taxpayers of Europe, rather than the privately-owned banks. Actually, the money has already been lost, as the only way to avoid a default at this point is for the taxpayers of Europe to continue to loan Greece’s government more money.

There’s some talk that a default by the Greek government would require “leaving the eurozone,” whatever that means, and perhaps not using the euro. This is mostly just globalist propaganda, along with the notion that a Greek default would also require future “federalization” of Europe. Just look at that NBER list of 153 debt restructurings, none of which required, or was followed by, any “federalization.” There is no reason that Greece can’t continue to use euros as the basis of commerce, just as dollarized Ecuador continued to use dollars as the basis of commerce after the government’s 2009 default.

Ideally, a default by the Greek government should be the first step of a wonderful era of recovery and prosperity, just as was the case in Russia after its default in 1998. By following the Magic Formula (Low Taxes, Stable Money) after the default, along with other reforms, Greeks can become wealthier than Germans in less than twenty years.

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And it is absurd.

Greek PM Rejects ‘Absurd’ Proposal From Creditors (Reuters)

Greece’s government rejects an “absurd” and “unrealistic” proposal from creditors and hopes it will be withdrawn, Prime Minister Alexis Tsipras said on Friday as he called on lenders to accept a rival proposal from Athens instead. Tsipras was presented with a tough compromise proposal for aid from lenders that crossed many of his “red lines” this week, including tax hikes, privatizations and pension reform, quickly sparking outrage from his leftist Syriza party. In an uncompromising speech to parliament, Tsipras said a proposal by Athens made earlier this week was the only realistic basis for a deal and accused Europe of failing to understand that Greek lawmakers could not vote for more austerity.

“The proposals submitted by lenders are unrealistic,” Tsipras said, adding the offer did not take into account common ground found between the two sides during months of negotiations. “The Greek government cannot consent to absurd proposals.” In what appeared to be a threat against lenders that Greece was prepared to move unilaterally if its demands were not met, Tsipras said the government would legislate the restoration of collective bargaining rights for Greek workers – a move opposed by lenders. Still, Tsipras said he was confident that Greece is closer to a deal than ever, and the Greek proposal took needs of the creditors into account. “Time is not running out only for us, it is running out for everybody else as well,” he said. “It’s certain that in the coming days we will hear many things since we are in the final stretch.”

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Carrot and stick, both getting bigger.

EU To Lend Greece €35 Billion If It Agrees To Reforms – Juncker (RT)

The EU is ready to lend €35 billion to Greece between now and 2020 if Athens agrees to implement reforms, European Commission President Jean-Claude Juncker has said. “Greece can get a considerable sum, €35 billion euros until 2020, provided that they implemented programs that would enable our Greek friends to master these funds,” said Juncker, speaking to the members of the European Committee of the Regions on Thursday. The money is already reserved to Athens, but the allocation depends on Greek reforms, Juncker said.

As of Wednesday, five months of €7.2 billion bailout-for-reforms negotiations between Athens and international creditors had failed to produce any result. Since 2010, when Greece’s sovereign debt crisis worsened dramatically, EU and the IMF have lent the Greek government nearly €250 billion in return for brutal austerity measures that have seen the Greek people plunged into deep poverty. Despite a partial write-down of Greek debts in 2012, its public debt is currently €316 billion, 175% of GDP. This is three times the maximum permissible level of this indicator for the eurozone countries, which, according to the Stability and Growth Pact, is 60% of GDP.

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Debt relief is moving back to the forefront.

Leaked: Greece’s New Debt Restructuring Plan (FT)

The Greek government of prime minister Alexis Tsipras has long argued debt relief must be part of any new agreement to complete its current €172bn bailout. But the compromise plan drawn up by its international creditors and presented to Tsipras on Wednesday night in Brussels contains no such promise. So Athens is intending to present its own restructuring plan that the government claims will cut its burgeoning debt load from the current 180% of gross domestic product to just 93% by 2020. The plan is touched on in the 47-page counter-proposal Athens sent to its creditors Monday night. But it is given a full treatment in a new seven-page document authored by the government and entitled “Ending the Greek Crisis”.

The restructuring plan is ambitious, offering ways to reduce the amount of debt held by all four of its public-sector creditors: the ECB, which holds €27bn in Greek bonds purchased starting in 2010; the IMF, which is owed about €20bn from bailout loans; individual eurozone member states, which banded together to make €53bn bilateral loans to Athens as part of its first bailout; and the eurozone’s bailout fund, the European Financial Stability Facility, which picks up the EU’s €144bn in the current programme. If all the elements of the new plan are adopted, the Greek government reckons its debt will be back under 60% of GDP – the eurozone’s ceiling agreed under the 1992 Maastricht Treaty – by 2030.

The proposal starts with a plan for the ECB holdings, acquired as part of the central bank’s bond purchase programme that attempted to stabilise Greek borrowing costs. This idea has already been publicly articulated by finance minister Yanis Varoufakis on several occasions, and is very straightforward: the eurozone’s €500bn rescue fund, the European Stability Mechanism would loan Greece €27bn, which Athens would then use to pay off the ECB bonds. The ESM’s loans are at longer maturities and lower interest rates than the Greek bonds held by the ECB, so it’s a debt restructuring without a real debt restructuring. Two of the ECB-held bonds come due in July and August, with payments totaling €6.7bn, so figuring out a way to deal with these is a matter of urgency. The problem is, the plan is basically a bailout with no strings attached, so it’s very unlikely to fly in eurozone capitals.

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“History will tell that the true grave diggers of the European project will beAngela Merkel, Nicolas Sarkozy and François Hollande..”

The Blindness Of The European Powers (Jacques Sapir)

The nature of the problem at hand was clear since January 25th. When SYRIZA preferred to ally itself with the Independent Greeks rather than with the Europeist pseudopod The River (To Potami) it became evident for any reasonable observer that the question put to Europe would be political and not technical. But the Eurogroup and the EU preferred not to see this reality, most certainly because it questioned the very architecture which had been constructed by Germany in complicity with the French, but also the Italian and Spanish governments. One wcan never stress enough the considerable responsibility of Nicolas Sarkozy and François Hollande when they chose to align themselves with the proposals of Mrs Merkel rather than provoking a helpful crisis which would have put an end to the antidemocratic slide of Europe.

If the debate on rules of governance and the logic of austerity had taken place between 2010 and 2013, it is possible that lasting solutions could have been found to the economic as well as political crisis the Eurozone was going through. But the refusal to open such a crisis, in the name of the « preservation of the Euro», runs a strong risk to end up in its opposite: a crisis, originating in Greece and progressively spreading to all of the countries, which will end up sweeping away not only the Euro, which would not be a big loss, but also the whole of the European construction. The political blindness of the European leaders, their obstinacy in pushing ahead with policies the principles of which were nefarious from all evidence and the results gruesome, will have considerable consequences on Europe. History will tell that the true grave diggers of the European project will beAngela Merkel, Nicolas Sarkozy and François Hollande, with the help of MM Rajoy and Renzi.

Caught in their blindness, these leaders wanted to believe that Greece only wanted to renegotiate the straightjacket of servitude in which it was restrained. But what Greece wanted and still wants is an end to this straightjacket and not a replacement of some of the shackles. So we have witnessed a fundamental misapprehension developing between Athens and the other countries. Where the creditors were proposing pure formal concessions in exchange for new loans, the Greek leaders proposed important concessions, which one might even find excessive, such as on privatisations and the suspension of some social measures, but in exchange for a global treatment of the debt question, passing evidently through an annulation of part of this debt and the restructurating of another, transforming it into a 50 years debt.

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Must. Read.

The Economic Consequences Of Austerity (Amartya Sen)

On 5 June 1919, John Maynard Keynes wrote to the prime minister of Britain, David Lloyd George, “I ought to let you know that on Saturday I am slipping away from this scene of nightmare. I can do no more good here.” Thus ended Keynes’s role as the official representative of the British Treasury at the Paris Peace Conference. It liberated Keynes from complicity in the Treaty of Versailles (to be signed later that month), which he detested. Why did Keynes dislike a treaty that ended the state of war between Germany and the Allied Powers (surely a good thing)? Keynes was not, of course, complaining about the end of the world war, nor about the need for a treaty to end it, but about the terms of the treaty, and in particular the suffering and the economic turmoil forced on the defeated enemy, the Germans, through imposed austerity.

