Jan 082017
 
 January 8, 2017  Posted by at 9:35 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Trump: Only ‘Fools’, ‘Stupid People’, See Good Ties With Russia as Bad (BBG)
At Home and Abroad, Obama’s Trail of Disasters (BGlobe)
Russians Ridicule US Charge That Kremlin Meddled to Help Trump (NYT)
How RT Became The Star Of CIA, FBI & NSA’s Anticlimactic ‘Big Reveal’ (McD)
No One Can Afford To Stop The New Consumer Credit Crisis (G.)
China’s Foreign Exchange Reserves Fall To Lowest Since February 2011 (R.)
The Growing Threat to Global Trade: a Currency War (Forsyth)
Fed’s Powell Urges Congress to Take Another Look at Volcker Rule (BBG)
New Policies Coming To America Could Take Weight Off Fed: Powell (R.)
Economists Want to Be Members of Donald Trump’s Team (BBG)
EU Collapse ‘No Longer Unthinkable’ – German Vice Chancellor Gabriel (R.)
Greeks’ Mental Health Suffering (Kath.)

 

 

This is Trump’s Trump Card. Stop the empty rhetoric, and stop the warfare. If he can do that, he’ll go down in history as a great president.

Trump: Only ‘Fools’, ‘Stupid People’, See Good Ties With Russia as Bad (BBG)

Facing calls to strike back at Russia for what U.S. intelligence agencies have termed Moscow’s interference with the 2016 U.S. presidential election campaign, Donald Trump instead suggested warmer relations between the two countries. The president-elect took to Twitter on Saturday to discuss the potential U.S.-Russia relationship under his administration, a day after U.S. spy chiefs briefed him on the Russian measures they said were directed by President Vladimir Putin. “Having a good relationship with Russia is a good thing, not a bad thing,” Trump said in a series of three tweets. “Only ‘stupid’ people, or fools, would think it is bad! We have enough problems around the world without yet another one.” “When I am President, Russia will respect us far more than they do now,” Trump assured his 19 million Twitter followers.

On Friday, top U.S. intelligence officials met with the president-elect at Trump Tower in New York to present evidence that Putin personally ordered cyber and disinformation attacks on the U.S. campaign. Putin developed “a clear preference” for Trump to win, the agencies said in a declassified summary of their findings. The agencies said they “assess Putin and the Russian government aspired to help President-elect Trump’s election chances when possible by discrediting Secretary Clinton and publicly contrasting her unfavorably to him,” according to the report. “All three agencies agree with this judgment. CIA and FBI have high confidence in this judgment; NSA has moderate confidence,” the report said. “Moscow will apply lessons learned from its Putin-ordered campaign aimed at the U.S. presidential election to future influence efforts worldwide, including against U.S. allies and their election processes.”

On Saturday, posts from the Twitter account of the Russian Embassy in the U.K. dismissed the report, calling it “a pathetic attempt at tainting Americans’ vote by innuendo couched in Intel new-speak.” “All accusations against Russia are based on ‘confidence’ and assumptions,” Alexey Pushkov, a member of the Russian Parliament’s upper house, said on Twitter. As Trump’s transition team did in a statement in December, Pushkov drew a parallel with the U.S. intelligence finding of the early 2000s that Iraq’s Saddam Hussein had weapons of mass destruction. The report was released shortly after intelligence chiefs briefed Trump on their findings that Russia was responsible for the hacking of Democratic Party computers and the leaking of e-mails damaging to Democratic presidential nominee Hillary Clinton. Russia has repeatedly denied the accusations.

Trump said negligence by the DNC had allowed the hacking to go ahead. “Only reason the hacking of the poorly defended DNC is discussed is that the loss by the Dems was so big that they are totally embarrassed!” Trump tweeted on Saturday. By contrast, “the Republican National Committee had strong defense!” he said — although the intelligence report said that Russia had targeted both major parties.

Read more …

I guess kudo’s are due to the Boston Globe, generally in the same false news camp as the WaPo and NYT, for publishing this.

At Home and Abroad, Obama’s Trail of Disasters (BGlobe)

As he prepares to move out of the White House, Barack Obama is understandably focused on his legacy and reputation. The president will deliver a farewell address in Chicago on Tuesday; he told his supporters in an e-mail that the speech would “celebrate the ways you’ve changed this country for the better these past eight years,” and previewed his closing argument in a series of tweets hailing “the remarkable progress” for which he hopes to be remembered. Certainly Obama has his admirers. For years he has enjoyed doting coverage in the mainstream media. Those press ovations will continue, if a spate of new or forthcoming books by journalists is any indication. Moreover, Obama is going out with better-than-average approval ratings for a departing president. So his push to depict his presidency as years of “remarkable progress” is likely to resonate with his true believers.

But there are considerably fewer of those true believers than there used to be. Most Americans long ago got over their crush on Obama, as they repeatedly demonstrated at the polls. In 2010, two years after electing him president, voters trounced Obama’s party, handing Democrats the biggest midterm losses in 72 years. Obama was reelected in 2012, but by nearly 4 million fewer votes than in his first election, making him the only president ever to win a second term with shrunken margins in both the popular and electoral vote. Two years later, with Obama imploring voters, “[My] policies are on the ballot — every single one of them,” Democrats were clobbered again. And in 2016, as he campaigned hard for Hillary Clinton, Obama was increasingly adamant that his legacy was at stake. “I’m not on this ballot,” he told campaign rallies in a frequent refrain, “but everything we’ve done these last eight years is on the ballot.” The voters heard him out, and once more turned him down.

As a political leader, Obama has been a disaster for his party. Since his inauguration in 2009, roughly 1,100 elected Democrats nationwide have been ousted by Republicans. Democrats lost their majorities in the US House and Senate. They now hold just 18 of the 50 governorships, and only 31 of the nation’s 99 state legislative chambers. After eight years under Obama, the GOP is stronger than at any time since the 1920s, and the outgoing president’s party is in tatters. Obama urged Americans to cast their votes as a thumbs-up or thumbs-down on his legacy. That’s what they did. In almost every respect, Obama leaves behind a trail of failure and disappointment.

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Yes, even the NYT lets slip a line or two about the lack of evidence in the ridiculous US intelligence ‘report’. The article should have stopped at that, but continues in a sort of Macchiavellian spirit (actually uses the term too), trying to save some face.

Russians Ridicule US Charge That Kremlin Meddled to Help Trump (NYT)

Spies are usually thought of as bystanders who quietly steal secrets in the shadows. But the Russian versions, schooled in techniques used during the Cold War against the United States, have a more ambitious goal — shaping, not just snooping on, the politics of a nation that the Soviet-era K.G.B. targeted as the “main adversary.” That at least is the conclusion of a declassified report released on Friday that outlines what America’s top intelligence agencies view as an elaborate “influence campaign” ordered by President Vladimir V. Putin of Russia aimed at skewing the outcome of the 2016 presidential race. But the absence of any concrete evidence in the report of meddling by the Kremlin was met with a storm of mockery on Saturday by Russian politicians and commentators, who took to social media to ridicule the report as a potpourri of baseless conjecture.

In a message posted on Twitter, Alexey Pushkov, a member of the defense and security committee of the upper house of the Russian Parliament, ridiculed the American report as akin to C.I.A. assertions that Iraq had weapons of mass destruction: “Mountain gave birth to a mouse: all accusations against Russia are based on ‘confidence’ and assumptions. US was sure about Hussein possessing WMD in the same way.” Margarita Simonyan, the editor in chief of RT, a state-funded television network that broadcasts in English, who is cited repeatedly in the report, posted her own message on Twitter scoffing at the American intelligence community’s accusations. “Aaa, the CIA report is out! Laughter of the year! Intro to my show from 6 years ago is the main evidence of Russia’s influence at US elections. This is not a joke!” she wrote.

Even Russians who have been critical of their government voiced dismay at the United States intelligence agencies’ account of an elaborate Russian conspiracy unsupported by solid evidence. Alexey Kovalev, a Russian journalist who has followed and frequently criticized RT, said he was aghast that the report had given so much attention to the television station. “I do have a beef with RT and their chief,” Mr. Kovalev wrote on Twitter, “But they are not your nemesis, America. Please chill.”

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And Bryan McDonald finished off what the NYT started: “..it appears that we should swallow how RT succeeded where the combined might of CNN, NBC, CBS, The WaPo and the NYT and others failed in influencing the US election.”

How RT Became The Star Of CIA, FBI & NSA’s Anticlimactic ‘Big Reveal’ (McD)

The eagerly awaited Director Of National Intelligence’s (DNI) report “Assessing Russian Activities and Intentions in Recent US Elections” didn’t need such a long winded title. They could have just called it: “We Really Don’t Like RT.” Almost every major western news outlet splashed this story. But it was probably the New York Times’ report which was the most amusing. America’s “paper of record” hailed the DNI’s homework as “damning and surprisingly detailed.” Then a few paragraphs later admitted the analysis contained no actual evidence. Thus, in a few column inches, the Gray Lady went from describing the DNI’s release as something conclusive to conceding how it was all conjecture. “The declassified report contained no information about how the agencies had collected their data or had come to their conclusions,” the reporter, one David E. Sanger, told us.

He then reached further into his bag of tricks to warn how it is “bound to be attacked by skeptics.” Yes, those skeptics. Aren’t they awful? Like, imagine not accepting an intelligence document at face value? Especially when it warns that a nuclear armed military superpower is interfering in the American democratic process, but then offers not a smidgen of proof for its assertions. Not to mention how it appears to have been put together by a group of people with barely a clue about Russia. For instance, RT progams such as “Breaking The Set” and “The Truthseeker” are mentioned in a submission supposed to be about how RT supposedly cost Hillary Clinton the US Presidential Election. But both of these programmes went off air around two years ago. And, back then, Clinton wasn’t even the Democratic Party candidate for the 2016 contest.

[..] So how bad is this report? You’d have to say on a scale of 1-10, it’d be eleven. The core message appears to be that having a point of view which is out of sync with the liberal popular media is considered a hostile act by US spooks. And it’s specifically the liberal press’ worldview they are defending here. Now, it’s up to you to judge whether this support, from state actors, is justified or not. The DNI’s submission is ostensibly the work of highly qualified intelligence experts, but everything you learn about RT comes from publicly available interviews and Tweets posted by this channel’s own people. Yet, we are supposed to believe how the best Russia brains of three agencies – the CIA, FBI and NSA – laboured to produce this stuff? That said, the latter doesn’t appear to be fully on board, offering “moderate” confidence, in contrast to the other’s “high confidence.”

Approximately a third of the document centers on RT. And it appears that we should swallow how RT succeeded where the combined might of CNN, NBC, CBS, The WaPo and the NYT and others failed in influencing the US election. Not to mention the reality where 500 US media outlets endorsed Clinton and only 25 President-elect Donald Trump. It’s time to scream: “stop the lights!” [..] The DNI’s report is beyond bad. And it’s scary to think how outgoing President Obama has stirred up a nasty diplomatic battle with Russia based on intelligence so devoid of insight and quality. There is nothing here which suggests the authors have any special savvy or insight. In fact, you could argue how a group of students would’ve assembled something of similar substance by simply reading back issues of The New York Times. But the biggest takeaway is that it’s clear how the calibre of Russia expertise in America is mediocre, if not spookily sparse. And while this report might be fodder for amusement, the actual policy implications are nothing short of dangerous.

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And that’s by no means only true for Britain.

No One Can Afford To Stop The New Consumer Credit Crisis (G.)

Consumer debt has raised its ugly head again. According to the latest figures, the total has soared back to a level last seen just before the 2008 financial crash. To the untrained eye, the dramatic increase in spending using credit cards and loans might appear to prefigure a disaster of epic proportions. Excessive consumer debt played a big part in the collapse of Northern Rock, and looking back, this landmark banking disaster appears to have been the harbinger of an even bigger catastrophe when, a year later, Lehman Brothers fell over. This is not a view shared by the Bank of England, which says it need only keep a watching brief. Its complacency is born of forecasts of the ratio between household debt and GDP made by the Office for Budget Responsibility.

At the moment, the household debt to GDP ratio is around 140%, compared with almost 170% in 2008. The OBR’s latest analysis predicts that, over the next five years, the combination of consumer and mortgage debt will rise only gradually and fall well short of its pre-crisis peak. There is nothing wrong with judging household debt as a proportion of annual national income to gauge sustainability and the likelihood that borrowers can afford to pay it back. There is nothing wrong with it as long as you assume that GDP has been evenly shared out since the crash and that the people doing the borrowing have higher incomes, thanks to the higher GDP, to cope with repayments. Except that the Bank of England knows most people’s incomes have flatlined for years. It need look no further than official figures, which make it clear that the vast majority have missed out on the gains from GDP growth.

Incomes per head have barely recovered since 2008 and are only marginally ahead. Figures put together by the TUC last year from the official annual survey of hours and earnings paint an even gloomier picture. If they are only half right, the capacity of workers on low and average pay to manage debt payments is significantly diminished. It has estimated that, nationally, workers are more than £2,000 a year worse off after inflation is taken into account than they were in 2008 and more than £4,000 worse off in London. This should tell the central bank and the Treasury that a rise to £192bn in unsecured consumer debt in November – only a little short of the £208bn peak – is most definitely a cause for concern. And it therefore makes no sense to brush aside fears about rising debt levels by pointing to higher GDP. A debt-to-GDP figure is just not that relevant when the incomes of the people taking on the debt are stagnant.

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Beijing counting down the days till january 20. It still has $3 trillion left, but 90% or so of that is not available.

