May 292018
 


Theodoor Rombouts( 1597-1637) Prometheus

 

On Friday, in This is the End of the Euro, I said: The euro has become a cage, a prison for the poorer brethren. The finance minister proposed by 5-Star/Lega and refused by Italian president Mattarella, Paolo Savona, has called the euro a German cage.

There are now stories spreading that the coalition, Savona first of all, were secretly planning an exit from the euro. A series of slides Savona prepared in 2015 on how to exit the euro is used as evidence of that secret plan. But the slides are not secret. Yes, he has said that it’s good to have a plan to leave ‘if necessary’. But that’s not the same as secretly planning such a move.

Every country should have such a plan, and you would hope they do. A government that doesn’t is being very irresponsible. But it’s true, this is how both the EU and the euro have been designed: not just as a prison, but as a prison without any doors or windows. No way to get out. And that will prove to be its fatal flaw.

It has more such flaws, for sure. The inequality of its members, which allows for the richer to feed on the poorer, is a big one. The US founders were smart enough to provide for transfer payments from rich to poorer, the EU founders couldn’t be bothered with that lesson. They must have studied it, though, and rejected it.

Credit were credit’s due: Yanis Varoufakis said it best when he compared the EU to the Eagles’ Hotel California. A few lines:

Mirrors on the ceiling
The pink champagne on ice
And she said “We are all just prisoners here, of our own device”
And in the master’s chambers
They gathered for the feast
They stab it with their steely knives
But they just can’t kill the beast

Last thing I remember
I was running for the door
I had to find the passage back to the place I was before
“Relax,” said the night man
“We are programmed to receive
You can check-out any time you like
But you can never leave!”

The EU was set up as some kind of eternal prison, a concept most familiar to us in the way Christian churches depict Hell, or the ancient Greek mythological story of Prometheus, who, as punishment for providing man with fire, was condemned by Zeus to being tied to a rock, with an eagle feeding on his liver every day, for eternity.

Rule number 1 for any organization: there must always be an escape, a way out. If there isn’t, that’s what will break the whole thing in the end. Think Leonard Cohen’s “There a crack in everything; that’s where the light comes in.” Every system must always be designed with inbuilt redundancy.

Paolo Savona understands that, and he said there must be a way to leave the euro. For Brussels and Rome, that means he’s not acceptable as a finance minister, no matter his competence, experience or credentials. It reeks of desperation on the ‘establishment’ side more than anything.

And now the entire financial world is in panic and turmoil. It’s ironic to see people decrying the sudden weakness in Italian “sovereign debt” at the same time they see pointed out, as if that were still necessary, that Italy is no longer a sovereign country. Think maybe there’s a clue to be found somewhere in there?

 

 

Italian bonds are falling so fast traders get vertigo. At what point will Mario Draghi be held accountable for the enormous losses this causes on the ECB’s books?

But fear not: the elites simply blame the whole thing on the people elected in Italy. Yes, that means they blame democracy. For daring to provide an election result that threatens their powers. And no, there is no other way to define what is happening than as a coup.

Italy will soon have all the characteristics of an emerging market. Which is a market from which no one can emerge in an emergency, according to one Don Cowe. I read that the six largest Italian banks together have €143 billion in Italian debt securities on their balance sheet. Systemic banks in the rest of Europe, mainly France, Spain and Germany, have €137 billion of Italian debt on their balance sheet. God only knows how much Mario Draghi holds:

 

 

That is one scary chart. And no, that is not the fault of 5-Star/Lega. It’s the fault of the European Union founders, and of its present ‘leadership’. What 5-Star/Lega have done is expose the stark-naked emperor. And the little boy who called out that sovereign didn’t undress him; he went out without any clothes on all by himself.

Varoufakis called out the naked emperor Brussels in 2015. Paolo Savona did so multiple times as well. The emperor’s reaction? Shut up the little boy, not get dressed. But the lesson contained in The Naked Emperor story is that there will always be another little boy to call him out. Shutting up the boy doesn’t solve the problem.

 

Greece and Italy are where western civilization was born. It appears wonderfully fitting to picture the EU at present as the German eagle picking at the southern European Prometheus’s liver for eternity. All the more so because Prometheus in Greek mythology was the champion of man: he first made man from clay, stood against the gods in favor of mankind, stole fire to provide it to man, and got punished for eternity for it.

The EU and euro cannot survive in their present state. But those who benefit most from both are also the ones who can stop either from undergoing desperately needed changes. That’s Hotel Europa.

 

 

May 292018
 
 May 29, 2018  Posted by at 8:13 am Finance Tagged with: , , , , , , , , , , ,  


Roy Lichtenstein Crying girl 1963

 

Showdown Looms In Italy As Caretaker PM Assembles Team (AFP)
The Biggest Short-Sellers Of Italian Bonds (ZH)
If Italy Exits The Euro, It Could Be The End Of The Single Currency (Tel.)
Stock Market Borrowing at All Time High, Increasing Risk of Downdrafts (NC)
The Financial Scandal No One Is Talking About (G.)
Fears Of Bad Brexit Deal Raise Tension Between Bank of England, Treasury (G.)
Eastern, Southern African Finance Leaders Debate Yuan As Reserve Currency (R.)
Indonesia’s Currency Is Spiraling. Sacrifices Are Needed To Save It (CNBC)
Papua New Guinea Bans Facebook For A Month To Root Out ‘Fake Users’ (G.)
Deutsche Bank Chief Economist Lashes Out At Former CEO Ackermann (HB)
Fake Maths: The NHS Doesn’t Need £2,000 From Each Household To Survive (G.)
After China’s Waste Import Ban EU Wants To Get Rid Of Single-Use Plastics (RT)
Great Barrier Reef On Sixth Life In 30,000 Years (AFP)

 

 

A team he knows will never be accepted.

