Mar 282015
 
 March 28, 2015  Posted by at 11:59 am Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle March 28 2015


Lewis Wickes Hine Child labor at Gorenflo Canning Co., Biloxi, Mississippi 1911

Yellen Sees Gradual Pace of Rate Increases Starting This Year (Bloomberg)
Housing Contribution To US GDP Lowest In Post-War Era (Zero Hedge)
The Bottom’s Not In – This Market Is Dumber Than A Mule (David Stockman)
Greek Crisis Nears A Turning Point (MarketWatch)
Austerity Is Greece’s Only Hope (Hans-Werner Sinn)
Varoufakis Denies Resignation, Greeks Accused Of “Gambling” Away Trust (Teleg.)
Alternate Greek FinMin Tsakalotos Says Athens ‘Prepared For Rift’ (Kathimerini)
Greece Submits New List Of Reforms To Unlock Further Aid (Reuters)
Greece’s German Allies Aghast as Tsipras Fails to Assure (Bloomberg)
Is Spain’s Recovery For Real? (Guardian)
Someone Needs To Go Broke In The Australian Iron Ore Industry (Guardian)
Emerging World: Heading For Contagious Credit Crisis? (CNBC)
Oil Is Preparing For A New World Order (CNBC)
Japan Inc. Doesn’t Believe In Abenomics (CNBC)
Petrobras Said to Start Asset Sale With Fields in Argentina (Bloomberg)
Reinhart and Rogoff: Cut Government Debt Creatively (Bloomberg)
Elizabeth Warren Launches Counteroffensive Against Citigroup (Bloomberg)
Monsanto Lobbyist Calls Roundup Safe for Humans, But Won’t Drink It (RawStory)

Why am I thinking June? Is it because everybody says it won’t be?

Yellen Sees Gradual Pace of Rate Increases Starting This Year (Bloomberg)

Chair Janet Yellen said she expects the Federal Reserve to raise interest rates this year, and that subsequent increases will be gradual without following a predictable path. “I expect that conditions may warrant an increase in the federal funds rate target sometime this year,” Yellen said Friday in remarks prepared for delivery in San Francisco. She and fellow policy makers “generally anticipate that a rather gradual rise in the federal funds rate will be appropriate over the next few years.” After the initial increase, officials won’t follow “any predetermined course of tightening” that involves similar-sized increases at regular intervals, Yellen said.

“The actual path of policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation,” she said. Policy makers last week opened the door to an interest-rate increase as soon as June, while also signaling they’ll go slow once they get started. The benchmark federal funds rate has been kept near zero since December 2008. Rates near zero helped cause a “sizable reduction” in labor market slack, and a modest rate increase is “highly unlikely” to halt that progress, Yellen said.[..]

The labor market is “likely to improve further in coming months,” Yellen said. At the same time, progress on meeting the Fed’s inflation goal has been “notably absent.” Some of the weakness in inflation “likely reflects continuing slack” in labor markets. Despite disappointing retail-sales data, she said consumer spending probably will “expand at a good clip this year given such robust fundamentals as strong employment gains, boosts to real incomes from lower energy prices, continued increases in household wealth, and a relatively high level of consumer confidence.”

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End of a line.

Housing Contribution To US GDP Lowest In Post-War Era (Zero Hedge)

Deutsche Bank is out predicting that a sluggish US housing market is likely to impact the supply of MBS going forward. As DB notes, housing isn’t the GDP contributor it once was and not by a long shot. Not only that, but when it comes to recoveries, the housing market’s GDP contribution was 7 times below its post WW2 average in year one and has fared even worse since. Here’s DB with more:

The contribution of housing to US GDP continues to run at some of the lowest levels since the end of World War II. New construction of single- and multi-family homes, renovations, broker fees and the like still only make up a bit more than 3% of current GDP, well below the post-war average of 4.7%. Not only has the level of lift from housing come in low, but it has bounced out of the last official recession slowly, too. Housing on average has contributed a half a percentage point to GDP a year after the end of every post-war US recession. This time around, housing added only 7 bp. And the contribution of housing in the second and third years after the recent recession also has fallen well below post-war averages.

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“Even if the pace is slackening, the Chinese are still building high-rise apartments which will remain empty and airports, roads, rails and bridges that are hideously redundant.”

The Bottom’s Not In – This Market Is Dumber Than A Mule (David Stockman)

They were trying to put in a bottom – again! The sell-off earlier this week amounted to the sixth sizeable “dip” since November 20 – so the market’s ingrained reflex was back at work all afternoon, trying to scoop up the “bargains”. But the roundtrip to the flat-line shown below is not a classic “wall of worry” and its not a “bottom” that’s being put in. This market is dumber than a mule, and the nation’s central bank and its counterparts around the world have made it so. The plain truth is that six years of torrential money printing and worldwide ZIRP have not happened with impunity. On the one hand, massive, sustained and universal financial repression caused an artificial growth and investment boom in much of the world, especially China and the EM, which has now run out of steam and is visibly and rapidly cooling.

There is probably no better proxy for the global investment boom than the spot price of iron ore because it captures China’s massive infrastructure construction spree and the waves of mining, shipbuilding, steel-making and construction materials spending that it set off all over the world. But this huge tidal wave has now crested, leaving behind the worst of both worlds – cooling demand and still expanding supply. For the first time since around 1980, China’s steel consumption is projected to fall in 2015 – with demand slumping from 830 million tons last year toward 800 million tons, and that is just the beginning as China’s credit-fueled construction frenzy finally comes to a halt. In fact, during the boom that took iron ore prices from a historic level of around $20-30 per ton to a peak of nearly $200 in 2011, China’s iron and steel capacity grew like topsy. Production capacity expanded from about 200 million tons at the turn of the century to upwards of 1.1 billion tons at present.

Yet this year’s decline of demand to around 800 million tons does not begin to reflect the coming adjustment. That’s because there is still a residual component of one-time demand in that number that is in no way sustainable. Even if the pace is slackening, the Chinese are still building high-rise apartments which will remain empty and airports, roads, rails and bridges that are hideously redundant. Eventually that will end because even the red capitalist rulers in Beijing are terrified of China’s towering mountain of debt – $28 trillion and still rising by hundreds of billions every month. Yet underneath this one-time explosion of demand for steel, aluminum, copper, concrete and the rest of the materials slate is something called sell-through demand. The latter reflects the sustainable level of demand for replacement of long-lived assets like bridges and shorter-term durables like cars and appliances. In the case of steel, that sustainable “sell through” demand level could be as low as 500-600 million tons or hardly half of China’s steel production capacity.

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“For the first time since the early 20th century, there are the elements of a genuine revolution brewing in Europe, a continent plagued by violence throughout its history.”

Greek Crisis Nears A Turning Point (MarketWatch)

The simmering crisis in Greece has the potential to become one of those seemingly small events that leads to big consequences. The election of a radical government by a public exhausted from five years of debilitating recession, the war of words conducted by that government in the face of the iron fist of establishment power in the European Union, and the expected resolution either in the form of a total retreat by the Greek government and its collapse or an exit from the euro – all this seems relatively small on the scale of global events. But few expected the assassination of an Austrian royal heir to start World War I, or the shelling of a military depot in Gdansk by German forces in 1939 to lead to the conflagration of World War II, or, for that matter, the strike in 1980 by Polish trade union Solidarity in that same port city to lead to the unraveling of the Soviet empire.

The Greek crisis could well become a similar turning point in history. Amid all the posturing, dogmatism and bad faith in the standoff between the government of Greek Prime Minister Alexis Tsipras and European and international monetary officials is a genuine challenge not only to the postwar integration of Europe but the entire foundation of the peace ushered in during that period. So if you’re sick and tired of hearing about Greece, think again. For the first time since the early 20th century, there are the elements of a genuine revolution brewing in Europe, a continent plagued by violence throughout its history. The bumbling, short-sighted policies of the German government under Chancellor Angela Merkel and the spineless Brussels bureaucracy dominated by Berlin are in many ways similar to previous miscalculations by European leaders that plunged Europe and the world into disaster.

And it is not helped by a U.S. foreign policy in disarray under the weak and uneven leadership of a president ill-equipped to deal with global realpolitik. The Greek government itself seems to be operating in a parallel universe of false hopes. The economy minister, George Stathakis, said he is optimistic Greece will reach an agreement with international lenders next week even though their stated goals remain diametrically opposed.