China’s Foreign Exchange Reserves Fall To Lowest Since February 2011 (R.)

China’s foreign exchange reserves fell for a sixth straight month in December but by less than expected to the lowest since February 2011, as authorities stepped in to support the yuan ahead of U.S. President-elect Donald Trump’s inauguration. China’s reserves shrank by $41 billion in December, slightly less than feared but the sixth straight month of declines, data showed on Saturday, after a week in which Beijing moved aggressively to punish those betting against the currency and make it harder for money to get out of the country. Analysts had forecast a drop of $51 billion. For the year as a whole, China’s reserves fell nearly $320 billion to $3.011 trillion, on top of a record drop of $513 billion in 2015. While the $3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling in global financial markets over the speed with which the country is depleting its ammunition to defend the currency and staunch capital outflows.

Some analysts estimate it needs to retain a minimum of $2.6 trillion to $2.8 trillion under the IMF’s adequacy measures. If pressure on the yuan persists, analysts suspect China will continue to tighten the screws on outflows via administrative and regulatory means, while pouncing sporadically on short sellers in forex markets to discourage them from building up excessive bets against the currency. But if it continues to burn through reserves at a rapid rate, some strategists believe China’s leaders may have little choice but to sanction another big “one-off” devaluation like that in 2015, which would likely roil global financial markets and stoke tensions with the new Trump administration. The yuan depreciated 6.6% against the surging dollar in 2016, its biggest one-year loss since 1994, and is expected to weaken further this year if the dollar’s rally has legs.

Adding to the pressure, Trump has vowed to label China a currency manipulator on his first day in office, and has threatened to slap huge tariffs on imports of Chinese goods. That has left Chinese eager to get money out of the country, creating what some researchers describe as a potentially destructive negative feedback loop, where fears of further yuan falls spur outflows that pile fresh pressure on the currency. “For 2016 as a whole we estimate total capital outflows to have been around $710 billion,” Capital Economics’ China economist Chang Liu told Reuters in an email. Capital Economics estimated net outflows in November and December alone were $76 billion and $66 billion, respectively.

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Trump will be willing to negotiate, but there’s doesn’t seem to be much, if any, room for China to move.

The Growing Threat to Global Trade: a Currency War (Forsyth)

While Trump has talked of imposing a so-called border tax on imports or tariffs, currencies are at the nexus of trade and are the quickest means to try to influence trade flows. In that regard, he has threatened to declare China a “currency manipulator” on Day One of his administration for allegedly pushing down the yuan to gain an export advantage. The risk is that this will escalate into a currency war, with both sides attempting to gain a trade advantage, and that it ultimately ends up disrupting global trade and financial markets. As with any war, this one should be avoided at all costs. But the events of the past year suggest never say never. [..] China, of course, is central to Trump’s strategy to reduce the U.S. trade deficit.

Harris writes that this includes three actions: naming China a currency manipulator; bringing trade cases against it under the WTO and U.S. rules; and using “every lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets.” In addition, last week the president-elect named Robert Lighthizer as U.S. trade representative, adding him to the hawkish team of Peter Navarro, director of the new National Trade Council, and Commerce Secretary-designate Wilbur Ross. While the U.S. and China may find common ground on environmental regulation in China, given the unbreathable air in Beijing and other cities, Harris thinks it’s unlikely China would concede that it is manipulating its currency.

“China is currently fighting to prevent currency weakness, selling its foreign currency reserves to offset private capital flight from the country,” he continues. China’s reserves have fallen by about $1 trillion, to just over $3 trillion as of November; the latest data, due this weekend, will be closely watched to see how much Beijing’s cache has been depleted. That said, “some academics in China are suggesting the country should respond to being declared a ‘manipulator’ by letting the currency float, triggering even more weakness,” adds Harris. Other observers see such a course as dangerous. Danielle DiMartino Booth, writing in her latest Money Strong missive, quotes Leland Miller, president of China Beige Book, a private research group, that the last thing Beijing wants is a floating yuan.

“It would hurt them much more than anyone else and be greeted with massive retribution from every corner of the world. There would be countervailing devaluations and would cause global contagion,” he contends. “It would also be a major blow to [President] Xi’s credibility during a politically sensitive year, since he’s pledged to not float the currency. And it would NOT stanch outflows; all it would do is exacerbate them.”

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The independent Fed talking politics?!

Fed’s Powell Urges Congress to Take Another Look at Volcker Rule (BBG)

Federal Reserve Governor Jerome Powell urged Congress to rewrite the Volcker Rule that restricts proprietary trading, while urging “a high degree of vigilance” against the buildup of financial risks amid improving U.S. growth. “What the current law and rule do is effectively force you to look into the mind and heart of every trader on every trade to see what the intent is,” Powell said Saturday at the American Finance Association meeting in Chicago. “Is it propriety trading or something else? If that is the test you set yourself, you are going to wind up with tremendous expense and burden.” Powell’s comments compare to Fed Chair Janet Yellen, who has supported the sweeping bank rules of the 2010 Dodd-Frank Act in the wake of the global financial crisis. President-elect Donald Trump has vowed to dismantle Dodd-Frank. The Volcker Rule restricts banks with taxpayer-backed deposits from making certain types of speculative “proprietary” trades.

“We don’t want the largest financial institutions to be seriously engaged in propriety trading,” Powell said. “We do want them to be able to hedge their positions and create markets.” Powell said that the Volcker Rule, as enacted by U.S. lawmakers, doesn’t achieve that goal. “I feel the Congress should take another look at it.” In the text of his remarks, Powell urged more monitoring of financial risks following a period of record low interest rates, citing commercial real estate as one area of concern. “More recently, with inflation under control, overheating has shown up in the form of financial excess,” Powell said. “The current extended period of very low nominal rates calls for a high degree of vigilance against the buildup of risks to the stability of the financial system.”

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Is this simply the Fed trying to pass on the blame?

New Policies Coming To America Could Take Weight Off Fed: Powell (R.)

A push by Washington for more business-friendly regulation and fiscal support for the economy could improve America’s mix of policies which in recent years have relied too much on the Federal Reserve, Fed Governor Jerome Powell said. Powell, speaking on Saturday at a conference, did not mention the incoming Trump administration by name but his comments suggest some Trump policies will be welcomed by U.S. central bankers who have been urging other institutions to do more to help the economy. “We may be moving more to a more balanced policy with what sounds like more business-friendly regulation and possibly more fiscal support,” Powell told an economics conference in Chicago. President-elect Donald Trump, who takes office on Jan. 20, has promised to double America’s pace of economic growth, “rebuild” its infrastructure and slash regulatory burdens.

About half of the Fed’s 17 policymakers factored a fiscal stimulus into their economic forecasts published in December, according to minutes from the Fed’s December policy meeting. That expected stimulus has led several policymakers to say the Fed will likely raise rates more quickly, but Powell said new policies could also ease the Fed’s burden. “Monetary policy (might be) able to hand it off and I think that’s a healthier thing,” he said. “We may be moving to a more balanced policy mix.” Following a Congress-enacted fiscal stimulus during and immediately after the 2007-09 recession, the Fed in recent years has been widely seen as the economic authority working the hardest to help the economy. But throughout 2016, Fed policymakers worried publicly that the U.S. economy was stuck in a low growth path and central banking tools could do little to fix this. Central bankers urged Congress and the U.S. president to pass laws that would help make U.S. businesses and workers more productive.

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“..it might be more of a matter of Trump not wanting many economists in his administration..”

Economists Want to Be Members of Donald Trump’s Team (BBG)

Economists aren’t shying away from joining Donald Trump’s administration and would be willing to pitch in if asked, according to former economic policy makers now in academia. “The president will be able to get any economist he asked for,” said Glenn Hubbard, who served President George W. Bush as chairman of his Council of Economic Advisers from 2001 to 2003 and is now dean of Columbia University’s Graduate School of Business. Hubbard spoke Saturday in Chicago at the American Economic Association annual conference. A delay in naming a new CEA chair and reports that the position might go to CNBC commentator Lawrence Kudlow spawned speculation that leading academic economists were reluctant to join a team headed by an avowed skeptic of free trade.

“I don’t see that,” said John Taylor, an economics professor who served in the Bush administration as under secretary of Treasury for international affairs and now teaches at Stanford University. “It’s a pretty exciting time and lots of things are going on,” said Taylor, who worked in three other administrations as well. Alan Krueger, who led the CEA in the White House of President Barack Obama from 2011 to 2013 before passing the torch to incumbent Jason Furman, suggested that it might be more of a matter of Trump not wanting many economists in his administration, rather than the other way around. “I worry more about the demand side than the supply side,” said the Princeton University professor said. The audience laughed.

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Should have thought of that earlier. Because this has been evident for a very long time: Germany is the biggest beneficiary of the European community – economically and politically.” Just look at the graph I inserted at the bottom of this article.

EU Collapse ‘No Longer Unthinkable’ – German Vice Chancellor Gabriel (R.)

Germany’s insistence on austerity in the euro zone has left Europe more divided than ever and a break-up of the European Union is no longer inconceivable, German Vice Chancellor Sigmar Gabriel told Der Spiegel magazine. Gabriel, whose Social Democrats (SPD) are junior partner to Chancellor Angela Merkel’s conservatives in her ruling grand coalition, said strenuous efforts by countries like France and Italy to reduce their fiscal deficits came with political risks. “I once asked the chancellor, what would be more costly for Germany: for France to be allowed to have half a percentage point more deficit, or for Marine Le Pen to become president?” he said, referring to the leader of the far-right National Front. “Until today, she still owes me an answer,” added Gabriel, whose SPD favors a greater focus on investment while Merkel’s conservatives put more emphasis on fiscal discipline as a foundation for economic prosperity.

The SPD is expected to choose Gabriel, their long-standing chairman who is also economy minister, to run against Merkel for chancellor in September’s federal election, senior party sources said on Thursday. Asked if he really believed he could win more votes by transferring more German money to other EU countries, Gabriel replied: “I know that this discussion is extremely unpopular. But I also know about the state of the EU. It is no longer unthinkable that it breaks apart,” he said in the interview, published on Saturday. “Should that happen, our children and grandchildren would curse us,” he added. “Because Germany is the biggest beneficiary of the European community – economically and politically.”

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Thanks, Angela.

Greeks’ Mental Health Suffering (Kath.)

More than half of Greeks complain of mental health problems, with stress, insecurity and disappointment among the issues most commonly cited, according to the results of a nationwide survey by the National School of Public Health, known by its acronym ESDY. Over half of the 2,005 adults polled (53.9%) said their mental health had not been good over the past month due to stress, depression or other emotional problems. A quarter (24.8%) of respondents, identified poor physical or mental health as causing problems in their daily lives. A total of 15% said they felt insecurity, anxiety and fear, with 14% citing anger and frustration, 9.7% complaining of depression and sadness, 8.2% of stress and 44.6% citing all these ailments.

Four in 10 (42.6%) said they only enjoyed their lives “moderately” and one in 10 said they thought their lives had little or no meaning. The findings came as official figures showed that cases of depression rose from 2.6% of the population in 2008 to 4.7% in 2015. Responding to broader questions about their health and lifestyle, 20% of those polled said their diets had been insufficient over the past month due to low finances. According to health sector experts, however, the repercussions of the economic crisis on citizens’ health are less severe than many had feared. In comments to Kathimerini, Yiannis Kyriopoulos, a professor of health economics at the ESDY, said the findings of the study “simply observe a slowdown in the improvement of health indicators.”

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Nov 242016
 
 November 24, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , , , ,  2 Responses »
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Kennedy and Johnson Morning of Nov 22 1963

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)
China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)
IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)
The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)
How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)
‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)
Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)
Capital Flight From Italy (Reinhart)
Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)
Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)
Merkel Warns Against Fake News Driving Populist Gains (AFP)
Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)
US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)
Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)
Greek Businesses Move Abroad To Escape Austerity (R.)

 

 

“So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.”

Another Election Year, Another Bunch Of Fake Growth Numbers (John Rubino)

Some pretty good economic reports have energized various parts of the financial markets lately. Consumer spending is up, GDP is exceeding expectations and even factory orders, that perennial downer, popped this morning. In response the dollar is soaring and interest rates are at breaking out of their multi-decade down-channel. The economy is clearly recovering, implying a return to normality. Right? Nah, it’s just the usual election year illusion. When the presidency is at stake the party in power always pumps up spending in an attempt to put people back to work and create the impression of a well-run country whose leaders deserve more time in the spotlight. After the election, spending returns to trend and the resulting bad news gets buried in “political honeymoon” media coverage.

How do we know this year is following the script? By looking at the federal debt. If the government is borrowing more than usual and (presumably) spending the proceeds, then it’s likely that the economy is getting a bit more than its typical diet of stimulus. So here you go: Note that after seven years of massive increases, the federal debt plateaued in 2015, which is what you’d expect in the late stages of a recovery. With full employment approaching and asset prices high, there should be plenty of tax revenues flowing in and relatively few people on public assistance, so the budget should be trending towards balance. Well, more people are working this year than last, and stock, bond and home prices all rose in the first half of the year. So why the approximately $1.8 trillion surge in government borrowing? Because a robustly-healthy economy was necessary to help the party in power stay in power.