Austerity is a subject of much contemporary interest in Europe I would like to add the word unfortunately somewhere in the sentence. Actually, the book that Keynes wrote attacking the treaty, The Economic Consequences of the Peace, was very substantially about the economic consequences of imposed austerity . Germany had lost the battle already, and the treaty was about what the defeated enemy would be required to do, including what it should have to pay to the victors. The terms of this Carthaginian peace, as Keynes saw it (recollecting the Roman treatment of the defeated Carthage following the Punic wars), included the imposition of an unrealistically huge burden of reparation on Germany, a task that Germany could not carry out without ruining its economy.

As the terms also had the effect of fostering animosity between the victors and the vanquished and, in addition, would economically do no good to the rest of Europe, Keynes had nothing but contempt for the decision of the victorious four (Britain, France, Italy and the United States) to demand something from Germany that was hurtful for the vanquished and unhelpful for all. The high-minded moral rhetoric in favour of the harsh imposition of austerity on Germany that Keynes complained about came particularly from Lord Cunliffe and Lord Sumner, representing Britain on the Reparation Commission, whom Keynes liked to call ‘the Heavenly Twins’. In his parting letter to Lloyd George, Keynes added, ‘I leave the Twins to gloat over the devastation of Europe’.

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SOmething that gets overlooked all too easily: “Now we can see just how unprepared Europe was..”

The Ready Cyclist And Our Great Collision (Nikos Konstandaras)

In high school I had a physics teacher who was mad about bicycles. One day, he told us a story of how, in another town where he had lived when he was younger, he would ride down a steep hill, picking up great speed. Every day he would think of what would happen if a car suddenly blocked his path. “I’ll stand up on the pedals, I’ll jump high and I’ll land on the other side of the car,” he would tell himself, over and over. “One day,” he went on, “a car suddenly appeared out of a side street; I stood up on the pedals, I jumped high and fell on the other side. I hurt my arms, my legs, my ribs, but I didn’t break anything. I was sore, but I was alive.” I can still imagine 30 pairs of young eyes staring at him. “Always be ready for the worst,” he said and went on with a lesson on vectors.

Some 40 years later I still don’t know if the story was true, but my teacher’s words are seared into my mind. Every day as I ride my motorbike I ask myself if I am ready for anything that may come my way. Now that Greece and the rest of Europe look like they cannot avoid a collision, I wonder how the EU – this political, economic and social giant of 500 million people – had not made the slightest provision for the possibility of an accident as it sped toward further union. When Greece found itself in need in 2010, the lack of a plan not only delayed its rescue, but it also sowed the seeds of the whirlwind that Europe now faces – where a lack of trust between Greece and our partners is undermining the very spirit of unity and solidarity that is the foundation of the whole edifice. In five years we have seen a resurgence of divisions and stereotypes from Europe’s bloody past.

Now we can see just how unprepared Europe was, how it did not have the necessary rescue mechanisms nor the mentality that all its peoples were members of the same body. Even as the euro was adopted, economic union lagged, as did the necessary checks. And when “unruly” Greece became the first country to run into trouble, our partners left our country hanging for six months instead of closing ranks around it, declaring that the problem was a European one, that Europe would take care of it and would bring its errant member into line. Our partners pointed fingers at us, while inside Greece currents of anger and fear swelled up, undermining relations with our partners.

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I think perhaps the crucial question is will there be time.

Could A Digi-Drachma Avert A Grexit? (Reuters)

Greek Finance Minister Yanis Varoufakis may have been joking when he tweeted about Greece adopting bitcoin, but some financial technology geeks say an asset-backed digital currency could be a solution to the country’s cash crisis. Greece faces €1.5 billion of repayments to its creditors this month, having been locked in talks on a cash-for-reforms deal for months. Failure to agree could trigger a Greek default and potential exit from the euro zone, dealing a big blow to the supposedly irreversible currency union. In order to avoid such a “Grexit” some reckon Greece could adopt a bitcoin-like parallel digital currency with which it could pay its pensioners and public-sector workers. It could be called the “digi-drachma”, after Greece’s pre-euro currency.

But unlike bitcoin, which is totally decentralized and given value simply by its usefulness, it would be issued by the state and backed with the country’s substantial assets. “If you’ve got all these assets, why don’t you use them to back up a digital currency?” said Lee Gibson-Grant, founder of Coinstructors, a consultancy for those wanting to use bitcoin’s underlying technology – the blockchain – to start businesses. If Greece’s assets could be tokenized and issued as a digital currency, argues Gibson-Grant, public-sector wages and pensions could be paid with it. That would preserve scarce euros for repaying the country’s creditors and help avoid a sell-off of valuable assets at rock-bottom prices.

Varoufakis himself, who on April 1 tweeted a link to a satirical story that reported him as saying Greece would adopt bitcoin if a deal with its creditors could not be reached, blogged in 2014 about the possibility of a parallel “Future Tax (FT) coin”. The FT coin, said Varoufakis, an academic economist whose radical-left Syriza party was then not yet in government, would be denominated in euros but backed by future tax revenues. It would use a “bitcoin-like algorithm in order to make the system transparent, efficient and transactions-cost-free” and could provide “a source of liquidity for the governments that is outside the bond markets”. Greece’s radical left is not alone in having considered a parallel currency.

The ECB has analyzed a scenario in which Greece pays civil servants with IOUs, which would rely on future tax revenue in a similar way to the FT coin, creating a virtual second currency in the euro bloc. ECB experts decided it would not work, as public sector workers would receive payment in the IOU currency rather than in euros, putting further pressure on Greek banks because those workers were likely then to plunder their savings. Furthermore, the basis for both such ideas relies on an implicit assumption that the Greek state will not collapse — by no means guaranteed in the current climate. “This would be different to a distributed, trustless digital currency such as bitcoin, since holders would still have to trust the issuer,” said Tom Robinson, Chief Operating Officer at London-based bitcoin storage firm Elliptic.

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Better watch out: “..an increasing “ghettoisation” along ethnic and racial lines..”

New Zealand Heading Toward ‘Social And Housing Apartheid’ (NZ Herald)

New Zealand is heading towards a “social and housing apartheid” as a result of soaring house prices locking people out of the property market, a leading economist claims. New Zealand Institute of Economic Research (NZIER) principal economist Shamubeel Eaqub and his wife Selena, also an economist, argue in their new book Generation Rent, that unless serious changes are made across the housing, banking and construction sectors, New Zealand will become divided into two classes – the landed gentry and everyone else. Speaking on The Nation this morning, Mr Eaqub said the current housing market, especially in Auckland’s hot property bubble, was “creating generations of people who are priced out” of the market.

“What we have created is essentially this lost generation … these property orphans, who simply cannot get into the housing market,” he said. “So regardless of a correction in the future, you’ve still created this underclass, this segregation of society.” The situation was creating two classes in society, he said. “What we’re looking at now is essentially this landed gentry – if you’ve got mummy or daddy who own houses, you’re likely to own houses,” Mr Eaqub said. “We’re seeing this already in Auckland, where if you want to buy a house you really need help from somebody who’s been in the market for a very long time.

“We’re creating two New Zealands – this landed gentry, this wealth-generated, hereditary sort of wealth, those are the people who will be able to buy houses, and then there is the rest. “We are creating this social and housing apartheid where you’ve got these people who are the ‘generation rent’ and they’re locked out of so much of New Zealand that’s predicated itself on owning a home.” He added: “Housing apartheid is, I think, this concept that ‘generation rent’ simply cannot participate in so much of how New Zealand is set up.” Mr Eaqub also claimed there was a “growing wedge” between the two classes, and that an increasing “ghettoisation” along ethnic and racial lines was emerging in New Zealand cities.

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Not surprisingly, the FT seeks the answer in building more, and ignores the influence of speculation, buy-to-let et al in driving up prices into a bubble. Just make housing a basic human right, much better.

UK Housing: The £24 Billion Property Puzzle (FT)

The former bed and breakfast hotel close to Blackpool’s seafront has, like the northern English town itself, seen better days. The owner, Val, has been renting its 19 rooms to long-term unemployed benefit claimants since 1982. Each tenant receives £91 a week in housing benefit to subsidise their rent — meaning that Val, who likens the house to “one big family”, earns close to £90,000 a year from the state: more than three times the national average wage. Val is not alone. The seaside town’s landlords received £91m in housing benefit last year. Of the 17,500 privately rented homes more than 14,000 qualify for housing benefit, the highest proportion in the country.

The situation is being repeated around the UK, which paid £24bn in rent subsidies in 2013/14, double the amount a decade ago and the equivalent of £1 in every £4 in Britain’s budget deficit. Iain Duncan Smith, work and pensions secretary, has described the rent subsidies as part of a “dysfunctional welfare system” that often traps those it is supposed to help. Cutting benefit spending is high on the new Conservative government’s list of priorities. But anti-poverty campaigners argue that without the subsidies thousands of families would be homeless. Opponents counter that they ultimately line the pockets of neglectful landlords and fuel rising house prices by increasing their bidding power when buying homes.

