Jun 152017
 
 June 15, 2017  Posted by at 9:59 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Francisco de Goya Saturn Devouring His Son 1819–1823

 

Fed Raises Rates, Unveils Balance Sheet Cuts In Sign Of Confidence (R.)
The Fed Is Flying Blind (BBG)
Peak Economic Delusion Signals Coming Crisis (Smith)
When the Fed Tightens, It Leads to Financial “Events (Phoenix)
Senate Overwhelmingly Approves New Sanctions To “Punish” Russia (ZH)
What If The Russia Russia Russia Story Was Nothing? (HotAir)
Pentagon Agrees To Sell $12 Billion In F-15s To Qatar (ZH)
The Old Are Eating the Young (Satyajit Das)
Greek Economy Minister Calls Wolfgang Schäuble ‘Dishonest’ (R.)
Greece Is Germany’s ‘De Facto Colony’ (Pol.)
EU Officials Warn Athens Not To Take Debt Issue To Leaders’ Summit (K.)

 

 

It’s getting increasingly frustrating to try and find objective views of anything to do with Trump or Putin. And I don’t want to live in an echo chamber. So I left out Mueller’s Trump investigation.

Yellen is stuck. Next.

Fed Raises Rates, Unveils Balance Sheet Cuts In Sign Of Confidence (R.)

The Federal Reserve raised interest rates on Wednesday for the second time in three months and said it would begin cutting its holdings of bonds and other securities this year, signaling its confidence in a growing U.S. economy and strengthening job market. In lifting its benchmark lending rate by a quarter%age point to a target range of 1.00% to 1.25% and forecasting one more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data. The U.S. central bank’s rate-setting committee said the economy had continued to strengthen, job gains remained solid and indicated it viewed a recent softness in inflation as largely transitory. The Fed also gave a first clear outline on its plan to reduce its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities, most of which were purchased in the wake of the 2007-2009 financial crisis and recession.

It expects to begin the normalization of its balance sheet this year, gradually ramping up the pace. The plan, which would feature halting reinvestments of ever-larger amounts of maturing securities, did not specify the overall size of the reduction. “What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis,” Fed Chair Janet Yellen said in a press conference following the release of the Fed’s policy statement. She added that the balance sheet normalization could be put into effect “relatively soon.” The initial cap for the reduction of the Fed’s Treasuries holdings would be set at $6 billion per month, increasing by $6 billion increments every three months over a 12-month period until it reached $30 billion per month.

For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, rising by $4 billion at quarterly intervals over a year until it reached $20 billion per month. [..] The Fed has now raised rates four times as part of a normalization of monetary policy that began in December 2015. The central bank had pushed rates to near zero in response to the financial crisis. Fed policymakers also released their latest set of quarterly economic forecasts, which showed only temporary concern about inflation and continued confidence about economic growth in the coming years. They forecast U.S. economic growth of 2.2% in 2017, an increase from the previous projection in March. Inflation was expected to be at 1.7% by the end of this year, down from the 1.9% previously forecast.

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The Fed’s been flying blind for well over 10 years.

The Fed Is Flying Blind (BBG)

The architects of U.S. monetary policy at the Federal Reserve should be happy. They’ve succeeded beyond their own expectations in bringing down the unemployment rate without triggering an outburst of inflation. Stock indexes are near record highs, and interest rates remain low. But those who set interest rates are in the awkward position of not understanding how things got so good—and are therefore confused about what to do next. “The Fed isn’t run by computers, it’s run by people,” says David Rosenberg, chief strategist at Gluskin Sheff. “Like all of us they have their flaws and their blind spots. On June 14, the Federal Open Market Committee voted as expected to raise the federal funds rate a quarter point, to a range of 1% to 1.25%. It said it expects inflation to rise to its 2% target “over the medium term.”

For Fed Chair Janet Yellen and company, the central mystery continues to be why inflation remains below 2% despite unemployment having dropped to just 4.3% in May. Even ex-convicts and high school dropouts are getting job offers one reason why many economists believe it’s inevitable that wages must rise. When you have a shortage of supply of something, its price will go up, says Gad Levanon, chief U.S. economist at the Conference Board, a business-supported research group. A tight job market, however, hasn’t translated into inflation. The Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose just 1.7% in April from a year earlier. On June 14, as the Fed was meeting, the Bureau of Labor Statistics announced that the Consumer Price Index excluding food and energy rose just 0.1% in May, the third surprisingly low reading in three months.

Michael Feroli, chief U.S. economist at JPMorgan Chase., sympathizes with Yellen’s predicament. He said in an interview before the FOMC meeting that Yellen is relying out of necessity on the Phillips curve, which says that lower unemployment leads to higher inflation. “It’s kind of the best we’ve got” as a descriptor of the economy, he says. Still, Feroli couldn’t resist headlining his report on the puzzlingly low CPI number, “Captain Phillips goes overboard.” Some economists worry that the Fed rate increases will abruptly cool the economy by increasing the cost of borrowing via credit cards, auto loans, and student loans, as well as business loans. Rosenberg, who’s more bearish than most economists, points out that recessions occurred 10 of the last 13 times the Fed raised interest rates. He says the U.S. is due for a recession within the next 12 months.

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“The question is not “when” we will enter collapse; we are already in the midst of an economic collapse. ”

Peak Economic Delusion Signals Coming Crisis (Smith)

According to the Atlanta Fed, US GDP in the first quarter of 2017 has declined to 0.7% , going back to lows touched on in 2014 after the Fed reduced QE.

The US has lost 5 million manufacturing jobs since the year 2000, and this trend has accelerated in recent years. Manufacturing in the US only accounts for 8.48% of all jobs according to May statistics. 102 million working age Americans do not currently have a job. This includes the 95 million Americans not counted by the Bureau of Labor because they assume these people have been unemployed so long they “do not want to work”. Thousands of retail outlet stores, the primary engine of the American economy, are set to close in 2017. Sweeping bankruptcies and downsizing are ravaging the retail sector, and internet retailers are not taking up the slack despite highly publicized growth. In 2016, online retail sales only accounted for 8.1% of all retail sales.

Oil inventories continue to amass as US energy demand declines. Declining energy demand is a sure sign of overall economic decline. OPEC and other entities continue to argue that “too much supply” is the issue; an attempt to distract away from the reality of lower consumption and the falling wealth of consumers. Corporate earnings expectations continue their dismal path, suggesting that stock markets have been supported by central bank stimulus and blind investor faith in central bank intervention. The stimulus is now being cut off. How long before investor faith is finally lost?

It is unfortunate that so many people only track stocks when accounting for economic health. They have crippled themselves and their own observations, and actually condescend when confronted with counter-observations and data. They help globalists and international financiers by perpetuating false narratives; sometimes knowingly but often unconsciously. And, when the system does destabilize to the point that they actually realize it, they will blame all the wrong culprits for their pain and suffering. The question is not “when” we will enter collapse; we are already in the midst of an economic collapse. The real question is, when will the uneducated and the biased finally notice? I suspect the only thing that will shock them out of their stupor will be a swift stock market drop, since this is the only factor they seem to pay attention to. This will happen soon enough.

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That much is obvious.

When the Fed Tightens, It Leads to Financial “Events (Phoenix)

The Fed concludes its June meeting today. The Fed fund futures markets put the odds of the Fed hiking rates again at 99.6%. This would mark the third rate hike by the Fed during this cycle. Why would this matter? Because it indicates the Fed is embarked on a serious tightening cycle. One rate hike can be a fluke. Two rate hikes could even be just policy error. But three rate hikes means the Fed is determined.

As Bank of America noted in a recent research note, when the Fed becomes determined to tighten… it usually ends in an “event.” What would an “event” look like for today’s market? A Crash is coming…

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It’s a craze. It’s doing so much damage.

Senate Overwhelmingly Approves New Sanctions To “Punish” Russia (ZH)

The U.S. Senate on Wednesday approved new sanctions to punish Russia for “meddling” in the 2016 election. The bipartisan legislation, which passed with an overwhelming 97-2 vote, slaps new sanctions on Russia and restricts President Trump from easing them in the future without first receiving congressional approval. The only two senators to vote against the measure were Sens. Mike Lee (R-UT) and Rand Paul (R-KY), while Chris Van Hollen (D-Maryland) abstained. Known as the Crapo Amendment, after Mike Crapo (R-Idaho), chairman of the Senate Banking, Housing and Urban Affairs Committee, the measure was endorsed by Foreign Relations Committee Chairman Bob Corker (R-Tennessee) and ranking member Ben Cardin (D-Maryland). The deal was attached to an Iran sanctions bill that is expected to pass later this week.

While top Republican senators had initially wanted to give the White House space to try improving U.S.-Russia relations, but ultimately decided talks with Russia have been moving too slowly. The sanctions against Russia are “in response to the violation of the territorial integrity of the Ukraine and Crimea, its brazen cyber-attacks and interference in elections, and its continuing aggression in Syria,” according to the deal’s sponsors. The amendment also allows “broad new sanctions on key sectors of Russia’s economy, including mining, metals, shipping and railways” and authorizes “robust assistance to strengthen democratic institutions and counter disinformation across Central and Eastern European countries that are vulnerable to Russian aggression and interference.”

New sanctions would be imposed on “corrupt Russian actors” and those “involved in serious human rights abuses,” anyone supplying weapons to the Syrian government or working with Russian defense industry or intelligence, as well as “those conducting malicious cyber activity on behalf of the Russian government” and “those involved in corrupt privatization of state-owned assets.” The biggest neocon in Congress, John McCain, was delighted with the outcome: “We must take our own side in this fight. Not as Republicans, not as Democrats, but as Americans,” said Sen. John McCain (R-AZ) before the vote. “It’s time to respond to Russia’s attack on American democracy with strength, with resolve, with common purpose, and with action.” As AP adds, lawmakers took action against Russia in the absence of a forceful response from President Donald Trump.

While the president has sought to improve relations with Moscow and rejected the implication that Russian hacking of Democratic emails tipped the election his way, non-stop “anonymous sources” have repeatedly leaked “news” to the NYT and WaPo, suggesting Trump colluded with Russia and/or was being probed by the FBI. Following Comey’s testimony, which confirmed there is no “there” there, the media attacks against Trump have shifted, and now accuse the president of obstruction of justice and interference with the FBI’s investigation into Mike Flynn. Speaking earlier on Wednesday, Vladimir Putin’s spokesman Dmitry Peskov said told reporters the Kremlin will hold out with its reaction until the U.S. decides on new sanctions against Russia. “We wouldn’t like to enter this sanctions spiral again. But that’s not our choice.” Indeed, and with the US having made Russia’s choice for them, we now look for Moscow’s response.

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They’ll just keep digging until they find something, and then blow that up way out of proportion.

What If The Russia Russia Russia Story Was Nothing? (HotAir)

Everyone has been busily trying to parse the Jeff Sessions testimony since the Attorney General took the stand but there doesn’t seem to be a lot to work with. Allahpundit talked about the number of times that Sessions declined to answer certain questions about private conversations he had with the president, but that’s some fairly thin gruel to build a presidency-ending scandal out of. But the one question which seems to still be off limits for most of the MSM is the really ugly one: what if this turns out to be a dry hole? Much of the speculation swirling around this entire saga has been based on anonymous sources supposedly spilling secrets about Oval Office conversations or supposed Russians hiding behind the potted plants. With all of that smoke, there certainly must be a fire, right? But that depends whether the smoke is coming from an actual blaze or some reporting blazing up some prime wacky tobacky.

Having hearings was supposed to clear up many of these questions. Take for example the widely reported and frequently repeated assertion that the Attorney General had a third, unreported meeting with the Russians at the Mayflower. That’s been stated so often that it’s basically become an article of faith on CNN and MSNBC. But yesterday Sessions was asked about it and he simply said… no. There was no third meeting. And? What happens now? Unless the New York Times can produce some video or at least a credible witness who saw Session sneaking off into the cloak room with the Russian ambassador or one of his henchmen that’s pretty much a dead end. And that’s falling into a pattern with so many other aspects of the entire tapestry of accusations against the Trump administration, a group of allegedly nefarious traitors who were colluding with the Russians to cripple the American elections.

David French at National Review tackles what may eventually become the biggest question of all. What if that never happened and it was all a fictional tale assembled by the media? “While we certainly aren’t privy to all the relevant information or all the relevant testimony, nothing that James Comey said last week or that Jeff Sessions said today (much less any of the questions directed his way) contained so much as a meaningful hint that the Committee was on the verge of uncovering the political scandal of the century. Rather, the focus keeps shifting to much narrower questions regarding Trump’s decision to fire James Comey — questions that are important but far less historically consequential than any claim that a president or his attorney general are traitors to their country…

Truth is truth, and it’s important for responsible people to not just understand and respond to actual evidence — no matter where it leads — but also acknowledge its absence. And so far the absence of evidence points to Trump’s innocence of some of the worst allegations ever leveled against an American president or his senior team.”

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Pentagon wouldn’t mind a little war.

Pentagon Agrees To Sell $12 Billion In F-15s To Qatar (ZH)

Remember when Trump called on Qatar to stop funding terrorism, claiming credit for and endorsing the decision of Gulf nations to isolate their small neighbor (where the most important US airbase in the middle east is located),even as US Cabinet officials said their blockade is hurting the campaign against ISIS. You should: it took place just 5 days ago. “We had a decision to make,” Trump said, describing conversations with Saudi Arabia and other Gulf countries. “Do we take the easy road or do we finally take a hard but necessary action? We have to stop the funding of terrorism.” Also last week, Trump triumphantly announced on twitter that “during my recent trip to the Middle East I stated that there can no longer be funding of Radical Ideology. Leaders pointed to Qatar – look!”

Well, Qatar funding terrorism apparently is not a problem when it comes to Qatar funding the US military industrial complex, because just two weeks after Trump signed a record, $110 billion weapons deal with Saudi Arabia, moments ago Bloomberg reported that Qatar will also buy up to 36 F-15 jets from the Pentagon for $12 billion …. even as a political crisis in the Gulf leaves the Middle East nation isolated by its neighbors and criticized by President Donald Trump for supporting terrorism, according to three people with knowledge of the accord. According to the Pentagon, the sale will give Qatar a “state of the art” capability, not to mention the illusion that it can defend itself in a war with Saudi Arabia. If nothing else, Uncle Sam sure is an equal-opportunity arms dealer, and best of all, with the new fighter planes,

Qatar will be able to at least put on a token fight when Saudi Arabia invades in hopes of sending the price of oil surging now that every other “strategy” has failed. To be sure, the sale comes at an opportune time: just days after Qatar put its military on the highest state of alert, and scrambled its tanks. All 16 of them. Maybe the world’s wealthiest nation realized it’s time beef up its defensive capabilities? Qatar’s defense minister will meet with Pentagon chief Jim Mattis on Wednesday to seal the agreement, Bloomberg reported citing people who spoke on condition of anonymity because the sale hasn’t been announced. Last year, congress approved the sale of up to 72 F-15s in an agreement valued at as much as $21 billion but that deal took place before the recent political crisis in the region.

It is unclear what the Saudi reaction will be to the news that Trump is arming its latest nemesis. If our thesis that Riyadh is hoping for Qatar to escalate the nest leg of the conflict is correct, then the Saudis should be delighted.

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“..society as a partnership between those who are living, those who are dead, and those who are yet to be born.”

The Old Are Eating the Young (Satyajit Das)

Edmund Burke saw society as a partnership between those who are living, those who are dead, and those who are yet to be born. A failure to understand this relationship underlies a disturbing global tendency in recent decades, in which the appropriation of future wealth and resources for current consumption is increasingly disadvantaging future generations. Without a commitment to addressing this inequity, social tensions in many societies will rise sharply. entral to the issue is that the rapid rise in living standards and prosperity of the past 50 years has been largely based on rising debt levels, ignoring the costs of environmental damage and misallocation of scarce resources. A significant proportion of recent economic growth has relied on borrowed money – today standing at a dizzying 325% of global GDP.

Debt allows society to accelerate consumption, as borrowings are used to purchase something today against the promise of future repayment. Unfunded entitlements to social services, health care and pensions increase those liabilities. The bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet. Degradation of the environment results in future costs, too: either rehabilitation expenses or irreversible changes that affect living standards or quality of life. Profligate use of mispriced non-renewable natural resources denies these commodities to future generations or increases their cost. The prevailing approach to dealing with these problems exacerbates generational tensions. The central strategy is “kicking the can down the road” or “extend and pretend,” avoiding crucial decisions that would reduce current living standards, eschewing necessary sacrifices, and deferring problems with associated costs into the future.

Rather than reducing high borrowing levels, policy makers use financial engineering, such as quantitative easing and ultra-low or negative interest rates, to maintain them, hoping that a return to growth and just the right amount of inflation will lead to a recovery and allow the debt to be reduced. Rather than acknowledging that the planet simply can’t support more than 10 billion people all aspiring to American or European lifestyles, they have made only limited efforts to reduce resource intensity. Even modest attempts to deal with environmental damage are resisted, as evidenced by the recent fracas over the Paris climate agreement. Short-term gains are pursued at the expense of costs which aren’t evident immediately but will emerge later.

This growing burden on future generations can be measured. Rising dependency ratios – or the number of retirees per employed worker – provide one useful metric. In 1970, in the U.S., there were 5.3 workers for every retired person. By 2010 this had fallen to 4.5, and it’s expected to decline to 2.6 by 2050. In Germany, the number of workers per retiree will decrease to 1.6 in 2050, down from 4.1 in 1970. In Japan, the oldest society to have ever existed, the ratio will decrease to 1.2 in 2050, from 8.5 in 1970. Even as spending commitments grow, in other words, there will be fewer and fewer productive adults around to fund them.

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Schäuble couldn’t care less.

Greek Economy Minister Calls Wolfgang Schäuble ‘Dishonest’ (R.)

Greek Economics Minister Dimitri Papadimitriou has accused German Finance Minister Wolfgang Schaeuble of being “dishonest” by blocking debt relief for Greece despite his acknowledgement that Athens has implemented significant reforms. Euro zone finance ministers and the IMF are expected to strike a compromise deal on Greece on Thursday, paving the way for new loans for Athens while leaving the contentious debt relief issue for later. Papadimitriou told German newspaper Die Welt in an interview published on Thursday that Schaeuble first had acknowledged that Greece had met the requirements, but then changed his mind. “I haven’t met Schaeuble yet and I don’t want to be impolite, but his behavior seems dishonest to me,” he added.

Papadimitriou said German resistance to debt relief for Greece raised questions about the very idea and structure of the euro zone. The success of right-wing populists in Europe also showed dissatisfaction with such European structures, he said. “Greece is being made a sacrificial lamb,” he said. Papadimitriou also warned Schaeuble against making decisions based purely on domestic politics, noting that Germany had also received debt relief when it was rebuilding after World War Two. Debt relief is needed to help Greece expand its economy, he said, noting that Athens was not asking for a debt cut, but rather lower interest rates or longer repayment schedules. Greek President Prokopis Pavlopoulos also called on the euro zone finance ministers to spell out concrete measures to reduce the Greek debt burden.

“Greece has fulfilled its commitments and adopted the required reforms. Now it is time for the Europeans to comply with their commitments on debt relief,” Pavlopoulos said in an interview with German business daily Handelsblatt. German opposition politicians also criticized Schaeuble by honing in on the fact that the IMF is likely to participate in the third bailout, but will only disburse any loans when debt measures have been clearly outlined. Gerhard Schick from the Greens party accused Schaeuble of a “lousy trick” with the IMF participation. Thomas Oppermann, senior member of the co-governing Social Democrats (SPD), told Bild newspaper: “Schaeuble must put his cards on the table ahead of the election and say what German taxpayers will have to expect.”

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“Europe stopped listening to Greece a long time ago.”

Greece Is Germany’s ‘De Facto Colony’ (Pol.)

Poor Alexis Tsipras. For days, the Greek leader has been working the phones, trying to secure the best possible terms for his country as it enters the last mile of its seemingly endless cycle of bailouts. So far, his efforts have won him more mockery than respect — especially in Germany. “He keeps calling the whole time, and the chancellor says again and again, ‘Alexis, this issue is for the finance ministers,’” German Finance Minister Wolfgang Schäuble told an audience here on Tuesday, referring to the Greek prime minister’s attempts to win over Angela Merkel to his cause. Eurozone finance ministers are set to decide at a meeting in Luxembourg on Thursday whether to release a more than €7 billion tranche of aid to Greece. No one doubts Athens will get the money. Schäuble all but committed to it on Tuesday.

But Tsipras wants something even more precious: debt relief. No serious economist believes Greece will ever crawl out from under its more than €300 billion debt without significant forgiveness from its creditors. That means convincing Germany, the country to which Greece owes the most. For much of Greece’s nearly decade-long depression, the country was hostage to its domestic politics. Now, it’s hostage to Germany’s. Berlin, which has long opposed outright debt relief, refuses to budge. With a general election in Germany set for late September, Merkel and Schäuble are unlikely to soften their position anytime soon. The Greek bailouts remain politically toxic in Germany, and any agreement involving debt forgiveness would be seen domestically as an admission the rescue effort had failed — and at the German taxpayers’ expense.

Over the years, Germany has quietly accepted more subtle forms of forgiveness, like extending maturities on Greece’s loans and reducing the interest burden. But a straightforward cut, as demanded by the International Monetary Fund, remains out of the question. At least until after the election. Unfortunately for Tsipras, he has very little say in the matter. One big reason he wants debt relief now is that it would allow the European Central Bank to include Greece in its bond-buying program, known as quantitative easing. That would go a long way toward boosting investor confidence in Greece’s stability. But Greece won’t be eligible for the program as long as its debt burden isn’t deemed sustainable. And with the ECB’s program set to be wound down soon, Greece may never benefit. Tsipras may yet try to resist a deal this week and take the matter to next week’s summit of European leaders in Brussels. That’s unlikely to make much difference. Truth is, Europe stopped listening to Greece a long time ago.

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More blackmail.

EU Officials Warn Athens Not To Take Debt Issue To Leaders’ Summit (K.)

As Finance Minister Euclid Tsakalotos braces for a Eurogroup meeting in Luxembourg on Thursday which all evidence suggests will not yield a satisfactory debt solution for Greece, European officials on Wednesday warned Athens against trying to broach the issue at an EU leaders’ summit next week. “If the matter is not resolved today, then it will be discussed at the next Eurogroup, where the agreement won’t be any better,” one source in Brussels told Kathimerini. Sources in Berlin, which has taken a hard line in the face of calls by the IMF for Greek debt relief, struck a similar tone, with one official noting that the matter falls squarely within the remit of the Eurogroup, “a message that has been made absolutely clear.”

“I don’t remember any Greek problem being solved at the EU leaders’ summit level,” another source representing Greece’s international creditors told Kathimerini, referring to previous efforts by Prime Minister Alexis Tsipras to broach issues relating to the country’s international bailouts with Angela Merkel and other EU leaders. A spokesman for Germany’s Finance Ministry, however, struck a positive tone, saying he was looking forward to agreeing on a “viable comprehensive package.” A proposal by French officials, that a solution to Greek debt relief be linked to the country’s growth rate, is expected to be discussed in Luxembourg on Thursday, though it is unlikely to be embraced in its entirety.

Meanwhile, Athens sounded a defiant note on Wednesday, with a high-ranking government official warning that if German Finance Minister Wolfgang Schaeuble does not budge from his positions to make way for a final agreement, then “there are others in higher positions than him that can give a solution.” “If there is no positive move, in the next few days or during the Eurogroup, from the German minister, then it looks like Angela Merkel will be forced to hold the hot potato,” a government official told the Athens News Agency on Wednesday.

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May 212017
 
 May 21, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle May 21 2017
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Alfred Buckham Tower of London and Tower Bridge c1920

 

Trump’s $115 Billion Saudi Weapons Deal Ratifies US Support For Yemen War (WE)
A Quarter Of Americans Can’t Pay All Their Monthly Bills (ZH)
U.K. Threatens to Quit Brexit Talks If It Faces Massive Bill (BBG)
Tory Support Wobbles as Labour Attacks May’s Pensioner Plans (BBG)
May’s Plan To End Free School Lunches ‘To Hit 900,000 Struggling Families’ (O.)
Theresa May’s Tory Manifesto Scraps The Ban On Elephant Ivory Sales (EP)
Comey Has Changed His Mind On Trump Trying To Influence Him (ZH)
The Fallacy of Demonizing Russia (CN)
CIA Incompetence Allowed China To Murder A Dozen CIA Assets (ZH)
Those Exposed By WikiLeaks Should Be Investigated, Not Assange (RT)
Varoufakis Reveals Worst Kept Secret In Europe: EU Is A German Empire (MW)
Germany Limits Refugee Family Reunions From Greece (DW)
Schäuble: Germany Will Not Accept Any Greek Debt Cut at Present Time (GR)
Greek State Debt Rises To €326.5 Billion (GR)

 

 

Crazy. In America it is still considered OK to kill people for profit. Has been for ages.

But look at what’s not even being said: talking about Saudi Arabia without mentioning its support for Salafi religion and terrorism paints only part of the picture. To make a buck, and to create more chaos, the US supports the very terrorists it claims to be fighting.

Trump’s $115 Billion Saudi Weapons Deal Ratifies US Support For Yemen War (WE)

President Trump’s newly announced arms agreement with Saudi Arabia ratifies an Obama administration policy that has drawn criticism from a voluble, bipartisan minority of senators. Saudi Arabia, armed with American weapons, fought a proxy war with Iran in Yemen, where the government was overthrown by a rebel group tied to the Iranians. Allegations that Saudi Arabia has bombed civilians and committed other human rights abuses compromised what would otherwise tend to be unanimous U.S. support for the conflict. A $1.15 billion arms deal last year turned controversial, but that pact is dwarfed by the $110 billion pact signed Saturday. “[M]any of the armaments we’re providing to Saudi Arabia will help them be much more precise and targeted with many of their strikes, but it’s important that pressure be kept on the rebels in Yemen,” Secretary of State Rex Tillerson told reporters following meetings in Riyadh.

But Saudi Arabia has attacked civilians intentionally, according to Senate critics of such agreements, rather than by mistakes borne of imprecise airstrike technology. “[T]he country is on the brink of famine in part because the Saudis have intentionally destroyed transit hubs and key bridges, and blocked the delivery of humanitarian aid into Yemen,” Sen. Chris Murphy, D-Conn., wrote in a piece published by the Huffington Post. “By selling the Saudis these precision-guided weapons more — not fewer — civilians will be killed because it is Saudi Arabia’s strategy to starve Yemenis to death to increase their own leverage at the negotiating table. They couldn’t do this without the weapons we are selling them.”

Sen. Todd Young, R-Ind., wanted Tillerson to make a series of demands on the Saudis designed to ease civilian suffering in Yemen, such as ending delays on humanitarian aid at a port city held by the rebels. “First, renounce any intention to conduct a military operation against the Port of Hudaydah,” Young, a former Marine who sits with Murphy on the Senate Foreign Relations Committee, said last week during a colloquy on the Senate floor with the Connecticut Democrat. “Second, redouble efforts to achieve a diplomatic solution. Third, end any delays to the delivery of humanitarian aid caused by the Saudi-led coalition. And, fourth, permit the delivery of much-needed U.S.-funded cranes to the Port of Hudaydah that would permit the quicker delivery of food and medicine. I said it before, with more than 10 million Yemenis requiring humanitarian assistance there is no time to waste.”

Read more …

Reports of poverty in America won’t stop coming in.

A Quarter Of Americans Can’t Pay All Their Monthly Bills (ZH)

There was some good news and some not so good news in the Fed’s latest annual Report on the Economic Well-Being of U.S. Households. First the good news. The report, based on the Board’s fourth annual Survey of Household Economics and Decisionmaking conducted in October 2016, presents a “picture of improving financial well-being among Americans”, at least according to the report (read on to see if this is merited). Overall, 70% of the more than 6,600 respondents said they were either “living comfortably” or “doing okay,” up 1% from 2015 and up 8% from the first survey results in 2013. Not surprisingly, the highest percentage, or 92%, of those who responded they were “living comfortably” was among the group with more than $100,000 in family income.

For Americans making less than $40,000 the breakdown was almost evenly split with 49% saying they are “just getting by.” According to the same study, 28% of respondents said that their income in the last 12 months was less than $25,000, and 40% report that their income was less than the key $40,000 cutoff, which suggests that roughly 4 in 10 Americans are “finding it difficult to get by.” The improvements in well-being as reported by the survey respondents were concentrated among high-income adults, with at least some college education, and prompted the WSJ to write that “U.S Household financial health improved in recent years.” Even so, most of the changes reported in the survey were relatively modest, “reflecting a slowly improving economy and an unemployment level at or below 5% throughout 2016.”

Now, the not so good news. Nearly eight years into an economic recovery, nearly half of Americans didn’t have enough cash available to cover a $400 emergency. Specifically, the survey found that, in line with what the Fed had disclosed in previous years, 44% of respondents said they wouldn’t be able to cover an unexpected $400 expense like a car repair or medical bill, or would have to borrow money or sell something to meet it. Troubling as this statistic remains, the overall share of adults who would struggle to come up with $400 in a pinch has declined by 2% from the last survey conducted in 2015, and down 6% since 2013. Of the group that could not pay in cash, 45% said they would go further in debt and use a credit card to pay off the expense over time. while a quarter would borrow from friends of family, and another 27% just couldn’t pay the expense. Others would turn to selling items or using a payday loan.

The breakdown was largely by education attainment: 79% of those with at least a bachelor’s degree said they would still be able to pay all of their other bills in full if hit with a $400 charge. Just 52% of those with no more than a high school diploma said the same. Just as concerning were other findings from the study: just under one-fourth of adults, or 23%, are not able to pay all of their current month’s bills in full while 25% reported skipping medical treatments due to cost in the prior year. Additionally, 28% of adults who haven’t retired yet reported to being grossly unprepared, indicating they had no retirement savings or pension whatsoever.

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Election talk.

U.K. Threatens to Quit Brexit Talks If It Faces Massive Bill (BBG)

The U.K. will quit Brexit talks unless the EU drops its demands of a divorce payment of €100 billion ($112 billion), Brexit Secretary David Davis said. Britain’s negotiations on leaving the EU would otherwise be plunged into “chaos,” and even a £1 billion settlement would be “a lot of money,” Davis said in an interview published in the Sunday Times. The size of Britain’s exit bill, and which types of negotiations can begin before it has been agreed, has been a source of debate for weeks. European Commission President Jean-Claude Juncker has said the U.K. will have to pay about £50 billion, while Luxembourg’s Prime Minister Xavier Bettel has signaled a figure between €40 billion and €60 billion. The Financial Times estimated the cost could balloon to €100 billion, while a study by the Institute of Chartered Accountants in England and Wales put the cost at as little as £5 billion ($6.5 billion).

Prime Minister Theresa May’s government has said it will meet its commitments to the EU, but has questioned how the EU’s preliminary estimates have been reached. “We don’t need to just look like we can walk away, we need to be able to walk away,” Davis said. “Under the circumstances, if that was necessary, we would be in a position to do it.” In an interview with the Sunday Telegraph, May said that “money paid in the past” by the U.K. into joint EU projects and the European Investment Bank ought to be taken account in the final divorce bill. “There is much debate about what the U.K.’s obligations might be or indeed what our rights might be,” she said. “We make it clear that we would look at those both rights and obligations.”

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Is there enough time left for May to alienate enough people? She certainly tries.

Tory Support Wobbles as Labour Attacks May’s Pensioner Plans (BBG)

U.K. Prime Minister Theresa May’s hopes of boosting her parliamentary majority suffered a blow on Saturday, as Jeremy Corbyn’s opposition Labour Party edged closer in the polls and Conservatives faced a backlash over proposed changes to social care. Labour cut the Tories’ lead in the latest Opinium Research survey to 13 points from 15 points a week earlier, and a new YouGov survey in the Sunday Times put Corbyn’s party nine points behind. The last time Labour managed a single-digit deficit in the YouGov series was in September. The tightening polls mark a setback for May as she seeks to strengthen her position ahead of upcoming Brexit negotiations. In another blow, 47% of respondents in a Survation poll said they opposed May’s plan to require people to tap into assets above £100,000 ($130,000), excluding the value of their homes, to pay for the costs of their old-age care.

Attacking May’s social care pledge and manifesto promises to pensioners, a demographic that traditionally votes Conservative, Corbyn labeled the Tories a “nasty” party in a speech in Birmingham on Saturday. He reiterated the accusation in an emailed statement and set out five pledges for how his party would help older voters. “Theresa May and the Conservatives won’t stand up for pensioners,” Corbyn said in the statement. “Their only concern is their billionaire friends.” Labour’s pledges to older voters include preserving a so-called triple lock on pension payments for five years, under which the government guarantees pensions will rise annually by whichever is greatest: the rate of inflation, the rise in earnings, or 2.5%. The Tories say they’ll drop the 2.5% provision starting in 2020.

Corbyn’s party also says it will guarantee winter fuel subsidies for all pensioners, and will not raise the state pension age beyond 66. The Conservative manifesto, unveiled by May on Thursday, would scrap the fuel payments for well-off pensioners, and said the state pension age should reflect increases in life expectancy. In a lengthy Facebook post Saturday, May warned that a lot is “at stake” in the election and said the U.K. has “great challenges,” including the need to provide “security for older people while being fair to the young”. “If I lose just six seats I will lose this election, and Jeremy Corbyn will be sitting down to negotiate with the presidents, prime ministers and chancellors of Europe,” May wrote. Labour’s leader would “bring chaos to Britain,” she said.

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It’s plenty bad enough that it’s needed. And then scrap it? Scrapping it merely confirms that Britain is a third world country run by a cynical elite. Good thing there’s an election right ahead.

May’s Plan To End Free School Lunches ‘To Hit 900,000 Struggling Families’ (O.)

About 900,000 children from struggling families will lose their right to free school lunches under a cut unveiled in the Conservative manifesto. The total includes more than 600,000 young children recently defined as coming from “ordinary working families”, according to analysis for the Observer by the Education Policy Institute. It means that the surprise measure risks undermining Theresa May’s pledge to prioritise families that are “just about managing” – those who are in work, but struggling to make ends meet. May opted to end universal free school lunches for infants, introduced under the coalition government, and replace them with free breakfasts. The money saved will be used to see off a looming Tory rebellion over school funding.

The move risks punishing exactly the kind of families the prime minister has promised to help and will cost families about £440 for every child hit by the cut. It is likely to save about £650m a year. However, the Conservatives pointed to recent evidence that free breakfasts were more cost-effective, adding that the poorest children would still receive a free lunch. After a week in which the parties released their election manifestos, more Tory candidates expressed private reservations about their party’s plan to make people pay for their old-age home care through their estates.

With the large Tory poll lead closing slightly in recent days, some nervous candidates are urging the leadership to make another attempt to explain the policy to voters, while others are planning to lobby for concessions after the election. May has insisted it is a fair measure that ensures only those with estates worth more than £100,000 will pay. Jeremy Corbyn attempted to exploit the row by accusing the Tories of provoking a “war between generations”. He accused May of drawing up an “anti-pensioner package” that weakened protections for the state pension, removed the winter fuel allowance from many and forced thousands to pay huge amounts for home care. Tim Farron, the Lib Dem leader, said May’s social care policy would “go down as her poll tax”.

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“Interestingly, this policy puts the Tories in direct conflict with Prince William, who has been a vocal supporter of a total ban on ivory sales. Will we see the Duke of Cambridge campaigning for Labour – which has pledged to introduce the total ban the Prince has been lobbying for?”

Theresa May’s Tory Manifesto Scraps The Ban On Elephant Ivory Sales (EP)

After heavy lobbying from wealthy antiques dealers, Theresa May has sneakily dropped the proposed outright ban on elephant ivory sales from the Tories’ 2017 manifesto. Following bans in both the US and China, David Cameron had pledged in the 2015 Conservative manifesto to put a complete ban on all ivory trading. However, after huge pressure from rich and powerful antiques dealers, Theresa May has conveniently decided to completely scrap the plans altogether. The Tories did not decide to implement the ban during the two years after it was announced by David Cameron, and even their staunch supporters in the British press were writing negative pieces about the Tories reticence in pushing through the much-needed legislation.