Showdown Looms In Italy As Caretaker PM Assembles Team (AFP)

Italy’s caretaker prime minister was Tuesday assembling a cabinet lineup despite almost certain rejection by the populists whose bid for power collapsed at the weekend. Fresh elections are now looming as the most likely outcome of the long-running political saga sparked by inconclusive elections in March. Carlo Cottarelli, a former IMF economist, was tasked with naming a technocrat government on Monday after President Sergio Mattarella nixed a cabinet proposed by the far-right League and anti-establishment Five Star Movement (M5S). The president in particular vetoed their pick for economy minister, fierce eurosceptic Paolo Savona, throwing the eurozone’s third largest economy into a fresh crisis.


Savona has called the euro a “German cage” and said that Italy needs a plan to leave the single currency “if necessary”. Mattarella said that an openly eurosceptic economy minister was counter to the parties’ joint promise to simply “change Europe for the better from an Italian point of view”. Cottarelli said Italy would face new elections “after August” if parliament did not endorse his team, a near certainty given that M5S and the League together hold a majority. [..] Salvini and Di Maio furiously denounced the presidential veto, blasting what they called meddling by Germany, debt ratings agencies, financial lobbies and even lies from Mattarella’s staff. “Paolo Savona would not have taken us out of the euro. It’s a lie invented by Mattarella’s advisors,” Di Maio said in a live video on Facebook. “The truth is that they don’t want us in government.”

Read more …

Draghi vs the vigilantes.

The Biggest Short-Sellers Of Italian Bonds (ZH)

[..] it was in December when we first pointed out a dramatic observation by Citi, which noted that over the past several years, the only buyer of Italian government bonds was the ECB, and that even the smallest political stress threatened a repeat of the 2011 “Berlusconi” scenario, when the freshly minted new ECB head Mario Draghi sent Italian yields soaring to prevent populist forces from seizing power in Italy. Or maybe it didn’t, and it only took the bulls far longer than the bear to admit that nothing in Europe had been fixed, even as the bears were already rampaging insider Europe’s third largest economy.

Consider that according to the latest IHS Markit data, demand to borrow Italian government bonds — an indicator of of short selling — was up 33% to $33.3 billion worth of debt this year to Tuesday while demand to borrow bonds from other EU countries excluding Italy has risen only 5% this year. That said, things certainly accelerated over the last week, when demand to borrow Italian bonds soared by $1.2 billion, which according to WSJ calculations, takes demand, i.e. short selling, close to its highest level since the financial crisis in 2008 (while demand to borrow bonds from EU countries excluding Italy has fallen by $800 million over the past week).


Said otherwise, while the events over the past week may have come as a surprise to many, to the growing crowd of Italian bond shorts today’s plunge and the blowout in Italian-German spreads was not only expected, but quite predictable and extremely lucrative… which is also a major problem as Brussels is well-known to take it very personally when a hedge fund profits from the ongoing collapse of Europe’s failing experiment in common everything, and tends to create huge short squeezes in the process, no matter how obvious the (doomed) final outcome is.

Read more …

Sorry, but I said it a lot better on Friday.

If Italy Exits The Euro, It Could Be The End Of The Single Currency (Tel.)

You might think that it would be fitting if the European Union were to come to a sticky end because of Italy. After all, the agreement that established the entity that we now call the European Union was signed in Rome. For several decades after that 1957 treaty, Italy was one of the strongest supporters of the European project. Having endured first fascism and then, after the war, unstable and ineffectual government, it suffered none of the angst about the loss of sovereignty that plagued British debates about joining the European Community. Moreover, in the early years of the union, Italy prospered. At one point its GDP overtook the UK’s, an event that was widely celebrated in Italy as “il sorpasso”, the surpassing, or, if you like, the overtaking.


But the overtaking did not last long. Indeed, since the euro was formed in 1999, the Italian economy has grown by a mere 9%, or less than 0.5% per annum. Over the same period, the UK economy has grown by 42%. This recent disastrous economic performance, plus mounting anxiety about inward migration and the fact that the EU has left Italy to cope with this huge influx on its own, has changed many Italians’ attitudes to the EU. Understandably. These failings go to the heart of the EU project. The truth is that Italy should never have joined the euro in the first place. And it isn’t only Anglo-Saxon euro pessimists such as myself who believe this. At the time the German Bundesbank was appalled at the idea that Italy should be admitted. After all, even then it had a huge public debt and a history of high inflation offset by frequent currency depreciation.

Read more …

“..the Chinese stock markets permit a much higher level of borrowings than those in the West..”

Stock Market Borrowing at All Time High, Increasing Risk of Downdrafts (NC)

I find it hard to get excited about stock market risks unless defaults on the borrowings can damage the banking/payments system, as they did in the Great Crash. This is one reason the China perma-bears have a point: even though the Chinese government has managed to do enough in the way of rescues and warnings to keep its large shadow banking system from going “boom,” the Chinese stock markets permit a much higher level of borrowings than those in the West, which could make them the detonator for knock-on defaults. The US dot-com bubble featured a high level of margin borrowing, but because the US adopted rules so that margin accounts that get underwater are closed and liquidated pronto, limiting damage to the broker-dealer, a stock market panic in the US should not have the potential to produce a credit crisis.

But if stock market bubble has been big enough, a stock market meltdown can hit the real economy, as we saw in the early 2000s recession. Recall that Greenspan, who saw the stock market as part of the Fed’s mission, dropped interest rates and kept them low for a then unprecedented nine quarters, breaking the central bank’s historical pattern of reducing rates only briefly. Greenspan, as did the Bank of Japan in the late 1980s, believed that the robust stock market prices produced a wealth effect and stimulated consumer spending. It isn’t hard to see that even if this were true, it’s a very inefficient way to try to spur growth, since the affluent don’t have anything approach the marginal propensity to spend of poor and middle class households.


Subsequent research has confirmed that the wealth effect of higher equity prices is modest; home prices have a stronger wealth effect. A second reason for seeing stock prices as potentially significant right now be is that the rally since Trump won the election is important to many of his voters. I have yet to see any polls probe this issue in particular, but in some focus groups, when Trump supporters are asked why they are back him, some give rise in their portfolios as the first reason for approving of him. They see him as having directly improved their net worth.1

Read more …

Accounting.