“No one wakes up in the morning with the aspiration of living in a bedsit,” says Steve Matthews, director of housing for Blackpool council. “People end up in this accommodation because they are vulnerable and they have no other choice.” Val’s tenants are at the sharp end of a housing crisis. A shortfall in supply as too few houses are built, has been compounded by rising demand due to a growing population, which increased by 7.6% in the 10 years to 2013. Partly as a result London house prices per square foot are now the second highest in the world after Monaco, according to the London School of Economics’ Centre for Economic Performance.

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Abenomics is all about belief only.

Japan’s Peter Pan Problem (Pesek)

There are plenty of people in Asia who believe Haruhiko Kuroda, governor of the Bank of Japan, lives in Neverland. At the very least, economists on both sides of Japan’s deflation debate — those who worry Kuroda has weakened the yen too much, and those who believe he hasn’t done enough — think his policies have been out of touch. But it was still surprising to hear Kuroda admit on Wednesday that his policies are guided by imagination — specifically, the Japanese public’s willingness to imagine they’re working. “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it,'” he said at a BOJ-hosted conference.

I’ll admit it’s somewhat distressing when the central banker managing the currency in which you’re paid suggests he’s relying on children’s stories for guidance. But Kuroda’s quote merits close scrutiny: It speaks volumes about why his policy of setting ultralow interest rates has failed to gain traction. Some might say Peter Pan, a boy who never grows old on the small island of Neverland, is the wrong metaphor for Japan, where 26% of the country’s 127 million citizens are over 65, and aging fast. A better reference, one could argue, is “Alice in Wonderland,” since Kuroda’s low interest rates have created a world where investors increasingly find it difficult to distinguish between illusion and reality. But in other ways, Peter Pan is an entirely apt metaphor. Just like young Peter, Kuroda’s quantitative easing program has never grown up; what was supposed to be a temporary policy increasingly seems like a permanent one.

Granted, this isn’t entirely his fault. The BOJ’s job would be much easier if Prime Minister Shinzo Abe carried out his promises of structural reform. But as much as central banking is a matter of liquidity, it’s also a confidence game. Just as theater directors are supposed to compel audiences to suspend their disbelief, Kuroda’s responsibility is to set monetary policy in a way that gives the public a feeling of hope about the economy – and induces them to increase spending. It’s on this emotional level that Kuroda is failing. Investors, particularly those overseas, seem to feel optimistic about low interest rates: They’ve driven the Nikkei up 36% over the last 12 months. But Japanese consumers don’t feel the magic and aren’t spending – inflation still hasn’t approached the BOJ’s desired 2% target.

This is where Kuroda penchant for space metaphors becomes relevant. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” he said in February. “It requires greater power than that of a satellite that moves in a stable orbit.”

Read more …

They were always sure to bear the brunt of increasing instability.

Emerging Markets Are Caught Up In The Bond Rout (CNBC)

Stocks and currencies are not the only markets caught up in the bond market turmoil this week. Emerging markets have also felt the pain, highlighting their vulnerability to events in the developed world. MSCI’s emerging market stock index was on track Friday for a third straight week of losses, while the Indonesian rupiah hit a 17-year low against the dollar earlier in the day and the Russian ruble hit a two-month low on Thursday. This week’s sell-off in global bond prices, pushing yields on U.S. Treasury and European government bonds sharply higher on changing perceptions about the inflation outlook, has spilled over into emerging markets. And analysts say it’s exacerbating the volatility at a time when jitters about the timing of a possible rise in U.S. interest rates and concern about Greece’s future in the euro zone have tempered appetite for risky assets.

“Sentiment towards emerging markets has deteriorated significantly on the back of the sell-off in government debt markets, with a sharp increase in outflows from emerging market debt funds this week,” Nicholas Spiro at Spiro Sovereign Strategy, told CNBC. “Emerging markets are facing a triple whammy of a sovereign bond sell-off, a plethora of country-specific risks (not least Greece) and an anticipated tightening in U.S. monetary policy,” he said. Analysts say that central European countries were especially vulnerable to the sell-off in German Bunds as their markets are closely correlated to price action in the euro zone. There’s also the Greece factor, with turmoil there likely to hurt the outlook for the euro zone and the emerging markets with which it has close economic and trade links.

“Clearly Greece is the big unknown at the moment. Contagion from that would probably be concentrated in parts of eastern Europe, which have the closest linkages to the euro zone,” Capital Economics’ William Jackson told CNBC. [..] Jackson at Capital Economics said Turkey and South Africa were two emerging markets to watch most closely in terms of further volatility. Turkish assets have faced additional pressure from uncertainty ahead of a weekend election that could force the ruling AK party to form a coalition. The Turkish lira traded at about 2.66 per dollar on Friday, holding near one-month lows. “On every single measure of vulnerability you can look at, Turkey usually comes near the top,” said Jackson.

Read more …

Can we all get this through to our heads now?

‘Russia Would Attack NATO Only In A Mad Person’s Dream’ – Putin (RT)

Russia is not building up its offensive military capabilities overseas and is only responding to security threats caused by US and NATO military expansion on its borders, Russian President Vladimir Putin told Italian outlet Il Corriere della Sera. Speaking to the paper on the eve of his visit to Italy, Putin stressed that one should not take the ongoing Russian aggression scaremongering in the West seriously, as a global military conflict is unimaginable in the modern world. “I think that only an insane person and only in a dream can imagine that Russia would suddenly attack NATO. I think some countries are simply taking advantage of people’s fears with regard to Russia. They just want to play the role of front-line countries that should receive some supplementary military, economic, financial or some other aid”, Putin said.

Certain countries could be deliberately nurturing such fears, he added, saying that hypothetically the US could need an external threat to maintain its leadership in the Atlantic community. Iran is clearly not very scary or big enough for this, Putin noted with irony. Russia’s President invited the journalists to compare the global military presence of Russia and the US/NATO, as well as their military spending levels. He also urged them to look at the steps each side has taken in connection with the Anti-Ballistic Missile Treaty since the collapse of the Soviet Union. Russia’s military policy is not global, offensive, or aggressive, Putin stressed, adding that Russia has virtually no bases abroad, and the few that do exist are remnants of its Soviet past.

He explained that there were small contingents of Russian armed forces in Tajikistan on the border with Afghanistan, mainly due to the high terrorist threat in the area. There is an airbase in Kyrgyzstan, which was opened at request of the Kyrgyz authorities to deal with a terrorist threat there. Russia also has a military unit in Armenia, which was set up to help maintain stability in the region, not to counter any outside threat. In fact, Russia has been working towards downsizing its global military presence, while the US has been doing the exact opposite. “We have dismantled our bases in various regions of the world, including Cuba, Vietnam, and so on”, the president stressed. I invite you to publish a world map in your newspaper and to mark all the US military bases on it. You will see the difference.

Read more …

That’s not human consumption, but human contact.

60% of China’s Underground Water ‘Not Fit For Human Contact’ (RT)

About 60% of underground water in China, and one-third of its surface water, have been rated unfit for human contact last year, according to the environment ministry in Beijing. The ministry said in a statement that water quality is getting worse, and the ministry classified 61.5% of underground water at nearly 5,000 monitoring sites as “relatively poor” or “very poor.” In 2013, the figure stood at 59.6%. The fact that the water is unfit for human contact means that it can only be used for industrial purposes or irrigation. The water supplies are classified into six grades, with only 3.4% of 968 monitoring sites of surface water meeting the highest “Grade I” standard. A total of 63.1% was reported to be suitable for human use, rated “Grade III” or above.

China is currently carrying out a “war on pollution” campaign, to deal with environmental issues. In particular, in April, the government in Beijing pledged to increase the %age of good quality water sources up to 70% in seven main river basins, and to more than 93% in urban drinking supplies, by 2020. Also, a prohibition on water-polluting plants in industries – such as oil refining and paper production – is set to come into effect by the end of 2016. Air pollution also remains one of the most serious issues in China, the ministry said in its statement. Just 16 of the 161 major Chinese cities satisfied the national standard for clean air in 2014, statistics demonstrated, local news agencies reported. The other 145 cities – over 90% all in all – failed to meet the requirements.