A quote from a Daily Mail article written in March entitled “Tories’ shame over blood ivory”, said: “A much more likely reason (for the Tories dropping the ivory ban) is that they are being swayed by the powerful antiques industry, which fears it will lose millions of pounds if antique ivory sales are stopped, and whose figurehead happens to be Victoria Borwick, Conservative MP for Kensington, and president of the British Antique Dealers’ Association.” The most powerful UK antique traders association is The British Antiques Dealers’ Association, and their President, Lady Victoria Borwick (also the Conservative MP for Kensington) can be seen shaking hands with Theresa May in the image above.

The only mention of the subject in the Conservative Party’s latest 2017 manifesto is a general pledge to work with international organisations to protect endangered species and the marine environment. Meanwhile, the Labour Party’s 2017 manifesto has specifically pledged to introduce a “total ban on ivory trading”. An elephant is killed for its ivory every 15 minutes on average, and their numbers have fallen by almost a third in Africa since 2007. So as well as being in favour of bringing back fox hunting, Theresa May also couldn’t really care about elephants being killed either. Are you seriously going to vote for a woman who bows to lobbyists over a practice as disgusting as elephant poaching?

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Should be quite the event, that Senate testimony of his.

Comey Has Changed His Mind On Trump Trying To Influence Him (ZH)

Clearly disappointed to have been left out of the headline heroics from Friday night (courtesy of The Washington Post and The New York Times), CNN has decided that anon-sourced perspectives on officials’ feelings now warrants reportage. The latest in the sad sage of mainstream media’s downward spiral, as The Hill reports, is that former FBI Director James Comey is expected to testify that he believes President Trump was deliberately trying to meddle in the FBI’s investigation of Russian interference in the presidential election, according to a report late Friday. Despite swearing under oath that he “had never” been influenced during an investigation, and further that if he had he would have reported it immediately… CNN now reports that, according to a source, Comey has come to believe the president intended to influence him…

Former FBI Director James Comey now believes that President Donald Trump was trying to influence his judgment about the Russia probe, a person familiar with his thinking says, but whether that influence amounts to obstruction of justice remains an open question. “You have to have intent in order to obstruct justice in the criminal sense,” the source said, adding that “intent is hard to prove.” Comey will testify publicly before the Senate intelligence committee after Memorial Day, the panel’s leaders announced Friday. The central question at that blockbuster hearing will be whether Comey believed the President was trying to interfere with his investigation.

Sources say Comey had reached no conclusion about the President’s intent before he was fired. But Comey did immediately recognize that the new President was not following normal protocols during their interactions. So to clarify, a disgruntled fired employee, who previously said no effort to influence was undertaken, has now changed his mind, according to sources, and thinks his former boss was trying to influence him (according to sources).

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The west has rewritten WWII history from the start.

The Fallacy of Demonizing Russia (CN)

We entered the monument to the siege of Leningrad from the back. There is a large semi-circle with eternal flame torches at intervals and embedded sculptures of Lenin’s face, and other symbols of the Soviet era. The monument was built in the post-war period so the Soviet iconography is understandable. In the middle is a sculpture of a soldier, a half-naked woman looking forlorn into the distance, and another woman collapsed on the ground with a dead boy in her arms. There are several concentric steps that follow the semi-circle and I sat down on one of them and took in the feel of the area. Classical style music played in the background with a woman’s haunting voice singing in Russian. It was explained to me that it was a semi-circle instead of a full-circle to represent the fact the city was not completely surrounded and ultimately not defeated.

I finally got up and went through the opening in the semi-circle and came out to the front where a tall column with 1941 and 1945 on it stood with a large statue of two soldiers in front of it. There are several statues on either side of the front part of the monument of figures, from soldiers to civilians, who labored to assist in alleviating the suffering of the siege and defending the city. Soldiers and civilians helped to put out fires, retrieve un-exploded ordnance from buildings, repair damage, and built the road of life over a frozen body of water to evacuate civilians and transport supplies. The siege lasted 872 days (Sept. 8, 1941, to Jan. 27, 1944), resulting in an estimated 1.2 million deaths, mostly from starvation and freezing, and some from bombing and illness.

Most were buried in mass graves, the largest of which was Piskarevskoye Cemetery, which received around 500,000 bodies. An accurate accounting of deaths is complicated by the fact that many unregistered refugees had fled to Leningrad before the siege to escape the advancing Nazi army. According to Wikipedia, by the end of the siege: “Only 700,000 people were left alive of a 3.5 million pre-war population. Among them were soldiers, workers, surviving children and women. Of the 700,000 survivors, about 300,000 were soldiers who came from other parts of the country to help in the besieged city.”


sculpture commemorating the defense of Leningrad during World War II. (courtesy of saint-petersburg.com.)

I told Mike that I didn’t think the average American could even begin to fathom this level of suffering. With the exception of a very small percentage of the population sent to fight our myriad and senseless conflicts, war is something that happens to other people somewhere else. It’s an abstraction – or worse yet, fodder for entertainment. [..] it all made me ponder how spoiled Americans have been in this respect, with a vast ocean on either side and weak or friendly neighbors to the north and south. We have not experienced a war on our soil since the 1860’s and have not suffered an invasion since 1812. I can’t help but think that this, along with our youth, goes a long way toward explaining our lack of perspective and humility as a nation. Only those without wisdom would characterize themselves as “exceptional” and “indispensable.”

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Under Obama and Clinton.

CIA Incompetence Allowed China To Murder A Dozen CIA Assets (ZH)

You know what they say about biting the hand that feeds. The NYT just dropped its latest deep-state scoop, and boy is it a doozy. But instead of using the information as more leverage to attack President Trump, the leaks reveal allegedly extreme incompetence at the highest levels of the CIA, what NYT’s “current and former government sources” characterized as the worst intelligence breach in decades. These officials revealed that “the Chinese government systematically dismantled CIA spying operations in the country starting in 2010, killing or imprisoning more than a dozen sources over two years and crippling intelligence gathering there for years afterward.”

The sheer number of U.S. assets lost rivaled those lost to the Soviet Union and Russia during the betrayals of both Aldrich Ames and Robert Hanssen during the 1980s and 1990s, the NYT noted. The timing of the scoop is also curious: Instead of dropping it during the market day, standard practice for anti-Trump revelations from WaPo, NYT and CNN, this story appeared at noon on a Saturday, when global markets were shuttered – almost guaranteeing it won’t dominate the cable-news cycle, which will likely be laser-focused on Trump’s first trip abroad. One possible reason: the head of the CIA from 2010 to 2013 was Mike Morell, an outspoken supporter of Hillary Clinton, who in August of 2016 penned “I Ran the C.I.A. Now I’m Endorsing Hillary Clinton.”

That is explainable: after all Hillary Clinton was Secretary of State at the time when, as we now learn, China was killing CIA spies. Beginning in 2010, CIA operatives meant to collect information on the innerworkings of the Communist Party started disappearing. The NYT reports that between the final weeks of 2010 through the end of 2012, the Chinese killed at least a dozen of the CIA’s sources. According to three sources, one was shot in front of his colleagues in the courtyard of a government building – a grisly killing meant to send a message to any others who might have been working for U.S. intelligence. Still others were imprisoned. All told, the Communist Party killed or imprisoned 18 to 20 of the CIA’s sources.

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Every country is willing to break every law, domestic or international, if it suits them.

Those Exposed By WikiLeaks Should Be Investigated, Not Assange (RT)

Prominent jurist and head of Julian Assange’s legal team Baltasar Garzon told RT that the US has been secretly conducting an investigation into his client and WikiLeaks, arguing that those implicated in crimes should face legal action instead. Garzon, a renowned human rights judge who sat on Spain’s central criminal court and once indicted Chilean dictator Augusto Pinochet, said in an interview to RT Spanish that while Sweden dropping charges against the WikiLeaks co-founder is a welcome step, the main threat to his freedom comes from Washington. “He [Assange] is satisfied, but, in his own words, the war only begins now. We understood that Sweden was merely a tool in the fight against the freedom of speech. This [role] is the main occupation of the US,” Garzon said.

Assange’s legal team has been preparing to use all means available to gain the upper hand in a possible legal battle, including UN resolutions and international law “in the hopes that this country, despite all its power, admits that neither Julian Assange, nor WikiLeaks, nor freedom of speech advocates are to blame for its woes,” Garzon said. Those who should be held accountable are not whistleblowers and their sources, he argued, but those “ham-fisted leaders who neglected their responsibility to protect freedom and security in the society.” The ones who should be “investigated and persecuted” are “those who were exposed by WikiLeaks,” he said.

Not much is known about the clandestine proceedings allegedly underway in Virginia, Garzon said, noting that all the scant data they managed to obtain was received through information leaks and that they continue to be in the dark about the status of the proceedings. “Since 2010, the US has been carrying out a secret investigation against Julian Assange and WikiLeaks for revealing secret materials, for the fight for the freedom of speech and information,” Garzon said, adding that as far as he is aware, no charges have been brought against his client at this point.

As for the UK police warning that Assange would be arrested for failing to surrender to the British courts back in June 2012, Garzon believes it only serves as a pretext to limit his freedom of movement, barring him from leaving the embassy. “I believe that it is against the law, because he did not breach any pre-trial restrictions. He was on the embassy’s territory, because he was granted political asylum. He obtained refugee status. That is to say, this situation goes against the law,” the lawyer said. He went on to say that the British police failed to inform Assange that this sort of proceedings had been opened against him during his five-year stay in the embassy.

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A ‘secret’ I’ve only mentioned 1000 times.

Varoufakis Reveals Worst Kept Secret In Europe: EU Is A German Empire (MW)

Forget all the claims and protestations about “families of nations” and a “new Europe” and “the European project.” The European Union, and especially the eurozone, is a German empire. The new capital of Europe is not Brussels — let alone Strasbourg, the home of the European Parliament — but Berlin. The ultimate power of the EU is not the president of the European Commission, but the chancellor of Germany. That’s the takeaway from “Adults in the Room: My Battle With Europe’s Deep Establishment,” the sensational memoir by the ill-fated, but colorful, former Greek Finance Minister Yanis Varoufakis. His account of his role in the Greek debt crisis of early 2015 is the talk of the town in London, where it has just been published. And it has been tossed into the middle of the Brexit war of words with the EU, and the British election, like a grenade.

Varoufakis gives a detailed and candid account of the shenanigans that went on behind the scenes as he tried, and failed, to prevent the Greek debt crisis from bringing the country to its knees. He doesn’t spare himself, and he comes across — to his own admission — as politically naive and diplomatically inept. It’s a staggering tale of endemic lying in Brussels and corruption in Athens. But what is most fascinating is how, in the end, all roads lead to Berlin. When a roadblock is thrown up to a Greek debt deal, even in a meeting in Brussels or London or elsewhere, it almost always turns out to be the work of Wolfgang Schäuble, Germany’s hard-line finance minister.

[..] Most astonishingly, and outrageously, Varoufakis reveals that Berlin actually went behind the scenes to scupper a rescue deal struck between Athens and Beijing. The Germans didn’t want to let the Greeks off the hook. It was late March 2015. Greece was on the rack. It had just days left before literally running out of money and shutting the banks. And then, miraculously, Beijing stepped in with the offer of help. The Chinese wanted to get their exports to the heart of Europe faster. So they were offering to make major investments in the Athenian Port of Piraeus, and in Greek railways, as part of a “new Silk Road,” or commercial route. And along with the deal, they were willing to buy short-term Greek paper to keep the country afloat.

The Chinese were awash with surplus euros and dollars that needed a home, and Greece’s entire budget shortfall was chicken feed to them anyway. But days after agreeing to the deal, they suddenly, and mysteriously, pulled back. Varoufakis was shocked when they virtually sat out two auctions of short-term Greek government debt. He then discovered that the Chinese ambassador was also surprised, and this was a decision taken secretly at the highest levels in Beijing. Varoufakis recalls: “I told Alexis [Tsipras, the prime minister] what had happened and suggested strongly that he contact the Chinese prime minister. “The next day Alexis relayed the news from Beijing. Someone had apparently called Beijing from Berlin with a blunt message: Stay out of any deals with the Greeks until we are finished with them.”

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Germany wants chaos in Greece. Breaking laws and treaties won’t stop one second.

Germany Limits Refugee Family Reunions From Greece (DW)

German Interior Minister Thomas de Maiziere has reduced the number of asylum-seeker family members allowed into the country from Greece to 70 a month, German news group RedaktionsNetzwerk Deutschland reported on Friday. The group of local papers said the information was provided by Chancellor Angela Merkel’s government following a request from the Left Party. In its response, the Interior Ministry said the decrease in numbers had to do with “limited support and accommodation capacities,” as well as the “considerable logistical coordination effort by state and federal authorities.” Left lawmaker Ulla Jelpke described the explanation as a “miserable excuse,” and accused the government of shirking its responsibilities under the EU’s Dublin regulation.

The law stipulates that separated refugee and asylum-seeking families are entitled to a legal reunion once an immediate relative arrives in a country covered by the Dublin rule. “The federal government is trampling all over EU law and child welfare,” Jelpke said, adding that the cap should be removed because there was a need for as many as 400 refugee family members per month to be reunited with their loved ones in Germany. The EU took in some 1.6 million refugees and migrants – most of them from Syria – between 2014 and 2016. The majority arrived in Germany via frontline states like Italy and Greece. But the scale of the influx prompted many countries to introduce extra controls and to close their borders, blocking the so-called Balkan route and leaving tens of thousands of people stranded in Greece’s refugee camps.

According to information published by Greek newspaper “Efimerida ton Synakton”, around 2,000 refugees are waiting in Greece to be reunited with their families in Germany. It reported that Germany received only 70 Dublin transfers from Greece in April under the new cap, compared to 540 in March and 370 in February.

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This will not stop. It’s a feature of German and therefore Troika behavior.

Schäuble: Germany Will Not Accept Any Greek Debt Cut at Present Time (GR)

“At the present time, Germany will not accept any Greek debt reduction,” said a spokesperson for German Finance Minister Wolfgang Schaeuble, speaking to Bild. The German official also told the German newspaper that Berlin will not accept extending the debt repayment period, neither will accept that the European Stability Mechanism acquires the International Monetary Fund loans to Greece. The representative of Schaeuble said that on Monday the euro zone finance ministers would examine in detail what the Greek government has voted. “We welcome the ratification of the measures, it is an important step. At the Eurogroup on Monday we will look in every detail of what the Greek government has voted on. The goal is to close the second evaluation, but we can not prejudge the outcome of a comprehensive agreement,=” the German official said.

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After years of ever more severe austerity, the debt only keeps going up. How is that possible? What’s the way out? The Troika makes sure there’s no way out. All exits are blocked.

Greek State Debt Rises To €326.5 Billion (GR)

Greece’s central government debt went up in 2017, from €326,258 billion in December to €326,528 billion in March, according to data released on Friday by the Public Debt Management Agency. The Greek government cash reserves stood at €2,908 billion at the end of March, compared with 2,791 billion at the end of December. Two thirds (67.6%) of the total debt has a variable interest rate. The Greek government wants to “lock” that at a fixed interest rate, in view of the new debt settlement. In this case, it will be protected in the long run from the risk of rising interest rates, but in the short term there will be a burden in relation to the very low variable rate of 1% of the bailout loans. Of the total soverign debt, €56.6 billion is in state bonds and 14.9 billion in short-term securities.

To these, must be added another €13.6 billion from public authorities’ repos. Repos increased by €2.3 billion in three months, a trend that shows that the Greek government is pumping from every source of liquidity in the public sector, but with a rather costly interest rate. A total €254.9 billion are loans, mainly from the European Stability Mechanism, received under the country’s economic rescue plans. The average duration of the Greek debt is 18.19 years, but the government seeks to restructure the debt and extend maturities. In 2017, payments for loans and bonds amount to about €8.5-9 billion. According to the medium term debt repayment plan, in 2017 and 2018 the public debt should be reduced to €319-320 billion.

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Mar 222017
 
 March 22, 2017  Posted by at 1:34 pm Finance Tagged with: , , , , , , , ,  3 Responses »
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Salvador Dali Girl At The Window 1925

 

If Southern Europeans were a race, say there were something like a Mediterranean race, Jeroen Dijsselbloem would definitely be a racist. Since there is not, the -demissionary- Dutch Finance Minister and -still- president of the Eurogroup of eurozone finance ministers, escapes the label, albeit narrowly.

He will still enter history as a misogynist, though. It’s hard to tell if the man is simply really ‘thick’, or there’s something else going on, but his latest remarks have disqualified him for any position, at any time in the future, in European politics. Or they should have; in Europe these days it’s hard to tell.

It’s not as if his actions as Eurogroup head should not have already disqualified him, but nobody seemed interested or smart enough to understand why, except for the Greeks. But unfortunately for Brussels, Dijsselbloem is not even the actual problem, he’s a mere symptom. First, here’s what he said to German daily Frankfurter Allgemeine Zeitung on Monday. Let’s start with the Telegraph’s version:

Dijsselbloem Says Southern Europe Blew Cash On ‘Drinks And Women’

The head of the eurozone’s finance ministers has been criticised for stating that southern European countries blew their money on “drinks and women”. Jeroen Dijsselbloem, the Dutch finance minister who leads the group, made the comments in an interview on Monday with German newspaper Frankfurter Allgemeine Zeitung (FAZ). “During the crisis of the euro, the countries of the north have shown solidarity with countries affected by the crisis,” he said.

“As a Social Democrat, I attribute exceptional importance to solidarity. “But you also have obligations. “You cannot spend all the money on drinks and women and then ask for help.” Inside the European parliament, MEPs turned on Mr Dijsselbloem on Tuesday, calling his remarks “insulting” and “vulgar”. Gabriel Mato, a Spanish MEP, said the remarks were “absolutely unacceptable” and an “insult” to southern member states – claiming he had lost his neutrality as finance chief.

What the remarks make clear is that he never had “neutrality as finance chief”. And it gets better: he accuses Greece, Italy, Portugal, Cyprus, Spain, even Ireland (?!) of not ‘showing the same solidarity as northern eurozone states’. Boy, that’s rich. The Greeks should show more solidarity while being dragged down to a 3rd world country level by the ‘northern eurozone states’. That reeks of Stockholm Syndrome; Greece should be grateful for being beaten into submission.

Because there are -slightly- different translations of the remarks (the interview might have been done in Dutch or English or German originally, I don’t know, and can’t find the original), and therefore also different interpretations, here’s another version, from Politico.eu :

Dijsselbloem Not Fit To Be Eurogroup President, Says Socialist MEP Leader

Without naming names, Dijsselbloem told the Frankfurter Allgemeine on Monday that “countries in crisis” should stick to the deficit targets set by the European Commission and show the same solidarity as northern eurozone states during the financial crisis. “As a social democrat, for me solidarity is extremely important,” Dijsselbloem said. “But those who call for it (solidarity) also have duties. I cannot spend all my money on liquor and women and plead for your support afterwards. This principle applies on the personal, local, national and also European level.”

On Tuesday, Pittella described these comments as “shameful and shocking.” “Dijsselbloem went far beyond by using discriminatory arguments against the countries of southern Europe,” he said. “There is no excuse or reason for using such language, especially from someone who is supposed to be a progressive.”

[..] Pittella said it was “not the first time” that Dijsselbloem has expressed opinions “which are openly in contradiction with the line of the European progressive family.” “I truly wonder whether a person who has these beliefs can still be considered fit to be president of the Eurogroup,” he added.

In between different translations and interpretations, what is clear is that this is how Dijsselbloem sees the world. “Pittella said it was “not the first time” that Dijsselbloem has expressed opinions “which are openly in contradiction with the line of the European progressive family.”

For Dijsselbloem, Greeks -and Italians etc.- are lazy people who drink too much and frequent prostitutes a lot. That is the only possible conclusion to draw from his words. And that is painfully close to the picture Europeans and Americans alike have long held of not only the peoples of southern Europe, but also of those with ancestors in Africa. And you can throw in South America for good measure.

Dijsselbloem, in just a few words, sets back the advances made in western culture in the 20th century towards ‘other people’, and in his case that includes all women, by many years. But he doesn’t seem to get it. Indeed, he refuses to apologize, but seeks to merely walk his comments back ‘a tad’. As the Telegraph continues:

He continued: “It is not about one country, but about all our countries.” He then attempted to dig himself out of the hole by saying all countries had failed to uphold the financial rules set by the EU. “The Netherlands also failed a number of years ago to comply with what was agreed,” he said. “I don’t see a conflict between regions of the eurogroup.”

Also nice, from EU Observer :

Asked on Tuesday in a European Parliament hearing whether he apologised for his comment, Dijsselbloem answered: “No, certainly not. That’s not what I said.” But when Ernest Urtasun, an MEP from the Catalonian radical left, read his comment, Dijsselbloem said: “I know my statement, it came from this mouth.”

This is the man who, alongside Germany’s FinMin Schäuble, has already brought much of Greece to a state of absolute desperation, for no other reason than to save their own banks from having to write down their gambling losses, and to make the country an example to scare off any others who might harbor any thoughts at all of leaving the very ‘Union’ that does this to one of its member states.

This is a classical case of a man who has inadvertently, whatever he says from now on in, exposed himself as a major league bigot. You can’t walk back from that kind of goof. This is also the man who is supposed to chair the next meeting of the Eurogroup, where more decisions regarding the further descent of Greece into servitude will be taken.

All Europeans should hope that Spain and Italy will, alongside Greece, finally grow a pair, or Dijsselbloem might, as inconceivable as it may look -and should be-, be able to continue in his destructive role as Eurogroup head. And that goes to the core of the real problem that he is merely a symptom of. EU Observer again:

“Dutch voters didn’t elect me as Eurogroup president, it was the other ministers,” he argued, suggesting that losing his portfolio at home should not mean the end of his term in Brussels. Dijsselbloem stated that “It’s an important responsibility from which I don’t want to walk away.”

That real problem is that people don’t get to vote for who controls Brussels. Or let’s take it a step further: that there is no way to allow people to vote for that. 10 million Greeks can vote for whomever they want, but in the end they won’t have anything to say. When real decisions are taken, it’s all Germany all the time. 80 million people ultimately control a Union that has at present some 510 million inhabitants. It’s actually much less, of course, because not nearly all Germans have voted Merkel.

So even if Dijsselbloem is ousted, the powers that be, Germany, Holland, Finland, Austria, will simply appoint another one of their pawns in his place. Not even France is sure of its place at the top of the heap anymore, and Marine Le Pen, for all of her many flaws, is right about pointing that out. because

 

The fatal flaw in the EU structure is that voters in Germany or Holland or France choose their own domestic leadership, political parties, who subsequently become Europe’s leaders. But when important decisions must be made, in which what’s best for Germany may conflict with what’s best for the continent, these leaders of rich countries are bound first and foremost to the people at home who voted for them, not to Greeks or Italians.

There’s no possibility that model can survive for long; it will only work in times of plenty but fall apart when times get tougher. Germans will vote their own selfish interests, even if it means hammering others, and their politicians will follow. This is a very essential problem, and there is no way to solve it from within the present model. Because the only participants with the power to reform the EU would have to do so against their own interests.

Also, remember: Europe doesn’t have the ‘transfer payments’ system that the US has, where rich states pay to keep poor states from collapsing, a system designed to keep the country from being torn to bits. Without it, the USA would have long ceased existing, either through peaceful secessions(s) or through battles. Everyone understands that. So why expect the EU be able to survive without such a system? There is no way.

 

The EU in its present form cannot continue, and any options that would have allowed reforming it have been closed off due to its very structure. To preserve the EU, Germany would have to convince its own people to take quite a few steps back. That is never going to happen.

But hey, in the meantime we had us some fun, right, Jeroen? Now if you’ll excuse me, I have to get back to minimizing the suffering of the herd here in Hellas. Boy, I can’t believe I haven’t seen any female European voices telling Dijsselbloem to go stuff it where the sun don’t shine after his comments. Don’t you girls realize what he said?

 

Dec 052016
 
 December 5, 2016  Posted by at 9:38 am Finance Tagged with: , , , , , , , , , ,  3 Responses »
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Don’t let the door hit you on the way out..

Bloody Hell, John Key Just Quit As Prime Minister (Spinoff)
Trump Picks Twitter Fight With China (AFP)
Italy PM Renzi Quits After Crushing Referendum Defeat (AFP)
Italy Bank Recapitalizations A Harder Road After Referendum Flop (CNBC)
Austria Rejects Far-Right Candidate In Presidential Election (G.)
Greece Must Reform Or Leave Eurozone – Schäuble (G.)
Greece Sees Final Solution On Debt Crisis Amid Euro Uncertainty (R.)
Money-Laundering Networks Thrive Amid India’s Cash-Ban Chaos (BBG)
China Regulator Slams Leveraged Stock Acquirers as ‘Robbers’ (BBG)
Vancouver Housing Tax Pushes Chinese Into $1 Million Seattle Homes (BBG)
Pensions Time Bomb Spells Disaster For US Economy (RVTV)
US Reshaping Budget To Account For Russian Military Threat (R.)
Army Denies Dakota Pipeline Permit (R.)

 

 

“John Key took New Zealand, a nation of just 4.5m people, from almost no debt to $100 billion debt.” – Kim Dotcom

Bloody Hell, John Key Just Quit As Prime Minister (Spinoff)

It is one of the hoary rules of politics that leaders never – almost never – go of their own accord. But John Key, not for the first time, has proved his resistance to the forces of political gravity, announcing on Monday afternoon he will exit on his own terms. “For me this feels the right time to go,” the prime minister of New Zealand said. Already the conspiracy theorists are in full flight but there is no evidence to suggest he is doing anything but that: going on his own terms, sitting as strongly as ever, a year out from the next election. He’s only 55. A spring chicken in political terms.

Key said he “feels like I am going out on top”, that he had “never seen myself as a career politician” and “didn’t want to find myself in the position many leaders around the world find themselves, which is disgruntled and unhappy”. Some media are reporting he’s leaving “for family reasons”. But while he did say he’d made sacrifices on that front and family was “a factor”, this wasn’t a “spend more time with my family” exit, or not with that euphemistic freight. The National party under Key has been lauded, rightly, for its ability to renew, with underperforming MPs finding themselves nudged out or shouldered towards retirement. But now the prime minister has performed the biggest renewal of the lot. “To be blunt, I’ve taken the knife to some other people, and now I’ve taken the knife to myself.”

Read more …

Got to admit he’s way more entertaining in person than Saturday Night Live’s impression of him is. And these numbers are real:

“China charges an average 15.6% tariff on US agricultural imports and 9% on other goods [..] Chinese farm products pay 4.4% and other goods 3.6% when coming into the United States.”

Trump Picks Twitter Fight With China (AFP)

US President-elect Donald Trump fired a Twitter broadside at China on Sunday, accusing the Asian giant of currency manipulation and military expansionism in the South China Sea. The taunt came two days after Trump risked offending Beijing by accepting a call from the Taiwanese president, and heralded the prospect of a trade battle between the world’s largest economies. China was a frequent target of Trump’s during his presidential campaign and, as he prepares to take office next month, every sign points to his taking an aggressive line with Beijing. “Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into their country (the US doesn’t tax them) or to build a massive military complex in the middle of the South China Sea?” he demanded, adding: “I don’t think so!”

China is the United States’ largest trading partner, but America ran a $366 billion deficit with Beijing in goods and services in 2015, up 6.6% on the year before. US politicians often accuse China of artificially depressing its currency, the renminbi, in order to boost its exports – its value has fallen by around 15% in the past two-and-half years. Trump has vowed to formally declare China a “currency manipulator” on the first day of his presidency, which would oblige the US Treasury to open negotiations with Beijing on allowing the renminbi to rise. With China holding about a trillion dollars in US government debt, Washington would have little leverage in such talks, but the declaration would harm ties and boost the prospect of a trade war. China charges an average 15.6% tariff on US agricultural imports and 9% on other goods, according to the WTO. Chinese farm products pay 4.4% and other goods 3.6% when coming into the United States.

Read more …

“Five Star founder and leader Beppe Grillo called for an election to be called “within a week”..” Not going to happen say the tea leaves.

Italy PM Renzi Quits After Crushing Referendum Defeat (AFP)

Italian Prime Minister Matteo Renzi announced his resignation on Monday, hours after it was confirmed he had suffered a crushing defeat in a referendum on constitutional reform. “My experience of government finishes here,” Renzi told a press conference, acknowledging that the No campaign had won an “extraordinarily clear” victory in a vote on which he had staked his future. Interior Ministry projections suggested the No camp, led by the populist Five Star Movement, had carried the vote by a margin of almost 60-40 with a near 70% turnout underlining the high stakes and the intensity of the debate. Markets seemed to take Renzi’s departure in their stride. Stocks and the euro fell in early trading in Asia but there were no signs of panic with the possibility of his resignation having already been largely factored in.

Renzi said he would be visiting President Sergio Mattarella on Monday to hand in his resignation following a final meeting of his cabinet. Mattarella will then be charged with brokering the appointment of a new government or, if he can’t do that, ordering early elections. Five Star founder and leader Beppe Grillo called for an election to be called “within a week” on the basis of a recently adopted electoral law which is designed to ensure the leading party has a parliamentary majority – a position Five Star could well find themselves in at the next election. [..] Most analysts see early elections as unlikely with the most probable scenario involving Renzi’s administration being replaced by a caretaker one dominated by his Democratic Party which will carry on until an election due to take place by the spring of 2018. Finance Minister Pier Carlo Padoan is the favourite to succeed Renzi as prime minister and the outgoing leader may stay on as head of his party – which would leave him well-placed for a potential comeback to frontline politics at the next election, whenever it is.

Read more …

Monte dei Paschi down 7.5% this morning. “Monte Paschi’s shares are trading at a 94% discount to the value of its assets.” “Italian households have highest share of wealth invested in bank bonds in the developed world..”

But Draghi to the rescue!

Italy Bank Recapitalizations A Harder Road After Referendum Flop (CNBC)

Recapitalization of Italy’s troubled banks will be harder following the failure of a referendum pushed by Prime Minister Matteo Renzi, with ratings agencies among key actors to watch as delays may loom as the country likely heads to early polls next year. Renzi resigned after failing to win a mandate to curb the powers of the upper house legislature, throwing into questions steps such as plans by Banca Monte dei Paschi di Siena to conduct a €5 billion capital increase this week, a solution backed by the outgoing premier. Barclays Economics Research, in a note to clients following the defeat, suggested that concerns surrounding Italian banks are growing.

“This outcome is likely to exacerbate concerns about the Italian banking sector and increase downgrade risks from rating agencies such as DBRS, although we do not expect rating agencies to act anytime soon, as they are likely to wait for political developments before taking any rating decision,” Barclays said in the Dec. 5 note. Italy’s banking sector has struggled with toxic debts as 14 of the largest banks sit on €286 billion of bad loans, debt securities and off-balance sheet items. Asset managers, insurers and banks had agreed earlier this year to set up a euro fund to bail out the weaker Italian lenders.

But other analysts suggest after the referendum result, investors might pull out. “[Investors] are now drawing back, they think the situation is too volatile both in Italy and in the European Union,” said Mark Grant, chief strategist at Hilltop Holdings, in a Squawk Box interview. “It’s going to be very difficult to do a raise of capital for Monte Paschi and the regional investment banks, and I think then what happens is Italy is going to be at loggerheads with the EU and the ECB,” Grant said.

Read more …

“.. a “small global turning of the tide in these uncertain, not to say hysterical and even stupid times..”

Austria Rejects Far-Right Candidate In Presidential Election (G.)

Austria has decisively rejected the possibility of the EU getting its first far-right head of state, instead electing a former leader of the Green party who said he would be an “open-minded, liberal-minded and above all a pro-European president”. Alexander Van der Bellen, who ran as an independent, increased his lead over the far-right Freedom party candidate, Norbert Hofer, by a considerable margin from the original vote in May, which was annulled by the constitutional court due to voting irregularities. Hofer conceded his defeat within less than half an hour of the first exit polls on Sunday, writing on Facebook: “I congratulate Alexander Van der Bellen for his success and ask all Austrians to pull together and work together.”

The 45-year-old, who said he was “endlessly sad” and “would have liked to look after Austria”, confirmed that he would like to run again for the presidency in six years’ time. The Freedom party secretary, Herbert Kickl, who has acted as Hofer’s campaign manager, said: “The bottom line is it didn’t quite work out. In this case the establishment – which pitched in once again to block, to stonewall and to prevent renewal – has won.” Speaking in front of international press at the end of the evening, a visibly emboldened Van der Bellen said the election had not just been a repeat, “but a new election after the world around us has changed” with the Brexit vote in June and Donald Trump’s win in November.

Referring to the colours of the Austrian flag, he described the result as “a red-white-and-red signal of hope and change to all the capitals in Europe”. Werner Kogler, a Green party politician, described the result as a “small global turning of the tide in these uncertain, not to say hysterical and even stupid times”. The endorsement of the retired economics professor was particularly emphatic in urban areas, with all of Vienna’s 23 districts showing up in Van der Bellen’s green than Hofer’s blue at the end of the night.

Read more …

The kind of headline where you really have to check the date of the article. But this is why Renzi lost, and this is why the EU will soon fall to bits.

Greece Must Reform Or Leave Eurozone – Schäuble (G.)

Greece must implement economic reforms if it is to keep its place in the eurozone, Germany’s finance minister has insisted, ruling out debt relief for the country ahead of a crucial euro group meeting on Monday. As the finance ministers of member states using the single currency prepared to discuss fiscal plans for the coming year, Wolfgang Schäuble in effect presented Greece with an ultimatum: either it must enforce unpopular structural reforms or exit the bloc. “Athens must finally implement the needed reforms,” he told the newspaper Bild am Sonntag in an interview published on Sunday. “If Greece wants to stay in the euro, there is no way around it – in fact completely regardless of the debt level.” Asked if German voters should be prepared for the inevitability of debt relief in the run-up to national elections next year, Schäuble quipped: “That would not help Greece.”

Schäuble, who also asserted the Greek budget was not burdened by debt servicing because interest rates were now so low, made the comments as speculation mounted over how best to put the thrice-bailed-out nation back on the road to economic recovery. On Friday the German finance ministry announced that short-term measures to lighten Greece’s debt load would be among the proposals up for discussion at the euro group meeting. Athens’s leftist-led government has long argued that the country’s staggering €330bn debt load is the single biggest impediment to sustainable growth. It is an argument that has won backing from the IMF. Time is of the essence. The economic crisis enveloping Greece is far from over despite more than €300bn of emergency loans since 2010 when, after its first brush with bankruptcy, it received its first EU-IMF sponsored bailout.

Read more …

Never let a good crisis go to waste.

Greece Sees Final Solution On Debt Crisis Amid Euro Uncertainty (R.)

Political uncertainty in Europe has created fresh momentum for a “comprehensive and permanent” solution to the Greek debt crisis before the year ends, a government spokesman said on Sunday. Eurozone finance ministers will meet in Brussels on Monday to discuss short-term debt relief for Greece, and Germany’s Wolfgang Schaeuble said it must implement reforms instead of hoping for further debt forgiveness. Greece remained optimistic for a final debt deal, however, just as Italians were voting on a constitutional referendum on Sunday and a victory for the opposition “No” camp may push the eurozone toward fresh crisis.

“Everyone realizes that Europe cannot stand a rekindling of the Greek crisis, when there are issues with Italy and amid a pre-election period in many European countries,” Dimitris Tzanakopoulos told Athens 9,84 radio. “The general uncertainty which prevails in Europe – which is both political and financial – creates … a momentum for a comprehensive and permanent solution for the Greek issue.” Bank of Greece Governor Yannis Stournaras said new measures were needed to lighten Athens’s debt burden. One option would be to extend the maturity of already granted long-term aid loans by some 20 years. “Greece needs debt sustainability and more realistic fiscal targets after the completion of the current adjustment program [in 2018],” Stournaras told German business daily Handelsblatt in an interview to be published on Monday.