This is a huge jump in government debt, even by recent standards. And its impact is commensurately large, accounting for a big part of the “growth” seen in recent months. But it’s also unsustainable. You don’t double a government’s debt in a single decade (from an already historically high level) and then keep on borrowing. At some point an extreme event or policy choice will put an end to the orgy. Either the markets impose discipline through a crisis of some sort, or the government adopts a policy of currency devaluation or debt forgiveness. And – in a nice ironic twist – the people who did the insanely-excessive borrowing are leaving town, to be replaced by folks who will inherit something unprecedented, with (apparently) no clear idea of what’s coming or what will be necessary in response.

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Protectionism and globalism in one.

China Vows To Defend Trade Rights In Face Of Trump Tariff Threats (R.)

China will defend its rights under WTO tariff rules if US president-elect Donald Trump moves toward executing his campaign threats to levy punitive duties on goods made in China, a senior trade official has said. Zhang Xiangchen, China’s deputy international trade representative, also told a news conference in Washington on Wednesday that a broad consensus of academics, business people and government officials have concluded that China is not manipulating its yuan currency to gain an unfair trade advantage, as Trump has charged. “I think after Mr Trump takes office, he will be reminded that the United States should honour its obligations as a member of the WTO,” Zhang said through an interpreter. “And as a member of the WTO, China also has the right to ensure its rights as a WTO member.”

Trump has said China is “killing us” on trade and that he would take steps to reduce the large US goods trade deficit with China, including labelling Beijing as a currency manipulator soon after he takes office and levying duties of up to 45% on Chinese goods to level the playing field for US manufacturers. Trump said on Monday he will formally exit the 12-country TPP trade deal in January. China is not a signatory to the TPP. Zhang, who spoke at the closing news conference for a two-day technical meeting of US and Chinese trade officials in Washington, was not specific on what steps China would take to protect its rights under WTO rules. The global trading body prohibits members from unilaterally raising tariffs above levels that they have committed to maintain.

China’s state-run Global Times newspaper last week warned that a 45% Trump tariff would paralyse US-China bilateral trade. “China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and [Apple] iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted,” the newspaper warned.

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Shadow securities. US redux.

IMF: Chinese Banks Disguise A Massive Amount Of Bad Debt (BI)

China’s banks are disguising bad debts by turning them into “securitized packages” rather than writing them down as non-performing loans, according to the IMF. The “untradeable debt” comes from China’s “shadow credit” world, which has generated a massive amount of credit that has the potential to become suddenly illiquid. The debts consist of interbank loans in “a structure potentially susceptible to rapid risk transmission and destabilizing liquidity events,” the IMF says. The amount of “shadow credit” grew 48% in 2015, to RMB 40 trillion ($580 billion), the IMF says, “equivalent to 40% of banks’ corporate loans and 58% of GDP.” If any of this sounds familiar, that’s because it is. It’s similar in principal to the way American banks disguised bad mortgages inside securitized packages before the Great Financial Crisis of 2007-2008.

Back then, US mortgage providers gave out too many loans to people who couldn’t repay them. On its own, that should not have been a problem. A mortgage default only hurts the bank that made the loan. But banks bundled together packages of those mortgages and sold them as “mortgage-backed securities” to other institutions. Bad mortgages were mixed in with good ones, making it impossible for investors to judge their quality. When it became obvious that some of these packages were toxic, no one wanted to buy any them. The market became suddenly illiquid. And the credit derivative hedges and leveraged bets layered upon them magnified the problem throughout the entire banking system, creating the financial collapse that plunged most of the world into recession.

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It was always just a fabricated dream.

The ‘Ownership Society’ Came And Went – A Long Time Ago (MW)

Of all the aftereffects of the housing bust and financial crisis, the steady decline in the homeownership rate might be among the most pernicious. Homeownership is traditionally one of the best means into the middle class, and it’s still popularly equated with the American Dream. But in a presentation last week, St. Louis Federal Reserve economist William Emmons demonstrated that homeownership has been losing ground for decades. What’s more, Emmons showed that higher ownership rates were likely coaxed along by government policies and national priorities appropriate for a certain moment in history and unsustainable beyond that. After the Depression, Emmons noted, New Deal policies “laid the foundation” for a huge increase in homeownership.

Those policies included the creation of a government financial system, such as the Federal Housing Administration, Fannie Mae, and the Federal Home Loan Banks. But just as important was the return of millions of service members from World War II, rising incomes and a prosperous economy, a national push for a country full of suburban single-family homes and highways to connect them all, as well as a national process of Americans “sorting themselves out” by race and class into the broad geographic outlines that would persist for decades. That meant the U.S. enjoyed robust growth – until it didn’t. Not only was there little room left to grow, but other changes began to influence ownership, Emmons said. Americans began to age, pushing off marriage, childbearing and home-buying until later.

The U.S. is also becoming more racially and ethnically diverse. Hispanics and African-Americans have traditionally had more limited opportunities to achieve homeownership – but as Emmons pointed out, citing research from the Harvard Joint Center for Housing Studies, “aspirations to own a home are higher among African-Americans and Latinos than among whites and Asians, despite homeownership rates that are 20 to 30 percentage points lower.” And while much of the impact of the 2008 crash has ebbed, it still continues to impact many people through diminished personal wealth, damaged credit scores, blighted neighborhoods, and some loss of trust in financial institutions.

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How ‘little things’ add up.

How (Slightly) Higher Mortgage Rates Maul Housing Bubble 2 (WS)

After the brutal beating following Election Day, US Treasuries took a breather early this week. But today, the beating resumed and will continue until the mood improves. Mid-day, the 10-year Treasury fell so hard that its yield, which moves in the opposite direction of price, spiked to 2.42%. By the end of the day, the 10-year yield was at 2.36%, up 4 basis points for the day, and up an entire percentage point from July this year: The market is 100% certain that the Fed will stop flip-flopping in mid-December and raise rates by moving the upper limit of the Fed funds target range to 0.75%. The markets see more rate hikes next year. A Fed funds rate with the first “1”-handle since 2008 would be a phenomenon a whole generation of Wall Street gurus has never seen in their professional lives.

Mortgage rates are chasing after Treasury rates. The Mortgage Bankers Association reported today that the 30-year fixed-rate conforming mortgage ($417,000 or less) reached 4.16%, its “highest weekly average since the beginning of 2016.” This caused a flurry of activity. Last week, amid the post-election interest rate spike, mortgage applications plunged. But homebuyers may be trying to lock in whatever rate they can get, before they go even higher, and mortgage applications surged. Ironically, from a historical point of view, nothing major has happened so far. That spike is still small compared to what came before, including the spike during the Taper Tantrum in the summer of 2013, when the Fed started musing about ending QE Infinity. Compared to prior years, rates are still very, very low, but home prices have since soared, and for home buyers even a minor uptick makes a world of difference.

From the peak of Housing Bubble 1, which in San Francisco occurred in 2007, to Q3 2016, the median house price soared 45%. But due to plunging mortgage rates, the monthly housing costs increased only 14%. Now with rates rising, that process is going to reverse. The household income needed to qualify for a 30-year fixed rate mortgage with 20% down on that median $1.3 million house in San Francisco was $251,000 before Election Day. Paragon observes: “By Friday, November 18, the income requirement increased by $13,000. And if the interest rate goes up to 5% (and again, we are not saying it will), an additional $35,000 in annual income would be required.”

Hence, at 5%, a minimum qualifying household income of $286,000 a year. In this scenario, even in less costly markets, there are two things that happen: One, many people have to step down to a lower-priced home, or they don’t buy at all. A market-wide shift of this type puts downward pressure on prices and volume. And two, as people stretch more to buy homes at higher interest rates and higher monthly costs, they have even less money to spend on other things. This creates a new drag on consumer spending. It’s how low mortgage rates not only subsidized the house price bubble but the entire economy by giving consumers more money to spend – not just the US economy but exporter nations around the world.

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Or will it?

‘Brexit Will Blow £59 Billion Hole In UK Public Finances’ (G.)

Philip Hammond conceded that Brexit will blow a £59bn black hole in the public finances over the next five years, as he outlined plans to boost investment in infrastructure and housing to equip the UK economy for life outside the EU. In his first fiscal statement, the chancellor, who had supported remain, sought to strike a cautiously upbeat tone about the country’s prospects, saying the economy had “confounded commentators at home and abroad with its strength and its resilience” since the referendum result last June. But the first official projections conducted after the vote of the likely impact of leaving the EU pointed to significantly weaker growth after Brexit. The Office for Budget Responsibility (OBR) announced that there would be a cumulative £122bn of extra borrowing over the next five years, with £59bn of that as a direct result of Brexit.

Other factors included weaker-than-expected tax revenues, and policy changes, including Hammond’s decision to spend more on infrastructure. George Osborne was expecting to achieve a surplus of £11bn on the public finances by 2020-21; instead, the OBR is now forecasting a £21bn deficit – and public debt is expected to peak at more than 90% of GDP. With little cash to spare, Hammond offered only modest handouts to the “just about managing” families (Jams) Theresa May’s government had said it wanted to help, although he repeatedly used the mantra of “building an economy that works for everyone”. The chancellor announced a renewed freeze in fuel duty, to help motorists – largely paid for with an increase in insurance premium tax from 10% to 12% – and a partial reversal of planned cuts to universal credit.

But Labour said there was no cash for either the NHS or social care, which are under increasing strain with winter approaching. Instead, the main thrust of Hammond’s first set-piece outing at the dispatch box was how to help Britain withstand the challenges of leaving the EU.

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Agree to disagree.

Pro-Brexit Lawmakers Attack Fiscal Watchdog’s Gloomy Outlook (BBG)

Conservative lawmakers attacked Britain’s fiscal watchdog after it warned that Brexit would cost £60 billion ($75 billion) in extra borrowing as the economy falters. The Office for Budget Responsibility’s forecast — the first official assessment of the costs related to leaving the bloc – also stated that exiting the EU would leave Britain with less potential for sustainable growth. Chancellor of the Exchequer Philip Hammond, who presented the forecasts alongside his Autumn Statement Wednesday, said the predictions showed there is an “urgent” need for Britain to tackle its long-term economic weaknesses. “We’ve had an endless slew of gloom and doom, and I just don’t buy it,” said Kwasi Kwarteng, a Tory lawmaker who backed the campaign to leave the EU. “They haven’t exactly had a brilliant track record. I’d take their predictions with a pinch of salt.”

Pro-Brexit lawmakers have been critical of both the OBR and the Treasury for overstating the negative consequences of Brexit. While Hammond made brief references to the opportunities that leaving may bring, his tone was one of caution, with few giveaways and a focus on creating a more productive economy that could weather future shocks. Responding to complaints from pro-Brexit politicians, Hammond told lawmakers that economic forecasting “is not a precise science.” He added: “The OBR very specifically says in its report that there is an unusually high degree of uncertainty in the forecasts it is making because of the unusual circumstances.”

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It’s high time for Italy to go its own separate ways. There’s nothing to gain from the EU anymore, but lots to lose.

Capital Flight From Italy (Reinhart)

Understandably, after the surprise victory in June of the “Leave” campaign in the United Kingdom’s Brexit referendum, and of Donald Trump in the United States’ presidential election, no one has much faith in polls in advance of the Italian vote. There is, however, a disquieting real-time poll of investors’ sentiment: capital flight from Italy has accelerated this year. There is a recent precedent for this. In the summer of 2015, Greece’s short-lived default on its IMF loan and the introduction of capital controls and deposit-withdrawal restrictions were at the center of the eurozone drama. Tensions between the Greek and German governments ran high, and speculation about whether Greece would remain in the eurozone escalated.

The stage has now shifted to the much larger Italian economy. In the current environment of uncertainty, yield spreads on Italian bonds have widened to about 200 basis points over German bunds. Economic and political conditions in the two debt-laden southern European economies differ in important respects; but there are also similarities. Economic growth in both countries has lagged far behind other advanced economies for more than a decade, but most markedly since the Global Financial crisis of 2008-2009. According to IMF estimates, real per capita income in Italy is about 12% below what it was in 2007, with only Greece faring worse. The problem of bank insolvency, endemic in Greece, where nonperforming loans account for more than one-third of bank assets, is not as generalized in Italy.

Still, the uncertain resolution of Italy’s third-largest bank, Monte dei Paschi, together with the Italian government’s limited resources to deal with weak banks, has fueled unease among depositors. Bankers also warn that the plan for Monte dei Paschi’s rescue may be jeopardized by the December referendum, which could trigger another round of decline in share prices. But, for all the talk of a looming banking crisis, the balance-of-payments crisis already underway in Italy since the first half of 2016 is the main factor driving the real-time poll of investors. Prior to the adoption of the euro, an unsustainable balance-of-payments position in Italy (as in other countries with their own currencies) would typically spur the central bank to raise interest rates, thereby making domestic financial assets more attractive to investors and stemming capital flight. With the ECB setting monetary policy for the eurozone as a whole, this is no longer an option for Banca d’Italia.

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Nostalgia for hanging chads.

Jill Stein Raises Over $2 Million To Request US Election Recounts (G.)

Jill Stein, the Green party’s presidential candidate, is prepared to request recounts of the election result in several key battleground states, her campaign said on Wednesday. Stein launched an online fundraising page seeking donations toward a a multimillion-dollar fund she said was needed to request reviews of the results in Michigan, Pennsylvania and Wisconsin. Before midnight EST on Wednesday, the drive had already raised more than the $2m necessary to file for a recount in Wisconsin, where the deadline to challenge is on Friday. Stein said she was acting due to “compelling evidence of voting anomalies” and that data analysis had indicated “significant discrepancies in vote totals” that were released by state authorities.

