Jan 082016
 
 January 8, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  


Unknown Charleston, SC, after bombardment. Ruins of Cathedral of St John and St Finbar 1865

Slowing Productivity Fast Becoming A Global Problem (Lebowitz)
Dow, S&P Off To Worst Four-Day Jan Start Ever As China Fears Grow (Reuters)
US Stock Markets Continue Plunge (Guardian)
China Has Not One Insolvable Problem, But Many Of Them (Mish)
Capital Flight Pushes China To The Brink Of Devaluation (AEP)
China Stocks Rebound as State Funds Said to Buy Equities (BBG)
China’s Yuan Fixing Calms Markets as Asian Stocks Rally With Oil (BBG)
The Decline Of The Yuan Destroys Belief In Central Banking (Napier)
One Big Market Casualty: China Regulators’ Reputation (CNBC)
China Orders Banks To Limit Dollar Buying This Month To Stem Outflows (CNBC)
Yuan Depreciation Risks Competitive Devaluation Cycle (Reuters)
China’s Forex Reserves Post Biggest Monthly Drop On Record (Xinhua)
China’s Stock Market Is Hardly Free With Circuit Breakers Gone (BBG)
Iran Severs All Commercial Ties With Saudi Arabia (Reuters)
Saudi Arabia Considers IPO For World’s Biggest Energy Company Aramco (Guardian)
VW Weighs Buyback of Tens of Thousands of Cars in Talks With US (BBG)
Human Impact Has Pushed Earth Into The Anthropocene (Guardian)
Europe’s Economy Faces Confidence Test as Borderless Ideal Fades (BBG)
Turkey Does Nothing To Halt Refugee Flows, Says Greece (Kath.)

We’ve reached the end of a line. Not even the narrative works from here.

Slowing Productivity Fast Becoming A Global Problem (Lebowitz)

In “The Fed And Its Self-Defeating Monetary Policy” we focused our discussion on U.S. productivity, but weak and slowing productivity growth is not just an American problem. All of the world’s leading economies are, to varying degrees, exhibiting the same worrisome pattern. And slowing productivity is something investors across asset classes should pay attention to in 2016. The graph below compares annualized productivity trends from three time periods – the 7 years immediately preceding the financial crisis, the 5 years immediately following the crisis, and the 2 most recently reported years (2013 and 2014). The black dots display the change in trend from pre to post crisis.

In all cases the black dots are below zero representing slowing productivity growth. More troublesome, the world’s largest economies are most recently reporting either negligible productivity growth or a decline in productivity. Assuming that demographics are already “baked” and debt has been over-used to produce non-productive growth since well before the crisis, good old-fashioned productivity gains are what the global economy requires to produce durable organic growth in the developed world. Central bankers, politicians and investors are well advised to understand this dynamic.

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Jobs numbers today will be big.

Dow, S&P Off To Worst Four-Day Jan Start Ever As China Fears Grow (Reuters)

U.S. stocks sold off further on Thursday, giving the Dow and S&P 500 their worst four-day starts to a year ever, dragged down by another drop in Chinese equities and oil prices at 12-year lows. China allowed the biggest fall in its yuan currency in five months, adding to investor fears about the health of its economy, while Shanghai stocks were halted for the second time this week after another steep selloff. Oil prices fell to 12-year lows and copper prices touched their lowest since 2009, weighing on energy and materials shares. Shares of Freeport McMoran dropped 9.1% to $5.61. All 10 S&P 500 sectors ended in the red, though, and the Nasdaq Biotech index fell 4.1%. “People see the weakness in China and in the overall equity market and think there’s going to be an impact on corporations here in the United States,” said Robert Pavlik at Boston Private Wealth in New York.

“When you have a market that begins a year with weakness, people are sort of suspect anyway. The economy isn’t moving all that well, the outlook is modest at best, and they don’t want to wait for the long term. China creates more uncertainty.” The Dow Jones industrial average closed down 392.41 points, or 2.32%, to 16,514.1, the S&P 500 had lost 47.17 points, or 2.37%, to 1,943.09 and the Nasdaq Composite had dropped 146.34 points, or 3.03%, to 4,689.43. The Dow has lost 5.2% since the end of 2015 in the worst first four trading days since the 30-stock index was created in 1928. The S&P 500 is down 4.9% since Dec. 31, its worst four-day opening in its history, according to S&P Dow Jones Indices, while the Nasdaq is down 6.4%.

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Serious losses and serious jitters.

US Stock Markets Continue Plunge (Guardian)

US stocks continued to fall on Thursday as fears of an economic slowdown in China spooked investors around the world. The Dow Jones industrial average fell 392.41 points, or 2.32%, capping its worst four-day start to a year in more than a century. The S&P 500 posted its largest daily drop since September, losing 47.17 points, or 2.37%, to 1,943.09 and the Nasdaq Composite dropped 146.34 points, or 3%, to 4,689.43. The falls followed another day of turmoil on the world’s stock markets amid more signs that the Chinese economy is slowing. China moved early to try to head off more panic, scrapping a new mechanism that Beijing had initially hoped would prevent sharp selloffs.

Beijing suspended the use of “circuit breakers” introduced to halt trading after dramatic selloffs. The circuit breakers appear to have exacerbated the selloffs, as would-be sellers waited for the markets to open again in order to sell. The decision came after the breaker was tripped for the second time in a week as the market fell 7% within half an hour of opening. Signs of problems in the world’s second largest economy triggered selling in Europe. The German DAX was the worst performer, falling 2.29%, as manufacturing firms were hit by fears about China’s impact on the global economy. In London the FTSE 100 staged a late rally but still ended the day down 119 points, or 1.96%, at 5,954. That’s a three-week low, which wipes around £30bn ($43.86bn) off the index.

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Well put.

China Has Not One Insolvable Problem, But Many Of Them (Mish)

Yuan and Capital Flight
• China needs to prop up the yuan to slow capital flight.
• China needs to let the yuan drop to support exports.
• China needs to float the yuan and remove capital controls to prove it really deserves to be taken seriously as a reserve currency.
• If the yuan sinks, capital flight will increase and China risks the ire of US congress and those play into protectionist sentiment, notably Donald Trump.
• Artificial stabilization of the yuan will do nothing but create an oversized move down the road as we saw in Switzerland.

SOEs and Malinvestments
• China needs to write off malinvestments in state owned enterprises (SOEs).
• If China does write off malinvestments in SOEs it will harm those investing in them, generally individual investors who believed in ridiculous return guarantees.
• If China doesn’t write off malinvestments it will have to prop up the owners of those enterprises, mainly the ruling class, at the expense of everyone else, delaying much needed rebalancing.

Property Bubble
• China needs to fill tens of millions of vacant properties, but no one can afford them.
• If China makes the properties affordable it will have to cover the losses, or builders will suffer massive losses.
• If China subsidizes losses for the builders, there are still no real jobs in in the vacant cities.
• If China does not subsidize the losses, the builders and current investors will both suffer massive damage.

Jobs
• China is losing exports to places like Vietnam that have lower wage points.
• Property bubbles, the overvalued yuan, SOEs, and capital flight all pose conflicting problems for a government desperate for job growth.

Stock Market
• China’s stock market is insanely overvalued (as are global equity markets in general). Many investors are trapped. A sinking stock market and loss of paper profits will make overvalued properties even more unaffordable.
• Propping up the market, as China has attempted (not very effectively at that), encourages more speculation.

Pollution
• Curtailing pollution will cost tens of millions of jobs.
• Not curtailing pollution will cost tens of millions of lives.

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“Our new base case is that the Chinese government will simply let the debt party go on until it eventually collapses under its own weight..”

Capital Flight Pushes China To The Brink Of Devaluation (AEP)

China is perilously close to a devaluation crisis as the yuan threatens to break through the floor of its currency basket, despite massive intervention by the central bank to defend the exchange rate. The country burned through at least $120bn of foreign reserves in December, twice the previous record, the clearest evidence to date that capital outflows have reached systemic proportions. “There is certainly a sense that the situation is spiraling out of control,” said Mark Williams, from Capital Economics. Mr Williams said the authorities botched a switch in early December from a dollar currency peg to a trade-weighted exchange basket, accidentally setting off an exodus of money. Skittish markets suspected – probably wrongly – that it was camouflage for devaluation. The central bank is now struggling to pick up the pieces.

Global markets are acutely sensitive to any sign that China might be forced to abandon its defence of the yuan, with conspiracy theories rampant that it is gearing up for currency war in a beggar-thy-neighbour push for export share. Any such move would send a powerful deflationary impulse though a world economy already on its knees, and risk setting off a chain-reaction through Asia, replicating the 1998 crisis on a larger and more dangerous scale. The confused signals coming from Beijing sent Brent crude crashing to an 11-year low of $32.20. They have also set off a parallel drama on China’s equity markets. The authorities shut the main exchange after the Shanghai Composite index plunged 7.3pc in less than half an hour, triggering automatic circuit-breakers. The crash wiped out $635bn of market capitalisation in minutes.

It was triggered by a witches’ brew of worries: a fall in China’s PMI composite index for manufacturing and services below the boom-bust line of 50, combined with angst over an avalanche of selling by company insiders as the deadline neared for an end to the share-sales ban imposed last year. Faced with mayhem, regulators have retreated yet again. They have extended the ban, this time prohibiting shareholders from selling more than 1pc of the total float over a three-month period. The China Securities Regulatory Commission said the move was to “defuse panic emotions”. The freeze on sales is an admission that the government is now trapped, forced to keep equities on life-support to stop the market crumbling. The commission said its “national team” would keep buying stocks if necessary, doubling down on its frantic buying spree to rescue the market last year.

[..] Jonathan Anderson, from Emerging Advisors Group in Shanghai, said the latest burst of stimulus – led by an 18pc rise in credit – is clear evidence that Beijing is unwilling to take its medicine and deflate the country’s $27 trillion loan bubble. “The debt ratio is rocketing upwards. China is still adding new leverage at a massive, frenetic pace,” he said. “The authorities have clearly shown that they have no intention of addressing leverage problems. Our new base case is that the Chinese government will simply let the debt party go on until it eventually collapses under its own weight,” he said.

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Light. Tunnel. Oncoming freight train.

China Stocks Rebound as State Funds Said to Buy Equities (BBG)

Chinese stocks gained in volatile trading after the government suspended a controversial circuit breaker system, the central bank set a higher yuan fix and state-controlled funds were said to buy equities. The Shanghai Composite Index rose 3% at 1:34 p.m. local time, after falling as much as 2.2% earlier. Regulators removed the circuit breakers after plunges this week closed trading early on Monday and Thursday. The central bank set the currency’s reference rate little changed Friday after an eight-day stretch of weaker fixings that roiled global markets. State-controlled funds purchased Chinese stocks on Friday, focusing on financial shares and others with large weightings in benchmark indexes, according to people familiar with the matter.

“The scrapping of the circuit breaker system will help to stabilize the market, but a sense of panic will remain, particularly among retail investors,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. “The ‘national team’ will probably continue to buy stocks significantly to stabilize the market.” While China’s high concentration of individual investors makes its stock-market notoriously volatile, the extreme swings this year have revived concern over the Communist Party’s ability to manage an economy set to grow at the weakest pace since 1990. The selloff has spread around the world this week, sending U.S. equities to their worst-ever start to a year and pushing copper to the lowest levels since 2009.

[..] The flip-flop in the circuit breaker rule adds to the sentiment among global investors that authorities are improvising – and improvising poorly – as they try to stabilize markets and shore up the economy. “They are changing the rules all the time now,” said Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague with about $206 billion under management. “The risks seem to have increased.” Investors should expect more volatility in Chinese markets as the government attempts to shift away from a planned economy to one driven by market forces, Mark Mobius, chairman of the emerging markets group at Franklin Templeton Investments, wrote in a blog post on Thursday. Policy makers face a “conundrum” as they seek to maintain financial stability while at the same time loosening their grip on markets, he said.

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“Global shares have lost more than $4 trillion this year..”

China’s Yuan Fixing Calms Markets as Asian Stocks Rally With Oil (BBG)

China’s efforts to stabilize its markets showed early signs of success as the yuan strengthened and regional equities rallied for the first time in five days. Treasuries and the yen fell as demand for havens eased. The Shanghai Composite Index gained 2.4% at the midday break after the securities regulator suspended a controversial circuit-breaker system. Asia’s benchmark share index pared its biggest weekly drop since 2011. The yuan rose 0.1% in onshore trading after the People’s Bank of China ended an eight-day stretch of setting weaker reference rates. Crude oil rallied, while Treasuries and the yen headed for their first declines this week. Global shares have lost more than $4 trillion this year as renewed volatility in Chinese markets revived doubts over the ruling Communist Party’s ability to manage the world’s second-largest economy.

The tumult has heightened worries over competitive devaluations and disinflation as emerging-market currencies tumbled with commodities. Investors will shift their attention to America’s economy on Friday as the government reports monthly payroll figures, a key variable for U.S. interest rates. “The PBOC may have been surprised at how badly China and global stock markets reacted to yuan depreciation,” said Dennis Tan at Barclays in Singapore. “They may want to keep the yuan stable for a while to help calm the stock market.” The PBOC set the yuan’s daily fixing, which restricts onshore moves to a maximum 2% on either side, at 6.5636 per dollar. That’s 0.5% higher than Thursday’s onshore effective closing price in the spot market and ends an eight-day reduction of 1.42%.

China’s markets regulator abandoned the circuit breaker just days after it was introduced, as analysts blamed the new mechanism for exacerbating this week’s selloff. Mainland exchanges shut early on Thursday and Monday after plunges of 7% in the CSI 300 triggered automatic halts. Chinese shares rallied after a volatile start to the day that sent the Shanghai Composite down as much as 2.2%. Producers of energy and raw-materials led the advance as investors gravitated to some of last year’s most beaten-down stocks and state funds were said to intervene to by purchasing shares with large index weightings.

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China will be exporting a crushing deflation.

The Decline Of The Yuan Destroys Belief In Central Banking (Napier)

The key failure of control is in China because that failure will overwhelm other seeming successes. In 2012 this analyst labelled one chart “the most important chart in the world”. It was a chart of China’s foreign exchange reserves. It showed how they were declining and The Solid Ground postulated that this would produce a decline in real economic activity in China and higher real interest rates in the developed world. The result of these two forces would be deflation, despite the amount of wind puffed below the wings of the global economy in the form of QE. Of course, no sooner had this report been issued than China’s grand falconer got to work by borrowing hundreds of billions of USD through its so-called commercial banking system!

The alchemical process through which this mandated capital inflow supported the exchange rate while permitting money creation in China stabilized the global economy- for a while. However, by 2014 it was ever more difficult to borrow more money than the people of China were desperate to export and the market began to win. Since then foreign reserves have been falling and the grand falconer has tried to support the exchange rate while simultaneously easing monetary policy to boost economic growth. I’m no falconer but isn’t this akin to trying to get a bird to fly while tying back its wings? Some investors, well paid to believe six impossible things before breakfast, did not question the ability of the grand Chinese falconer to fly a falcon with tethered wings.

They changed their minds briefly as the bird plummeted earthwards in August 2015 but still the belief in the ability to reflate the economy and simultaneously support an overvalued exchange rate continued. In January 2016 this particular falcon, let’s call it the people’s falcon, was more ‘falling with attitude’ than flying. This bird does not fly and if this bird does not fly the centre does not hold. A major devaluation of the RMB is just beginning and the faith in all the falconers will wane as deflation comes to the world almost seven years after the falconers first fanned the winds of QE supposed to levitate everything.

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Whack-a-mole.

One Big Market Casualty: China Regulators’ Reputation (CNBC)

The wobbles in China that rocked financial markets this week have not only cast doubts over the economy, they’ve also shaken confidence in policymakers’ ability to stem the volatility. For two decades, China’s frenetic growth has been the source of the world’s envy, with investors placing faith in the ability of policymakers to help transform China from a manufacturing-led powerhouse to a consumer-driven economy . As the economy stutters and regulators scramble to contain wild moves in the yuan and stocks, analysts are calling out what appears to be a ham-fisted approach to managing market volatility.

“Market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one,” DBS said in a currency note Friday. “The market’s message was loud and clear that more clarity and less flip-flopping is needed going forward.” China-listed stocks plunged this week, with trade suspended completely in two sessions after the CSI 300 index dropped more than 7 percent, triggering a circuit breaker meant to limit market volatility. The China Securities Regulatory Commission (CSRC) suspended the circuit-breaker system, implemented for the first time on Monday, before the start of trade Friday. The quick regulatory flip-flops spurred a lot of derision among social media commentators.

“The CSRC all treated us as experiments to make history. When it failed, it concluded with ‘lacking experience,’ and that’s it,” Weibo user Li Hua posted. “I strongly call for resignation of related personnel who designed this policy! There’s no cost of failure so that decision makers can do whatever they want.” Another factor weighing on faith in China’s regulators: Policy makers at the central bank, the People’s Bank of China (PBOC), have tinkered again with its currency without providing much indication to the market about its endgame. On Thursday the PBOC allowed the yuan to fall by the most in five months, to the lowest level since the fixing mechanism was established in 2011.

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Money will continue to flow out no matter what they do.

China Orders Banks To Limit Dollar Buying This Month To Stem Outflows (CNBC)

China’s foreign exchange regulator has ordered banks in some trading hubs to limit dollar purchases this month, three people with direct knowledge said on Friday, in the latest attempt to stem capital outflows. The spread between the onshore and offshore markets for the yuan, or renminbi, has been growing since the devaluation last year, spurring Beijing to adopt a range of measures to curb outflows of capital. All banks in certain trading hubs, including Shenzhen, have been affected, the people added. China suspended forex business for some foreign banks, including Deutsche, DBS and Standard Chartered at the end of last year.

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Beggar all of thy neighbors.

Yuan Depreciation Risks Competitive Devaluation Cycle (Reuters)

The depreciation of the Chinese yuan risks triggering a cycle of competitive devaluation and is causing enormous worry in the world’s financial markets, Mexican Finance Minister Luis Videgaray said on Thursday. China allowed the biggest fall in the yuan in five months on Thursday, sending global markets down on concerns that China might be aiming for a devaluation to help its struggling exporters and that other countries could follow suit. “This is one of the worst starts of the year for all the world’s markets,” Videgaray said at an event in Mexico City. “There is a real worry that in the face of the slowing Chinese economy that the public policy response is to start a round of competitive devaluation,” he said.

Mexico has been committed to a freely floating currency since a devastating financial crisis in the mid-1990s and authorities refrain from some of the more direct forms of intervention seen in other emerging markets. Mexico’s peso slumped to a record low on Thursday, triggering two auctions of $200 million each by Mexico’s central bank to support the currency. The country’s program of dollar auctions, under which the central bank can sell up to $400 million a day, is set to expire on Jan. 29. Videgaray said policymakers would announce if the plan would be maintained or modified before that deadline. He noted the program’s goal is not to defend a certain peso level but to ensure sufficient order and liquidity in the market. “We have managed to achieve this objective in a satisfactory manner,” he said. “Up until now, there has been no decision to modify the mechanism.”