Read more …

China and India, the world’s most populous countries, are both ruled by megalomaniacs. Thinking they are in full control.

Money-Laundering Networks Thrive Amid India’s Cash-Ban Chaos (BBG)

As Indians struggle with the chaos caused by last month’s sudden banning of their 500 and 1,000 rupee notes, money-laundering networks are spreading across the country, seizing on a new market in helping people turn their cash hoards into legal tender. While people have until year-end to deposit old notes in their bank accounts, the government has said it will scrutinize large cash deposits and money with undeclared origins — and will tax or penalize depositors. That’s created a scramble for ways to turn so-called black money, the local term for cash that has evaded taxation, into white.

Agents offering to launder money are using creative means, including flying banned cash by the planeload to northeastern states exempt from restrictions as well as connecting people to high-turnover businesses that can deem old cash as revenue, keep a portion of it, and return the rest, according to people involved in the networks. Premiums range from 10% to 50%, depending on the difficulty, they say. At least one property brokerage is offering to arrange the sale of apartments using banned money in an upscale suburb of Mumbai that’s popular with Bollywood movie stars.

While the government has been working to close loopholes – which Prime Minister Narendra Modi decried as people’s “illegal means to save their ill-gotten wealth” in a radio address last week – new ones are opening even faster. So far, the policy aimed at reducing the scale of the black economy and bringing more people into the tax net is, in the short term, leading to just the reverse: money-laundering, tax-avoidance, and new opportunities for existing organized crime, the evolution of the long-standing hawala money-transfer system, and the start of new illicit networks.

Read more …

“..you’ve gone from strangers at the gate, to barbarians and eventually robbers of the industry..”

China Regulator Slams Leveraged Stock Acquirers as ‘Robbers’ (BBG)

China’s top securities regulator resorted to unusually harsh language to denounce leveraged acquisitions of listed companies, as officials move to rein in financial risks associated with a surge in dealmaking. China Securities Regulatory Commission Chairman Liu Shiyu also questioned the legitimacy of the funding sources at acquirers that he didn’t identify, saying their behavior challenges the nation’s rules, as well as their own professional ethics. Such acquisitions show “retrogress and decay in humanity and commercial morals, and is by no means financial innovation,” Liu said. “By using improperly obtained money to conduct leveraged acquisitions, you’ve gone from strangers at the gate, to barbarians and eventually robbers of the industry, ” he said at a meeting of the Asset Management Association of China in Beijing on Saturday, a transcript of which was posted on the regulator’s website. “That’s not allowed.”

The comments came after China Evergrande Group, the country’s largest property developer, last month stepped up a buying spree of shares in rival China Vanke in the weeks after a warning from the Shenzhen stock exchange that it is closely monitoring Evergrande’s investments in listed companies. The bourse said it strengthened supervision after finding “abnormal trading behaviors” that affected share prices of Vanke and others. [..] Evergrande joined the fray in a tussle for control at Vanke, which has been trying to fend off advances from the Baoneng Group. Vanke labeled Baoneng “hostile” after it emerged last year as the developer’s largest shareholder, amassing a 24% stake by borrowing from brokers and fund managers who raise the money selling private high-yield instruments to wealthy clients.

Read more …

There once was a time when homes were places that offered shelter.

Vancouver Housing Tax Pushes Chinese Into $1 Million Seattle Homes (BBG)

Just a few days after Vancouver announced a tax on foreign property investors, Seattle real estate broker Lili Shang received a WeChat message from a wealthy Chinese businessman who wanted to sell a home in Canada and buy in her area. After a week of showings, he purchased a $1 million property in Bellevue, across Lake Washington from Seattle. He soon returned to buy two more, including a $2.2 million house in Clyde Hill paid for with a single cashier’s check. Shang says she’s been inundated with similar requests from China and Hong Kong after Vancouver’s provincial government enacted a 15% tax on foreign homebuyers in August to help cool soaring real estate values.

With Chinese investors – the largest pool of foreign capital – looking for a place to put their cash, the unintended consequence of the fee has been to push demand to cities such as Seattle and Toronto. “The tax was the trigger of this new wave of investment now coming to Seattle,” Shang said. “Why pay more for the same thing?” Vancouver, which has seen detached-home prices double in a decade, joined areas including Australia and Hong Kong in taking steps to slow housing demand after an unprecedented surge of foreign investment. Chinese buyers, in particular, are accelerating purchases overseas, spurred by a weakening yuan, rising prices at home and the perceived safety of real estate. They’re also venturing farther afield as costs soar in some of their favored markets.

Read more …

“..the physiological decision to stay in the workforce won’t work for much longer….”

Pensions Time Bomb Spells Disaster For US Economy (RVTV)

The $1.3 trillion pensions deficit just takes into account state and municipal obligations and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover. “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.” The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They’re turning 71. And the physiological decision to stay in the workforce won’t work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.”

“And the idea that we can escape what’s to come, given demographically what we’re staring at is naive at best. And it’s reckless at worst,” DiMartino Booth said. “And when you throw private equity and all of the dry powder that they have – that they’re sitting on – still waiting to deploy on pensions’ behalf, at really egregious valuations, yeah, it’s hard to sleep at night.” “This is where the smile comes off my face. We are an angry country. We’re an angry world. The wealth effect is dead. The inequality divide is unlike anything we’ve seen since the years that preceded the Great Depression,” she told Real Vision TV. “Where’s the money going to come from? And the answer is, for now, they cut services. I’ve just written about the Winter of Discontent and the rubbish piled up in central London streets in 1979, as Thatcher was coming in. I worry about the ambulance not getting there in time. I worry about firefighters being cut to the bone and policemen.”

Read more …

Russia is not the no. 1 threat. These people are.

US Reshaping Budget To Account For Russian Military Threat (R.)

Russia’s increasing military activities around the world have unsettled top U.S. military officials, who say they are reshaping their budget plans to better address what they now consider to be the most pressing threat to U.S. security. “Russia is the No. 1 threat to the United States. We have a number of threats that we’re dealing with, but Russia could be, because of the nuclear aspect, an existential threat to the United States,” Air Force Secretary Deborah James told Reuters in an interview at the annual Reagan National Defense Forum. James, Chief of Naval Operations Admiral John Richardson and Pentagon chief arms buyer Frank Kendall, all voiced growing concern about Russia’s increasingly aggressive behavior in interviews late on Saturday.

Their comments come as the Pentagon finalizes a classified security assessment for President-elect Donald Trump, who has promised to both pump up U.S. defense spending and build closer ties to Russian President Vladimir Putin. European diplomats fear Moscow could use the time before Trump’s inauguration to launch more offensives in Ukraine and Syria, betting that President Barack Obama will be loathe to response forcefully so soon before he hands off power on Jan. 20. Kendall said U.S. policy had been centered on threats in the Asia-Pacific region and Middle East, but was now focused more on Russia. “Their behavior has caused us … to rethink the balance of capabilities that we’re going to need,” he said.

None of the officials gave details about how the concerns would affect the fiscal 2018 budget request, but defense officials have pointed to the need to focus on areas such as cyber security, space, nuclear capabilities and missile defense, where Russia has developed new capabilities in recent years.

Read more …

Washington better back down. Trump can’t afford this fight either.

Army Denies Dakota Pipeline Permit (R.)

The U.S. Army Corps of Engineers said on Sunday it turned down a permit for a controversial pipeline project running through North Dakota, in a victory for Native Americans and climate activists who have protested against the project for several months. A celebration erupted at the main protest camp in Cannon Ball, North Dakota, where the Standing Rock Sioux tribe and others have been protesting the 1,172-mile Dakota Access Pipeline for months. It may prove to be a short-lived victory, however, because Republican President-elect Donald Trump has stated that he supports the project. Trump takes over from Democratic President Barack Obama on Jan. 20 and policy experts believe he could reverse the decision if he wanted to.

The line, owned by Texas-based Energy Transfer Partners, had been complete except for a segment planned to run under Lake Oahe, a reservoir formed by a dam on the Missouri River. That stretch required an easement from federal authorities. The Obama administration delayed a decision on the permit twice in an effort to consult further with the tribe. “The Army will not grant an easement to cross Lake Oahe at the proposed location based on the current record,” a statement from the U.S. Army said. Jo-Ellen Darcy, the Army’s Assistant Secretary for Civil Works, said in a statement the decision was based on a need to explore alternate routes for the pipeline, although it remains unclear what those alternatives will be. Protesters have said the $3.8 billion project could contaminate the water supply and damage sacred tribal lands.

Read more …

Sep 132016
 
 September 13, 2016  Posted by at 9:03 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Harris&Ewing Calvin Coolidge Inaugural Ball. March 4, Washington DC 1925

Energy Exploration & Production Debt Recoveries Hit ‘Catastrophic’ Level (BBG)
Oil Bankruptcies Leave Lenders With ‘Catastrophic’ Recovery Rate (BBG)
Strategist: If Trump Wins, ‘The U.S. Economy Would Take Off in a Big Way’ (BBG)
A Homerun For The Donald – Attack The Fed’s War On Americans (Stockman)
Fed Looks Unlikely To Hike Next Week After Brainard Warning (R.)
The Expansion in Developed Markets Might Be Over (BBG)
China’s Infrastructure Planners are on a Road to Nowhere (BBG)
Michael Pettis: Surplus Trade Statements by Schäuble “Utter Lunacy” (Mish)
ECB Lets Banks Offload Bad Loans At Own Speed (R.)
Greek Prices Keep Rising as Household Incomes Keep Shrinking (Kath.)
US Funds And Iceland Square Up Over Bond Freeze (R.)
Australia 6 Weeks From A Housing Collapse, US Report Warns (ZH)
NZ PM Wary Of Policies That Could Cause Catastrophic Housing Slump (Hickey)
Signs of Desperation (Jim Kunstler)
The Tropical Paradise The US Wants To Turn Into A War Zone (G.)

 

 

We’ve warned on just this for a long time. The US oil casino.

“Senior unsecured bondholders were hammered even more, averaging just 6 cents on the dollar.”

Energy Exploration & Production Debt Recoveries Hit ‘Catastrophic’ Level (BBG)

Creditors of energy exploration and production companies that went bankrupt last year recouped less than half the usual amount for their claims, and 2016 is shaping up just as bad, according to Moody’s Investors Service. Recovery rates for 15 U.S. E&P bankruptcies averaged a “catastrophic” 21% last year, well below the historical average of 59%, Moody’s said in a report released Monday. Senior unsecured bondholders were hammered even more, averaging just 6 cents on the dollar. Collectively, the debacle could be worse than the telecom industry’s collapse in the early 2000s, measured by both the number of companies that go bust and the recoveries, Moody’s said.

Many of the E&P firms that went bankrupt in 2015 were smaller companies with less flexibility to maneuver as energy prices crumbled, while larger companies were able to stave off failure with debt exchanges and new second-lien issuance, analysts led by David Keisman wrote. But more than half of those swaps were followed by bankruptcy, according to the report. “I don’t expect the recoveries for the companies that went bankrupt in the first half of 2016 to be any better,” Moody’s analyst Amol Joshi said in an interview. “The worst may be behind them, but the sector still remains quite stressed.”

Read more …

So who’s going to jump in to save the lenders in the “worst bust of any industry this century”?

Oil Bankruptcies Leave Lenders With ‘Catastrophic’ Recovery Rate (BBG)

U.S. oil bankruptcies haven’t been this “catastrophic” for lenders in a long time, in what may be the worst bust of any industry this century, according to Moody’s Investors Service. Creditors are recovering an average 21% of what they lent, compared with about 59% in past decades, the credit-rating agency said Monday in a report that looks into lending to 15 exploration and production companies that filed for bankruptcy protection in 2015. That may be on par with, or worse than, the telecommunications industry collapse in 2001 and 2002, the study led by David Keisman said. High-yield bonds recovered a mere 6%, compared to 30% in previous years going back to 1987.

Defaults in the oil and natural gas industry have been rising through a market slump that has exceeded two years as companies lacked the cash to make interest payments on their debt. Bankruptcies among U.S. producers so far this year are about twice the number among companies rated by Moody’s in all of 2015, the report said. The oil and gas figures have helped propel U.S. corporate defaults to the highest since 2009. Less than half of the companies that negotiated distressed-debt exchanges in 2015 to try to stave off bankruptcy succeeded, the analysts wrote.

Read more …

The opposite of what was a popular view until recently, and probably still is among many.

Strategist: If Trump Wins, ‘The U.S. Economy Would Take Off in a Big Way’ (BBG)

Financial markets are starting to “wake up” to the possibility of a Donald Trump presidency in the wake of Hillary Clinton’s recent health concerns and tightening polls, according to Bank of America Merrill Lynch Head of Global Rates and Currencies Research David Woo. He says investors are still underestimating the real estate mogul’s chances of ascending to the highest office in the land, and what a seismic change this could be for markets and the world’s largest economy. While the outsider candidate poses a risk to one of 2016’s hot investment strategies, he could prove to be a massive boost for the greenback and U.S. economy.

“The U.S. economy would take off in a big way” if Trump were elected and Republicans control both legislative houses next year, said Woo, thanks to the fiscal stimulus that Trump would enact. Trump has pledged to spend at least twice as much as the Democratic nominee on infrastructure and also enact a massive tax cut, two measures that would entail a renewed issuance of Treasuries. Against this backdrop, the greenback would strengthen and U.S. Treasury yields would rise, a view shared by Woo and other fixed income veterans as well.

Read more …

Spot on from Stockman.

A Homerun For The Donald – Attack The Fed’s War On Americans (Stockman)

The central banks have gone so far off the deep-end with financial price manipulation that it is only a matter of time before some astute politician comes after them with all barrels blasting. As a matter of fact, that appears to be exactly what Donald Trump unloaded on bubble vision this morning: By keeping interest rates low, the Fed has created a “false stock market,” Donald Trump argued in a wide-ranging CNBC interview, exclaiming that Fed Chair Janet Yellen and central bank policymakers are very political, and should be “ashamed” of what they’re doing to the country… He’s completely correct.

After all, they are crushing real wages with their 2% inflation targeting; destroying savers with NIRP and sub-zero rates; and burying unborn taxpayers in monumental debts that today’s politicians are pleased to issue with reckless abandon because the short-run carry cost is nil. Interest on the Uncle Sam’s $19.4 trillion of debt, for example, is easily $500 billion lower than its true economic cost based on a normal yield after inflation and taxes and elimination of the phony $100 billion per year in so-called Fed “profits” that are booked by the treasury as negative interest expense. Alas, when interest rates eventually normalize, the Treasury’s debt service costs will soar by hundreds of billions.

At the same time, the entirety of the Fed’s “profits”, which are conjured from thin air because it buys interest-yielding government and GSE debt with printing press liabilities which cost virtually nothing, will disappear. That’s because it will be forced to take reserve charges for giant principal losses on the falling prices of its $4.5 billion portfolio of government and GSE bonds. At that moment, the long-abused citizens of Flyover America, who have already been clobbered as savers and wage earners, will get hit with the triple whammy of soaring Federal tax bills. And this is not a matter of if or even when; it’s really just a question of how soon. When it comes to the establishment’s monetary lunacy, of course, Mario Draghi’s is always leading the charge.

So just consider what has been happening after his inartful punt during last week’s ECB meeting. First, the casino cheerleaders have insisted that there is nothing to sweat about with respect to the incredible anomaly that now plagues the euro-bond markets. To wit, socialist Europe has apparently not issued enough qualifying debt (with a yield not below the negative 0.4% threshold) to fill the ECB’s $90 billion per month purchase target. The solution is real simple according to Draghi’s acolytes in the casino. In addition to lowering the bond yield threshold as deep into the subzero freezer as necessary, they have proffered an even better solution. Just buy up the stock market, too!

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What, that was the highly anticipated speech?

Fed Looks Unlikely To Hike Next Week After Brainard Warning (R.)

The Federal Reserve should avoid removing support for the U.S. economy too quickly, Fed Governor Lael Brainard said on Monday in comments that solidified the view the central bank would leave interest rates unchanged next week. Brainard said she wanted to see a stronger trend in U.S. consumer spending and evidence of rising inflation before the Fed raises rates, and that the United States still looked vulnerable to economic weakness abroad. “Today’s new normal counsels prudence in the removal of policy accommodation,” Brainard, one of six permanent voters on the Fed’s rate-setting committee, told the Chicago Council on Global Affairs. She said the U.S. labor market was not yet at full strength, which means “the case to tighten policy preemptively is less compelling.”

Brainard did not comment on the specific timing of future rate policy changes but she held firm in arguing for caution in what could be the last word from a Fed policymaker before the central bank’s Sept. 20-21 meeting. Policymakers will go into the meeting divided, with some concerned current low rates will fuel a surge in inflation while another camp, which includes Brainard, has argued that the Fed should not rush to raise rates. Many other policymakers think the U.S. job market is near full strength and Fed Chair Janet Yellen argued in July the case for rate increases has strengthened. “I think circumstances call for a lively discussion next week,” said Atlanta Fed President Dennis Lockhart, who will not be a voter at next week’s policy review but will participate in discussions.

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How predictable would you like it?

The Expansion in Developed Markets Might Be Over (BBG)

As traders are settling back into their routine after the slow summer months, things have started taking a turn for the worse in global markets. Now one indicator is even pointing to the end of the expansion in developed markets. According to new research from Morgan Stanley, so many developed countries are showing enough signs of slowing, that its cycle indicators — which take macro, credit and corporate factors into account — are leading analysts led by Chief Cross-Asset Strategist Andrew Sheets to conclude that a downturn could be coming sooner than some may think.

“The Morgan Stanley Cycle Indicators across the U.S., eurozone and Japan have stalled, highlighting the increasing risk that we have moved from ‘expansion’ to ‘downturn’ in [developed markets], even as our economics team flags upside risks to its macro outlook,” the team said in a note published on Sundayy. The team points out that if this is in fact the start of a cycle change, it would represent the shallowest recovery for the U.S. in more than 30 years. Here’s a look how these cycles have played out in the past, with recessions shaded.

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“..for over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate..”

China’s Infrastructure Planners are on a Road to Nowhere (BBG)

For all the roads, bridges and railways that China builds every year in an effort to keep the economy humming, the massive splurge may not be having the desired effect. That’s because more than half of China’s infrastructure investment has destroyed economic value instead of generating it, according to a study from the University of Oxford’s Saïd Business School. “The evidence suggests that for over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate,” according to Atif Ansar, one of the study’s co-authors.

What’s more, unless China shifts its focus to fewer and higher quality types of public works that leave a positive legacy “the country is headed for an infrastructure-led national financial and economic crisis, which is likely also to be a crisis for the international economy,” according to the analysis that’s published in the Oxford Review of Economic Policy. China spent more than $10.8 trillion in infrastructure in the last decade alone, according to Bloomberg calculations based on official data of investment in categories such as transport, storage, power supply and water conservation. The Oxford study’s findings jar with views that China’s aggressive government-led infrastructure spending is vital to keep growth on track.

Researchers examined 21 large rail projects and 74 road projects whose starting dates ranged from 1984 to 2008. They then compared the economic value of those to 806 transport projects built in rich democracies. Instead of finding a long lasting, positive economic legacy, the Oxford study found that 75% of the transport projects in China exceeded budget. While one third of the roads built were congested, 41% of them have low usage. Both extremes are equally undesirable because “large unused capacity equals waste, as does too little capacity,” according to the paper. The buildup has also exacerbated China’s swelling debt as cost overruns equal about a third of the nation’s $28.2 trillion debt mountain, according to the paper.

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Once more, why the euro will fail: All eurozone countries get punished for not being enough like Germany. But the only way Germany can be Germany is for the others not to be.

Michael Pettis: Surplus Trade Statements by Schäuble “Utter Lunacy” (Mish)

A few days ago I pinged global trade expert Michael Pettis with my post Germany’s Finance Minister Blames ECB For German Trade Surplus; Why the Eurozone Will Destruct. His reply was interesting but not at all unexpected. Pettis labeled Wolfgang Schaeuble’s comments “utter lunacy”. Germany has no plans to reduce its export surplus, Finance Minister Wolfgang Schaeuble said on Friday, as the ECB has not changed its monetary policy which has led to a weaker euro which in turn boosts German exports. “Even before the European Central Bank decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus,” Schaueble told reporters. When asked whether he had any plans to decrease Germany’s export surplus, Schaeuble said: “I haven’t heard that the ECB is changing its monetary policy.”

Pettis Comments “What utter lunacy. It is one thing to defend the existing surplus by pretending to believe that it was not caused by income distortions at home but rather by foreign laziness, but to say that it is German policy to grow the surplus further is outrageous. Now that they have bankrupted Europe, and developing countries are in trouble, who but the US can possibly be forced into absorbing it? If the US were ever to decide that it cannot continuing absorbing everyone else’s deficient demand at the expense of becoming more like peripheral Europe, the consequences for Germany (and China and Japan) would be devastating.”

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe. [..] Target2 is also a measure of capital flight. The Italian banking system is effectively bankrupt, and outflows from Italy have been picking up.

Six Largest Target2 Deficit Countries

Six Largest Target2 Creditor Countries

Look closely at the six countries with the highest balances. Only four countries are positive: Germany, Luxembourg, the Netherlands, and Finland. The six largest deficit countries owe a collective 797.3 billion euros to the four creditor countries. The ECB itself is in hock for another 133.5 billion euros. Monetary policy can help external balances but it cannot fix internal target2 balances. Every county in the Eurozone is stuck with the Euro and the ECB’s interest rates whether it makes any sense or not (and it doesn’t). Rates suitable for Germany were not suitable for Spain, Ireland, Greece, and many other countries.

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This sounds like the ECB is desperate (and fighting Germany). Unlike the US, European banks often still have 10+ year-old bad loans on their books, and now they get 3+ more years to get rid of them. Meanwhile the same ECB, through its NIRP and ZIRP policies, makes the banks bleed more cash. There’s no way this can end well.

ECB Lets Banks Offload Bad Loans At Own Speed (R.)

Euro zone banks will get to set their own targets for cutting the €900 billion of bad loans left over from the financial crisis, facing sanctions only if they fall way short of the mark, new guidance by the ECB showed on Monday. Banks in weak economies such as Greece, Portugal and Italy are still struggling under the burden of unpaid loans extended before the crisis, which reduce their ability to lend and undermine investor confidence. The ECB, as the euro zone’s top bank supervisor, is trying to get banks to manage down that mountain of soured credit. But it cannot push them too hard if it doesn’t want them to incur hefty losses, which would also strangle lending. Under new guidance disclosed on Monday, banks will be asked to set numerical targets for the levels of non-performing loans they aim to reach in one and three years, and follow a number of other guidelines.

Failure to comply may lead to so-called ‘supervisory measures’ by the ECB, such as higher capital requirements. But the ECB said the new guidelines would be non-binding and only “significant” deviations from them may trigger action, while solving the problem would take longer than three years in many cases. [..] When the ECB disclosed plans to work on new guidelines for non-performing loans in January, some banks worried that it would force a fire sale of those assets. That would push down their selling price and hurt bank profits. However, the guidelines showed banks will be given three years or, in many cases, longer. “We chose a three-year target because most banks have a three-year projection in their business plans … for a number of banks, this will not be the end of the story, it will likely take longer,” Donnery said.

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How the EU has designed the impossibility of a Greek recovery. If you kill consumption, you kill the economy and eventually the society. A whole range of food products went from 13% VAT to 24% since last summer. In the same time-frame pensions and wages were cut multiple times.

Greek Prices Keep Rising as Household Incomes Keep Shrinking (Kath.)

While households’ disposable income keeps shrinking, consumers also face the constant increase of prices in dozens of commodities, particularly food products, making Greece one of the most expensive countries in the EU in this domain. Successive value-added tax hikes, and particularly one imposed last summer shifting a series of food commodities from the 13% to the 23% bracket and now to 24%, have led to a decline in consumption. This means that the industry and retail commerce, in turn, raise their prices in order to offset losses from the domestic market’s downturn. Although Greece has experienced deflation in the last three-and-a-half years, data published by Eurostat are revealing:

Food prices in Greece were up 2.3% compared with the same month in 2015, while the respective rise across the eurozone averaged at 0.9%. The hikes in fruit, vegetables and various vegetable oils are reminiscent of periods when the Greek economy suffered under the burden of inflationary pressures a few decades ago. Vegetable oils, including olive oil that is dominant in Greek households, were sold at a price 9.5% higher than a year earlier, while the rise in the eurozone amounted to 2.9%. Fruit prices grew 4.2% year-on-year, just below the eurozone average of 4.9%, while vegetable prices went up 7% against 5.6% in the eurozone. The prices of bread and cereals increased 2% on an annual basis, whereas in the eurozone the hike was no more than 0.2%.

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“..barring any sudden change of tack the situation looks set to escalate.”

US Funds And Iceland Square Up Over Bond Freeze (R.)

A group of U.S. funds battling with Iceland after it froze $1.4 billion of the government’s bonds they own are limbering up for a legal fight if Reykjavik continues to stonewall efforts at a deal. While the players and amounts of money involved mean the situation is unlikely to develop into an years-long Argentina-style standoff, it is overshadowing Iceland’s comeback from one of the world’s most extreme banking crises. A few weeks ago it took a big step in dismantling its 8-year old capital controls and the smooth progress so far has earned the country a double-notch credit rating upgrade and has been driving up its currency.

One headache, however, is that it remains deadlocked with funds Autonomy Capital, Eaton Vance, Loomis Sayles and Discovery Capital Management – whose frozen bonds are worth roughly 10% of Iceland’s annual economic output – after they spurned what they saw as low-ball government offer to unlock them back in June. Two of the funds, Autonomy and Eaton Vance, have filed a complaint to the European Free Trade Association (EFTA) in Brussels which is ongoing, saying that the quarantining of their bonds amounts to a discrimination against foreign investors. Autonomy has made a separate approach to a court in Iceland. Iceland rejects the claims saying that some domestic investors are also affected and that the moves are necessary to allow a smooth lifting of capital controls, so barring any sudden change of tack the situation looks set to escalate.

[..] One of the world’s top sovereign debt lawyers, Cleary Gottlieb’s Lee Buchheit, who represented Iceland’s government in cases over its failed banks but says he is not involved in the current squabble, is skeptical of the funds’ legal chances. “I don’t want to predict the outcome but it is going to be a challenge I think for these people to mount an effective legal complaint before EFTA here,” he said, adding that it would also be difficult to pursue the case in another country’s courts. “Anyone challenging what they have done is going to have to say that it was unnecessary or disproportionate.” “And if you have got the IMF saying: no, what they are doing is perfectly necessary and perfectly proportional to protect their balance of payments and exchange rate, it is going to be a tough argument to make.”

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Let’s hope Australians take this to heart.

Australia 6 Weeks From A Housing Collapse, US Report Warns (ZH)

U.S. based think tank International Strategic Studies Association (ISSA), is warning that similar efforts to restrict Chinese investment in Australian real estate could send prices tumbling there as well. In speaking with news.com.au, Greg Copley, President of ISSA, predicted that Australia has about 6 weeks before real estate prices start to collapse.

“We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades.” The urgency is, I believe, based on the fact that this is about how long it will take for the banks’ policies to start switching off a lot of existing and planned contracts for Australian properties.” “The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk. They’ve learned from the US collapse that seizing real estate collateral is a no-win scenario when the volume is great and the market slow.” “In so doing, they precipitate the market collapse but are less exposed to it.”

Real estate prices in Australia’s largest housing markets have soared over the past couple of years fueled, in no small part, by demand from Chinese buyers looking for offshore locations to park cash. The Sydney and Melbourne markets have been the largest beneficiaries of foreign capital with real estate prices up 53% and 51%, respectively, since 2012. That said, based on data from the Australian Bureau of Statistics it looks like home prices in Australia have already started their descent.

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Key knows a lot of real estate is bought with ‘dirty money’. And chooses not to act. Time to get rid of him.

NZ PM Wary Of Policies That Could Cause Catastrophic Housing Slump (Hickey)

Prime Minister John Key has warned against any strong Government policy moves to restrict or tax foreign buyers, saying he did not want to cause a catastrophic slump in the market. Referring to moves in Australia that some say have pushed the apartment market there to the brink of collapse, Key said Government’s role was to protect the value of equity in home owners’ homes. He also talked down the prospect of urgent action to roll out a second round of Anti-Money-Laundering (AML) requirements to real estate agents, solicitors and accountants, saying it could significantly increase compliance costs and therefore increase costs for first home buyers.

[..] “Like any public policy in the area of housing, it’s always a delicate balance between being effective in trying to slow prices going up, and making sure you don’t have some catastrophic reaction you’re not expecting,” Key said. “Years ago Australia bought in a vendor’s tax in Australia and it had such a significant impact they actually cancelled it. There’s always a happy medium,” he said. “Anyone in Government has to be a bit careful, because for most people their primary asset is their house and for most people, a significant amount of the home is borrowed from the bank, so you do have to protect their equity.”

[..] in response to a NZ Herald article on Saturday detailing police concerns about money laundering in real estate and delays in a long-mooted second round of anti-money laundering (AML) reforms to include real estate agents and solicitors, Key defended the pace of reforms, which Labour Leader Andrew Little has described as “chain dragging.” The report detailed how Justice Minister Amy Adams went against a recommendation last year from her officials for an immediate start to policy work on the reforms after a warning from police that up to NZ$1.6 billion a year of dirty money was being pumped into housing markets.

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“Eliminating currency as a medium of exchange can only lead to the repudiation of “money” — which will beat a quick path to the repudiation of all authority.”

Signs of Desperation (Jim Kunstler)

Does the public understand the rationale behind zero interest rate policy (ZIRP)? Not any more than they understand the interaction of gluons and quarks or the doctrine of the Holy Trinity. It is one of the abiding mysteries of our time, for instance, that a group like AARP, purporting to represent the interests of retired persons, has offered not a peep of pushback to ZIRP, which has pounded retired people dependent on savings into penury. Of course, this might be explained by the pervasive racketeering feature of our current national life: AARP is an insurance racket masquerading as a citizen interest group. Or, stretching credulity to suppose that AARP is honest, perhaps the org’s executives don’t understand that zero interest on savings equals zero income to savers.

Kenneth Rogoff tries to justify his war on cash by invoking two of the era’s favorite bogymen: terrorists and drug dealers. Cash, he says, allows this axis of evil to do its thing(s). This is a ruse, of course. If currency is eliminated, these outfits will turn to gold and silver, it’s that simple. And so will everybody else, by the way. The real reason to abolish cash and herd all money into central banks is to permit the authorities to confiscate it one way or another, either by unavoidable taxation or by “bail-ins” – declaring deposits to be “unsecured loans” that can be repudiated in the event of a financial “accident.” The results are already in for this experiment: “money” becomes more and more dishonest, that is, it cannot be trusted to represent what it pretends to stand for: an index of account and a store of value.

Its role as the basis of capital formation is so impaired that real capital (i.e. wealth) cannot be generated, meaning that none of the credit issued as “money” will ever be paid back. Zero interest rate policy eventually equals zero interest paid. “Money” based on loans that won’t be paid back loses its legitimacy. Herding all the “money” onto central bank computers only allows for more three-card-monte maneuvers to conceal the bezzle. It would be much harder to hide the destruction of value in circulating paper currency. Eliminating currency as a medium of exchange can only lead to the repudiation of “money” — which will beat a quick path to the repudiation of all authority. And there is your recipe for really suicidal political disorder.

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As long as there are things left to destroy, we’ll destroy them.

The Tropical Paradise The US Wants To Turn Into A War Zone (G.)

Even here, in a region bursting with natural beauty, it is hard to imagine a more idyllic scene than Green Beach on Pagan island. Azure waters roll ashore before disappearing into the volcanic sand on a perfectly shaped horseshoe beach; on the horizon, cliffs plunge into darker open water that stretches, unhindered, more than 1,600 miles to the north-east coast of the Philippines. But in just a few years, Pagan’s tranquility could be shattered by the sound of heavy artillery, ending any hopes the displaced people of this 10-mile-long speck in the western Pacific have of returning to their ancestral home, more than three decades after a volcanic eruption forced all 300 residents to flee.

According to plans outlined by the US Department of Defence, as many as 5,000 marines will descend on the island to conduct war games as part of the Obama administration’s pivot towards the Asia-Pacific. The exercises will not only make human settlement impossible; campaigners say it will lead to the destruction of ancient cultural relics and threaten wildlife, including indigenous endangered animals such as fruit bats and tree snails. The marines will be among more than 8,000 who are due to be relocated to Guam and Hawaii from Okinawa as part of a controversial agreement between Washington and Tokyo to reduce the US military footprint on the southern Japanese island.

Faced with the near-certain destruction of their homeland – part of the US Commonwealth of the Northern Marianas – dozens of former residents have joined forces with environmental campaigners to launch a lawsuit they hope will expose the folly of the Pentagon’s plans to transform Pagan and Tinian, an inhabited island 200 miles to the south, into simulated theatres of war. The whole of Pagan would be turned into a simulated war zone to enable troops from the US, and regional allies Japan, South Korea and Australia, to prepare for possible confrontations sparked by China’s military buildup in the South China Sea and its claims to Japanese-administered islands in the East China Sea.

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Jan 172016
 
 January 17, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle January 17 2016
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DPC Madison Avenue, Memphis, Tennessee 1906

Why Are We Looking On Helplessly As Markets Crash All Over The World? (Hutton)
China’s Stock Market Value Plummets By $600 Billion In One Week (Xinhua)
The Ugly Subtext Beneath China’s Two-Track Economy Tale (FT)
Buckle Your Seatbelts: China Could Rock Markets Next Week (CNBC)
China’s Economy Grew By Around 7% In 2015, Premier Li Says (Reuters)
The Fantasy And The Reality Of China’s Economic Rebalancing (CNBC)
China Stocks Watchdog Acknowledges Flaws in Equities Regulation (BBG)
China-Led AIIB Development Bank Aims to Swiftly Approve Loans (AP)
Dallas Fed Quietly Suspends Energy Mark-To-Market On Loss Contagion Fears (ZH)
Wall Street Braces for Bigger Shale Losses After Oil Drops Below $30 (BBG)
With Liftoff Done, the Fed Revisits a $4.5 Trillion Quandary (BBG)
Saudi Aramco – $10 Trillion Mystery At The Heart Of The Gulf State (Guardian)
Market Meltdown Rattles Canadian Investors, Panic Sets In (BBG)
German Lawmakers Urge Merkel To Tell Draghi: End Record-Low Rates (BBG)
The Business Case For Helping Refugees (Gillian Tett)
Schäuble Proposes Special EU Tax On Gasoline To Finance Refugee Costs (Reuters)
Five Bodies Wash Up On Shore Of Samos (AP)

“The Chinese economy is a giant Ponzi scheme. Tens of trillions of dollars are owed to essentially bankrupt banks – and worse, bankrupt near-banks that operate in the murky shadowlands of a deeply dysfunctional mix of Leninism and rapacious capitalism. “

Why Are We Looking On Helplessly As Markets Crash All Over The World? (Hutton)

There has always been a tension at the heart of capitalism. Although it is the best wealth-creating mechanism we’ve made, it can’t be left to its own devices. Its self-regulating properties, contrary to the efforts of generations of economists trying to prove otherwise, are weak. It needs embedded countervailing power – effective trade unions, law and public action – to keep it honest and sustain the demand off which it feeds. Above all, it needs an ordered international framework of law, finance and trade in which it can do deals and business. It certainly can’t invent one itself. The mayhem in the financial markets over the last fortnight is the result of confronting this tension. The oil price collapse should be good news. It makes everything cheaper. It puts purchasing power in the hands of business and consumers elsewhere in the world who have a greater propensity to spend than most oil-producing countries. A low oil price historically presages economic good times. Instead, the markets are panicking.