The Financial Scandal No One Is Talking About (G.)

For centuries, accounting itself was a fairly rudimentary process of enabling the powerful and the landed to keep tabs on those managing their estates. But over time, that narrow task was transformed by commerce. In the process it has spawned a multi-billion-dollar industry and lifestyles for its leading practitioners that could hardly be more at odds with the image of a humble number-cruncher. Just four major global firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and KPMG – audit 97% of US public companies and all the UK’s top 100 corporations, verifying that their accounts present a trustworthy and fair view of their business to investors, customers and workers.

They are the only players large enough to check the numbers for these multinational organisations, and thus enjoy effective cartel status. Not that anything as improper as price-fixing would go on – with so few major players, there’s no need. “Everyone knows what everyone else’s rates are,” one of their recent former accountants told me with a smile. There are no serious rivals to undercut them. What’s more, since audits are a legal requirement almost everywhere, this is a state-guaranteed cartel. Despite the economic risks posed by misleading accounting, the bean counters perform their duties with relative impunity.


The big firms have persuaded governments that litigation against them is an existential threat to the economy. The unparalleled advantages of a guaranteed market with huge upside and strictly limited downside are the pillars on which the big four’s multi-billion-dollar businesses are built. They are free to make profit without fearing serious consequences of their abuses, whether it is the exploitation of tax laws, slanted consultancy advice or overlooking financial crime.

Read more …

Interesting fight.

Fears Of Bad Brexit Deal Raise Tension Between Bank of England, Treasury (G.)

The growing risk of a bad Brexit deal for the City of London is causing severe tensions between the Bank of England and the Treasury, according to reports. Amid mounting fears that Brussels will reject plans put forward by the chancellor, Philip Hammond, for maintaining close ties with the EU for financial services, the Financial Times reported that Bank officials are at loggerheads with the Treasury over the search for a “Plan B” arrangement. Threadneedle Street fears it could be left as a “rule taker” should Britain agree to a new deal that maintains European market access for financial firms without giving the Bank sufficient control over City regulations in future. The concerns stem from the sprawling scale of the City as one of the biggest financial centres in the world.


Mark Carney, the Bank’s governor, used a speech in London last week to highlight the risks posed to the financial system from Brexit and said it was one of the issues raised by Britain leaving the European Union that made him most “nervous”. He also warned in plain terms last year that “we do not want to be a rule taker as an authority”. According to the FT, a number of officials at Threadneedle Street said Jon Cunliffe, the Bank’s deputy governor for financial stability, had fallen out with the Treasury over the issue. The paper quoted one anonymous official saying “the fear is the Treasury is going to give it all away”. The breakdown in relations comes as Hammond strives to prevent an exodus of international banks from the Square Mile, having attempted to reassure them in March that the UK would seek to maintain European market access after Brexit.

Read more …

Wishful thinking.

Eastern, Southern African Finance Leaders Debate Yuan As Reserve Currency (R.)

Eastern and southern African central bankers and government officials are to consider the use of China’s yuan as a reserve currency for the region, the official Xinhua news agency said on Tuesday. Seventeen top central bankers and officials from 14 countries in the region will meet at a forum in Harare to consider the viability of the Chinese yuan as a reserve currency, Xinhua said, citing a statement from the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI). The forum, to take place on Tuesday and Wednesday, will be attended by deputy permanent secretaries and deputy central bank governors, as well as officials from the African Development Bank, Xinhua reported.


Attendees will strategies on the weakening external positions of most member countries, following the global economy slowdown. “Most countries in the MEFMI region have loans or grants from China and it would only make economic sense to repay in termini (Chinese yuan),” said MEFMI spokesperson Gladys Siwela-Jadagu. “This is the reason why it is critical for policy makers to strategize on progress that the continent has made to embrace the Chinese yuan which has become what may be termed ‘common currency’ in trade with Africa,” she added. “Ascendancy of Chinese yuan in the Special Drawing Rights (SDR) basket of currencies is an important symbol of its importance and the IMF’s approval as an official reserve currency,” said Siwela-Jadagu.

Read more …

Argentina, Turkey, Indonesia. Next!

Indonesia’s Currency Is Spiraling. Sacrifices Are Needed To Save It (CNBC)

Indonesia’s rupiah has been growing worryingly weak, and the country’s central bank has seen little success after multiple attempts to prop up the currency. Now, Bank Indonesia said it will meet again on Wednesday — and speculations are rife that the central bank has more tricks up its sleeve. The rupiah has been one of the worst-hit Asian currencies as investors pull out of the Indonesian stock and bond markets amid rising U.S. Treasury yields and strengthening in the greenback. The falling value of the rupiah could spell trouble for the country’s large foreign currency debt, and the outflows from its bonds are bad news for its government.


The central bank has tried to stem the currency weakness with measures including hiking interest rates and buying sovereign bonds, but the rupiah still depreciated: It fell to 14,202 per U.S. dollar on May 23. That was the weakest in more than two years. With the persistent rupiah weakness, more “rate hikes may be needed, with the next one possibly as early as this week,” Eugene Leow, a strategist at Singapore’s DBS Bank, wrote in a Monday note. The central bank hiked interest rates by 25 basis points in its mid-May meeting — the first raise since November 2014. Central bankers were scheduled to convene again in June, but Bank Indonesia last Friday said an additional policy meeting would be held on May 30.

Read more …

Censors?!

Papua New Guinea Bans Facebook For A Month To Root Out ‘Fake Users’ (G.)

The Papua New Guinean government will ban Facebook for a month in a bid to crack down on “fake users” and study the effects the website is having on the population. The communication minister, Sam Basil, said the shutdown would allow his department’s analysts to carry out research and analysis on who was using the platform, and how they were using it, admits rising concerns about social well-being, security and productivity. “The time will allow information to be collected to identify users that hide behind fake accounts, users that upload pornographic images, users that post false and misleading information on Facebook to be filtered and removed,” Basil told the Post Courier newspaper. “This will allow genuine people with real identities to use the social network responsibly.”