Read more …

Feb 052015
 
 February 5, 2015  Posted by at 11:40 pm Finance Tagged with: , , , , , , , ,  


Harris&Ewing Washington snow scenes April 1924

With all the media focus aimed at Greece, we might be inclined to overlook – deliberately or not – that it is merely one case study, and a very small one at that, of what ails the entire world. The whole globe, and just about all of its 200+ nations, is drowning in debt, and more so every as single day passes. Not only is this process not being halted, it gets progressively, if not exponentially, worse. There are differences between countries in depth, in percentages and other details, but at this point these seem to serve mostly to draw attention away from the ghastly reality. ‘Look at so and so, he’s doing even worse than we are!’

Still, though there are plenty accounting tricks available, you’d be hard put to find even one single nation of any importance that could conceivably ever pay back the debt it’s drowning in. That’s why we’re seeing the global currency war slash race to the bottom of interest rates.

Greece is a prominent example, though, simply because it’s been set up as a test case for how far the world’s leading politicians, central bankers, bankers as well as the wizards behind the various curtains are prepared to go. And that does not bode well for you either, wherever you live. Greece is a test case: how far can we go?

And I’ve made the comparison before, this is what Naomi Klein describes happened in South America, as perpetrated by the Chicago School and the CIA, in her bestseller Shock Doctrine. We’re watching the experiment, we know the history, and we still sit our asses down on our couches? Doesn’t that simply mean that we get what we deserve?

Here’s McKinsey’s debt report today via Simon Kennedy at Bloomberg:

A World Overflowing With Debt

The world economy is still built on debt. That’s the warning today from McKinsey’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.

While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain. McKinsey sees little reason to think the trajectory of rising leverage will change any time soon. Here are three areas of particular concern:

1. Debt is too high for either austerity or growth to cure. Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.

2. Households in some nations are still boosting debts. 80% of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.

3. China’s debt is rising rapidly. Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282% of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.

Note: Chinese total debt rose $20.8 trillion in 7 years, or 281%. And we’re talking about Greece as a problem?! You’d think – make that swear – that perhaps Merkel and her ilk have bigger fish to fry. But maybe they just don’t get it?!

Ambrose has this earlier today, just let the numbers sink in:

Devaluation By China Is The Next Great Risk For A Deflationary World

China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Wednesday’s surprise cut in the Reserve Requirement Ratio (RRR) – the main policy tool – comes in the nick of time. Factory gate deflation has reached -3.3%.

The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu, from JP Morgan, says the 50-point cut in the RRR from 20% to 19.5% injects roughly $100bn into the system. This will not, in itself, change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years as a result of falling inflation.

UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflection point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP.

Wednesday’s trigger was an amber warning sign in the jobs market. The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time. Unemployment is supposed to be 4.1%, a make-believe figure. A joint study by the IMF and the International Labour Federation said it is really 6.3% [..]

Whether or not you call it a hard-landing, China is struggling. Home prices fell 4.3% in December. New floor space started has slumped 30% on a three-month basis. This packs a macro-economic punch. A study by Jun Nie and Guangye Cao for the US Federal Reserve said that since 1998 property investment in China has risen from 4% to 15% of GDP, the same level as in Spain at the peak of the “burbuja”. The inventory overhang has risen to 18 months compared with 5.8 in the US.

The property slump is turning into a fiscal squeeze since land sales make up 25% of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21% in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said.

Asia is already in a currency cauldron, eerily like the onset of the 1998 crisis. The Japanese yen has fallen by half against the Chinese yuan since Abenomics burst upon the Pacific Rim. Japanese exporters pocketed the windfall gains of devaluation at first to boost margins. Now they are cutting prices to gain export share, exporting deflation.

This is eroding the wafer-thin profit margins of Chinese companies and tightening monetary conditions into the downturn. David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the “Prisoner’s Dilemma” leaves everybody worse off. “We view a meaningful yuan devaluation as a major tail-risk for the global economy,” he said.

If this were to happen, it would send a deflationary impulse worldwide. China spent $5 trillion on fixed investment last year, more than Europe and America combined, increasing its overcapacity in everything from shipping to steels, chemicals and solar panels , to even more unmanageable levels. A yuan devaluation would dump this on everybody else. Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. Five-year bond yields are negative in six European countries. The 10-year Bund has dropped to 0.31. These are no longer just 14th century lows. They are unprecedented.

[..] .. helicopter money, or “fiscal dominance”, may be dangerous, but not nearly as dangerous as the alternative. China faces a Morton’s Fork. Li Keqiang has been trying for two years to tame the state’s industrial behemoths, and trying to wean the economy off credit. Yet virtuous intent has run into cold reality. It cannot be done. China passed the point of no return five years ago.

That ain’t nothing to laugh at. But still, Malcolm Scott has more for Bloomberg:

Pushing on a String? Two Charts Showing China’s Dilemma

Is China’s latest monetary easing really going to help? While economists see it freeing up about 600 billion yuan ($96 billion), that assumes businesses and consumers want to borrow. This chart may put some champagne corks back in. It shows demand for credit is waning even as money supply continues its steady climb.

The reserve ratio requirement cut “helps to raise loan supply, but loan demand may remain weak,” said Zhang Zhiwei, chief China economist at Deutsche Bank. “We think the impact on the real economy is positive, but it is not enough to stabilize the economy.” This chart may also give pause. It shows the surge in debt since 2008, which has corresponded with a slowdown in economic growth.

Note: Social finance is, to an extent, just another word for shadow banking.

“Monetary stimulus of the real economy has not worked for several years,” said Derek Scissors, a scholar at the American Enterprises Institute in Washington who focuses on Asia economics. “The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”

China now carries $28 trillion in debt, or 282% of its GDP, $20 trillion of which was added in just the past 7 years. It’s also useful to note that it boosted its money supply to $20 trillion. What part of these numbers includes shadow banking, we don’t know – even if social finance can be assumed to include an X amount of shadow funding-. However, there can be no doubt that China’s real debt burden would be significantly higher if and when ‘shadow debt’ would be added.

Ergo: whether it’s tiny Greece, or behemoth China, or any given nation in between, they’re all in debt way over their heads. One might be tempted to ponder that debt restructuring would be worth considering. A first step towards that would be to look at who owes what to whom. And, of course, who profits. When it comes to Greece, that’s awfully clear, something you may want to consider next time you think about who’s squeezing who. From the Jubilee Debt Campaign through Telesur:

That doesn’t leave too many questions, does it? As in, who rules this blue planet?! That also tells you why there won’t be any debt restructuring, even though that is exactly what this conundrum calls for. Debt is a power tool. Debt is how the Roman Empire managed to stretch its existence for many years, as it increasingly squeezed the periphery. And then it died anyway. Joe Stiglitz gives it another try, and in the process takes us back to Greece:

A Greek Morality Tale: We Need A Global Debt Restructuring Framework

At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the UN, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).

The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability. There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others. This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors?

If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences. Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it. So it is not debt restructuring, but its absence, that is “immoral”.

There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.

You can put it down to technical or structural issues, but down the line none of that will convince me. Who cares about talking about technical shit when people are suffering, without access to doctors, and/or dying, in a first world nation like Greece, just so Angela Merkel and Mario Draghi and Jeroen Dijsselbloem can get their way?

Oh, no, wait, that graph there says it’s not them, it’s Wall Street that gets their way. It’s the world’s TBTF banks (they gave themselves that label) that get to call the shots on who lives in Greece and who does not. And they will never ever allow for any meaningful debt restructuring to take place. Which means they also call the shots on who lives in Berlin and New York and Tokyo and who does not. Did I mention Beijing, Shanghai, LA, Paris and your town?

Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet.

We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over.

And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.

As for the title, it’s obviously Marquez, and what better link is there than Wall Street and cholera?

Feb 052015
 
 February 5, 2015  Posted by at 11:19 am Finance Tagged with: , , , , , , , , , ,  


DPC City Market, Kansas City, Missouri 1906

A World Overflowing With Debt (Bloomberg)
A Greek Morality Tale: We Need A Global Debt Restructuring Framework (Stiglitz)
Devaluation By China Is The Next Great Risk For A Deflationary World (AEP)
Pushing on a String? Two Charts Showing China’s Dilemma (Bloomberg)
Petrobras, Now $262 Billion Poorer, Exposes Busted Brazil Dream (Bloomberg)
Central Bank Surprises: Who’s Next? (CNBC)
There’s Nothing Left To Break The Euro’s Fall Now (MarketWatch)
Will the Next Recession Destroy Europe? (Bloomberg)
What You Need To Know About ECB’s Greek Collateral Decision (MarketWatch)
Greece Sticks to Anti-Austerity Demands Following ECB Loan Cut (Bloomberg)
Greek Finance Ministry Says ECB Decision Aimed At Eurogroup (Kathimerini)
What the ECB’s Move on Greek Government Debt Is Really All About (Bloomberg)
Greek Bill-Sale Demand Slumps as Nation Seeks New Debt Deal (Bloomberg)
Greek Austerity Sparks Sharp Rise In Suicides (CNBC)
Greece, Ukraine and Russia: History Lessons (CNBC)
Here’s Why The Oil Glut May Continue (MarketWatch)
Harvard’s Convicted Fraudster Who Wrecked Russia Resurfaces in Ukraine (NC)
One Brit Discovers Why Americans Are So Fat (MarketWatch)
Temperatures Rise as Climate Critics Take Aim at U.S. Classrooms (Bloomberg)

“Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year.”