“These concerns need to be investigated before the 2016 presidential election is certified,” she said in a statement. “We deserve elections we can trust.” The fundraising page said it expected to need around $6m-7m to challenge the results in all three states. Stein’s move came amid growing calls for recounts or audits of the election results by groups of academics and activists concerned that foreign hackers may have interfered with election systems. The concerned groups have been urging Hillary Clinton, the defeated Democratic nominee, to join their cause.

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As I said yesterday in “Trump Moves as America Stands Still”.

Bernie Sanders Should Visit Trump Sooner Rather Than Later (NYDN)

Trump aside, evidently the most clairvoyant messenger of 2016 was Sanders, who got pitifully little support from the Democratic Party establishment — including a raw deal from the DNC, which tilted the scales against him in order to coronate Hillary. His brand of anti-Wall Street, anti-elite populism is ascendant. He is the tribune of the progressive youth, many of whom refused to back Hillary despite her repeated (and hollow) entreaties. So what should Sanders do now? Well, how about meeting with the new President-elect? It might seem incongruous. What would the nationalist, brash Trump have to gain from the aging socialist Sanders? Well, maybe quite a bit. Trump explicitly proclaimed during the campaign that he was going to take a page from Bernie’s playbook, much to the consternation of conservative pundits.

“I’m going to be taking a lot of the things Bernie said and using them,” Trump declared in April. And indeed, Trump followed through on the pledge: He made opposition to the Trans-Pacific Partnership a centerpiece of his campaign, thus emphasizing an area of agreement with Sanders. (Trump has since confirmed that the trade deal will be canceled.) He called for a reduced U.S. military presence abroad. And he even repeatedly defended Sanders before millions of people at the televised debates, pointing out that he’d been screwed over by the DNC and Clinton minions. Naturally, Trump and Sanders will never agree on everything, but where they do see eye-to-eye, why not take advantage?

Two days after the election, Sanders issued a statement noting Trump’s success at connecting with folks “sick and tired of establishment economics, establishment politics and the establishment media.” Sanders then offered to “work with” him on discrete initiatives. Trump has already announced that an infrastructure funding bill is one of his top priorities, so who better than Sanders to help steer the legislative process in the most fruitful possible direction? (Bernie this week characterized Trump’s plan as a “scam,” so why not register those concerns in person?)

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Sounds desperate.

Merkel Warns Against Fake News Driving Populist Gains (AFP)

German Chancellor Angela Merkel warned Wednesday against the power of fake news on social media to spur the rise of populists, after launching her campaign for a fourth term. Speaking in parliament for the first time since her announcement Sunday that she would seek re-election next year, Merkel cautioned that public opinion was being “manipulated” on the internet. “Something has changed – as globalisation has marched on, (political) debate is taking place in a completely new media environment. Opinions aren’t formed the way they were 25 years ago,” she said. “Today we have fake sites, bots, trolls – things that regenerate themselves, reinforcing opinions with certain algorithms and we have to learn to deal with them.”

Merkel, 62, said the challenge for democrats was to “reach and inspire people – we must confront this phenomenon and if necessary, regulate it.” She said she supported initiatives by her right-left coalition government to crack down on “hate speech” on social media in the face of what she said were “concerns about the stability of our familiar order”. “Populism and political extremes are growing in Western democracies,” she warned. Last week, Google and Facebook moved to cut off ad revenue to bogus news sites after a US election campaign in which the global misinformation industry may have influenced the outcome of the vote. But media watchers say more is needed to stamp out a powerful phenomenon seen by some experts as a threat to democracy itself.

Merkel’s conservative Christian Democrats are the odds-on favourites to win the German national election, expected in September or October 2017.

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Well, we already knew the EU has gone crazy.

Putin: EU Resolution Equating RT to ISIS A ‘Degradation Of Democracy’ (R.)

The European Parliament called on the EU and its states to do more to counter Russian “disinformation and propaganda warfare” on Wednesday, drawing an angry response from President Vladimir Putin. A motion endorsing a committee report, which also called for more effort against attempts by Islamic State to radicalize Europeans, passed by 304 votes to 179. Members on the far left and far right were opposed; many in the center-left abstained. “The European Parliament … expresses its strong criticism of Russian efforts to disrupt the EU integration process and deplores, in this respect, Russian backing of anti-EU forces in the EU with regard, in particular, to extreme-right parties, populist forces and movements that deny the basic values of liberal democracies,” the 59-point motion read.

With East-West relations in deep freeze since Moscow responded to an EU pact with Ukraine by annexing Crimea in 2014, the Parliament’s report accused the Kremlin of funding media outlets that spread falsehoods and of sponsoring eurosceptic movements in Western Europe which are growing in strength. Putin said that after lecturing Russia on democracy Europe was now trying to silence dissenting opinions. He told reporters in Moscow: “We are observing a certain, quite obvious, degradation … of how democracy is understood in Western society, in this particular case in the European Parliament.” In Strasbourg, center-left lawmakers said they could not endorse the report because Russia was not alone in posing such threats and they objected to the way it appeared to be given an equivalent status to the non-state militants of Islamic State.

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Not a bug but a feature. Given the multibillion ‘trouble’ with the JSF, what do you think the odds are the military-industrial complex makes broken equipemnt on purpose, for profit?

US Navy’s New $4 Billion Stealth Warship Breaks Down – Again (ZH)

For the second time in two months, The Navy’s new $4 billion stealth warship has broken down. As Military.com reports, the ripped-from-the-pages-of-a-sci-fi mag-looking USS Zumwalt is now in Panama for repairs after suffering a breakdown while passing through the Panama Canal on Monday evening. Military.com’s Hope Hodge Seck reports that a spokesman for U.S. 3rd Fleet, Cmdr. Ryan Perry, told Military.com that the commander of 3rd Fleet, Vice Adm. Nora Tyson, had instructed the USS Zumwalt, the first in a new class of stealthy destroyers, to remain at ex-Naval Station Rodman in Panama to address the engineering casualty. “The timeline for repairs is being determined now, in direct coordination with Naval Sea Systems and Naval Surface Forces,” he said in a statement.

“The schedule for the ship will remain flexible to enable testing and evaluation in order to ensure the ship’s safe transit to her new homeport in San Diego.” An official confirmed to Military.com that the ship had been transiting south through the canal en route to its new San Diego homeport when the incident occurred. The ship had to be towed to pier by the Panama Canal Authority, the official said. While details about what caused the breakdown were few, Navy Times – which first reported the incident – cited reports about problems with heat exchangers in the ship’s integrated power plant that had contributed to the mishap. [..]The ship also made headlines earlier this month when multiple outlets reported that the missiles fired from its 155mm Advanced Gun System, at $800,000 apiece, were too expensive for the Navy to buy in large quantities [..]

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But they’ve accepted tons of others already?!

Greece Wants To Conclude EU/IMF Review, Won’t Accept ‘Irrational’ Demands (R.)

Greece wants to conclude its bailout review but cannot accept what it sees as irrational demands on labor reform or for extra austerity, Prime Minister Alexis Tsipras said on Wednesday, in his first speech to lawmakers after a cabinet reshuffle. Negotiations between Greece and its official creditors – the EU and the IMF – hit a snag this week due to differences on fiscal targets, energy and labor reforms in the country, where one in four is unemployed. “The Greek government is fully consistent with what was agreed and has proven it has the political will to conclude the second bailout review without meaningless delays,” Tsipras told his Syriza party lawmakers. “But this does not mean we would discuss irrational demands.”

The mission chiefs overseeing Greece’s bailout program implementation left Athens on Tuesday. Government officials said talks would continue but the latest disagreements and a long-standing rift among the creditors on medium-term fiscal targets have clouded Greek hopes for a swift conclusion. Unpopular labor reforms, including collective bargaining, a mechanism to set the minimum wage and giving companies more freedom to lay off workers are the main sticking point in talks with lenders. Tsipras said differences could be bridged if there is political will on all sides, adding that an agreement could be reached by Dec. 5, when euro zone finance ministers will meet in Brussels.

“It is realistic but also absolutely necessary to conclude the talks soon to secure at the scheduled Dec. 5 … meeting the agreement needed on a political level in order to conclude the bailout review,” he said. Tsipras said this would pave the way for talks on debt relief measures, not only in the short term but also in the medium and long term, which would allow Greece to lower primary surplus targets beyond 2018, when its bailout program ends.

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The Troika forces Greece to strangle itself.

Greek Businesses Move Abroad To Escape Austerity (R.)

Greek businessman Prokopis Makris believes moving to Bulgaria three years ago was the best decision he ever made. The accountant shut his failing furniture company in Greece and opened a business helping other entrepreneurs move to Bulgaria to escape a 29% tax rate, which has jumped since Athens adopted austerity as part of an international bailout. “We are bombarded with taxes in Greece, businesses are being annihilated,” he says in his plush office overlooking the town square of Petritsi, a Bulgarian town about 12 km (seven miles) north of the border with Greece. The debt crises faced by Greece and several other European countries led to drastic spending cuts and tax increases to improve government finances.

But the higher taxes punished businesses forcing many to shut or move to lower tax jurisdictions such as Bulgaria or Cyprus, helping those economies but undermining the recovery needed to balance the books at home. The number of Greek owned businesses based in Bulgaria, where the corporate tax rate is only 10%, has risen to 17,000 from 2,000 in 2010, when Greece had its first bailout, according to Bulgarian authorities. The Greek government is concerned. It plans a series of tax audits in cooperation with Bulgaria to determine if these business defections are merely changes of address designed to avoid tax rather than a physical relocation of operations. [..] Six hundred kilometers north of Athens, the Greek-Bulgarian border is teeming with traffic. A ravine through mountains on the Greek side gives way to a sweeping valley where agriculture and vineyards are the mainstay of the local economy.

At two small industrial parks 5 km inside Bulgaria, Greek signs are everywhere, advertising storage and office space. “There are dozens of Greek businesses just in this area alone, from transport companies to textile businesses and construction materials,” said Yiorgos Kalaitzoglou who runs a logistics business out of one of the industrial parks where a sign reads, “Land of Opportunities”. Three years ago, his business was stuttering in Greece. He moved to Bulgaria, leaving his wife and family in Thessaloniki, Greece’s second largest city an hour’s drive away. “The taxman in Greece takes 70 to 90% of earnings, Greece simply doesn’t let you live,” the 50-year-old said as he walked through a warehouse stacked with ladders and paint tubs.

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Oct 182016
 
 October 18, 2016  Posted by at 9:06 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Russell Lee Hollywood, California. Used car lot. 1942

US Bondholders Risk a $1.1 Trillion Hit if Rates Spike (BBG)
US First Home Buyers Even More Leveraged Than During Housing Bubble (MW)
China’s Bad Credit (Balding)
Foreigners Shun Gilts On Hard Brexit Talk, As Hallowe’en Verdict Awaits (AEP)
The Cashless Society Is a Creepy Fantasy (BBG)
Greece in 2050: A Country For Old Men (Kath.)
Judge Rejects Riot Charges For Journalist Amy Goodman On Pipeline Protest (G.)
State Department Official Pressured FBI To Declassify Clinton Email (R.)
RBS Backtracks Over Closure Of RT Bank Accounts (RT)
The Odor of Desperation (Jim Kunstler)
Pentagon Backtracks, Voices Caution On Latest Yemen Missile Incident (R.)
We Have To Begin To Look Outside. Because There Is More Out There (Adam Curtis)

 

 

As Gilts sell off… Very reassuring.

US Bondholders Risk a $1.1 Trillion Hit if Rates Spike (BBG)

First they came for the yield, then they came for the duration. A Goldman Sachs analysis says investors could be mired in a world of pain if yields on long-dated assets snap higher. Just a modest backup in rates could inflict outsized losses on bond portfolios — a sobering prospect in light of the recent jump in longer-dated bond yields that’s already eating into bondholders’ capital returns. A 1% increase in interest rates could inflict a $1.1 trillion loss to the Bloomberg Barclays U.S. Aggregate Index, analysts at Goldman calculate, representing a larger loss for bondholders than at any other point in history. With the bank predicting the selloff in bonds has further to run, that remains “far from a tail scenario,” its analysts write.

Bets on longer-maturity obligations had paid off handsomely for most of the year amid a global bond rally triggered by expectations that weak economic activity will persuade central banks in advanced economies to postpone tightening monetary policy. Asset purchases by the BOJ, BOE and the ECB helped the average maturity of new U.S. corporate bonds climb to a peak of 11.3 years in August. With average bond maturities worldwide now more than double the inflation-adjusted level of 2009, and three times that of 1994, Goldman says there’s an elevated risk of losses if rates spike higher. “We see potential for the rates market to continue to sell off, and the notional amount of duration dollars at risk is unprecedentedly large,” Goldman fixed-income analysts, led by Marty Young, wrote in the report on Monday.

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“..lack of affordability. “We have our eye on the wrong ball..”

US First Home Buyers Even More Leveraged Than During Housing Bubble (MW)

Ever since the shock of the financial crisis ebbed and buyers began to return to the housing market, one truth has dominated: mortgage lending is tight. But is it? It’s true that only the borrowers with the highest credit scores get home loans now. So much lending to people with higher credit scores and so little to those on the lower end of the spectrum has shifted the average FICO score up about 40 points since before the bubble burst. But measured in another way, lending is shockingly loose. And, according to one economist, that tells us a lot not just about the housing market, but about the economy as a whole. The 20% down payment may linger in Americans’ imagination, but it’s even less real today than Jimmy Stewart’s small-town banker from 1946.