Basil has repeatedly raised concerns about protecting the privacy of PNG’s Facebook users in the wake of the Cambridge Analytica revelations, which found Facebook had leaked the personal data of tens of millions of users to a private company. The minister has closely followed the US Senate inquiry into Facebook. “The national government, swept along by IT globalisation, never really had the chance to ascertain the advantages or disadvantages [of Facebook] – and even educate and provide guidance on use of social networks like Facebook to PNG users,” said Basil last month. “The two cases involving Facebook show us the vulnerabilities that Papua New Guinean citizens and residents on their personal data and exchanges when using this social network.”

Read more …

Blame game. Deutsche is hanging in the ropes.

Deutsche Bank Chief Economist Lashes Out At Former CEO Ackermann (HB)

German executives rarely wash their dirty laundry in public. This week was a notable exception, when David Folkerts-Landau, Deutsche Bank’s chief economist, accused his former bosses of causing the bank’s current woes by racing hell-for-leather into investment banking. Mr. Folkerts-Landau, who has been with Deutsche’s investment banking division for over two decades, accused its former CEOs of reckless expansion and of losing control of the ship. “Since the mid-1990s, the bank’s management has left operational and strategic control of its financial markets business to the traders,” he said in an interview with Handelsblatt. The bank is still reeling from the consequences of this “reverse takeover,” the economist said.


Deutsche Bank has accumulated more than €9 billion in losses over the past three years, due chiefly to the woes of its investment banking division. The bank is in the throes of a revamp intended to refocus operations on more stable sources of revenue, such as private and commercial banking and asset management. Mr. Folkerts-Landau singled out Josef Ackermann, the bank’s flamboyant boss from 2002 to 2012, for particular criticism over his aggressive expansion into investment banking. “Ackermann was (…) fixed on the magic goal of a return on equity of 25% before taxes. At that time, however, this could only be achieved by accepting major financial and ethical risks,” said the German-born economist. After the financial crisis, Mr. Ackermann rejected state aid from the German authorities and postponed tackling the bank’s structural problems, Mr. Folkerts-Landau added.

Read more …

Yeah, you can do the math in many different ways.

Fake Maths: The NHS Doesn’t Need £2,000 From Each Household To Survive (G.)

Last week, the Institute for Fiscal Studies and the Health Foundation published a report on funding for health and social care. One figure from the report was repeated across the headlines. For the NHS to stay afloat, it would require “£2,000 in tax from every household”. Shocking stuff! The trouble with figures like this is that while there may be a sense in which this is mathematically true, that kind of framing is dangerously close to being false. If you’re sitting at a bar with a group of friends and Bill Gates walks in, the average wealth of everyone in the room makes you all millionaires. But if you try to buy the most expensive bottle of champagne in the place, your debit card will still be declined.

Similarly, the IFS calculated its “average” figures by taking the total amount it calculated the NHS would need and dividing it by the number of households in the country. That’s certainly one way of doing it – it’s not wrong per se – but in terms of informing people about the actual impact on their own finances, it’s very misleading. We have progressive taxation in this country: not every household gets an equally sized bill. Could you pay more if the government chose to cover the cost of social care through a bump in income tax? Sure, but for the vast majority of the country it would be a few hundred pounds.


That’s without engaging with the underlying assumption that a bump in income tax is the way the government will choose to go. Some people have argued that, since the last couple of decades have seen wealth accumulate disproportionately at the very top, government should tax wealth rather than income. Alternatively, researchers have shown that health spending is one of the best ways to stimulate the economy, so the government could opt against tax increases in the short term and instead let healthcare spending act as a fiscal stimulus, at least until purchasing power had increased.

Read more …

The reason why is revealing.

After China’s Waste Import Ban EU Wants To Get Rid Of Single-Use Plastics (RT)

The European Commission wants to ban single-use plastic products like disposable cutlery, straws and cotton buds to fight the plastic epidemic littering our oceans – months after China banned millions of tons of imported EU waste. The EC unveiled the market ban proposal on Monday, which included 10 items that make up 70% of all the marine litter in the EU. As well as the aforementioned items, the list includes plastic plates, drink stirrers, sticks for balloons and single-use plastic drinks containers. The crackdown comes less than six months after the EU announced its first-ever Europe-wide strategy on plastic recycling following China’s ban on waste imports from Western countries.

At the end of 2017, Beijing banned the import of 24 types of waste from the US and EU and accused the nations of flouting waste standard rules. The new proposal says the ban on single-use plastic products will be in place wherever there are “readily available and affordable” alternatives. Where there aren’t “straight-forward alternatives,” the focus will be on limiting their use through a national reduction in consumption. In order for the products to be sold in the EU, they will have to be made exclusively from sustainable materials. Single-use drink containers will only be allowed on the market if their caps and lids remain attached.


[..] The EC’s proposal will now go to the European Parliament and Council for adoption. It will need the approval of all EU member states and the European Parliament in order to pass – a process which could take three to four years before the rules come into force. Once fully implemented in 2030, the EC estimates that the new measures could cost businesses more than €3 billion ($3.5 billion) per year. But they could also save consumers about €6.5 billion per year, create 30,000 jobs and avoid €22 billion in environmental damage and cleanup costs.

Read more …

Resilient little bugger.

Great Barrier Reef On Sixth Life In 30,000 Years (AFP)

Australia’s Great Barrier Reef, under severe stress in a warmer, more acidic ocean, has returned from near-extinction five times in the past 30,000 years, researchers said Monday. And while this suggests the reef may be more resilient than once thought, it has likely never faced an onslaught quite as severe as today, they added. “I have grave concerns about the ability of the reef in its current form to survive the pace of change caused by the many current stresses and those projected into the near future,” said Jody Webster of the University of Sydney, who co-authored a paper in the journal Nature Geoscience.