A World Overflowing With Debt (Bloomberg)

The world economy is still built on debt. That’s the warning today from McKinsey’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product. While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain.
McKinsey sees little reason to think the trajectory of rising leverage will change any time soon. Here are three areas of particular concern:

1. Debt is too high for either austerity or growth to cure. Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.

2. Households in some nations are still boosting debts. 80% of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.

3. China’s debt is rising rapidly. Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282% of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.

Read more …

“..the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay)..”

A Greek Morality Tale: We Need A Global Debt Restructuring Framework (Stiglitz)

Given the amount of distress brought about by excessive debt, one might well ask why individuals and countries have repeatedly put themselves into this situation. After all, such debts are contracts – that is, voluntary agreements – so creditors are just as responsible for them as debtors. In fact, creditors arguably are more responsible: typically, they are sophisticated financial institutions, whereas borrowers frequently are far less attuned to market vicissitudes and the risks associated with different contractual arrangements. Indeed, we know that US banks actually preyed on their borrowers, taking advantage of their lack of financial sophistication.

At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the UN, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay). The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability. There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others. This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors?

If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences. Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it. So it is not debt restructuring, but its absence, that is “immoral”. There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.

Read more …

“The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years..”

Devaluation By China Is The Next Great Risk For A Deflationary World (AEP)

China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Wednesday’s surprise cut in the Reserve Requirement Ratio (RRR) – the main policy tool – comes in the nick of time. Factory gate deflation has reached -3.3%. The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu, from JP Morgan, says the 50-point cut in the RRR from 20% to 19.5% injects roughly $100bn into the system. This will not, in itself, change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years as a result of falling inflation.

UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflection point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP. The People’s Bank may have to cut all the way to zero in the end – a $4 trillion reserve of emergency oxygen – but to do that is to play the last card. Wednesday’s trigger was an amber warning sign in the jobs market. The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time.

Unemployment is supposed to be 4.1%, a make-believe figure. A joint study by the IMF and the International Labour Federation said it is really 6.3%, high enough to cause sleepless nights for a one-party regime that depends on ever-rising prosperity to replace the lost elan of revolutionary Maoism. Whether or not you call it a hard-landing, China is struggling. Home prices fell 4.3% in December. New floor space started has slumped 30% on a three-month basis. This packs a macro-economic punch. A study by Jun Nie and Guangye Cao for the US Federal Reserve said that since 1998 property investment in China has risen from 4% to 15% of GDP, the same level as in Spain at the peak of the “burbuja”. The inventory overhang has risen to 18 months compared with 5.8 in the US.

The property slump is turning into a fiscal squeeze since land sales make up 25% of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21% in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said. The IMF says China’s fiscal deficit is nearly 10% of GDP once land sales are stripped out and all spending included, far higher than generally supposed. It warned two years ago that Beijing was running out of room and could ultimately face “a severe credit crunch”.

Read more …

“The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”

Pushing on a String? Two Charts Showing China’s Dilemma (Bloomberg)

Is China’s latest monetary easing really going to help? While economists see it freeing up about 600 billion yuan ($96 billion), that assumes businesses and consumers want to borrow. This chart may put some champagne corks back in. It shows demand for credit is waning even as money supply continues its steady climb.

The reserve ratio requirement cut “helps to raise loan supply, but loan demand may remain weak,” said Zhang Zhiwei, chief China economist at Deutsche Bank. “We think the impact on the real economy is positive, but it is not enough to stabilize the economy.” This chart may also give pause. It shows the surge in debt since 2008, which has corresponded with a slowdown in economic growth.

“Monetary stimulus of the real economy has not worked for several years,” said Derek Scissors, a scholar at the American Enterprises Institute in Washington who focuses on Asia economics. “The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”

Read more …

Brazil is falling to bits. The Olympics next year will be the focus of mass protests, much bigger than last year’s.

Petrobras, Now $262 Billion Poorer, Exposes Busted Brazil Dream (Bloomberg)

When Brazil emerged from the global financial crisis as one of the world’s great rising powers, Petrobras was the symbol of that growing economic might. The state-run oil giant was embarking on a $220 billion investment plan to develop the largest offshore crude discovery in the Western hemisphere since 1976 and was, in the words of then-President Luiz Inacio Lula da Silva, the face of “the new Brazil.” Today the company epitomizes everything that is wrong with a Brazilian economy that has been sputtering for the better part of four years: It’s mired in a corruption scandal that cost the CEO her job this week; it has failed to meet growth targets year after year; and it’s saddling investors with spectacular losses. Once worth $310 billion at its peak in 2008, a valuation that made it the world’s fifth-largest company, Petroleo Brasileiro SA is today worth just $48 billion.

While Brazil’s decline on the international stage has been playing out since the commodities-driven economic boom first began to fizzle in 2011, the corruption case at Petrobras deepens the growing sense of crisis in the South American country. The government is posting record budget deficits after a collapse in prices for the soy, oil and iron that the nation exports; Sao Paulo is running out of water amid the biggest drought in decades; and the real dropped the most among major currencies in the past six months. “Brazil seemed great during close to 10 years of rising commodity prices and a very positive terms of trade,” Jim O’Neill, the former Goldman chief economist who coined the BRIC acronym, said. “It disguised lots of underlying problems and of course it made policy makers lazy and allowed bad behavioral habits to go on, as this Petrobras story epitomizes.”

It wasn’t supposed to go like this. In the halcyon days, the country was awarded rights to host the 2014 World Cup and the 2016 summer Olympics. The nation was in the midst of the kind of economic expansion it hadn’t seen in decades, posting growth of more than 5% in three out of four years. To understand how far Brazil has fallen since, compare the markets’ performance under Lula with that of his protege and successor, Dilma Rousseff. Lula oversaw a 113% rally in the real, the best-performing emerging-market currency during his years in office from 2003 through 2010. A commodity surge also helped stocks reach their peak during his last year in office after the benchmark Ibovespa gauge jumped six-fold. Since the 67-year-old Rousseff took office in 2011 after serving as Lula’s energy minister and chief of staff, positions that also put her atop the board at Petrobras, the Ibovespa has lost about a third of its value and the currency sank about 40%.

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Take your pick. The race to the bottom is on.

Central Bank Surprises: Who’s Next? (CNBC)

From Switzerland to Singapore, central banks around the world kept markets on their toes with unexpected policy moves January, and economists say the surprises aren’t going to stop there. Last month alone, central banks in India, Egypt, Peru, Denmark, Canada and Russia announced surprise interest rate cuts. This came alongside Switzerland’s unanticipated decision to scrap its three-year-old cap on the franc and Singapore’s off-cycle move to tweak its exchange rate policy in order to ease the rise of the local currency. On Wednesday, the People’s Bank of China surprised markets on Wednesday by cutting the reserve requirement ratio (RRR) by 50 basis points to 19.5% – its first country-wide RRR cut since May 2012. “We expect more central banks to surprise with either the timing or size of any monetary policy easing,” said Rob Subbaraman, chief economist and head of global markets research, Asia ex-Japan at Nomura.

Within Asia, central banks in China, Thailand, Korea, India, Indonesia and Singapore are the ones to watch, he said. The backdrop of disinflationary pressures, a slowing China, and faltering exports may force central banks to act off-cycle, Subbaraman said. These dynamics have become increasingly clear in the past couple of months. “Thailand has recently joined Singapore in outright CPI (consumer price index) deflation; Korea, excluding the one-off tobacco price hike, is very close to deflation, as is Taiwan. Most other countries are facing low-flation or steep declines in inflation,” he said, citing India and Indonesia. Meanwhile, economic powerhouse China, a key source of demand for smaller economies in the region, started the year on a sluggish note. The country’s Purchasing Managers’ Index (PMI) data for January signaled the manufacturing sector is once again losing steam.