American homeowners, particularly those at the lower end of the market, are increasingly leveraged to pay for their houses, says Sam Khater, deputy chief economist at data provider CoreLogic. In fact, owners of entry-level homes, those in the $150,000 to $300,000 range — have more debt and less equity now than they did in 2005, at the height of mortgage mania. For Khater, that says less about credit markets and more about another defining feature of the post-recession housing market — its lack of affordability. “We have our eye on the wrong ball,” he told MarketWatch. “What I worry about is the leverage not from a default perspective but from an affordability perspective. Demand for credit has been weak. But the much bigger issue is the supply of housing, not supply of credit.”

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Swaps won’t rescue China’s bad debt. It’s just multiple state-owned firms selling each other the things.

China’s Bad Credit (Balding)

There is good news when it comes to China’s scary and still-growing pile of debt: At least the government recognizes the problem. Its attempts to mitigate those risks, however, seem doomed to fall short. The government’s recent decision to create a market for credit default swaps is a case in point. The idea, as elsewhere, is to give banks and investors a means of pricing and trading the risk of Chinese companies defaulting on their debts. The need is obvious: Official measures of non-performing loans are worsening, while unofficial estimates say their share may have reached anywhere from 8% to 20%. Anything that spreads that risk should improve financial stability. Yet, as envisioned, this new CDS market is unlikely to do much to improve the situation.

For one thing, all but the largest companies already have to purchase credit insurance when taking out loans from giant state banks. There’s no pricing differential on this insurance, of course. But for the new system to function effectively, the government would have to let markets freely set the price of credit risk. China doesn’t exactly have a stellar record of allowing markets to set prices in any field, whether in stocks, real estate or currencies. If credit default swaps started to indicate a rising risk of default at a major state-owned company, it’s hard to imagine officials wouldn’t intervene to reverse that impression. This is dangerous on multiple levels. Already, several Chinese credit insurance firms have collapsed because they underestimated credit risk, forcing government bailouts. Continuing to underprice risk will only encourage the over-allocation of credit that’s gotten China into trouble thus far.

There’s also little reason to think that creating a CDS market would shift risk away from the most vulnerable banks. In a heavily concentrated banking and lending market such as China, where major financial institutions all trade with each other, swaps are likely to produce no net change to risk levels. Think of a simple example. Assume that Bank A has loans totaling 100 billion yuan but wants to protect itself against the risk of default by buying a CDS from Bank B that covers these companies. Now assume that Bank B does the same to cover its 100 billion yuan of loans, with A as the counter-party. If we assume these are similar baskets of loans – a reasonable assumption for major banks within a single country – then there’s been no net change in credit risk for either bank.

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It doesn’t get much more serious than this: “The UK faces a balance of payments crisis..”

Foreigners Shun Gilts On Hard Brexit Talk, As Hallowe’en Verdict Awaits (AEP)

The bond vigilantes are sharpening their knives. The last five trading sessions have seen a sudden and potentially ominous shift in the reflexes of the Gilts market, a sign that ‘hard Brexit’ rhetoric has rattled global debt managers. “For the first time, foreign investors are beginning to question the credit-worthiness of the United Kingdom,“ said Vatsala Datta, UK rates strategist at RBC. We will find out how serious it is on October 31 – Hallowe’en day – when the UK Debt Management Office publishes its monthly data on foreign holdings of Gilts. Central banks, sovereign wealth funds, and the like, currently hold £503bn of British public debt or 27pc of the total, a bigger share than UK pension funds and insurance companies.

Yields on 10-year Gilts have spiked by 62 basis points to 1.14pc from their trough in August. Until last week this was pure a ‘reflation trade’, a turbo-charged variant of what has been happening in the US and other parts of the world as markets price in accelerating global growth and a commodity rebound. Britain got a double-dose because the sharp fall in sterling automatically pushed up the likelihood of future inflation, and that is what bondholders hate most. It is easy to measure the inflation component of moves by tracking how the ‘break-even inflation rate’ rises in tandem with the headline bond yield. “The correlation was exact. It has now broken down,” said Ms Datta. Break-even rates stopped rising last week, yet this time Gilt yields spiked higher, a divergence of 18 basis points.

RBC said the pattern in the interlocking currency and debt markets is clear: sterling is no longer trading like a bona fide reserve currency. “The parallel sell-off in gilts and sterling is potentially a worrying development, consistent with the UK’s having growing difficulty funding its internal and external deficits,” it said. What typically happens when a blue chip currency like the US dollar or the Swiss franc falls is that central banks and fund managers buy more of that country’s bonds to keep a constant weighting. This is a mechanical practice. It happens unless managers take a conscious decision to override their model. It is why foreign holdings of UK Gilts have risen by 20pc over the last year, and why they surged at an even faster rate after the referendum.

This foreign rush into Gilts happened not in spite of the falling pound, but because of it. All of a sudden this has stopped. Loose proxies such as ‘swap spreads’ suggest an outright exodus from Gilts even as the pound weakens. It is symptomatic that the Japanese bank Nomura has issued a string of tough reports about what could happen if the British government opts to leave the EU single market, warning that an erratic UK can no longer count on the “kindness of strangers” to fund its current account deficit. “The UK faces a balance of payments crisis,” it says, menacingly.

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“..if we’re going to cite unlawful transactions as a rationale for banning cash, it only makes sense to ban banks and accounting firms first.”

The Cashless Society Is a Creepy Fantasy (BBG)

It’s fun to imagine a world without cash. Liberated from the burden of physical currency, consumers could make purchases from the convenience of a mobile device. Every transaction would come equipped with fraud protection, reward points and a digital record of its time and location. Comprehensive tracking could help the Internal Revenue Service reclaim billions of tax dollars lost to unreported income, like the $80 I made selling a used refrigerator on Craigslist. Drug dealers, helpless without an anonymous medium of exchange, would acquire wholesome professions. El Chapo might become a claims adjuster. Such is the utopia recently described by Nathan Heller in the New Yorker and by a former chief economist of the International Monetary Fund, Kenneth Rogoff, in a new book, “The Curse of Cash.”

But this universe is missing one of the fundamental aspects of human civilization. A world without cash is a world without money. Money belongs to its current holder. It doesn’t matter if a banknote was lost or stolen at some point in the past. Money is current; that’s why it’s called currency! A bank deposit, however, grants custody of money to the bank. An account balance is not actually money, but a claim on money. This is an important distinction. A claim is only as good as its enforceability, and in a cashless society every transaction must pass through a financial gatekeeper. Banks, being private institutions, have the right to refuse transactions at their discretion. We can’t expect every payment to be given due process.

This means that politically unpopular organizations could easily be deprived of economic access. Past attempts to curb money laundering have already inadvertently cut off financial services for legitimate individuals, businesses, and charities. The removal of paper currency would undoubtedly leave similar collateral damage. The crime-fighting case against cash is overstated. Last year, a risk assessment of money laundering and terrorist financing conducted by the U.K. government found that regulated institutions such as banks (like HSBC) and accountancy service providers (like the Panamanian tax-shelter specialist Mossack Fonseca) posed the highest risk of facilitating the illicit storage or movement of funds. Cash came in a close third, but if we’re going to cite unlawful transactions as a rationale for banning cash, it only makes sense to ban banks and accounting firms first.

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Extrapolating trends is a pretty much useless exercise.

Greece in 2050: A Country For Old Men (Kath.)

By 2050, Greece’s population is expected to shrink by 800,000 to 2.5 million people to between 8.3 and 10 million, and one in three of its residents will be over the age of 65 (30-33% compared to the present 21% and 7% in 1951), while under-14s will represent just 12-14.8% from 15% today and 28% in 1951. This dystopian view of the country – with empty schools and offices – emerges from a recent study on Greece’s demographic prospects, presented by the Athens-based Dianeosis research organization. The study explored eight different scenarios, all of which calculated a significant drop in the population by 2050. The most optimistic saw a reduction of 800,000 people and the rapid aging of society. The median age is seen reaching 49-52 years from 44 today and 26 in 1951.

By then, the study says, 50-year-olds will be the young ’uns. The number of school-age children (3-17) will drop from 1.6 million today to 1.4 million in the optimistic scenario and 1 million in the pessimistic one and the economically active population will shrink from 4.7 million people today to between 3 and 3.7 million, meaning that a much lower number of people will be able to work to cover the country’s needs. The study by Dianeosis reflects trends that are already being noted: On January 1, 2015, Greece’s population came to 10.8 million from 11.1 million in 2011, marking the first time since 1951 that the number of the country’s residents has gone down.

There are three factors that affect population fluctuations – births, deaths and migration – which can be separated into two categories, the natural process of births and deaths, and the migration factor, which includes both inflows and outflows. Today, births are decreasing and deaths going up due to sliding standards of living and a crumbling public healthcare system. Meanwhile, the outflow of mainly young Greeks and foreigners from the country is on the rise, while, despite the arrival of thousands of migrants, the crisis is preventing their numbers from being made up by fresh inflows.

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It helps when politicians actually know the law.

Judge Rejects Riot Charges For Journalist Amy Goodman On Pipeline Protest (G.)

A North Dakota judge rejected prosecutors’ “riot” charges against Democracy Now! host Amy Goodman for her reporting on the oil pipeline protests, a decision that advocates hailed as a major victory for freedom of the press. After the award-winning broadcast journalist filmed security guards working for the Dakota access pipeline using dogs and pepper spray on protesters, authorities issued a warrant for Goodman’s arrest and alleged that she participated in a “riot”, a serious offense that could result in months in jail. On Monday, judge John Grinsteiner ruled that the state lacked probable cause for the riot charge, blocking prosecutors from moving forward with the controversial prosecution.

“I feel vindicated. Most importantly, journalism is vindicated,” Goodman told reporters and supporters on a live Facebook video Monday afternoon. “We have a right to report. It’s also critical that we are on the front lines. Today, the judge sided with … freedom of the press.” The case stems from a 3 September report when Goodman traveled to the Native American-led protest against a controversial $3.8bn oil pipeline that the Standing Rock Sioux tribe says is threatening its water supply and cultural heritage. Goodman’s dispatch on the use of dogs went viral and has since garnered 14m views on Facebook and also prompted coverage from many news outlets, including CBS, NBC, NPR and CNN.

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I picked the Reuters take on this. There are many others, some much more negative. The crux: This is getting way out of hand. Trying to interfere with classified material is crazy and desperate. And very illegal.

State Department Official Pressured FBI To Declassify Clinton Email (R.)

A senior State Department official sought to shield Hillary Clinton last year by pressuring the FBI to drop its insistence that an email on the private server she used while secretary of state contained classified information, according to records of interviews with FBI officials released on Monday. The accusation against Patrick Kennedy, the State Department’s most senior manager, appears in the latest release of interview summaries from the Federal Bureau of Investigation’s year-long investigation into Clinton’s sending and receiving classified government secrets via her unauthorized server.

Although the FBI decided against declassifying the email’s contents, the claim of interference added fuel to Republicans’ belief that officials in President Barack Obama’s administration have sought to protect Clinton, a Democrat, from criminal liability as she seeks to succeed Obama in the Nov. 8 election. The FBI recommended against bringing any charges in July and has defended the integrity of its investigation. Clinton has said her decision to use a private server in her home for her work as the U.S. secretary of state from 2009 to 2013 was a mistake and has apologized. One FBI official, whose name is redacted, told investigators that Kennedy repeatedly “pressured” the various officials at the FBI to declassify information in one of Clinton’s emails.

The email was about the deadly 2012 attack on a U.S. compound in Benghazi, Libya, and included information that originated from the FBI, which meant that the FBI had final say on whether it would remain classified. The dispute began in the summer of 2015 as officials were busy reviewing the roughly 30,000 emails Clinton returned to the State Department ahead of their court-ordered public release in batches in 2015 and 2016. The official said the State Department’s office of legal counsel called him to question the FBI’s ruling that the information was classified, but the FBI stood by its decision. Soon after that call, one of the official’s FBI colleagues received a call from Kennedy in which Kennedy “asked his assistance in altering the email’s classification in exchange for a ‘quid pro quo.'”

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From the Times (behind paywall): “The state-owned bank withdrew its planned punitive action after Moscow claimed it would freeze the BBC’s finances in Russia and report Britain to international watchdogs for breaching commitments to freedom of speech.”

RBS Backtracks Over Closure Of RT Bank Accounts (RT)

The Royal Bank of Scotland (RBS) appears to have backtracked from its earlier statement that the looming closure of RT accounts is not up for discussion. In a letter to RT, the bank said the situation is being reviewed and the bank is contacting the customer. The e-mailed response began with apologies for the delay in the reply. These decisions are not taken lightly. We are reviewing the situation and are contacting the customer to discuss this further. The bank accounts remain open and are still operative,” Sarah Hinton-Smith, Head of Corporate & Institutional, Commercial & Private Media at RBS Communications, wrote. However, the response by Hinton-Smith contradicted an earlier statement by RBS, which said that the decision to suspend banking services to RT was final and not up for discussion.

The broadcaster addressed the Royal Bank of Scotland representative over the contradiction, pointing out that “your statement seems to suggest that the bank will contact RT and that there will be a review and further discussion.” “There’s not much more of a steer I can give other than what is in the statement,” Hinton-Smith replied via email. Earlier Monday, the National Westminster Bank (NatWest), which is part of RBS Group, informed RT UK’s office in London that it will no longer have the broadcaster among its customers, without providing any explanation for the decision.

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“..the fact that the US polity now so desperately has to fight for survival shows how frail its legitimacy is.”