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No, it’s not.

Austerity Is Greece’s Only Hope (Hans-Werner Sinn)

The euro has brought a balance-of-payments crisis to Europe, just as the gold standard did in the 1920s. In fact, there is only one difference between the two episodes: During today’s crisis, huge international rescue packages have been available. These rescue packages have relieved the eurozone’s financial distress, but at a high cost. Not only have they enabled investors to avoid paying for their poor decisions; they have also given overpriced southern European countries the opportunity to defer real depreciation in the form of a reduction of relative prices of goods. This is necessary to restore the competitiveness that was destroyed in the euro’s initial years, when it caused excessive inflation.

Indeed, for countries like Greece, Portugal, or Spain, regaining competitiveness would require them to lower the prices of their own products relative to the rest of the eurozone by about 30%, compared to the beginning of the crisis. Italy probably needs to reduce its relative prices by 10-15%. But Portugal and Italy have so far failed to deliver any such “real depreciation,” while relative prices in Greece and Spain have fallen by only 8% and 6%, respectively. Revealingly, of all the crisis countries, only Ireland managed to turn the corner. The reason is obvious: its bubble already burst at the end of 2006, before any rescue funds were available.

Ireland was on its own, so it had no option but to implement massive austerity measures, reducing its product prices relative to other eurozone countries by 13% from peak to trough. Today, Ireland’s unemployment rate is falling dramatically, and its manufacturing sector is booming. In relative terms, Greece received most of Europe’s bailout money and showed the largest increase in unemployment. The official loans granted to the country by the European Central Bank and the international community have increased more than sixfold during the past five years, from €53 billion ($58 billion) in February 2010 to €324 billion, or 181% of GDP, now. Nevertheless, the unemployment rate has more than doubled, from 11% to 26%.

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“Any decision to remove ELA would effectively force Greece out of the eurozone by pulling the plug..”

Varoufakis Denies Resignation, Greeks Accused Of “Gambling” Away Trust (Teleg.)

Responding to a story in Bild on Friday morning, who quoted a Greek government source saying that it was only a matter of time until Mr Varoufakis resigned, the “rock-star” former academic tweeted he found the reports of his apparent demise, “amusing”. A Greek government official had earlier dismissed the reports, telling Reuters: “None of this is true, it’s far from reality.” Mr Varoufakis has become a controversial figure in the fractious negotiations between Greece and its eurozone creditors. Tensions reached a peak when the minister was caught up in a farcical argument over whether he “stuck the middle finger” to the eurozone giant during a lecture he gave in 2013. The finance minister, who is not a member of parliament for the Syriza party, also walked out on an TV interview earlier this month, after he was questioned about being a “liability” to his government.

Athens has been scrambling to make repayments to its creditors while continuing to pay wages and pensions. The government now faces another €2.4bn cash squeeze in April, including a €450m loan repayment to the IMF on April 9. In a bid to finally release €7.2bn in bail-out funds, Greece has promised to deliver a full reform list to creditors by Monday. But in a sign of the frayed relations between the debtor country and its paymasters, Germany’s Bundesbank chief accused the Leftist government of betraying the trust of its creditors. “Until the autumn, an improvement in the economy had been discernible. But the new government has gambled away a lot of trust,” said Jens Weidmann, an ardent critic of financial relief for Athens. Mr Weidmann added he did not “buy the argument that they are financially overburdened,” referring to the state of Greece’s finances.

As part of its efforts to stay solvent over the next few weeks, Greece has requested a €1.9bn transfer of profits held by the ECB, from the holdings of Greek government bonds. So far, the ECB has rebuffed all Greek pleas to alleviate their cash squeeze. The central bank has been keeping Greek banks alive through the provision of emergency liquidity assitance (ELA), after it stopped its ordinary lending to the country after Syriza’s election. Any decision to remove ELA would effectively force Greece out of the eurozone by pulling the plug on the country’s stricken lenders and giving way to capital controls.

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“We are creating ambiguity with the creditors intentionally because they have to know that we are prepared for a rift, otherwise you can’t negotiate..”

Alternate Greek FinMin Tsakalotos Says Athens ‘Prepared For Rift’ (Kathimerini)

Alternate Finance Minister Euclid Tsakalotos on Friday made waves by saying that the Greek government was “always prepared for a rift.” Tsakalotos, who is the ministry’s key official for international economic relations, made the comment during an interview on Star television channel, prompting a flurry of reactions and criticism on social media. Tsakalotos was speaking just two days after Finance Minister Yanis Varoufakis was caught on camera during a visit to Crete on the occasion of Greece’s Independence Day telling a citizen that he hoped Greeks would continue to back the government “after the rift.” Varoufakis’ comment was subsequently played down by SYRIZA commentators who said he might have been referring to a possible rift with vested interests in Greece rather than with the country’s creditors.

Apparently in the same vein, Tsakalotos said on Friday, “If you don’t entertain the possibility of a rift in the back of your mind then obviously the creditors will pass the same measures as they did with the previous [government].” “We are creating ambiguity with the creditors intentionally because they have to know that we are prepared for a rift, otherwise you can’t negotiate,” he said. He added that the new government is intent on backing “those who lost a lot in the crisis, and that we are prepared, if things do not go well, for a rift.” Prior to his comments, Tsakalotos took part in a meeting with Varoufakis and Prime Minister Alexis Tsipras.

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Motions. Through. Going.

Greece Submits New List Of Reforms To Unlock Further Aid (Reuters)

Greece has sent its creditors a long-awaited list of reforms with a pledge to produce a small budget surplus this year in the hope that it will unlock badly needed cash, Greek government officials said on Friday. The EU and IMF lenders, informally called the Brussels Group, will start discussing the list later on Friday, a euro zone official said, although a Greek official said the examination would begin on Saturday. Their approval, followed by the blessing of euro zone finance ministers, will be needed for Athens to unfreeze further aid and stave off bankruptcy. Athens has not indicated whether the latest list will contain a more far-reaching reform program than a previous list of seven reforms on broad issues ranging from tax evasion to public sector reforms, which failed to impress lenders.

The new list includes measures to boost state revenues by €3 billion this year, but will not include any “recessionary measures” like wage or pension cuts, a government official said. The list estimates a primary budget surplus of 1.5% for 2015 – below the 3% target included in the country’s existing EU/IMF bailout – and growth of 1.4%, the official said. Prime Minister Alexis Tsipras’s left-wing government has previously said the list will include measures to improve investor sentiment, boost tax revenues, and judicial reform. The government is also expected to address some form of pension reform, though it has already excluded any attempt to raise the retirement age or other sensitive measures that would be viewed as cutting pension payouts for austerity-hit Greeks.

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Aghast, I tell you.

Greece’s German Allies Aghast as Tsipras Fails to Assure (Bloomberg)

Even Greek Prime Minister Alexis Tsipras’s friends in Germany are getting exasperated with his government after a visit to Berlin fueled skepticism that he can do what’s needed to end the impasse over his country’s finances. While the atmosphere was good in talks between Tsipras and Chancellor Angela Merkel this week, an improvement in tone may not help resolve a standoff over the reforms required to unlock aid, according to a German government official familiar with the chancellor’s strategy on Greece who asked not to be named because the meeting was private. Members of Merkel’s Social Democratic coalition partners, who have sought to strike a more moderate tone on Greece than her party, were left unconvinced that he can resolve the crisis.

“What’s coming out of Greece is moving completely in the wrong direction,” Joachim Poss, a Social Democratic lawmaker who is the party’s deputy parliamentary spokesman on finance policy, said in an interview. “The situation is really worrying — we’re stunned watching the developments.” Tsipras’s difficulty in persuading even more measured German policy makers he’s on the right track risks entrenching a conflict with Greece’s European creditors as his government runs out of money. More than a month after winning an extension of the country’s bailout deal, Greek officials will finally submit plans on how they’ll meet the conditions for releasing aid on Friday, an official from Tsipras’s administration said.

The delay led Thomas Oppermann, the Social Democrat Bundestag floor leader, to join Finance Minister Wolfgang Schaeuble in speculating about a possible Greek exit. “A Greek exit from the euro zone would be a political disaster, not only for the euro zone but for the whole idea of Europe,” Oppermann told Deutschlandfunk radio March 24. “Of course we can’t rule that out. It’s first of all down to the Greek government whether it does what is required to stay in the euro zone.”