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Can’t be a good sign no matter what they say.

China’s Forex Reserves Post Biggest Monthly Drop On Record (Xinhua)

China’s foreign exchange reserves posted the sharpest monthly fall on record in December, official data showed Thursday. Foreign exchange reserves fell to $3.33 trillion at the end of last month, the lowest level in more than three years and down by 108billion dollars from November, according to the People’s Bank of China. The fall in December extended a month-on-month decline of $87.2 billion registered in November. The yuan has been heading south since the central bank revamped the foreign exchange mechanism in August to make the rate more market-based. The yuan has been losing ground as the Chinese economy is expected to register its slowest pace of growth in a quarter of a century in 2015.

Meanwhile, the United States raised interest rates in December and more rises are expected in 2016. The onshore yuan (CNY), traded in the Chinese mainland, declined 4.05% against the greenback in 2015. Li Huiyong, analyst with Shenwan Hongyuan Securities, said the faster decline indicated greater pressure for capital outflow as the yuan depreciated. On Thursday, the central parity rate of the yuan weakened by 332 basis points to 6.5646 against the U.S. dollar, its weakest level in nearly five years, according to the China Foreign Exchange Trading System. “An appropriate size for China’s forex reserves should be around 1.5 trillion U.S. dollars. There is still large room for necessary operations to sustain a stable yuan,” Li said.

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They need to let it go. But won’t.

China’s Stock Market Is Hardly Free With Circuit Breakers Gone (BBG)

China’s removal of market-wide circuit breakers after just four days still leaves investors facing plenty of restrictions in how they trade. A 10% daily limit on single stock moves and a rule preventing investors from buying and selling the same shares in a day remain in force. Volume in what was once the world’s most active index futures market is minimal after authorities curtailed trading amid a summer rout, making it more difficult to implement hedging strategies. Officials unveiled curbs Thursday on share sales by major stockholders just a day before an existing ban was due to expire. And the activity of foreign investors is limited by quotas, given either to asset managers or to users of the Hong Kong-Shanghai exchange link.

“Although there’s more ability now for offshore participation, it’s largely a market that’s restricted the domestic users,” said Ric Spooner at CMC Markets Asia Pacific. “That means it doesn’t get the arbitrage benefits that international investors bring. It’s a work in progress.” There’s also the prospect that regulators and executives will dust off last year’s playbook as they seek to stem losses. At the height of the summer rout, about half of China’s listed companies were halted, while officials investigated trading strategies, made it harder for investors to borrow money to buy equities and vowed to “purify” the market. Chinese equities seesawed in volatile trading on Friday, with the CSI Index rising 1.3% as of 10:02 a.m. local time after climbing 3.1% and sinking 1.7%.

The gauge slid 12% in the first four days of the week, two of which were curtailed as the circuit breakers triggered market-wide halts for the rest of the day. The flip-flop on using the mechanism, which was meant to help stabilize the market, is adding to investor concern that authorities are improvising. Policy makers weakened the yuan for eight days straight through Thursday, and authorities were said to intervene on Tuesday to prop up equities. Policy makers used purchases by government-linked funds to bolster shares as the CSI 300 plunged as much as 43% over the summer. State funds probably spent $236 billion on equities in the three months through August, according to Goldman Sachs.

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Saudi rocket attack on embassy in Yemen.

Iran Severs All Commercial Ties With Saudi Arabia (Reuters)

Relations between Iran and Saudi Arabia deteriorated even further on Thursday as Tehran severed all commercial ties with Riyadh and accused Saudi jets of attacking its embassy in Yemen’s capital. A row has been raging for days between Shi’ite Muslim power Iran and the conservative Sunni kingdom since Saudi Arabia executed cleric Nimr al-Nimr, an opponent of the ruling dynasty who demanded greater rights for the Shi’ite minority. Saudi Arabia, Bahrain, Sudan, Djibouti and Somalia have all broken off diplomatic ties with Iran this week, the United Arab Emirates downgraded its relations and Kuwait, Qatar and Comoros recalled their envoys after the Saudi embassy in Tehran was stormed by protesters following the execution of Nimr and 46 other men.

In a cabinet meeting chaired by Iran’s President Hassan Rouhani on Thursday, Tehran banned all imports from Saudi Arabia. Saudi Arabia had announced on Monday that Riyadh was halting trade links and air traffic with the Islamic Republic. Iran also said on Thursday that Saudi warplanes had attacked its embassy in Yemen’s capital, Sanaa, an accusation that Riyadh said it would investigate. “Saudi Arabia is responsible for the damage to the embassy building and the injury to some of its staff,” Foreign Ministry Spokesman Hossein Jaber Ansari was quoted as saying by the state news agency, IRNA. Residents and witnesses in Sanaa said there was no damage to the embassy building in Hadda district.

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Aramco is so big, it may be impossible to value.

Saudi Arabia Considers IPO For World’s Biggest Energy Company Aramco (Guardian)

Saudi Arabia is considering a stock market listing for its national oil group – the world’s biggest energy company and probably the most valuable company on the planet. Saudi Aramco is a highly secretive organisation but is likely to be valued at well over $1tn (£685bn). Any public share listing would be viewed as a potent symbol of the financial pain being wreaked by low prices on the world’s biggest crude exporting country. Prince Muhammad bin Salman, the country’s highly influential deputy crown prince, confirmed in an interview on Monday with the Economist magazine that a decision would be taken within months whether to raise cash in this way, even as oil company shares are depressed at this time.

“Personally I am enthusiastic about this step,” he said. “I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around.” The sale via an initial public offering (IPO) of any part of Saudi Aramco would be a major change in direction for a country, which has jealously guarded its enormous – and cheaply produced – oil reserves. Aramco’s reserves are 10 times greater than those of Exxon, which is the largest publicly listed oil company. The prince, considered the power behind the throne of his father King Salman, is keen to modernise the largely oil-based Saudi economy by privatisation or other means but it also needs to find money.

The country is under pressure, with oil prices plunging to their lowest levels in 11 years and more than 70% below where they were in June 2014. This has put huge strain on Saudi public spending plans, which were drawn up when prices were much higher and pushed the public accounts into deficit.

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A long way from salvation.

VW Weighs Buyback of Tens of Thousands of Cars in Talks With US (BBG)

Volkswagen may buy back tens of thousands of cars with diesel engines that can’t be easily fixed to comply with U.S. emissions standards as part of its efforts to satisfy the demands of regulators, according to two people familiar with the matter. Negotiations between the German automaker and the U.S. Environmental Protection Agency are continuing and no decisions have been reached. Still, a buyback would be an extraordinary step that demonstrates the challenge of modifying vehicles that were rigged to pass emission tests. VW has concluded it would be cheaper to repurchase some of the more than 500,000 vehicles than fix them, said the people, who declined to be cited by name.

One person said the number of cars that might be bought back from their owners totals about 50,000, a figure that could change as talks continue. “We’ve been having a large amount of technical discussion back and forth with Volkswagen,” EPA Administrator Gina McCarthy said Thursday, when asked about the possibility of VW having to buy back some vehicles. “We haven’t made any decisions on that.” McCarthy told reporters after an event in Washington Thursday that VW’s proposals to bring its cars into compliance with emissions standards have so far been inadequate. “We haven’t identified a satisfactory way forward,” McCarthy said. The EPA is “anxious to find a way forward so that the company can get into compliance,” she said.

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“..the presence of isotopes from nuclear weapons testing..”

Human Impact Has Pushed Earth Into The Anthropocene (Guardian)

There is now compelling evidence to show that humanity’s impact on the Earth’s atmosphere, oceans and wildlife has pushed the world into a new geological epoch, according to a group of scientists. The question of whether humans’ combined environmental impact has tipped the planet into an “anthropocene” – ending the current holocene which began around 12,000 years ago – will be put to the geological body that formally approves such time divisions later this year. The new study provides one of the strongest cases yet that from the amount of concrete mankind uses in building to the amount of plastic rubbish dumped in the oceans, Earth has entered a new geological epoch.

“We could be looking here at a stepchange from one world to another that justifies being called an epoch,” said Dr Colin Waters, principal geologist at the British Geological Survey and an author on the study published in Science on Thursday. “What this paper does is to say the changes are as big as those that happened at the end of the last ice age . This is a big deal.” He said that the scale and rate of change on measures such as CO2 and methane concentrations in the atmosphere were much larger and faster than the changes that defined the start of the holocene. Humans have introduced entirely novel changes, geologically speaking, such as the roughly 300m metric tonnes of plastic produced annually. Concrete has become so prevalent in construction that more than half of all the concrete ever used was produced in the past 20 years.

Wildlife, meanwhile, is being pushed into an ever smaller area of the Earth, with just 25% of ice-free land considered wild now compared to 50% three centuries ago. As a result, rates of extinction of species are far above long-term averages. But the study says perhaps the clearest fingerprint humans have left, in geological terms, is the presence of isotopes from nuclear weapons testing that took place in the 1950s and 60s. “Potentially the most widespread and globally synchronous anthropogenic signal is the fallout from nuclear weapons testing,” the paper says. “It’s probably a good candidate [for a single line of evidence to justify a new epoch] … we can recognise it in glacial ice, so if an ice core was taken from Greenland, we could say that’s where it [the start of the anthropocene] was defined,” Waters said.

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It’s all become a joke.

Europe’s Economy Faces Confidence Test as Borderless Ideal Fades (BBG)

Here’s the latest in a long line of threats to Europe’s economy: the border guard. Danish officers checking travel documents on the boundary with Germany this week aren’t out to stymie trade or hinder tourism – they’re under orders from politicians anxious to stem the flow of refugees. Even so, analysts are beginning to worry about what could happen to the already-embattled region when the free movement of people is called into question. Like the euro, the single currency used by 19 of the European Union’s 28 nations, the Schengen Agreement has long been touted by politicians as an irrevocable pillar of a multi-national union, allowing unimpeded travel between states for business or pleasure. So with an already fragile recovery, monetary policy stretched trying to fend off deflation and companies deferring investment, the mere threat that Schengen could unravel may be hard to shrug off.

“If in the migrant crisis Schengen were to disintegrate, this would send a disastrous signal to markets: the European project would be seen as in fact reversible,” said Wolfango Piccoli, managing director of Teneo Intelligence in London. “Nobody could blame investors if against that backdrop, they would suddenly start to re-evaluate the reliability of promises made by European institutions in the euro-zone crisis.” The EU says Europeans make over 1.25 billion journeys within the Schengen zone every year, which comprises 26 countries from the Barents Sea to the eastern Mediterranean. It also includes countries such as Iceland and Norway that aren’t part of the EU. Signed in 1985, Schengen took effect 10 years later. In normal times, it means travelers within the bloc aren’t subjected to border checks, and external citizens holding a visa for one country may usually travel without restriction to all.

These aren’t normal times and now the edifice of carefree travel across the continent is cracking. During 2015, the arrival of people fleeing wars and persecution in Asia, Africa and the Middle East exceeded 1 million, sparking political tension and public debate over how, and where, to settle the newcomers. Denmark’s decision to establish temporary controls seems, according to the EU, to be covered by Schengen rules that allow such curbs in emergencies. But it’s not the first; that move came hours after Sweden started systematic ID checks at its borders, while Germany was forced to take similar action in September along its frontier with Austria. Hungary erected a fence at its borders with Serbia and Croatia last year.

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€3 billion, Angela.

Turkey Does Nothing To Halt Refugee Flows, Says Greece (Kath.)

Turkey has not taken any action to clamp down on human traffickers and between 3,000 and 4,000 migrants and refugees are reaching Greece every day, Immigration Policy Minister Yiannis Mouzalas said Thursday. Mouzalas suggested in an interview on Skai TV that Ankara has not lived up to its pledges to stem the flow of people traveling across the Aegean to Greece. “It has not done anything to stop human trafficking, as is evident from the migratory flows.” The minister said that the high level of arrivals has continued because the news that some migrants are not being allowed through European borders has yet to filter through but, at the same time, refugees waiting to cross from Turkey are concerned that if they do not do so soon they will be prevented from reaching Central and Northern Europe.

“The high rate has to do with refugees’ fear that the borders will close for everyone,” he said, adding that he thought this possibility is “very likely.” “When the message reaches Morocco that Moroccans are not being allowed to cross into Europe but are being held and repatriated, the flows will drop.” Mouzalas said that around half of the people arriving in Greece over the last two months have been undocumented migrants.

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Dec 052015
 
 December 5, 2015  Posted by at 10:17 am Finance Tagged with: , , , , , , , ,  Comments Off on Debt Rattle December 5 2015


DPC “Broad Street and curb market, New York” 1906

US, EU Bond Markets Lose $270 Billion In One Day (BBG)
US Corporate Debt Downgrades Reach $1 Trillion (FT)
UK Call For ‘Multicurrency’ EU Triggers ECB Alarm (FT)
Why the Euro Is A Dead Currency (Martin Armstrong)
‘There Cannot Be A Limit’ To Stimulus, Says ECB president Mario Draghi (AFP)
SEC to Crack Down on Derivatives (WSJ)
Banks Said to Face SEC Probe Into Possible Credit Swap Collusion (BBG)
Enough Of Aid – Let’s Talk Reparations (Hickel)
20 Billionaires Now Have More Wealth Than Half US Population (Collins)
OPEC Fails To Agree Production Ceiling As Iran Pledges Output Boost (Reuters)
Germany Rebukes Own Intelligence Agency for Criticizing Saudi Policy (NY Times)
Germany Sees EU Border Guards Stepping In For Crises (Reuters)
EU Considers Measures To Intervene If States’ Borders Are Not Guarded (I.ie)

” In the old days, this would have been a one-week trade. In the new world, and in the less liquid market we live in today, it takes one day for the repricing.”

US, EU Bond Markets Lose $270 Billion In One Day (BBG)

December has been a bruising month for bond traders and we’re only four days in. The value of the U.S. fixed-income market slid by $162.5 billion on Thursday while the euro area’s shrank by the equivalent of $107.5 billion as a smaller-than-expected stimulus boost by the European Central Bank and hawkish comments from Janet Yellen pushed up yields around the world. A global index of bonds compiled by Bank of America Merrill Lynch slumped the most since June 2013. The ECB led by President Mario Draghi increased its bond-buying program by at least €360 billion and cut the deposit rate by 10 basis points at a policy meeting Thursday but the package fell short of the amount many economists had predicted.

Fed Chair Yellen told Congress U.S. household spending had been “particularly solid in 2015,” and car sales were strong, backing the case for the central bank to raise interest rates this month for the first time in almost a decade.”A lot of people lost money,” said Charles Comiskey at Bank of Nova Scotia, one of the 22 primary dealers obligated to bid at U.S. debt sales. “People were caught in those trades. In the old days, this would have been a one-week trade. In the new world, and in the less liquid market we live in today, it takes one day for the repricing.” The bond rout on Thursday added weight to warnings from Franklin Templeton’s Michael Hasenstab that there is a “a lot of pain” to come as rising U.S. interest rates disrupts complacency in the debt market.

“A lot of investors have gotten very complacent and comfortable with the idea that there’s global deflation and you can go long rates forever,” Hasenstab, whose Templeton Global Bond Fund sits atop Morningstar Inc.’s 10-year performance ranking, said this week. “When that reverses, there will be a lot of pain in many of the bond markets.”

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“The credit cycle is long in the tooth..”

US Corporate Debt Downgrades Reach $1 Trillion (FT)

More than $1tn in US corporate debt has been downgraded this year as defaults climb to post-crisis highs, underlining investor fears that the credit cycle has entered its final innings. The figures, which will be lifted by downgrades on Wednesday evening that stripped four of the largest US banks of coveted A level ratings, have unnerved credit investors already skittish from a pop in volatility and sharp swings in bond prices. Analysts with Standard & Poor’s, Moody’s and Fitch expect default rates to increase over the next 12 months, an inopportune time for Federal Reserve policymakers, who are expected to begin to tighten monetary policy in the coming weeks. S&P has cut its ratings on US bonds worth $1.04tn in the first 11 months of the year, a 72% jump from the entirety of 2014.

In contrast, upgrades have fallen to less than half a billion dollars, more than a third below last year’s total. The rating agency has more than 300 US companies on review for downgrade, twice the number of groups its analysts have identified for potential upgrade. “The credit cycle is long in the tooth by any standardised measure,” Bonnie Baha at DoubleLine Capital said. “The Fed’s quantitative easing programme helped to defer a default cycle and with the Fed poised to increase rates, that may be about to change.” Much of the decline in fundamentals has been linked to the significant slide in commodity prices, with failures in the energy and metals and mining industries making up a material part of the defaults recorded thus far, Diane Vazza, an analyst with S&P, said. “Those companies have been hit hard and will continue to be hit hard,” Ms Vazza noted. “Oil and gas is a third of distressed credits, that’s going to continue to be weak.”

Some 102 companies have defaulted since the year’s start, including 63 in the US. Only three companies in the country have retained a coveted triple A rating: ExxonMobil, Johnson & Johnson and Microsoft, with the oil major on review for possible downgrade. Portfolio managers and credit desks have already begun to push back at offerings seen as too risky as they continue a flight to quality. Bankers have had to offer steep discounts on several junk bond deals to fill order books, and some were caught off guard when Vodafone, the investment grade UK telecoms group, had to pull a debt sale after investors demanded greater protections. Bond prices, in turn, have slid. The yield on the Merrill Lynch high-yield US bond index, which moves inversely to its price, has shifted back up above 8%. For the lowest rung triple-C and lower rated groups, yields have hit their highest levels in six years.

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Draghi apparently doesn’t think very highly of the euro: “Eurozone countries won’t want to give a competitive advantage to those outside and will use it as an excuse. That is what worries him.”

UK Call For ‘Multicurrency’ EU Triggers ECB Alarm (FT)

David Cameron’s push to rebrand the EU as a “multicurrency union” has triggered high-level concerns at the European Central Bank, which fears it could give countries such as Poland an excuse to stay out of the euro. The UK prime minister wants to rewrite the EU treaty to clarify that some countries will never join the single currency, in an attempt to ensure they do not face discrimination by countries inside the eurozone. Mario Draghi, president of the ECB, is worried the move could weaken the commitment of some countries to join the euro. Beata Szydlo, the new Polish premier, has previously described the euro as a “bad idea” that would make Poland “a second Greece”.