In the past, the reef shifted along the sea floor to deal with changes in its environment – either seaward or landward depending on whether the level of the ocean was rising or falling, the research team found. Based on fossil data from cores drilled into the ocean floor at 16 sites, they determined the Great Barrier Reef, or GBR for short, was able to migrate between 20 centimetres (7.9 inches) and 1.5 metres per year. This rate may not be enough to withstand the current barrage of environmental challenges. The reef “probably has not faced changes in SST (sea surface temperature) and acidification at such a rate,” Webster told AFP. Rates of change “are likely much faster now — and in future projections.”

Read more …

May 282018
 


Brassaï La Bande du Grand Albert 1931-32

 

President Mattarella Of Italy: From Moral Drift To Tactical Blunder (Varoufakis)
Italy President Vetoes Savona As Economy Minister, May Mean New Election (R.)
Italy’s President Calls In Former IMF Official Amid Political Turmoil (R.)
First Greece, Now Italy, Portugal Next? (ZH)
Corporate Debt Soars While Credit Ratings Fall (Harry Dent)
Fed Relies On Biased Data That Makes ‘B- Economy’ Look Like ‘A+’ – Bianco (CNBC)
Blowing Up the Iran Deal Brings Eurasia Closer to Integration (Pieraccini)
Sudden Chaos In Spanish Politics (Spain Report)
Spain Struggling To Deal With Escalating Migration Crisis (G.)
Google, Facebook Hit With $8.8 Billion In Lawsuits on New EU Privacy Rules (ZH)
US Congressman: F-35s Could Be ‘Used Against Greece’ If Sold To Turkey (K.)
Huge Rise In Food Redistribution To People In Need Across UK (G.)
In Britain, Austerity Is Changing Everything (NYT)
‘We’re Gonna Keep Riding Till We Get Everybody Back Home, From All Wars’ (AFP)

 

 

“The formation of another ‘technical’ government, under a former IMF apparatchik, is a fantastic gift to Mr Salvini.”

President Mattarella Of Italy: From Moral Drift To Tactical Blunder (Varoufakis)

I concede that there are issues over which I would welcome the Italian President’s use of constitutional powers that (in my humble opinion) he should not have. One such issue is the outrageous policy of the Lega and the promise of its leader, Mr Salvini, to expel five hundred thousand migrants from Italy. Had President Mattarella refused Mr Salvini the post of Interior Minister, on the basis that he rejects such a monstrous project, I would be compelled to support him. But, no, Mr Mattarella had no such qualms. Not even for a moment did he consider vetoing the formation of a 5S-Lega government on the basis that there is no place in a European country for scenes involving security forces rounding up hundreds of thousands of people, caging them, and forcing them into trains, buses and ferries before expelling them goodness knows where.

No, Mr Mattarella vetoed the formation of a government backed by an absolute majority of lawmakers for another reason: His disapproval of the Finance Minister designate. And what was this disapproval based on? The fact that the said gentleman, while fully qualified for the job, and despite his declaration that he would abide by the EU’s eurozone rules, has in the past expressed doubts about the eurozone’s architecture and has favoured a plan of euro exit just in case it is needed. It was as if President Mattarella were to declare that reasonableness in a prospective Finance Minister constitutes grounds for his or her exclusion from the post!

Let’s face it: There is no thinking economist anywhere in the world who does not share a concern about the eurozone’s faulty architecture. And there is no prudent finance minister who does not have a plan for euro exit; indeed, I have itr on good authority that the German finance ministry, the ECB, every major bank and corporation have plans in place for the possible exit from the eurozone of Italy, even of Germany. Is Mr Mattarella telling us that only the Italian Finance Minister is not allowed to imagine having such a plan? Beyond his moral drift (as he condones Mr Salvini’s industrial-scale misanthropy while vetoing a legitimate concern about the eurozone’s capacity to let Italy breathe in its midst), President Mattarella has made a major tactical blunder.

In short, he fell right into Mr Salvini’s trap. The formation of another ‘technical’ government, under a former IMF apparatchik, is a fantastic gift to Mr Salvini. Mr Salvini is secretly salivating at the thought of another election – one that he will fight not as the misanthropic, divisive populist that he is but as the defender of democracy against the Deep Establishment. Already last night hescaled the high moral with the stirring words: “Italy is not a colony, we are not slaves of the Germans, the French, the spread or finance.”

Read more …

More than half of Italy feel utterly betrayed by their own president.

Italy President Vetoes Savona As Economy Minister, May Mean New Election (R.)

Italy’s president rejected Prime Minister-designate Giuseppe Conte’s pick for the economy ministry, a political source said on Sunday, a veto that may lead to another election this year.Conte, a little-known law professor with no political experience, took his list of ministers to President Sergio Mattarella, but the president rejected Conte’s candidate to the Economy Ministry, the 81-year-old eurosceptic economist Paolo Savona. Before Conte or Mattarella had finished their meeting, far-right League leader Matteo Salvini said that the only option now was to hold another election, probably later this year, without directly confirming the president’s veto.

“In a democracy, if we are still in democracy, there’s only one thing to do, let the Italians have their say,” Salvini said in a fiery speech to supporters in central Italy. Salvini and 5-Star leader Luigi Di Maio had met Mattarella informally on Sunday to try to find a solution. “The problem is Savona,” the coalition source said, explaining that the economist had not sufficiently softened some of his more eurosceptic positions. On Sunday, Savona tried to allay concerns about his views in his first public statement on the matter. Savona has been a vocal critic of the euro and the EU, but he has distinguished credentials, including as industry minister in the early 1990s. “I want a different Europe, stronger, but more equal,” Savona said in a statement.

Read more …

Another technocrat. That won’t go well this time around.

Italy’s President Calls In Former IMF Official Amid Political Turmoil (R.)

Italy’s president is expected to ask a former IMF official on Monday to head a stopgap government amidst political and constitutional turmoil, with early elections looking inevitable. President Sergio Mattarella has called in Carlo Cottarelli after two anti-establishment parties angrily abandoned their plans to form a coalition in the face of a veto from the head of state over their choice of economy minister. In a televised address, Mattarella said he had rejected the candidate, 81-year-old eurosceptic economist Paolo Savona, because he had threatened to pull Italy from the single currency. “The uncertainty over our position has alarmed investors and savers both in Italy and abroad,” he said, adding: “Membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion.”