The Odor of Desperation (Jim Kunstler)

It must be obvious even to nine-year-old casual observers of the scene that the US national election is hacking itself. It doesn’t require hacking assistance from any other entity. The two major parties could not have found worse candidates for president, and the struggle between them has turned into the most sordid public spectacle in US electoral history. Of course, the Russian hacking blame-game story emanates from the security apparatus controlled by a Democratic Party executive establishment desperate to preserve its perks and privileges . (I write as a still-registered-but-disaffected Democrat).

The reams of released emails from Clinton campaign chairman John Podesta, and other figures in HRC’s employ, depict a record of tactical mendacity, a gleeful eagerness to lie to the public, and a disregard for the world’s opinion that are plenty bad enough on their own. And Trump’s own fantastic gift for blunder could hardly be improved on by a meddling foreign power. The US political system is blowing itself to pieces. I say this with the understanding that political systems are emergent phenomena with the primary goal of maintaining their control on the agencies of power at all costs. That is, it’s natural for a polity to fight for its own survival. But the fact that the US polity now so desperately has to fight for survival shows how frail its legitimacy is.

It wouldn’t take much to shove it off a precipice into a new kind of civil war much more confusing and irresolvable than the one we went through in the 1860s. Events and circumstances are driving the US insane literally. We can’t construct a coherent consensus about what is happening to us and therefore we can’t form a set of coherent plans for doing anything about it. The main event is that our debt has far exceeded our ability to produce enough new wealth to service the debt, and our attempts to work around it with Federal Reserve accounting fraud only make the problem worse day by day and hour by hour. All of it tends to undermine both national morale and living standards, while it shoves us into the crisis I call the long emergency.

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If anything ever smelled like a flase flag, it was this. Mere days after the world turned on the US and its Saudi friends for bombing a funeral procession, the Houthis supposedly shot at a US destroyer, missed by a mile and a half, and next thing you knew all of a sudden the US was itself involved in the so-called war, which is really just slaughter.

Pentagon Backtracks, Voices Caution On Latest Yemen Missile Incident (R.)

The Pentagon declined to say on Monday whether the USS Mason destroyer was targeted by multiple inbound missiles fired from Yemen on Saturday, as initially thought, saying a review was under way to determine what happened. Any determination that the USS Mason guided-missile destroyer was targeted on Saturday could have military repercussions, since the United States has threatened to retaliate again should its ships come under fire from territory in Yemen controlled by Iran-aligned Houthi fighters. The United States carried out cruise missile strikes against radar sites in Yemen on Thursday after two confirmed attempts last week to hit the USS Mason with coastal cruise missiles. “We are still assessing the situation. There are still some aspects to this that we are trying to clarify for ourselves given the threat – the potential threat – to our people,” Pentagon spokesman Peter Cook told a news briefing.

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Unfortunately, Curtis’ film Hypernormalization is for now still only available in Britain. Far as I know.

We Have To Begin To Look Outside. Because There Is More Out There (Adam Curtis)

Power is all around us. It’s just that it has shifted and mutated into a massive system of management and control, whose tentacles reach into all parts of our lives. But we can’t see it because we still think of power in the old terms – of politicians telling us what to do. The aim of the film I have made – HyperNormalisation – is to bring that new power into focus, and show its true dimensions. It ranges from a giant computer high up in the mountains of northeast America that manages and controls over 7% of the worlds total wealth, to the complex algorithms that constantly monitor every move and choice you make online, to modern scientific ideas about what the normal human being should be – in their weight and in their feelings and moods.

What links all these systems is an overriding aim is to keep the world stable. To avoid all change. The giant computer constantly compares events happening around the world to events in the past. If it sees a dangerous pattern, it immediately adjusts its trillions of dollars to keep things stable. That is real power. The algorithms on social media constantly look at the patterns of what you like and then feed you more of that – so you enter into an echo chamber that constantly feeds you back to you. So again nothing changes – and you learn nothing new that would contradict how you feel. That too is real power. What results is a system which cocoons us and makes us feel safe. And that means we have become terrified of all change.

But that fear of change is in the interest of a system that wants to hold everything stable. And stops us from ever challenging it. But it is impossible to keep things frozen forever. The world is dynamic. Things happen that you can never predict just by reading the past. This is why more and more we are being hit by events – the horror in Syria, Brexit, Trump, the waves of refugees – that neither we nor our leaders have the mental map to understand let alone deal with. Because we have bought into the dream that the world can be held stable and safe. The short film I have made for VICE is about how, if you pull back and look at the everyday life all around you, you can see the cracks appearing through the shiny surface of the cocoon we are living in.

So much of the modern world is beginning to feel odd, unreal and sometimes fake. I think these are the dynamic forces outside beginning to pierce through as the system begins to fail. It will fail – because a system of power that has no vision of the future can never last. It cannot deal with change. We have to begin to look outside. Because there is more out there…

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May 162015
 
 May 16, 2015  Posted by at 10:19 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »
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Lewis Wickes Hine Workers stringing beans in J.S. Farrand Packing Co, Baltimore 1920

The New Era Of Return-Free Risk (Reuters)
Global Asset Classes Suffer From a Highly Contagious Disease (Bloomberg)
US Farmers In ‘Dire Straits’: JPM Warns Of Liquidity Crunch (Zero Hedge)
Private Debt, Economic Stagnation and a Modern Debt Jubilee (Steve Keen)
China Backtracks on Deleveraging Local Government Debt (WSJ)
China Deleveraging Measures Create Perpetual Leverage Machine (Zero Hedge)
A Blueprint for Greece’s Recovery within a Consolidating Europe (Varoufakis)
Greek PM Tsipras Takes ‘Command’ Of Reform Talks (CNBC)
Tsipras Says He Won’t Cross Red Lines in Talks With Creditors (Bloomberg)
Greece Pays Public Sector Wages To Avert Fresh Economic Crisis (Guardian)
Home Is Where The Household Income Goes (Kathimerini)
Osborne Calls Emergency July Budget To Reveal Next Wave Of Austerity (Guardian)
Russia is a Product of WWII, In Terms of Demographics (Adomanis)
Poland Pays $250,000 To Alleged Victims Of CIA Rendition And Torture (Guardian)
Ukraine GDP Drops 17.6%, Prices Rise 61% (FT)
Anti-Poverty Crusader Leads Race To Be Barcelona’s Next Mayor (Guardian)
US Anger With RT Will Start World War Three – Emir Kusturica (Sputnik)
Food and Finance: Create A Revolution With Your Shopping Trolley (Berrino)
The Awful Truth About Climate Change No One Wants To Admit (Vox)
Without Universal Access To Water, There Can Be No Food Security (Guardian)

WIth today’s exteremely distorted asset prices, risk must get distorted too.

The New Era Of Return-Free Risk (Reuters)

U.S. and German government bonds are gyrating as they rarely do. Yields are shooting higher for no apparent reason, and sometimes falling back within hours for equally unclear motives. Such turbulence in the biggest and most liquid bond markets is ushering in a new era. The traditional concept of risk-free returns has been turned on its head. Ten-year Bund yields have multiplied by 16 times, to a high of 0.80% on May 7 from 0.05% on April 17. And German bond prices, which move inversely to yields, have suffered a larger drop than in 99% of the three-week periods of the last 25 years, UBS Wealth Management strategists calculate. Meanwhile, comparable U.S. yields have risen by more than a quarter in less than four weeks, peaking at 2.37%.

The brutal moves are creating what Jan Straatman, global chief investment officer at Lombard Odier Investment Managers, calls “return-free risk”. Investors have two problems as a result. The first is sharply practical. Safety has become expensive, or less safe. Holding cash in the form of a rock-solid currency, such as the Swiss franc, is punitive, since policy interest rates are close to zero, or even negative. Gold is supposed to be a solid store of value, but the price is in thrall to the dollar’s volatile exchange rate. And now U.S. and German government bonds are looking risky.

These days, the hunt for safety is not a big theme for most investors. They would rather take some risks in return for higher yields. But that brings up the second problem with the new era. High turbulence in supposedly safe bond markets complicates the pricing of risk. The standard asset pricing model relies on a benchmark risk-free interest rate. Riskier investments – from corporate bonds through shares to artworks – are supposed to promise a probable additional return in exchange for additional uncertainty and price volatility. The model is like a compass pointing in the direction of the right price. But this compass goes haywire when safe debt becomes extraordinarily volatile. Investors are left at sea.

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“And when they all convince themselves to be mega-long at the wrong price, the market inevitably cracks.”

Global Asset Classes Suffer From a Highly Contagious Disease (Bloomberg)

A trio of profitable trades over the past year – long U.S. dollar, long Treasuries, and long European equities – have taken a big hit in the second quarter of 2015. Over at Jefferies, chief market strategist David Zervos puts his finger on the source of these sell-offs: German debt. Zervos writes: “The Dollar, the U.S. bond market, and the European stock market have all recently become infected with a highly contagious disease. The source of this nasty fever appears to be coming from none other than the sleepy old German bond market.” The yield on 10-year German sovereign debt has spiked from below 0.1% in mid-April to 0.635% as of publishing. That’s the kind of move you’d expect to see about once every six decades.

Investors who bought bunds, Zervos argues, bet on the wrong horse following the introduction of quantitative easing by the ECB. “When QE begins folks sadly get excited about front running central bank duration purchases, and then they take a very rich asset and make it stupid rich,” he writes. “And when they all convince themselves to be mega-long at the wrong price, the market inevitably cracks.” The sell-off in bunds began at a time when European credit growth was beginning to turn up, the economy began to improve, and a pair of fixed income legends, Jeffrey Gundlach and Bill Gross, offered some very bearish commentary on German bonds. The sell-off also came at a time of extreme positioning in major markets.

According to Zervos, the toppling of this domino is currently rippling through other asset classes. He considers this a period in which all these popular trades will get hit as the market purges the good QE trades from the poor ones. “Right now we have to get through this nasty period of contagious spring fever in Europe, or what the Germans would call Frühjahrsmüdigkeit,” he writes. “I honestly don’t know how long this fever will last (or how to pronounce that crazy German word), but none of this nasty price action dissuades from believing in the long-term QE-induced reflationary trend for European risk assets.”

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US ag gets hit from many sides at once, from drought to credit drought.

US Farmers In ‘Dire Straits’: JPM Warns Of Liquidity Crunch (Zero Hedge)

Despite the government’s ‘advice’ to young debt-laden students, the tragedy of the American farmer continues with worryingly pessimistic views on the future of the industry. With farmland prices falling for the first time in almost 30 years, credit conditions are weakening dramatically and the Kansas City Fed warns that persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity, and JPMorgan concludes, the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.

Not so long ago, US farmland – whose prices were until recently rising exponentially – was considered by many to be the next asset bubble. Then, almost overnight, the fairytale ended, and as reported in February, US farmland saw its first price drop since 1986. Looking ahead, very few bankers expect price appreciation and more than a quarter of survey respondents expect cropland values to decline further in the next three months. And now, The Kansas City Fed warns that Agricultural credit conditions are worsening rapidly…

Credit conditions in the Federal Reserve’s Tenth District weakened as farm income declined further in the first quarter of 2015. Persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity. Funds were available to meet historically high loan demand, but loan repayment rates dropped considerably. Although profit margins in the livestock industry have remained stable, most bankers do not expect farm income or credit conditions to improve in the next three months.

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“..economic growth will remain low (and inequality will remain high) until the level of private debt is drastically reduced..”

Private Debt, Economic Stagnation and a Modern Debt Jubilee (Steve Keen)

This is the talk I gave at the 8th Subversive Festival in Zagreb on May 15th 2015. I start with the Queen of England’s question “If these things were so large, how come everyone missed them? Why did nobody notice it?” and then show how private debt was the missing ingredient in the models that conventional economists have, which is why they missed the crisis. I finish with the assertion that economic growth will remain low (and inequality will remain high) until the level of private debt is drastically reduced. I recommend a “Modern Debt Jubilee” as the way to do this.

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As we predicted many times, China is failing in its attempts to smother the shadow banking system, which is A) too big to fight and B) too crucial for the economy.

China Backtracks on Deleveraging Local Government Debt (WSJ)

China is reversing course on a major effort to tackle its hefty local government debt problem, marking a setback for a priority reform aimed at getting its financial house in order. The move could provide the economy with some short-term help. But it restores a backdoor way that enabled local governments to load up on debt in recent years, providing a drag on growth at a time when Beijing is looking for ways to rekindle it. According to an announcement made Friday by the State Council, China’s cabinet, the authorities relaxed controls on the ability of local governments to raise money by allowing them to tap government-sponsored financing companies—the very entities that have been blamed for a rapid run-up in China’s local debt load over the past few years.

The move undermines an October policy intended to prevent those financing firms from taking on new debt. It comes as China’s long push toward financial reform—part of its broader effort to make the economy rely less on big investments but more on consumer spending—increasingly bumps up against a more pressing national goal: boosting growth. “To transition to a consumer-led economy, China will have to push through painful reforms and accept recession,” said Geoffrey Barker at Asian Macro Fund in Hong Kong. “But at least for now, the government appears unwilling to do that.” The latest move comes as the world’s second-largest economy endures slower-than-expected growth. A barrage of monetary-easing measures since last year has proved insufficient to counter a real-estate downturn and flagging factory output.

Earlier this week, China reported a sharp drop-off in growth of investment in factories, buildings and other fixed assets in the first four months compared with a year ago, partly because local governments found credit hard to come by to invest in big projects due to Beijing’s crackdown on local borrowing. Now, by backtracking on the local-debt cleanup initiative, Beijing is resorting to greater stimulus efforts to meet GDP targets. “We take this as a significant policy easing signal,” said chief China economist Zhiwei Zhang at Deutsche Bank. The need to bolster growth gained urgency after an April tour by Premier Li Keqiang of China’s three Rust Belt provinces in the northeast, including Liaoning, Jilin and Heilongjiang, according to Chinese officials with knowledge of the leadership’s thinking.