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“..even when Rajoy says it’s getting better it pushes down his ratings because people don’t believe it.”

Is Spain’s Recovery For Real? (Guardian)

With this an election year in Spain, the tone in Madrid has turned triumphalist. Last month the finance minister predicted the country would enjoy five years of growth of up to 3%, while prime minister Mariano Rajoy has declared “the crisis is over” – only to be slapped down by the president of the European commission, Jean-Claude Juncker, who said that could hardly be the case with 4.5 million people out of work. Backtracking, Rajoy said the crisis was over, but not its legacy. After regional polls in Andalusia handed 15 seats to anti-austerity party Podemos, 2015 is a big year for Spanish politics. There are also municipal elections in Madrid and Barcelona, another regional poll in Catalonia, and then, in November, the general election.

But not all voters share the government’s upbeat outlook. On the day the country’s economic minister, Luis de Guindos, gave his optimistic five-year forecasts to an audience of businesspeople, the national statistics office published a survey showing that four out of every five Spaniards believe the economy is in the same or worse state than last year and over half don’t believe things will improve in 2016. As more and more people pass the two-year cut-off for unemployment benefit, the number of beggars on the streets of Madrid and Barcelona is growing, many of them middle-aged, while an estimated 1.5 million Spaniards are now relying on soup kitchens for food. So what is really happening? [..]

Julia Fossi of the Barcelona soup kitchen Esperanza (the Spanish word for “hope”) says there has been a notable rise in the number of Spaniards sleeping on the street. “The average age is around 40 to 50,” she says. “People are evicted from their homes and sleep in entrances of banks. We had one woman who had been thrown out of her home who was sleeping in La Caixa with her cat.” Edward Hugh, a Welsh economist based in Spain, says: “The economic situation is perceived by most Spaniards as being so bad that even when Rajoy says it’s getting better it pushes down his ratings because people don’t believe it.”

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Everyone’s answer to the price slump: produce more.

Someone Needs To Go Broke In The Australian Iron Ore Industry (Guardian)

The Australian iron ore industry is poised for a huge shake-up as the global glut worsens and margins continue to tighten. The nation’s biggest iron ore miners, Rio Tinto and BHP Billiton, are still making money and expanding production, but questions remain about the viability of their heavily indebted rivals Fortescue and Gina Rinehart’s Roy Hill project. Iron ore is trading at a six-year low of around $US55 per tonne amid weaker Chinese demand. The price slump this week prompted Fortescue’s chairman Andrew “Twiggy” Forrest to call for a cap on iron ore production which was promptly dismissed by Rinehart and the head of Rio Tinto Sam Walsh. But the price outlook remains bleak, with an extra 200m tonnes of the steel-making ingredient expected to be dumped on the market over the next few years.

Morningstar analyst Matthew Hodge says higher cost miners like Fortescue and Roy Hill will soon be “running to stand still”. “There has to be some rationalisation,” Hodge said. “Someone needs to go broke, or some miners need to merge production because what’s happening at the moment is unsustainable. “Things are bad and there’s no real sign they’re going to get any better soon, unless there’s a bit more enthusiasm around forming a cartel.” Fortescue has just finished a huge expansion program and Rio Tinto plans to expand by another 50m tonnes while Roy Hill will begin ramping up to 55m tonnes in September. Lurking in the background is Brazilian giant Vale which is planning a $20bn investment to expand production by another 90m tonnes by 2018.

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Why the question mark?

Emerging World: Heading For Contagious Credit Crisis? (CNBC)

Major emerging markets (EMs) like Brazil and Russia could be at risk of a widespread credit crisis—that could impact the world’s financial markets, experts warn. ING Investment Management warned in March that banks and companies in some emerging markets could topple if their currencies remained under pressure and capital outflows continue. “This pressure threatens to bring the fundamentally weakest countries into deep economic and political trouble,” said M.J. Bakkum, senior emerging markets strategist at ING, in a research note. “Brazil, Russia and Turkey are the most vulnerable. It is not impossible that serious corporate defaults happen or even that banks fall over in one of these countries. For the first time since 2002, we should consider the risk of contagion in the emerging world, with possibly implications for global financial markets.”

On Friday, Barclays cut its outlook for all major EM economies, with the exception of India, which it upgraded, and Indonesia, which it left unchanged. It forecast that EMs as a whole would decelerate to post average annual gross domestic product growth from 4.8% of 4.5% in 2015, with three of the four “BRIC” economies—Brazil, Russia and China—seen slowing. “This contrasts with the notable acceleration in advanced economies’ growth and implies the narrowest EM-DM (development market) growth gap since the early 2000s,” said analysts led by Christian Keller in Barclays Research’s quarterly EM report. On Friday, Capital Economics said that the global economy was “unlikely” to return to pre-crisis rates of growth without a revival in the BRICs.

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New oil order.

Oil Is Preparing For A New World Order (CNBC)

A new oil order has arrived and it will be marked by greater uncertainty and generally lower oil prices as the oil industry frantically re-prices as costs decline and gains in efficiency are made, strategists say. As investors continue to weigh up the fallout of a rout in oil prices since June last year, Goldman Sachs has warned that the “level of uncertainty cannot be underestimated as these dynamics spill over into the price of commodities, currencies and consumption baskets around the world, with far-reaching market and economic implications.” And amid heightened uncertainty, oil prices can swing sharply in either direction as developments this week have shown with a crisis in Yemen triggering a spike in crude.

“Oil has been sideways for about four months, in a $15 range; it hits a bottom, bounces up, hits the top comes back down,” Sean Corrigan, founder of True Sinews Consultancy told CNBC Europe’s “Squawk Box” Friday.”We’re all waiting for the next break and trying to find the signal that will push us from this range,” he added. The Goldman Sachs note, published late last week, adds that while it believes “the new equilibrium price for oil is $65 a barrel for WTI and $70 a barrel for Brent, the risks are skewed to the downside.” Those forecasts would imply gains of at least 21% for Brent crude from current levels around $58 and a rise of about 30% for WTI, which is trading at around $50. Still, and more significantly, prices would remain more than 30% below peak levels of above $100 a barrel on both oil contracts seen last year before concerns about a supply glut helped drive prices down.

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Nobody does.

Japan Inc. Doesn’t Believe In Abenomics (CNBC)

Tokyo stock prices are at fifteen-year highs, but Japanese corporations remain pessimistic about the country’s growth potential as Abenomics has fallen short of expectations, analysts say. “The demographics are negative – Japan is a super-aging society, not a growth market,” Fujitsu Research Institute senior economist Martin Schulz told CNBC by phone on Friday. “Japanese corporations have adapted and their strategy is to look for growth overseas.” More than two years after Prime Minister Shinzo Abe returned to power, a sharply weaker yen has boosted profits at blue chip exporters, spurring a sharp stock rally. But a recent government survey confirmed that Japan Inc remains pessimistic about the outlook for economic growth.

More companies plan to hold back from new capital investments, this year’s survey showed; the proportion planning new investments over the next three years was down 1.9 percentage points on-year, at 64.5%. “Companies still do not believe in Abenomics,” said Mizuho Research Institute chief economist Hajime Takata in a note published on Friday. “After fifteen years of deflation, corporate Japan’s mindset remains conservative,” he added by email. Still, while the broader economy is struggling to recover from the three percentage point consumption tax increase in April 2014 that tipped the economy into a technical recession, many of Japan’s blue chip corporations are thriving on a weaker yen.

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Public assets for pennies on the dollar to feudal lords.

Petrobras Said to Start Asset Sale With Fields in Argentina (Bloomberg)

Petroleo Brasileiro SA, the state-controlled company at the center of Brazil’s biggest corruption scandal, agreed to sell oil and natural gas fields in southern Argentina to billionaire Eduardo Eurnekian’s Corporacion America, two people with knowledge of the deal said. The sale, the first divestment since a management overhaul at Petrobras last month, was approved by the Rio de Janeiro-based company this month, the people said. The fields, in the Patagonian province of Santa Cruz, are valued at about $90 million with proven reserves that are 75% gas, one of the people said.

The sale process in Argentina began in September and was delayed as Petrobras became ensnared in a corruption scandal that led to the resignation of Maria das Gracas Silva Foster as chief executive officer in February. New CEO Aldemir Bendine is leading a review of investment plans and corporate governance and is seeking to increase asset sales to raise funds as the company is locked out of international credit markets. Eurnekian is looking to expand his oil and gas unit after purchasing a majority stake in Cia General de Combustibles in 2013. The 82-year-old businessmen runs the holding with several nephews encompassing industries from airports to construction.