Mr Draghi shares concerns in Brussels that the EU single market could be permanently divided across two regulatory spheres, with eurozone countries facing unfair competition if there were a lighter-touch regime on the outside. The idea of rebranding the EU as a “multicurrency union” was raised during a recent meeting in London between George Osborne, the UK chancellor, and Mr Draghi. Mr Osborne said last month that Britain wanted the treaty to recognise “that the EU has more than one currency”. Under the existing treaty, the euro is the official currency of the EU and every member state is obliged to join — apart from Britain and Denmark, which have opt-outs. The common currency is used by 19 out of 28 member states.

Sluggish growth and a debt crisis have made the euro a less-attractive proposition in recent years, and Mr Draghi’s concern is that a formal recognition that the EU is a “multicurrency union” could make matters worse. “He’s worried that people would resist harmonisation by arguing that the UK and others were gaining an unfair advantage,” said a British official. The ECB said the bank had no formal position on the issue. British ministers are confident that the ECB’s concerns can be addressed, possibly with a treaty clause making clear that every EU member apart from Britain and Denmark is still expected to join the euro.

One official involved in the British EU renegotiations said that any safeguards for Britain must not “permanently divide the ins and outs” or force countries to pick camps. “Whatever we do cannot impair the euro in any way. The single currency must be able to function,” the official said. Since the launch of the single currency in 1999, the ECB has consistently argued that a single market and currency must have common governance and institutions. One European adviser familiar with Mr Draghi’s views said: “Eurozone countries won’t want to give a competitive advantage to those outside and will use it as an excuse. That is what worries him.”

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“The Troika will shake every Greek upside down until they rob every personal asset they have.”

Why the Euro Is A Dead Currency (Martin Armstrong)

I have been warning that government can do whatever it likes and declare anything to be be a criminal act. In the USA, not paying taxes is NOT a crime, failing to file your income tax is the crime. The EU has imposed the first outright total asset reporting requirement for cash, jewelry, and anything else you have of value stored away. As of January 1st, 2016, ALL GREEKS must report their personal cash holdings, whatever jewelry they possess, and the contents of their storage facilities under penalty of criminal prosecution. The dictatorship of the Troika has demanded that Greeks will be the first to have to report all personal assets.

Why the Greek government has NOT exited the Eurozone is just insanity. The Greek government has betrayed its own people to Brussels. The Troika will shake every Greek upside down until they rob every personal asset they have. Greeks are just the first test case. All Greeks must declare cash over € 15,000, jewelry worth more than 30,000 euros and the contents of their storage lockers/facilities. This is a decree of the Department of Justice and the Ministry of Finance meaning if you do not comply, it will become criminal. The Troika is out of its mind. They are destroying Europe and this is the very type of action by governments that has resulted in revolutions.

The Greek government has betrayed its own people and they are placing at risk the viability of Europe to even survive as a economic union. The Troika is UNELECTED and does NOT have to answer to the people. It has converted a democratic Europe into the Soviet Union of Europe. The Greek people are being stripped of their assets for the corruption of politicians. This is the test run. Everyone else will be treated the same. Just how much longer can the EU remain together?

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Thus putting QE on par with stupidity. Sounds about right.

‘There Cannot Be A Limit’ To Stimulus, Says ECB president Mario Draghi (AFP)

Mario Draghi has said the European Central Bank would intensify efforts to support the eurozone economy and boost inflation toward its 2pc goal if necessary. Speaking a day after the ECB’s moves to expand stimulus fell short of market expectations, the central bank president said that he was confident of returning to that level of inflation “without undue delay”. “But there is no doubt that if we had to intensify the use of our instruments to ensure that we achieve our price stability mandate, we would,” he said in a speech to the Economic Club of New York. “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate,” he said.

On Thursday the ECB sent equity markets tumbling, and reversed the euro’s downward course, after it announced an interest rate cut that was less than investors had expected and held back from expanding the size of its bond-buying stimulus. The bank cut its key deposit rate by a modest 0.10 percentage points to -0.3pc, and only extended the length of its bond purchase program by six months to March 2017. Critics said that was not strong enough action to counter deflationary pressures on the euro area economy. Some analysts believed a desire for stronger moves, like an expansion of bond purchases, was stymied by powerful, more conservative members of the ECB governing council, including Bundesbank chief Jens Weidmann.

But Mr Draghi insisted that there was “very broad agreement” within the council for the extent of the bank’s actions. And, he added, it would do more if necessary: “There is no particular limit to how we can deploy any of our tools.” He acknowledged some market doubts that central banks are proving unable to reverse the downward trend in inflation, saying that, even if there is a lag to the impact of policies in place, they are working. “I would dispute entirely the notion that we are powerless to reach our objective,” he said. “The evidence at our disposal shows, on the contrary, that the instruments we are currently deploying are having the effect intended.” Without them, he added, “inflation would likely have been negative this year”.

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Derivatives will continue to be advertized as ‘insurance’, but what they really do is keep the casino going by keeping losses -and risks- off the books.

SEC to Crack Down on Derivatives (WSJ)

U.S. securities regulators, under pressure to demonstrate they have a handle on potential risks in the asset-management industry, are about to crack down on the use of derivatives in certain funds sold to the public, worried that some products are too precarious for retail investors. The restrictions, which the Securities and Exchange Commission is set to propose next Friday, are expected to have an outsize effect on a small but growing sector that uses the complex instruments to try to deliver double or even triple returns of the indexes they track. Some regulators say these products—known as “leveraged exchange-traded funds”—can be highly volatile, and expose investors to sudden, outsize losses.

The proposed restrictions could adversely affect in particular firms like ProShare Advisors, a midsize fund company that has carved out a niche role as a leading leveraged-ETF provider. The Bethesda, Md., firm is mounting a behind-the-scenes campaign to persuade the SEC to scale back the proposal, arguing that regulators’ concerns are overblown, according to people familiar with the firms’ thinking. Exchange-traded funds hold a basket of assets like mutual funds and trade on an exchange like a stock. At issue is the growing use by some ETFs of derivatives, contracts that permit investors to speculate on underlying assets—such as commodity prices—and to amplify the potential gains through leverage, or borrowed money. But those derivatives also raise the riskiness of those investments, and can also magnify the losses.

SEC officials have said the increasing use of derivatives by mutual funds to boost leverage warrants heightened scrutiny, saying that the agency’s existing investor protection rules haven’t kept pace with industry practices. Some of the existing guidance goes back more than 30 years, long before the advent of modern derivatives.

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CDS have developed into de facto instruments to hide one’s losses behind. It’s the only way the world of finance can keep churning along in the face of deflation.

Banks Said to Face SEC Probe Into Possible Credit Swap Collusion (BBG)

U.S. regulators are examining whether banks colluded in setting prices in the derivatives market where investors speculate on credit risk, according to a person with knowledge of the matter. The U.S. Securities and Exchange Commission is probing whether firms acted in unison to distort prices in the $6 trillion market for credit-default swaps indexes, said the person, who asked not to be identified because the investigation is private. The regulator is trying to determine if dealers have misrepresented index prices, the person said. The credit-default swaps benchmarks allow investors to make bets on the likelihood of default by companies, countries or securities backed by mortgages. The probe comes after successful cases brought against Wall Street’s illegal practices tied to interest rates and foreign currencies.

Those cases showed traders misrepresented prices and coordinated their positions to push valuations in their favor, often through chat rooms – practices that violate antitrust laws. The government has used those prosecutions as a road map to pursue similar conduct in different markets. Credit-default swaps, which gained notoriety during the financial crisis for amplifying losses and spreading risks from the U.S. housing bust across the globe, have since come under more scrutiny by regulators. Trading in swaps index contracts has increased in recent years as investors look for easy ways to speculate on, say, the health of U.S. companies, or the risk that defaults will increase as seven years of easy-money policies come to an end.

Toward the end of each trading day, benchmark prices for indexes are tabulated by third-party providers based on dealer quotes, creating a level at which traders can mark their positions. This process is similar to how other markets that don’t trade on exchanges set benchmark prices. That includes the London interbank offered rate, an interest-rate benchmark. In the Libor scandal, regulators accused banks of making submissions on borrowing rates that benefited their trading positions. A group of Wall Street’s biggest banks have traditionally dominated trading in the credit swaps, acting as market makers to hedge funds, insurance companies and other institutional investors. Those dealers send quotes to clients over e-mails or on electronic screens showing at which price they will buy or sell default insurance. Those values rise and fall as the perception of credit risk changes.

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A very interesting theme. “It was like the holocaust seven times over.”

Enough Of Aid – Let’s Talk Reparations (Hickel)

Colonialism is one of those things you’re not supposed to discuss in polite company – at least not north of the Mediterranean. Most people feel uncomfortable about it, and would rather pretend it didn’t happen. In fact, that appears to be the official position. In the mainstream narrative of international development peddled by institutions from the World Bank to the UK’s Department of International Development, the history of colonialism is routinely erased. According to the official story, developing countries are poor because of their own internal problems, while western countries are rich because they worked hard, and upheld the right values and policies. And because the west happens to be further ahead, its countries generously reach out across the chasm to give “aid” to the rest – just a little something to help them along.

If colonialism is ever acknowledged, it’s to say that it was not a crime, but rather a benefit to the colonised – a leg up the development ladder. But the historical record tells a very different story, and that opens up difficult questions about another topic that Europeans prefer to avoid: reparations. No matter how much they try, however, this topic resurfaces over and over again. Recently, after a debate at the Oxford Union, Indian MP Shashi Tharoor’s powerful case for reparations went viral, attracting more than 3 million views on YouTube. Clearly the issue is hitting a nerve. The reparations debate is threatening because it completely upends the usual narrative of development. It suggests that poverty in the global south is not a natural phenomenon, but has been actively created. And it casts western countries in the role not of benefactors, but of plunderers.

When it comes to the colonial legacy, some of the facts are almost too shocking to comprehend. When Europeans arrived in what is now Latin America in 1492, the region may have been inhabited by between 50 million and 100 million indigenous people. By the mid 1600s, their population was slashed to about 3.5 million. The vast majority succumbed to foreign disease and many were slaughtered, died of slavery or starved to death after being kicked off their land. It was like the holocaust seven times over. What were the Europeans after? Silver was a big part of it. Between 1503 and 1660, 16m kilograms of silver were shipped to Europe, amounting to three times the total European reserves of the metal. By the early 1800s, a total of 100m kg of silver had been drained from the veins of Latin America and pumped into the European economy, providing much of the capital for the industrial revolution.

To get a sense for the scale of this wealth, consider this thought experiment: if 100m kg of silver was invested in 1800 at 5% interest – the historical average – it would amount to £110trn ($165trn) today. An unimaginable sum. Europeans slaked their need for labour in the colonies – in the mines and on the plantations – not only by enslaving indigenous Americans but also by shipping slaves across the Atlantic from Africa. Up to 15 million of them. In the North American colonies alone, Europeans extracted an estimated 222,505,049 hours of forced labour from African slaves between 1619 and 1865. Valued at the US minimum wage, with a modest rate of interest, that’s worth $97trn – more than the entire global GDP.

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Any economy that has such traits must fail, by definition. And it will.

20 Billionaires Now Have More Wealth Than Half US Population (Collins)

When should we be alarmed about so much wealth in so few hands? The Great Recession and its anemic recovery only deepened the economic inequality that’s drawn so much attention in its wake. Nearly all wealth and income gains since then have flowed to the top one-tenth of America’s richest 1%. The very wealthiest 400 Americans command dizzying fortunes. Their combined net worth, as catalogued in the 2015 Forbes 400 list, is $2.34 trillion. You can’t make this list unless you’re worth a cool $1.7 billion. These 400 rich people – including Bill Gates, Donald Trump, Oprah Winfrey, and heirs to the Wal-Mart fortune – have roughly as much wealth as the bottom 61% of the population, or over 190 million people added together, according to a new report I co-authored.

That equals the wealth of the nation’s entire African-American population, plus a third of the Latino population combined. A few of those 400 individuals are generous philanthropists. But extreme inequality of this sort undermines social mobility, democracy, and economic stability. Even if you celebrate successful entrepreneurship, isn’t there a point things go too far? To me, 400 people having more money than 190 million of their compatriots is just that point. Concentrating wealth to this extent gives rich donors far too much political power, including the wherewithal to shape the rules that govern our economy. Half of all political contributions in the 2016 presidential campaign have come from just 158 families, according to research by The New York Times.

The wealth concentration doesn’t stop there. The richest 20 individuals alone own more wealth than the entire bottom half of the U.S. population. This group – which includes Gates, Warren Buffet, the Koch brothers, Mark Zuckerberg, and Google co-founders Larry Page and Sergey Brin, among others – is small enough to fit on a private jet. But together they’ve hoarded as much wealth as 152 million of their fellow Americans.

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Debt deflation is real. And it’s felt first in the world’s prime commodity. “The world is already producing up to 2 million bpd more than it consumes.”

OPEC Fails To Agree Production Ceiling As Iran Pledges Output Boost (Reuters)

OPEC members failed to agree an oil production ceiling on Friday at a meeting that ended in acrimony, after Iran said it would not consider any production curbs until it restores output scaled back for years under Western sanctions. Friday’s developments set up the fractious cartel for more price wars in an already heavily oversupplied market. Oil prices have more than halved over the past 18 months to a fraction of what most OPEC members need to balance their budgets. Brent oil futures fell by 1 percent on Friday to trade around $43, only a few dollars off a six year low. Banks such as Goldman Sachs predict they could fall further to as low as $20 per barrel as the world produces more oil than it consumes and runs out of capacity to store the excess.

A final OPEC statement was issued with no mention of a new production ceiling. The last time OPEC failed to reach a deal was in 2011 when Saudi Arabia was pushing the group to increase output to avoid a price spike amid a Libyan uprising. “We have no decision, no number,” Iranian oil minister Bijan Zangeneh told reporters after the meeting. OPEC’s secretary general Abdullah al-Badri said OPEC could not agree on any figures because it could not predict how much oil Iran would add to the market next year, as sanctions are withdrawn under a deal reached six months ago with world powers over its nuclear program. Most ministers left the meeting without making comments. Badri tried to lessen the embarrassment by saying OPEC was as strong as ever, only to hear an outburst of laughter from reporters and analysts in the conference room.

[..] Iran has made its position clear ahead of the meeting with Zangeneh saying Tehran would raise supply by at least 1 million barrels per day – or one percent of global supply – after sanctions are lifted. The world is already producing up to 2 million bpd more than it consumes.

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They will soon be forced to change their stand on Saud. Information on support for terrorist groups will become available.

Germany Rebukes Own Intelligence Agency for Criticizing Saudi Policy (NY Times)

The German government issued an unusual public rebuke to its own foreign intelligence service on Thursday over a blunt memo saying that Saudi Arabia was playing an increasingly destabilizing role in the Middle East. The intelligence agency’s memo risked playing havoc with Berlin’s efforts to show solidarity with France in its military campaign against the Islamic State and to push forward the tentative talks on how to end the Syrian civil war. The Bundestag, the lower house of the German Parliament, is due to vote on Friday on whether to send reconnaissance planes, midair fueling capacity and a frigate to the Middle East to support the French. The memo was sent to selected German journalists on Wednesday.

In it, the foreign intelligence agency, known as the BND, offered an unusually frank assessment of recent Saudi policy. “The cautious diplomatic stance of the older leading members of the royal family is being replaced by an impulsive policy of intervention,” said the memo, which was titled “Saudi Arabia — Sunni regional power torn between foreign policy paradigm change and domestic policy consolidation” and was one and a half pages long. The memo said that King Salman and his son Prince Mohammed bin Salman were trying to build reputations as leaders of the Arab world. Since taking the throne early this year, King Salman has invested great power in Prince Mohammed, making him defense minister and deputy crown prince and giving him oversight of oil and economic policy.

The sudden prominence of such a young and untested prince –he is believed to be about 30, and had little public profile before his father became king — has worried some Saudis and foreign diplomats. Prince Mohammed is seen as a driving force behind the Saudi military campaign against the Iranian-backed Houthi rebels in Yemen, which human rights groups say has caused thousands of civilian deaths. The intelligence agency’s memo was flatly repudiated by the German Foreign Ministry in Berlin, which said the German Embassy in Riyadh, Saudi Arabia, had issued a statement making clear that “the BND statement reported by media is not the position of the federal government.”

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This is too crazy.

Germany Sees EU Border Guards Stepping In For Crises (Reuters)

Germany’s interior minister expects the EU executive to propose new rules for protecting the bloc’s frontiers that would mean European border guards stepping in when a national government failed to defend them. Thomas de Maiziere spoke as he arrived on Friday for an EU meeting in Brussels where ministers will discuss how to safeguard their Schengen system of open borders inside the EU and Greece’s difficulties in controlling unprecedented flows of people arriving via Turkey and streaming north into Europe. Calling for the reinforcement of the EU’s Frontex border agency, whose help Greece called for on Thursday after coming under intense pressure from other EU states, de Maiziere said he expected an enhanced role for Frontex in proposals the European Commission is due to make on borders on Dec. 15.

“The Commission should put forward a proposal … which has the goal of when a national state is not effectively fulfilling its duty of defending the external border, then that can be taken over by Frontex,” he told reporters. EU states’ sovereign responsibility for their section of the external border of the Schengen zone is protected in the Union’s treaties. But the failure of Greece’s overburdened authorities to control migrant flows that have then triggered other states to reimpose controls on internal Schengen frontiers has driven calls for a more collective approach on the external frontier. Following diplomatic threats that it risked being shunned from the Schengen zone if it failed to accept EU help in registering and controlling migrants, Greece finally activated EU support mechanisms late on Thursday.

De Maiziere noted a Franco-German push for Frontex, whose role is largely to coordinate national border agencies, to be complemented by a more ambitious European border and coast guard system. He did not say whether new proposals would strengthen the EU’s ability to intervene with a reluctant member state. A Commission spokeswoman said the EU executive would make its proposal on Dec. 15 for a European Border and Coast Guard. German officials noted that the existing Schengen Borders Code provides for recommendations to member states that they request help from the EU “in the case of serious deficiencies relating to external border control.” Other ministers and the Commission welcomed Greece’s decision to accept more help from Frontex.

Austrian Interior Minister Johanna Mikl-Leitner said: “Greece is finally taking responsibility for guarding the external European border. I have for months been demanding that Greece must recognise this responsibility and be ready to accept European help. This is an important step in the right direction.”

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1984.

EU Considers Measures To Intervene If States’ Borders Are Not Guarded (I.ie)

The European Union is considering a measure that would give a new EU border force powers to intervene and guard a member state’s external frontier to protect the Schengen open-borders zone, EU officials and diplomats said yesterday in Brussels. Such a move would be controversial. It might be blocked by states wary of surrendering sovereign control of their territory. But the discussion reflects fears that Greece’s failure to manage a flood of migrants from Turkey has brought Schengen’s open borders to the brink of collapse. Germany’s Thomas de Maiziere, in Brussels for a meeting of EU interior ministers, said he expected proposal from the EU executive due on December 15 to include giving responsibility for controlling a frontier with a non-Schengen country to Frontex, the EU’s border agency, if a member state failed to do so.