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CHina is simply too addicted to debt to move away smoothly.

China Deleveraging Measures Create Perpetual Leverage Machine (Zero Hedge)

China is in a tough spot and it’s starting to show up in what look like contradictory policy decisions. The problem goes something like this. In the interest of curbing systemic risk and decreasing the percentage of total social financing (TSF) comprised of off-balance sheet financing, China has moved to rein in the shadow banking boom that helped fuel the country’s meteoric growth. The effort to deleverage a system laboring under some $28 trillion in debt is complicated by the fact that the export-driven economy is growing at the slowest pace in 6 years (and that’s if you believe the official numbers), a scenario which calls for some manner of stimulus.

Unfortunately, the yuan’s dollar peg has served to further pressure China’s exports while rising capital outflows (plus an IMF SDR bid) make currency devaluation an undesirable tool for boosting the economy. Beijing has thus resorted to slashing policy rates, cutting the benchmark lending rate three times in six months and RRR twice this year (and they aren’t done yet). This of course flies in the face of attempts to deleverage the system. That is, lowering real interest rates encourages more leverage, not less, but Beijing has little choice. It must walk the tightrope, because at some point, the deceleration in economic growth will become so readily apparent that China will no longer be able to stick to the (likely) fabricated 7% output figure.

As we discussed on Thursday, the country’s local government debt dilemma is a microcosm of the challenges facing the broader economy. Local governments used shadow banking conduits to skirt borrowing limits, accumulating a massive pile of high-yield debt in the process. The total debt burden for these localities sums to around 35% of GDP and because a non-trivial portion carries yields that are much higher than traditional muni bonds, the debt servicing costs have become unbearable. To remedy the situation, Beijing is implementing a debt swap program which allows local governments to swap their high-yielding loans for long-term bonds with lower coupons.

In order to create demand for the new issues, the PBoC is allowing banks that purchase the new bonds to post them as collateral for cash that can then be re-lent to the broader economy, presumably at a healthy spread. So while the program is designed to help local governments deleverage by cutting hundreds of billions from debt servicing costs, the PBoC’s move to allow the new LGBs to be pledged for cash by the purchasing banks, means that on net, the entire refi program will actually add leverage to the system as banks use the cash they receive from repoing their LGBs to make new loans.

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“The institutions have, over the years, relied on a process of backward induction..”

A Blueprint for Greece’s Recovery within a Consolidating Europe (Varoufakis)

[..] .. agreement on a new development model for Greece requires overcoming two hurdles. First, we must concur on how to approach Greece’s fiscal consolidation and our management of public debt. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society on the one hand and our partners on the other. Beginning with fiscal consolidation, the issue at hand concerns the method. The institutions have, over the years, relied on a process of backward induction: They set a date (say, the year 2019) and a target for the ratio of nominal debt to national income (say, 120%) that must be achieved before money markets are deemed ready to lend to Greece at reasonable rates.

Then, under arbitrary assumptions regarding growth rates, inflation, privatization receipts, and so forth, they compute what primary surpluses are necessary in every year, going backwards to the present. The result of this method, in our government’s opinion, is an ‘austerity trap’. When fiscal consolidation turns on a pre-determined debt ratio to be achieved at a predetermined point in the future, the primary surpluses needed to hit those targets are such that the effect on the private sector undermines the assumed growth rates and thus derails the planned fiscal path. Indeed, this is precisely why previous fiscal-consolidation plans for Greece missed their targets so spectacularly.

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Greece is getting tired of the institutions.

Greek PM Tsipras Takes ‘Command’ Of Reform Talks (CNBC)

Greek Prime Minister Alexis Tsipras has taken control of the country’s reform talks with its international lenders at a “critical” point in the negotiations, Greek government sources told CNBC. The sources, who did not want to be named due to the sensitive nature of the discussions, told CNBC that the Greek prime minister had taken command of the negotiating process and was involved in discussions with the Brussels Group of the country’s creditors – the IMF, European Commission and ECB as well as the European Stability Mechanism.

The sources added that a teleconference held Thursday on the reforms were held at the prime minister’s office – an incident denied by the government’s official spokesman. The Athens government has been in debt deadlock with its international creditors since it came to power in late January. While the left-wing Syriza party was elected on an anti-austerity ticket, those holding the purse-strings on its multibillion-euro bailout are insisting on strict economic and welfare reforms. The sources added that Tsipras’ move to lead the talks was an attempt to show his commitment to finding a resolution to the country’s impasse with lenders.

Greece certainly needs a deal over reforms, which could release a vital €7.2 billion euros worth of aid from its second bailout program. The country has millions of euros worth of loan repayments to pay over the next few weeks and months to lenders and money is running out. The sources noted that Tsipras wanted to be more involved in the talks as they entered a “delicate and critical” phase, adding that the prime minister was focusing on the “political” side of the deal while Finance Minister Yanis Varoufakis and Euclid Tsakalatos (currently in charge of Greece’s negotiating team) had been looking after the “technical side.”

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“Tsipras’s mandate from the Greek people is the biggest stumbling block to a deal with the country’s creditors..” Huh? Where did democracy go?

Tsipras Says He Won’t Cross Red Lines in Talks With Creditors (Bloomberg)

Greece won’t cross its red lines in negotiations with international creditors just because time is pressing to close a deal, Prime Minister Alexis Tsipras said. “Those who think that our red lines will fade as time goes on would do well to forget it,” Tsipras said at a conference in Athens late Friday. “I want to assure the Greek people that there’s no way the government will back down on the issue of pension and wage cuts,” he said. “A deal must be reached but it must be mutually beneficial.” Tsipras will address the standoff in bailout negotiations on the sidelines of a meeting of European Union leaders to be held May 21-22 in Riga, Latvia. More than 110 days of talks between Greece and its creditors have failed to produce an agreement to unlock further aid and avert default.

The standoff has triggered a liquidity squeeze, pulling the country back into a recession and renewing doubts over Greece’s future in the euro area. “The bottom line is that pressure on Greek authorities to come to a deal is rising,” JPMorgan’s Barr and Mackie wrote in a note to clients Friday. “The pressures on central government cash flow, pressures on the banking system and the political timetable are all converging on late May-early June. At that point some form of interim deal will need to be struck” and “it’s clear that time is running out,” they said. Negotiations in the so-called Brussels Group of Greek and creditor institution representatives will continue over the weekend and into next week.

While Greece has found common ground with its creditors in areas including fiscal targets, a marginal change to the sales tax rate and tax administration reform, there are “still open issues” concerning labor market and pension system reforms, Tsipras said. Greece may seek an additional meeting of euro-area finance ministers by the end of May, Greek government spokesman Gabriel Sakellaridis said on May 14, as the cash crunch intensifies. It remains unclear how Tsipras will deal with the likely objection by the Left Platform section of his Syriza party to the content of any deal, Barr and Mackie said. “Even small countries can stand upright to confront imperialist pressures and threats,” Greek Energy Minister Panagiotis Lafazanis said today in Athens following a meeting with Venezuela’s ambassador to Greece. Lafazanis leads the Left Platform.

Tsipras’s mandate from the Greek people is the biggest stumbling block to a deal with the country’s creditors, Maltese Finance Minister Edward Scicluna said in an interview Friday.

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Wise.

Greece Pays Public Sector Wages To Avert Fresh Economic Crisis (Guardian)

Greece avoided another financial crisis by paying about €500 million in wages to public sector workers, but suffered another downgrade of its credit rating. “The mid-May payments of wages and pensions … were made within the scheduled time frame,” the finance ministry said. They had been due on Friday. The payment came as Greece remained locked in talks with its creditors in an effort to release €7.2bn of bailout funds to avoid a default and exit from the eurozone. In a sign the leftist Syriza government was preparing to compromise over some of the reforms demanded by Brussels and the IMF, it said it would push ahead with privatisation of its biggest port, Piraeus.

It is in talks with China’s Cosco Group, which manages two container piers at the port, about selling a majority stake. “We are in very advanced talks to expand this cooperation very soon in relation with the inclusion of a railway network as well,” the defence minister, Panos Kammenos, told an economic conference in Athens. The Greek prime minister, Alexis Tsipras, said his country was “very close” to reaching a vital deal with bailout lenders, but insisted there was “no possibility” of giving in to key demands including further cuts to pensions and wages.

Tsipras said the government had not abandoned its goal to try to persuade lenders to restructure Greece’s debt. “It appears that we have reached common ground with the institutions on a number of issues, and that makes us optimistic that we are really very close to an agreement,” Tsipras said, noting convergence on harmonised sales tax rates and tax administration reforms. “But several issues remain open … I want to reassure the Greek people that there is no chance or possibility for the Greek government to retreat on the issue of wages and pensions. Wage earners and pensioners have suffered enough.”

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28.1% of mortgages are non-performing.

Home Is Where The Household Income Goes (Kathimerini)

Owning or even renting a home has become a bane rather than a boon for Greeks – to say nothing of the taxes ownership and utilization of a property entail – as the latest Housing Europe report shows that Greece has the highest housing costs as a percentage of disposable income among all European Union states. The cost of maintaining a home comes to 37% for average households, soaring to 65% for those close to the poverty line, the annual study found. The respective average rates in the EU are 22.2% and 41%. The survey counts costs as rent for tenants or mortgage payments for owners, spending on heating, electricity, water and sewage, and telephony, as well as building maintenance and other expenditures.

The continual decline in household revenues – mainly through cuts to salaries and pensions – coupled with the steady increase in other costs such as power rates and heating oil, meanwhile, is putting an increasing number of households at serious risk. Denmark comes second on the list, with 30% of people’s disposable income going into the maintenance of their home, followed by Germany with 28%. Both of these countries, however, have a low rate of home ownership compared with Greece, so the cost of rent takes up a bigger chunk of housing expenditure. This also suggests that Greece’s high rate is due to the decline in incomes after the outbreak of the financial crisis and the spike in unemployment, rather than to an increase in expenditure.

According to the latest available data, from the 2011 census, the rate of people living in their own homes comes to 73.2%, while 21.7% live in rented properties. In Germany, home ownership amounts to just 45.4% and in Denmark it stands at 51%. According to EU data in 2012, Greece also had the highest share of people overburdened by housing costs at 33.1%. This country also tops other unenviable lists, as it has the highest rate of people with unpaid utilities (31.8%), as well as of mortgage borrowers with arrears and of tenants owing rent (both around 15%). The rate of bad loans has soared in recent years, with nonperforming mortgages climbing from 3.6% in 2008 to 28.1% of all mortgages in end-2014.

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Britons will take to the streets.

Osborne Calls Emergency July Budget To Reveal Next Wave Of Austerity (Guardian)

George Osborne will reveal how the government plans to cut £12bn from Britain’s welfare bill when he announces a fresh wave of austerity measures in his second budget in less than four months on 8 July. The chancellor said he wanted to make a start delivering on the commitments made in the Conservative party manifesto and pledged that his package would be a budget for “working people”. Announcing his decision in an article in the Sun, Osborne said he would provide details of how the government plans to eliminate the UK’s budget deficit – forecast to be £75bn this year – and run a surplus by the end of the parliament.

“On the 8th of July I am going to take the unusual step of having a second budget of the year – because I don’t want to wait to turn the promises we made in the election into a reality … And I can tell you it will be a budget for working people.” Treasury sources said the budget would address Britain’s poor productivity record, which has held back growth in living standards, and would also announce plans to create 3m new apprenticeships. However, the centrepiece of the package will be a fresh bout of austerity, with Osborne keen to get unpopular measures out of the way early in the parliament, in readiness for pre-election tax cuts once the public finances have improved.

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“In 1946 there were roughly 2.5 million children between the ages of 0 and 5 living in the Soviet Union. There should have been around 6.5 million.”

Russia is a Product of WWII, In Terms of Demographics (Adomanis)

The human costs of the war really do beggar belief. The first and most obvious costs are the people (primarily men between the ages of 19 and 40) who were actually killed in combat. And, as you might expect, these losses were positively enormous: in some age cohorts, fully half the men who should have been alive in 1946 were not. Somewhat surprisingly the biggest absolute and proportional losses seem to have fallen on those men who were roughly 30 years old when the war started. In most cinematic depictions of the war that I’ve seen the average rank and file soldier is presented as a fresh-faced recruit straight out of high school, but this evidently isn’t a particularly accurate presentation of what actually happened.

Another thing that was somewhat surprising was the relative paucity of losses among the female part of the population. The German occupation of the Baltics, Ukraine, and large sections of European Russia was famously barbaric. Civilians living in those areas were treated brutishly, often for a period of many years. Any number of films display in quite excoriating detail the horrific ways in which the Nazis treated the people whom they occupied. But unlike the entire generation of young men that was “missing” as a result of the war, from a demographic standpoint Soviet women were not impacted to nearly the same degree. Given what I had read about the egregious losses among civilians in places like Leningrad, Stalingrad, and Rostov this was unexpected.

But what really blew me away was the “unseen” demographic cost of the war: those children that would have been born had pre-war fertility patterns been sustained throughout the 1940’s. Here the losses are even more nightmarish than those suffered by young males of prime combat age. In 1946 there were roughly 2.5 million children between the ages of 0 and 5 living in the Soviet Union. There should have been around 6.5 million. These losses of four million lost births won’t show up anywhere on a monument or a casualty roster, but that doesn’t make them any less real. Indeed, from the standpoint of their impact on Russia’s future they were likely even more significant than the millions of young men who died in combat, permanently lowering Russia’s potential population.