Financial markets tumbled last week on fears the coalition being discussed would unleash a spending splurge and dangerously ramp up Italy’s already huge debt, which is equivalent to more than 1.3 times the nation’s domestic output. After Mattarella’s move, the euro gained ground, adding 0.6% against the Japanese yen and ticking up against other major trading partners as well. The far-right League and anti-establishment 5-Star Movement, which had spent days drawing up a coalition pact aimed at ending a stalemate following an inconclusive March vote, responded with fury to Mattarella, accusing him of abusing his office.

5-Star leader Luigi Di Maio called on parliament to impeach the mild-mannered Mattarella, while League chief Matteo Salvini threatened mass protests unless snap elections were called. “If there’s not the OK of Berlin, Paris or Brussels, a government cannot be formed in Italy. It’s madness, and I ask the Italian people to stay close to us because I want to bring democracy back to this country,” Salvini told reporters. [..] Cottarelli would be a calming choice for the financial markets, but any technocratic administration would likely only be a short-term solution because the majority of parliamentarians have said they would not support such a government.

Read more …

Portugal is supposed to be the Prince of the PIIGS.

First Greece, Now Italy, Portugal Next? (ZH)

While most investors are focused on Italian politics – the parallel currency ‘mini-BoT’ fears and potential for a constitutional crisis – Spain is now facing its own political crisis amid calls for a no-confidence vote against Rajoy. However, ‘Spaxit’ remains a distant concern for investors as another member of the PIIGS peripheral problems is starting to signal concerns about ‘Portugone’?

And the fundamental data confirms Portugal is next in line for a debt crisis… As Statista’s Brigitte van de Pas notes, on average, European Union countries had a gross government debt of roughly 81% of GDP in 2018. This average disguises real differences between EU countries. Whereas Greece had a government debt of 177.8% in 2018, Estonia had a debt of only 8.8% – the lowest in the entire EU zone.

While, the high Greek debt is well-known, a number of other countries however also have a debt that is higher than their own GDP. The Italian debt, for example, is lower than the Greek but still significant, at over 130% of GDP. Portugal, in third place, had a debt of 122.5%. One small positive note though: all three countries had even higher debts in 2017, and the European Commission forecasted a slow, but further decrease of their government debt in 2019. Whether this holds true for Italy, with their newly-elected government of Movimento 5 Stelle and Lega remains to be seen.

Read more …

“U.S. corporate debt has risen from $40 trillion to $70 trillion since the top of the last bubble in 2007. That’s 63% in 10 years. It’s risen 135% since 2000! [..] China is the worst by far, going from $6 to $36 trillion or a 500% increase!”

Corporate Debt Soars While Credit Ratings Fall (Harry Dent)

[First], Congress’s approving a bill to roll back the Dodd-Frank Act. If this passes, smaller financial institutions will find relief from the strict rules that have applied to Wall Street banks since after the 2008 crisis. This is sheer idiocy! It will not end well. The second is the U.S. corporate debt is suffering one of its worst sell-offs since 2000. This is another disaster in the making. U.S. corporate debt has risen from $40 trillion to $70 trillion since the top of the last bubble in 2007. That’s 63% in 10 years. It’s risen 135% since 2000! Only government debt has risen faster, from $35 to $64 trillion, or 83%. China is the worst by far, going from $6 to $36 trillion or a 500% increase! Of course, many of these bonds are simply financial engineering to buy back stock to increase earnings per share.

Uber-low long-term interest rates thanks to QE have allowed companies to do this cheaply. The problem is these long-term rates have been rising since just July 2016. They’ve gone from 1.38% to 3.10%. That’s an increase of 172 basis points in the risk-free 10-year Treasury bond. That naturally reverberates up through the risk spectrum from investment grade corporate bonds to junk bonds. You see, here’s the thing…Governments have artificially pushed down bond yields for so long that companies have embraced speculation rather than productive investment (i.e. they’re not spending money on productive assets that will serve them and the economy well in the long-term). This mentality only creates financial asset bubbles that burst.

When companies buy back their own shares at historically high valuations, they’re speculating, just like an investor or hedge fund. When stocks crash ahead, shareholders will demand to know why these corporations used the money they will need to survive the crisis to speculate in their own stock… at the highest prices in history! Well, as the numbers are now showing, this corporate bond bubble is starting to burst, and of course that will ultimately hit junk bonds the worst… then stocks and real estate. But the real story here is that we’ve been in this bond bubble since 1981. And the quality of this corporate debt has been falling for nearly 40 years now. QE has only accelerated the decline. We’re now at the point where the median corporate bond rating is borderline junk…

Read more …

You don’t say…

Fed Relies On Biased Data That Makes ‘B- Economy’ Look Like ‘A+’ – Bianco (CNBC)

A veteran market researcher is out with a warning — saying the Federal Reserve is relying too heavily on economic surveys skewed by social media to mold their policies. According to Bianco Research President James Bianco, most economists mistakenly believe that leading indicators are signaling an “A+” economy that can withstand rising interest rates. “It’s more like a B- economy,” he told CNBC’s “Trading Nation” on Friday. “It’s not this screaming home run that everybody thinks it is based on the survey data.” Bianco said social media is creating the bandwagon effect among survey respondents, a psychological phenomenon characterized by people following the herd.

“The advent of social media is allowing us basically to be inundated with financial news or economic news,” he said, adding the bulk of the news about the world’s largest economy has been largely favorable. “When somebody is asked ‘what do you think about the economy,” they are not answering ‘what do you think about the economy,’ Bianco said. “They are answering ‘What have you read about the economy?'” Bianco fears the Fed will make a policy error based on respondents’ answers. “Economists like at the Fed say ‘Wow, look at that data. It’s even better than we thought. We have to raise rates even faster,'” he said, adding that the tightening could derail the bull market. “The 10-Year [yield] could very well be at 3% by the end of next year with a 3% funds rate,” Bianco said. “[That’s when] you get an inverted yield curve.”