They are panicking because what is driving the lower oil price is global disorder, which capitalism is powerless to correct. Indeed, it is capitalism running amok that is one of the reasons for the disorder. Profits as a share of national income in Britain and the US touch all-time highs; wages touch an all-time low as the power of organised labour diminishes and the gig economy of short-term contracts takes hold. The excesses of the rich, digging underground basements to house swimming pools, cinemas and lavish gyms, sit alongside the travails of the new middle-class poor. These are no longer able to secure themselves decent pensions and their gig-economy children defer starting families because of the financial pressures.

The story is similar if less marked in continental Europe and Japan. Demand has only been sustained across all these countries since the mid-1980s because of the relentless willingness of banks to pump credit into the hands of consumers at rates much faster than the rate of economic growth to compensate for squeezed wages. It was a trend only interrupted by the credit crunch and which has now resumed with a vengeance. The result is a mountain of mortgage and personal debt but with ever-lower pay packets to service it, creating a banking system that is fundamentally precarious. The country that has taken this further than any other is China. The Chinese economy is a giant Ponzi scheme. Tens of trillions of dollars are owed to essentially bankrupt banks – and worse, bankrupt near-banks that operate in the murky shadowlands of a deeply dysfunctional mix of Leninism and rapacious capitalism.

The Chinese Communist party has bought itself temporary legitimacy by its shameless willingness to direct state-owned banks to lend to consumers and businesses with little attention to their creditworthiness. Thus it has lifted growth and created millions of jobs. It is an edifice waiting to implode. Chinese business habitually bribes Communist officials to put pressure on their bankers to forgive loans or commute interest; most loans only receive interest payments haphazardly or not at all. If the losses were crystallised, the banking system would be bust overnight. On top, huge loans have been made to China’s vast oil, gas and chemical industries on the basis of oil being above $60 a barrel, so more losses are in prospect.

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Some $600 billion lost in one week.

China’s Stock Market Value Plummets (Xinhua)

China’s declining stock market has resulted in a sharp decrease in the market capitalization of the two bourses in Shanghai and Shenzhen. The market value of the Shanghai and Shenzhen bourses plummeted to 42.74 trillion yuan (about 6.5 trillion U.S. dollars) on Friday’s closing of market, down nearly 9% from the previous week. There are 1,081 and 1,747 listed companies in the Shanghai and Shenzhen stock markets, where the price-earnings ratio were 14.54 and 41.38 respectively. China’s has the world’s second-most capitalized stock market behind the United States, after overtaking Japan a year ago. After a bearish week, the Shanghai and Shenzhen bourses were valued at 24.26 trillion yuan and 18.48 trillion yuan respectively by the close of market on Friday.

Amid global market turbulence accompanying lackluster domestic economic data, the benchmark Shanghai index lost 8.96% to end at 2,900.97 points, and the Shenzhen index shrank 8.18% to close at 9,997.92 points over the week. On Saturday, China’s securities watchdog vowed to learn a lesson from the stock market rout. “Wild market swings revealed our supervision and management loopholes,” said Xiao Gang, head of the China Securities Regulatory Commission, at a national conference on securities market regulation. “We will improve regulation mechanisms, intensify supervision and guard against risks so as to create a stable and sound market,” Xiao said.

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Reconfirming what I’ve written on China earlier: “Coal miners do not become internet programmers overnight, or even delivery men.”

The Ugly Subtext Beneath China’s Two-Track Economy Tale (FT)

This week the Chinese government will attempt to take back control of the narrative. The release of its 2015 economic growth estimate on January 19 provides an opportunity for Beijing to argue that a renewed outburst of stock market chaos and currency policy confusion over recent weeks was just surface noise, while the underlying economy remains sound. That China’s once vaunted economic managers suddenly find themselves in this position is a reminder of how dramatically they too can be wrong-footed by events, albeit ones that were under their control until a series of self-inflicted policy errors. Until China’s stock market bubble burst on June 15 — President Xi Jinping’s birthday of all days — the rest of the world was obsessed with the country’s downwards economic growth trajectory.

An ill-advised stock market rescue in July, followed by a poorly communicated currency policy adjustment in August, gave the world a bigger issue to worry about — the competence of China’s leadership, or lack thereof. In this context, the second and third quarter gross domestic product estimates, in line with the government’s 7% growth target, were reassuring. Chinese officials now freely admit that the country’s growth story is a tale of two economies. There is the bad old industrial economy — credit-fuelled and investment-led, resulting in chronic overcapacity and unsold apartment blocks. And there is the good new services economy — innovative and consumption-driven. Their key point is that the rise of the latter will balance the decline of the former, as has been the case this year.

As a result, they argue, the overall economy will hum along at a “sustainable” rate of about 6.5% over the next five years. This spells trouble for the African, Australian, Russian and South American commodity producers who have grown fat off Chinese demand over the past 20 years. But it should benefit European and US service providers, market access permitting, as well as Japanese and South Korean gadget makers. If only it were that simple. There are at least two known unknowns that could disrupt China’s smooth glide path. The first is what happens to rust-belt regions that have plenty of the old economy but not much of the new. “It will be very difficult for those who work in the old economy to transition into the new economy,” says Chen Long, China economist at Gavekal Dragonomics.

“Coal miners do not become internet programmers overnight, or even delivery men.” The second is a potential debt crisis of historic proportions, stemming in part from the government’s fears about the consequences for coal country if they were to turn off the credit taps. In 2007, on the eve of the global financial crisis, China’s overall debt to GDP ratio was 147%. Now it is at 231% and climbing. “They absolutely have no room left for further debt accumulation,” says Rodney Jones at Wigram Capital, an economic advisory firm. “That’s the central issue — not the exchange rate, not the stock market. These are symptoms. The problem is unsustainable growth and continued rapid accumulation of debt, leverage and credit.”

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“China is expected to release fourth-quarter GDP, industrial production and retail sales data Tuesday morning.”

Buckle Your Seatbelts: China Could Rock Markets Next Week (CNBC)

Global markets are poised for more volatility next week with key economic data from China expected to show that the world’s second-largest economy continues to grow at its slowest pace since the financial crisis, despite aggressive measures taken by the central bank to boost growth. “There has been ongoing fear bubbling since August that the China slowdown is worse than expected. Investors are nervous that we’ll see a massive downside correction in China’s economy. That’s why this data is so important to markets,” said James Rossiter at TD Securities. China is expected to release fourth-quarter GDP, industrial production and retail sales data Tuesday morning. Wasif Latif at USAA Investments agrees.

“These data reports next week could be very important in their power to either confirm or refute the current narrative that China is experiencing a very bad slowdown,” said Latif. The kick-off to 2016 has been challenging to say the least for China which continues to show signs of weakness, particularly on the manufacturing and services front. This downbeat data has pushed investors to alter their global forecasts, readjust earnings expectations and talk about what life with a slowing China means for trading stocks bonds and commodities this year. Markets around the world have been under pressure due in part to China worries. The Shanghai Composite is already down 18% this year and down over 40% from its June 2014 high.

Barclays strategists wrote that China remains a key source of turmoil as it affects currencies, commodities and financial volatility. Analysts also point to Beijing’s unpredictable nature in addressing the country’s economic woes and market structure. For instance in the last week, China reversed a new rule on circuit breakers that had brought stocks to a complete halt after just minutes of trading. Questions remain over whether the central bank of China will respond to weak data through its currency, or if the government will intervene in new ways if stocks continue to fall on the domestic markets.

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Li Keqiang decided to give us the good news a few days early. Curious.

China’s Economy Grew By Around 7% In 2015, Premier Li Says (Reuters)

China’s economy grew by around 7% in 2015, with the services sector accounting for half of GDP, Premier Li Keqiang said on Saturday. The premier also said that employment had expanded more than expected and that consumption contributed nearly 60% of economic growth. Li made theremarks at the opening ceremony for the China-backed Asian Infrastructure Investment Bank (AIIB) in Beijing. China’s fourth-quarter and full-year 2015 GDP figures are expected to be released on Jan. 19. Analysts polled by Reuters have forecast 2015 growth cooled to 6.9%, down from 7.3% in 2014 and the slowest pace in a quarter of a century. China does not intend to use a cheaper yuan as a way to boost exports and has the tools to keep the currency stable, the premier said, state news agency Xinhua had reported earlier Saturday.

“China has no intention of stimulating exports via competitive devaluation of currencies,” the premier said at the meeting in Beijing, which marks China’s previously announced official entry into the bank. Li added that China is capable of keeping the yuan’s exchange rate basically stable at an appropriate and balanced level, Xinhua reported. After a nearly 3% devaluation in mid August 2015 which rattled markets, China’s yuan has fallen over 1% so far in 2016, as the nation has struggled to contain capital outflows in the wake of a dramatic equity market collapse and weak economic data. Despite recent declines, China has the world’s largest foreign exchange reserves, and policymakers have repeatedly said they have the firepower to keep the yuan stable.

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From January 11.

The Fantasy And The Reality Of China’s Economic Rebalancing (CNBC)

China’s economic expansion may be far less than official estimates of 6.8% and could be closer to 2.4%, according to a new report. The GDP growth of the world’s second-largest economy has slowed steadily since 2010, although levels remain far higher than those achieved by most developed and many developing economies. Last month, China’s central bank forecast that GDP would slow to 6.8% in 2016 from an estimated in 6.9% in 2015. However, Fathom, a macro research consultancy based in London, claimed in a report that China’s economy is only expanding at 2.4% per annum.

“We have long questioned the legitimacy of China’s official GDP statistics. Pointing to only a mild growth deceleration, we find these impossible to reconcile with a whole host of alternative evidence, not least our own measure of China’s economic activity which suggests that growth could be as low as 2.4%,” Fathom said in the report published Friday entitled “The fantasy and the reality of China’s economic rebalancing.” This year, global markets remain alert to any hints that China’s economic slowdown might be accelerating. Major U.S. stock indexes lost around 6% or more last week, as these fears helped fuel a rout in global stocks. International analysts and economists have long suspected that Chinese official GDP figures were inflated. Not many have suggested that annual growth could actually be as low as 2.4%, however. The IMF, for instance, estimates that China’s economy grew by 6.8% in 2015 and forecasts it will expand by 6.3% in 2016.

“While there is evidence that the old growth engine, powered by manufacturing, investment and exports, has started to stutter, we find far fewer indicators that point to a pickup in consumption. This is contrary to China’s official GDP breakdown, which suggests that activity in the tertiary sector is not only the largest as a share of nominal GDP but also the fastest growing, with annual growth outpacing that of both primary and secondary industries,” Fathom said. The official GDP data reported by Chinese regional government is particularly questionable. In December, China official news agency, Xinhua, reported that economic levels in parts of China’s northeastern rust belt were overstated. One county in Liaoning province posted extra fiscal revenue of 847 million yuan ($129 million) in 2013, 127% higher than the real figure, according to media reports.

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“The slumping stock market, fleeing liquidity, speedy deleveraging activities, augmented by self-defeating redemption at mutual funds and selloffs in futures, spiraled into a full-scale crisis like a domino effect..”

China Stocks Watchdog Acknowledges Flaws in Equities Regulation (BBG)

The Chinese equities watchdog has acknowledged loopholes and ineptitude within its regulatory system after a review of the turmoil that’s shaken markets since last June. An immature bourse and participants, incomplete trading rules, an inadequate market system and an inappropriate regulatory system were to blame and regulators will learn from their mistakes, Xiao Gang, chairman of China Securities Regulatory Commission, said in a transcript of an internal meeting of the regulator that was posted on the agency’s website on Saturday. Chinese shares fell into a bear market again on Friday, wiping out gains from an unprecedented state rescue amid waning confidence in the government’s ability to manage the country’s financial markets.

The initial collapse in June, which came after cheerleading by state media helped fuel an unprecedented boom in mainland equities, triggered stock purchases by the government, restrictions on trading and a temporary ban on initial public offerings. Xiao was criticized for helping to talk up the market as the bubble developed. “The slumping stock market, fleeing liquidity, speedy deleveraging activities, augmented by self-defeating redemption at mutual funds and selloffs in futures, spiraled into a full-scale crisis like a domino effect,” Xiao said in the transcript. “During the abnormal volatility in the stock market, some institutions let illegal and irregular activities ride instead of taking responsibility to stabilize the market.”

It’s been a wild ride for Chinese stock investors. The Shanghai Composite Index more than doubled in the 12 months through May before losing 34% by the end of September as regulators failed to manage a surge in leveraged bets by individual investors. A state-sponsored market rescue campaign sparked a rally toward the end of the year but those gains have been wiped out this month. “The stock market developed so fast that the regulations failed to catch up,” said Ronald Wan, chief executive of Partners Capital International Ltd., an investment bank in Hong Kong. “Only when the laws and regulations improve, can the market develop in a healthy way. That cannot be done in one or two months.”

Losses this year were fueled by a controversial circuit-breaker system, which authorities scrapped in the first week of January after finding that it spurred investors to rush for the exits on big down days. The turbulence in China has rippled through global markets this year, contributing to a 8.5% drop in the MSCI All-Country World Index. The CSRC will try to learn from its overseas counterparts but will avoid wholesale adoption of another nation’s regulatory system, said Xiao. IPO reforms will be gradual and the registration system for offerings won’t be settled in one step, he said. China plans to shift to a registration-based system for IPOs, loosening the grip of the CSRC, which has controlled the timing and pricing of listings.

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Peanuts.

China-Led AIIB Development Bank Aims to Swiftly Approve Loans (AP)

The head of the newly opened Asia Infrastructure Investment Bank said the China-led group is aiming to approve its first loans before the end of the year, part of Beijing’s efforts to weave together regional trade partners and solidify its global status. The AIIB officially opened at a ceremony on Saturday in Beijing, formalizing the emergence of a competitor to the Washington-led World Bank and strengthening China’s influence over global development and finance. AIIB’s inaugural president, the Chinese banker Jin Liqun, said Sunday that Asia still faces “severe connectivity gaps and significant infrastructure bottlenecks.” The bank would welcome the US and Japan, two economic powers that have declined invitations to join the organization, said Jin, who was previously a high-ranking official at both the World Bank and Japan-led Asian Development Bank.

Washington has said it welcomes the additional financing for development but had expressed concern looser lending standards might undercut efforts by existing institutions to promote environmental and other safeguards. Chinese officials have said the bank will complement existing institutions and promised to adhere to international lending standards. Chinese President Xi Jinping has outlined a broad plan called “One Belt One Road” to deepen trade relations with neighboring countries and open new markets, with the AIIB a key component of that strategy. Leaders in the world’s No. 2 economy have long felt they don’t have proportional influence inside international financial institutions dominated by Western powers. China pledged to put up most of the bank’s $50 billion in capital and says the total will eventually be as high as $100 billion. Xi on Saturday unveiled an additional $50 million fund for infrastructure projects in less-developed countries.

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Fed sees recession.

Dallas Fed Quietly Suspends Energy Mark-To-Market On Loss Contagion Fears (ZH)

We can now make it official, because moments ago we got confirmation from a second source who reports that according to an energy analyst who had recently met Houston funds to give his 1H16e update, one of his clients indicated that his firm was invited to a lunch attended by the Dallas Fed, which had previously instructed lenders to open up their entire loan books for Fed oversight; the Fed was shocked by with it had found in the non-public facing records. The lunch was also confirmed by employees at a reputable Swiss investment bank operating in Houston. This is what took place: the Dallas Fed met with the banks a week ago and effectively suspended mark-to-market on energy debts and as a result no impairments are being written down.

Furthermore, as we reported earlier this week, the Fed indicated “under the table” that banks were to work with the energy companies on delivering without a markdown on worry that a backstop, or bail-in, was needed after reviewing loan losses which would exceed the current tier 1 capital tranches. In other words, the Fed has advised banks to cover up major energy-related losses. The reason for such unprecedented measures by the Dallas Fed? Our source notes that having run the numbers, it looks like at least 18% of some banks’ commercial loan book are impaired, and that’s based on just applying the 3Q marks for public debt to their syndicate sums.

In other words, the ridiculously low increase in loss provisions by the likes of Wells and JPM suggest two things: i) the real losses are vastly higher, and ii) it is the Fed’s involvement that is pressuring banks to not disclose the true state of their energy “books.” Naturally, once this becomes public, the Fed risks a stampeded out of energy exposure because for the Fed to intervene in such a dramatic fashion it suggests that the US energy industry is on the verge of a subprime-like blow up. Putting this all together, a source who wishes to remain anonymous, adds that equity has been levitating only because energy funds are confident the syndicates will remain in size to meet net working capital deficits. Which is a big gamble considering that as we firsst showed ten days ago, over the past several weeks banks have already quietly reduced their credit facility exposure to at least 25 deeply distressed (and soon to be even deeper distressed) names.

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Bail-in or bail-out?

Wall Street Braces for Bigger Shale Losses After Oil Drops Below $30 (BBG)

The Wall Street banks that financed the U.S. shale boom are facing growing losses as oil falls below $30 a barrel. Losses are spreading from bondholders to banks amid the worst oil crash in a generation. Wells Fargo, Citigroup and JPMorgan have set aside more than $2 billion combined to cover souring energy loans and will add to that safety net if prices remain low, the companies reported this week. Losses are mounting as more oil and natural gas producers default on debt payments and declare bankruptcy. Wells Fargo lost $118 million on its energy portfolio in the fourth quarter and Citigroup lost $75 million. “It takes time for losses to emerge, and at current levels we would expect to have higher oil and gas losses in 2016,” John Stumpf, Wells Fargo’s chairman and CEO, said during a Friday earnings call.

Oil plunged 36% in the past year, putting an end to the debt-fueled drilling spree that pushed U.S. oil production to the highest in more than 40 years. After years of spending more than they made, shale companies have parked drilling rigs and fired thousands of workers in an effort to conserve cash. In 2015, 42 oil and and gas producers went bust owing more than $17 billion, according to law firm Haynes & Boone. The weakness in oil and gas lending was a hot topic during bank earnings calls this week, and it’s clear that the potential for losses is snowballing the longer prices remain low. Wells Fargo’s energy reserves of $1.2 billion are enough to cover 7% of the $17 billion of the bank’s outstanding oil and gas loans.

JPMorgan Chase boosted energy loan-loss reserves by $550 million last year and said it will add another $750 million if oil stays at $30 for 18 months. Citigroup increased reserves by $250 million and that will go up by an additional $600 million in the first half of 2016 if oil prices remain at $30. If oil falls to $25, that number may double. Lenders are walking a tightrope between helping their clients stay afloat and looking out for their own bottom line. Borrowers with risky credit typically put up their oil and gas properties as collateral for their loan. Historically, lenders managed to get all of their money back, even in bankruptcy, by liquidating the assets. However, foreclosing on a troubled borrower comes with the risk that the properties will sell for less than is owed to the bank.

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With no credibility left, Fed options are limited.

With Liftoff Done, the Fed Revisits a $4.5 Trillion Quandary (BBG)

Federal Reserve officials who spent months debating their first interest-rate increase in almost a decade are turning next to the thorny question of what to do with a balance sheet equivalent to the size of Japan’s economy. A month after liftoff, turmoil in global financial markets has pushed out expectations for more rate hikes and raised concern about what tools are available to fight the next downturn. Vice Chairman Stanley Fischer has suggested the $4.5 trillion balance sheet could be maintained as a way to hold down longer-term Treasury yields while the short-term policy rate was lifted. Fischer’s idea – discussed in a Jan. 3 speech partly on strategies for pulling the short-term rate away from zero – was taken up in more practical terms by New York Fed President William C. Dudley Friday.

Reinvesting maturing bonds and putting off a reduction in the balance sheet until the federal funds rate is raised somewhat higher “makes sense,” Dudley said. “Having more ‘dry powder’ in the form of higher short-term interest rates seems more desirable than less dry powder and a smaller balance sheet,” he said. Fed Chair Janet Yellen made similar comments in her Dec. 16 press conference, meaning the three most senior officials still view the central bank’s vast holdings of debt as an active policy tool rather than a relic of the financial crisis that needs to be shrunk as soon as possible. “Dudley’s view is if we get to choose our tool” to tighten policy, “then we are going to choose interest rates,” said Michael Hanson, senior economist at Bank of America.

That’s the safer choice, Hanson said, because officials are highly uncertain what shrinking the balance sheet would do to financial markets. The preference to maintain trillions in bond holdings for months to come, however, isn’t likely to be popular with all Federal Open Market Committee participants. Richmond Fed President Jeffrey Lacker favors an “expeditious” unwinding of the Fed’s bond holdings. The Fed’s balance sheet swelled to $4.5 trillion in 2014 from about $900 billion in 2008 on purchases of Treasuries and mortgage-backed securities, during three stages of a strategy known as quantitative easing.

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IPO looks silly.

Saudi Aramco – $10 Trillion Mystery At The Heart Of The Gulf State (Guardian)

The possible selloff of at least part of Aramco, previously considered the country’s crown jewel, has stunned the global energy and investment sectors as much as locals. One Wall Street report claimed an American financial adviser was forced to stop his car because he was laughing so much from sheer incredulity when the Aramco float news broke. But plans for an initial public offering by what may be most secretive – but almost certainly the most valuable – company in the world have been confirmed by its chairman, Khalid al-Falih. “We are considering … a listing of the main company and obviously the main company will include upstream,” he said last week, thereby indicating that the flotation plan could give access to the country’s 260bn barrels of oil reserves and 263 trillion cubic feet of gas.

Among the more than 100 oil and gas fields controlled by Aramco – which began life as the California-Arabian Standard Oil Company in 1933 – are Ghawar, the world’s largest onshore oil location, plus Safaniya, the biggest offshore field in the world. The scale of the Aramco empire dwarfs every other corporation in the world. Its oil assets alone are 10 times more than those held by the world’s largest publicly quoted oil company, ExxonMobil. If the Texas-based business has a stock market value of $400bn, that would make Aramco’s oil assets potentially worth $4tn. Energy analysts admit they find it impossible to accurately calculate the exact worth of a company that boasts of producing 9.5m barrels of oil a day – one in every eight of the world’s production.

But some estimates go as high as $10tn. That is 10 times the combined value of Apple and Alphabet (the new parent company of Google). They know Aramco has huge oil and gas reserves, a raft of refineries and other business interests, but details are scant. The company does not publish its accounts or even its revenues, never mind its profits.

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Panic should have started long ago.

Market Meltdown Rattles Canadian Investors, Panic Sets In (BBG)

A record losing streak in the loonie, plunging bond yields and about $150 billion wiped out in the stock market have left Canadian investors hanging by a thread. Panic is starting to set in. “The word fear is finally starting to come up,” said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel in Calgary. “Clients and people are starting to panic. It’s sinking in, but no one knows what to do.” North American stock markets wrapped up one of their most turbulent weeks in recent memory Friday as oil prices and the dollar plunged further. The commodity-sensitive loonie plumbed depths not seen since 2003 as it fell for an 11th-straight day, losing 0.81 of a U.S. cent to close at 68.82 cents US.

The benchmark Standard & Poor’s/TSX Composite Index dropped 262.57, or 2.13%, to 12,073.46 — its lowest close since June 2013 — after rebounding more than 165 points on Thursday. Yields on five-year government bonds fell to a record low of 0.511% Wednesday as speculation builds the Bank of Canada will cut interest rates next week. Canada’s economy, heavily weighed toward resource industries, has been rocked by concerns about the slowdown in China that has pushed the price of West Texas Intermediate crude below $30 for the first time since 2003. Prices for Canada’s heavy crude, which trades at a discount to the U.S. benchmark, have sunk to around $15 a barrel.

The February contract for WTI crude fell $1.78 to US$29.42 on Friday, while February natural gas fell four cents to US$2.10 per mmBTU. “Right now … people are looking at oil and saying the price of oil is dropping, ergo the economic outlook doesn’t look good. I think it’s as simple as that,” said Ian Nakamoto, director of research at 3Macs. “If oil rallies like it did (Thursday), I think the markets rise here.” But Nakamoto isn’t betting we’ve seen the bottom for oil just yet. “One thing we do know is the supply is greater than demand, so structurally it looks likes prices still have further to go here on the downside.”

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What independent central bank?

German Lawmakers Urge Merkel To Tell Draghi: End Record-Low Rates (BBG)

Lawmakers allied with German Chancellor Angela Merkel say it’s time for the ECB to outline an exit strategy from record-low interest rates and she should tell Mario Draghi so. As Merkel hosted the ECB president for a private meeting in Berlin on Friday, German banks, her party bloc and Bundesbank head Jens Weidmann are pushing for Draghi to explain how he’ll get out of quantitative easing. Designed to counter “economic malaise” as Europe’s debt crisis recedes, the policy is seen by critics as hurting German savers and retail investors, who tend to prefer low-risk investments. “I trust that the chancellor will clearly address the concerns related to the ECB’s policy” when she hosts Draghi at the chancellery, said Alexander Radwan, a member of the German parliament’s finance committee and lawmaker from Merkel’s party bloc.

Merkel should help to ensure “that Europe recognizes the limits of central-bank policy,” he said. While ECB policy is out of Merkel’s hands, low borrowing costs for the 19 euro-area nations are adding to dissatisfaction among members of her party, whose loyalty is already strained by euro-area bailouts and a record influx of refugees to Germany. Draghi argues that the central bank’s €1.5 trillion bond-buying program is needed to try to revive inflation and he’s pledged to do more if prices don’t pick up. Merkel and Draghi held what Steffen Seibert, Merkel’s chief spokesman, described as an “informal and confidential” meeting. The chancellor’s office declined to comment on what they discussed.

That reticence hasn’t stopped Wolfgang Schaeuble, Merkel’s finance minister since 2009 and one of her key allies, from publicly prodding the ECB and portraying its policies as a threat to financial stability. Monetary policy has fueled a tendency toward “exaggeration in financial markets,” with liquidity spurring nervousness “that’s materializing in China now,” Schaeuble said in Brussels on Thursday. “I will not deny that the low interest rates are worrying us,” Antje Tillmann, the finance-policy spokeswoman of Merkel’s party bloc, said in an interview. Germany can manage the low-rate environment only in the short term “and I hope therefore that this will change. I believe Mr. Draghi knows that we’re waiting for this.” Weidmann warned on Tuesday in Paris that low rates over an extended period squeeze bank profits and risk fueling financial bubbles.

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Help for refugees will have to come from the people, not government or business. That’s why our AE for Athens Fund works. No side issues.

The Business Case For Helping Refugees (Gillian Tett)

Last year Hamdi Ulukaya, a Kurdish entrepreneur who created the billion-dollar US-based Chobani yoghurt empire, travelled to Greece to see the swelling refugee crisis with his own eyes. Unsurprisingly, he was horrified by the human suffering that he witnessed, particularly as he shares a cultural affinity with many of the refugees — he grew up near the Syrian border in Turkey, before moving to the US as a student. But Ulukaya was also appalled by something else: the hopelessly bureaucratic and old-fashioned nature of the organisations running the aid efforts. “The refugee issue is being dealt with using [methods from] the 1940s and it’s in the hands of the UN and mostly government and you don’t see a lot of private sector and entrepreneurs involved,” he told me last week.

“I decided we have got to hack this — we have got to bring another perspective into this issue, there are technologies that can be used.” So Ulukaya decided to act. Last year he established a foundation, Tent, to channel financial aid and innovation efforts into refugee work. He also declared that he would give half his fortune to refugee causes (he has made an eye-popping $1.4bn from his wildly popular Chobani yoghurts in recent years). And he has stepped up efforts to hire as many refugees as he can at his yoghurt plants, where they currently account for 30 per cent of the total workforce, or 600 people. “There are 11 or 12 languages spoken in our factories,” says Ulukaya. “We have translators 24 hours a day.”

Now, however, Ulukaya wants to take his campaign further. At next week’s World Economic Forum (WEF) meeting in Davos, he will call on other CEOs to join a campaign to channel corporate money, lobbying initiatives, services and jobs to refugees. Five companies have already signed up: Ikea, MasterCard, Airbnb, LinkedIn and UPS — and Ulukaya says more are poised to join. I daresay some FT readers will shrug their shoulders at this; indeed, as a journalist, part of me feels a little cynical. Over the past couple of years, there has been a string of philanthropy initiatives from American billionaires. And this year’s WEF meeting is likely to produce another wave of pious pledges, not least because many corporate elites will be arriving in Switzerland keenly aware that they need to do more to quell a popular backlash over income inequality.

But what makes Ulukaya’s move unusual — and admirable — is his unashamed embrace of the refugee cause. And that illustrates a bigger point: the voice of business has been extraordinarily muted, if not absent, from this wider policy debate. To be sure, some companies, such as American Express, Starbucks, Google and Uniqlo, have made donations to humanitarian groups involved in helping refugees. Others have offered practical services: Daimler, for example, has provided buildings and medical devices. Most companies, however, have avoided getting too embroiled in the issue, preferring to concentrate on less political causes such as medical aid. “With few exceptions, the business community has been absent from the debate about how to best deal with the refugee crisis, not only in the short term but, importantly, in the long term,” says Ioannis Ioannou, a professor at London Business School.

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More talk of a ‘coalition of the willing’. More division in Europe.

Schäuble Proposes Special EU Tax On Gasoline To Finance Refugee Costs (Reuters)

German Finance Minister Wolfgang Schaeuble has proposed the introduction of a special tax on gasoline in European Union member states to finance refugee-related costs such as strengthening the continent’s joint external borders. Schaeuble’s proposal drew criticism from members of his own conservative party, the Christian Democratic Union (CDU), as well as from the Social Democrats (SPD), junior partner in Chancellor Angela Merkel’s ruling coalition. “I’ve said if the funds in the national budgets and the European budget are not sufficient, then let us agree for instance on collecting a levy on every liter of gasoline at a specific amount,” Schaeuble told Sueddeutsche Zeitung newspaper in an interview published on Saturday.

“We have to secure Schengen’s external borders now. The solution of these problems must not founder due to a limitation of funds,” the veteran politician said. Asked if all EU countries should increase their payments to Brussels to finance joint refugee-related costs, Schaeuble said: “If someone is not willing to pay, I’m nonetheless prepared to do it. Then we’ll build a coalition of the willing.” Schaeuble gave no details on how high the extra levy on gasoline should be and whether Brussels or the EU member states would be in charge of collecting it. Schaeuble’s was met with criticism across the party political spectrum. “I’m strictly against any tax increase in light of the good budgetary situation,” said CDU deputy Julia Kloeckner who wants to win a regional election in the western state of Rhineland-Palatinate in March.

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When describing dead bodies they know nothing about, AP chooses to go with “most likely migrants”. Whereas, obviously, they’re at least as likely to be refugees. They know it, we know it, but the bias is too strong to overcome. Plus, it’s like saying all refugees are migrants. And if you repeat it often enough… Does any of you people ever think about the lack of respect for the dead you promote?

Five Bodies Wash Up On Shore Of Samos (AP)

Five people, most likely migrants, have been found dead off the eastern Greek island of Samos, Greek authorities report. The Greek coast guard has recovered the bodies of two men and three women, and are trying to recover the sixth in rough seas, a coast guard spokeswoman told AP. No vessel has been recovered yet. The rescue operation continues, said the spokeswoman, who was not authorized to be identified because of the continuing operation. Samos, which lies very close to the Turkish coast, is one of the main points of entry for migrants, most refugees from Syria and Iraq.

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Jul 202015
 
 July 20, 2015  Posted by at 7:00 pm Finance Tagged with: , , , , , ,  12 Responses »
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Harris&Ewing Agriculture Department, Cow jumps over moon 1920

It’s taken a while, but Nicole Foss is now coming back to the Automatic Earth for real. Here’s her take on Greece and everything that bubbles under its surface:

Nicole Foss: The project of European Union, and its single currency experiment, were politically an attempt to unite fractious nations in order to put an end to a history of horribly destructive conflict. Economically, the goals were to scale up governance in Europe, to transition from the national to the transnational level in order to wield more power as a larger trading block. As such it was very much in line with the global trend of the last thirty years towards scaling up almost everything. However, as we have observed before, such expansions are inherently fragile and self-limiting:

This in-built need to expand, sometimes to the scale of an imperium in the search for new territory, means that the process is grounded in ponzi dynamics. Expansion stops when no new territories can be subsumed, and contraction will follow as the society consumes its internal natural capital….

….A foundational ingredient in determining effective organizational scale is trust – the glue holding societies together. At small scale, trust is personal, and group acceptance is limited to those who are known well enough to be trusted. For societies to scale up, trust must transcend the personal and be grounded instead in an institutional framework governing interactions between individuals, between the people and different polities, between different layers of governance (municipal, provincial, regional, national), and between states on the international stage.

This institutional framework takes time to scale up and relies on public trust for its political legitimacy. That trust depends on the general perception that the function of the governing institutions serves the public good, and that the rules are sufficiently transparent and predictably applied to all. This is the definition of the rule of law. Of course the ideal does not exist, but better and worse approximations do at each scale in question.

Over time, the trust horizon has waxed and waned in tandem with large cycles of socioeconomic advance and retreat. Trust builds during expansionary times, conferring political legitimacy on larger scale forms of organization. Trust takes a long time to build, however, and much less time to destroy. The retreat of the trust horizon in contractionary times can be very rapid, and as trust is withdrawn from governing institutions, so is political legitimacy.

This is the predicament facing what is essentially a European imperium today – the twin threats of financial crisis and concommittant loss of trust and political legitimacy. In an awkwardly-amalgamated collective polity with a thousand year history of conflict, the risks associated with the transition from expansion to contraction are legion. We warned in 2010 of the toxic dynamic underlying European unification, and that the political fallout from what we regarded, and still regard, as the inevitable failure of that imperial structure, would be potentially catastrophic:

All aggregate human structures at all degrees of scale are essentially predatory. They all convey wealth from a necessarily expanding periphery towards the centre, where wealth is concentrated. The periphery may be either forced or enticed to join the larger structure, but that does not affect the outcome….The European periphery was sold an impossible dream – that they could by fiat have the same living standards as northern Europe. Perhaps the architects of the project believed that equalization by fiat would work, but whether their intentions were honourable or not is immaterial to the outcome….

…A credit expansion requires two sides – a predatory lending structure at the centre and and gullibility and greed in the periphery. They are mutually responsible for the outcome. In a collapse, the centre attempts to blame the periphery and impose all the consequences upon it, while holding on to all the perceived wealth. This is toxic to the larger structure. The socioeconomic disparities created in the attempt to contain the consequences in the periphery will be politically impossible to sustain…The extent to which the attempt to do this will inflame destructive old hatreds is very much larger than people currently suppose…Collective memory is long.

Union?

During our decades of economic expansion in the era of globalization, effective organizational scale has become larger and larger, undercutting the ability of smaller entities to compete, and thereby forcing them to amalgamate. Europe has been attempting to create a political entity comparable to the United States, but without the benefit of a common language, culture, identity, freedom of movement, system of transfer payments, financial regulatory regime etc. In doing so, it has created a fatally flawed entity which is nakedly predator, rather than tempered with integrative redistribution mechanisms.

The degree of true integration in Europe is a fraction of what it is in the USA, hence that integration is far more fragile:

Large, economically diverse areas can successfully share a single currency if they have deep economic links that make it possible for troubled regions to ride out crises. That means shared bank regulation and deposit insurance, so banks don’t face regional panics; a labor market that lets people move from places without jobs to places with them; and a fiscal union, which allows the government to collect taxes wherever there is money and spend it wherever there are needs….

…The European Union’s centralized budget equals only about 1% of Europe’s G.D.P., compared with more than 20% for the American federal government. A much more centralized E.U. budget, with much more money flowing through Brussels the way it flows through Washington, could provide similar macroeconomic stability to Europe by creating a fiscal union…

…An economic union can promote economic stability only if it is politically stable, so market participants can have confidence that fiscal transfers and bank guarantees will remain in place.

The price for the necessary integration is far higher than sovereign European countries have been prepared to pay. Without substantial transfer payments to blunt the disparities, the imperial structure of the eurozone acts as a mechanism to convey wealth from the periphery to the financial centre:

The core issue: Although the European Union can handle economies of widely varying types and levels of development, the euro area cannot. Greece’s gross domestic product per person was about half of Germany’s when it joined the euro in 2001. Since then, Greece’s competitiveness relative to Germany’s has slid by about 40%.