The government’s official PMI dipped into contractionary territory for the first time in two and the half years, coming in at 49.8 and surprising market watchers who were expecting expansion. Finally, Asia’s export engine appears to be sputtering. Korea – the first country in Asia to release January trade data – saw exports shrink 0.4% on year in January. In China, following Wednesday’s surprise move, Subbaraman expects 50 basis point RRR cuts in each of the remaining quarters of 2015 and a 25 basis point interest rate cut in the second quarter. In Korea, where he expects the central bank to cut interest rates by 25 basis points in April and July, there’s a risk they could come earlier. In India, where he expects only one more 25 basis point rate cut this year – in April – there’s a chance there could be more.

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The fall of emerging markets, rather than Greece, is set to be the final nail in the euro’s coffin.

There’s Nothing Left To Break The Euro’s Fall Now (MarketWatch)

The euro remained weak against rival currencies during the Asian session Thursday, weighed down by renewed risk aversion stemming from the ECB’s tougher stance on Greece. The euro hit as low as $1.1304 – close to its 11-year low – before stabilizing at $1.1354 around 0540 GMT. That was weaker than $1.1391 late Wednesday in New York. The common currency also fell as low as ¥132.57 before bouncing back to ¥133.18. That compares with ¥133.56 late in New York. “Because of the quantitative easing (by the ECB) in the first place, I don’t have a feeling that the (euro’s) move to break below $1.1 has stopped,” said Koji Fukaya, chief executive of FPG Securities. “I don’t see any incentives that can help prevent the euro’s fall,” he also said. Earlier in the session, the single currency lost ground following the news that the ECB would suspend a waiver it had extended to Greek public securities used as collateral by the country’s financial institutions for central bank loans.

Greece’s new finance minister, Yanis Varoufakis, softened a hardline tone on debt repayments during a whirlwind tour of Europe this week. But tough negotiations remain and a deal is far from certain. Because Greek government bonds are junk rated, and thus below the ECB’s minimum threshold, Greek banks have relied on a waiver to post collateral for cheap ECB financing through the central bank’s regular facilities. The ECB is suspending that waiver. The headline raised concerns about Greek banks’ fundraising ability at the time when investors are keen to monitor negotiations between Greece and its international creditors on a €240 billion bailout plan. But the euro managed to stay above the $1.13 threshold as investors became aware that Greek banks will still have access to funds through the ECB’s emergency lending program. Under that facility, the credit risk of the loans stays on the books of the Greek central bank, and the loans carry a higher interest rate.

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“..the commitment to European solidarity, invoked down the years to motivate the whole project, has all but vanished. Far from thinking “we’re in this thing together,” Germany sees Greece as a nation of scroungers and thieves, and Greece sees Germany as a nation of atavistic oppressors..”

Will the Next Recession Destroy Europe? (Bloomberg)

As things stand, the policy options would be limited. Interest rates are already at zero. Notwithstanding QE, the ECB is a more inhibited central bank than, say, the U.S. Federal Reserve. It’s forbidden to undertake direct monetary financing of governments. On QE, it finally decided to test the limits of that prohibition, but more effective forms of monetary-base expansion – such as so-called helicopter money – are seen as expressly forbidden. Fiscal stimulus, on the other hand, is ruled out by the sinister combination of institutional incapacity and mutual animosity. To be sure, the euro area as a whole isn’t lacking in fiscal capacity.

Euro-area government debt is less than U.S. public debt. There’s no economic reason why Europe shouldn’t borrow (at extremely low interest rates) and spend the money on, say, large-scale infrastructure investments. But when Europe designed its monetary union it forgot to design even the rudimentary fiscal union that, as we’ve learned, the larger enterprise needs. Then why not start building such a union? Partly because it would require a new European treaty, which in turn would demand a measure of popular consent. With the union and its works so unpopular, governments dread embarking on that process.

More fundamentally, the commitment to European solidarity, invoked down the years to motivate the whole project, has all but vanished. Far from thinking “we’re in this thing together,” Germany sees Greece as a nation of scroungers and thieves, and Greece sees Germany as a nation of atavistic oppressors. Unless this failing union is reshaped in far-reaching ways, the optimistic scenario is protracted stagnation. The pessimistic scenario is political collapse, followed by who knows what. Where are the European leaders willing to rise to this challenge? Name me any who’ve even begun to think about it.

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“Greek banks will be able to tap funds through a program known as emergency liquidity assistance, or ELA. Under the program, the loans are more expensive and remain on the books of Greece’s central bank rather than the ECB.”

What You Need To Know About ECB’s Greek Collateral Decision (MarketWatch)

The European Central Bank just cranked up the pressure on Greece’s new antiausterity government as it attempts to renegotiate the terms of its bailout, telling Athens that Greek banks can no longer use the country’s sovereign debt as collateral for ECB-provided liquidity. U.S. stocks fell in late trade after the headlines hit and the euro extended a drop versus the U.S. dollar. Here’s what you need to know:

What did the ECB just do? The ECB’s Governing Council suspended a waiver that had allowed Greek banks to use the country’s junk-rated government bonds as collateral for central bank loans.

Why did the ECB do it? Greek bonds are junk rated, thus the waiver was needed to allow the banks to post collateral that could be used for cheap funding from the ECB. One of the prerequisites for the waiver was that Greece remain in compliance with a bailout program. In its decision, the ECB said it pulled the plug on the waiver because it can’t be sure that Greece’s attempts to secure a new program will be successful. Beyond the official reasons, the move is seen as a definitive warning that, like Germany, the ECB is in no mood to give in to Athens’s request for a debt swap. News reports also indicated the ECB isn’t open to requests to allow Greece to raise short-term cash by issuing additional Treasury bills in an effort to keep the government funded as it attempts to reach a new deal with its creditors.

Where does that leave Greek banks? It’s not a welcome development. Greek banks have suffered significant deposit withdrawals before and after the January election that brought the antiausterity government, led by Syriza’s Alexis Tsipras, to power. “This news will likely scare depositors and result in further bank runs,” said Peter Boockvar at the Lindsey Group. “This all said, if Greece can come to an agreement with the troika, I’m sure the ECB will reinstate the waiver,” Boockvar added. While the kneejerk reaction in markets has been negative, analysts note that junk-rated Greek sovereign debt made up a relatively small portion of the collateral used by Greek banks in funding operations as of the end of last year.

Karl Whelan, economics professor at University College Dublin, recently estimated that Greek banks were using a maximum of €8 billion in Greek government debt as collateral for loans from the Eurosystem as of December versus total loans of €56 billion. Meanwhile, the ECB said Greek banks will be able to tap funds through a program known as emergency liquidity assistance, or ELA. Under the program, the loans are more expensive and remain on the books of Greece’s central bank rather than the ECB.

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” Its aim is “coming up with a European policy that will definitively put an end to the now self-perpetuating crisis of the Greek social economy.“

Greece Sticks to Anti-Austerity Demands Following ECB Loan Cut (Bloomberg)

Greece held fast to demands to roll back austerity as the European Central Bank turned up the heat before Finance Minister Yanis Varoufakis meets one of his main antagonists, German counterpart Wolfgang Schaeuble. The encounter at 12:30 p.m. in Berlin comes hours after Greece lost a critical funding artery when the ECB restricted loans to its financial system. That raised pressure on the 10-day-old government to yield to German-led austerity demands to stay in the euro zone. The government “remains unwavering in the goals of its social salvation program, approved by the vote of the Greek people,” according to a Finance-Ministry statement issued overnight. Its aim is “coming up with a European policy that will definitively put an end to the now self-perpetuating crisis of the Greek social economy.”

The next move is up to Prime Minister Alexis Tsipras, who swept to power promising to reverse five years of spending cuts that accompanied €240 billion of bailout loans. While he’s retreated from demands for a debt writedown, he’s so far sticking to promises to increase pensions and wages that breach the conditions for financial aid. He’s scheduled to meet with his lawmakers in Athens around midday as parliament convenes. Greek securities fell after the ECB statement. The Global X FTSE Greece 20 ETF of Greek stocks plunged 10.4% in New York trading. Ten-year bonds declined, driving the yield up 70 basis points to 10.4%. The ECB’s decision, announced at 9:36 p.m. Wednesday in Frankfurt, will raise financing costs for Greek banks and stiffen oversight by the central bank. Greece’s Finance Ministry said the decision doesn’t reflect any negative developments in the financial sector and that banks are “adequately capitalized and fully protected.”