Read more …

Nobo’s popular at home anymore. Except for Putin.

Blowing Up the Iran Deal Brings Eurasia Closer to Integration (Pieraccini)

Washington finds itself increasingly isolated in its economic and military policies. Merkel’s visit to Russia reaffirms the desire to create an alternative axis to the one between Brussels and Washington. The victory in Italy of two parties strongly opposed to new wars and the annulment of the JCPOA, and especially the sanctions against Russia, serves to form a new alliance, accentuating internal divisions within Europe. Macron, Merkel and May are all grappling with a strong crisis of popularity at home, which does not aid them in their decision-making. Exactly the same problems affect MbS, Trump, and Netanyahu in their respective countries. These leaders find themselves adopting aggressive policies in order to alleviate internal problems.

They also struggle to find a common strategy, often displaying schizophrenic behavior that belies the fact that they are meant to be on the same side of the barricades in terms of the desired world order. In direct contrast, China, Russia, Iran, and now India, are trying to respond to Western madness in a rational, moderate, and mutually beneficial way. And as a result, Europeans may perhaps begin to understand that the future lies not in piggybacking on Israel, Saudi Arabia and the United States. Trump seems to have offered the perfect occasion for European leaders to assert their sovereignty and start to move away from their traditional servility shown towards Washington.

Read more …

“This, as the saying goes, could be it.”

Sudden Chaos In Spanish Politics (Spain Report)

PSOE leader Pedro Sánchez really wants to be Prime Minister. The Socialist Party has been mostly flat in the polls for months, slowly trending down from 23% at the beginning of the year to 19% in the Metroscopia poll in El País on May 13. Articles had recently appeared wondering if Mr. Sánchez had anything relevant to say at all. His only notable intervention of late had been a meeting with Mariano Rajoy at Moncloa, the Prime Minister’s office, to agree on a joint response to the challenge posed by Quim Torra, the new separatist First Minister of Catalonia, whom Mr. Sánchez then decided to frame as “Spain’s Le Pen”, “a racist and a supremacist”.

With the publication of the Gürtel fraud case judgement on Thursday, the Socialist Party, which holds 84 out of 350 seats in Congress, has seized on an opportunity to move back into the political spotlight and oust the Popular Party from power with a motion of no confidence. Mariano Rajoy, famously unresponsive as political scandals erupt and opponents die off, wants to stay on as Prime Minister, of course, but this is a serious crisis: El País has characterised it as a “national emergency”. It is such a big mess that the PM felt he had to cancel his trip to Kiev to watch Real Madrid in the Champions League final.

He gave an unscheduled press conference on Friday afternoon, accompanied by his ministers, and accused Mr. Sánchez of wanting to destabilise Spain and wreck the country’s economic recovery. Moncloa sent out an unsigned, unofficial, unstamped “economic report” on Saturday, warning that the socialist motion of no confidence would cost €5 billion and 6,500 jobs. PP spokesman Fernando Martínez Maíllo said Mr. Sánchez would become the “Judas of Spanish politics” if he did a deal with Catalan separatists to take power. The Popular Party and Mr. Rajoy himself—also sliding inexorably downwards in the polls—sense real danger in the PSOE’s move. This, as the saying goes, could be it.

Read more …

“By early May this year, 4,409 people had reached Spain and 217 people had died in the attempt.”

Spain Struggling To Deal With Escalating Migration Crisis (G.)

Spain’s maritime rescue service has rescued hundreds of people trying to cross the Mediterranean into Europe this weekend amid growing concerns that the country is struggling to cope with the migration crisis. The service said its crews had rescued 293 people from nine boats on Saturday. On Sunday, a further 250 migrants were rescued from eight boats, three of which were in poor condition and later sank, they added. The migrants were from various countries in North and sub-Saharan Africa. On a single day in August last year, Spanish rescuers saved 593 people from 15 small paddle boats – including 35 children and a baby – after they attempted to cross the seven-mile Strait of Gibraltar.

According to statistics from the International Organisation for Migration (IOM) 21,468 migrants and refugees arrived in Spain by sea in 2017, with 224 people dying on the journey. The arrival figures showed a threefold increase on 2016, when 6,046 people reached Spain and 128 people died en route. By early May this year, 4,409 people had reached Spain and 217 people had died in the attempt. The UN refugee agency, UNHCR, has already warned that Spain is facing “another very challenging year” when it comes to helping and protecting those arriving on its shores.

Read more …

His case looks solid. But we’re talking the heart of these companies’ business models.

Google, Facebook Hit With $8.8 Billion In Lawsuits on New EU Privacy Rules (ZH)

Accusing Facebook, Google, WhatsApp, and Instagram of “intentionally” violating Europe’s strict new privacy rules that officially went into effect on Friday, Austrian lawyer and privacy activist Max Schrems filed four lawsuits against the tech companies arguing they are still “coercing users into sharing personal data” despite rolling out new policies ostensibly aimed at complying with the new regulations.

Titled the General Data Protection Regulation (GDPR), the new rules require companies to explicitly and clearly request consent from users before mining their data, and Schrems argues in his complaints – which seek fines totaling $8.8 billion – that Google, Facebook, and the Facebook-owned Instagram and WhatsApp are still utilizing “forced consent” strategies to extract users’ data when “the law requires that users be given a free choice unless a consent is strictly necessary for provision of the service,” TechCrunch explains. “It’s simple: Anything strictly necessary for a service does not need consent boxes anymore. For everything else users must have a real choice to say ‘yes’ or ‘no,'” Schrems wrote in a statement.