For a currency union to handle widely divergent economies, they must be deeply integrated across multiple dimensions. In the U.S., the average citizen of Mississippi makes just $20,618 a year, compared with $37,892 in Connecticut — almost as big a gap as between Greece and Germany. Yet the U.S. doesn’t worry about a “Missexit,” because the country has various mechanisms for smoothing over differences among its states…. 

….The mechanisms include large fiscal transfers– by necessity currency unions are transfer unions. Last year, 28 U.S. states sent the equivalent of 2.3% of their gross domestic product through the federal budget to the other 22 states. The biggest donor, Delaware, gave 21%. The biggest recipient, North Dakota, got 90%. By contrast, in 2011 Germany made a net contribution of 0.2% of its GDP to the EU budget, while Greece received 0.2%. Would German voters really support a tenfold jump in their contributions from 210 euros to 2,100 euros per person?

Large-scale fiscal transfers are not the only mechanism needed. Mississippi has probably run the equivalent of a current account deficit with New York ever since the Civil War. Every April, the banks in the Federal Reserve system reallocate assets and smooth over such regional imbalances. By contrast, when Greece runs a deficit with Germany — for example, due to trade with Germany or capital flight from Greece — its central bank accumulates debts to the Bundesbank indefinitely. The Bundesbank currently holds more than 500 billion euros in credits against other euro zone central banks. Again, would German taxpayers be willing to see the Bundesbank regularly write off some portion of those liabilities?

Another reason U.S. states don’t pop out of the dollar area is that they (with the exception of Vermont) have to balance their operating budgets. Only the federal government can run a long-term deficit. Again, Germany and other EU states have explicitly rejected any kind of euro-area sovereign-bond arrangement that would pool deficits. Finally, the U.S. has a deep single market for products, services and labor and a true national banking union, all of which in Europe are only partially completed projects. The lack of truly integrated markets allowed real interest rates and inflation to diverge across the euro zone, leading to a loss of competitiveness and a credit boom and bust in the south.

Thus, the euro area is stuck in a dysfunctional netherworld between a fully integrated union and a more flexible exchange rate mechanism. So Greece has to become a lot more like Germany (unlikely), the euro area needs to become a lot more like the U.S. (also unlikely), or we’ll have another crisis (very likely).

To Scale-Up or Scale-Down?

This is not, however, an argument for Europe to move now towards supranational statehood, even if such a thing were possible, which, in the absence of a common identity, is not realistic. Europe is not prepared for, nor suited for, that level of integration. As German finance minister Wolfgang Schäuble said:

“There can be no mutual liability in Europe. Providing debt relief and transfers won’t help any country. The problem of moral and political hazard in Europe isn’t some narrow-minded mantra,” he said.

Given that we stand on the brink of a major financial and economic contraction, further integration or aggregation would not be possible. The aggregation already achieved was a function of economic expansion, and entities which come together under such circumstances are fissile once expansion morphs into contraction. Trust determines effective organizational scale, and in the coming environment, effective organizational scale is going to get much smaller. Rather than trying to maintain an over-extended and fragile polity, Europe is going to have to rediscover small scale sovereignty.

The assumption in Europe was that regional diversity would be secondary to the unifying force of a single currency, and that a currency union could be expected to remain politically stable even in the absence of fundamental aspects of integration. This has proven over time to be disastrously incorrect. Identity remains at the national, not the supranational, level, meaning that trust has had great difficulty transcending this level in order for it to manifest in European institutions as opposed to national parliaments. True political legitimacy has therefore never been granted, and the democratic deficit in Europe has widened as a result, with supranational institutions insulating themselves from a European public increasingly at odds with its priorities. 

This is where we found ourselves at the peak of expansion, under the best conditions for broad-based trust. Past that peak, with the trust horizon sharply contracting already, conditions are rapidly worsening. As we have observed before, expansions are relatively smooth progressions, but contractions are, in contrast, full of abrupt discontinuities:

As we scaled up we built structural dependencies on the range of affordable inputs available to us, on the physical infrastructure we built to exploit them, on the trading relationships formed through comparative advantage, and on the large scale institutional framework to manage it all. Scaling down will mean huge dislocation as these dependencies must give way. There is simply no smooth, managed way to achieve this.

The situation manifesting in Greece at the moment is a prime example of this dynamic. There is a desperate attempt to manage the unmanageable, on the grounds that failure to do so would have dire consequences:

Former Greek finance minister Yanis Varoufakis:”If the PM announced tonight an emergency bill for the introduction of a new currency, in 20 minutes all cash machines would be empty. There would be queues outside banks. The economy would collapse. The ECB would withdraw support for banks leading to their collapse. Until such time as the state printed a new currency, utter darkness would cover the country. 80% of households would become poverty-stricken. The vast-majority of people would rue the time and day this post-bailout default was announced. The exit from the euro for a deficit country would send us back to the neolithic period before we could even realise it.”

This is no doubt true, and the question therefore becomes whether or not this eventuality can be avoided by attempting to prop up the system in its current form in order to buy time to construct its replacement:

Yanis Varoufakis: “If my prognosis is correct, and we are not facing just another cyclical slump soon to be overcome, the question that arises for radicals is this: should we welcome this crisis of European capitalism as an opportunity to replace it with a better system? Or should we be so worried about it as to embark upon a campaign for stabilising European capitalism?

To me, the answer is clear. Europe’s crisis is far less likely to give birth to a better alternative to capitalism than it is to unleash dangerously regressive forces that have the capacity to cause a humanitarian bloodbath, while extinguishing the hope for any progressive moves for generations to come. For this view I have been accused, by well-meaning radical voices, of being “defeatist” and of trying to save an indefensible European socioeconomic system. This criticism, I confess, hurts. And it hurts because it contains more than a kernel of truth.

I share the view that this European Union is typified by a large democratic deficit that, in combination with the denial of the faulty architecture of its monetary union, has put Europe’s peoples on a path to permanent recession. And I also bow to the criticism that I have campaigned on an agenda founded on the assumption that the left was, and remains, squarely defeated. I confess I would much rather be promoting a radical agenda, the raison d’être of which is to replace European capitalism with a different system.

Yet my aim here is to offer a window into my view of a repugnant European capitalism whose implosion, despite its many ills, should be avoided at all costs. It is a confession intended to convince radicals that we have a contradictory mission: to arrest the freefall of European capitalism in order to buy the time we need to formulate its alternative.”

The Psychology of Contraction and the Politics of Division

I agree with Varoufakis that the failure of the current system is likely to unleash the dangerously regressive forces that he mentions. The psychology of contraction is fundamentally different from that of expansion, meaning that different – negative – forces gain the upper hand. I disagree, however, that attempting to maintain the current system can prevent this from happening. Desperately trying to sustain a credit bubble that has already consumed the substance on which it was built is not a viable strategy. It is not going to buy time to construct and implement an alternative system of governance. All it can to is to facilitate an even greater degree of self-consuming catabolism, thereby guaranteeing that the crunch, when it inevitably comes, will be worse. Crisis may be postponed, but at great cost. It cannot be prevented. 

Once a credit bubble has been blown, it will eventually implode, as all structures grounded in ponzi dynamics do. When it does, as we have noted before, politics will get much uglier no matter which part of the political spectrum comes to power:

The psychology of contraction is not constructive, and leads in the direction of division and exclusion as trust evaporates. Unfortunately, trust – the glue of a functional society – takes a long time to build, but relatively little time to destroy….

….Whether the left or the right presides over contraction, we are most likely to see a much more pathological face emerge, and this will aggravate political crisis considerably. On the right this could be xenophobia, strict enforcement of tight and arbitrary norms dictated by the few, loss of civil rights, extreme poverty for most while a few live like kings, and fascism, perhaps grounded in theocracy.

On the left it could be forced collectivization, the elimination of property rights, confiscations, and a desire to punish anyone who appears to be doing relatively well, whether or not they achieved this legitimately through foresight, hard work and fiscal responsibility. In either case, liberty is likely to be an early casualty, and intolerance of differences is virtually guaranteed to increase.

We are already seeing the politics of division in Europe. Instead of defending a collective vision, European nation states are retreating into manifest self-interest and mutual recrimination:

Deeper fiscal integration in the eurozone is a “huge mistake” that could end up tearing the bloc apart, Sweden’s former finance minister has warned. Anders Borg said forcing countries to cede sovereignty could trigger a right-wing backlash across Europe, as he predicted that countries such as Sweden and Poland, which are obliged to join the euro, would not adopt the single currency for “decades”. “If you go for tighter co-operation that basically brings higher taxes to the north to subsidise the south, you build in a political divide that is not sustainable in the long term,” he said.

We are seeing divisions between the core nations of France and Germany, and an obvious failure of solidarity among the nations most likely to find themselves in the same position as Greece in the not too distant future.

France, which is itself teetering on the brink, fears German power, but is unwilling to challenge it to forcefully. Prior to the recent national humiliation of Greece, France was beginning to favour leniency:

The much more consequential U-turn is in Paris. Suddenly, Tsipras’s promises on fiscal policy are “serious, credible,” according to President Francois Hollande. In truth, of course, they are exactly as serious and credible as they have been for the past five months. Even if Tsipras becomes a born-again fiscal conservative and actually tries to keep these promises, he’ll fail — and everybody knows it. A tightening of fiscal policy as the economy falls further into recession is anti-growth and fiscally counterproductive. Those primary-surplus targets that the creditors want carved in stone are almost impossible to hit.

However, French representation in actual negotiations was apparently muted:

Yanis Varoufakis: “Only the French minister [Michel Sapin] made noises that were different from the German line, and those noises were very subtle. You could sense he had to use very judicious language, to be seen not to oppose. And in the final analysis, when Dr Schäuble responded and effectively determined the official line, the French minister would always fold.”

Other eurozone countries, many of which are poorer than Greece, resent the notion of Greek debt relief which they would be asked to help pay for: 

The arguments of Greece’s creditors have a powerful political logic. No politician from a creditor country can be seen handing over cash to Greece without strict guarantees about how it will be spent. Such politicians note that even as Greece requests further bailouts, its pension system remains relatively generous, encouraging early retirement. The share of employed Greeks between the ages of 55 and 64 is nearly half that of Germany. In 2012, for example, Greece spent 17.5% of GDP on government pensions, compared with 12.3% in Germany. Such comparisons make European voters balk over further bailouts. Politicians in Slovakia and the Baltics, nations no richer than Greece, struggle to explain to constituents why their countries should help fund Greek pensions. Fix the holes in Greece’s perpetually leaky tax system first, many constituents contend.

In addition other indebted members states were concerned about the implications for their own internal politics in the event of Greece being granted a deal:

Varoufakis was reluctant to name individuals, but added that the governments that might have been expected to be the most sympathetic towards Greece were actually their “most energetic enemies”. He said that the “greatest nightmare” of those with large debts – the governments of countries like Portugal, Spain, Italy and Ireland – “was our success”. “Were we to succeed in negotiating a better deal, that would obliterate them politically: they would have to answer to their own people why they didn’t negotiate like we were doing.”

Nascent political movements comparable to Greece’s Syriza are considered a major threat in other affected countries, and a Syriza victory would be seen as empowering political discontent at home:

Michael Pettis: “Today’s Financial Times has a very worrying article explaining why Madrid wants to be seen among the hardliners in opposing a rational treatment for Greece: “when it comes to helping Greece, there will be no such thing as southern solidarity or peripheral patronage.” This is the reverse of what it should be doing. In an article for Politica Exterior in January 2012, I actually proposed, albeit without much hope, that Spain take the lead and organize the debtor countries to negotiate a sustainable agreement, but in its fear of Podemos, the Spanish equivalent of Syriza, and its determination to be one of the “virtuous” countries, it strikes me that Madrid is probably moving in the wrong direction economically. Ultimately, by tying itself even more tightly to the interests of the creditors, Rajoy and his associates are only making the electoral prospects for Podemos all the brighter.”

Meanwhile in the richer north, small political parties like the euroskeptic True Finns have a disproportionate amount of power over the fate of their southern neighbour, thanks to their role in the coalition government and the need for that government to approve a Greek deal. Although Finland could not block a bailout by itself, given the its share of the vote is determined by its contribution to the bailout fund, it could instigate a coalition of euroskeptics to derail and agreement. The issue is proving extremely divisive within Finnish domestic politics. When splinter groups in one member state have what is effectively the power of life death over people in another member state, anger and resentment are guaranteed:

The decision to push for a so-called “Grexit” came after the eurosceptic True Finns party, the second-largest in parliament, threatened to bring down the government if it backed another rescue deal for Greece….Finns party leader Timo Soini, who is also the country’s foreign minister, has repeatedly argued in favour a “Grexit”, saying it would be better for Greece to leave the euro. Finland is one of several EU countries whose national parliaments must sign off of any debt deal for Greece.

The European project, supposedly instituted to prevent future conflict, has increasingly become a potential cause of it:

Europe brings peace. Is that so? It is becoming obvious that you cannot have the economics of the Great Depression without having the politics of the Great Depression. Tsipras’s Greek Marxists and Marine le Pen’s French ‘post-fascists’ may seem moderate when set against the men and women who will come after them if this crisis does not end. Far from quelling nationalism, meanwhile, the Euro has incited it. People who were rubbing along perfectly well in the early 1990s, now look on each other with an emotion close to hatred. Greeks, Italians and Spaniards wonder why Germans, Finns and the Dutch insist that they must suffer. The Germans, Finns and Dutch wonder why southern Europeans expect to live off their taxes.

The politics of division have begun in earnest:

Yanis Varoufakis: Back in 1971 Nick Kaldor, the noted Cambridge economist, had warned that forging monetary union before a political union was possible would lead not only to a failed monetary union but also to the deconstruction of the European political project. Later on, in 1999, German-British sociologist Ralf Dahrendorf also warned that economic and monetary union would split rather than unite Europe. All these years I hoped that they were wrong. Now, the powers that be in Brussels, in Berlin and in Frankfurt have conspired to prove them right.

A Greek Deal That Pleases No One

The terms imposed upon Greece have been subjected to criticism from all sides. The deal has been described as a national humiliation, as a cruel forced-capitulation on the diplomatic rack, as a crucifixion of Greek leader Alexis Tsipras, as a coup d’etat, as a new Versailles treaty, and as the relegation of Greece to the status of a vassal state with an emasculated parliament. EMU inspectors will be able to veto Greek legislation. Greece must adopt drastic reforms, far more draconian than those they rejected in their recent referendum. They must streamline the pension system, boost tax revenue, liberalise the labour market, privatise the electricity network, extend commercial opening hours and place €50 billion worth of assets into a trust fund intended to generate privatisation revenues to pay creditors. All of this is merely to begin negotiations on a new bailout package, with no prospect of the debt relief that even the IMF insists is necessary.

The European Union does not suffer from a mere ‘democratic deficit’, as this exercise in naked monetary imperialism demonstrates:

Monday July 13 will go down in history as the day Greece lost its independence after 185 years of freedom, the day democracy died in the country that invented it and the day the European Union took a decisive step towards self-destruction. After almost 20 hours of of browbeating by EU leaders in Brussels – which one senior official compared to “mental waterboarding” – Greece was given a blunt choice: vote through a raft of draconian measures demanded by creditors or leave the Eurozone…

…Greece has essentially seen its independence eviscerated. A state whose motto is ‘Freedom or Death’ and whose national anthem is ‘Hymn to Liberty’ is now little more than a protectorate of the EU. Its parliament no longer has the power to make sovereign decisions about the issues that matter most to its citizens. Instead, it has two days to vote through a shopping-list of far-reaching reforms mandated by Brussels. Its administration is subordinate to a triumvirate of unelected officials from the European Commission, European Central Bank and IMF. And billions of euros of assets are to be stripped from the Greek state’s control and placed in a Luxembourg trust fund.

As the summit of Eurozone leaders limped to a conclusion Monday morning, some commentators compared the tortured talks to the Nice Treaty, thrashed out over four days in 2000. In fact, it more resembles the Versailles Treaty, whose punitive terms were imposed on Germany almost a century ago and poisoned international relations for decades after.

The wartime comparisons have been expressed by many commentators:

Yanis Varoufakis: “The recent Euro Summit is indeed nothing short of the culmination of a coup. In 1967 it was the tanks that foreign powers used to end Greek democracy. In my interview with Philip Adams, on ABC Radio National’s LNL, I claimed that in 2015 another coup was staged by foreign powers using, instead of tanks, Greece’s banks.”

The week’s events constitute power politics in their most unedifying form:

What we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity. “This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.

What we have all seen with great clarity is that the EMU creditor powers can subjugate an unruly state – provided it is small – by shutting down its banking system. We have seen too that a small country has no defences whatsoever. This is monetary power run amok.

Phillippe Legrain, former head of the analysis team at the Bureau of European Policy Advisers and principal adviser to the president of the European Commission, has been particularly scathing in his criticism:

When finalizing my book European Spring last year, I hesitated before describing the Eurozone as a “glorified debtors’ prison.” After this weekend’s brutal, vindictive, and short-sighted exercise of German power against Greece, backed up by the Frankfurt-based European Central Bank’s (ECB) illegal threat to pull the plug on the entire Greek banking system, I take it back. There is nothing glorious about the Eurozone: it is a monstrous, undemocratic creditors’ racket.

Greece’s submission to the conditions that Germany demanded, merely to start negotiations about further funding to refinance its unsustainable debts, may stave off the prospect of imminent bank collapse and Greece’s exit from the Eurozone. But far from solving the Greek problem, doubling down on the creditors’ disastrous strategy of the past five years will only further depress the economy, increase the unbearable debt burden, and trample on democracy. Even Deutsche Bank, one of the German banks bailed out by European taxpayers’ forced loans to the Greek government in 2010, says Greece is now tantamount to a vassal state….

….That’s the point of brutalizing Greece: to deter anyone else from getting out of line. Why vote for parties that challenge the Berlin Consensus if they will be beaten into submission, too? Created to bring Europeans closer together, the Eurozone is now held together by little except fear.

Even former staunch europhiles on the political left are increasingly seeing the European project in a very different light:

At first, only a few dipped their toes in the water; then others, hesitantly, followed their lead, all the time looking at each other for reassurance. As austerity-ravaged Greece was placed under what Yanis Varoufakis terms a “postmodern occupation”, its sovereignty overturned and compelled to implement more of the policies that have achieved nothing but economic ruin, Britain’s left is turning against the European Union, and fast.

“Everything good about the EU is in retreat; everything bad is on the rampage,” writes George Monbiot, explaining his about-turn. “All my life I’ve been pro-Europe,” says Caitlin Moran, “but seeing how Germany is treating Greece, I am finding it increasingly distasteful.” Nick Cohen believes the EU is being portrayed “with some truth, as a cruel, fanatical and stupid institution”. “How can the left support what is being done?” asks Suzanne Moore. “The European ‘Union’. Not in my name.”

Many commentators feel that critical lines were crossed and the damage to the European Union could ultimately prove to be fatal:

George Friedmann: Germany could not accept the Greek demand. It could not risk a Greek exit from the European Union. It could not appear to be frightened by an exit, and it could not be flexible. During the week, the Germans floated the idea of a temporary Greek exit from the euro. Greece owes a huge debt and needs to build its economy. What all this has to do with being in the euro or using the drachma is not clear. It is certainly not clear how it would have helped Europe or solved the immediate banking problem. The Greeks are broke, and don’t have the euros to pay back loans or liquefy the banking system. The same would have been true if they left the European Union. Suggesting a temporary Grexit was a fairly meaningless act — a bravura performance by the Germans. When you desperately fear something in a negotiation, there is no better strategy than to demand that it happen….

…Germany crossed two lines. The lesser line was that France and Germany were not linked on dealing with Greece, though they were not so far apart as to be even close to a breach. The second, and more serious, line was that the final negotiation was an exercise of unilateral German power. Several nations supported the German position from the beginning — particularly the Eastern European nations that, in addition to opposing Greece soaking up European money, do not trust Greece’s relationship with Russia. Germany had allies. But it also had major powers as opponents, and these were brushed aside. 

These powerful opponents were brushed aside particularly on two issues. One was any temporary infusion of cash into Greek banks. The other was the German demand, in a more extreme way than ever before, that the Greeks cede fundamental sovereignty over their national economy and, in effect, over Greece itself. Germany demanded that Greece place itself under the supervision of a foreign EU monitoring force that, as Germany demonstrated in these negotiations, ultimately would be under German control….

…The situation in Greece is desperate because of the condition of the banking system. It was the pressure point that the Germans used to force Greek capitulation. But Greece is now facing not only austerity, but also foreign governance. The Germans’ position is they do not trust the Greeks. They do not mean the government now, but the Greek electorate. Therefore, they want monitoring and controls. This is reasonable from the German point of view, but it will be explosive to the Greeks.

In World War II, the Germans occupied Greece. As in much of the rest of Europe, the memory of that occupation is now in the country’s DNA. This will be seen as the return of German occupation, and opponents of the deal will certainly use that argument. The manner in which the deal was made and extended by the Germans to provide outside control will resurrect historical memories of German occupation. It has already started.

Friedmann’s point about not trusting the Greek electorate is an important one. This is not the first time in Europe in recent years that electorates have been sidestepped or subverted for having inconvenient collective opinions. Elections themselves could become increasingly problematic:

Varoufakis said that Schäuble, Germany’s finance minister and the architect of the deals Greece signed in 2010 and 2012, was “consistent throughout”. “His view was ‘I’m not discussing the programme – this was accepted by the previous [Greek] government and we can’t possibly allow an election to change anything.

 “So at that point I said ‘Well perhaps we should simply not hold elections anymore for indebted countries’, and there was no answer. The only interpretation I can give [of their view] is, ‘Yes, that would be a good idea, but it would be difficult. So you either sign on the dotted line or you are out.’”

Interestingly, much angst over the deal can also be found domestically in Germany, where there is considerable concern over the country’s reputation in Europe. The Greek debacle is being referred to as a diplomatic disaster:

Chancellor Angela Merkel may appear to be the victor in the Greek bailout standoff but many Germans looked on in dismay at the heavy cost to the country’s image. Merkel and her hardline finance minister, Wolfgang Schäuble, drove a tough bargain at the marathon negotiations, in line with Berlin’s stated goal of defending the cause of fiscal rectitude. But while Merkel, often called Europe’s de facto leader, has grown used to Nazi caricatures on the streets of Athens, a backlash appeared to be mounting this time at home too. Commentators of all political stripes said they feared that Berlin’s “bad cop” stance in Brussels had brought back “ugly German” stereotypes of rigid, brutal rule enforcers.

“The German government destroyed seven decades of post-war diplomacy on a single weekend,” news website Spiegel Online said. “There is a fine line between saving and punishing Greece. This night the line has disappeared,” tweeted Mathias Mueller von Blumencron of the conservative standard-bearer Frankfurter Allgemeine Zeitung as the details of the German-brokered austerity-for-aid deal emerged. “Merkel managed to revive the image of the ugly, hard-hearted and stingy German that had just begun to fade,” the centre-left daily Sueddeutsche Zeitung wrote. “Every cent of aid to Greece that the Germans tried to save will have to be spent two and three times over in the coming years to polish that image again.”

It is difficult to see how this situation could be described as other than the worst way for the European project to proceed:

Greece’s economy is in tatters, its creditors are fuming and Europe’s institutions are in despair. Much to Britain’s disgust even non-euro countries have been sucked into the nightmare: a bridge loan designed to keep Greece afloat while the bail-out talks proceed looks set to tap a fund to which all EU countries have contributed.

But wasn’t this week’s agreement a triumph for the shock troops of austerity? Hardly. Finland’s coalition, formed only two months ago, tottered at the prospect of funding a third Greek bail-out. The Dutch prime minister, Mark Rutte, has admitted that it would violate an election pledge he made in 2012. One euro-zone diplomat says that 99% of her compatriots would say “no” to the bail-out if offered a Greece-style referendum. Even Angela Merkel, Germany’s chancellor and Mr Tsipras’s chief tormentor, is damaged. The deal, crafted largely by Mrs Merkel, Mr Tsipras and François Hollande, France’s president, has exposed the German chancellor to competing charges: of cruelty abroad and of leniency at home, notably among Germany’s increasingly irritable parliamentarians, who must vote twice on the Greek package.

Europe’s single currency, designed to foster unity and ease trade between its members, has thus become a ruthless generator of misery for almost all of them.

Liquidity Crunch and a Cash-Only Economy

As we have consistently maintained at TAE, cash is king in a period of deflation, and the conversion to a cash-only economy can unfold very rapidly once credit instruments cease to be regarded as credible promises to repay. Like Cyprus in March 2013, the Greek economy is rapidly transitioning to cash-only as the liquidity crunch, or liquidity asphyxiation, to use Yanis Varoufakis’ term, deepens. The banks are on the verge of collapse. Capital controls allow for withdrawals of only €60 per day, and pensioners are only able to access €120 per week [update: that changed today]. Tourists are finding they cannot change foreign currency for scarce euros. People fear bank account haircuts. Medicines, particularly insulin, and access to medical care are very limited as the healthcare system has converted to pay-as-you-go, in cash. The power system struggles to cope as consumers cannot pay their bills. Purchases cannot be made outside the country, so vital imports are not possible, meaning that stocks of raw materials are being run down. Operations may shortly cease for many businesses:

Constantine Michalos, head of the Hellenic Chambers of Commerce and a food importer, said the economy has reached near paralysis. “There is no system in place for Greek companies to transfer money about. Our life-blood has been shut off,” he said. “People are depleting their stocks. We are going to start seeing shortages of meat by the end of the week.”

The network of chambers in the Greek islands reports that the local payments system is breaking down since nobody wants to accept transfers into backing accounts that could be seized at any moment. “The ferry operators are demanding cash up front to bring in fuel and supplies,” he said. “The whole is economy shifting to cash. You can’t really import anything, and 40pc of Greek GDP is based on imports,” said Haris Makryniotis, who helps small businesses for Endeavor Greece.

Businesses have little remaining room for manoeuver :

Whereas individuals may be able to survive off €60 a day, at least for a while, businesses cannot. One particular problem is that Greek businesses rely heavily on imports (especially of raw materials) which they can no longer access easily; this means that, for example, a lightbulb factory reliant on copper from Chile can only make lightbulbs as long as its existing inventory holds out. Exports also fall; Greek manufacturers have already had to cancel orders from buyers abroad and more will follow soon. Domestic suppliers have begun to insist on up-front cash payments (those that didn’t already, at least). This causes similar supply-chain problems; as drivers and petrol stations demand payment in cash, which isn’t readily available, delivery delays grow, occasionally leading fruit and vegetables to go off. Redundancies are already starting to happen as businesses slim down to counter losses.

Whereas some of the bigger businesses with bank accounts abroad or foreign income streams are able to circumvent some of these controls by using their foreign bank accounts to pay suppliers, most family-run businesses and smaller firms—the backbone of the Greek economy—are not so lucky. In theory, they can apply to a special bank committee that assesses applications; in practice this is proving wholly insufficient….

…Greece is a more cash-reliant economy than other European countries and small businesses in particular pay both suppliers and employees in cash. Capital controls have quickly thrown normal pay arrangements into chaos, and businesses are increasingly resorting to delayed payments, forced holiday for employees, and layoffs. 

Companies with large cash flows, such as supermarkets, have stopped putting all their cash earnings back into banks and are holding on to over 50% of it, according to one senior Greek banker. Those who still use banks for deposits say they do so in order to pay staff electronically. Cash-heavy businesses that have stopped paying into banks have started to pay staff directly in cash.

Greece’s slow slide into a cash-only economy has significant repercussions for the state—including a smaller tax take as cash transactions and payments reduce the (already low) share of exchanges reported to the Greek government.

This is what a liquidity crunch looks like in practice, and very much what we have been warning about at TAE since its inception. Finance is the operating system, and when the operating system crashes, nothing moves. In a complex system, that translates rapidly into cascading system failure. Without liquidity to act as the lubricant in the engine of the economy, it is not longer possible to connect buyers and sellers, or producers and consumers. In a cash-only economy, where credit instruments have ceased to be viable, there is very little cash available, and of what little there is, people hold on to as much as they can because they are unsure when they may come by any more of it. This means the velocity of money – the prime determinant of the level of economic activity that can be supported – remains extremely low. As we have said before:

2008 did not demonstrate what a liquidity crunch really means, but this time we are going to find out. As with many aspects of financial crisis, Greece is the canary in the coalmine….For a long time, money will be the limiting factor, and finance will be the key driver to the downside, just as was the case in the Great Depression of the 1930s. Resources will remain available, at least initially, but no one will have the means to pay for them during a period of economic seizure.

As we have discussed at TAE before, prices diverge under conditions of liquidity crunch. As a much larger percentage of a much smaller money supply starts competing for the essentials, they receive relative price support. In contrast domestic good of little immediate essential value become virtually worthless very quickly:

Some Greeks of means are reportedly going on spending binges, buying expensive goods in order to empty their bank accounts. When the rumour of a haircut to deposits over €8000 surfaced earlier this week, people apparently tried to find ways to bring their accounts below that level (by buying things on their debit cards or transferring money to friends with a lower balance).

Most Greeks are living off meagre salaries, have little money in their accounts and are prioritising the basics. Food and petrol sellers have been the big winners, so to speak, of the past week as people hoard dry foods and fill up on petrol to prepare for potential severe shortages in future. For most other businesses, selling less-essential goods and services, business is very bad. Many report drops in sales of 25%-50%. Demand for non-essential food items, for example, is reportedly down around 30%. Domestic production is falling as a consequence, which suggests that a sharp rise in unemployment may soon follow.

To the extent that they can, people are hoarding cash (and have been in modest amounts since January, when Syriza came to power). Around €45 billion is estimated to be stuffed in sock-drawers, under mattresses and in safes in people’s homes. These hoards will support some segments of the Greek population well if the crisis continues, but the cashpiles seem to be distributed in highly uneven fashion.

Debt to GDP is past the point of no return in Greece, meaning that default is inevitable. Austerity is merely frog-marching the country in that direction even more quickly, as it suppresses economic growth. With the rate of growth less than the rate of interest paid on debt, Greece is in an exploding debt scenario. The greater the extent to which austerity forces economic contraction, the larger the debt will loom in comparison to falling GDP. Debt relief is not on offer, maturity extensions will make little difference, and assets set aside to cover debt from privatization revenues are not going to attract the expected valuations under conditions of distressed assets prices. Their contribution to debt repayment is therefore being grossly overestimated in the Troika’s calculations:

“It’s just a continuation of failed policy packages, and if anything it’s worse,” says Charles Wyplosz, professor of economics at the Graduate Institute of International Studies, Geneva. “It hasn’t worked, it won’t work.”…

….Greece’s paralyzed banks could prove the biggest brake on such an economic bounce, however. The banks, which have suffered from deteriorating asset quality and massive deposit flight, need a faster and bolder recapitalization than Europe is currently offering, Mr. Gros says. “Creditors will have to deliver here. They will sabotage their own program if they don’t,” he says….

….Like the previous bailout programs, the aim is to put Greece’s debt on a downward trajectory as a proportion of its GDP. But the math looks strained: Greek debt avoids skyrocketing only because lenders say Greece will raise €50 billion from privatizing public assets, the proceeds of which would mostly go toward paying down debt. Previous bailout plans also assumed large privatization revenues. Only a fraction have materialized. The problem was and remains that Greece doesn’t have assets that it can sell for such high prices in the foreseeable future

The dismal prospect for Greece under this agreement is a downward spiral of self-fulfilling prophecy, as the shift from to the psychology of expansion to the psychology of contraction has cascading impacts:

Value-added tax rates — your basic regressive sales tax — will jump by ten percentage points or more, to 23%, including for hotels and restaurants and including on the Greek islands. This will divert tourists to Turkey and elsewhere, damping Greece’s largest industry. Also, it will drive small businesses even further to cash and tax evasion. This means other tax revenues will also fall. Tax revenues will rise at first, but then they will fall short of targets, both because economic activity falls and evasion rises. As this happens, the new program requires that public spending be cut automatically. Since most public spending goes for pensions and wages, this means that pensions and wages will be cut. Since pensioners and civil servants live on these payments, they will cut their spending — and tax revenues will fall further. In the labor market, extreme deregulation will proceed. Collective bargaining will be suppressed; wages will therefore fall. As a result, wage labor will go off-the-books, into cash, even more than it already has, and pension contributions will decline again. The resulting tax losses will feed back into pension cuts.

Privatization will work through a required new fund that will, supposedly, hold €50 billion in Greek assets to be sold off (notwithstanding the difficulty that, according to the economy minister, public assets on that scale do not exist). Anyhow the state electricity company will be sold, and electric rates will rise. As all this happens, even more people will default on their mortgages. The judicial code will be rewritten to facilitate mass foreclosures, so far held in abeyance.  The non-performing-loans of the banking system will then go from disastrous to catastrophic. Now then, under these conditions, what do you think will happen to the banks.

It is possible that a surge of “confidence” will now bring cash deposits back to the banks, new inter-bank loans from North Europe, new lending to small businesses, new jobs and economic growth.  Possible, but not likely. Much more likely, with every increase of the ceiling on Emergency Liquidity Assistance (ELA), and every relaxation of capital controls, people in Greece will line up to pull cash from the banking system. They will do this because they have to, in order to live. They will do this because cash avoids taxes. They will do it because any fool can see that the banks are doomed. So deposits will go down, the ELA will go up, still more loans will go bad, and the banks will continue as zombies until — at some point — the European Central Bank gives up and closes them down, this time for good. Greek depositors will then lose what little remains.

Single Currency or Glorified Exchange-Rate Mechanism?

The single currency was intended to transcend the difficulties of the European Exchange Rate Mechanism which preceded it, becoming an irreversible unifying force for its member states. Currency pegs are notorious for providing a field day for speculators, as Britain discovered to its cost the day sterling was driven from the ERM, despite the government raising interest rates by 5% in a single day. A single currency, in contrast, is indivisible, providing no cracks within which wedges may be driven in order to profit from exploiting economic disparities.

Europe wished to convince the financial world of its new-found seamlessness by ‘graduating’ from ERM to single currency, but irreversibility and seamlessness are in the eye of the beholder. They depend on confidence, as does every facet of the financial world. Where there is a clear disparity between the level of primary loyalty (to the nation state) and the scale at which the currency operates (Europe-wide), there is clearly a problem. Allowing currency notes to be distinguished on the basis of country of issue (by serial number) creates another potentially exploitable weakness. Nevertheless, the eurozone was presenting a united front until the specter of Grexit emerged.

The negotiating position recently presented by German finance minister Wolfgang Schäuble, suggesting a temporary ‘time-out’ of the single currency for Greece, has opened Pandora’s box with a vengeance:

For its entire life, the euro was conceived as a currency from which there could be no exit. This was not accidental: the disasters that befell the Exchange Rate Mechanism in the early 1990s convinced European leaders that the only way to create a lasting single currency was never, ever, to countenance anyone leaving it. The euro was “irreversible”, to use the word Mario Draghi has frequently used.

Except, tonight in Brussels it transpired that it is far from irreversible. That euro finance ministers are now actively discussing giving Greece a “time-out” from the currency.

Now, one should insert a major note of caution at this stage. The clause quoted above was not agreed by all the euro members here in Brussels. It was put into square brackets, meaning it is yet to be agreed by all member states. It may well be excised by the time the leaders have honed the draft document away to produce their final statement.

Nonetheless, it was on the table. And that means that to some extent, the genie is now out of the bottle. Brussels is officially discussing how to engineer Greece’s departure. The euro is not irreversible.

The significance of this move was noted immediately:

Yanis Varoufakis: “Anyone who toys with the idea of cutting off bits of the euro zone hoping the rest will survive is playing with fire. Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of euro zone to carry on. I very much doubt that that is the case. Not just because of Greece but for any part of the union. Once the idea enters peoples’ minds that monetary union is not forever, speculation begins … who’s next? That question is the solvent of any monetary union. Sooner or later it’s going to start raising interest rates, political tensions, capital flight.”