The ECB hadn’t publicly signaled that it would take such action so soon. On Jan. 8, the central bank said it would continue the waiver on the assumption that Greece would conclude a review of its current bailout program, which expires Feb. 28, and negotiate another one. A Bank of Greece spokesman said that liquidity will continue as normal, as existing ECB financing will be converted into Emergency Liquidity Assistance, or ELA. The official asked not to be named in line with policy and declined to answer all other questions. ELA is priced at an annual interest rate of 1.55% compared with the current ECB refinancing rate of 0.05%, Bank of Greece Governor Yannis Stournaras said in November. “You have to keep in mind that the Greek banking system used the ELA very extensively in 2012,” Steven Englander at Citigroup said. “So it’s not going beyond break. It’s a warning signal that the patience isn’t infinite.”

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An entirely different interpretation.

Greek Finance Ministry Says ECB Decision Aimed At Eurogroup (Kathimerini)

The Greek Finance Ministry interpreted a European Central Bank decision to stop accepting Greek government bonds as collateral from local lenders as a moved aimed at pushing Athens and its eurozone partners towards a new debt deal. “By taking and announcing this decision, the European Central Bank is putting pressure on the Eurogroup to move quickly to seal a new mutually beneficial deal between Greece and its partners,” said the ministry in a statement released early on Thursday. The ministry insisted that the ECB’s decision, which means Greek lenders will have to revert to borrowing via the more expensive Emergency Liquidity Assistance (ELA) provided by the Bank of Greece, did not reflect any concerns about the health of the local banking system.

“According to the ECB itself, the Greek banking system remains adequately capitalized and fully protected through its access to ELA,” said the statement. The Finance Ministry also indicated that the central bank’s decision would not change the government’s negotiating strategy. “The government is widening the scope of its negotiations with partners and institutions it belongs to each day,” it said. “It remains focussed on the targets of its social relief program, which the Greek people approved with their vote. It is negotiating with the aim of drafting of a European policy that would stop once and for all the self-feeding crisis of the Greek social economy.”

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“..the move from the ECB should have very little immediate effect on the Greek banks – provided there is not a complete loss of confidence..”

What the ECB’s Move on Greek Government Debt Is Really All About (Bloomberg)

In a press release that jolted the markets, the ECB announced it will no longer accept Greek government debt as collateral starting next week. But this news is not necessarily a potential liquidity disaster for Greek banks. The Greek banking system is not particularly reliant on Greek sovereign debt as collateral. Figures from the Bank of Greece show that Greek financial institutions currently have about €21 billion of Greek sovereign exposure. Furthermore, this debt has already been subject to valuation haircuts of up to 40% when used as collateral at the ECB. All collateral that the Greek banks use for ECB operations that is not Greek sovereign debt is still perfectly good to use. This decision of the ECB is against the Greek sovereigns, not the Greek banks. Further, any shortfall in liquidity will be fully made up by Emergency Liquidity Assistance that will be issued by the Greek central bank at its own risk.

So, all together, the move from the ECB should have very little immediate effect on the Greek banks – provided there is not a complete loss of confidence in the Greek banking system in the coming days – and should be viewed as what it is: The ECB is pressuring the Greek government. Greece’s finance minister, Yanis Varoufakis, has been agitating for Greek debt relief since his appointment after January’s election. Today the ECB gave its answer to his moves. If the Greek government does not agree to reenter a program, the ECB will not allow its debt to be used as collateral. The immediate effects should be seen as limited to the debt market but huge within the political realm. The ECB has often been accused of placing too much political pressure on governments. Today’s moves shows that it has chosen to ignore those accusations once again and do what it feels is right.

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Pre ECB decision.

Greek Bill-Sale Demand Slumps as Nation Seeks New Debt Deal (Bloomberg)

Demand for Greece’s Treasury bills slumped to a more-than eight-year low at a sale Wednesday as the government struggles to strike a new bailout deal and avert a funding shortage. The nation sold €812.5 million of six-month bills, with an average yield of 2.75%, the Athens-based Public Debt Management Agency said. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities allotted, fell to 1.3, the least since July 2006. Greece has 947 million euros of debt coming due on Feb. 6. Prime Minister Alexis Tsipras risks a liquidity crunch if he fails to cut a new deal on repaying a rescue package pledged in 2012. Failure to reach an agreement by March, when the bailout program ends, may leave the country unable to repay billions of euros in debt.

Finance Minister Yanis Varoufakis met European Central Bank officials Wednesday as he presses his case with creditors, which also include the European Commission and IMF. “There is uncertainty surrounding the Greek cash position,” said Felix Herrmann, an analyst at DZ Bank AG in Frankfurt. “Greek banks, the main buyer of T-bills, are more reluctant when it comes to buying. There is a lot of uncertainty whether Greek banks will be able to get enough liquidity from March onwards and this is mirrored in T-bill prices and yields.” Greek lenders lost at least 11 billion euros in deposits in January, according to four bankers who asked not to be identified because the data were preliminary.

Withdrawals accelerated from about €4 billion in December in the run-up to elections that catapulted anti-austerity party Syriza to power. The ECB allows Greece’s banks to use as much as €3.5 billion in Greek bills as collateral in its financing operations. This is available only while the nation complies with its bailout program. Banks led gains as Greek stocks rose for a third day in Athens, climbing 2.5%. The previous sale of six-month bills on Jan. 7 drew an average yield of 2.30%. The average auction rate dropped to record-low 0.59% in October 2009 before climbing to 4.96% in June 2011, according to data compiled by Bloomberg. That compares with a rate of 7.83% set at an auction in February 2000, the highest on record in data starting that month.

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“The consideration of future austerity measures should give greater weight to the unintended mental health consequences..”

Greek Austerity Sparks Sharp Rise In Suicides (CNBC)

The harsh austerity measures imposed on the Greek public since the depths of country’s financial crisis have led to a “significant, sharp, and sustained increase” in suicides, a study published in the British Medical Journal has found. The cutbacks, launched in June 2011, saw the total number of suicides rise by over 35%—equivalent to an extra 11.2 suicides every month—and remained at that level into 2012, according to a study published this week by the University of Pennsylvania, Edinburgh University and Greek health authorities. “The introduction of austerity measures in June 2011 marked the start of a significant, sharp, and sustained increase in suicides, to reach a peak in 2012,” a statement accompanying the study said.

After Greece crashed into a six-year recession in 2008, it struggled to handle its sovereign debt burden. The country’s first round of austerity measures failed to help, and the government was forced to ask for an international bailout of some €240 billion, which came with strict conditions for further severe cutbacks and reforms. These had a crippling effect on Greece’s already stricken economy, sending unemployment levels up to 1 in 4 people. The increasing level of hardship sparked an increasing number of protests, riots and even a public suicide by a pensioner in the main square of Athens.

The University of Pennsylvania-led study also found that the suicide rate in men started rising in 2008, increasing by an extra 3.2 suicides a month. The rate then rose by an additional 5.2 suicides every month from June 2011 onward. Figures for the years after 2012 were not available, the statement added. The researchers concluded by urging governments to consider the broader implications of harsh cuts: “The consideration of future austerity measures should give greater weight to the unintended mental health consequences that may follow and the public messaging of these policies and related events.”

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“As the Greek finance minister meets Chancellor Merkel today it might help her to recall how much of Germany’s 1933-1945 external debt the country ended up paying back (close to none, which obviously helped the German economic miracle hugely)..”

Greece, Ukraine and Russia: History Lessons (CNBC)

The two biggest geopolitical flashpoints of the year so far, and potentially of the decade, involve one of the oldest stories of all: creditors chasing their due. As Greece’s new leadership embarks on a European tour to try and negotiate compromises on its debt to the so-called troika (made up of the International Monetary Fund, European Commission and European Central Bank), and Russia threatens to call in a $3-billion bond it used to help bail out struggling Ukraine, it might be time for European leaders to take a leaf from their history books.

First World War Germany is perceived to be the most hard-line of Greece’s European creditors when it comes to renegotiations over the country’s 300-billion-euro-plus debt pile – unsurprisingly, given that Germany is both the biggest contributor to the euro zone’s part of the bailout and its own reputation for fiscal caution. Yet Germany has both suffered from large external debt and benefited from forgiveness before. The reparations it was saddled with after the First World War resulted in hyperinflation and near-economic disaster, which contributed to rising support for the Nazi Party. “As the Greek finance minister meets Chancellor Merkel today it might help her to recall how much of Germany’s 1933-1945 external debt the country ended up paying back (close to none, which obviously helped the German economic miracle hugely),” Rabobank analysts pointed out in a research note Wednesday.