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Really? “Expanding the economy, especially in Europe, hasn’t been that easy?”

Reinhart and Rogoff: Cut Government Debt Creatively (Bloomberg)

It’s not just companies like Google and Facebook that need to tap creativity to thrive. Governments laboring under sovereign debt burdens should do so too, suggests a new Harvard Kennedy School research paper by Carmen M. Reinhart, Vincent Reinhart and Kenneth Rogoff. During the financial crisis, governments piled up so much debt that they’re now forced to think outside the box about how to get rid of the burden. Really, they should have considered the broader swath of options all along, their research suggests. Some cookie-cutter solutions include boosting growth, running primary budget surpluses and selling state-owned assets. Expanding the economy, especially in Europe, hasn’t been that easy.

On average, the growth of real GDP at very high levels of debt is below that at low levels of debt, the economists wrote. And selling off efficient utilities may bring governments some short-term relief while depriving them of revenues they could have expected over the long term. So how about more ingenious ways to fight debt? In the past these included taxing the wealthy, boosting inflation and even defaulting on debt obligations, the three economists wrote. “Advanced countries have relied far more on such approaches than many observers choose to remember,” the economists wrote, examining 70 episodes across 22 advanced economies since 1800.

Big debt hurts capital markets and economic growth and deprives the government of the crucial weapon of taking up more credit to respond to unexpected catastrophes. That’s why officials scramble to cut the burden when they can and how they can. [..] “Governments are the last line of resort in many situations, and it is important to maintain the option value of being able to issue sudden large bursts of debt in response to catastrophes (war, financial or otherwise),” Reinhart, Reinhart and Rogoff wrote in the latest paper. “The message from dozens of episodes of significant debt reductions in advanced economies since the Napoleonic War is that everything is on the table.”

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“The big banks have issued a threat, and it’s up to us to fight back.”

Elizabeth Warren Launches Counteroffensive Against Citigroup (Bloomberg)

Just hours after Reuters reported that Citigroup and other banks are debating whether to halt some of their own donations, Senator Elizabeth Warren is calling on her followers to make up the difference. Citing “concerns that Senate Democrats could give Warren and lawmakers who share her views more power,” Citigroup has already decided for now to withhold donations to the Democratic Senatorial Campaign Committee, sources inside the bank told Reuters. The maximum that bank could donate under campaign finance rules is $15,000 per year. “Citi’s Political Action Committee contributes to candidates and parties across the political spectrum that share our desire for pro-business policies that promote economic growth,” Molly Millerwise Meiners, Citi’s Director of Corporate Communications said in a statement.

Citigroup confirmed that it has not donated to the DSCC yet. “The big banks have issued a threat, and it’s up to us to fight back.” As for other banks, Goldman Sachs has already sent its 2015 donations, while Bank of America and JP Morgan are also considering their next steps. In December, Warren gave a long speech criticizing the close ties between Citigroup and Congress. “There’s a lot of talk coming from Citigroup about how the Dodd-Frank Act isn’t perfect,” Warren said. “So let me say this to anyone who is listening at Citi: I agree with you. Dodd-Frank isn’t perfect. It should have broken you into pieces.” The move is more symbolic than financial, and has already spurred a counteroffensive from Warren.

In a fundraising request (titled “Wall Street isn’t happy with us,”) Warren accused the banks of wanting Washington to puts its needs before Americans and “get a little public fanny-kissing for their money too.” The pitch argues that 2016 Democratic Senate candidates could lose $30,000 each, and asks for for help raising matching funds. “The big banks have issued a threat, and it’s up to us to fight back,” Warren wrote. If Citigroup, JP Morgan, Goldman Sachs, and Bank of America wanted to give Warren—a skilled fundraiser—a chance to bolster her image as an anti-Wall Street progressive hero and raise a few thousands, they succeeded. What this won’t do is make it easier for Democrats to soften their tone toward Wall Street.

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All honest people, mind you. Upstanding.

Monsanto Lobbyist Calls Roundup Safe for Humans, But Won’t Drink It (RawStory)

A controversial lobbyist who claimed that the chemical in Monsanto’s Roundup weed killer was safe for humans refused to drink his own words when a French television journalist offered him a glass. In a preview of an upcoming documentary on French TV, Dr. Patrick Moore tells a Canal+ interviewer that glyphosate, the active ingredient in Roundup herbicide, was not increasing the rate of cancer in Argentina.

“You can drink a whole quart of it and it won’t hurt you,” Moore insists.
“You want to drink some?” the interviewer asks. “We have some here.”
“I’d be happy to, actually,” Moore replies, adding, “Not really. But I know it wouldn’t hurt me.”
“If you say so, I have some,” the interviewer presses.
“I’m not stupid,” Moore declares.
“So, it’s dangerous?” the interviewer concludes.

But Moore claims that Roundup is so safe that “people try to commit suicide” by drinking it, and they “fail regularly.”
“Tell the truth, it’s dangerous,” the interviewer says.
“It’s not dangerous to humans,” Moore remarks. “No, it’s not.”
“So, are you ready to drink one glass?” the interviewer continues to press.
“No, I’m not an idiot,” Moore says defiantly. “Interview me about golden rice, that’s what I’m talking about.”

At that point, Moore declares that the “interview is finished.”
“That’s a good way to solve things,” the interviewer quips.
“Jerk!” Moore grumbles as he storms off the set.

According to EcoWatch, Moore was an early member of Greenpeace before becoming a consultant for “the polluting companies that Greenpeace works to change: Big Oil, pesticides and GMO agribusiness, forestry, nuclear power … anyone who puts up the money for truth-benders who appear to carry scientific and environmental authority.”

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Mar 152015
 
 March 15, 2015  Posted by at 9:01 am Finance Tagged with: , , , , , , , , ,  


NPC Fred Haas, Rhode Island Avenue NE, Washington, DC 1924

Welcome To A Fed Without Patience (MarketWatch)
US Debt To Hit Legal Limit Again On Monday (MarketWatch)
BP CEO On Oil: ‘It’s Going To Be Very Painful’ (CNBC)
Oil Futures Suffer Nearly 10% Weekly Plunge (MarketWatch)
‘Most Significant Break Between Germany And US Since WWII’ (RT)
Poroshenko: 11 EU States Struck Deal With Ukraine To Deliver Weapons (RT)
Ukraine Says Creditors Face Principal Losses on Dollar Bonds (Bloomberg)
The #ALBA Dawn Of A New Europe (Beppe Grillo)
Presenting An Agenda For Europe, Ambrosetti, Lake Como, 14-3-2015 (Varoufakis)
Greece Has Plenty Of Options. It’s Just That None Are Good (Satyajit Das)
Juncker, Tsipras Agree On Creating Greek Task Force For Reforms (Kathimerini)
Athens Ready To Delay Some Election Pledges, Says Varoufakis (Reuters)
Greece’s Varoufakis Says QE To Fuel Unsustainable Equity Rally (Reuters)
The Greek Election: Why I Went Home To Vote For The First Time (Alex Andreou)
The Power of Le Pen (BBC)
UK Support For China-Backed Asia Bank Prompts US Concern (BBC)
Russia In A Spin As Its Putin Goes Missing (FT)
Is EU Army Intended To Reduce US Influence In Europe? (RT)
Steven Pinker Is Wrong About Violence And War (John Gray)

“We’re in the ninth inning of a zero-rate environment.”

Welcome To A Fed Without Patience (MarketWatch)

Get ready for a central bank without patience. The Federal Reserve on Wednesday is widely expected to remove its pledge to be “patient” in raising short-term interest rates, giving them the flexibility to move as soon as June. This may be the most anticipated Fed meeting in some time as it fundamentally changes policy to a meeting-by-meeting calculation. The Fed has not hiked rates since 2006, and it has kept rates at zero since December 2008 . The Fed will release its policy statement on Wednesday at 2 p.m. Eastern along with its latest economic forecast and the projected interest rate path of the 17 officials. A press conference with Fed Chairwoman Janet Yellen will follow at 2:30 p.m.