Varoufakis is right. The risk distinctions might not begin immediately, but they will happen, and speculation will exploit them by exert huge pressure on credit spreads. Interest rates are a risk premium, and raising or lowering them creates self-fulfilling prophecies. The perception that a country represents a greater risk of default results in higher interest rates, which in turn increase the debt burden and raise the actual risk of default. similarly, the perception that a country represents a relative safe haven creates circumstances of greater actual safety as interest rates fall and lower the debt burden. Safe become safer, while the riskier are marched over a cliff. In expansionary times, investors largely ignore risk and credit spreads narrow. In contractionary ones, we can expect spreads to blow out to record levels as risk aversion suddenly increases. The effect will be to pick off countries one by one, beginning with the one perceived to be weakest. Reality is less important than perception in driving this dynamic. As the psychological shift occurs, the impact cascades as a positive feedback loop to the downside.

Varoufakis’ description of the long negotiation process is interesting. It seems clear from his account that the German negotiating team was determined to achieve a Grexit:

The reason five months of negotiations between Greece and Europe led to impasse is that Dr Schäuble was determined that they would. By the time I attended my first Brussels meetings in early February, a powerful majority within the Eurogroup had already formed. Revolving around the earnest figure of Germany’s Minister of Finance, its mission was to block any deal building on the common ground between our freshly elected government and the rest of the Eurozone.

Thus five months of intense negotiations never had a chance. Condemned to lead to impasse, their purpose was to pave the ground for what Dr Schäuble had decided was ‘optimal’ well before our government was even elected: That Greece should be eased out of the Eurozone in order to discipline member-states resisting his very specific plan for re-structuring the Eurozone. This is no theory of mine. How do I know Grexit is an important part of Dr Schäuble’s plan for Europe? Because he told me so!

Germany had, after all, not been keen on allowing broad-based European participation in the eurozone from the beginning:

There were bitter fights between France and Germany in the run-up to the launch of the euro. Germany’s desire to limit the euro to a small club consisting of itself, France and some like-minded fiscally austere allies, such as the Netherlands, conflicted with France’s desire for a broader euro.

France, seeking to end the ability of Spain and Italy to competitively devalue at the expense of French exporters, wanted those southern European countries inside the euro. Germany’s efforts were undercut when a slowdown ensured it missed some of the stringent criteria it had insisted be a test for euro membership. With Germany and France both fudging their way in, there was no way to keep the so-called Club Med countries out.

The desire to squeeze Greece out of the euro might arguably be seen as an attempted kindness:

On July 14th, one day after the euro summit, Wolfgang Schäuble, Germany’s bristly finance chief, declared that many of his colleagues in Berlin thought Greece would be better off leaving the euro than submitting to its demands. (He did not need to add that he shares that belief.)

Needless to say, it was not perceived this way, and even if it was meant to be of benefit to Greece, the threat to the eurozone through the questioning of irreversibility is still huge:

In an odd way, the only European politician who was really offering Greece a way out of the impasse was Wolfgang Schäuble, the German finance minister, even if his offer was made in a graceless fashion, almost in the form of diktat. His plan for a five-year velvet withdrawal from EMU – a euphemism, since he really meant Grexit – with Paris Club debt relief, humanitarian help, and a package of growth measures, might allow Greece to regain competitiveness under the drachma in an orderly way. Such a formula would imply intervention by the ECB to stabilise the drachma, preventing an overshoot and dangerous downward spiral. It would certainly have been better than the atrocious document that Mr Tsipras must now take back to Athens….

…For the eurozone this “deal” is the worst of all worlds. They have solved nothing. Germany and its allies have for the first time attempted to eject a country from the euro, and by doing so have violated the sanctity of monetary union. Rather than go forward in times of deep crisis to fiscal and political union to hold the euro together – as the architects of EMU always anticipated – they have instead gone backwards. They have at a single stroke converted the eurozone into a hard-peg currency bloc, a renewed Exchange Rate Mechanism that is inherently unstable, at the whim and mercy of populist politicians playing to the gallery at home. The markets are already starting to call it ERM3.

The risk of Grexit still exists, since no one seriously believes that Tsipras and Syriza can deliver on all the promises required of them. Even the attempt is likely to amount to political suicide. There could be a parliamentary revolt. With confidence so shaken, reopening the banks could yet result in a major bank run. Cash is king and, given the opportunity, people will likely be determined to get their hands on as much of it as they can. Debt to GDP is past the point of no return and everyone knows it. In the absence of very substantial debt relief, this agreement is nothing more than an attempt to kick the can further down the road, with no Plan B should that fail. And the can kickers are almost out of road.

The clear risk is contagion, with speculators picking off one country at a time. Dr Schäuble appears to believe that contagion is not a risk, as the Greek economy is relatively small:

“If you look at Greece, it’s not a major part of the economy of the eurozone as a whole. Most participants of financial markets are telling us that markets have already priced in whatever will happen. You can’t see any contagion.”

However, relative size is not the issue:

The warnings were echoed by Eric Rosengren, head of the Boston Federal Reserve, who said Europe risks sitting off uncontrollable contagion if it mishandles the Greek crisis, even though Greece may look too small to matter.

“I would say to some European analysts who assume that a Greek exit would not be a problem, people thought that Lehman wouldn’t be a problem. If you measured the size of Lehman relative to the size of the US economy it was quite small,” he told a group at Chatham House.

Economies do run run mechanically in accordance with the law of physics. They are not machines where action and reaction are proportionate. Economies operate in psychological space, as they are composed of people. Financial and economic outcomes represent the sum of millions and millions of short term, self-interested decisions made by market participants. Psychological shifts can have very rapid and apparently disproportionate effects. As the psychology of contraction takes hold, contagion is virtually guaranteed.

Dr Schäuble’s anti-democratic proposal for a European budget commissioner, with veto powers over national budgets, would neither have prevented the current crisis, nor addressed its aftermath, as it rests on a fatally flawed mechanistic model of financial systems that completely fails to incorporate vital aspects of the eurozone reality:

Yanis Varoufakis: “Before the crisis, had Dr Schäuble’s fiscal overlord existed, she or he might have been able to veto the Greek government’s profligacy but would be in no position to do anything regarding the tsunami of loans flowing from the private banks of Frankfurt and Paris to the Periphery’s private banks. Those capital outflows underpinned unsustainable debt that, unavoidably, got transferred back onto the public’s shoulders the moment financial markets imploded. Post-crisis, Dr Schäuble’s budget Leviathan would also be powerless, in the face of potential insolvency of several states caused by their bailing out (directly or indirectly) the private banks. In short, the new high office envisioned by the Schäuble-Lamers Plan would have been impotent to prevent the causes of the crisis and to deal with its repercussions.”

Governments are not in a position to control credit expansions, as so much of the process happens privately, particularly in the shadow banking system. Credit expansions are possible even under a gold standards, as we saw in the Roaring 20s, prior to The Great Depression. As we have discussed before, credit expansions have characterized bubbles throughout history and governments have been powerless to prevent them:

Neglecting the vital role of ephemeral credit in the composition of the effective money supply in manic times is a major omission, as it is the virtual nature of credit that defines such periods, and its abrupt loss that leads to the severity of the depression conditions that inevitably follow.

Corporatocracy

The eurozone crisis is typically cast as a geopolitical clash of nations:

Countries that don’t play ball with Germany will see their banking system used against their democratically elected politicians. The banking system is the soft underbelly and the Germans are prepared to orchestrate bank runs in member states to get their way. This is not only new, it is outrageous.

This is overly simplistic, however, as the centre of the imperial structure is not in this case a state – Germany – but the private financial system itself, which has been heavily involved in orchestrating the circumstances leading to the current crisis and arranging to benefit fro the inevitable fallout:

The crisis was exacerbated years ago by a deal with Goldman Sachs, engineered by Goldman’s current CEO, Lloyd Blankfein. Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it. And just as with the American subprime crisis, and the current plight of many American cities, Wall Street’s predatory lending played an important although little-recognized role.

In 2001, Greece was looking for ways to disguise its mounting financial troubles. The Maastricht Treaty required all eurozone member states to show improvement in their public finances, but Greece was heading in the wrong direction. Then Goldman Sachs came to the rescue, arranging a secret loan of 2.8 billion euros for Greece, disguised as an off-the-books “cross-currency swap”—a complicated transaction in which Greece’s foreign-currency debt was converted into a domestic-currency obligation using a fictitious market exchange rate.

As a result, about 2% of Greece’s debt magically disappeared from its national accounts. Christoforos Sardelis, then head of Greece’s Public Debt Management Agency, later described the deal to Bloomberg Business as “a very sexy story between two sinners.” For its services, Goldman received a whopping 600 million euros ($793 million), according to Spyros Papanicolaou, who took over from Sardelis in 2005. That came to about 12% of Goldman’s revenue from its giant trading and principal-investments unit in 2001—which posted record sales that year. The unit was run by Blankfein.

Then the deal turned sour. After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the country’s debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion. In 2005, the deal was restructured and that 5.1 billion euros in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the European Central Bank and a major player in the current Greek drama, was then managing director of Goldman’s international division.

….Goldman was the biggest enabler. Undoubtedly, Greece suffers from years of corruption and tax avoidance by its wealthy. But Goldman wasn’t an innocent bystander: It padded its profits by leveraging Greece to the hilt—along with much of the rest of the global economy. Other Wall Street banks did the same.

This is essentially the private equity model that has been employed against many companies, where a company is acquired (in a leveraged deal that costs the purchaser almost none of their own money) then asset-stripped, saddled with and sold back to the public as a worthless shell. Wall Street and its European counterparts do not only assets strip companies, they asset strip countries, and in the process shift the burdens onto the citizenry:

Michael Hudson: “It’s not so much Germany versus Greece, as the papers say. It’s really the war of the banks against labor. And it’s a continuation of Thatcherism and neoliberalism. The problem isn’t simply that the troika wants Greece to balance the budget; it wanted Greece to balance the budget by lowering wages and by imposing austerity on the labor force. But instead, the terms in which Varoufakis has suggested balancing the budget are to impose austerity on the financial class, on the tycoons, on the tax dodgers.

And he said, okay, instead of lowering pensions to the workers, instead of shrinking the domestic market, instead of pursuing a self-defeating austerity, we’re going to raise two and a half billion from the powerful Greek tycoons. We’re going to collect the back taxes that they have. We’re going to crack down on illegal smuggling of oil and the other networks and on the real estate owners that have been avoiding taxes, because the Greek upper classes have become notorious for tax dodging.

Well, this has infuriated the banks, because it turns out the finance ministers of Europe are not all in favor of balancing the budget if it has to be balanced by taxing the rich, because the banks know that whatever taxes the rich are able to avoid ends up being paid to the banks. So now the gloves are off and the class war is sort of back. Originally, Varoufakis thought he was negotiating with the troika, that is, with the IMF, the ECB, and the Euro Council.

But instead they said, no, no, you’re negotiating with the finance ministers. And the finance ministers in Europe are very much like Tim Geithner in the United States. They’re lobbyists for the big banks. And the finance minister said, how can we screw up this and make sure that we treat Greece as an object lesson, pretty much like America treated Cuba in 1960?”

Big Capital controls state machinery for its own benefit, writing the rules by which it is regulated and subverting the political process away from the common good. While it is tempting to view Germany as rich, in control and acting as the eurozone enforcer, Germans have not generally benefitted from their position at the centre of the European project. In fact ordinary Germans, as with the middle class everywhere, have seen their living standards eroded considerably:

German workers have barely seen wages rise for the 14-year stretch. In the short life of the euro, working Germans have fared worse than the French, Austrians, Italians and many across southern Europe. Yes, we’re talking about the same Germany: the mightiest economy on the continent, the one even David Cameron regards with envy. Yet the people working there and making the country more prosperous have seen barely any reward for their efforts. And this is the model for a continent….

….What the single currency has done is make Germany’s low-wage problems the ruin of an entire continent. Workers in France, Italy, Spain and the rest of the eurozone are now being undercut by the epic wage freeze going on in the giant country in the middle. Flassbeck and Lapavitsas describe this as Germany’s “beggar thy neighbour” policy – “but only after beggaring its own people”.

Greek debt resulted not only from problems within Greece itself (corruption, non-payments of taxes etc), but from profligate and predatory lending by private banks with no regard for creditworthiness. When these loans went bad, along with hedge fund bets on national solvency, the financial institutions were bailed out and made whole by taxpayers, who were then saddled with even more unrepayable debt in a huge transfer of public wealth into private hands. Wealth conveyance from the periphery to the centre has accelerated enormously all over the world in the era of globalization, and the eurozone has reflected that dynamic. The global financial elite has seen their share expand exponentially:

While Germany has played a major role it in the subjugation of Greece it is worth asking who truly benefits from economic negotiations that have stopped making economic sense. Could it be the large banks who, following a similar model imposed on countries in Latin America, Southeast Asia and Africa since the 1970’s, continue to extract wealth from the poorest people on earth? Has not almost every development in the EU in the past ten years served to consolidate the power of financial institutions at the expense of the citizenry?

The regulatory framework developed after the Great Depression has been progressively dismantled, opening the doors again to the ruthless exploitation typical of periods of economic laissez faire, while protecting the financial elite from the consequences of reckless gambling with other people’s money:

The 1930s regulation that made capitalism a functioning economic system has been repealed. Today in the Western world capitalism is a looting mechanism. Capitalism not only loots labor, capitalism loots entire countries, such as Greece which is being forced by the EU to sell of Greece’s national assets to foreign purchasers….

….Even the language used in the West is deceptive. The Greek “bailout” does not bail out Greece. The bailout bails out the holders of Greek debt. Many of these holders are not Greece’s original creditors. What the “bailout” does is to make the New York hedge funds’ bet on the Greek debt pay off for the hedge funds. The bailout money goes not to Greece but to those who speculated on the debt being paid. According to news reports, Quantitative Easing by the ECB has been used to purchase Greek debt from the troubled banks that made the loans, so the debt issue is no longer a creditor issue.

The corporatocracy has been taking shape for over thirty years, widening inequality both within and between states as wealth is accumulated at the top of the financial food chain:

The Greeks and the U.S. working poor endure the same deprivations because they are being assaulted by the same system—corporate capitalism. There are no internal constraints on corporate capitalism. And the few external constraints that existed have been removed. Corporate capitalism, manipulating the world’s most powerful financial institutions, including the Eurogroup, the World Bank, the International Monetary Fund and the Federal Reserve, does what it is designed to do: It turns everything, including human beings and the natural world, into commodities to be exploited until exhaustion or collapse. In the extraction process, labor unions are broken, regulatory agencies are gutted, laws are written by corporate lobbyists to legalize fraud and empower global monopolies, and public utilities are privatized…

…The Greek government kneels before the bankers of Europe begging for mercy because it knows that if it leaves the eurozone, the international banking system will do to Greece what it did to the socialist government of Salvador Allende in 1973 in Chile; it will, as Richard Nixon promised to do in Chile, “make the economy scream.” The bankers will destroy Greece. If this means the Greeks can no longer get medicine—Greece owes European drug makers 1 billion euros—so be it. If this means food shortages—Greece imports thousands of tons of food from Europe a year—so be it. If this means oil and gas shortages—Greece imports 99% of its oil and gas—so be it. The bankers will carry out economic warfare until the current Greek government is ousted and corporate political puppets are back in control.

Human life is of no concern to corporate capitalists. The suffering of the Greeks, like the suffering of ordinary Americans, is very good for the profit margins of financial institutions such as Goldman Sachs. It was, after all, Goldman Sachs—which shoved subprime mortgages down the throats of families it knew could never pay the loans back, sold the subprime mortgages as investments to pension funds and then bet against them—that orchestrated complex financial agreements with Greece, many of them secret. These agreements doubled the debt Greece owes under derivative deals and allowed the old Greek government to mask its real debt to keep borrowing. And when Greece imploded, Goldman Sachs headed out the door with suitcases full of cash.

I am very much in agreement with John Perkins, author of Confessions of an Economic Hitman, when he observes that the interests of the elite do not align with the interests of states or their inhabitants, particularly in relation to the European project. Differences can be exploited though arbitrage, but harmonisation would have removed many of these differences. Whereas a single currency is useful for the purpose of efficiently transferring profits, true European integration would have removed opportunities to play on side against another:

That’s part of the game: convince people that they’re wrong, that they’re inferior. The corporatocracy is incredibly good at that…It’s a policy of them versus us: We are good. We are right. We do everything right. You’re wrong. And in this case, all of this energy has been directed at the Greek people to say “you’re lazy; you didn’t do the right thing; you didn’t follow the right policies,” when in actuality, an awful lot of the blame needs to be laid on the financial community that encouraged Greece to go down this route….

…What I didn’t realize during any of this period was how much corporatocracy does not want a united Europe. We need to understand this. They may be happy enough with the euro, with one currency – they are happy to a certain degree by having it united enough that markets are open – but they do not want standardized rules and regulations. Let’s face it, big corporations, the corporatocracy, take advantage of the fact that some countries in Europe have much more lenient tax laws, some have much more lenient environmental and social laws, and they can pit them against each other.

What would it be like for big corporations if they didn’t have their tax havens in places like Malta or other places? I think we need to recognize that what the corporatocracy saw at first, the solid euro, a European union seemed like a very good thing, but as it moved forward, they could see that what was going to happen was that social and environmental laws and regulations were going to be standardized. They didn’t want that, so to a certain degree what’s been going on in Europe has been because the corporatocracy wants Europe to fail, at least on a certain level.

The corporatocracy makes little attempt to disguise its power grabs these days, being secure enough in its consolidation of power to feel that no longer necessary. However, the greater the extent to which the citizenry recognizes the underlying dynamic, the angrier and more alienated they become. They are becoming increasingly opposed to the entire project of European Union, seeing it as a facilitation of exploitation. Euroskepticism in on the rise all over the continent, and that has the potential to damage the fabric of European society as it leads in the direction of increasing distrust of neighbouring countries:

As I watch what is happening in Greece, I feel myself to be increasingly Eurosceptic and wondering too if Eurosceptism is not code for the anti-German sentiment that currently abounds. If the European project that once seemed so noble now comes down to the European Central Bank, which is not in any way independent but acts as a thuggish bailiff to further impoverish Greece, what actually is it? If Germans believe they should not have to pay for the mistakes of Greek governments, then they do not see the crisis of Greece for what it is: a crisis of all Europe. Bailouts have been funded for the financial sector since 2008. To simply blame Greece is unsustainable.

The contagion that the financiers fear has already happened, but not exactly in the way they say. When the workings of the eurozone are held up to the light, the gaping deficit is one of democracy. Unelected commissioners, unaccountable banks all laughably scrabbling on to the crowded moral high ground. All this depends on an agreed script: corrupt Greeks as shirkers, hard-working Germans as strivers. All of the deals have actually been about protecting German and French banks from debt write-offs.

People are realising that elected officials have no power, and that democracy is increasingly illusory. The outward appearance of democracy remains, but the substance has been eroded to the point of travesty. This is dangerous, given that it drives a greater and greater loss of political legitimacy, even for smaller scale governance institutions, and that greatly increases the risk of widespread civil unrest:

Now it seems that both sides of the Greek referendum were voting for an illusion. One of the most touching aspects of Greek life is people’s obsessional respect for parliamentary democracy. Syriza itself is the embodiment of a leftism that always believed you could achieve more in parliament than on the streets. For the leftwing half of Greek society, though, the result is people continually voting for things more radical than they are prepared to fight for.

I asked one of Syriza’s grassroots organisers, a tough party cadre who had been agitating for a “rupture” with lenders for weeks, whether he could put his members onto the streets to keep order outside besieged pharmacies and supermarkets. He shook his head. The police, or more probably the conscript army would have to do it….

….The rest of leftwing Greece is mesmerised by parliament.

Little does it understand how scant was the power its ministers actually wielded from their offices. And now the realisation dawns: the Greek parliament has no power inside the eurozone at all. It has the power only to implement what its lenders want.

The financial system has acted as a highly effective parasite on the real economy, as it does during every bubble once the magic of leverage is rediscovered. However, parasite that get too greedy kill the host, and that is exactly what the financial system stands on the verge of doing. The end is likely when financial institutions turn on each other, as we saw with the failure of Lehman brothers in 2008:

Bankers, it turns out, are often the first to start a run on other banks….

….But the lesson the good citizens of the other crisis countries will draw may not be what their financial masters suppose. It may be, above all, get to cash, as quickly as possible.

An Alternate Way Forward for Greece

The immediate price for Greece of a Grexit from the eurozone would be huge. The human cost would be particularly high as even greater suffering would unfold. Varoufakis has described the eurozone as being like the Hotel California, where you can enter, but never leave. However, the proposed deal will do nothing to prevent this eventuality. Nor will the effort at kicking the can down the road be used to buy to time to build any form of alternative. It is far more likely merely to drag out the suffering. As difficult, and no doubt politically suicidal, as it would be, leaving the euro is almost certainly the way to get the inevitable pain over with as quickly as possible. 

This newspaper [The Economist] has always opposed a Greek departure from the euro because of the economic shock it would bring and the political chaos that could follow. But faced with a programme that infantilises Greek citizens, endlessly saps its creditors’ energies and offers little hope of improvement, it is easy to see why some are tempted by the alternative.

It has been done before:

If Greece restores the Drachma, social, private and financial interests can be re-aligned; prosperity can be reignited. Issued through the central bank and domestic retail banks, the Drachma can underpin a programme of public works expenditures, and in parallel, through multiplier processes, the spending of newly earned income to revive private activity in Greece. Through the Drachma, jobs and prosperity can be restored. The expertise to facilitate such a transition exists, moreover the very nature of money guarantees precedent on which action can be based.

It has been done before – successfully. The last time the world threw off the chains of private wealth was in the 1930s. Then, Britain led the way. In September 1931, financial interests demanded high interest rates and austerity as the impact of the Great Depression hammered the people. At this point Britain, like Greece today, became defiant. The UK threw off its fetters and left the gold standard – the Euro of a century ago.

We have argued before that humanity gets itself into trouble when it allows the scale at which it operates to increase to an unmanageable extent, where reflexivity is lost and unstoppable momentum develops for us to throw ourselves collectively off the nearest cliff. We are about to learn this lesson again, as we do at the peak of every bubble:

Even at the peak of expansion, international scale institutions struggled to achieve popular legitimacy, due to the obvious democratic deficit, lack of transparency, lack of accountability and insensitivity to local concerns. Even under the most favourable circumstances, true internationalism appears to be a bridge too far from a trust perspective. For this reason, world government and a global currency were never a realistic prospect, as much as some may have craved and others dreaded them. Even a transnational European single currency has suffered from a fatal disparity between the national level of primary loyalty and the international level of currency governance, and as such has no future

When the path you are on has no future, taking a different path, however painful, is the only realistic option.

Italy’s Beppe Grillo takes an optimistic view of the Greek future in the event of a Grexit:

The chaos in Athens has, he says, been wildly overstated. “I went there with bread, cheese and nylon socks, to help. I thought there would be people on the ground, screaming, ‘Aaaaaah!’ Instead, I found a splendid city, the restaurants were full. There were many tourists. You ate well — with €18 or €20. It was clean. I am sure that if they take back the drachma, they’ll have a year of trouble but then they will become paradise on earth with 10 million people.”

Jul 202015
 
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NPC Daredevil John “Jammie” Reynolds, Washington DC 1917

Schäuble Was Ready To Give Greece €50 Billion To Quit The Euro (HeardinEurope)
Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay (Bloomberg)
Greek Banks to Open Monday as Tsipras Prepares for Another Vote (Bloomberg)
Portugal’s Debts Are (Also) Unsustainable (Tavares)
Grexit Remains The Likely Outcome Of This Sorry Process (Münchau)
Krugman’s Money Is On A Grexit (CNN)
Why Austerity Is Not a Sound Economic Policy (Forbes)
The Failed Project of Europe (Jayati Ghosh)
The Great Greek Bank Drama, Act II: The Heist (Coppola)
Greek Austerity May Be An Economic Tale But Children Are The Human Cost (Conv.)
The Euro – The ‘New’ Coke Of Currencies? (Guardian)
Disgraced Ex-IMF Chief Strauss-Kahn Slams New Greek Deal As ‘Deadly Blow’ (RT)
The Right -Greek- Poem (New Yorker)
Youth Unemployment in Europe (OneEurope)
Ukraine Extends Creditor Talks As Threat Of Default Looms (FT)
China Stock Resumptions Dwindle as 20% of Shares Stay Halted (Bloomberg)
Gold Bulls In Retreat After Spectacular Plunge (CNBC)
Commodities Crash Could Turn Australia Into A New Greece (Telegraph)
Interview With Julian Assange: ‘We Are Drowning In Material’ (Spiegel)
Beijing To Become Center of Supercity of 130 Million People (NY Times)
Tiny Ocean Phytoplankton are Brightening Up the Sky (Gizmodo)

“..it appears that the Commission is keen to put in place a procedure for countries to leave the EU..” Wait, Schäuble is not in the Commission.

Schäuble Was Ready To Give Greece €50 Billion To Quit The Euro (HeardinEurope)

German Minister of Finance Wolfgang Schäuble was prepared “to give Greece €50 billion” had Yanis Varoufakis, his Greek counterpart at the time, agreed to his country leaving the eurozone, a high level source who recently spoke to Schäuble has revealed. The German minister was described by the source like “a true European” who had nothing against Greece, but favoured harsh medicine for a good cause. Schäuble was reported to assume that the leftist Syriza government would favour leaving the eurozone, a move consistent with its ideology. And he was prepared to put money on the table to encourage it to take this step. Schäuble was quoted as asking how much Greece wants to leave the euro by France’s Mediapart.

This is said to taken place before the 5 July referendum, in which a vast majority of Greeks rejected the international creditors’ proposals. But according to the information obtained by Heard in Europe, Schäuble had in mind a concrete figure – €50 billion – had Syriza opted for Grexit. Schäuble apparently didn’t say where the money would come from. Part of such a package could be sourced from the €35 billion of EU money due to Greece until 2020, plus ECB profits from Greek debt sovereign bonds due to Athens. Had Greece opted for a Grexit, more than €300 billion of its debt would be lost to creditors, but €50 billion of fresh money would come handy to the Syriza government to build a new financial system.

Under the bailouts, billions are disbursed to Greece, but the money goes mainly for servicing debt. Regardless of his party’s ideology, at the extraordinary Eurozone summit on 12 July, Greek Prime Minister Alexis Tsipras chose to honour the wishes of the majority of Greeks, who want to keep the euro. Tsipras’ decision was even more surprising given the creditor’s conditions, which our source described as “much, much more brutal compared to any country historically speaking”.

Schäuble is known to be in favour of a five-year timeout of Greece from the eurozone. The idea was rejected at the recent Eurozone summit, but it appears that the Commission is keen to put in place a procedure for countries to leave the EU, similar to the enlargement negotiations, Heard in Europe was told. According to this logic, Greece or the UK, or any other country for that matter, would receive EU support if it leaves the family in an orderly way. And the exit procedure would be accompanied by benchmarks, like the accession path. The money Schäuble was prepared to give Greece could be seen as a precursor to such support, similar to pre-accession financing.

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The ECB pays itself.

Greece’s Real Crisis Deadline Arrives With ECB Debt to Pay (Bloomberg)

Greece has reached the deadline it couldn’t afford to miss, for a bill it can finally afford to pay. Monday is the day the country must reimburse the ECB €4.2 billion, including interest, as bonds bought during its last debt crisis mature. The impending reckoning may have been the factor that eventually forced Prime Minister Alexis Tsipras on July 13 to accept the austerity he and his electorate had previously rejected, in return for the funds needed to keep his nation from default. As Greece blew past multiple political and financial supposed end-dates over the past five months, July 20 always remained make-or-break. EU law bans the ECB from financing governments, meaning a default would probably require it to pull support from Greek lenders, leaving an exit from the single currency all but assured.

“The issue of repayment to the ECB was pivotal, because failure to make the payment would have had a knock-on impact on the ECB’s willingness to continue providing Emergency Liquidity Assistance to the Greek banks,” said Ken Wattret at BNP Paribas in London. “As the realization dawned that Greece was facing a very disorderly, painful exit from the monetary union, the government stepped back from the brink.” While Greece should now have the funds to make the payment, politicians cut it fine. Euro-area leaders agreed on a bailout package worth as much as €86 billion in an overnight summit that ended last Monday. The Greek parliament approved the austerity measures linked to the aid in the early hours of Thursday morning, and the currency bloc signed off on €7 billion of bridge financing the next day.

ECB President Mario Draghi signaled his approval on Thursday by persuading his Governing Council to increase the ELA that is keeping Greek lenders afloat. Banks will reopen for basic services on Monday, three weeks after they were shut to prevent their collapse. In a press conference after the ECB’s decision on ELA, Draghi said he was confident his institution would get its money back on its Greek bonds. “All my evidence and information leads me to say we will be repaid,” he said in Frankfurt. The idea that Greece might default “is off the table,” he said. The ECB hasn’t said if Greece is expected to pay its debt by a specific time.

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Nothing much changes, but perhaps the feeling will help a little.

Greek Banks to Open Monday as Tsipras Prepares for Another Vote (Bloomberg)

Greek banks reopen Monday three weeks after they were shut down to prevent their collapse, as Prime Minister Alexis Tsipras prepares for a second parliamentary vote crucial to securing a bailout. Greeks will regain access to some basic bank services, including the ability to deposit checks and access safe deposit boxes. Although customers will continue to face restrictions on cash withdrawals, the daily limit of €60 will be replaced by a cumulative maximum of €420 a week. The Athens Stock Exchange, which had also been closed during the month-long confrontation between Greece and its creditors, is expected to reopen, as trading was suspended only until the bank holiday ended.

Tsipras is seeking discussions with euro-zone governments on a third bailout after Greek lawmakers went along with their demands for more economic overhauls. Hours after the vote early Thursday, the European Central Bank approved emergency financing for the country’s lenders. The EU followed on Friday with €7 billion bridge loan to keep the country afloat during negotiations on a three-year rescue program worth as much as €86 billion. The loan will help cover a €3.5 billion payment to the ECB that falls due Monday. The Greek government still faces a parliamentary vote Wednesday on a second package of prerequisites for further financial assistance, including tax increases on farmers. Last week’s vote prompted some members of the Syriza party to rebel, forcing Tsipras to reshuffle his cabinet on Friday.

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And Italy’s, and Spain’s, and Ireland’s, and…

Portugal’s Debts Are (Also) Unsustainable (Tavares)

Everyone seems to be focusing on Greece these days – a country so indebted that it needs even more loans to repay just a fraction of its gigantic credits. Clearly this is unsustainable and something has to give. Even the IMF agrees. But what about the other Southern European countries? Actually, Portugal’s financial situation is looking particularly shaky, and any hiccups could have serious cross-border repercussions from Madrid all the way to Berlin. The prevailing narrative is that Portugal has been a star pupil compared to Greece, with austerity delivering much better results:

• The government, a coalition of a center party and center-right party that together have held the majority of parliamentary seats since the 2011 election, pretty much followed all the major guidelines demanded by its creditors (the famous “Troika”) pursuant to the 2010 bailout, and was even praised for it.
• Exports have performed exceedingly well given everything that was going on domestically and abroad; the managers of small and medium enterprises in Portugal are true heroes, operating in difficult conditions and with limited access to credit.
• Portugal has recently become a darling of international real estate investors and tourists.
• The country’s citizens have stoically endured a range of tough austerity measures with surprisingly little social disruption.

So it is understandable that hopes for Portugal’s future are much rosier than in Greece… AND YET ITS FINANCIAL SITUATION IS ALSO UNSUSTAINABLE! We realize that this is quite a bold statement. So to support our argument we will use some simple math to show where government finances stand after five years of austerity. The Bank of Portugal (“BdP”), Portugal’s central bank, publishes debt statistics of key sectors in the economy on a quarterly basis. As of March 2015, non-financial public sector debt stood at €288 billion, or 166% of GDP. You may think that there’s something odd right there because you are used to hearing that the Portuguese government “only” owes 130% of its GDP. That’s because the media generally uses Maastricht treaty calculations, not the total amount that the government owes as a whole (which includes public companies, for instance). But what’s 36 %age points of GDP among friends?

OK, let’s do some math: We start by dividing €288 billion by 166% to find out what nominal GDP the BdP used in its calculation: about €174 billion; Next, let’s assume that the cost of debt on all that government debt is only 1%. In this case, the annual interest expense for the government should be 1% x €2.88 billion, or €2.88 billion. We know that this is very low as the actual interest expense in 2014 was almost €7 billion (and likely not all of it, but government accounts can get quite murky); Then we assume that Portugal’s nominal GDP grows at 1%, which is not stellar but certainly better than recent years – from December 2011 to December 2014, the average nominal growth rate was actually -0.6% (BdP figures). So that’s 1% x €174 billion, or €1.74 billion;

Finally, we compare the assumed interest costs with the nominal GDP growth: €2.88 billion vs €1.74 billion. See what we are getting at here? USING FAIRLY OPTIMISTIC ASSUMPTIONS, THE PORTUGUESE ECONOMY IS UNABLE TO GROW ENOUGH TO COVER THE INTEREST ON ITS GOVERNMENT DEBTS, LET ALONE AFFORD ANY PRINCIPAL REPAYMENTS!

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If Tsipras implements all austerity measures, it’s impossible for the economy to grow.

Grexit Remains The Likely Outcome Of This Sorry Process (Münchau)

Alexis Tsipras should never have hired Yanis Varoufakis as his finance minister. Or he should have listened to him, and kept him on. But instead the Greek prime minister chose the worst of all options. He followed Mr Varoufakis’ advice of rejecting the offer of the creditors — until last week. But having done this, Mr Tsipras committed a critical error by rejecting Mr Varoufakis’ plan B for the moment when the country’s banks closed down: the immediate introduction of a parallel currency — IOUs issues by the Greek state but denominated in euros. A parallel currency would have allowed the Greeks to pay for their daily transactions when cash withdrawals were limited to €60 a day. A total economic collapse would have been avoided. But Mr Tsipras did not go for this, or indeed any other plan B.

Instead he capitulated. At that point, he was no longer even in a position to choose a Grexit — a Greek exit from the eurozone. The economic precondition for a smooth departure would have been a primary surplus — before debt service — and an equivalent surplus in the private sector. Greece has no foreign exchange reserves. If the Greeks were to reintroduce the drachma, they would have had to pay for all of their imports with the foreign exchange earnings of their exports. These minimum preconditions were in place in March but not in July. So, like his predecessors, Mr Tsipras ended up with another very lousy bailout deal. And this one suffers from the same fundamental flaws as its predecessors. This leads me to conclude that Grexit remains the most likely ultimate outcome after all.

There are three principal ways in which this can happen. The first is that a deal is simply not concluded. All that was agreed last week is for negotiations to start, plus some interim financing. A deal might fail because principal participants themselves are sceptical. Wolfgang Schäuble, the German finance minister, says he will keep up his offer of a Grexit in his drawer, just in case the negotiations fail. Mr Tsipras denounced the agreement on several occasions last week. And the International Monetary Fund is telling us that the numbers do not add up, and that it will not sign unless the European creditors agree to debt relief. The Germans refuse any discussion on this subject, citing some trumped-up rules according to which eurozone countries are not allowed to default.

This is legal hogwash, but I suppose the purpose is to describe new red lines in the negotiations. My hunch is that they will ultimately fudge a deal, but that will come — as it always does — with overwhelming collateral damage: less debt relief than needed, and more austerity than Greece can bear. A more likely Grexit scenario is that a programme is agreed and then fails. The Athens government may implement all the measures the creditors demand, but the economy fails to recover and debt targets remain elusive. Mr Tsipras already agreed last week that if this situation arose, he would pile on more austerity. So, unless the economy behaves in future in a very different way from the way it behaved in the past, it will remain trapped in a vicious circle for many years to come.