“The Commission should put forward a proposal … which has the goal of, when a national state is not effectively fulfilling its duty of defending the external border, then that can be taken over by Frontex,” de Maiziere told reporters. He noted a Franco-German push for Frontex, whose role is largely to coordinate national border agencies, to be complemented by a permanent European Border and Coast Guard – a measure the European Commission has confirmed it will propose. Greece has come under heavy pressure from states concerned about Schengen this week to accept EU offers of help on its borders. Diplomats have warned that Athens might find itself effectively excluded from the Schengen zone if it failed to work with other Europeans to control migration.

Earlier this week, Greece finally agreed to accept help from Frontex, averting a showdown at the ministerial meeting in Brussels. EU diplomats said the proposals to bolster defence of the external Schengen frontiers would look at whether the EU must rely on an invitation from the state concerned. “One option could be not to seek the member state’s approval for deploying Frontex but activating it by a majority vote among all 28 members,” an EU official said. Under the Schengen Borders Code, the Commission can now recommend a state accept help from other EU members to control its frontiers. But it cannot force it to accept help – something that may, in any case, not be practicable. The code also gives states the right to impose controls on internal Schengen borders if external borders are neglected.

As Greece has no land border with the rest of the Schengen zone, that could mean obliging ferries and flights coming from Greece to undergo passport checks. Asked whether an EU force should require an invitation or could be imposed by the bloc, Swedish Interior Minister Anders Ygeman said: “Border control is the competence for the member states, and it’s hard to say that there is a need to impose that on member states forcefully.”On the other hand,” he said, referring to this week’s pressure on Greece, “we must safeguard the borders of Schengen, and what we have seen is that if a country is not able to protect its own border, it can leave Schengen or accept Frontex. It’s not mandatory, but in practice it’s quite mandatory.”

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Dec 032015
 
 December 3, 2015  Posted by at 10:26 am Finance Tagged with: , , , , , , , , , ,  


Arthur Rothstein “Quack doctor, Pittsburgh, Pennsylvania” 1938

Yellen Says ‘Looking Forward’ To Day Of First Rate Rise In Decade (Reuters)
Opposition To ECB Stimulus Could Lead To Watered-Down QE Plan (FT)
Equities Peak 12-18 Months After A Peak In Margins; We’re Now 15 Months In (ZH)
Commodity-Related -Junk- Bonds Face Big Losses: Moody’s (MarketWatch)
Oil Speculators Risk ‘Short Squeeze’ If Impulsive Saudi Prince Throws OPEC Surprise (AEP)
China Says To Cut Power Sector Emissions By 60% By 2020 (Reuters)
Russia Presents Proof Of Turkey’s Role In ISIS Oil Trade (RT)
The Greatest Economic Collapses in History (Howmuch.net)
Brazil Goes From Crisis to Crisis as Impeachment Bid Moves Ahead (BBG)
Massive El Niño Sweeping Globe Is Now The Biggest Ever Recorded (NS)
More Than A Quarter Of UK Birds Are Fighting For Survival (Guardian)
Kicking Greece Out Of Schengen Won’t Stop The Refugee Crisis (Guardian)
(Greek) EU Commissioner Tells Athens To Speed Up Border Controls (Kath.)
Leaked Memo Reveals EU Plan To Suspend Schengen For Two Years (Zero Hedge)
Greece Is Back At The Heart Of EU’s Existential Crisis (Telegraph)
Detain Refugees Arriving In Europe For 18 Months, Says Tusk (Guardian)
Half A Million Syrian Refugees Could Be Resettled To EU: Hungary PM (Reuters)
Greece Spent €1 Billion On Refugees, Got €30 Million In EU Assistance (Reuters)

It’ll be like Christmas came early.

Yellen Says ‘Looking Forward’ To Day Of First Rate Rise In Decade (Reuters)

Federal Reserve Chair Janet Yellen said on Wednesday she was “looking forward” to a U.S. interest rate rise that will be seen as a testament to the economy’s recovery from recession. Fed policymakers are widely seen raising interest rates for the first time in almost a decade at their next meeting on Dec. 15-16, but they continue to parse data and trends carefully given the uneven nature of the U.S. recovery. In her remarks to the Economic Club of Washington, Yellen expressed confidence in the U.S. economy, saying job growth through October suggested the labour market was healing even if not yet at full strength. Yellen also reaffirmed her view that the drag on U.S. economic growth and inflation from weakness in the global economy and falling commodity prices would moderate next year. U.S. consumer spending was “particularly solid”, she noted.

“When the Committee begins to normalize the stance of policy, doing so will be a testament … to how far our economy has come,” she said, referring to the Fed’s policy-setting committee. “In that sense, it is a day that I expect we all are looking forward to.” Investors are already betting the Fed will lift its benchmark federal funds rate this month from the zero to 0.25% range where it has been held since 2008. Economists also see a strong chance of a December rate rise. The U.S. dollar strengthened on Wednesday and stocks fell on Wall Street, after Yellen’s comments. “I was a little surprised she sounded as hawkish as she did given we’re two days away from the non-farm payrolls report and a couple of weeks away from the Fed FOMC meeting,” said Michael O’Rourke at JonesTrading in Greenwich, CT.

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Can Draghi get even crazier? You bet. Many others do. But will he fight the Germans?

Opposition To ECB Stimulus Could Lead To Watered-Down QE Plan (FT)

The ECB will announce further monetary easing on Thursday to fix the eurozone’s creaking economy, but German-led opposition threatens to limit its firepower, potentially disappointing some investors. The ECB will almost certainly take fresh action after a crucial measure of inflation fell in November, underlining the fragility of the eurozone’s recovery. A revamp of the central bank’s €1.1trn quantitative easing package and a cut to the benchmark deposit rate charged on lenders’ reserves from its current level of minus 0.2% are likely, pitting the eurozone at odds with the US where the Federal Reserve is nearing its first rate hike for nine years. Most of the governing council’s policymakers will support the charge led by ECB president Mario Draghi and his chief economist Peter Praet for an injection of fresh stimulus.

But idiosyncrasies in voting rules and concerns that doing too much, too soon risks leaving the central bank out of options in the event of further economic deterioration could produce a less aggressive package than markets have priced in. Europe’s financial markets have rallied strongly in the lead up to the ECB meeting as investors assume that a deposit rate cut and expansion in QE is all but guaranteed. A survey of economists by Bloomberg reveals how strong the consensus is, with all respondents expecting fresh stimulus, and more than three quarters anticipating an extension of the QE programme and deposit rate cut. According to Swiss bank UBS, a 15 basis point cut to the deposit rate has been priced in, although a 20 basis point cut would not be surprising, while Dutch bank Rabobank forecasts €20bn in additional monthly QE purchases.

[..] Some investors warn that anything less than an additional 10 basis point cut in the deposit rate and extension of the QE programme to 2017 is likely to spark a sell-off in European assets. “It would be very surprising if the ECB does not deliver on its hints after it has stoked market expectations so high,” said Mark Dowding, co head of investment at Bluebay Asset Management. “Mario Draghi needs to tread with caution. If he disappoints investors then you will see sentiment towards the eurozone darken immediately.”

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Anything to do with buybacks?

Equities Peak 12-18 Months After A Peak In Margins; We’re Now 15 Months In (ZH)

Two months ago, we looked at historical examples of what happens with the US economy any time corporate profit margins suffer a drop as large as the one experienced over the past 12 months when margins have plunged by (at least) 60 bps. The outcome: a recession on 5 out of 6 prior occasions. And while the economy is already feeling the recessionary impact of sliding margins as predicted in early October, with the manufacturing ISM printing at its lowest level since the recession, an even more important question is what happens to the stock market now that margins have peaked.

On this topic, most have been mum with the usual “answer” being that margins will keep rising. Alas, as even Goldman recently showed they won’t. So assuming margins have peaked in this cycle, what does that mean for stocks? For the very simple answer we go to Credit Suisse according to which “equities peak 12-18 months after a peak in margins.” Where are we now? “we are now 15 months after the peak in margins.” So, give or take three more months?

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Are people thinking of selling?

Commodity-Related -Junk- Bonds Face Big Losses: Moody’s (MarketWatch)

The oil and gas and metals and mining sectors are facing a spike in defaults and downgrades in 2016 and investors that have piled into their bonds in the hunt for yield are facing major losses, Moody’s warned Wednesday. Companies in those two sectors have issued nearly $2 trillion in bonds globally since 2010, according to the rating agency, many of them in the high-yield — or “junk bond” — category. Now prices of a range of commodities, from oil, to copper, iron ore, gold and coal are at multiyear lows, battered by weak demand and oversupply. “The sheer volume of commodity-related debt poses challenges because it means that credit losses from commodity investments will be substantial for many investors,” said Mariarosa Verde, Moody’s group credit officer and lead author of a report published Wednesday on the credit hazard posed by the current stress in commodity markets.

“Considering the maturing stage of the current credit cycle, mounting losses on commodity company debt seem likely to intensify the capital markets’ swing to greater risk aversion,” she said. Oil and gas and metals and mining issuers represent just 14% of Moody’s nonfinance corporate ratings but accounted for 36% of downgrades through October, and 48% of defaults. Moody’s is expecting the trend to continue in 2016, with 34% of companies on watch for a downgrade or on negative outlook. “Many companies were temporarily cushioned by hedging programs and fixed-price contracts in the early stages of the downturn,” said Daniel Gates, a Moody’s managing director. “Others have been sustained by cash balances that are eroding. Diminishing liquidity and restricted access to capital markets are now pushing more firms closer to default.”

Oil and gas companies dominate U.S. junk-bond issuance, many of them shale plays that emerged during the fracking boom. The steep decline in the price of oil has now made many of them unprofitable, just as their debt-servicing costs are rising.

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Cutting production is supposed to cut the Saudi deficit? Whatever it cuts, others will produce. There’s no way to win this.

Oil Speculators Risk ‘Short Squeeze’ If Impulsive Saudi Prince Throws OPEC Surprise (AEP)

Hedge funds have taken their bets. The market is convinced that Saudi Arabia will ignore the revolt within OPEC at a potentially explosive meeting on Friday, continuing to flood the global markets with excess oil. Short positions on US crude and Brent have reached 294m barrels, the sort of clustering effect that can go wildly wrong if events throw a sudden surprise. The world is undoubtedly awash with oil and the last storage sites are filling relentlessly, but speculators need to be careful. They are at the mercy of opaque palace politics in Riyadh that few understand. Helima Croft, a former analyst for the US Central Intelligence Agency and now at RBC Capital Markets, says the only man who now matters is the deputy crown prince, Mohammed bin Salman.

The headstrong 30-year-old has amassed all the power as minister of defence, chairman of Aramco and head of the Kingdom’s top economic council, much to the annoyance of the old guard. “He is running everything and it comes down to whether he thinks Saudi Arabia can take the pain for another year,” she said. The pretence that all is well in the Kingdom is wearing thin. Austerity is becoming too visible. A leaked order from King Salman – marked “highly urgent” – freezes new hiring and halts public procurement, even down to cars and furniture. The system of cradle-to-grave welfare that keeps a lid on public protest and holds the Wahhabi state together risks unravelling. Subsidies are draining away. It will no longer cost 10p a litre to fill a petrol tank. VAT is coming. There will be a land tax. Yet these measures hardly make a dent on a budget deficit running near $140bn a year, or 20pc of GDP.

The German intelligence agency BND issued an extraordinary report warning that Prince Mohammed is taking Saudi Arabia into perilous waters. “The thus far cautious diplomatic stance of the elder leaders in the royal family is being replaced by an impulsive interventionist policy,” it said. The war in Yemen – Saudi Arabia’s “Vietnam” – grinds on at a cost of $1.5bn month. It is far from clear whether the Kingdom can continue to bankroll Egypt as ISIS operations spread from the Sinai to Cairo suburbs. The risk of a Saudi sovereign default over the next 10 years has suddenly jumped to 23pc, measured by credit default swaps. Riyadh’s three-month Sibor rate watched as a gauge of credit stress has spiked to the highest levels since the Lehman crisis.

Nerves are so frayed in Riyadh that the interior ministry is lashing out blindly. There are reports that more than 50 prisoners are to be beheaded, including Sheikh Nimr al-Nimr, the Shia cleric sentenced to death for leading civic protests in 2012. There is no surer way to light the fuse on wholesale conflagration in the Shia stronghold of the Eastern Province, where the oil reserves lie. Shia underground groups in Iraq have threatened a whirlwind of gruesome revenge if the execution is carried out. This, then, is the state of Saudi Arabia a year into an oil crash that the Kingdom itself engineered to drive out rival producers.

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Sounds good, but reality is lost in translation: nobody’s sure which emissions.

China Says To Cut Power Sector Emissions By 60% By 2020 (Reuters)

China will cut emissions of major pollutants in the power sector by 60% by 2020, the cabinet announced on Wednesday, after world leaders met in Paris to address climate change. China will also reduce annual carbon dioxide emissions from coal-fired power generation by 180 million tonnes by 2020, according to a statement on the official government website. It did not give comparison figures but said the cuts would be made through efficiency gains. In Paris, Christiana Figueres, head of the U.N. Climate Change Secretariat, said she had not seen the announcement, but linked it to expectations that China’s coal use would peak by the end of the decade. “I can only assume they are talking about the same thing,” she told Reuters.

Researchers at Chinese government-backed think-tanks said last month that coal consumption by power stations in China would probably peak by 2020. An EU official, speaking on condition of anonymity, said Wednesday’s announcement seemed to relate more to air pollutants than greenhouse gas emissions. China’s capital Beijing suffered choking pollution this week, triggering an “orange” alert, the second-highest level, closing highways, halting or suspending construction and prompting a warning to residents to stay indoors. The smog was caused by “unfavourable” weather, the Ministry of Environmental Protection said. Emissions in northern China soar over winter as urban heating systems are switched on and low wind speeds meant that polluted air does not get dispersed.

The hazardous air, which cleared on Wednesday, underscores the challenge facing the government as it battles pollution caused by the coal-burning power industry and raises questions about its ability to clean up its economy. Reducing coal use and promoting cleaner forms of energy are set to play a crucial role in China’s pledges to bring its greenhouse gas emissions to a peak by around 2030.

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They’re not fooling around.

Russia Presents Proof Of Turkey’s Role In ISIS Oil Trade (RT)

The Russian Defense Ministry has released evidence which it says unmasks vast illegal oil trade by Islamic State and points to Turkey as the main destination for the smuggled petrol, implicating its leadership in aiding the terrorists. The Russian Defense Ministry held a major briefing on new findings concerning IS funding in Moscow on Wednesday. According to Deputy Defense Minister Anatoly Antonov, Russia is aware of three main oil smuggling routes to Turkey. “Today, we are presenting only some of the facts that confirm that a whole team of bandits and Turkish elites stealing oil from their neighbors is operating in the region,” Antonov said, adding that this oil “in large quantities” enters the territory of Turkey via “live oil pipelines,” consisting of thousands of oil trucks. Antonov added that Turkey is the main buyer of smuggled oil coming from Iraq and Syria.

“According to our data, the top political leadership of the country – President Erdogan and his family – is involved in this criminal business.” However, since the start of Russia’s anti-terrorist operation in Syria on September 30, the income of Islamic State (IS, formerly ISIS) militants from illegal oil smuggling has been significantly reduced, the ministry said. “The income of this terrorist organization was about $3 million per day. After two months of Russian airstrikes their income was about $1.5 million a day,” Lieutenant-General Sergey Rudskoy said. At the briefing the ministry presented photos of oil trucks, videos of airstrikes on IS oil storage facilities and maps detailing the movement of smuggled oil. More evidence is to be published on the ministry’s website in the coming says, Rudskoy said. The US-led coalition is not bombing IS oil trucks, Rudskoy said.

For the past two months, Russia’s airstrikes hit 32 oil complexes, 11 refineries, 23 oil pumping stations, Rudskoy said, adding that the Russian military had also destroyed 1,080 trucks carrying oil products. “These [airstrikes] helped reduce the trade of the oil illegally extracted on the Syrian territory by almost 50%.” Up to 2,000 fighters, 120 tons of ammunition and 250 vehicles have been delivered to Islamic State and Al-Nusra militants from Turkish territory, chief of National Centre for State Defense Control Lt.Gen. Mikhail Mizintsev said. “According to reliable intelligence reports, the Turkish side has been taking such actions for a long time and on a regular basis. And most importantly, it is not planning to stop them.”

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Fun facts.

The Greatest Economic Collapses in History (Howmuch.net)

The very first major economic collapse in recorded history occurred in 218-202 BC when the Roman Empire experienced money troubles after the Second Punic War. As a result, bronze and silver currencies were devalued. As depicted in the video below economic collapses date back thousands of years. While many countries today still feel the effects of the most recent Global Financial Crisis, it is important to note that economic troubles are not unique to the present-day, but rather date back to some of the oldest civilizations.

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Looks increasingly like Rousseff’s afraid she’ll be persecuted one she steps down. The country pays a high price for that fear.

Brazil Goes From Crisis to Crisis as Impeachment Bid Moves Ahead (BBG)

Even in Brazil, a country that is no stranger to crisis, the recent, rapid-fire succession of financial, economic and political blows has been breathtaking. After a week in which the nation’s top young financier was thrown in jail alongside a senator – pushing his bank into a struggle for survival – and Goldman Sachs warned the economy was slipping into a full-blown depression, impeachment proceedings were initiated late Wednesday against President Dilma Rousseff. Though the hearings will ultimately center on whether Rousseff violated fiscal laws, the root of her widespread unpopularity is the same that landed the banker, Andre Esteves, in jail and crippled the economy: an unprecedented corruption scandal that’s hamstrung the country’s biggest companies and triggered policy paralysis in the capital city.

With GDP now shrinking at an annualized pace of almost 7% and the budget deficit swelling to the widest in at least two decades, Brazil’s currency and local bond markets have posted deeper losses than those of any other developing nation this year. “The important thing is that Brazil has a political resolution at some point over the next few months,” said Pablo Cisilino at Stone Harbor Investment in New York. “If impeachment is the way to get it then it’ll be welcomed by the market, but there are so many twists and things that can happen between now and then.” Lower house speaker Eduardo Cunha said Wednesday night he accepted one of 34 requests to impeach the president on charges that range from illegally financing her re-election to doctoring fiscal accounts this year and last.

Impeachment hearings could take months, involving several votes in Congress that ultimately may result in the president’s ouster. Rousseff will challenge any proceedings in the Supreme Court, according to a government official with direct knowledge of her defense strategy.