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WIll there be more of these cases coming soon?

Poland Pays $250,000 To Alleged Victims Of CIA Rendition And Torture (Guardian)

Poland is paying a quarter of a million dollars to two terror suspects allegedly tortured by the CIA in a secret facility in this country – prompting outrage among many here who feel they are being punished for American wrongdoing. Europe’s top human rights court imposed the penalty against Poland, setting a Saturday deadline. It irks many in Poland that their country is facing legal repercussions for the secret rendition and detention programme which the CIA operated under then-President George W Bush in several countries across the world after the 9/11 attacks. So far no US officials have been held accountable, but the European court of human rights has shown that it does not want to let European powers that helped the programme off the hook.

The court also ordered Macedonia in 2012 to pay €60,000 to a Lebanese-German man who was seized in Macedonia on erroneous suspicion of terrorist ties and subjected to abuse by the CIA. The Polish foreign ministry said on Friday that it was processing the payments. However, neither Polish officials nor the US embassy in Warsaw would say where the money is going or how it was being used. For now, it remains unclear how a European government can make payments to two men who have been held for years at Guantánamo with almost no contact to the outside world. Even lawyers for the suspects were tight-lipped, though they said the money would not be used to fund terrorism.

The European court of human rights ruled last July that Poland violated the rights of suspects Abu Zubaydah and Abd al-Rahim al-Nashiri by allowing the CIA to imprison them and by failing to stop the “torture and inhuman or degrading treatment” of the inmates. It ordered Warsaw to pay €130,000 to Zubaydah, a Palestinian, and €100,000 to Nashiri, a Saudi national charged with orchestrating the attack in 2000 on the USS Cole that killed 17 US sailors. Poland appealed against the ruling but lost in February. The foreign minister, Grzegorz Schetyna, said at the time that “we will abide by this ruling because we are a law-abiding country”. The country apparently received millions of dollars from the United States when it allowed the site to operate in 2002 and 2003, last year’s report on the renditions program by the US Senate intelligence committee said in a section that appears to refer to Poland though the country name was redacted.

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Default.

Ukraine GDP Drops 17.6%, Prices Rise 61% (FT)

Crunch talks on Ukraine’s national debt hang in the balance after the finance minister warned creditors that “all options were on the table” as the economic outlook for the war-torn country worsens. Natalie Jaresko made the comments ahead of a restructuring deadline next month. They came as official figures showed Ukraine experienced an even deeper slump than expected in the first quarter, with gross domestic product shrinking 17.6% year on year. The central bank had previously estimated a 15% contraction. The scale of the slump deepened international concerns over the country’s economy. Figures showed inflation spiked to some 61% in April, because of sharp increases in utility tariffs on top of the weakness of the national currency, the hryvnia.

Ukraine’s government is struggling to convince creditors to accept a haircut as part of plans to restructure $23bn of debt. The atmosphere surrounding the talks has become increasingly acrimonious as both sides this week issued statements accusing the other of failing to engage “substantively” with the process. The stand-off over Ukraine’s debt restructuring, alongside the Greek debt crisis, leaves the international community facing potential default risks by two European countries. Analysts suggested Ms Jaresko’s reference to “all options being on the table” was a hint the government was prepared if necessary to impose a moratorium or suspension of debt servicing.

Failure to agree a restructuring with debtholders by June could put at risk the next tranche of a $17.5bn loan from the IMF. The loan is part of a broader $40bn assistance programme that includes $7.5bn in bilateral aid, but also assumes a $15bn debt restructuring over four years that Kiev says should include a haircut, reductions in the coupon, and maturity extensions. [..] In March, credit rating agency Moody’s announced that Ukraine’s chances of defaulting on its debt were “virtually 100 per cent”.

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Rajoy is not going to like this.

Anti-Poverty Crusader Leads Race To Be Barcelona’s Next Mayor (Guardian)

As one of the founders of the Mortgage Victims’ Platform, Ada Colau has spent the past six years battling the most visible scars of Spain’s economic crisis, from growing inequality to home evictions. Now the 41-year-old activist could become Barcelona’s next mayor. Polls have put Colau, and the Barcelona en Comú (Barcelona in Common) citizen platform she leads, in the top spot in the runup to Spain’s regional and municipal elections. A grassroots coalition of several political parties, including Podemos, and thousands of citizens and activists, Barcelona en Comú has become the brightest hope for the many in Spain pushing for democratic regeneration.

Crowd-funded and guided by a code of ethics composed by its members, the group promises to focus on job creation, combat growing inequality in the city and usher in a culture of transparency and anti-corruption measures in the city’s institutions. “We want to show that you can do politics another way,” Colau told the Guardian. “It’s a historic opportunity.” If they win, the group’s members have prepared a to-do list for its first months in power – what Colau calls “commonsense measures” – ranging from limiting her monthly salary to €2,200 to eliminating official cars and expense budgets for attending meetings. The details of any meetings involving city officials would be posted online, they say. The thorny issue of tourism will also be tackled, with an effort to design a more sustainable model for the city.

“Tourism is out of control,” said Colau, pointing to areas such as the historical centre that have become saturated with hotels and tourist apartments. Rents have rocketed as a result and neighbourhoods and small businesses have been pushed out of the area. “Everyone wants to see the real city, but if the centre fills up with multinationals and big stores that you can find in any other city, it doesn’t work,” she said. Colau’s voice rises with excitement as she muses about the possibility of being elected on 24 May. “What most excites us is the idea that Barcelona could become a world reference as a democratic and socially just city. Barcelona has the resources, the money and the skills. The only thing that has been missing to date has been the political will.”

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“CNN in direct transmissions assures that since the 1990s America has been leading humanitarian actions, and not wars, that from military planes fall angels and not bombs!”

US Anger With RT Will Start World War Three – Emir Kusturica (Sputnik)

World War Three will break out when the US finally tires of the RT TV channel, and decides to bomb it; in retaliation, Russia will destroy CNN, writes film director Emir Kusturica, in an article published on Thursday. “Everything is different to how it was during the Cold War! Because of that it is useless to talk about a return to how things used to be, and listen to Henry Kissinger scare us. In the meantime, China has become the strongest world economy, Russia has recovered from Perestroika, India is growing into a genie! Military experts don’t argue that Americans have the most organized army, but there remains the unsolvable puzzle for NATO generals, who have called one of the Russian rockets ‘SATAN.'”

“The devil never comes alone! At the same time with this rocket and numerous innovations, the TV Channel RT has also appeared among the Russian arsenal.” “The program is broadcast in English, and watched by around 700 million people in 200 countries. The secret success of this television is the smashing of the Hollywood-CNN stereotype of the good and bad guys, where blacks, Hispanics, Russians, Serbs are the villains, and white Americans, wherever you look, are OK!” “Congressman, and those in the State Department are continually upset by RT,” writes Kusturica, adding that the US Secretary of State is “the loudest.”

“Kerry and the congressmen are bothered by the fact that RT sends signals that the world is not determined by the fatalism of liberal capitalism, that the US is leading the world into chaos, that Monsanto is not producing healthy food, that Coca-Cola is ideal for cleaning automobile alloys and not for the human stomach, that in Serbia the percentage of people who die from cancer has risen sharply due to the 1999 NATO bombings, that the social map of America is falling from day to day, that the fingerprints of the CIA are on the Ukrainian crisis, and that BlackWater fired at the Ukrainian police, and not Maidan activists.”

In contrast, writes the film director, “CNN in direct transmissions assures that since the 1990s America has been leading humanitarian actions, and not wars, that from military planes fall angels and not bombs!” “As time goes on RT will ever more demystify the American Dream and in primetime will reveal the truth hidden for decades from the eyes and heart of average Americans, in their own homes, in perfect English, better than they use on CNN.”

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How sugar bankrupts societies.

Food and Finance: Create A Revolution With Your Shopping Trolley (Berrino)

When we think of health, most of the time we are thinking of treatments and about patients getting better. Basically we’re thinking about the effects of bad health. Hardly ever do we think of the causes. It’s really complicated to intervene on the causes. That means making changes to the economy that is making us sick. It means altering the very structure of the society in which we live. The air that we breathe, the food that we eat – these are the poisons that make us sick. The medical doctor can only treat the patient, and that is often the last hope, for instances for cases of tumours. The lawmaker should be protecting the citizens, and should be using preventative measures to safeguard health.

However this involves clashing with a variety of multinationals, with the effects of globalisation, with the criminal financial world that not doesn’t mind who it offends and doesn’t even know of the existence of ethics. And in the face of these obstacles, the medical doctor can do very little. The only true remedy is information. Prevent bad health by having access to information, and by your lifestyle. Any diabetes specialist will tell you that sugar is bad for you, but we are bombarded with advertisements for sweet snacks and sugary drinks. These are especially targeted at children who are the most vulnerable. Health care, food, and public spending are all interconnected.

from “Pappa Mundi“ by Francesco Galietti: “It could seem paradoxical, but the structural solution to the crisis in public financing is also linked to the solution of the food issue. In most of the Western World, the public spending that’s classed as “health care” is concentrated on the treatment of pathologies (diabetes, high blood pressure, cancers) and these are linked to the unrestrained consumption of sugars, fats, etc. This has been confirmed in the public consultation that took place in the first quarter of 2014 for the World Health Organization guidelines on the consumption of sugars. In the thoughtful report of a research project issued by their think-tank – the McKinsey Global Institute: obesity has become much more than a cultural problem or one due to the lack of knowledge about foods.

Today, the impact from obesity is roughly $2.0 trillion, or 2.8% of global GDP. This is the impressive figure combining falls in productivity, health-care costs and various types of investment to mitigate the impact. The order of magnitude is roughly equivalent to the global impact from armed violence, war, and terrorism.“ It then goes on to say: “Thus it is not surprising to witness the growing interest and the possible boom in the use of surrogate natural sugars (like stevia) by global giants like Coca-Cola and Pepsi. Nor is it surprising to see the outcry from the associations of sugar producers who are reluctant to take the blame for the excesses of individual people as well as for the gaping holes in national accounts … The more people get hold of the idea that unhealthy foods have negative repercussions even for the badly organised public finances, the more the producers of unhealthy foods will start to be targeted by national governments. “

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“Humans are subject to intense status quo bias. Especially on the conservative end of the psychological spectrum — which is the direction all humans move when they feel frightened or under threat..”

The Awful Truth About Climate Change No One Wants To Admit (Vox)

There has always been an odd tenor to discussions among climate scientists, policy wonks, and politicians, a passive-aggressive quality, and I think it can be traced to the fact that everyone involved has to dance around the obvious truth, at risk of losing their status and influence. The obvious truth about global warming is this: barring miracles, humanity is in for some awful shit. We recently passed 400 parts per million of CO2 in the atmosphere; the status quo will take us up to 1,000 ppm, raising global average temperature (from a pre-industrial baseline) between 3.2 and 5.4 degrees Celsius.

That will mean, according to a 2012 World Bank report, “extreme heat-waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise,” the effects of which will be “tilted against many of the world’s poorest regions,” stalling or reversing decades of development work. “A 4°C warmer world can, and must be, avoided,” said the World Bank president. But that’s where we’re headed. It will take enormous effort just to avoid that fate. Holding temperature down under 2°C would require an utterly unprecedented level of global mobilization and coordination, sustained over decades. There’s no sign of that happening, or reason to think it’s plausible anytime soon. And so, awful shit it is. [..]

The sad fact is that no one has much incentive to break the bad news. Humans are subject to intense status quo bias. Especially on the conservative end of the psychological spectrum — which is the direction all humans move when they feel frightened or under threat — there is a powerful craving for the message that things are, basically, okay, that the system is working like it’s supposed to, that the current state of affairs is the best available, or close enough. To be the insisting that, no, things are not okay, things are heading toward disaster, is uncomfortable in any social milieu — especially since, in most people’s experience, those wailing about the end of the world are always wrong and frequently crazy.

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Access to water will decline sharply going forward.

Without Universal Access To Water, There Can Be No Food Security (Guardian)

Ensuring universal access to water is vital in order to address food security and improve nutrition, yet recognition of the links between water and food are too often missed. A major report on water for food security and nutrition, launched on Friday by the high-level panel of experts on food security and nutrition (HLPE), is the first comprehensive effort to bring together access to water, food security and nutrition. This report goes far beyond the usual focus on water for agriculture. Safe drinking water and sanitation are fundamental to human development and wellbeing. Yet inadequate access to clean water undermines people’s nutrition and health through water-borne diseases and chronic intestinal infections.

The landmark report, commissioned by the committee on world food security (CFS), not only focuses on the need for access, it also makes important links between land, water and productivity. It underlines the message that water is integral to human food security and nutrition, as well as the conservation of forests, wetlands and lakes upon which all humans depend. Policies and governance issues on land, water and food are usually developed in isolation. Against a backdrop of future uncertainties, including climate change, changing diets and water-demand patterns, there has to be a joined-up approach to addressing these challenges.

There are competing demands over water from different sectors such as agriculture, energy and industry. With this in mind, policymakers have to prioritise the rights and interests of the most marginalised and vulnerable groups, with a particular focus on women, when it comes to water access. There is vast inequality in access to water, which is determined by socio-economic, political, gender and power relations. Securing access can be particularly challenging for smallholders, vulnerable and marginalised populations and women.

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