Fed watchers said Yellen telegraphed the Fed policy committee’s intentions in her Congressional testimony last month. Read Yellen removes another obstacle to an eventual rate hike. “I would be shocked if ‘patient’ is not removed,” said John Ryding, chief economist at RDQ Economics. “Patient” meant the Fed would not raise rates for two meetings. With formal policy deliberations scheduled for late April and June, the pledge needed to go if a June move was to be on the table. “Enough Fed officials have said they want to have the debate about hiking rates at the June meeting, so it has to come out,” Ryding said. Avery Shenfeld, chief economist at CIBC World Markets, agreed patient would be dropped and said Yellen would use her press conference to stress that the central bank has not made up its mind about a June move.

The Fed chairwoman will stress the Fed is data dependent and a decision will come on a meeting-by-meeting basis. She will highlight some of the mixed messages the economy has been sending, such as the strength in employment but the relatively soft pace of GDP growth. The goal is to keep markets from overreacting and tightening financial conditions, he said. Q1 GDP seems likely to decelerate to a 1.5% annual rate from a 2.2% rate in the final three months of 2014, he said. But growth should rebound “north of 4% “in the second quarter, which should boost worker paychecks and give the Fed a green light to hike rates, Shenfeld said. Ryding agreed: “We’re in the ninth inning of a zero-rate environment.”

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“The creditworthiness of the United States is not a bargaining chip..”

US Debt To Hit Legal Limit Again On Monday (MarketWatch)

The U.S. government is about to run into the legal limit on how much it can borrow, but don’t expect a whole lot of fireworks again in Congress over what’s become a frequently quarrelsome issue. The U.S. debt limit goes into effect on Monday after a one-year suspension, with a ceiling of around $18 trillion. Treasury Secretary Jack Lew on Friday urged John Boehner, the Republican speaker of the House, to raise the debt limit as quickly as possible and not to allow the issue to become a political football. “The creditworthiness of the United States is not a bargaining chip, and I again urge Congress to address this matter without controversy or brinksmanship,” Lew wrote in a second letter to Boehner in two weeks.

Americans and foreign investors need not worry, though. The U.S. Treasury has the means to keep funding the government until October through the use of so-called extraordinary measures, the Congressional Budget Office estimates. And the Bipartisan Policy Center in a new report suggests a breach in the debt limit could be put off potentially until the end of the December. What’s more, the leader of the U.S. Senate, Republican Mitch McConnell of Kentucky, insists he won’t let the government default or shut down amid negotiations with the White House on raising the debt limit.

That’s good news for the nation’s bondholders or anyone dependent on the feds for support, such as retirees receiving Social Security or other benefits, because it means the government will continue to pay its bills on time. The modern-day debt limit, which has been in place since World War II, caps how much money the government can borrow. The limit has been raised about a hundred times since the 1950s, but it’s become the source of increasingly hostile political tug-of-wars since the mid-1990s.

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“We’re back into the normal world of volatility for oil and gas prices..”

BP CEO On Oil: ‘It’s Going To Be Very Painful’ (CNBC)

The dramatic drop in oil prices and the transfer of wealth to consumers is going to be very painful for the oil and gas industry, Bob Dudley, CEO of BP, told CNBC Saturday. Speaking at Egypt’s Economic Development Conference in the resort town of Sharm el-Sheikh, Dudley said that oil prices – which have fallen around 60% since last June – had been a “huge shock” for companies like his. “We’re back into the normal world of volatility for oil and gas prices,” he said on a CNBC-hosted panel. “Anything that happens that fast can have unintended consequences. BP was the first European major to sound the alarm on tumbling oil prices – on December 10, it warned that it was implementing a cost-cutting program as a result.

In December, oil majors in Europe also received a stark warning from credit ratings agency S&P, which placed BP, Total and Shell on a negative watch. It means the three firms are more likely to have their debt rating downgraded over the next three months. Speaking at the investment event in Egypt, Dudley added that BP had operated continuously in the country for the last 25 years. His comments come after the oil giant signed an deal to develop gas resources in Egypt, with investment of around $12 billion from BP and its partners. The company said the project underlined its commitment to the Egyptian market and was a vote of confidence in the country’s investment climate and economic potential.

Three days later, BP also announced a gas discovery in the East Nile Delta which it said was expected to be the deepest well ever drilled in Egypt. “I think the time is absolutely right,” Dudley said about investing in the Middle Eastern nation. “(Egypt) really is the lynchpin…it’s the largest market in the Middle East.” On Saturday, Dudley said the investments would increase in gas production in the country by 25 to 30%.

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Anything over zero is a godsend by now.

Oil Futures Suffer Nearly 10% Weekly Plunge (MarketWatch)

Oil futures fell sharply on Friday, to tally a weekly decline of nearly 10%, as a monthly report from the International Energy Agency raised concerns that the glut of crude supplies and tightening storage capacity in the U.S. may cause prices to weaken further. Crude-oil for delivery in April fell $2.21, or 4.7%, to settle at $44.84 a barrel on the New York Mercantile Exchange. Prices ended the week with a loss of 9.6%. April Brent crude on London’s ICE Futures exchange shed $2.41, or 4.2%, to settle at $54.67 a barrel, with the front-month contract down 8.5% for the week. After trading on Nymex ended Friday, the U.S. Energy Department said it plans to buy up to 5 million barrels of crude for the Strategic Petroleum Reserve. Prices in electronic trading edged backed above $45.

In its report early Friday, the IEA said any appearance of stability in oil is tenuous. “Behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly,” the report said. Ballooning inventories combined with the nation’s shrinking oil storage could drag prices lower, it said. The comments from IEA come as oil has been trading in a relatively narrow band over the course of the past few weeks, on the heels of steep declines in weekly U.S. rig counts. Baker Hughes on Friday reported that the number of U.S. rigs actively drilling for oil as of March 13 fell 56 rigs from last week to 866.

“Oil rig counts fell for a historic 14th week in a row,” said Phil Flynn, senior market analyst at Price Futures Group. “While at this point the rig count drop has not impacted output, at this rate it soon will.” Flynn also pointed out that the IEA report wasn’t all that bearish as it raised its demand estimate. The IEA forecast average global oil demand of 93.5 million barrels a day for 2015.

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Sounds good.

‘Most Significant Break Between Germany And US Since WWII’ (RT)

People in the US, like ex-CIA chief Michael Hayden, are trying to put Berlin back in place dissatisfied that the Germans are acting like adults but not like subservient servants from of the “five eyes” alliance, says Ray McGovern, a former CIA officer. Speaking at a Washington-based think tank, the New America Foundation, on Tuesday former NSA and CIA director, General Michael Hayden, said that terror attacks such as the Charlie Hebdo shooting are inevitable and similar to Ebola. He confessed that the NSA would never agree to stop spying on Germany whatever the political fallout.

RT: Do you really believe that nothing can be done to avoid terror attacks like Charlie Hebdo, given the West’s massive intelligence networks?
Ray McGovern: It does make everything that General Hayden implemented at the NSA worthless. The famous pile, from which you are supposed the extract a little nugget on terrorism, it hasn’t worked. Hayden has his nose out of joint. He is neocon who is very dissatisfied these days and particularly with the performance of German Chancellor Angela Merkel because she is not acting obediently anymore. She actually sees Germany interests first, and has prevented a worsening of the situation in Ukraine. General Hayden doesn’t like that. He doesn’t like Angela Merkel being an upstart and saying that she’s displeased at having her handy, her little cell phone monitored. Well, “she should know her place.” So Hayden here is not the most diplomatic person in the world. He is trying to tell Merkel and everyone else who is outside the [Five Eyes intelligence alliance] – the UK, the US, Canada, Australia, and New Zealand – that they are secondary citizens and they will remain so as long as they don’t spring to obedience the way the other four do.

RT: The former NSA director suggested that relations between Germany and the US might not be as rosy as generally believed. Is that true? How do you see relations between Berlin and Washington evolving from here?
RM: The most significant break since WWII has just happened. Angela Merkel came to Washington and she said“selling offensive arms and giving them to the Ukrainians is a bad idea, we oppose it.” And the President [Barack Obama] said: “Oh, we’re still trying to make our decision about that.” She went to Russia and worked out a deal with Putin and Poroshenko saying: “Look, we need a ceasefire,” and so far the good news is that ceasefire is holding.

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But then we still have the war types and lying basterds.