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It’ll be a while before we understand the scope of the consequences.

Massive El Niño Sweeping Globe Is Now The Biggest Ever Recorded (NS)

The current extreme El Nino is now the strongest ever recorded, smashing the previous record from 1997-8. Already wreaking havoc on weather around the world, the new figures mean those effects will probably get worse. Climate change could be to blame and is known to be making the extreme impacts of El Nino on weather more likely. The 1997-8 El Nino killed 20,000 people and caused almost $97 billion of damage as floods, droughts, fires, cyclones and mudslides ravaged the world.

Now the current El Nino has surpassed the 1997-8 El Nino on a key measure, according to the latest figures released by the US National Oceanic and Atmospheric Agency. El Nino occurs when warm water that has piled up around Australia and Indonesia spills out east across the Pacific Ocean towards the Americas, taking the rain with it. A key measure of its intensity is the warmth of water in the central Pacific. In 1997, at its peak on 26 November, it was 2.8C above average. According to the latest measurements, it reached 2.8C on 4 November this year, and went on to hit 3.1C on 18 November – the highest temperatures ever seen in this region.

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Who needs birds, right?

More Than A Quarter Of UK Birds Are Fighting For Survival (Guardian)

More than a quarter of the UK’s birds including much-loved species such as the curlew and puffin are now fighting for survival, a new report warns. The latest assessment of the status of the UK’s 244 birds has “red-listed” 27% as being of “highest conservation concern” – meaning urgent action is needed to prevent their extinction locally. Most of the 67 species have suffered severe declines, with their numbers or range being halved in recent decades. There has been an increase of 15 species on the red list since the last assessment in 2009. The curlew, recognised by its long, curved beak and distinctive call, has suffered a rapid decline in its UK population of 42% between 1995 and 2008. A report last month called for the upland bird to become the country’s highest conservation priority because of the global importance of its UK population – estimated to represent more than 30% of the west European population.

The curlew is one of five upland species added to the red list alongside the dotterel, whinchat, grey wagtail and merlin. This highlights that many of the UK’s upland species are in increasing trouble, the report warns, with the total number of upland birds on the red list now reaching 12. Forestry, shooting, recreation, renewable energy generation and water storage are all increasingly putting pressure on upland bird populations. Other species remain well below historical levels or are considered to be at risk of global extinction. A growing number of seabirds including the shag and kittiwake have been added to the red list, along with the charismatic puffin, which has suffered a worldwide population decline. In October, puffins were added to the International Union for Conservation of Nature (IUCN) red list of species for the first time, putting them at the same risk of extinction as the African elephant and lion.

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Europe fails on all fronts.

Kicking Greece Out Of Schengen Won’t Stop The Refugee Crisis (Guardian)

According to various German, Hungarian, Slovak, Polish and many other EU government officials, Greece this summer openly denied its responsibility to guard the external borders of Europe. Greece is accused of having failed to register people, to prepare checkpoints for refugees and irregular migrants at so-called hotspots on time, and to relocate as many refugees as it promised to. But blaming a weak Greek administration is an easy and popular way to deflect blame that may lie much closer to home. The immigration minister in Athens tells a different story: he claims that he has been waiting in vain for the Eurodac machines required for taking fingerprints; only a few of those promised ever made it to Greece. And yet, between 25 October and 25 November, out of 45,000 people who arrived in hotspot areas, 43,500 were fingerprinted – mostly by national police officers working around the clock.

The EU has for months been dragging its feet in providing support for overworked Greek border staff. On 2 October, Frontex requested 775 border guards from EU member states and Schengen-associated countries, in large part to assist Greece and Italy in handling the record numbers of migrants at their borders. Until 20 October EU partners had contributed just 291. By mid-November, 133 had been deployed to Greek islands, and Frontex was still issuing desperate requests to EU countries to chip in more officers to help with screening and registration. The criticism of Greece’s failure to meet the hotspot deadlines also rings hollow. Surely EU leaders have known for some time how difficult it would be to meet deadlines – as long ago as 25 Oct they pressured the Greek immigration minister to finish establishing the hotspots at the end of November.

Blaming Greece for its ineffectiveness in relocating refugees is also much easier than admitting that the entire relocation system has collapsed before really finding its feet – something the European commission president, Jean-Claude Juncker, implicitly admitted when he estimated that at the current rate the relocation of 160,000 people from Greece and Italy would be completed in around 2101. Greece has so far relocated 30 people to Luxembourg, Italy another 130 to other EU countries. Last week only one single person was relocated from Italy to Sweden. Another 150 in Greece are documented and waiting to go.

For many EU officials, Greece crossed a line when it refused to let Frontex take control of its borders to the Balkans last week. In fact, this wasn’t the case: all Greece had done was to challenge the absurd terms dictated by Frontex. Frontex proposed an operation plan that would reproduce a policy implemented by western Balkan countries to filter arrivals at border checkpoints by nationality – something that is still illegal by European and international standards. It also assumes that people refused at the border will be transferred to “reception facilities” – without going into detail what this means. Does it mean that the Greek authorities would assist Frontex in filtering nationalities at their northern border and then lock up the tens of thousands who don’t have the right profile?

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Empty rethoric.

(Greek) EU Commissioner Tells Athens To Speed Up Border Controls (Kath.)

European Immigration and Home Affairs Commissioner Dimitris Avramopoulos on Wednesday warned that Greece needs to improve its border controls by mid-December, amid media reports that the country may by expelled from the Schengen Agreement if it fails to do so. In exclusive comments made to Kathimerini, the Greek commissioner noted that the country’s timetable for action was clear and that the situation had to improve considerably by December 17, in time for a new EU Summit on the refugee and migrant crisis. Also on Wednesday, Avramopoulos raised the issue at the College of Commissioners. Responding to a question by Kathimerini as to whether or not a Greek exit from the Schengen area was on the table, he noted that the treaty was founded “on the principles of solidarity and responsibility” and that any “effort to challenge it, in essence challenges these very principles, has no benefit and does not offer a solution.”

Avramopoulos further noted that “The refugee crisis we’re faced with is unprecedented. It does not solely concern first reception or destination countries, but Europe as a whole.” “Despite the stifling pressure put on Greece, it is absolutely vital for the country to complete this effort which will lead to tangible results,” the commissioner said. In his comments to Kathimerini, Avramopoulos stressed that “the immediate and complete implementation of agreed measures at recent summits, both by Greece as well as by other members states, will reinforce safety at sea borders as well as reintroduce control at the northern borders, where non-identified migrants are trying to continue their journey toward the north.”

“The Greek government is aware of the need to speed up the process based on the agreed timetables,” he added. Asked about the timetable, Avramopoulos said “the situation must have improved substantially by December 17, both in terms of the sea and the land borders.” “I’m optimistic that this will put an end to theories of either a Schengen zone collapse or the country exiting the treaty,” the commissioner said.

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Might as well suspend the euro for two years as well.

Leaked Memo Reveals EU Plan To Suspend Schengen For Two Years (Zero Hedge)

Earlier today we reported that in a dramatic and, what to many may seem unfair variation of “carrot and stick” negotiations conducted by European bureaucrats, the EU threatened Greece with indefinite suspension from the Schengen passport-free travel zone unless it overhauls its response to the migration crisis by mid-December, as frustration mounted over Athens’ reluctance to accept outside support. The slap on the face of the Greeks was particularly painful because this warnings of an temporary expulsion from the EU happens just days after Turkey not only got a €3 billion check from Europe because it has been far more “amenable” in negotiating the handling of the hundreds of thousands of refugees that exit its borders in direction Europe, but also was promised a fast-track status in negotiations to be considered for EU accession and visa free travel.

Ironically, it is also Turkey which is the source of virtually all Greek refugee headaches. We summarized the situation earlier as follows: “not only do the Greeks suffer under the weight of 700,000 refugees crossing into its borders from Turkey and headed for a “welcoming Germany” which is no longer welcoming, now they have to suffer the indignity of being ostracized by their own European “equals” who are being remarkably generous with non-EU member Turkey, which may very well be funding ISIS by paying for Islamic State oil and thus perpetuating the refugee crisis, while threatening to relegate Greece into the 4th world, and with visa requirements to get into Europe to boot!” However, it appears there is much more to this story than merely a case of vindication against the Greeks.

As Steve Peers from EU Law Analysis writes, according to a leaked Council memo, Europe’s intention is to put the framework in place for a comprehensive suspension of Schengen for all countries, for a period as long as two years, not just Greece in the process effectively undoing the customs union aspect of the European Union, which also happens to be its backbone. “The following is Council document 14300/15, dated 1 December 2015. It’s entitled ‘Integrity of the Schengen area’, and addressed to Coreper (the body consisting of Member States’ representatives to the EU) and the Council – presumably the Justice and Home Affairs ministers meeting Thursday 3 and Friday 4 December.”

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“This refusal is not because Greece believes it needs no aid; it is because it thinks the offer grossly deficient. If this sounds familiar, that’s because it is.”

Greece Is Back At The Heart Of EU’s Existential Crisis (Telegraph)

Europe’s economic and migrant crises may seem to be entirely separate issues, but parallels between the two are becoming ever more impossible to ignore. I touched on this subject in a column this morning, but since writing, a further common element has emerged. One way or another, Greece always seems to be in the vanguard of every European crisis, and now it’s assumed centre stage in the debacle of Schengen. This is of course because Greece is a frontline state; as such it is one of the main portals for migrants into the European Union. Once in, migrants can travel freely, thanks to Schengen, throughout much of the EU until they reach the country where they wish to claim asylum or otherwise work illegally. Most European states believe that Greece has badly mishandled its responsibilities on border control, and following refusal to accept wider European help in tackling the crisis, the EU is now threatening Greece with expulsion from Schengen.

Such action would essentially divorce Greece from the main body of the EU. As with Britain, which is not a member of Schengen, border controls would have to be established to patrol passage from Greece to the rest of the EU. The EU is able to threaten expulsion because Greece is reluctant to accept limited offers of help, including humanitarian aid and a special mission from Frontex, Europe’s hopelessly inadequate version of a federal borders agency. This refusal is not because Greece believes it needs no aid; it is because it thinks the offer grossly deficient. If this sounds familiar, that’s because it is. Exactly the same thing happened over Europe’s sovereign debt crisis. Limited relief was offered by the EU, but on terms and conditions which Greece found unacceptable. In the end, it was forced to capitulate, the alternative being expulsion from the Euro, which even Alexis Tsipras, the Greek prime minister, found unconscionable.

That will very likely be the outcome of the Schengen fiasco too. The big point here is that the EU, and its inner, Eurozone core, pretend to be a kind of United States of Europe, but are still a hundred miles away from the federal system and institutions that would make it so. When push comes to shove, collective problems are regarded as national liabilities, demanding national solutions. The upshot is that almost no crisis can be properly addressed. When times are good, the EU muddles along harmoniously enough, but when the going gets tough, the whole thing fragments and nation quarrels with nation. The irony is that both the economic and the migrant crises have been made very much worse by Europe’s half completed march to federalism. It pretends federal arrangements, but its institutions lack the political legitimacy to mount credible federal solutions. Europe must either urgently march forward, or it must march back.

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Detain them where, oh Donald? Greece perhaps? Poland? How about we detain Tusk for a few years?

Detain Refugees Arriving In Europe For 18 Months, Says Tusk (Guardian)

Refugees arriving in Europe should be detained for up to 18 months in holding centres across the EU while they are screened for security and terrorism risks, the president of the European council has said. Donald Tusk also put himself strongly at odds with Europe’s most powerful politician, Angela Merkel, by declaring that there was no majority among European governments for a binding quotas system to share refugees between them. The mandatory refugee-sharing regime is the German chancellor’s chief policy for dealing with the migration crisis, not least since about 1 million are expected to enter Germany this year.

In a lengthy interview with the Guardian and five other European newspapers, Tusk, the former Polish prime minister, described Merkel’s open-door policy on refugees as “dangerous” and derided data claiming that Syrian-war refugees made up a majority of those trying to get to Europe. Public confidence in governments’ ability to tackle the immigration crisis would only be restored by a stringent new system of controls on the EU’s external borders, he said. Tusk’s remarks contradicted Berlin’s stance and also the asylum policies being drafted across the street from his Brussel’s office in the European commission. In a reference to Merkel’s comment on the migration crisis, Tusk said “some” European leaders “said that this wave of migrants is too big to stop. I’m absolutely sure that we have to say that this wave of migrants is too big not to stop them.

But this change of approach must be a common effort. It’s not about one leader. “I think that what we can expect from our leaders today is to change this mindset, this opinion, [which is] for me one of the most dangerous in this time.” In a warning to the rest of Europe, Merkel recently told the Bundestag that the survival of the EU’s free-travel Schengen area hinged on whether national governments could agree on a permanent new regime of sharing refugees. In September she pressed for a majority vote at an EU summit making the sharing of 160,000 refugees obligatory despite strong resistance from eastern Europe. Berlin and the commission are now pushing for a more ambitious permanent scheme directly resettling refugees across the EU from Turkey and the Middle East.

[..] ccording to the International Organisation for Migration, nearly two-thirds or 64% of people crossing from Turkey into the EU via the Greek islands by October this year were Syrians – 388,000 of a total of 608,000. A quarter of those making the crossing were children, the IOM said this week. Of 12 deaths in the past week, nine were children and 90 died in October alone.

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“..to avoid diplomatic complications I will not tell you which country Berlin is in….”

Half A Million Syrian Refugees Could Be Resettled To EU: Hungary PM (Reuters)

European Union and Turkish leaders may announce a behind-the-scenes agreement later this week to resettle 400,000 to 500,000 Syrian refugees directly from Turkey to the EU, Hungarian Prime Minister Viktor Orban said on Wednesday. Orban has locked horns with EU partners for years over economic policy, political freedoms and most recently the handling of the migrant crisis, in which the Hungarian leader took a hard line and erected a steel fence along the country’s southern border to keep out migrants. Hungary has firmly resisted the idea of resettlement quotas to distribute more evenly the migrants, most of whom wanted to go to Germany or Sweden.

Speaking to a meeting of Hungarian leaders in Budapest, Orban said he expected intense pressure from Europe to accept some part of those half a million refugees, something he said Budapest could not do. He added that the agreement has already been floated at a recent EU summit in Malta but was abandoned and not included in the EU-Turkey agreements signed at the weekend in Brussels after its proponents could not gather the necessary support for it. “The issue (of resettlement) will be a hot potato in the coming period because even though this could be kept in a semi-secret state… someone somewhere – I think in Berlin this week – will announce that 4-500,000 Syrian refugees could be brought straight from Turkey to the EU,” Orban said.

“This nasty surprise still awaits Europeans.” He alluded to the deal being orchestrated by Germany, and said it could frame the political discourse in Europe in the next few days and weeks. “The pressure will be intense on us and the other Visegrad Four countries (Poland, Slovakia and the Czech Republic),” he said. “They will portend that once the agreement is made by certain parties – and to avoid diplomatic complications I will not tell you which country Berlin is in – we should not only bring these people to Europe but divide them amongst ourselves, as an obligation.” “It will not be an easy one because obviously we cannot accept it like this.”

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“They don’t dare to ask us ‘drown them’, but if you do push-back on a plastic boat in the middle of the sea with 50 or 70 refugees aboard, you’re asking me to drown them..”

Greece Spent €1 Billion On Refugees, Got €30 Million In EU Assistance (Reuters)

With no land borders with the rest of the 26-nation Schengen area, Greece has allowed hundreds of thousands of people, many of them Syrian refugees, to travel from its islands off the Turkish coast across Greece to the northern border with non-EU FYROM as they head for Germany. Mouzalas said that as long as Turkey did not shut down people smugglers operating on its coastline, Athens could not stop frail boats packed with refugees from landing on Greek islands in the Aegean Sea. He said he had taken EU ambassadors out to sea to watch arrivals and asked what Athens should do. “They don’t dare to ask us ‘drown them’, but if you do push-back on a plastic boat in the middle of the sea with 50 or 70 refugees aboard, you’re asking me to drown them,” the minister said.

EU diplomats said suspending Greece from the open-border rules – activating Article 26 of the Schengen treaty so that people arriving at ports and airports from Greece were treated as coming from outside the Schengen zone – could be discussed at a meeting of EU interior ministers on Friday. However, some also said that Greece appeared to be moving now to implement EU measures to control migrants and so a common front against Athens was unlikely as early as this week. “It’s a tool for pushing Greece to accept EU help,” one senior diplomat said. Since migrants have rarely used airlines or international ferries, the main impact of other Schengen states imposing passport checks on arrivals from Greece would be on Greeks and tourists who are vital to the Greek economy.

Lithuanian Foreign Minister Linas Linkevicius told Reuters: “It was said because of (Greece’s) reluctance to protect the border. But now the latest signals are coming that they are taking these measures finally.” EU officials accept Greek criticism that other states have failed to organize facilities to take in refugees but say Athens, despite the economic problems that saw it nearly drop out of the euro zone this year, could do more. Mouzalas said Greece has spent €1 billion in additional unbudgeted funds from its strained budget this year on coping with the refugee influx, and had received a mere €30 million so far in EU assistance due to bureaucracy on both sides. He welcomed EU border agency Frontex assistance to register refugees but said that under Greek law, only Greek forces could patrol its border.

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Dec 022015
 
 December 2, 2015  Posted by at 9:39 am Finance Tagged with: , , , , , , , , , , , ,  Comments Off on Debt Rattle December 2 2015


Lewis Wickes Hine News of the Titanic and possible survivors 1912

China Has Reached ‘Peak Debt’ (David Stockman)
Manufacturing in US Unexpectedly Shrinks Most Since June 2009 (BBG)
7 Years After The Crisis, Britain Is Still Addicted To The Drug Of Debt (Ind.)
British Workers Will Have Worst Pensions Of Any Major Economy (Guardian)
Volkswagen US Sales Plunge 25%, S&P Cuts Rating (AP)
Piketty: Inequality Is A Major Driver Of Middle Eastern Terrorism (WaPo)
Saudi Arabia Accounted For 75% Of Value Of Official Gifts To US In 2014 (ITP)
Saudi Arabia’s Campaign To Charm US Policymakers And Journalists (Intercept)
Pope Orders Unprecedented Audit of Vatican Wealth (BBG)
China Needs More Users For ‘Freely Usable’ Yuan After IMF Nod (Reuters)
A Reserve Currency Brings Boom and Busts (BBG)
‘Sound Finance’? The Logic Behind Running A Budget Surplus (Steve Keen)
Greece Threatened With Schengen Expulsion Over Refugee Response (FT)
Denmark To Vote On More Or Less EU (EUObserver)
Merkel Accused In Germany Of Kowtowing To Erdogan (EurActiv)
Turkish Military Says Secret Service Shipped Weapons To Al-Qaeda (AM)
Russia Wants To Stop ISIS’ Illegal Oil Trade With Turkey (RT)
Turkish Stream Gas Pipeline Freezes (Reuters)
Puerto Rico’s Financial Crisis Just Got More Serious (WaPo)
Human Rights Watch Demands US Criminal Probe Of CIA Torture (Reuters)
4-Year Old Girl Drowns As Refugee Boat Tries To Reach Greek Shores (Kath.)