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“My money is on exit one way or another.”

Krugman’s Money Is On A Grexit (CNN)

Nobel Prize-winning economist Paul Krugman says Greece’s hard times are far from over – and a Grexit is not out of the question. Eurozone leaders are set to offer new bailout terms for the deeply-indebted Greeks this week. And the country’s banks will also reopen on Monday. Krugman, however, is not convinced the situation in Greece is any less concerning. “My guess is either in the end they will get this sort of enormous debt relief…or they will have to exit,” Krugman told CNN’s Fareed Zakari Sunday. “My money is on exit one way or another.”

And Krugman agreed with some other economists who have said a Grexit shouldn’t be underestimated. Even if forgiving the country’s debt does not lead to “Lehman-like” bank failures, it would affect the stability of the Eurozone. “If Greece exits and then starts to recover, which it probably would, that would be, in a way, encouragement for other political movements to challenge the euro,” Krugman said. “This is not trivial.”

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Not a balanced assessment in any sense, but she hits some valid points.

Why Austerity Is Not a Sound Economic Policy (Forbes)

Austerity is a dubious measure that creditors, such as the IMF like to enforce on poor and politically weak countries aiming to get their money back faster. Unfortunately, austerity creates zombie economies which may have low debt, but unfortunately also end up with low prosperity. Bulgaria, for example is a country that Madam Merkel praised as ”disciplined” with very little government debt that has been able to implement austerity policies effectively. Yet, Bulgaria has the lowest GDP per capita in the EU and remains one of the poorest economies in Europe with little prospects for growth. It is not surprising then that Greece refuses to play ball. The restructuring discussion would have been far more appealing to the Greeks and far more believable if more emphasis was paid to creative ideas of how to jumpstart the Greek economy.

Young and unemployed, the Greeks are not willing to hear about austerity, but would love to hear about how to get a job. At the latest GAIM Conference in Monaco, I participated in a simulation of the Greek crisis. Some of my colleagues suggested interesting ideas focused on Greek economic growth ranging from a Russian natural gas pipeline going through Greece, to Germany relocating manufacturing to Greece and Greeks providing cheap labor, to a free economic zone in the Mediterranean with an infusion of Chinese capital. While each idea may or may not be viable, what was more striking to me is that rarely if ever in the real Greek economic and political debate, do I hear much about stimulating growth and productivity.

Secondly, in addition to economic growth, an innovative approach to debt restructuring is needed not only for Greece but also as a precedent for the world. The global debt including government, corporate and household debt, currently stands at $200 trillion with $57 trillion added since 2007. Current debt levels are likely unsustainable and unlikely to be repaid not just in Greece. A combination of currency devaluation, significant debt forgiveness and creation of new debt instruments that act more like equity and link to GDP growth, for example, will better align incentives between the creditors and the borrowers and ultimately could lead to faster economic recoveries.

Referring to the Greek plan or lack there off, Ian Bremmer, president of Eurasia Group, a political-risk consulting firm said: “It’s clearly a Band-Aid solution. I’d love to say we’ll be back here in a year or two. It’s more likely to be a few months.” I could not agree more with Mr. Bremmer. Much more is needed than bridge loans and austerity.

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“There was clearly a need to punish both the Syriza-led government and the Greek voters for daring to protest, by forcing upon them the most appalling and humiliating terms that have been seen in a non-war situation for a European nation..”

The Failed Project of Europe (Jayati Ghosh)

There is a stereotypical image of an abusive husband, who batters his wife and then beats her even more mercilessly if she dares to protest. It is self-evident that such violent behaviour reflects a failed relationship, one that is unlikely to be resolved through superficial bandaging of wounds. And it is usually stomach-churningly hard to watch such bullies in action, or even read about them. Much of the world has been watching the negotiations in Europe over the fate of Greece in the eurozone with the same sickening sense of horror and disbelief, as leaders of Germany and some other countries behave in similar fashion. The extent of the aggression, the deeply punitive conditionalities being imposed as terms of a still ungenerous bailout and the terrible humiliation and pain being wrought upon the Greek people are hard to explain in purely economic or even political terms.

Instead, all this seems to reflect some deep, visceral anger that has been awakened by the sheer effrontery of a government of a small state that dared to consult its people rather than immediately bowing to the desires of the leaders of larger countries and the unelected technocrats who serve them. There was also anger directed at the people themselves, who dared to vote in a referendum against the terms of a bailout package that offered them only more austerity, less hope and continued pain in the foreseeable future, just so that their country can continue to pay the foreign debts that everyone (even the IMF!) knows simply cannot be paid. The response went beyond completely ignoring the will of the Greek people as expressed in the referendum, to insist on pushing even worse conditions on them for their resistance.

There was clearly a need to punish both the Syriza-led government and the Greek voters for daring to protest, by forcing upon them the most appalling and humiliating terms that have been seen in a non-war situation for a European nation, for the increasingly dubious advantage of staying within the eurozone. Greece will become an economic protectorate, indeed little more than a colony of Germany within the eurozone. It will have no control over its fiscal policies, forced to sell valuable public assets that amount to more than a third of annual national income just to keep trying to pay its creditors. It will have to reverse decisions made in the recent past to preserve some public employment such as of cleaning and sanitation workers and security guards, whom it will now have to fire again, and will have to cut pensions of elderly people who have already seen their pensions fall by 40%.

It will have to increase indirect taxes that will hit the poor most. It will have to accept the constant presence of the external rulers, in the form of an IMF team that will monitor the budget and the activities of the Greek government, who are not any more to be trusted by the European leaders. Since the troika has thus far not been able to push Syriza out of power, they are now seeking the alternative of a much weakened party in government (soon no doubt to become a “government of national unity” with the support of centrist and right wing MPs) under the direct political control of the (mostly unelected) European bosses.

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The Greek banking system was bled to death intentionally.

The Great Greek Bank Drama, Act II: The Heist (Coppola)

Back in the autumn of 2014, the ECB & EBA conducted stress tests on European banks, including all four of Greece’s large banks (which together make up about 90% of its banking sector). The Greek banks at that time passed the stress tests and were deemed solvent. They are now supervised not by Greek regulatory bodies, but directly by the ECB under the Single Supervisory Mechanism (SSM). Yet now, eight months later, sufficient damage has apparently been done to Greece’s banks to render them collectively insolvent. What on earth has gone wrong? Greece’s banks have suffered a continual deposit drain since the beginning of the year. This is how they became dependent on emergency liquidity assistance (ELA) funding from the Bank of Greece.

But liquidity shortfalls do not cause insolvency unless they are covered by means of asset fire sales. In this case, the liquidity drain was until 28th June covered by ELA. Collateral has to be pledged for ELA funding, and Greek banks consequently found their balance sheets becoming more and more encumbered. To make matters worse, the ECB recently increased collateral haircuts for Greek banks. Now the banks are reopening, it is not clear how much collateral they have left for ELA funding. Whether the ECB will relax collateral requirements to allow a wider range of assets to be pledged remains to be seen. It is probably conditional on good behaviour by the Greek sovereign. But it is not the funding side of Greek banks that is the real problem. It is the asset base.

Greece went into recession in Q4 2014 (yes, BEFORE Syriza came to power). Since then, there has been a considerable fall in output caused mainly by lack of confidence. On top of this, the Greek sovereign has been running substantial primary surpluses all year in order to maintain payments to creditors in the absence of bailout funding. It has done this not by collecting more taxes but by a considerable squeeze on public spending: this has mainly taken the form of delaying payments to the private sector. Additionally, the private sector itself has cut back spending and investment. The result is that real incomes have tumbled, unemployment has risen and loan defaults have increased. Non-performing loans in the Greek banking sector were already high at the beginning of the year but are now believed to have risen substantially. This is the principal cause of the possible insolvency of Greek banks.

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All young people are victims.

Greek Austerity May Be An Economic Tale But Children Are The Human Cost (Conv.)

Many perspectives have been shared about the social and economic repercussions that the third EU bailout proposal for Greece may have. The impact of these tough austerity measures is yet to unfold for the country, for the other southern states, or indeed Europe as a whole. But moving beyond a purely economic lens, there is already evidence about the extent of deprivation and youth unemployment of more than 50% during the past five years of the first and second bailout programmes, meaning that the likely effects of the third are easier to predict, at least for this generation. The links between poverty and a range of risk factors for child mental health problems and related outcomes is well established.

Nevertheless, the reality hit home a few weeks ago when I joined the Children’s SOS Villages in Greece in training their prospective new carers, or “mothers” and “aunts” as they are widely called. These carers work in a similar way to foster carers and residential care staff in other welfare systems. The villages were established in Austria after World War II to care for orphan children and since then their model has successfully spread across more than 120 countries. Their model may slightly vary, but their target groups are typically children without parents, for a range of reasons, or those who have been abused and/or neglected. Consequently, it came as a surprise to realise the extent of child abandonment (neglect, an inability to care for them or even asking social services to look after them) for predominantly financial reasons since the beginning of the Greek crisis.

The organisation has responded by diversifying its remit in Greece. In the absence of an increasingly stretched health and social care sector, they have now extended their services beyond the traditional villages to support, relieve and prevent abuse and neglect, running eight social centres in Greece’s major cities to help keep families together. A 2014 UNICEF report said that child poverty in Greece had almost doubled from 23% in 2008 to 40.5% in 2012, with migrant children particularly vulnerable. It found average family incomes were at 1998 levels, and 18% of households with children unable to afford a meal with meat, chicken, fish or a vegetable equivalent every second day.

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At least with Coke, the people got to vote.

The Euro – The ‘New’ Coke Of Currencies? (Guardian)

The date 23 April 1985 was a momentous day in the life of the Coca-Cola corporation. For years, the company had been planning a new drink to see off the challenge from Pepsi. There was no expense spared for Project Kansas. “New” Coke (as it was dubbed) bombed. The company responded with alacrity. It didn’t say consumers were wrong. It didn’t say that given time New Coke would be a success. It didn’t plough on simply because it had invested heavily in Project Kansas. Instead, it recognised that there was only one option: to go back to the traditional formula. This returned to the shelves on 11 July 1985, within three months of “New” Coke’s launch. There is a lesson here for both businesses and policymakers – and European policymakers in particular.

Sixteen years after its launch, it should be clear even to its most die-hard supporters that the euro is New Coke. European politicians took a formula that was working and messed around with it. They changed the ingredients that made the EU a success, thinking it would be an improvement. Coca-Cola thought New Coke would see off the challenge from Pepsi. Europe thought the euro would see off the challenge from the US. Both were wrong. The only difference is that Coke quickly saw the writing on the wall, and that Europe still hasn’t. It is not hard to see why the pre-euro European Union was popular. The EU was seen as a symbol of peace and prosperity after a period when the continent had been beset by mass unemployment, poverty, dictatorship and war.

Growth rates were spectacularly high in the 1950s and 1960s, a period when Europe caught up rapidly with the US. Britain’s decision to join what was then the European Economic Community in 1973 was mainly due to the feeling that Germany, France and Italy had found the secret of economic success. Other countries felt the same. They believed access to a bigger market would improve their economic prospects. In the last quarter of the 20th century, output per head in Greece, Portugal, Spain and – most spectacularly – Ireland, rose more rapidly than it did in core countries such as Germany and France. The gap in incomes per head did not entirely disappear but it certainly narrowed. As such, it was no surprise that countries in eastern Europe wanted to join the EU after the collapse of communism: Europe was associated with democracy and prosperity, a winning combination.

Since the birth of the euro, it has been a different story. The crisis in Greece has highlighted the problems that a one-size-fits-all interest rate can cause for countries on the periphery. In the good times, monetary policy is too loose for their needs, leading to asset bubbles, inflationary pressure and the loss of competitiveness. In the bad times, there are no shock absorbers other than wage cuts and austerity. Devaluation of the currency is not possible and there is no system to tio transfer resources from rich to poor parts of the union. Without a common social security system, the result is higher unemployment, rising poverty and political disaffection. What’s less remarked on is that the single currency has not been wonderful for ordinary workers in core Europe either. That’s not just true of Italy, a founder member, where living standards are no higher now than they were in the late 1990s, but also of Germany.

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The big wigs had solid reasons to want him out of the way.

Disgraced Ex-IMF Chief Strauss-Kahn Slams New Greek Deal As ‘Deadly Blow’ (RT)

The former head of the IMF, Dominique Strauss-Kahn, has decried the latest deal reached on a new Greek bailout as “profoundly damaging.” While admitting that the deal removed the risk of a Grexit, he stressed that “the conditions of the agreement, however, are positively alarming for those who still believe in the future of Europe.” “What happened last weekend was for me profoundly damaging, if not a deadly blow,” he wrote in the open letter entitled “To my German friends” published on Saturday. Strauss-Kahn referred to the deal as a “diktat” and accused European leaders of putting ideology and political gains ahead of real problems, and thus risking the integrity of the European Union.

“Political leaders seemed far too savvy to want to seize the opportunity of an ideological victory over a far left government at the expense of fragmenting the Union,” he said, adding that negotiations had ended up in a “crippling situation” due to this. He also accused the creditors of adopting ineffective strategies towards Greece, more intended to “punish,” than to promote the future of Europe. “In counting our billions instead of using them to build, in refusing to accept an albeit obvious loss by constantly postponing any commitment on reducing the debt, in preferring to humiliate a people because they are unable to reform, and putting resentments – however justified – before projects for the future, we are turning our backs on what Europe should be, we are turning our backs on (…) citizen solidarity,” Strauss-Kahn said in his letter.

He also emphasized the necessity of reforming the whole currency union calling it “an imperfect monetary union forged on an ambiguous agreement between France and Germany,” adding that neither Germany nor France had a “true common vision of the Union,” being “trapped in misleading and inconsistent” concepts. He stressed that Europe could not be saved “simply by imposing rules of sound management,” but only by mutual respect built “through democracy and dialogue, through reason, and not by force.” He also cautioned European leaders against taking measures that created division in Europe and being overly dependent on their perceived “friend” – the USA. “An alliance between a few European countries, even led by the most powerful among them, will be subjugated by our friend and ally the United States in the maybe not so distant future,” he said.

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A rich culture through the ages.

The Right -Greek- Poem (New Yorker)

When Greeks want to gesture “No,” they nod: a little upward snap of the head. The confusion that this can produce in visitors has long been an object of amusement for the locals—and the source of rueful anecdotes by tourists who have found themselves inadvertently refusing bellhops or a sweating glass of frappé after a hot afternoon on the Acropolis. Lately, you’d be forgiven for thinking that the Greeks themselves have been having a hard time understanding the difference between “yes” and “no.” On July 5th, at the ostensible encouragement of the Prime Minister, Alexis Tsipras, an overwhelming majority voted no to punishing new austerity measures in return for continued membership in the euro zone—“a bed of Procrustes,” as The American Interest described the dilemma.

A week later, however—after an escalating struggle between Tsipras’s government and European creditors that the Telegraph compared to “a tragedy from Euripides”—the same electorate was being called upon by Tsipras to say yes to a bailout offer more “draconian” (CNBC) than the last one. “Draconian,” “procrustean,” “Euripides”: however confusing the state of affairs in Athens and Brussels right now, it’s clear that the temptation to invoke the glories of ancient Greece in connection with the current Greek economic crisis is one that journalists have found impossible to resist. Most of the allusions are unlikely to send readers racing to Wikipedia. “ ‘Grexit’ Brinkmanship Is Classic Greek Tragedy,” went one headline, on Breitbart.com. (The article contained a link to the Web page for a Greek-tragedy course at Utah State University.)

Some betray a sentimental high-mindedness about Greece’s position in the history of civilization: “In Greece, A Vote Befitting The Birthplace Of Democracy?” Reuters mused. Of the more substantive attempts to link Greece’s grandiose past to its humbled present, nearly all have focussed on a notorious incident from the Peloponnesian War—the ruinous, three-decade-long conflict between Athens and Sparta. In 416 B.C., the Athenians brutally punished the tiny island state of Melos for trying to preserve its neutrality. In a famous passage of Thucydides’ history of the war, known as the Melian Dialogue, the Athenian representatives blithely tell their Melian counterparts, “The strong do what they can and the weak suffer what they must,” before killing all the adult males of the city and enslaving the women and children.

Perceived similarities between the Athenians of the fifth century B.C. and today’s Germans have provoked a flurry of think pieces. “What Would Thucydides Say About the Crisis in Greece?” an Op-Ed in the Times asked. Yet, despite the baggy analogizing and the rhetoric about eternal verities, attempts to use Pericles’ Athens to explain Tsipras’s Greece often obscure important differences. “Melos was a neutral state,” the Times Op-Ed tartly observed, “while modern Greece not only joined the European Union but over the years merrily plundered its treasury.”

It’s easy to see where the impulse to conflate “Greek history” with “Classical Greek history” comes from: appeals to Thucydides or Plato can confer authority in real-world decision-making. (In 2001, some conservatives cited the Athenians’ take-no-prisoners rhetoric at Melos to justify the invasion of Afghanistan.) But the presumption that nothing much of interest happened in Greece between the end of the Classical era, in 323 B.C., and the founding of the modern nation, in the early nineteenth century, has long irritated both Greeks and students of Greek history.

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Shameful.

Youth Unemployment in Europe (OneEurope)

According to this infographic made by Statista (Statista.com) youth unemployment is still a huge problem in many European countries. In March 2015 Spain, Greece, Croatia and Italy had the worst unemployment rate for people under 25 years of age. How could you explain these different%ages of youth unemployment across Europe? What are the main responsible factors for this issue? In which way do you think the European Union should work to solve it?

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Let’s see what the IMF has left in its warchest.

Ukraine Extends Creditor Talks As Threat Of Default Looms (FT)

Ukraine has extended hastily assembled talks with creditors amid predictions that the country could default as early as Friday if an agreement is not reached. Kiev’s desire to avoid the fate of Greece has encouraged both sides to tone down the combative rhetoric that has dogged negotiations over the past three months. However a principal-to-principal meeting held in Washington last week failed to elicit a deal to restructure Ukraine’s $70bn debt burden, although a joint statement declared that progress had been made. Bridging the gap between Ukraine and the international creditors who hold its sovereign debt will not be easy. Following Russia’s annexation of Ukraine’s Crimean region and the conflict with pro-Russian separatists in the east that has wrecked its economy, Ukraine’s debt is widely expected to top 100% of GDP this year.

Kiev hopes for a 40% debt writedown on bonds worth a little more than $15bn in order to make the debt sustainable. But a group of four creditors holding around $9bn of Ukrainian bonds, led by US asset manager Franklin Templeton, disagree that a haircut is needed and have put forward an alternative proposal for maturity extensions and coupon reductions. The only concrete example of progress so far has been the suggestion of swapping part of Ukraine’s debt for GDP-linked bonds, which both sides support, and which would offer equity-like returns if the country’s economy outperforms. So far, Ukraine has met all of its debt obligations, including a $75m coupon payment to Russia, and has successfully negotiated maturity extensions on a number of other payments.
However, Goldman Sachs has warned that default looks “likely” in July when a payment of $120m comes due on a Ukrainian government bond.

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Good lord: “The halted firms are valued at an average 243 times reported earnings…”

China Stock Resumptions Dwindle as 20% of Shares Stay Halted (Bloomberg)

A fifth of China’s stock market remains frozen as the number of companies resuming trading slows to a trickle. A total of 576 companies were suspended on mainland exchanges as of the midday break on Monday, equivalent to 20% of total listings, and down from 635 at the close on Friday. The halted firms are valued at an average 243 times reported earnings, compared with 164 times for all companies traded in Shanghai and Shenzhen. The ongoing suspensions are raising doubts about the sustainability of a rebound in Chinese stocks. The Shanghai Composite Index has climbed about 14% from its July 8 low, following a 32% plunge that helped erase almost $4 trillion of value.

The number of companies with trading halts exceeded 1,400, or around 50% of listings, during the height of the rout as the government took increasingly extreme measures to shore up equities. “When half the market becomes illiquid, that was a sign that China had regressed, they’re not willing to accept the ups and downs of a capital market,” Roshan Padamadan, the founder and manager of Luminance Global Fund, said in an interview on Bloomberg Television from Singapore. Researching companies becomes “pointless” when the government allows them to halt trading without reason, he said. The suspended companies have a combined value of 4 trillion yuan ($644 billion), equivalent to about 9% of China’s total market capitalization. The majority of halts were by shares listed on the Shenzhen Composite Index, the benchmark gauge for the smaller of China’s two exchanges.

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The trend must be worrying to some. Looks like gold goes the way of other commodities.

Gold Bulls In Retreat After Spectacular Plunge (CNBC)

Gold got whacked in the Asian trading session on Monday, plunging below $1,100 in for the first time since March 2010, and strategists say the precious metal is only headed lower from here. The precious metal’s latest leg down was reportedly triggered by speculative selling in the Shanghai Gold Exchange, catching investors off guard. “It was down to speculation here, someone taking advantage of the low liquidity environment,” Victor Thianpiriya, commodity strategist at ANZ, told CNBC. “Around 5 tonnes of gold was sold on the Shanghai Gold Exchange within the space of two minutes between 09:29 and 09:30. The daily volume last week was about 25 tonnes,” he noted. Gold slid over 4% to as low as $1,086 an ounce in early trade on Monday, before paring back some losses over the course of the day.

It was down 2.3% at $1,107 at around 12:00 SG/HK time. “It clearly wasn’t driven by fundamentals, because the U.S. dollar didn’t move at that time,” Thianpiriya said. The disappointing performance of the yellow metal, which is down 6.4% on a year-to-date basis, has sent gold bulls into retreat. Jonathan Barratt, chief investment officer at Ayers Alliance, a longtime gold bug, says he’s turned “neutral” on the metal. “As you know I’ve been a bull, [but] I’ve got to go neutral now. Gold’s broken through some very critical areas. From a technical perspective it doesn’t look hot,” said Barratt, who expects price could fall back to $1,100 or lower.

Technical analyst Daryl Guppy also warned of “bearish features” on the gold chart: “There is a higher probability of a future fall below $1,150 and a continuation of the downtrend towards historical support near $980.” With the Federal Reserve’s first rate hike looming and the prospect of a stronger greenback, the odds remained stacked against gold, say analysts. “I think there’s further downside on the price once the dust settles and the focus shifts back to U.S. dollar strength and the interest rate outlook,” said Thianpiriya. “The risk of it hitting $1,050 is clearly elevated.”

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Too many bets on too few horses. Both Australia and New Zealand look to get hit hard.

Commodities Crash Could Turn Australia Into A New Greece (Telegraph)

Last month Gina Rinehart, Australia’s richest woman and matriarch of Perth’s Hancock mining dynasty delivered an unwelcome shock to her workers in Western Australia: accept a possible 10pc pay cut or face the risk of future redundancies. Ms Rinehart, whose family have accumulated vast wealth from iron ore mining, has seen her fortune dwindle since commodity prices began their inexorable slide last year. The Australian mining mogul has seen her estimated wealth collapse to around $11bn (£7bn) from a fortune that was thought to be worth around $30bn just three years ago. This colossal collapse in wealth is symptomatic of the wider economic problem now facing Australia, which for years has been known as the lucky country due to its preponderance in natural resources such as iron ore, coal and gold.

During the boom years of the so-called commodities “super cycle” when China couldn’t buy enough of everything that Australia dug out of the ground, the country’s economy resembled oil-rich Saudi Arabia. While the rest of the world suffered from the aftermath of the global financial crisis, Australia’s economy – closely tied to China – appeared impervious, with full employment and a healthy trade surplus. However, a collapse in iron ore and coal prices coupled with the impact of large international mining companies slashing investment has exposed Australia’s true vulnerability. Just like Saudi Arabia, which is now burning its foreign reserves to compensate for falling oil prices, Australia faces a collapse in export revenue. Recently revised figures for April show that the country’s trade deficit with the rest of the world ballooned to a record A$4.14bn (£2bn).

That gap between the value of exports and imports is expected to increase as the value of Australia’s most important resources reaches new multi-year lows. Iron ore is now trading at around $50 per tonne, compared with a peak of around $180 per tonne achieved in 2011. Thermal coal has also suffered heavy losses, now trading at around $60 per tonne compared with around $150 per tonne four years ago. For an economy which in 2012 depended on resources for 65pc of its total trade in goods and services these dramatic falls in prices are almost impossible to absorb without inflicting wider damage. The drop in foreign currency earnings has seen Australia forced to borrow more in order to maintain government spending.

The respected Australian economist Stephen Koukoulas recently wrote of the dangers that escalating levels of foreign debt could present for future generations. Could a prolonged period of depressed commodity prices even turn Australia into Asia’s version of Greece, with China being its banker of last resort instead of the European Union. Mr Koukoulas points out that by the end of the first quarter this year, Australia’s net foreign debt had climbed to a record $955bn, equal to almost 60pc of gross domestic product. Although this is far behind the likes of Greece, which boasts an unenviable ratio of over 175pc, it is nevertheless unsustainable, especially if it is allowed to widen further.

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Long interview. Assange is a clever man.

Interview With Julian Assange: ‘We Are Drowning In Material’ (Spiegel)

SPIEGEL: Mr. Assange, WikiLeaks is back, publishing documents which prove the United States has been surveilling the French government, publishing Saudi diplomatic cables and posting evidence of the massive surveillance of the German government by US secret services. What are the reasons for this comeback?
Assange: Yes, WikiLeaks has been publishing a lot of material in the last few months. We have been publishing right through, but sometimes it has been material which does not concern the West and the Western media — documents about Syria, for example. But you have to consider that there was, and still is, a conflict with the United States government which started in earnest in 2010 after we began publishing a variety of classified US documents.

SPIEGEL: What did this mean for you and for WikiLeaks?
Assange: The result was a series of legal cases, blockades, PR attacks and so on. With a banking blockade, WikiLeaks had been cut off from more than 90% of its finances. The blockade happened in a completely extra judicial manner. We took legal measures against the blockade and we have been victorious in the courts, so people can send us donations again.

SPIEGEL: What difficulties did you have to overcome?
Assange: There had been attacks on our technical infrastructure. And our staff had to take a 40% pay cut, but we have been able to keep things together without having to fire anybody, which I am quite proud of. We became a bit like Cuba, working out ways around this blockade. Various groups like Germany’s Wau Holland Foundation collected donations for us during the blockade.

SPIEGEL: What did you do with the donations you got?
Assange: They enabled us to pay for new infrastructure, which was needed. I have been publishing about the NSA for almost 20 years now, so I was aware of the NSA and GCHQ mass surveillance. We required a next-generation submission system in order to protect our sources.

SPIEGEL: And is it in place now?
Assange: Yes, a few months back we launched a next-generation submission system and also integrated it with our publications.

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A city the size of Kansas.

Beijing To Become Center of Supercity of 130 Million People (NY Times)

For decades, China’s government has tried to limit the size of Beijing, the capital, through draconian residency permits. Now, the government has embarked on an ambitious plan to make Beijing the center of a new supercity of 130 million people. The planned megalopolis, a metropolitan area that would be about six times the size of New York’s, is meant to revamp northern China’s economy and become a laboratory for modern urban growth. “The supercity is the vanguard of economic reform,” said Liu Gang, a professor at Nankai University in Tianjin who advises local governments on regional development. “It reflects the senior leadership’s views on the need for integration, innovation and environmental protection.”

The new region will link the research facilities and creative culture of Beijing with the economic muscle of the port city of Tianjin and the hinterlands of Hebei Province, forcing areas that have never cooperated to work together. This month, the Beijing city government announced its part of the plan, vowing to move much of its bureaucracy, as well as factories and hospitals, to the hinterlands in an effort to offset the city’s strict residency limits, easing congestion, and to spread good-paying jobs into less-developed areas. Jing-Jin-Ji, as the region is called (“Jing” for Beijing, “Jin” for Tianjin and “Ji,” the traditional name for Hebei Province), is meant to help the area catch up to China’s more prosperous economic belts: the Yangtze River Delta around Shanghai and Nanjing in central China, and the Pearl River Delta around Guangzhou and Shenzhen in southern China.

But the new supercity is intended to be different in scope and conception. It would be spread over 82,000 square miles, about the size of Kansas, and hold a population larger than a third of the United States. And unlike metro areas that have grown up organically, Jing-Jin-Ji would be a very deliberate creation. Its centerpiece: a huge expansion of high-speed rail to bring the major cities within an hour’s commute of each other. But some of the new roads and rails are years from completion. For many people, the creation of the supercity so far has meant ever-longer commutes on gridlocked highways to the capital.

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“The Southern Ocean, isolated from human pollution, offers us a glimpse into what skies around the world might have looked like in pre-industrial times.”

Tiny Ocean Phytoplankton are Brightening Up the Sky (Gizmodo)

Phytoplankton may be microscopic, but that doesn’t mean we can’t see them. Just look up: These little critters are brightening up cloudy days around the world. That’s according to research published Friday in the open-access journal Science Advances, which highlights the surprisingly large role microbes in the Southern Ocean play in cloud formation. Tiny phytoplankton can be swept out of their watery homes by gusts of wind. And once airborne, they help encourage water condensation, forming brighter clouds that reflect additional sunlight. “The clouds over the Southern Ocean reflect significantly more sunlight in the summertime than they would without these huge plankton blooms,” said study co-author Daniel McCoy of the University of Washington in a statement.

“In the summer, we get about double the concentration of cloud droplets as we would if it were a biologically dead ocean.” It’s a well-known fact that phytoplankton play a huge role in managing Earth’s climate by drawing down CO2 for photosynthesis every year. The new study suggests another fascinating way that these little critters are shaping our planet—by making it a tad brighter. Averaged over the year, the researchers find that phytoplankton reflect an extra 4 watts of incoming solar radiation per square meter in the Southern Ocean skies. Clouds form when droplets of water condense out of the air around tiny particles— specks of salt, dust, dead organic matter, and even living microorganisms.

Turns out, particle size has a direct impact on cloud brightness: Smaller particles form smaller droplets, creating more surface area within the cloud to reflect back incoming sunlight, which in turn helps keep the Earth’s surface cooler. The researchers stumbled upon cloud-forming microbes somewhat by accident, while they were looking at cloud cover data captured by NASA’s Earth-orbiting MODIS satellite over the Southern Ocean in 2014. The team discovered that Southern Ocean clouds were reflecting more sunlight in the summer, suggesting a greater abundance of small cloud-forming particles. This was a bit weird, because the Southern Ocean surface waters are actually much calmer in the summer and send up less salt spray into to the atmosphere.

The new study took a closer look at what else could be making the clouds more reflective. Using ocean biology models and data on cloud droplet concentrations, the team identified marine life as the likely culprit. Phytoplankton emit gases such as dimethyl sulfide (the stuff that gives the ocean its distinctly sulfurous smell), which, once airborne, can also help condense water droplets. What’s more, summertime plankton blooms form a bubbly scum of tiny organic particles that are easily whipped up into the air. Taken together, these two biological pathways double the number of tiny droplets in Southern Ocean skies during the summer. The Southern Ocean, isolated from human pollution, offers us a glimpse into what skies around the world might have looked like in pre-industrial times. How much of an impact biological cloud seeding has on Earth’s global climate remains to be seen.

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Jul 182015
 
 July 18, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Harris&Ewing State, War & Navy Building, Washington DC 1917

Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)
Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)
Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)
China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)
China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)
Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)
Wolfgang Schäuble, The Trust Troll (Steve Keen)
Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)
Greece, Europe, and the United States (James K. Galbraith)
The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)
Blame the Banks (The Atlantic)
Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)
Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)
Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)
Greece Made The Wrong Choice (John Lloyd)
The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)
The End Of Capitalism Has Begun (Paul Mason)
The Freakish Year in Broken Climate Records (Bloomberg)

Absolutely must see Farage video.

Those In Power Will Risk War And Civil Unrest To Preserve It (Martin Armstrong)

Nigel Farage may be the only practical politician these days because he came from the trading sector. He explains the Euro-Project and its failures. He makes it clear that the Greek people never voted to enter the euro, and explains that it was forced upon them by Goldman Sachs and their politicians. Nigel also explains that the Euro project idea that a trade and economic union would then magically produce a political union – the United States of Europe and eliminate war. He has warned that the idea of a political union would end European wars has actually turned Europe into a rising resentment in where there is now a new Berlin Wall emerging between Northern and Southern Europe.

The Euro project was a delusional dream for it was never designed to succeed but to cut corners all in hope of creating the United States of Europe to challenge the USA and dethrone the dollar, That dream has turned into a nightmare and will never raise Europe to that lofty goal of the financial capitol of the world. The IMF acts as a member of the Troika, yet has no elected position whatsoever. The second unelected member is Mario Draghai of the ECB. Then the head of Europe is also unelected by the people. The entire government design is totally un-Democratic and therein lies the crisis.

Not a single member of the Troika ever needs to worry about polls since they do not have to worry about elections. This is authoritarian government if we have ever seen one. The ECB attempts by sheer force to manipulate the economy with zero chance of success employing negative interest rates and defending banks as the (former?) Goldman Sachs man Mario Draghai dictates. Now, far too many political jobs have been created in Brussels. This is no longer about what is best for Europe, it is what is necessary to retain government jobs. The Invisible Hand of Adam Smith works even in this instance – those in power are only interested in their self-interest and will risk war and civil unrest to maintain their failed dreams of power.

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If true, a main argument for Greece.

Irish €14.3 Billion Payments To Bank Bondholders May Have Been Avoidable (TFM)

The legal advisor to the former government has said it WOULD have been legally possible to burn the bondholders of Ireland’s banks, without customers having to lose their deposits. The advice from the former attorney general Paul Gallagher appears to contradict the claims of some former ministers. Ministers in the former administration have consistently claimed that it would have been impossible to ‘burn’ bondholders without also enforcing a haircut on deposits, because the two were considered legally equal. However today Mr Gallagher has said that although it would have been difficult, it was legally possible to break this link and enforce losses on bondholders without depositors also taking a hit.

He said this had also been accepted by the Troika – but that the lenders simply refused to allow any burden-sharing under the bailout programme, making the prospect obsolete. Unsecured senior bondholders were paid around €14.3 billion under the period of the bank guarantee – much of it as a result of the state’s huge investment in the banking sector. Mr Gallagher’s evidence seems to suggest that these payments could have been avoided without depositors also facing any losses, but for the Troika’s stance.

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If Argentina can do it…

Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts (BBG)

Argentina’s fight with foreign banks and bondholders is more than just business. It’s part of the national psyche, enshrined in a special museum at the business school at the University of Buenos Aires. The Museum of Foreign Debt is nothing fancy. There are a few flimsy panels plastered with grainy photos, dates, text, and graphs. Oh, but the saga portrayed on those panels! Banks, bond investors, and the International Monetary Fund flood crooked regimes with overpriced credit. The Argentine economy collapses, and the people suffer. International markets are roiled. It happens time and time again. The story has all the emotions of a good tango. Argentina has reneged on foreign debt obligations at least seven times, starting in 1827.

The latest was in July 2014, when Argentina defaulted rather than give in to pressure from Paul Singer of Elliott Management. The fight with Singer has been going on for a dozen years, and the term vulture investor—rather esoteric in much of the world—is now pretty much universally known in Argentina. It’s so much on people’s minds that Buenos Aires toy stores carry a homegrown board game called Vultures, packaged in a box depicting a pair of the birds picking at a pile of dollars. “We planted the anti-vulture flag in the world,” President Cristina Fernández de Kirchner said in a speech in mid-May. “We gave a name to international usury and despotism.” One May morning at the debt museum, guide Antonella Fagnano, a 21-year-old business major, describes Argentines’ attitude toward default.

She pauses by a black-and-white photo of the late General Jorge Videla, who led a 1976 coup that ushered in a seven-year dictatorship. Successive presidents in that period loaded up on foreign debt to finance, among other things, the 1982 Falklands War with the U.K. Today’s Argentina, Fagnano says, has no moral obligation to make good on debts like those. In fact, it would be wrong to pay. “Foreigners financed a lot of leaders, like these dictators. They didn’t do what they were supposed to do with the money, and left future generations the debt,” she says, shaking her head. “So, of course, you cannot allow that.” Fernandez is nearing the end of her term, and it doesn’t look like things will change under the next president. Daniel Scioli, the front-runner for October elections, vows to carry on the fight against paying the vultures in full.