Poroshenko: 11 EU States Struck Deal With Ukraine To Deliver Weapons (RT)

Ukraine has concluded deals with eleven countries of the EU on delivery of weapons, including lethal, President Petro Poroshenko told the country’s TV. He, however, didn’t mention which countries will provide ‘defensive aid’ to Kiev. “The Head of State has informed that Ukraine had contracts with a series of the EU countries on the supply of armament, inter alia, lethal one. He has reminded that official embargo of the EU on the supply of weapons to Ukraine had been abolished,” said a statement on Poroshenko’s official website, citing his interview to the TV channel “1+1”.

According to Poroshenko’s statement, he is confident that EU and USA will support Ukraine with weapons if needed. “If there is a new round of aggression against Ukraine, I can surely say that we will immediately receive both lethal weaponry and new wave of sanctions against the aggressor. We will act firmly and in a coordinated manner.” Ukraine won’t reduce its defense capacity, said Poroshenko, adding that now “intensive combat training is being held” in the country. “We are mining the most dangerous tank directions and building engineering structures under the new plan and projects.”

The statement said that the decision of the US President Barack Obama “who decided to supply Kiev with defensive weaponry” is crucial. “This armament will increase preciseness and efficiency of the Ukrainian weapons. In addition, thermal imagers and radars that detect motion help counteract reconnaissance and subversive groups of the opponent.” The Ukrainian leader said the situation in Donetsk and Lugansk Regions is being gradually deescalated, adding that the Ukrainian army hasn’t suffered casualties for several days.

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Good model for Greece?!

Ukraine Says Creditors Face Principal Losses on Dollar Bonds (Bloomberg)

Ukraine’s bond restructuring may include a reduction in principal, as well as an extension of maturities and lower coupons, Finance Minister Natalie Jaresko said in her first talks with creditors about easing the country’s debt load. The nation of more than 40 million, which is struggling to contain a separatist war that has killed more than 6,000 people in its easternmost regions, will try to reorganize debt from both the government and publicly run entities by June, Jaresko said in a conference call on Friday. She called on Russia, which has lent Ukraine $3 billion in a bond maturing this year, to join the talks. The price of Ukraine’s dollar debt fell. The operation “will probably involve the combination of a maturity extension, a coupon reduction and a principal reduction,” Jaresko said. “The proportion of each of these elements will be discussed with creditors.”

Ukraine won approval this week for $17.5 billion of IMF aid, bolstering reserves that have fallen to a more-than-decade low. The loan is part of a $40 billion package to rescue the nation’s economy as it buckles under a plunging hryvnia currency and the war, which has devastated its industrial heartland. The best investors can try is to limit the principal reduction, said Richard Segal, the head of emerging-market credit strategy at Jefferies in London. Avoiding losses on the face value of the debt “seems to be mathematically impossible,” Michael Ganske, who helps oversee $7 billion in emerging-market assets as a money manager at Rogge Global Partners in London, said by e-mail.

Ukraine’s dollar bonds extended losses after Jaresko’s comments. The dollar notes due in July 2017 dropped 1.5 cents to 44.3 on the dollar at 8 p.m. in Kiev, increasing the yield to 53.48%. The securities fell as low as 41.35 cents last month, before rallying in the run-up to the IMF’s approval of its second Ukraine loan in 11 months this week. “Unfortunately, they have to insist on debt reduction,” Ronald Schneider, who helps manage about €800 million at Raiffeisen in Vienna, including Ukrainian bonds, said by e-mail on Friday. “Negotiations with creditors would be easier without a haircut” reducing the face value of the securities, he said.

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Beppe: “Something that can ensure no one is left behind.”

The #ALBA Dawn Of A New Europe (Beppe Grillo)

“They are telling us that the European economy is in recovery because the reforms are working. And the government has been celebrating the 0.1% growth in GDP in the first quarter of 2015 as a trophy. The reality is, however, that:
– since 2010, our GDP has lost 10 points;
– since the beginning of the crisis about 100 thousand companies have gone bust with the loss of more than a million jobs, and out of every hundred young people, fifty are without a job.

And (as we hope others will do), we can examine the state of our country in terms of the index called “Benessere Equo e Sostenibile” {Equitable and Sustainable Well-being} instead of using the Gross Domestic Product, and we become aware of a drama that is ever more ferocious. In this tragic recessionary vortex, the countries that have suffered the greatest setback are those in Southern Europe: as well as Italy, there’s Greece, Spain and Portugal. The economists all over the world and a few German hacks have called us “PIGS“. After depriving us of our future, they have insulted us in the media. Today we are at a crossroads.. The first round lost by Alexis Tsipras against the Troika, demonstrates that for Berlin, Brussels and Frankfurt there is no alternative to “austerity Europe”. This is confirmed by Renzi’s “Jobs Act” and the growing amount of trickery he’s coming up with.

It’ll be difficult to get out of this trap, but it is possible if we manage to build an alliance among the Mediterranean countries that can break the logic of German mercantilism. Italy, Greece, Spain, Portugal and France – together – represent the third biggest economy in the world. We could create a “cartel” and get greater contractual power with Berlin. Someone has already done it before us: the countries of ALBA, formed in 2001 as an alternative to The Free Trade Area of the Americas (FTAA) that was what the United States wanted. The political principles and the concept of social cooperation that the countries of Venezuela, Bolivia, Nicaragua, Ecuador and Cuba have signed up to, can be our source of inspiration to fight the domineering and neo-liberal process at the basis of the endless crisis in the West. They’ve had the FTAA, and soon, we’ll have TTIP.

Today there are movements and parties not delegitimized by years of power and of compromising with the corporate-financial lobbies that can, or must, start to think of a new supportive Community that can reject the diktats of the Troika. The dawn of a new Europe is close at hand: a great Euro-Mediterranean alliance of sovereign States that can give back freedom, civilisation, sovereignty and democracy to our own people. Something that can ensure no one is left behind.

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Yanis’ first blog since Jan 25 is this long speech at the Ambrosetti forum March 14.

Presenting An Agenda For Europe, Ambrosetti, Lake Como, 14-3-2015 (Varoufakis)

Dear All, Ministerial duties have impeded my blogging of late. I am now breaking the silence since I have just given a talk that combines my previous work with my current endeavours. Here is the text of the talk I gave this morning at the Ambrosetti Conference on the theme of ‘An Agenda for Europe’. Long time readers will recognise the main theme – evidence of a certain continuity… Back in March 1971, as Europe was preparing itself for the Nixon Shock and beginning to plan for a European monetary union closer to the Gold Standard than to the Bretton Woods system that was unravelling, Cambridge economist Nicholas Kaldor wrote the following lines in an article published in The New Statesman:

“… [I]t is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”. For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it.”

Unfortunately, Kaldor’s prescient warning was ignored and replaced by a touching optimism that monetary union will forge stronger links between Europe’s nations and, following some large financial sector crisis (like that of 200), European leaders will be forced by circumstances to deliver the political union that was always necessary. And so, at a time when America was recycling other peoples’ surpluses at a global scale, a Gold Standard of sorts was created in the midst of Europe, causing a wall of capital to flow into Wall Street fuelling financialisation and large-scale private money minting worldwide – with French and German rushing in to participate enthusiastically.

Within the Eurozone the illusion of riskless risk was reinforced by the fantasy that (in a union built on the Principle of Perfectly Separable Public Debts and Separate Banking Systems,) lending to a Greek entity was more or less equally risky as lending to a Bavarian one. As a result, net trade surpluses gave rise to net capital flows into the deficit nations, causing unsustainable bubbles in both the private and the public sectors. Our Eurozone growth model, ladies and gentlemen, relied heavily on private, bank-driven, vendor-financing for the net exports of the surplus nations. It was as if, in constructing the Eurozone, we removed all shock absorbers while ensuring that the shock, when it came, would be massive.

And when that massive shock came, in the form of the Great Eurozone Crisis in 2010, following the global Crash of 2008, with my country, Greece, proving the canary in the mine, Europe decided to remain in denial of the nature of the crisis, insisting on dealing with the insolvencies caused by the bursting of bubbles (first in the banking sector and then in the realm of public debt) as if they were mere liquidity problems, lending to the deeply indebted nations through SPVs (special purpose vehicles) that resembled stacked CDOs (collateralized debt obligations). The end result was a transfer of potential losses from the banks’ books onto Europe’s taxpayers in a manner that placed most of the burden of adjustment on the crisis countries that could least bear it.

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But that doesn’t mean they‘re all equally bad.