“..China has borrowed $4.50 for every new dollar of reported GDP, and far more than that when it comes to the production of sustainable wealth..”

China Has Reached ‘Peak Debt’ (David Stockman)

The danger lurking in the risk asset markets was succinctly captured by MarketWatch’s post on overnight action in Asia. The latter proved once again that the casino gamblers are incapable of recognizing the on-rushing train of global recession because they have become addicted to “stimulus” as a way of life:

Shares in Hong Kong led a rally across most of Asia Tuesday, on expectations for more stimulus from Chinese authorities, specifically in the property sector…….The gains follow fresh readings on China’s economy, which showed further signs of slowdown in manufacturing data released Tuesday (which) remains plagued by overcapacity, falling prices and weak demand. The dimming view casts doubt that the world’s second-largest economy can achieve its target growth of around 7% for the year. The central bank has cut interest rates six times since last November.

More stimulus from China? Now that’s a true absurdity – not because the desperate suzerains of red capitalism in Beijing won’t try it, but because it can’t possibly enhance the earnings capacity of either Chinese companies or the international equities. In fact, it is plain as day that China has reached “peak debt”. Additional borrowing there will not only prolong the Ponzi and thereby exacerbate the eventual crash, but won’t even do much in the short-run to brake the current downward economic spiral. That’s because China is so saturated with debt that still lower interest rates or further reduction of bank reserve requirements would amount to pushing on an exceedingly limp credit string. To wit, at the time of the 2008 crisis, China’s “official” GDP was about $5 trillion and its total public and private credit market debt was roughly $8 trillion.

Since then, debt has soared to $30 trillion while GDP has purportedly doubled. But that’s only when you count the massive outlays for white elephants and malinvestments which get counted as fixed asset spending. So at a minimum, China has borrowed $4.50 for every new dollar of reported GDP, and far more than that when it comes to the production of sustainable wealth. Indeed, everything is so massively overbuilt in China – from unused airports to empty malls and luxury apartments to redundant coal mines, steel plants, cement kilns, auto plants, solar farms and much, much more – that more borrowing and construction is not only absolutely pointless; it is positively destructive because it will result in an even more destructive adjustment cycle. That is, it will only add to the immense already existing downward pressure on prices, rents and profits in China, thereby insuring that even more trillions of bad debts will eventually implode.

[..] When peak debt is reached, additional credit never leaves the financial system; it just finances the final blow-off phase of leveraged speculation in the secondary markets.

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Pretty much a global trend, and pretty much not unexpected.

Manufacturing in US Unexpectedly Shrinks Most Since June 2009 (BBG)

Manufacturing in the U.S. unexpectedly contracted in November at the fastest pace since the last recession as elevated inventories led to cutbacks in orders and production. The Institute for Supply Management’s index dropped to 48.6, the lowest level since June 2009, from 50.1 in October, its report showed Tuesday. The November figure was weaker than the most pessimistic forecast in a Bloomberg survey. Readings less than 50 indicate contraction. The report showed factories believed their customers continued to have too many goods on hand, indicating it will take time for orders and production to stabilize.

Manufacturers, which account for almost 12% of the economy, are also battling weak global demand, an appreciating dollar and less capital spending in the energy sector. “There are some clear signs of weakness — industries that are tied to oil and gas, agriculture or are heavily dependent on exports are all clearly slowing,” Mark Vitner at Wells Fargo Securities said before the report. “It wouldn’t surprise me if the manufacturing numbers remain soft for the next five to six months.”

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We all are…

7 Years After The Crisis, Britain Is Still Addicted To The Drug Of Debt (Ind.)

It’s seven years after the financial crisis and the banking industry is still in receipt of state support – support that will be available for two more years, and perhaps for longer. The Treasury and the Bank of England have decided to extend their Funding for Lending Scheme (FLS), which supplies banks with cheap money with the aim of keeping the supply of credit flowing. What ought, in theory, to be the scheme’s final outing will be very specifically targeted at lending to small and medium-sized enterprises (SMEs). This is a sector which is still struggling to obtain the funding it needs at a time when lending to other sectors has largely recovered. The Bank says that things are improving, and its figures bear that out. But not quickly, and the growth in small business lending pales by comparison to the growth in consumer lending.

The expansion of the latter is starting to cause concern, with the Bank’s chief economist, Andy Haldane, fretting about personal loans. He says they’re picking up at a rate of knots. Britain has long nursed an addiction to the drug of debt that it’s never really addressed and the growth in unsecured lending is an indication of a return to bad habits. Given that Mr Haldane and his colleagues are engaged in the unenviable task of walking an economic tightrope, it’s no wonder that he’s getting twitchy. But consumers are not, as yet, shooting up with the sort of wild abandon they exhibited in the run-up to the crisis. And, as Investec’s Philip Shaw points out, it wasn’t so long ago that we were still talking about the need to make more credit available.

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Not to worry: by 2050, pensions will be long gone.

British Workers Will Have Worst Pensions Of Any Major Economy (Guardian)

Workers in the UK will have the worst pensions of any major economy and the oldest official retirement age of any country, according tothe Organisation for Economic Co-operation and Development. The typical British worker can look forward to a pension worth only 40% of their pay , once state and private pensions are combined. The Paris-based thinktank said on Tuesday that this compares with about 90% in the Netherlands and Austria and 80% in Spain and Italy. Only Mexico and Chile offer their workers a worse prospect after retirement, although Turkey is the surprise table-topper, giving its retirees an average pension equal to 105% of average wages, according to the OECD report. Britain has begun an auto-enrolment scheme that will offer millions of low-paid workers a private pension for the first time.

But with contribution rates low, the payouts will not be generous. Last week the chancellor, George Osborne, gave employers a six-month delay to planned increases in their contribution rates. Pensions expert Tom McPhail of Hargreaves Lansdown said: “This analysis makes embarrassing reading for the politicians who have been responsible for the UK’s pensions over the past 25 years. “The state pension was in steady decline for years. Even though it is improving for lower earners now, average payouts will not be rising. It is in the private sector though where the real damage has been done; the collapse in final salary pensions has not yet been replaced with well-funded alternatives.” The age at which workers qualify for a state pension in the UK will, at 68 years old, be the highest of any country in the world, equalled only by Ireland and Czech Republic.

The prize for earliest retirees goes to France and Belgium. “Workers stay the longest in the labour market in Korea, Mexico, Iceland and Japan; men exit the soonest in France and Belgium while women leave the earliest in the Slovak Republic, Slovenia and Poland,” said the OECD. While many European countries offer significantly better pensions than in Britain, the cost is now close to sustainable, said the OECD. In recent years there have been frequent warnings about the “demographic timebomb” that will wreck the finances of ageing European nations. But the OECD said that changes to taxation, contribution rates and pensionable ages means that the burden of paying pensions will rise from the current level of 9% of GDP to just 10.1% by 2050.

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Europe sales are a bigger deal. But the scandal isn’t done deepening.

Volkswagen US Sales Plunge 25%, S&P Cuts Rating (AP)

Standard and Poor’s cut Volkswagen’s credit rating to “BBB+” from “A-” on Tuesday, shortly after the automaker reported that an emissions-cheating scandal took a serious bite out of its U.S. sales last month. The German automaker said that November U.S. sales fell almost 25% from a year ago. The company blamed the decline on stop-sale orders for diesel-powered vehicles that the government says cheated on pollution tests. The VW brand sold just under 24,000 vehicles last month compared with almost 32,000 a year ago.

S&P noted the emissions scandal also contributed to its ratings cut. The agency said it expects Volkswagen to “experience ongoing adverse credit impacts.” The U.S. is a relatively small market for Volkswagen. The VW brand sold 490,000 vehicles worldwide in October, 5% below a year ago. VW has admitted that 482,000 2-liter diesel vehicles in the U.S. contained software that turned pollution controls on for government tests and off for real-world driving. The government says another 85,000 six-cylinder diesels also had cheating software.

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“We” want it that way. It’s how “we” (think we) keep control over the oil.

Piketty: Inequality Is A Major Driver Of Middle Eastern Terrorism (WaPo)

Thomas Piketty is out with a new argument about income inequality. It may prove more controversial than his book, which continues to generate debate in political and economic circles. The new argument, which Piketty spelled out recently in the French newspaper Le Monde, is this: Inequality is a major driver of Middle Eastern terrorism, including the Islamic State attacks on Paris earlier this month — and Western nations have themselves largely to blame for that inequality. Piketty writes that the Middle East’s political and social system has been made fragile by the high concentration of oil wealth into a few countries with relatively little population.

If you look at the region between Egypt and Iran — which includes Syria — you find several oil monarchies controlling between 60 and 70% of wealth, while housing just a bit more than 10% of the 300 million people living in that area. (Piketty does not specify which countries he’s talking about, but judging from a study he co-authored last year on Middle East inequality, it appears he means Qatar, the United Arab Emirates, Kuwait, Saudia Arabia, Bahrain and Oman. By his numbers, they accounted for 16% of the region’s population in 2012 and almost 60% of its gross domestic product.) This concentration of so much wealth in countries with so small a share of the population, he says, makes the region “the most unequal on the planet.”

Within those monarchies, he continues, a small slice of people controls most of the wealth, while a large — including women and refugees — are kept in a state of “semi-slavery.” Those economic conditions, he says, have become justifications for jihadists, along with the casualties of a series of wars in the region perpetuated by Western powers. His list starts with the first Gulf War, which he says resulted in allied forces returning oil “to the emirs.” Though he does not spend much space connecting those ideas, the clear implication is that economic deprivation and the horrors of wars that benefited only a select few of the region’s residents have, mixed together, become what he calls a “powder keg” for terrorism across the region.

Piketty is particularly scathing when he blames the inequality of the region, and the persistence of oil monarchies that perpetuate it, on the West: “These are the regimes that are militarily and politically supported by Western powers, all too happy to get some crumbs to fund their [soccer] clubs or sell some weapons. No wonder our lessons in social justice and democracy find little welcome among Middle Eastern youth.” Terrorism that is rooted in inequality, Piketty continues, is best combated economically.

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All totlly legal, no doubt. “..an emerald and diamond jewellery set containing a ring, earrings, bracelet, and necklace, which was valued at $780,000 [was given to] Teresa Heinz Kerry, wife of US Secretary of State John Kerry.

Saudi Arabia Accounted For 75% Of Value Of Official Gifts To US In 2014 (ITP)

Three quarters of the value of all official gifts given to the US administration in 2014 came from Saudi Arabia, according to US government records. US President Barack Obama, First Lady Michelle Obama, their daughters and US federal government employees received official gifts estimated to be worth a total of $3,417,559 last year. Analysis of the annual disclosure, released by the US Department of State’s Office of the Chief of Protocol, found Saudi Arabia gave the US gifts valued at around $2,566,525. It dominated the report and represented 75% of the value of all gifts received by Obama and his government employees last year.

When all other Arab countries are added to the mix the total value rises to nearly $3 million, with the Arab region accounting for 87% of the value of all gifts. The most lavish gift was an emerald and diamond jewellery set containing a ring, earrings, bracelet, and necklace, which was valued at $780,000. It was not given to Obama, his wife Michelle or his children, but Teresa Heinz Kerry, wife of US Secretary of State John Kerry. The jewels were given to Mrs Kerry in January 2014 by the late King Abdullah bin Abdulaziz Al-Saud. First Lady Michelle Obama is included in the top five with two gifts of jewels from Saudi Arabia, each worth well over half a million dollars.

The president himself is further down the list, behind his children and wife, and ranked 7th with a white gold men’s watch worth $67,000. The six other Gulf states also gave lavish gifts to the Obama administration. Qatar gave Eric Holder, US Attorney General, a $24,150 gold and silver ship depicting United States and the State of Qatar flags in a case, in addition to an engraved Cartier bracelet. The UAE also gifted a gold necklace and earring set with white stones worth around $3,200 to Deborah K. Jones, Ambassador of the US to the State of Libya. The gift was presented in March 2014 on behalf of Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE.

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And the Saudi’s don’t stop there:

Saudi Arabia’s Campaign To Charm US Policymakers And Journalists (Intercept)

Soon after launching a brutal air and ground assault in Yemen, the Kingdom of Saudi Arabia began devoting significant resources to a sophisticated public relations blitz in Washington, D.C. The PR campaign is designed to maintain close ties with the U.S. even as the Saudi-led military incursion into the poorest Arab nation in the Middle East has killed nearly 6,000 people, almost half of them civilians. Elements of the charm offensive include the launch of a pro-Saudi Arabia media portal operated by high-profile Republican campaign consultants; a special English-language website devoted to putting a positive spin on the latest developments in the Yemen war; glitzy dinners with American political and business elites; and a non-stop push to sway reporters and policymakers. That has been accompanied by a spending spree on American lobbyists with ties to the Washington establishment.

The Saudi Arabian Embassy, as we’ve reported, now retains the brother of Hillary Clinton’s campaign chairman, the leader of one of the largest Republican Super PACs in the country, and a law firm with deep ties to the Obama administration. One of Jeb Bush’s top fundraisers, Ignacio Sanchez, is also lobbying for the Saudi Kingdom. Saudi Arabia’s relationship with the U.S. has come under particular strain in recent years as the government has not only launched the brutal war in Yemen, but has embarked on a wave of repression. Following the appointment of Salman bin Abdulaziz Al-Saud to the Saudi throne in January, the Kingdom sharply increased the number of people executed — often by beheading and crucifixion — for daring to protest or criticize the government or for crimes as minor as adultery or “witchcraft.” On November 17, a Saudi court sentenced Ashraf Fayadh, a famed poet, to death for “apostasy.”

There have also been reports that Saudi Arabia continues to be a leading driver of Sunni terror networks worldwide, including in Syria and Iraq. The Saudi Arabian government is currently supplying weapons to a Syrian rebel coalition that includes the Nusra Front, al Qaeda’s affiliate in the region. As the New York Times has reported, private donors in Saudi Arabia have also worked as fundraisers for the Islamic State, or ISIS. And there is a renewed, bipartisan push by lawmakers to declassify the 28 pages of the 9/11 Commission Report, a censored section that reportedly relates to Saudi state support for al Qaeda’s operation.

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It’s been tried before.

Pope Orders Unprecedented Audit of Vatican Wealth (BBG)

Pope Francis, galvanized by a scandal over Vatican finances, has ordered the most powerful bodies in the city-state to launch an unprecedented audit of its wealth and crack down on runaway spending. At the suggestion of his economic chief, Cardinal George Pell, Francis has set up a “Working-Party for the Economic Future” which brings together the Secretariat of State, or prime minister’s office, the Vatican Bank and other agencies. Francis has told the panel “to address the financial challenges and identify how more resources can be devoted to the many good works of the Church, especially supporting the poor and vulnerable,” Danny Casey, director of Pell’s office at the Secretariat for the Economy, said in an interview.

The pope’s initiatives come as five people stand trial in the Vatican over the leak of confidential documents in two books published last month that described corruption, mismanagement and wasteful spending by church officials. Those on trial deny wrongdoing. Francis, 78, has pushed for more openness and transparency in Vatican financial and economic agencies but he has faced resistance from the Rome bureaucracy. On the flight back to Rome on Monday after a visit to Africa, Francis told reporters that the so-called Vatileaks II scandal was an indication of the mess that he’s trying to sort out.

The trial of two former Vatican employees alongside the books’ authors highlighted Church efforts “to seek out corruption, the things which aren’t right,” he said, according to a transcript provided by the Vatican. The working group, which held its first meeting last week, will study measures to cut costs and raise revenue as part of a long-term financial plan. “This will include comparing actual expenditure against budgets at a consolidated level, which is a new initiative,” Casey said.

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The yaun would have to be perceived as stable first. How long will that take, though?

China Needs More Users For ‘Freely Usable’ Yuan After IMF Nod (Reuters)

The IMF’s decision to add China’s yuan to its reserves basket is a triumph for Beijing, but the fund’s verdict that the currency met its “freely usable” test will have little financial impact unless Beijing recruits more users. The desire of Chinese reformers to internationalize the currency has a clear economic rationale; a yuan in wide circulation overseas would reduce China’s dependence on the dollar system and on policy set in Washington. It would also make it easier for Chinese firms to invoice and borrow offshore in yuan, reducing the risk of exchange rate fluctuations and prompting China’s inefficient state-owned banks to improve their performance or lose business. Those concerned about a potential global liquidity crisis caused by overdependence on the United States might also welcome the yuan as an alternative to the dollar, as would countries locked out of dollar capital markets by sanctions.

But to serve these purposes, there needs to be a much bigger pool of yuan outside China, which requires offshore institutions – and not just in Hong Kong – to buy and hold yuan. Few believe the IMF decision alone, which economist Alicia Garcia-Herrero called a “beauty contest”, will change investor behavior much. For that, says Swiss bank UBS, Beijing needs to continue financial reforms and capital account liberalization to improve the efficiency of capital allocation in China. Foreign investors want Beijing to provide predictable and transparent legal and taxation treatment, and drop its penchant for pilot programs and quotas in favor of consistency. They also want to know they can freely sell their yuan assets, not just buy, a concern that only grew over the summer, when Beijing stepped into its stock markets to stop a sell-off.

Foreign investors aren’t making full use of the existing channels to buy Chinese assets that Beijing allows – quotas for the two Qualified Foreign Institutional Investor programs (QFII and RQFII) and the Shanghai-Hong Kong Stock Connect have yet to be used up. And for all the impressive trade statistics, much of the “offshore” yuan isn’t traveling the globe but bouncing to and fro across the internal border with Hong Kong, largely traded between Chinese companies. “The number one thing we would like to see changed is that the QFII and RQFII quotas are dropped, just as they dropped in July the quotas for central banks, sovereign wealth funds and supernationals. It’ll make it a lot easier for global institutional investors,” said Hayden Briscoe at AllianceBernstein in Hong Kong.

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“Over the past several decades, the U.S. dollar has been the main reserve currency, and the U.S. has experienced huge capital inflows, especially from countries such as China.”