Russia and Cuba Meanwhile in Russia, President Vladimir Putin said on Tuesday that Ukraine needed to repay a $3 billion loan, made while his ally Viktor Yanukovych was still Ukraine’s President, because Russia needs it to fight its own economic crisis. If Ukraine, with its economy already on the brink of disaster, is forced to repay its Russian debts earlier than the planned December 2015, it could push the country into default. Yet Russia hasn’t had a problem with debt forgiveness for neighbours and trading partners in the past. Just in July, it wrote off $32 billion of Cuba’s outstanding debt.

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“Analysts at UBS said in a recent note they expect the rig count to fall at least 31% this year, and potentially more if oil prices remain lower.”

Here’s Why The Oil Glut May Continue (MarketWatch)

Energy companies are slashing spending budgets and shutting down oil rigs, but don’t expect U.S. oil production to slow down soon. There is so much oil available that it will take a while for those measures to make a dent in production. In addition, most of the rigs mothballed so far were in low-yield wells—low-hanging fruit that won’t make much of an impact. Analysts at UBS said in a recent note they expect the rig count to fall at least 31% this year, and potentially more if oil prices remain lower. The bulk of the decline will come in the first half of the year, with some flattening in the second half, they said in the note. A declining rig count, alongside a weaker dollar and market dynamics around short positions have driven a price spike for oil futures in recent sessions.

Futures resumed their downward trajectory on Wednesday, however, after a U.S. government agency pointed to another bump in U.S. inventories. Two other reasons that fewer rigs may not immediately translate into less production include increased drilling efficiency and an oil-well backlog that will serve as a cushion in the coming months, the Energy Information Administration has said. There has been a 16% decline in the number of active onshore drilling rigs in the continental U.S. from the end of October through late January, said the EIA. As well as shutting rigs, companies have been cutting costs to varying degrees based on balance-sheet size, with smaller companies tending to cut deeper. On average, companies have cut this year’s capital expenditures by about 30%.

Chevron last week announced a reduction in 2015 spending of 13% from 2014, taking a relatively small hatchet to its budget and focusing it mostly on its overseas exploration and production business. Chevron reduced U.S. “upstream” spending by 8%, while spending on refinery operations ticked higher. Exxon Mobil reported Monday, but as usual said it would make an announcement about capital expenditures at its analyst day scheduled for March 4. Exploration and production energy companies are going over their budgets, rationalizing spending and drilling activity “at an even faster pace than we thought possible just 6 weeks ago,” analysts at Simmons & Co. wrote in a note earlier this week. “We believe improvement in the oil supply/demand macro is on the horizon,” they said.

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An incredible story.

Harvard’s Convicted Fraudster Who Wrecked Russia Resurfaces in Ukraine (NC)

There are about 450 think-tanks in Europe and the US currently focusing on international relations, war, peace, and economic security. Of these, about one hundred regularly analyse Russian affairs. And of these, less than ten aren’t committed antagonists of Russia. That’s barely two% of the intellectual materiel which can be counted as non-partisan or neutral in the infowar now underway between the NATO alliance and Russia. In this balance of forces, think-tanks behave like tanks – that’s the weapon, not the cistern. The Centre for Social and Economic Research (CASE) has been based in Warsaw since 1991. It claims on its website to be “an independent non-profit economic and public policy research institution founded on the idea that evidence-based policy making is vital to the economic welfare of societies.”

In its 2013 annual report, declares: “we seek to maintain a strict sense of non-partisanship in all of our research, advisory and educational activities.” Three-quarters of CASE’s annual revenues come from the European Commission; another 9% from American and other international organizations. According to CASE, that’s “an indication of progressive diversification of CASE revenue sources.” CASE Ukraine is a branch of this Polish think-tank, and at the same time a descendant, it claims, of a Harvard University-funded group which was active between 1996 and 1999. Registered since 1999 as CASE Ukraine, this calls itself “an independent Ukrainian NGO specializing in economic research, macroeconomic policy analysis and forecasting.” According to parent CASE in Warsaw, one of the group’s goals is “promoting cooperation and integration with the neighboring partners of Europe”.

This means, not only CASE Ukraine, but CASE Kyrgyzstan, CASE Moldova, CASE Georgia, and in Russia, the Gaidar Institute for Economic Policy. Independent is what CASE swears; independent isn’t what CASE represents. Investigate the names, the associations, the sources of money, the secret service engagements, and what you have is a family, a front, a cover, a closed shop, a mafia. Founders of CASE Ukraine like the American Jonathan Hay and operators of CASE Poland like the Balcerowiz family reveal a well-known anti-Russian alliance. So what are a director of the Gazprom board, Vladimir Mau; a professor of the Higher School of Economics in Moscow, Marek Dabrowski; and Simeon Djankov, Rector of the New Economic School in Moscow, and a protégé of First Deputy Prime Minister Igor Shuvalov, doing on the CASE side?

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“He kicked off his odyssey by acknowledging that ‘this country knows how to eat.'”

One Brit Discovers Why Americans Are So Fat (MarketWatch)

America is bursting at the seams. No major development there. In fact, the U.S. makes up only 5% of the global population but tallies 13% of the world’s obese, the largest%age for any nation, according to a study from the Lancet medical journal. More than a third of our county is overweight. And we’re not getting any skinnier. As Americans, we’ve grown accustomed to, say, the gut-bomb portion sizes at the Cheesecake Factory and the bottomless pasta bowls at the Olive Garden. When Maggiano’s Little Italy serves up a massive plate of fettuccine and then hands us another whole serving on the way out, we hardly flinch. (Note the stock tickers “CAKE” and “EAT.”)

But it’s still shocking to visitors from across the pond. Shocking in a good way, at least for one British arrival who has been intoxicated enough by the options during his stay, presumably in San Francisco, that he posted some snapshots on Reddit of his recent months of gluttony. He kicked off his odyssey by acknowledging that “this country knows how to eat.” If he wanted a reaction, he got one. For whatever reason, his post struck a chord, quickly garnering more than 1.1 million views and drawing thousands of comments. Here are some of the highlights that helped make this food thread go viral this week.

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“We’re having this Groundhog Day experience, with state after state actively seeking to thwart kids from learning the truth about climate science..”

Temperatures Rise as Climate Critics Take Aim at U.S. Classrooms (Bloomberg)

While scientists almost universally agree the world is warming, school kids in Texas, Wyoming and West Virginia will get a much less definitive answer if local activists and politicians get their way. At a time when President Obama is pushing a global effort to rein in greenhouse gases, conservative critics back home are pressing a grassroots counterattack, targeting how schools address global warming. The goal is to emphasize doubts about whether humanity is indeed baking the planet. “Climate change was only presented from one side and that side is the Al Gore position that you don’t need to discuss it, it’s a done deal,” said Roy White, a Texan retired fighter pilot. “The other side just doesn’t seem to want to allow the debate to occur.”

White doesn’t want kids indoctrinated by “misinformation,” he said, so he and 100 fellow activists have sought to change textbooks that refer to climate change as fact, rather than opinion. That the vast majority of scientists disagree with him is more a sign of dissent being quashed than of true consensus, White said. White’s band of volunteer activists, the Truth in Texas Textbooks coalition, lobbied the state to reject social studies books that they said contained factual errors or fostered an anti-American bias. Among the books’ sins: omitting mention of those who question climate science. If the coalition had its way, any reference to “global warming,” melting polar ice caps or rising sea levels would be excised from textbooks, or paired with dissenting views.

Phrases such as “consensus science” and “settled science” should be avoided, the group warned in letters to publishers last year, as they suggest a “political agenda.” So far, the campaign has had only limited results. One publisher deleted a reference to global warming and others ignored White’s appeals. The group isn’t done, however. This year, they plan to take their textbook ratings to local school districts, urging them to buy more “balanced” selections. “We want to affect the bottom line,” White said. “That means purchasing.”

To Lisa Hoyos, efforts like White’s amount to “lying about science.” Two years ago, the San Francisco mom and former union organizer co-founded the group Climate Parents to defend the teaching of climate change around the U.S. The group has members in all 50 states, Hoyos said. These days, they’re busier than ever. In Wyoming last year and South Carolina in 2012, legislators banned their states from adopting educational standards that treat human-caused global warming as settled science. A similar measure passed the Oklahoma Senate last year but failed in the State House. Michigan’s state board of education is bracing for its own debate on new standards later this year. “We’re having this Groundhog Day experience, with state after state actively seeking to thwart kids from learning the truth about climate science,” Hoyos, 49, said by telephone. “You’re seeing science standards held hostage to political machinations.”

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