Greece Has Plenty Of Options. It’s Just That None Are Good (Satyajit Das)

The choices for Greece now are clear. In the first option, the European Union makes allowances: maturities for loans, especially short-term ones, are extended; there are concessions on interest rates; debt may be replaced with securities without maturity and a coupon linked to growth – Keynes-style “Bisque bonds”; the European Central Bank continues to support the liquidity needs of the Greek banks; and the hated Troika is renamed, to remove the odious association with the past. Despite the reduction in the value of the debt outstanding, the EU and lenders avoid a politically difficult explicit debt writedown. Syriza claims to have fulfilled its mandate to stand up to the EU and Germany, and reclaim Hellenic sovereignty and pride. In reality, little changes. Under this scenario, Greece and the EU are back at the negotiating table within six to 12 months, confronting the same issues.

In the second option, Greece defaults on its debt but stays in the euro. (It is not clear how a nation in default can remain within the euro other than through the fortuitous absence of an ejection mechanism.) Greek banks collapse if the ECB decides to withdraw funding. Capital flight accelerates, requiring capital controls. The Greek Government is left with no obvious source of funding, other than a parallel currency or IOUs, as used during some government shutdowns in the US. Greece’s competitive position is unchanged as it purports to use the euro. The EU and lenders incur substantial losses on their loans.

In the third option, Greece defaults and leaves the euro, bringing in new drachmas. There is short-term chaos. Activity in Greece collapses. The EU and lenders face the same problem as in the second option. In addition, the euro is destabilised. The third option allows Greece to regain control of its currency and interest rates. Sharp devaluation of the new drachma improves competitiveness, for example in tourism. The ability of the central bank to create and control money supply helps restore liquidity to its banks and provides a mechanism for financing the Government.

A cheap new drachma, if appropriately managed, may reverse capital flight, as the threat of a loss of purchasing power is reduced. A devalued currency may also help attract inflows of funds looking for bargains. In time, Greece regains access to capital markets as Russia did after its 1998 default. Greece regains economic sovereignty but at the cost of reduced living standards as import prices sky-rocket and international purchasing power is diminished. But after the initial dislocation, a strong recovery may ensue.

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“Juncker, however, insisted that there was no scope for Greece and its eurozone partners failing to find a way to progress.”

Juncker, Tsipras Agree On Creating Greek Task Force For Reforms (Kathimerini)

Greece was warned on Friday that it has to make swifter progress in agreeing reforms with its lenders, as European Commission President Jean-Claude Juncker and Prime Minister Alexis Tsipras agreed in Brussels on the creation of a Greek task force to work with EU experts on structural improvements. “I don’t think we have made sufficient progress,” Juncker told reporters as he welcomed Tsipras to the Commission on Friday, echoing Eurogroup chief Jeroen Dijsselbloem’s comments that the two weeks following the February 20 agreement on a four-month bailout extensions between Greece and its creditors had been “wasted.” Juncker, however, insisted that there was no scope for Greece and its eurozone partners failing to find a way to progress.

“I’m totally excluding a failure… This is not a time for division. This is the time for coming together,” he said. His comments came in the wake of German Finance Minister Wolfgang Schaeuble refusing to rule out the possibility that Greece would slip out of the single currency. “As the responsibility, the possibility to decide what happens lies only with Greece and because we don’t exactly know what those in charge in Greece are doing, we can’t rule it out,” he told an Austrian broadcaster. In an interview with Germany’s Der Spiegel magazine due to be published on Saturday, European Economic and Monetary Affairs Commissioner Pierre Moscovici strikes a similar tone to Juncker, insisting that the option of a Greek exit should not be considered. “All of us in Europe probably agree that a Grexit would be a catastrophe – for the Greek economy, but also for the eurozone as a whole,” he said.

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Mind you: Delay. Not give up.

Athens Ready To Delay Some Election Pledges, Says Varoufakis (Reuters)

Greek Finance Minister Yanis Varoufakis said on Friday he was confident Athens could reach a deal by April 20 with its international creditors on the reforms it must implement to unblock further aid. Speaking to reporters on the sidelines of a business conference in northern Italy, Varoufakis also said Greece’s new leftist government was prepared to delay some of its promised anti-austerity measures in an effort to win EU backing. “We can complete the review of the 20th of February agreement… We have a commitment, all of us, to reach an agreement by the 20th of April,” Varoufakis said. The government was elected in January on a pledge to roll back austerity and renegotiate the terms of a €240 billion international bailout, but it has faced fierce resistance from EU partners who are unwilling to offer Athens major compromises.

Although the partners agreed on Feb. 20 to a four-month extension to the bailout programme, the accord did not give Greece access to funds pledged to it from the euro zone and the International Monetary Fund. To obtain that cash, Athens needs to agree on a revised package of measures. After long delays, the discussions only kicked off in earnest this week in Brussels. Varoufakis indicated on Friday a willingness to compromise. “If this means that, for the next few months that we have negotiations, we suspend or we delay the implementation of our (election) promises, we should do precisely that in the context to build trust with our partners…,” he said.

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That’s not its worst consequence.

Greece’s Varoufakis Says QE To Fuel Unsustainable Equity Rally (Reuters)

The ECB’s bond purchases will create an unsustainable stock market rally and are unlikely to boost euro zone investments, Greek Finance Minister Yanis Varoufakis warned on Saturday. The ECB began a programme of buying sovereign bonds, or quantitative easing, on Monday with a view to supporting growth and lifting eurozone inflation from below zero up towards its target of just under 2%. Bond yields in the currency bloc have collapsed, but record low interest rates so far have not spurred investments that would support growth in recession-hit countries like Italy or Spain.

“QE is all around us and optimism is in the air,” Varoufakis told a business audience in Italy. “At the risk to sound the party pooper … I find it hard to understand how the broadening of the monetary base in our fragmented and fragmenting monetary union will transform itself into a substantial increase in productive investments. “The result of this is going to be an equity run boost that will prove unsustainable,” he said.

Varoufakis reiterated that the new Greek government was ready to time its promised anti-austerity measures in a way that helped negotiations with European Union partners over the disbursement of financial aid. “We never said we’re going to renege on any promises, we said that our promises concern a four-year parliamentary term,” he told reporters on the sidelines of the conference. “They will be spaced out in an optimal way, in a way that is in tune with our bargaining stance in Europe and also with the fiscal position of the Greek state,” he said.

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“Most understand that, whatever one thinks of the outcomes, there would not have been any negotiation at all but for Syriza.”

The Greek Election: Why I Went Home To Vote For The First Time (Alex Andreou)

It has become clear that most of the commentariat no longer possesses even the basic language to engage with politics that is not free market-based. It looks at a government with clear social intentions, but flexible methods, and it cannot make sense of it. Politicians who, after an election, appear to want to achieve precisely what they promised before it, just don’t compute. Even in its first months, Syriza must be discredited, it seems, at any cost. Recent polls, and the following interviews, reveal Greek voters to be infinitely more sophisticated. Most understand that this is merely the start of a necessary conversation about austerity and, more generally, capitalism. Many hope that Spain, Italy and even the UK will join it in time.

Most understand that, whatever one thinks of the outcomes, there would not have been any negotiation at all but for Syriza. After four decades of being ruled by corruption and nepotism, expectations are low. Everything is a bonus. It feels utterly refreshing to have someone fighting your corner. After almost two months of dominating international news, Greece will no doubt disappear again into relative obscurity. This is as it should be. A country whose economy accounts for less than 0.3% of the world’s GDP should not be the focus of such intense attention.

That it has been consistently presented as the fuse that, once lit, will set the globe on the path to inevitable decline is revealing. It says that the systemic interconnectedness that resulted in the global financial crisis is still very much present. It reveals a fear of anyone who does things differently. It speaks volumes about this being a political, as well as an economic, crisis. Most of all, such scrutiny makes it impossible for an inexperienced government to get on with the practical business of running a country. The absence of this obsessive examination will be welcome. Wouldn’t it be something if our collective folly, this experiment at fair and honest government, actually made a difference?

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“She talks about this as “regaining our economic freedom” and the “exercise of economic patriotism.”