A Reserve Currency Brings Boom and Busts (BBG)

Why would China want the IMF to put the yuan in the SDR? It may want to engineer a bump in capital inflows, at a time when money is trying to leave China. Generating some foreign demand for yuan-denominated assets might help stabilize the Chinese currency, which is expected to depreciate a bit in the months ahead. The IMF might be motivated to help China limit the moves in its currency in order to promote global macroeconomic stability, or it might want to lure China into making sovereign loans through the fund instead of on its own. Ultimately, the yuan’s status as a reserve currency will be driven by China’s further liberalization of its capital account. The easier it becomes to move money in and out of yuan, the more asset managers will be willing to put their money in.

And if China ascends to true reserve currency status, the most important effects will be in the long term – not all of them good. True reserve currency status makes it cheaper for a government to borrow, which means that – all else equal – more borrowing will happen. That will increase net capital inflows. And as many countries have learned during the last decade, capital inflows can cause trouble. That doesn’t make a lot of sense, intuitively. How could it harm a country to allow it to borrow cheaply? If countries were rational and foresighted, they would borrow no more than is healthy. But sovereign borrowing decisions are the result of government decisions not market ones, and no one would argue that governments always make wise choices. Even the private sector, though, could be harmed by capital inflows.

As economists Gianluca Benigno, Nathan Converse, and Luca Fornaro have found, large influxes of foreign money can lead to booms and busts. They can also cause a country to shift resources out of manufacturing, where productivity growth is often high, into service-oriented industries where productivity is relatively stagnant. Over the past several decades, the U.S. dollar has been the main reserve currency, and the U.S. has experienced huge capital inflows, especially from countries such as China. Those capital inflows in turn have caused a large, persistent trade deficit. Perhaps not coincidentally, U.S. manufacturing hasn’t grown very fast since the late 1990s. In the year ahead, reserve-currency status might help cushion the country’s economic slowdown. But in the long term, it might be a poisoned chalice for China.

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High time people start taking Steve a whole lot more serious. Budget surpluses kill economies.

‘Sound Finance’? The Logic Behind Running A Budget Surplus (Steve Keen)

The indefatigable Mr. Keen presents lecture no. 8 in the series. The ‘logic’ of a government aiming for a budget surplus is that the people must run a deficit.

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Not much in this FT piece is based on facts.

Greece Threatened With Schengen Expulsion Over Refugee Response (FT)

The EU is warning Greece it faces suspension from the Schengen passport-free travel zone unless it overhauls its response to the migration crisis by mid-December, as frustration mounts over Athens’ reluctance to accept outside support. Several European ministers and senior EU officials see the threat of pushing out Greece over “serious deficiencies” in border control as the only way left to persuade Alexis Tsipras, Greece’s prime minister, to deliver on his promises and take up EU offers of help. If the EU follows through on its threat, it would mark the first time a country has been suspended from Schengen since its establishment in 1985. The challenge to Athens comes amid a bigger rethink on tightening joint border control to ensure the survival of the Schengen zone.

The European Commission will this month propose a joint border force empowered to take charge of borders, potentially even against the will of frontline states such as Greece. Greece’s relatively weak administration has been overwhelmed by more than 700,000 migrants crossing its frontiers this year. Given the severity of the crisis, EU officials are vexed by Athens’s refusal to call in a special mission from Frontex, the EU border agency; its unwillingness to accept EU humanitarian aid; and its failure to revamp its system for registering refugees. EU home affairs ministers, who meet on Friday, are to make clear that more drastic measures will be considered if Greece fails to take action before a summit of EU leaders in mid-December, according to four senior European diplomats.

The suspension warning has been delivered repeatedly to Greece this week, including through a visit to Athens by Jean Asselborn, foreign minister of Luxembourg, which holds the EU’s rotating presidency. One Greek official strongly denied accusations of being unco-operative and said claims Mr Tsipras has failed to meet pledges made at a summit of western Balkan leaders last month were “untrue”. But another official acknowledged the foot-dragging. He said it stemmed from a legal requirement that only Greeks were allowed to patrol the country’s borders as well as sensitivity over the long-running dispute over Macedonia’s name and suspicions about Turkish designs on certain Greek islands, including Lesbos, point of entry for many migrants.

As Greece shares no land borders with Schengen , Greek officials point out it will have no impact on migrant flows. “There are no refugees leaving Greece who are flying ,” he said. EU officials acknowledge this but say the withdrawal of travel rights for Greeks is one of their few points of leverage over Mr Tsipras. Athens has recently turned down a deployment of up to 400 Frontex staff to immediately reinforce its border with Macedonia, complaining in a letter to the European Commission that their mandate was too broad and went beyond registration. Greek officials have yet to accept an invitation to invoke an emergency aid scheme – the EU civil protection mechanism — that would rush humanitarian support to islands and border areas.

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Very illustrative of the confusion that is an integral part of the EU. Note: Denmark is not in the eurozone.

Denmark To Vote On More Or Less EU (EUObserver)

Danes head to the polling stations on Thursday (3 December) for their eighth EU referendum since a majority voted Yes to join the club back in 1972. So far, they voted five time Yes and two times No, with a narrow lead for the No side this time around. A Gallup poll published on Saturday in the Berlingske Tidende daily showed 38% intend to vote No, with 34% Yes, and 23% undecided. You need to go back to the Maastricht treaty referendum over 20 years ago to find the reason for this week’s plebiscite. Maastricht was initially rejected by the Danes in 1992. In order to save the entire treaty, Denmark, at a summit in Edinburgh, was offered a handful of treaty-based opt-outs, preserving Danish sovereignty over EU-policy areas, such as the euro and justice and home affairs.

The Maastricht treaty was then approved together with the opt-outs in a re-run of the vote in 1993. EU legislation in the area of justice and home affairs has ballooned in the 20 years which followed. Today, it includes important areas such as cybercrime, trafficking, data protection, the Schengen free-travel system, refugee and asylum policy, and closer police co-operation on counter-terrorism. Bound by the old treaty opt-out, Denmark automatically stays out of all the supra-national EU justice and home affairs policies and doesn’t take part in EU Council votes in these areas. A frustrated majority in the Danish parliament, nick-named “Borgen” (The Castle), in August voted to call the referendum asking citizens to scrap the old arragement. They wanted permission from voters to opt in to the justice and home affairs policies over time, without having to consult people, each time, in a referendum.

The Yes parties identified 22 existing EU initiatives they want Denmark to join right after a Yes vote. They also promised Denmark won’t take part in 10 other EU initiatives – including the hot-button issue of asylum and immigration. The day after the referendum was announced, Gallup polled that a safe majority of 58% would vote Yes. But something happened during the campaign. First, the refugee crisis hardened public opinion. Liberal prime minister Lars Loekke Rasmussen promised there would be a new referendum before Denmark ever joins EU refugee and asylum policies. The move confused voters, who saw no reason to scrap the opt-out if Denmark was to stay out of key policies anyway. Then more terror attacks hit Paris in November.

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Turkey wil never be part of the EU. Any attempt to include it would blow up the union.

Merkel Accused In Germany Of Kowtowing To Erdogan (EurActiv)

The European People’s Party (EPP) has reiterated its opposition to EU membership for Turkey, despite the agreement that was reached on Sunday (29 November). EurActiv Germany reports. The deal that was struck with Ankara in relation to providing aid to tackle the refugee crisis and reopening accession talks has done nothing to quell the scepticism of the conservative EPP. “For us in the EPP, it is clear that we want a close partnership, but not full membership,” Manfred Weber (CSU), the EPP’s group leader, told Bavarian television on Monday (30 November). Although supporting the financial pledge made by the EU, he called the decision to allow Turks visa-free travel a “bitter pill” to swallow.

On Sunday evening (29 November), the EU and Turkey concluded talks that had been made necessary by the ongoing refugee crisis. Ankara committed itself to strengthening its land and sea borders, as well as stepping up its efforts against traffickers. In return, the EU pledged €3 billion to be used exclusively to care for refugees, to remove the visa-requirement for Turkish travellers and to re-energise accession talks. Alexander Graf Lambsdorff (FDP), Vice-President of the European Parliament, criticised the reopening of accession talks, given the civil and human rights situation in Asia Minor. It is not right that the EU have thrown their “values overboard” in dealing with the refugee crisis, the liberal politician said in a radio interview. Lambsdorff accused the German Chancellor of kowtowing to Turkish President Erdogan.

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Can Erdogan run afoul of his own troops?

Turkish Military Says Secret Service Shipped Weapons To Al-Qaeda (AM)

Secret official documents about the searching of three trucks belonging to Turkey’s national intelligence service (MIT) have been leaked online, once again corroborating suspicions that Ankara has not been playing a clean game in Syria. According to the authenticated documents, the trucks were found to be transporting missiles, mortars and anti-aircraft ammunition. The Gendarmerie General Command, which authored the reports, alleged, “The trucks were carrying weapons and supplies to the al-Qaeda terror organization”. But Turkish readers could not see the documents in the news bulletins and newspapers that shared them, because the government immediately obtained a court injunction banning all reporting about the affair.

When President Recep Tayyip Erdogan was prime minister, he had said, “You cannot stop the MIT truck. You cannot search it. You don’t have the authority. These trucks were taking humanitarian assistance to Turkmens”. Since then, Erdogan and his hand-picked new Prime Minister Ahmet Davutoglu have repeated at every opportunity that the trucks were carrying assistance to Turkmens. Public prosecutor Aziz Takci, who had ordered the trucks to be searched, was removed from his post and 13 soldiers involved in the search were taken to court on charges of espionage. Their indictments call for prison terms of up to 20 years. In scores of documents leaked by a group of hackers, the Gendarmerie Command notes that rocket warheads were found in the trucks’ cargo. According to the documents that circulated on the Internet before the ban came into effect, this was the summary of the incident:

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For now, Russia’s still trying through the UN. While likely sitting on explosive evidence.

Russia Wants To Stop ISIS’ Illegal Oil Trade With Turkey (RT)

Russia is working with the UN Security Council on a document that would enforce stricter implementation of Resolution 2199, which aims to curb illegal oil trade with and by terrorist groups, Russian ambassador to the UN Vitaly Churkin told RIA Novosti. The draft resolution intends to quash the financing of terrorist groups, including Islamic State (IS, formerly ISIS/ISIL) extremists. “We are not happy with the way Resolution 2199, which was our initiative, is controlled and implemented. We want to toughen the whole procedure,” Churkin said. “We are already discussing the text with some colleagues and I must say that so far there is not a lot of contention being expressed.” US Ambassador Samantha Power said that America has “a shared objective” with Russia on this, since it is also working towards bringing the financing of terrorism to a halt.

The new document is a follow-up to Russian-sponsored Resolution 2199, which was adopted by the UN on February 12 to put a stop to illicit oil deals with terrorist structures using the UN Security Council’s sanctions toolkit. February’s resolution “has become an integral part of efforts by the UN Security Council, with Russia’s active involvement, to consolidate the international legal framework for countering the terrorist threat from ISIS and Jabhat al-Nusra,” Dr Alexander Yakovenko, Russian Ambassador to the United Kingdom of Great Britain and Northern Ireland, wrote for RT. “Its urgency is prompted by the considerable revenues that the terrorists are receiving from trade in hydrocarbons from seized deposits in Syria and Iraq.” More specifically, it bans all types of oil trade with IS and Jabhat al-Nusra.

If such transactions are discovered, they are labeled as financial aid to terrorists and result in targeted sanctions against participating individuals or companies. Back in July, the UN Security Council expressed “grave concern” over reports of oil trading with IS militant groups in Iraq and Syria. The statement came after IS seized control of oilfields in the area and was reportedly using the revenues to finance its nascent “state.” While Ambassador Churkin has proposed sanctioning states trading with IS terrorists, a retired US army general, believes that Churkin should be more specific in identifying the state actors involved in the illegal oil trade. Retired US Army Major General Paul E. Vallely, who has recently been lobbying for the Syrian rebels to cooperate with Russia against Islamic State, as well as for Washington to take a more active role in the war on IS, says Turkish President Recep Tayyip Erdogan should be singled out as a “negative force” for supporting Islamic State’s black market oil revenues.

While the rebels in eastern Syria where the oil fields are located “could align with certain forces that are there – the Russians, if they were so inclined to do so… the key is to destroy ISIS, and one of the initiatives that ambassador Churkin should be moving toward with the Security Council is Erdogan in Turkey,” Vallely told RT. “He [Erdogan] has been supporting ISIS since I was over there several years ago. I’ve met some of the black-marketeers along the Syrian border there in [Turkish] Hatay province, and so they’re alive and well. But Erdogan is a problem, he really is, and if I was ambassador Churkin, not only would I propose something in the Security Council for cutting off the finances, but also doing some kind of action against Erdogan. He is a very, very negative force in that area.”

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Looks dead. But so does ‘resetting’ the Ukraine option.

Turkish Stream Gas Pipeline Freezes (Reuters)

Russia may freeze work on the Turkish Stream gas pipeline project for several years in retaliation against Ankara for the shooting down of a Russian Air Force jet, two sources at Russian gas giant Gazprom have told Reuters. The project is to involve, initially, building a new gas pipeline under the Black Sea to Turkey, and in subsequent phases the construction of a further line from Turkey to Greece, and then overland into Southeastern Europe. Even before the row with Ankara, the project had been delayed and reduced in scale, leading some industry insiders to doubt if it would ever happen.

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Robbing Peter to pay Paul.

Puerto Rico’s Financial Crisis Just Got More Serious (WaPo)

Virtually out of cash and with its revenues fast deteriorating, Puerto Rico is moving toward default on $7 billion in loans owed by its public corporations to free up money to repay loans backed by the territory’s full faith and credit, Gov. Alejandro Garcia Padilla told a Senate hearing Tuesday. The move allowed Puerto Rico to make a $355 million bond payment due today. Still, the financial gimmick, which violates the terms of some of those bond deals, only provides a short-term fix for the island’s liquidity problems. With at least $687 million in payments due on Jan. 1 and others to follow, it will only be a matter of time before Puerto Rico misses large payments on its $73 billion in outstanding debt, officials said.

“In simple terms we have begun to default on our debt in an effort to attempt to repay bonds issued with full faith and credit of the commonwealth and secure sufficient resources to protect the life, health, safety and welfare of the people of Puerto Rico,” Garcia Padilla told the Senate Judiciary Committee. If Congress does not pass legislation to allow Puerto Rico to reorganize its debts in bankruptcy, Tuesday’s financial move will just be “the beginning of a very long and chaotic process” that will harm the island’s creditors and allow a budding humanitarian crisis on the island to grow out of control, the governor said.

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Obama will stall until his term is over.

Human Rights Watch Demands US Criminal Probe Of CIA Torture (Reuters)

Human Rights Watch called on the Obama administration on Tuesday to investigate 21 former U.S. officials, including former President George W. Bush, for potential criminal misconduct for their roles in the CIA’s torture of terrorism suspects in detention. The other officials include former Vice President Dick Cheney, former CIA Director George Tenet, former U.S. Attorney General John Ashcroft and National Security Adviser Condoleezza Rice. Human Rights Watch argued that details of the Central Intelligence Agency’s interrogation program that were made public by a U.S. Senate committee in December 2014 provided enough evidence for the Obama administration to open an inquiry.

“It’s been a year since the Senate torture report, and still the Obama administration has not opened new criminal investigations into CIA torture,” Kenneth Roth, executive director of Human Rights Watch, said in a statement. “Without criminal investigations, which would remove torture as a policy option, Obama’s legacy will forever be poisoned.” Representatives for Bush and Tenet declined comment. Representatives for Cheney, Ashcroft and Rice could not immediately be reached for comment. Former Bush administration officials and Republicans have argued that the CIA used “enhanced interrogation techniques” that did not constitute torture. They argue that the Senate report was biased.

“It’s a bunch of hooey,” James Mitchell, one of the architects of the interrogation program told Reuters nearly a year ago after the release of the Senate Intelligence Committee’s findings. “Some of the things are just plain not true.” In a video released in conjunction with the report, “No More Excuses” “A Roadmap to Justice for CIA Torture,” the president of the American Bar Association calls for a renewed investigation as well. In June, the ABA sent a letter to U.S. Attorney General Loretta Lynch also saying that the details disclosed in the Senate report merited an investigation. “What we’ve asked the Justice Department to do is take a fresh look, a comprehensive look, into what has occurred to basically leave no stone unturned into investigating possible violations,” said American Bar Association President Paulette Brown.

“And if any are found to take the appropriate action as they would in any other matter.” CIA interrogators carried out the program on detainees who were captured around the world after the Sept. 11, 2001 hijacked plane attacks on the United States. In 2008, the Bush administration opened a criminal inquiry into whether the CIA destroyed videotapes of interrogations. After taking office in 2009, the Obama administration expanded the inquiry to include whether the interrogation program’s activity involved criminal conduct. In 2012, the Obama administration closed the criminal inquiry. Then Attorney General Eric Holder said that not enough evidence existed for criminal prosecution, including the death of two detainees.

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And here’s your daily dose of dead children.

4-Year Old Girl Drowns As Refugee Boat Tries To Reach Greek Shores (Kath.)

A 4-year-old child was reported drowned in the early hours of Tuesday as she and 28 fellow passengers tried to swim to the shore of Rho, a small islet off the coast of Kastellorizo in the southeastern Aegean. The coast guard says it was able to rescue the other 28 passengers on board the craft that had set sail from Turkey as they tried to reach Europe, but the young girl drowned in the final scramble. Greek coast guard officers have rescued over 200 refugees and migrants from Greece’s seas since Monday.

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Nov 262015
 
 November 26, 2015  Posted by at 10:46 am Finance Tagged with: , , , , , , , , , ,  


G.G. Bain Scramble for pennies – Thanksgiving, New York Nov 1911

China’s Desperate Commodity Sector Demands State Buy Up Surplus Metals (ZH)
China’s New Silk Road Dream (Bloomberg)
End of EU Border-Free System Could See Euro Fail, Warns Juncker (WSJ)
ECB Alternatives Could Include Penalties On Banks Hoarding Cash (Reuters)
UK Mortgage Lending Hit Seven-Year High In October (Guardian)
Osborne Plans To Eradicate Deficit Dissolve Into Puddle Of Excuses (Bell)
George Osborne Delays The Fiscal Pain But It Will Still Be Ferocious (AEP)
Osborne Quietly Cuts Funding For All Of Britain’s Opposition Parties (Ind.)
Big Banks Accused Of Interest Rate-Swap Fixing In Class Action Suit (Reuters)
Turkish President Erdogan’s Son Major Smuggler Of Illegal ISIS Oil (Engdahl)
How Walmart Keeps an Eye on Its Massive Workforce (Bloomberg)
Fossil Fuel Companies Risk Wasting $2 Trillion Of Investors’ Money (Guardian)
Germany Gives Greece Names Of 10,000 Suspected Tax Dodgers (Guardian)
Greek Residential Property Price Slide Gains Pace In Third Quarter (Reuters)
Dutch Court Rules Migrants’ Right To Food, Shelter Not Unconditional (Reuters)
Good Thing Native Americans Didn’t Treat Pilgrims Like We Treat Syrians (Nevius)

I smell international trouble.