“Facebook has even blocked accounts of users who have not given consent. In the end users only had the choice to delete the account or hit the ‘agree’-button—that’s not a free choice.” While Facebook—which is currently embroiled in international controversy following the Cambridge Analytica scandal—insists that its new policies are in compliance with Europe’s new regulatory framework, Schrems argues that Facebook and Google aren’t even attempting to follow the new law. “They totally know that it’s going to be a violation, they don’t even try to hide it,” Schrems told the Financial Times. Schrems believes that courts can curtail companies’ ability to poke around in our private lives and wean them off their idea that, “ ‘We’re Silicon Valley, we know what’s right for everybody else.’ ”

Read more …

Strong lobby for this in Washington.

US Congressman: F-35s Could Be ‘Used Against Greece’ If Sold To Turkey (K.)

The United States should freeze the sale of the Lockheed Martin F-35 fighter jets to Turkey because they are more likely to used against Greece than against terrorists, Democratic US Congressman Brad Sherman told US Secretary of State Mike Pompeo, during a Foreign Affairs Hearing on May 23. “I hope that the administration will oppose and prevent the sale of F-35s [to Turkey]. They are not a weapon to be used against terrorists. They are a weapon to be used against Greece,” he said.

A US Senate committee passed earlier this week a defense policy bill that includes a measure to prevent Turkey from purchasing the F-35s, citing the country’s detention of US citizen Andrew Brunson and its agreement with Russia to buy its weapons systems in December. Sherman also called on the State Department not to block a House resolution on genocidal campaigns committed by the Ottoman Empire. “I hope the State Department will at least be neutral should Congress consider, as we are considering, the remembrance of the millions of Armenian, Greek, Assyrian, Chaldean and Syriac victims of the Ottoman Empire at the beginning of the last century,” he added.

Read more …

Fastest growing industry.

Huge Rise In Food Redistribution To People In Need Across UK (G.)

The UK’s largest food redistribution charity is helping to feed a record 772,000 people a week – 60% more than the previous year – with food that would otherwise be , new figures reveal. One in eight people in the UK go hungry every day – with the most needy increasingly dependent on – yet perfectly good food is wasted every day through the food production supply chain. FareShare said it was now redistributing food that otherwise would have been wasted with an annual value of £28.7m, up from £22.4m last year. “Three years ago we were helping to feed 211,000 people a week – today it’s three-quarters of a million,” said FareShare’s chief executive, Lindsay Boswell. “We reported in 2015 that we provided food across 320 towns and cities – now it’s 15,000. It’s not rocket science to see there has been a massive hike in demand for food from frontline charities.”

FareShare currently redistributes about 13,500 tonnes of surplus food every year donated by supermarkets, wholesalers and suppliers to 9,653 charities including hospices, homeless shelters, care homes and women’s refuges, but its annual target is 100,000 tonnes. Demand for surplus food has soared against a background of growing dependence on food banks and rising in the UK. FareShare says it has the capacity – and a waiting list of charities wanting help – but needs access to more food. Its solution is a government fund that would cover the costs of storage and transport. Available to any charity or producer that incurs the costs of redistributing food, it would also save charities and other beneficiaries £150m by making free food available to them. A public petition supporting this move attracted more than 16,000 signatures, which guarantees a government response.

Read more …

People will start leaving in droves sson.

In Britain, Austerity Is Changing Everything (NYT)

For a nation with a storied history of public largess, the protracted campaign of budget cutting, started in 2010 by a government led by the Conservative Party, has delivered a monumental shift in British life. A wave of austerity has yielded a country that has grown accustomed to living with less, even as many measures of social well-being — crime rates, opioid addiction, infant mortality, childhood poverty and homelessness — point to a deteriorating quality of life. When Ms. Lewis and her husband bought their home a quarter-century ago, Prescot had a comforting village feel. Now, core government relief programs are being cut and public facilities eliminated, adding pressure to public services like police and fire departments, just as they, too, grapple with diminished funding.

By 2020, reductions already set in motion will produce cuts to British social welfare programs exceeding $36 billion a year compared with a decade earlier, or more than $900 annually for every working-age person in the country, according to a report from the Center for Regional Economic and Social Research at Sheffield Hallam University. In Liverpool, the losses will reach $1,200 a year per working-age person, the study says. “The government has created destitution,” says Barry Kushner, a Labour Party councilman in Liverpool and the cabinet member for children’s services. “Austerity has had nothing to do with economics. It was about getting out from under welfare. It’s about politics abandoning vulnerable people.”

Read more …

They should do that for all Americans stationed abroad today. Bring the living ones home while they’re still alive.

‘We’re Gonna Keep Riding Till We Get Everybody Back Home, From All Wars’ (AFP)

Wearing bandanas, cowboy hats or gleaming helmets, tens of thousands of bikers descended on Washington Sunday to parade in honor of US soldiers missing in action in foreign wars, a now 30-year-old tradition known as “Rolling Thunder.” “We’re gonna keep riding until we get everybody back home, from all wars,” said Jack Richardson, who at 73 crossed the country from California for the 13th time to participate in the annual Memorial Day weekend spectacular. Dressed in a leather jacket emblazoned with patches, this Vietnam War veteran had assembled with thousands of other bikers in a parking lot near the Pentagon, awaiting the start of the parade.

The route will take them into the center of official Washington, past the monuments on the National Mall and the austere black marble memorial engraved with the names of the nearly 60,000 US soldiers killed during the Vietnam War. “Still there are families waiting back home here in the United States that have not found out where their dads, their fathers, their brothers – they don’t know where they are,” said Richardson, a retired Los Angeles police officer who served two tours in Vietnam in the 1960s. “They don’t know if they’re still in Vietnam, they don’t know if they’re still alive, they don’t know if they’re dead, they don’t know if they’re captured,” he said.

According to organizers, more than 85,000 US soldiers remain unaccounted for in conflicts as far back as World War I. Most are from World War II, but 1,598 of the missing are from the war in Vietnam, a conflict still fresh in the memories of older veterans. The parade was begun in 1988 with some 2,500 motorcycles under the motto “We will never forget” to press for an accounting of the Vietnam missing. It has grown every year since into a rumbling, roaring extravaganza that organizers say attracts over a million people, including spectators. Besides the missing, the bikers also come to remember their fallen comrades.

Read more …