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And counting.

China Unleashes $483 Billion to Stem the Market Rout (Bloomberg)

China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

That’s probably enough to restore confidence among China’s 90 million individual investors, says Bocom International Holdings Co. The Shanghai Composite Index jumped 3.5 % on Friday, capping a two-week rally that’s turned it into one of the world’s best-performing equity gauges. “It doesn’t have to use up all the money, as long as it can make the rest of the market believe that it has enough ammunition,” said Hao Hong, a China strategist at Bocom International in Hong Kong. “It is a game of chicken. For now, it seems to be working.” CSF, founded in 2011 to provide funding to the margin-trading businesses of Chinese brokerages, has transformed into one of the key government vehicles to combat a 32 % selloff in the Shanghai Composite from mid-June through July 8.

At 3 trillion yuan, its funding would be about five times bigger than the new proposed bailout for Greece and exceed China’s 2.3 trillion yuan of regulated margin financing during the height of the stock-market boom last month. “What the authorities are demonstrating to the market is that if panic does take hold, they have the resources at their disposal to deal with that,” said James Laurenceson, the deputy director of the Australia-China Relations Institute at the University of Technology in Sydney. “Monetary authorities around the word regularly send the same signal in credit and foreign exchange markets.”

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“Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral.”

China Destroyed Its Stock Market In Order To Save It (Patrick Chovanec)

During the Vietnam War, surveying the shelled wreckage of Ben Tre, an American officer famously remarked, “It became necessary to destroy the town to save it.” His comment came to epitomize the sort of self-defeating “victory” that undoes what it aims to achieve. Last week, China destroyed its stock market in order to save it. Faced with a crash in share prices from a bubble of its own making, the Chinese government intervened ruthlessly, and recklessly, to turn those prices around. Its heavy-handed approach seemed to work, for the moment, but only by severely damaging far more important goals and ambitions. Prior to the crash, China’s stock market had enjoyed a blissful disconnect from reality. As China’s economy slowed and corporate profits declined, share prices soared, nearly tripling in just 12 months.

By the peak, half the companies listed on the Shanghai and Shenzhen exchanges were priced above a preposterous 85-times earnings. It was a clear warning flag — one that Chinese regulators encouraged people to ignore. Then reality caught up. At first, when prices began to fall, the central bank responded by cutting interest rates and bank reserve requirements — measures to inject more money that had never failed to juice the market. But prices continued to fall. Then the government rallied the major brokerages to form a $19 billion fund to buy shares and waded directly into the market to buy stocks too. A few stocks rose, but most fell even further. The relentless crash was intensified by a new factor in Chinese markets: margin lending.

Chinese punters were borrowing in large sums, from both brokerages and more shadowy sources — like “umbrella trusts” and peer-to-peer lending websites — to buy shares, with the shares themselves as collateral. At the peak, according to Goldman Sachs, formal margin lending alone accounted for 12% of the market float and 3.5% of China’s GDP, “easily the highest in the history of global equity markets.” Margin loans served as rocket fuel for the market on its way up, but prices began to fall and borrowers received “margin calls” that forced them to liquidate their positions, pushing prices down further in a kind of death spiral.

Chinese regulators, who had been trying (ineffectually) to rein in risky margin lending, now suddenly reversed course. They waved rules requiring brokerages to ask for more collateral when stock prices fall and allowed them to accept any kind of asset — including people’s homes — as collateral for stock-buying loans. They also encouraged brokerages to securitize and sell their margin-lending portfolios to the public so that they could go out and make even more loans. All these steps knowingly exposed major financial institutions, and their customers, to much greater risk. Yet no one will borrow if no one is confident enough to buy, and the market continued to fall, wiping out nearly all its gains since the start of the year.

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The deal “has an ownership problem for Tsipras and the Greeks in general..”

Greece’s Tsipras Shakes Up Cabinet in Bid to Rebuild Government (Bloomberg)

Greek Prime Minister Alexis Tsipras replaced some ministers in a cabinet reshuffle after almost a quarter of his lawmakers rejected measures he agreed on with creditors to keep the country in the euro. The prime minister’s office said Friday that Panagiotis Skourletis will replace Panagiotis Lafazanis, who heads the Left Platform fraction of Tsipras’s Syriza party, as energy minister. George Katrougalos will succeed Panagiotis Skourletis as labor minister. The Greek parliament in the early hours of Thursday backed the deal with creditors, needed to unblock further financing aid, with decisive votes from the opposition. With 38 of 149 Syriza lawmakers refusing to support further spending cuts and tax increases, that marked a blow for Tsipras, who came to power on an anti-austerity platform in January.

Tsipras told his associates after the parliament vote that he would be forced to lead a minority government until a final deal with creditors is concluded. The European Union finalized a €7.2 billion bridge loan to Greece on Friday that will help provide the debt-ravaged nation with a stop-gap until its full three-year bailout is settled. In all, 64 of the parliament’s 300 lawmakers voted against the bill. Half of the “no” votes came from Syriza, including from Lafazanis and former Finance Minister Yanis Varoufakis. Finance Minister Euclid Tsakalotos, called in by Tsipras to replace Varoufakis before the final bailout negotiations, discussed on Friday with Joseph Stiglitz, a Nobel-prize winning economist, about the difficulties expected in the implementation of the deal with Greece’s creditors.

The deal “has an ownership problem for Tsipras and the Greeks in general,” said Paolo Manasse, a professor of economics at the University of Bologna, Italy. “It’s a liberal program to be carried out by a radical-left premier and imposed on a country that’s just voted no in a referendum.”

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“To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish.”

Wolfgang Schäuble, The Trust Troll (Steve Keen)

Paul Krugman invented the term “confidence fairy” to characterize the belief that all that was needed for growth to resume after the Global Financial Crisis was to restore ‘confidence’. Impose austerity and the economy will not shrink, but will instead grow immediately, because of the boost to confidence:

.. don’t worry: spending cuts may hurt, but the confidence fairy will take away the pain. The idea that austerity measures could trigger stagnation is incorrect, declared Jean-Claude Trichet, the president of the European Central Bank, in a recent interview. Why? Because confidence-inspiring policies will foster and not hamper economic recovery. ( Myths of Austerity , July 1 2010)

To the Confidence Fairy we can now add the ‘Trust Troll’ : appease the Trust Troll, and all your macroeconomic ills will magically vanish. The identity of the Confidence Fairy was never revealed, but the identity of the Trust Troll is obvious. It‘s German Finance Minister Wolfgang Schäuble. Schäuble was clearly the primary architect of the Troika’s dictat for Greece. One only has to compare its language to that used by Schäuble in his OpEd in the New York Times three months ago (Wolfgang Schäuble on German Priorities and Eurozone Myths , April 15 2015). There he stated that ‘My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings , and that the essential factor in ending the crisis was the restoration of trust:

The cure is targeted reforms to rebuild trust in member states finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick nor can it now.

Compare this to the first line of the communique:

The Eurogroup stresses the crucial need to rebuild trust with the Greek authorities as a pre requisite for a possible future agreement on a new ESM programme.

The policies in the document match those in Schäuble’s OpEd as well. Schäuble called for:

.. more flexible labor markets; lowering barriers to competition in services; more robust tax collection; and similar measures.

The Troika’s document forces these measures upon Greece. These include ‘the broadening of the tax base to increase revenue’, ‘rigorous reviews of collective bargaining, industrial action and collective dismissals’ and ‘ambitious product market reforms’. At the same time, Greece is required to aim to achieve a government surplus equivalent to 3.5% of GDP -the opposite of ‘spending more public money’ which Schäuble rejected in his OpEd. Rather than debt reduction and rescheduling as even the IMF now calls for, “The Euro Summit acknowledges the importance of ensuring that the Greek sovereign can clear its arrears to the IMF and to the Bank of Greece and honour its debt obligations”.

This cannot in any sense be seen as an economic document, since an economic document would have to assess the feasibility of its proposals. Instead it simply states Schäuble s ideology: regardless of your economic circumstances, simply implement these (so-called) market-oriented reforms, restore trust, and your economy will grow. With the government debt that Greece currently labours under, this is a fantasy. Even if Greece were to pay a mere 3% on its debt, interest payments alone would absorb over 5% of GDP. To do that, and run a primary surplus of 3.5% of GDP in an economy where 25% of the population is unemployed is simply impossible.

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Karl Whelan makes much the same point as Steve Keen: “..the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.”

Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean (Whelan)

After trying his best to chuck Greece out of the euro last weekend, Germany’s finance minister Schäuble has continued to openly undermine the deal that was agreed by European leaders and endorsed by the Greek parliament. A key argument he has been putting forward is that a debt write-down for Greece “would be incompatible with the currency union’s rules” but that such a write-down would be possible if Greece left the euro. While this claim is being widely repeated in the German press, the truth is it is really Grade-A concern trolling (“I’d love to help you guys but I can only do it if you leave the euro”) dressed up as legal argumentation.

The rules of the EU and Eurozone are so byzantine that it is quite easy to make false claims about these rules and get away with it. However, I do not believe there is anything in the European Union or Eurozone rules that would preclude a debt write-down inside the euro. The basis for Schäuble’s argument appears to be Article 125.1 of the consolidated treaty on the functioning of the EU. Here is the article in full.

The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project.

This is the article that used to be called “the no bailout clause”. However, it is nothing of the sort. It simply says that member states cannot take on the debts of another member state. This did not rule out member states “bailing out” other countries by making loans to them. And indeed, the European Court of Justice in its Pringle decision established that the European Stabilisation Mechanism bailout fund was consistent with Article 125. Also worth noting about Article 125 are all the things it doesn’t mention. It doesn’t rule out loans being member states and doesn’t discuss these loans being restructured. And it makes no mention whatsoever of the Eurozone. So there is simply no legal basis for the idea that Greek debt being written down is illegal while they remain in the Eurozone but is fine if they leave the euro.

It is conceivable that someone could still take a case to the ECJ objecting to a write-off on the grounds that the granting and write-off of loans to Greece would result in more debt for European countries and allowed Greece to pay off other creditors. So you could argue that this was effectively the same thing as the other member states assuming Greece’s other debt commitments. To my mind, this line of argumentation moves far away from the simple and clear language of Article 125.1. I also don’t see much in the Pringle decision to suggest the ECJ would uphold such a case. There would be even less case for a legal argument against an “effective write-off” involving postponing interest payments and principal payments for some very long period of time, such as 100 years.

So there is no “Eurozone rule” against a writing off Greek debt. Conversely, despite Schäuble’s enthusiastic support, the rules don’t allow for a euro exit. Rules it appears, mean whatever Mr. Schäuble wants them to mean.

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“After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that.”

Greece, Europe, and the United States (James K. Galbraith)

SYRIZA was not some Greek fluke; it was a direct consequence of European policy failure. A coalition of ex-Communists, unionists, Greens, and college professors does not rise to power anywhere except in desperate times. That SYRIZA did rise, overshadowing the Greek Nazis in the Golden Dawn party, was, in its way, a democratic miracle. SYRIZA’s destruction will now lead to a reassessment, everywhere on the continent, of the “European project.” A progressive Europe—the Europe of sustainable growth and social cohesion—would be one thing. The gridlocked, reactionary, petty, and vicious Europe that actually exists is another. It cannot and should not last for very long.

What will become of Europe? Clearly the hopes of the pro-European, reformist left are now over. That will leave the future in the hands of the anti-European parties, including UKIP, the National Front in France, and Golden Dawn in Greece. These are ugly, racist, xenophobic groups; Golden Dawn has proposed concentration camps for immigrants in its platform. The only counter, now, is for progressive and democratic forces to regroup behind the banner of national democratic restoration. Which means that the left in Europe will also now swing against the euro.

As that happens, should the United States continue to support the euro, aligning ourselves with failed policies and crushed democratic protests? Or should we let it be known that we are indifferent about which countries are in or out? Surely the latter represents the sensible choice. After all, Poland, the Czech Republic, Croatia, and Romania (not to mention Denmark and Sweden, or for that matter the United Kingdom) are still out and will likely remain so—yet no one thinks they will fail or drift to Putin because of that. So why should the euro—plainly now a fading dream—be propped up? Why shouldn’t getting out be an option? Independent technical, financial, and moral support for democratic allies seeking exit would, in these conditions, help to stabilize an otherwise dangerous and destructive mood.

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The story comes from everywhere now: non-euro countries fare much better than euro nations. Even in Germany, workers are being stiffed.

The Euro Is A Disaster Even For The Countries That Do Everything Right (WaPo)

The euro might be worse for you than bankruptcy. That, at least, has been the case for Finland and the Netherlands, which have actually grown less than Iceland has since 2007. Iceland, you might recall, went bankrupt in 2008. Now, it’s true that Finland and the Netherlands have had their fair share of economic problems, but those should have been manageable. Neither country is a basket case, and both have done what they were supposed to do. In other words, they’ve followed the rules, and the results have still been a catastrophe. That’s because the euro itself is. Or, if you want to be polite, the common currency is “imperfect, and being imperfect is fragile, vulnerable, and doesn’t deliver all the benefits it could.” That was ECB chief Mario Draghi’s verdict on Thursday.

So what’s happened to them? Well, just your run-of-the-mill bad economic news. It’s only a slight exaggeration to say that Apple has kneecapped Finland’s economy. Its two biggest exports were Nokia phones and paper products, but, as the country’s former prime minister Alex Stubb has said, the iPhone killed the former and the iPad killed the latter. Now, the normal way to make up for this would be to cut costs by devaluing your currency, except that Finland doesn’t have a currency to devalue anymore. It has the euro. So instead it’s had to cut costs by cutting wages, which not only takes longer, but also causes more economic damage since you have to fire people to convince them to take pay cuts. The result has been a recession longer than anything in Finland’s living memory, longer even than its great depression in the early 1990s. It hasn’t helped, of course, that the rules of the euro zone have forced Finland’s government to cut its budget at the same time that all this has been happening.

It’s been a different kind of story in the Netherlands. Its goods are more than competitive abroad—its trade surplus is an absurd 10 % of economic output—but its domestic spending is a problem. The Netherlands had a huge housing bubble, fueled, in part, by the fact that interest payments are fully tax deductible, that has since deflated some 20%. That’s left Dutch households with a bigger debt burden than anyone else in the euro zone. On top of that, there’s been the usual austerity to keep its recovery from being much—or any—of one. Indeed, the Netherlands’ economy was slightly smaller at the end of 2014 than it was at the end of 2007. That’s a lot better than Finland, whose economy has shrunk 5.2% during that time, but it still lags the 1.1% growth Iceland has eked out.

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Excellent.

Blame the Banks (The Atlantic)

In buying various assets European banks were doing what banks are supposed to do: lending. But by doing so without caution they were doing exactly what banks are not supposed to do: lending recklessly. The European banks weren’t lending recklessly to only the U.S. They were also aggressively lending within Europe, including to the governments of Spain, Portugal, and Greece. In 2008, when the U.S. housing market collapsed, the European banks lost big. They mostly absorbed those losses and focused their attention on Europe, where they kept lending to governments—meaning buying those countries’ debt—even though that was looking like an increasingly foolish thing to do:

Many of the southern countries were starting to show worrying signs. By 2010 one of those countries—Greece—could no longer pay its bills. Over the prior decade Greece had built up massive debt, a result of too many people buying too many things, too few Greeks paying too few taxes, and too many promises made by too many corrupt politicians, all wrapped in questionable accounting. Yet despite clear problems, bankers had been eagerly lending to Greece all along. That 2010 Greek crisis was temporarily muzzled by an international bailout, which imposed on Greece severe spending constraints. This bailout gave Greece no debt relief, instead lending them more money to help pay off their old loans, allowing the banks to walk away with few losses.

It was a bailout of the banks in everything but name. Greece has struggled immensely since then, with an economic collapse of historic proportion, the human costs of which can only be roughly understood. Greece needed another bailout in 2012, and yet again this week. While the Greeks have suffered, the northern banks have yet to account financially, legally, or ethically, for their reckless decisions. Further, by bailing out the banks in 2010, rather than Greece, the politicians transferred any future losses from Greece to the European public. It was a bait-and-switch rife with a nationalist sentiment that has corrupted the dialogue since: Don’t look at our reckless banks; look at their reckless borrowing.

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Legalese.

Greece’s Debt Can Be Written Off – Whatever Wolfgang Schäuble Says (Guardian)

A vote in the Greek parliament means little to Germany’s finance minister, Wolfgang Schäuble. The self-appointed guardian of the EU’s financial rulebook says Athens can vote as many times as it likes in favour of a deal that promises, even in the vaguest terms, to write off some of its colossal debts, but that doesn’t mean the rules allow it. In fact, as Schäuble delights in pointing out, any attempt at striking out Greek debt is, according to his advice, illegal. Yet Schäuble knows Greece’s debts are unsustainable unless some of them are written off – he has said as much on several occasions. So faced with its internal contradictions, he posits that the deal must fail and the poorly led Greeks exit the euro.

As a compromise, he repeated his suggestion on Tuesday that Greece leave the euro temporarily. Those who care more for maintaining the current euro currency bloc as a 19-member entity immediately spotted this manoeuvre as a one-way ticket with no way back for Greece. The Austrian chancellor, Werner Faymann, a centre-left social democrat, said Schäuble was “totally wrong” to create the impression that “it may be useful for us if Greece falls out of the currency union, that maybe we pay less that way”. Faymann, who has consistently taken a sympathetic line on Greece, showed his growing irritation at the German minister’s stance: “It’s morally not right, that would be the beginning of a process of decay … Germany has taken on a leading role here in Europe and in this case not a positive one.”

Greece and Faymann’s problem is that there are plenty of other forces at play pulling at the loose threads of the latest bailout deal. The IMF has said a big debt write-off is needed to prevent a proposed €86bn deal collapsing under the sheer weight of future liabilities and a reluctance in Greece to carry through reforms.

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Bernanke weighs in.

Greece And Europe: Is Europe Holding Up Its End Of The Bargain? (Ben Bernanke)

This week the Greek parliament agreed to European demands for tough new austerity measures and structural reforms, defusing (for the moment, at least) the country’s sovereign debt crisis. Now is a good time to ask: Is Europe holding up its end of the bargain? Specifically, is the euro zone’s leadership delivering the broad-based economic recovery that is needed to give stressed countries like Greece a reasonable chance to meet their growth, employment, and fiscal objectives? Over the longer term, these questions are evidently of far greater consequence for Europe, and for the world, than are questions about whether tiny Greece can meet its fiscal obligations.

Unfortunately, the answers to these questions are also obvious. Since the global financial crisis, economic outcomes in the euro zone have been deeply disappointing. The failure of European economic policy has two, closely related, aspects: (1) the weak performance of the euro zone as a whole; and (2) the highly asymmetric outcomes among countries within the euro zone. The poor overall performance is illustrated by Figure 1 below, which shows the euro area unemployment rate since 2007, with the U.S. unemployment rate shown for comparison.

In late 2009 and early 2010 unemployment rates in Europe and the United States were roughly equal, at about 10% of the labor force. Today the unemployment rate in the United States is 5.3%, while the unemployment rate in the euro zone is more than 11%. Not incidentally, a very large share of euro area unemployment consists of younger workers; the inability of these workers to gain skills and work experience will adversely affect Europe’s longer-term growth potential. The unevenness in economic outcomes among countries within the euro zone is illustrated by Figure 2, which compares the unemployment rate in Germany (which accounts for about 30% of the euro area economy) with that of the remainder of the euro zone.

Currently, the unemployment rate in the euro zone ex Germany exceeds 13%, compared to less than 5% in Germany. Other economic data show similar discrepancies within the euro zone between the “north” (including Germany) and the “south.” The patterns illustrated in Figures 1 and 2 pose serious medium-term challenges for the euro area. The promise of the euro was both to increase prosperity and to foster closer European integration. But current economic conditions are hardly building public confidence in European economic policymakers or providing an environment conducive to fiscal stabilization and economic reform; and European solidarity will not flower under a system which produces such disparate outcomes among countries.

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How Wolfie asset-stripped East Germany.

Why Is Germany So Tough On Greece? Look Back 25 Years (Guardian)

It was 25 years ago, during the summer of 1990, that Schäuble led the West German delegation negotiating the terms of the unification with formerly communist East Germany. A doctor of law, he was West Germany’s interior minister and one of Chancellor Helmut Kohl’s closest advisers, the go-to guy whenever things got tricky. The situation in the former GDR was not too dissimilar from that in Greece when Syriza swept to power: East Germans had just held their first free elections in history, only months after the Berlin Wall fell, and some of the delegates from East Berlin dreamed of a new political system, a “third way” between the west’s market economy and the east’s socialist system – while also having no idea how to pay the bills anymore.

The West Germans, on the other side of the table, had the momentum, the money and a plan: everything the state of East Germany owned was to be absorbed by the West German system and then quickly sold to private investors to recoup some of the money East Germany would need in the coming years. In other words: Schäuble and his team wanted collateral. At that time almost every former communist company, shop or petrol station was owned by the Treuhand, or trust agency – an institution originally thought up by a handful of East German dissidents to stop state-run firms from being sold to West German banks and companies by corrupt communist cadres. The Treuhand’s mission: to turn all the big conglomerates, companies and tiny shops into private firms, so they could be part of a market economy.

Schäuble and his team didn’t care that the dissidents had planned to hand out shares of companies to the East Germans, issued by the Treuhand – a concept that incidentally led to the rise of the oligarchs in Russia. But they liked the idea of a trust fund because it operated outside the government: while technically overseen by the finance ministry, it was publicly perceived as an independent agency. Even before Germany merged into a single state in October 1990, the Treuhand was firmly in West German hands. Their aim was to privatise as many companies as possible, as soon as possible – and if you were to ask most Germans about the Treuhand today they would say it achieved that objective. It didn’t do so in a way that was popular with the people of East Germany, where the Treuhand quickly became known as the ugly face of capitalism. It did a horrible job in explaining the transformation to shellshocked East Germans who felt overpowered by this strange new agency. To make matters worse, the Treuhand became a hotbed of corruption.

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“As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?”

Greece Made The Wrong Choice (John Lloyd)

Former Greek Finance Minister Yanis Varoufakis has, as Macbeth put it, “strutted and fretted his hour upon the stage.” But he will still be heard some more. While Prime Minister Alexis Tsipras pleaded for support Wednesday for a European Union “rescue” plan in which he said he didn’t believe, Varoufakis was busy ripping it apart. In a widely circulated blog, Varoufakis boiled down his belief to this: Greece had been reduced to the status of a slave state. While his words were clearly driven by anger and spite, he’s not entirely out of line. The agreement is, as Tsipras said, a kind of blackmail. The economist Simon Tilford described it as an order to “acquiesce to all our demands or we will evict you from the currency union.”

Pensions will be cut further, labor markets liberalized, working lives extended, collective bargaining “modernized,” and hiring and firing made easier. For a government that takes its inspiration from Karl Marx, this is a neo-liberal dousing. There are few enthusiasts for the deal: the most important of the skeptics is the IMF, which called for the euro zone creditors to allow a partial write-off of its €300+ billion debt, or at least permit a repayment pause for 30 years. In an ironic twist, the IMF, the creditor the Tsipras government most despised, is now its (partial) friend. Skeptics have focused not just on the impossibility of debt repayment, but also on the deepening poverty that will result from the agreement.

Francois Cabeau, an economist in Barclays Bank, told the French daily Figaro that the economy would continue to shrink by between 6 and 8% a year. Because the Greek economy has so few sectors where significant value is added other than shipping and tourism, it depends heavily on consumption — which is being further cut, thus prompting a vicious cycle and a further immiseration of the poor, elderly and sick. These conditions validate Varoufakis’ analysis. Greece is a country so firmly under the unremitting pressure of its creditors and so tied to foreign demands, that it may soon resemble an East European communist state in the high tide of Soviet power. Like two of these states — Hungary in 1956, Czechoslovakia in 1968 — Syriza made a failed attempt at a revolt, and was crushed.

[..] So should it leave the euro zone? The objections to a Grexit are twofold: first, that its currency — presumably a newly issued drachma — would be walloped by an unfavorable exchange rate as a result. Foreign goods and foreign travel would be priced out of many families’ reach. At the same time, as euro zone leaders have warned continually, a Grexit would also shake the euro to its foundations — and though the remaining 18 members could be protected, a precedent would be set that this is a contingent currency, with membership dependent on national conditions. That it would be bad is certain: but how much worse than staying in and swallowing bitter medicine? As for the future of the euro, it would no longer be the Greeks’ problem. What, they may say, has the euro done for us?

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“The key (overlooked) question here is: Is this EU reflecting Europeans’ will? ”

The Greek Crisis Represents The Humiliation Of European Democracy (Andrea Mammone)

Fears, disillusionment, uncertainty, and astonishment are mixed together by the hot wind blowing from Greece and the cold rain coming from some of Northern Europe. No, it is not a weather forecast. After the Greek referendum and the recent night-long negotiations, these are the feelings of many people across Europe. Even if the reality will probably be less apocalyptic, the truth is that democracy is being ridiculed around the EU. Some media from all around the world are, in fact, suggesting that Greece has been excessively humiliated and there is a strong attempt to force it out from the Eurozone. And this is not merely because one of the proposals from the summit stated that €50bn of Greek assets had to be handed over to an institution fundamentally controlled by Berlin.

These days Greece has been constantly at the centre of Europe’s microcosm. The “mother” of western democracy and inner culture, according to some, has to learn the lesson. It is a matter of mere power. They rejected austerity, potentially provoking another European downturn, and a default with unclear outcomes. Stories of poverty and unemployment are indeed in the eyes of everyone willing to see them. The situation is undermining the future of the European community. It is not simply opening the way for member states to be essentially pushed out by the strongest ones. Referring to the Greek early approach and a possible “exit”, EU Commission president Jean-Claude Juncker said that he could not “pull a rabbit out of a hat”. This is very true.

But early post-war politicians pulled many rabbits out when Europe had to be rebuilt after the war, and so one would expect a similar proficiency. This contemporary generation of European leaders might be instead remembered like the one leading to the disappearance of many transnational bonds established by Europeans. Europe is, then, really navigating with no compass. It has not a single voice. Socially, there seems to be no concern with people’s living standards. Politically, they lack any preoccupations with geo-politics, as some of the Mediterranean might fall under Putin’s influence. Budget and austerity are the main interests. As Pierre Moscovici, the socialist EU economic commissioner, in fact, put it, the “integrity” of the Eurozone has been saved with the novel agreement.

The key (overlooked) question here is: Is this EU reflecting Europeans’ will? Its image (and also Germany’s image) is seriously damaged even if all Greeks voted yes. For this reason the statement by the German European MP and chairman of the leading centre-right European People’s Party, Manfred Weber, that Europe is “based on solidarity, not a club of egoists” looks highly paradoxical, especially after what it is happening to Greece.

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From Mason’s upcoming new book. Lots of technohappiness.

The End Of Capitalism Has Begun (Paul Mason)

The 2008 crash wiped 13% off global production and 20% off global trade. Global growth became negative – on a scale where anything below +3% is counted as a recession. It produced, in the west, a depression phase longer than in 1929-33, and even now, amid a pallid recovery, has left mainstream economists terrified about the prospect of long-term stagnation. The aftershocks in Europe are tearing the continent apart. The solutions have been austerity plus monetary excess. But they are not working. In the worst-hit countries, the pension system has been destroyed, the retirement age is being hiked to 70, and education is being privatised so that graduates now face a lifetime of high debt. Services are being dismantled and infrastructure projects put on hold.

Even now many people fail to grasp the true meaning of the word “austerity”. Austerity is not eight years of spending cuts, as in the UK, or even the social catastrophe inflicted on Greece. It means driving the wages, social wages and living standards in the west down for decades until they meet those of the middle class in China and India on the way up. Meanwhile in the absence of any alternative model, the conditions for another crisis are being assembled. Real wages have fallen or remained stagnant in Japan, the southern Eurozone, the US and UK. The shadow banking system has been reassembled, and is now bigger than it was in 2008. New rules demanding banks hold more reserves have been watered down or delayed. Meanwhile, flushed with free money, the 1% has got richer.

Neoliberalism, then, has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody. That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.

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“This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.”

The Freakish Year in Broken Climate Records (Bloomberg)

The annual State of the Climate report is out, and it’s ugly. Record heat, record sea levels, more hot days and fewer cool nights, surging cyclones, unprecedented pollution, and rapidly diminishing glaciers.
The U.S. National Oceanic and Atmospheric Administration (NOAA) issues a report each year compiling the latest data gathered by 413 scientists from around the world. It’s 288 pages, but we’ll save you some time. Here’s a review, in six charts, of some of the climate highlights from 2014.

1. Temperatures set a new record It’s getting hot out there. Four independent data sets show that last year was the hottest in 135 years of modern record keeping. The map above shows temperature departure from the norm. The eastern half of North America was one of the few cool spots on the planet.

2. Sea levels also surge to a record The global mean sea level continued to rise, keeping pace with a trend of 3.2 millimeters per year over the last two decades. The global satellite record goes back only to 1993, but the trend is clear and consistent. Rising tides are one of the most physically destructive aspects of climate change. Eight of the world’s 10 largest cities are near a coast, and 40 % of the U.S. population lives in coastal areas, where the risk of flooding and erosion continues to rise.

3. Glaciers retreat for the 31st consecutive year Data from more than three dozen mountain glaciers show that 2014 was the 31st straight year of glacier ice loss worldwide. The consistent retreat of glaciers is considered one of the clearest signals of global warming. Most alarming: The rate of loss is accelerating over time.

4. There are more hot days and fewer cool nights Climate change doesn’t just increase the average temperature—it also increases the extremes. The chart above shows when daily high temperatures max out above the 90th %ile and nightly lows fall below the lowest 10th %ile. The measures were near their global records last year, and the trend is consistently miserable.

5. Record greenhouse gases fill the atmosphere By burning fossil fuels, humans have cranked up concentrations of carbon dioxide in the atmosphere by more than 40 % since the Industrial Revolution. Carbon dioxide, the most important greenhouse gas, reached a concentration of 400 parts per million for the first time in May 2013. Soon we’ll stop seeing concentrations that low ever again.
The data shown are from the Mauna Loa Observatory in Hawaii. Data collection was started there by C. David Keeling of the Scripps Institution of Oceanography in March 1958. This chart is commonly referred to as the Keeling curve.

6. The oceans absorb crazy amounts of heat The oceans store and release heat on a massive scale. Over shorter spans of years to decades, ocean temperatures naturally fluctuate from climate patterns like El Niño and what’s known as the Pacific Decadal Oscillation. Longer term, oceans are absorbing even more global warming than the surface of the planet, contributing to rising seas, melting glaciers, and dying coral reefs and fish populations. In 2015 the world has moved into an El Niño warming pattern in the Pacific Ocean. El Niño phases release some of the ocean’s stored heat into the atmosphere, causing weather shifts around the world. This El Niño hasn’t peaked yet, but by some measures it’s already the most extreme ever recorded for this time of year and could lead 2015 to break even more records than last year.

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 July 13, 2015  Posted by at 2:26 pm Finance Tagged with: , , , ,  13 Responses »
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Esther Bubley Watching parade to recruit civilian defense volunteers, Washington DC 1943

Personally, like most of you, I always thought Germany, besides all its other talents, good or bad, was a nation of solid calculus and accounting. Gründlichkeit. And that they knew a thing or two about psychology. But I stand corrected.

The Germans just made their biggest mistake in a long time (how about some 75 years) over the weekend. Now, when all you have to bring to a conversation slash negotiation is bullying and strong arming and brute force, that should perhaps not be overly surprising. But it’s a behemoth failure all by itself regardless.

First though, I want to switch to what Yanis Varoufakis told the New Statesman in an interview published today, because it’s crucial to what happened this weekend. Varoufakis talks about how he was pushing for a plan to introduce an alternative currency in Greece rather than giving in to the Troika. But Tsipras refused. And Yanis understands why:

“Varoufakis could not guarantee that a Grexit would work …

…[he] knows Tsipras has an obligation to “not let this country become a failed state”.

What this means is that Tsipras was told by the Troika behind closed doors, to put it crudely: “we’re going to kill your people”. He was made an offer he couldn’t refuse. And Tsipras could never take that upon himself, even though the deals now proposed will perhaps be worse in the medium to long term, even though it may cost him his career.

Criticism of the man is easy, but it all comes from people never put in that position. Varoufakis understands, and sort of hints he might have had second thoughts too if he were ever put in that position.

There’s not much that separates Schäuble and the EU from the five families that rule (used to rule?!) New York City. If you need proof of that, come to Athens and check out the devastated parts of the city. Germany and the Troika are as ruthless as the mob. Or, rather, they’re worse.

My point is, their attitude and antics will backfire. You can’t run a political and/or monetary union that way. And only fools would try.

The structure of the EU itself guarantees that Germany will always come out on top. But they can only stay on top by being lenient and above all fair, by letting the other countries share some of the loot.

To know how this works, watch Marlon Brando, as Don Corleone, talk to the heads of the five families in the Godfather. You need to know what to do to, as he puts it, “keep the peace”. He’s accepted as the top leader precisely because the other capos understand he knows how.

The Germans have shown that they don’t know this. And therefore, here comes a prediction, it’ll be all downhill from here for them. Germany’s period of -relative- economic strength effectively ended this weekend. The flaws in its economy will now be exposed, and the cracks will begin to show. If you want to be the godfather, the very first requirement is you need to be seen as fair. Or you will have no trust. And without trust you have nothing. It is not difficult.

Germany will never get a deal like the EU has been for them, again. It was the best deal ever. And now they blew it, and they have no-one to blame but themselves. And really, the Godfather metaphor is a very apt one, in more ways than one. Schäuble could never be the capo di tutti capi, no-one would ever trust him in that role. Because he’s not a fair man. But he still tries to play the role. Big mistake.

The people here in Greece are being forced to pay for years for something they were never a part of, and that they never profited from. The profits all went to a corrupt elite. And if there’s one thing Don Corleone could tell you, it’s that that’s a bad business model. Because it leads to war, to people being killed, to unrest, and all of that is bad for business.

I must admit, I thought the Germans were smarter than this. They’re not. That much is overly obvious now. No matter what happens next, deal or no deal on Greece, and that’s by no means a given yet, don’t let the headlines fool you, no matter what happens, Germany loses.

It’s not just about Greece, it’s about the whole EU. The Troika thinks that by scaring the living daylights out of the periphery, its power will increase. They even think it’ll work with France. Good luck with that. They’ll be facing Marine Le Pen soon, and Podemos, and M5S, and these antics will not work on them.

I guess the main thing here is that Don Corleone was not a psychopath or sociopath, and that’s more than you can say for Schäuble and Dijsselbloem and Juncker and their ilk. These people simply lack the social skills to lead any organization, because all they understand is power and force, and that is simply not enough. While brute force may look attractive and decisive and all, in the end it will be their undoing.

I’m sure the vast majority of them have seen the Godfather films, but they’ve just never understood what they depict; they don’t have the skillset for it.

Germany just killed its golden goose. And boy, is that ever stupid. They could have had -again, relative, we’re in a recession- peace and prosperity, and they’re blowing it all away.

Tsipras for obvious reasons cannot talk about the threats he’s been receiving, but he did give up some hints early this morning:

• “We took the responsibility for the decision to avert the most extreme plans by conservative circles in Europe..”

• “I promise you that as hard as we fought here, we will now fight at home, to finish the oligarchy which brought us to this state.”

• “We resisted demands for the transfer of state assets abroad and averted a banking collapse which had been meticulously planned.”

• “… decision to avert the most extreme plans by most extreme circles in Europe”

The Italians and Spanish and French have noted every word of this, and more. Europe as it is, is already over. Everything from here on in is a mere death rattle.