The Power of Le Pen (BBC)

Marine le Pen. Arguably, she is the most important opposition politician in Europe, who has the potential to affect the way of life of all of us. How so? Well her party is France’s most popular. It topped the polls in last years European elections and is expected to do so again in the first round of local elections on March 22. Also France’s business and political establishment, with whom I have spent a good deal of time nattering in recent weeks, takes it for granted that she will go through to the second round of the French presidential elections in 2017 – and is not remotely confident that a centre-ground candidate of left or right will be able to rally sufficient moderate support to beat her. So she matters, which is why I interviewed her twice for my film, once before and once after the Charlie Hebdo atrocity.

One important question is whether her repudiation of her party’s racist and anti-Semitic past is more than cosmetic (she insists it is – but many argue the party’s criticism of Islam is insidious). Outside France probably what may matter most about her is that she explicitly blames the EU and eurozone for all France’s economic woes. She is in favour of French withdrawal from both, so that she can restrict immigration, impose customs duties on imports, nationalise big businesses when useful, and re-instate the French Franc. She talks about this as “regaining our economic freedom” and the “exercise of economic patriotism”. When I put it to her that her protectionist policies were chillingly similar to those that reinforced the Great Depression of the 1930s, she said she totally disagreed and that the relevant crisis was the “eurozone that has been the black hole of world growth for 12 years”.

Whether or not you think reinstating economic borders is the road to penury, it is very difficult to see how the eurozone could survive a French exit – and the economic shock of even rising fears of French withdrawal would seriously set back a European recovery (the cost of finance would rise sharply, because of the fear that converting strong euros into weak francs would generate huge losses on French assets). None of which is to say there is a need to panic about this now. But it does show that unless and until Europe’s establishment succeeds in demonstrating that the EU and the eurozone is serving the interests of most people, which they are conspicuously failing to do at the moment, Europe’s way of life will be under sustained and serious threat.

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“..the US sees the Chinese effort as a ploy to dilute US control of the banking system..”

UK Support For China-Backed Asia Bank Prompts US Concern (BBC)

The US has expressed concern over the UK’s bid to become a founding member of a Chinese-backed development bank. The UK is the first big Western economy to apply for membership of the Asian Infrastructure Investment Bank (AIIB). The US has raised questions over the bank’s commitment to international standards on governance. “There will be times when we take a different approach,” a spokesperson for Prime Minister David Cameron said about the rare rebuke from the US. The AIIB, which was created in October by 21 countries, led by China, will fund Asian energy, transport and infrastructure projects.

The UK insisted it would demand the bank adhere to strict banking and oversight procedures. “We think that it’s in the UK’s national interest,” said Mr Cameron’s spokesperson. Pippa Malmgren, a former economic advisor to US President George W Bush, told the BBC that the public chastisement from the US indicates the move might have come as a surprise. “It’s not normal for the United States to be publically scolding the British,” she said, adding that the US’s focus on domestic affairs at the moment could have led to the oversight. However, Mr Cameron’s spokesperon said UK Chancellor George Osborne did discuss the measure with his US counterpart before announcing the move.

In a statement announcing the UK’s intention to join the bank, Mr Osborne said that joining the AIIB at the founding stage would create “an unrivalled opportunity for the UK and Asia to invest and grow together”. The hope is that investment in the bank will give British companies an opportunity to invest in the world’s fastest growing markets. But the US sees the Chinese effort as a ploy to dilute US control of the banking system, and has persuaded regional allies such as Australia, South Korea and Japan to stay out of the bank.

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He’s already ‘back’. Who starts this sort of thing?

Russia In A Spin As Its Putin Goes Missing (FT)

He is the most talked-about person in Russia – even when he’s nowhere to be seen. Moscow is buzzing with talk about the whereabouts of Vladimir Putin who took a week-long hiatus from public appearances from March 5, fuelling wild rumours about the president’s health, political future and love life. On Twitter, critics of the president have been tweeting morbid jokes and memes under the hashtag “Putin is dead”, while Russian bloggers and pundits pore over the official Kremlin website looking for discrepancies in Mr Putin’s alleged work schedule.

Andrei Illarionov, a former adviser to Mr Putin now based in Washington, claimed in a blog post that Mr Putin had fallen victim to a palace coup and fled abroad, while Konstantin Remchukov, an influential Moscow editor, alleged that the state-owned oil company Rosneft’s chairman Igor Sechin was about to get the boot, indicating that a big government shake-up was looming. In Switzerland, the news outlet Blitz.ch ran a report claiming that Alina Kabaeva, a former gymnast and Duma deputy who has been linked romantically with Mr Putin, had given birth to a child this week in Switzerland’s Italian-speaking region of Ticino, suggesting that the Russian president had taken time off for a “baby mission”.

The Kremlin’s press service has brushed off the various allegations, with Mr Putin’s spokesman repeatedly insisting that the president’s health is “fine”. On Friday, the Kremlin announced that he would be meeting the president of Kyrgyzstan – publicly – in St Petersburg on Monday. Later, Russian state television channels co-ordinated to show Mr Putin at a Kremlin meeting with the head of Russia’s supreme court. However, at least one blogger claimed that the footage was dated, noting that the president’s desk had a clock on it that was supposed to have been given away as a gift a few days earlier.

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Great read.

Is EU Army Intended To Reduce US Influence In Europe? (RT)

Germany itself is the ultimate prize for the US in the conflict in Ukraine, because Berlin has huge sway in the direction that the EU turns. The US will continue to stoke the flames in Ukraine to destabilize Europe and Eurasia. It will do what it can to prevent the EU and Russia from coming together and forming a “Common Economic Space” from Lisbon to Vladivostok, which is dismissed as some type of alternative universe in the Washington Beltway. The Fiscal Times put it best about the different announcements by US officials to send arms to Ukraine. “Given the choreographed rollout, Washington analysts say, in all likelihood this is a public-opinion exercise intended to assure support for a weapons program that is already well into the planning stages,” the news outlet wrote on February 9.

After the Munich Security Conference it was actually revealed that clandestine arms shipments were already being made to Kiev. Russian President Vladimir Putin would let this be publicly known at a joint press conference with Hungarian Prime Minister Viktor Orban in Budapest when he said that weapons were already secretly being sent to the Kiev authorities. In the same month a report, named ‘Preserving Ukraine’s Independence, Resisting Russian Aggression’, was released arguing for the need to send arms to Ukraine — ranging from spare parts and missiles to heavy personnel — as a means of ultimately fighting Russia. This report was authored by a triumvirate of leading US think-tanks, the Brookings Institute, the Atlantic Council, and the Chicago Council on Global Affairs — the two former being from the detached ivory tower “think-tankistan” that is the Washington Beltway.

This is the same clique that has advocated for the invasions of Iraq, Libya, Syria, and Iran. It is in the context of divisions between the EU and Washington that the calls for an EU military force are being made by both the European Commission and Germany. The EU and Germans realize there is not much they can do to hamper Washington as long as it has a say in EU and European security. Both Berlin and a cross-section of the EU have been resentful of how Washington is using NATO to advance its interests and to influence the events inside Europe. If not a form of pressure in behind the door negotiations with Washington, the calls for an EU military are designed to reduce Washington’s influence in Europe and possibly make NATO defunct.

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Can’t let John Gray go unnoticed.

Steven Pinker Is Wrong About Violence And War (John Gray)

If great powers have avoided direct armed conflict, they have fought one another in many proxy wars. Neocolonial warfare in south-east Asia, the Korean war and the Chinese invasion of Tibet, British counter-insurgency warfare in Malaya and Kenya, the abortive Franco-British invasion of Suez, the Angolan civil war, the Soviet invasions of Hungary, Czechoslovakia and Afghanistan, the Vietnam war, the Iran-Iraq war, the first Gulf war, covert intervention in the Balkans and the Caucasus, the invasion of Iraq, the use of airpower in Libya, military aid to insurgents in Syria, Russian cyber-attacks in the Baltic states and the proxy war between the US and Russia that is being waged in Ukraine – these are only some of the contexts in which great powers have been involved in continuous warfare.

While it is true that war has changed, it has not become less destructive. Rather than a contest between well-organised states that can at some point negotiate peace, it is now more often a many-sided conflict in fractured or collapsed states that no one has the power to end. The protagonists are armed irregulars, some of them killing and being killed for the sake of an idea or faith, others from fear or a desire for revenge and yet others from the world’s swelling armies of mercenaries, who fight for profit. For all of them, attacks on civilian populations have become normal. The ferocious conflict in Syria, in which methodical starvation and the systematic destruction of urban environments are deployed as strategies, is an example of this type of warfare.

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