China’s Desperate Commodity Sector Demands State Buy Up Surplus Metals (ZH)

China, which as documented extensively in the past, has clammed down on its unprecedented credit creation now that its debt/GDP is well over 300% and as a result conventional industries are dying a fast and violent death. In fact, months ago we, jokingly, suggested that what China should do, now that it has scared sellers and shorters to death, is to launch QE where it matters – the commodity space. That joke has become a reality according to Reuters, which reports that China’s aluminum and nickel producers have asked Beijing to buy up surplus metal, sources said, the first coordinated effort since 2009 to revive prices suffering their worst rout since the global financial crisis.

The state-controlled metals industry body, China Nonferrous Metals Industry Association, proposed on Monday that the government scoop up aluminum, nickel and minor metals including cobalt and indium, an official at the association and two industry sources with direct knowledge of the matter said. The request was made to the state planner, the National Development and Reform Commission (NDRC). One Reuters source familiar with the producers’ request said the China Nonferrous Metals Industry Association had suggested that the state buys 900,000 tonnes of aluminum, 30,000 tonnes of refined nickel, 40 tonnes of indium, and 400,000 tonnes of zinc. In other words, everything that is plunging because there is simply no end-demand should simply be bought by the state.

And why not: in “developed” countries, the same thing is being done by central banks, only instead of directly “monetizing” metals, the central banks indirectly push up stock prices which is where 70% of household net worth is located. For China, and largely investment driven economy, the same can be said about commodity prices. Furthemore, as reported two months ago, at current commodity prices, more than half of all companies with debt in the space are unable to make even one interest payment using organic cash flow which makes the decision for Beijing moot: either buy up the excess metals or reap the consequences of mass defaults.

Reuters: “In the United States, aluminum smelters have blamed ballooning exports from China for hurting international prices. Nickel prices on the London Metal Exchange, which sets the benchmark for global trade, plunged to their lowest in more than a decade on Monday amid concerns about waning demand from China, the world’s second-largest economy. Few, if any smelters, are making a healthy profit at prices as low as $8,200 per tonne, down almost 60% since last year. Aluminum prices have fallen nearly 30% over the past year.”

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“..about a quarter of all overseas investments and construction and engineering projects undertaken by Chinese companies from 2005 to 2014—worth $246 billion—have been stalled by snafus or failed.”

China’s New Silk Road Dream (Bloomberg)

[..] At home, Beijing is attempting to decrease the economy’s dependence on astronomical levels of credit-driven investment for growth, and that spells tougher times for Chinese construction companies, equipment makers, and other businesses that had gorged on the country’s building boom. A key motivation behind Beijing’s big infrastructure schemes is to find fresh outlets for these companies overseas. China understandably expects that its own companies will take the lead in planning, constructing, and supplying projects it’s also funding. In fact, a study by London-based merchant bank Grisons Peak showed that 70% of the overseas loans it examined from two Beijing policy banks were made on the condition that at least part of the funds be used to purchase Chinese goods.

Even with China’s banks and special funds running full tilt, it’s uncertain where all of the money will come from to finance the Silk Road scheme. A report on Chinese state media says the number of projects under its umbrella has already reached 900, with an estimated price tag of $890 billion. With many projects destined for economically weak countries with dubious governance, China’s money could get lost to corruption or wasted in poorly conceived plans. Chinese companies already have a suspect record of implementing such projects. According to data compiled by the American Enterprise Institute (AEI), about a quarter of all overseas investments and construction and engineering projects undertaken by Chinese companies from 2005 to 2014—worth $246 billion—have been stalled by snafus or failed.

Almost half were in transport and energy—just the sort of projects that will be key to One Belt, One Road. “China is currently trying to create the story of an economic success, and if it has some public failures, that could be damaging to its brand,” says Homi Kharas, deputy director of the Global Economy and Development program at the Brookings Institution. Nor is there any guarantee that China’s cash will win it camaraderie. In Africa, where China has a long record of investment, a Gallup poll released in August showed the approval rating of Beijing’s leaders had dropped among Africans in 7 of the 11 countries included in the survey. “The goodwill expressed at the highest levels doesn’t trickle down into warm sentiments,” says J. Peter Pham, director of the Africa Center at the Atlantic Council, a think tank based in Washington. “Chinese soft power is relatively weak.”

China’s infrastructure bonanza also presents dangers to its own economy. Local governments are jumping on the bandwagon, announcing a slew of projects aimed at connecting their provinces to Silk Road routes. In an April report, HSBC estimated that the projects already planned within China could total $230 billion. That may help sustain growth in the short run but delay the economy’s crucial transition away from investment-led growth, which would lead to even harder times in coming years. In fact, One Belt, One Road is in its essence the export of China’s old growth strategy—using state banks to fund investment by Chinese companies on foreign soil.

None of these concerns is likely to matter in the end. China’s international infrastructure push is, after all, a diplomatic endeavor, one to which the reputation of the state has become intimately tied. “The Chinese are going to work very hard—throw money at any and all problems—to make sure prized ‘belt and road’ projects all work out,” says Derek Scissors, an AEI scholar. That could turn China’s grand Silk Road dreams into an even grander disappointment.

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Not could but will.

End of EU Border-Free System Could See Euro Fail, Warns Juncker (WSJ)

The head of the European Union’s executive said Wednesday that the region’s Schengen border-free system was under threat and warned that if it fails, the single currency could fall with it. Speaking in the European Parliament in Strasbourg about the recent terror attacks in Paris, European Commission President Jean-Claude Juncker acknowledged that the “Schengen system is partly comatose.” “If the spirit of Schengen leaves us…we’ll lose more than the Schengen agreement. A single currency doesn’t make sense if Schengen fails,” he said. “You must know that Schengen is not a neutral concept. It’s not banal. It’s one of the main pillars of the construction of Europe.”

Faced with the biggest migration influx since the aftermath of the World War II and the recent terror attacks in Paris, a number of countries, including Germany, France and others have tightened controls of their borders. Member states are also looking to revise Schengen’s rules to tighten control of the EU’s external border and to change the way the free movement rules apply to asylum seekers. The Schengen Agreement, an arrangement that allows the free movement of European citizens between 26 countries across the continent, is under threat. The Wall Street Journal’s George Downs explains why. Schengen currently has 26 members, including several non-EU countries. It allows freedom of movement across the region and therefore plays a key role in underpinning the EU’s single market of goods, services and labor.

Mr. Juncker said that following the Nov. 13 Paris attacks, European politicians must resist the temptation to “mix up” asylum seekers and terrorists. He said those inciting violence in Europe’s capitals “are the same people who are forcing the unlucky of this planet to flee” Syria and other places. Mr. Juncker called for stepped-up coordination between intelligence agencies—a promise, he said, that had been made in the past but never followed up on. He confirmed the commission would make a proposal in December for an EU-wide border guard system and he pressed lawmakers to toughen the proposed EU passenger name records legislation to include people taking flights within the bloc. EU interior and justice ministers last week demanded this measure be included in the legislation which has been long delayed by the European Parliament.

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Yeah, we know that works…

ECB Alternatives Could Include Penalties On Banks Hoarding Cash (Reuters)

Euro zone central bank officials are considering options such as whether to stagger charges on banks hoarding cash or to buy more debt ahead of the next European Central Bank meeting, according to officials. Little over a week before the meeting to set the ECB’s policy course, numerous alternatives are open, from snapping up the bonds of towns and regions to introducing a two-tier penalty charge on banks that park money with the ECB. Officials, who spoke on condition of anonymity, said that even buying rebundled loans at risk of non-payment has been discussed in preparatory meetings, although such a radical step is highly unlikely for now. The ECB declined to comment. “They are still trying to figure out what will be in the package. A lot of people have different views,” said one official with knowledge of talks that have put ECB president Mario Draghi at loggerheads with sceptical German policy-makers.

“There are some who say you should surprise markets. But you cannot surprise indefinitely. Sooner or later, you are bound to disappoint.” A virtually stagnant euro zone economy and a heightened sense of concern at the ECB sets the backdrop for a series of high-level meetings of central bank officials in Frankfurt that take place this week. “We have deflation, so you have to do something,” said a second person. “How this all looks in a few years, nobody knows.” Yet after many weeks of discussion about what measures are needed to address persistently low price inflation, however, divisions are making it difficult to sign off any package to enhance quantitative easing and rock-bottom interest rates. Failing to do so risks disappointing investors who expect ECB policy setters to bolster a one-trillion-euro plus program of quantitative easing when they meet on December 3, in a move so significant it has been dubbed ‘QE2’.

Draghi has made it clear that he would be willing to extend ECB money printing, now used to buy chiefly government bonds, as well as increase the charge on banks holding money at the ECB – known as the negative deposit rate. In order to soften the impact of this on banks, officials are discussing a split-level rate, a contested step that would impose a higher charge on banks depending on the amount of cash they deposit with the ECB. “It could be combined with a ceiling, so that from a certain point onwards liquidity can only be parked overnight at a stronger rate,” said a second official. “Whether and how to shape a deposit rate cut in December is in discussion.” Any such staggered approach would blunt a straightforward increase in the charge, which would particularly hit banks from Germany or France, who park most with the ECB. Banks hold roughly €170 billion with the ECB in this way.

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Ponzi’s bubble.

UK Mortgage Lending Hit Seven-Year High In October (Guardian)

Britain’s banks lent more money through mortgages in October than at any point since the summer of 2008, figures show, as low interest rates and rising incomes tempted more people into the market. Gross mortgage lending hit £12.9bn during the month, 26% higher than in October 2014 and the highest figure since August 2008, according to the latest data from the British Bankers’ Association (BBA). Mortgage lending for house purchases slowed in the latter half of 2014, but has been growing again this year, and in October there were 77,951 approvals – 21% more than in the same month last year. Remortgaging was up by 34% year on year, at 24,275 approvals. The BBA said the average value of mortgages approved for house purchases was £175,600, while remortgagers typically borrowed £172,800.

Recent months have seen a price war among mortgage lenders, which has led to some of the cheapest deals on record. Borrowers looking to fix their mortgage for five years can pay as little as 2.14%, while those fixing for two years can get a rate as low as 1.15%. Richard Woolhouse, chief economist at the BBA, said: “These statistics show that housing market activity remained strong in October, with gross mortgage borrowing 26% higher than a year ago and at its highest level for seven years. “Consumers remain confident and their incomes are growing. Mortgage rates are at multi-year lows and people are snapping up the competitive deals being offered by banks.” Personal loan rates have also been plummeting, leading to a rise in borrowing, which the Bank of England warned on Tuesday “ultimately might be an issue that the financial policy committee might want to look at fairly carefully”.

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“For the record, yet again: this Chancellor has missed every economic target he ever proclaimed.”

Osborne Plans To Eradicate Deficit Dissolve Into Puddle Of Excuses (Bell)

War is the great distraction. Right or wrong, foolish or wise, it suspends all the usual political and economic rules. Suddenly a chancellor who has spent five and a half years telling us “there is no money” can find ready billions for warfare. Though he might not wish it, George Osborne has been luckier than most. In what passed until recently for normal times, he would have approached today’s Autumn Statement under a black cloud of derision. To follow the tax credits debacle with the worst October borrowing figures in six years is more than just another bit of bad luck. Even in his own, narrow terms, Mr Osborne is bad at his job. Carnage and fear have, reasonably enough, given us other things to worry about. A chancellor’s task in an international crisis is to ensure that his Prime Minister has sufficient funds with which to keep the islands safe.

It is not (or not directly) Mr Osborne’s job to say whether F-35 Stealth aircraft are a lousy buy, or whether increasing billions should be earmarked for a Trident system that could be hacked by a laptop jockey. He just finds the cash. Recently, however, the Chancellor has taken to saying that you can’t have national security without economic security. It isn’t a new proposition, but Mr Osborne tried it for size again during his latest chat with the BBC’s Andrew Marr. Convoluted logic had him claiming, in essence, that you can’t fight terrorism unless he “balances the books”. It was a bold claim, not least because you could turn it on its head. Various police chiefs have stepped up to say that another round of Mr Osborne’s cuts will leave them ill-prepared to deal with events of the sort witnessed in Paris.

How’s that for a “long-term economic plan”? The funding for defence the Chancellor has meanwhile just discovered in the Treasury accounts in large part reinstates cash he has already cut. How’s that for shrewd economic management? The point is that the observation does not just apply to defence. Mr Osborne is improvising, even as his plans to eradicate a budget deficit – it was supposed to be gone by now – dissolve into a pile of excuses. So today, reportedly, he “finds” £3.8 billion to hold a politically-inconvenient winter crisis in NHS England at bay, as though winter has just been discovered. The reality is that the Chancellor is bringing forward one part of the £8.4bn the English NHS was meant to spend a couple of years from now.

And that sum – part of it still devoted to breaking junior doctors – was only supposed to keep the service alive while trusts edge towards insolvency. There is nothing “long-term” about this: it’s ad hoc, another skinned rabbit from a battered hat. Mr Osborne clings to the assumption that the only answer to a big borrowing problem is to cut spending hard and fast. When that doesn’t work, you cut again. If you meanwhile wish to lead the Tory Party and win a general election, you aim for an absurd budget surplus, detrimental to the wider economy, that might give scope for tax cuts circa 2020. And where does this austerity lead? To an £8.2bn government borrowing requirement in October, despite all previous cuts in state spending.

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Ambrose wants to embrace Osborne, but even he finds it hard.

George Osborne Delays The Fiscal Pain But It Will Still Be Ferocious (AEP)

George Osborne has wisely pulled back from a fiscal cliff and a welfare crisis next year but the austerity measures planned until the end of the decade will nevertheless be draconian. Citigroup and RBS both estimate that net retrenchment will be 3.5pc of GDP over the coming three years, roughly what we have already endured since the Lehman crisis. Much of it is from higher taxes – normally the reflex of Labour or the French socialists. This is in stark contrast to the eurozone, where policy is finally on a neutral setting after the bloodbath of 2011-2013. The US is even going into a period of net fiscal stimulus as state and local governments launch a blitz of spending. Unfortunately, Britain needs its bitter medicine. Cyclically-adjusted net borrowing is 3.4pc of GDP this year, the highest in the Western world.

This is courting fate at such a late stage of the economic cycle, leaving no safety margin against an external shock or a global recession. The current account deficit is the worst in the OECD club at 5.1pc of GDP. The country is systematically borrowing from global investors to fund a lifestyle beyond its means. The Bank of England warned in its Stability Report that the deficit leaves the UK vulnerable to a sudden cut-off at any time, if the mood changes. “We’re selling off assets to finance excessive spending,” said Philip Rush from Nomura. “Foreigners may be comfortable to do this now but what happens if the economy rolls over or there is a vote for Brexit?” Plundering the family silver has led to a slow deterioration of Britain’s “net international investment position”, now -25pc of GDP and ever closer to the danger line of 30pc flagged by the IMF.

Fiscal contraction is one way to deal with this, so long as the axe falls on over-consumption, and not on the pockets of spending that boost productivity. Osborne’s latest retreat on welfare ensures that it will not go beyond the correct therapeutic dose and bring the economy to a screeching halt. The lesson from Europe’s double-dip recession is that fiscal overkill is counter-productive, since the contraction of nominal GDP causes the debt ratio to rise even faster. One can only smile at Osborne’s mellifluous suggestion that he can ditch two-thirds of the spending cuts penciled in a recently as March, yet still achieve a budget surplus of £10.1bn by 2019-2020. [..] What Osborne has failed to do yet again in this Autumn Statement is to grasp the nettle of reform and start to sort out the chronic pathologies of the British economy.

That means a shift in the entire tax and regulatory system to reward output, to curb our proclivity to import and to raise the rate of savings and investment. It means a radical assault on Britain’s dire productivity levels, our lack of skills and our bad infrastructure, even if this means that the deficit comes down more slowly in the short run. We know the problems. They are listed in the World Economic Forum’s index of competitiveness. The UK ranks 126 for savings, 63 for maths and science in schools, 62 for days to start a business, 57 for procedures, 44 for government procurement of hi-tech products, 42 for business costs of crime, 33 for work incentives, 30 for quality of roads and so on. What we have is a typical British story: manufacturing stagnation and dismal exports, with economic growth once again reliant on a deeply unhealthy property market. Household debt ratios are about to take off again. We all know how this will end.

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“The UK already spends just a tenth of the European average on funding parties..”

Osborne Quietly Cuts Funding For All Of Britain’s Opposition Parties (Ind.)

The Government has moved to make sharp cuts to state funding to Britain’s opposition parties. So-called “short money”, an annual payment that has been paid to opposition parties since the 1970s, will be cut by 19% subject to parliamentary approval. Short money is not received by parties in Government and was introduced to allow oppositions to “more effectively fulfil their parliamentary functions”. It is generally used to employ parliamentary staff and meet political office costs. The cut will affect Labour the most and also take significant chunks of funding from the SNP, Green Party and smaller regional parties. The cut was not mentioned by George Osborne in his speech to the House of Commons but emerged later when full documentation was released.

“The government has taken a series of steps to reduce the cost of politics, including cutting and freezing ministerial pay, abolishing pensions for councillors in England and legislating to reduce the size of the House of Commons,” the spending review says. “However, since 2010, there has been no contribution by political parties to tackling the deficit. Subject to confirmation by Parliament, the government proposes to reduce Short Money allocations by 19%, in line with the average savings made from unprotected Whitehall departments over this Spending Review.” The payments will then be frozen in cash terms for the rest of the Parliament, removing automatic rises with inflation.

Grants for policy development will also be cut by the same amount. The Government says the cost of short money has risen from £6.9 million in 2010-11 to £9.3 million in 2015-16. Katie Ghose, chief executive of the Electoral Reform Society, which campaigns for democratic reform, said the cut would be likely to damage government accountability. “The decision to cut public funding for opposition parties by 19% is bad news for democracy. The UK already spends just a tenth of the European average on funding parties,” she said. “Short Money is designed to level the playing field and ensure that opposition parties can hold the government of the day to account. This cut could therefore be deeply damaging for accountability.”

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If governments won’t do it…

Big Banks Accused Of Interest Rate-Swap Fixing In Class Action Suit (Reuters)

A class action lawsuit, filed Wednesday, accuses 10 of Wall Street’s biggest banks and two trading platforms of conspiring to limit competition in the $320 trillion market for interest rate swaps. The class action lawsuit, filed in U.S. District Court in Manhattan, accuses Goldman Sachs, Bank of America Merrill Lynch, JPMorgan Chase, Citigroup, Credit Suisse, Barclays, BNP Paribas, UBS, Deutsche Bank, and the Royal Bank of Scotland of colluding to prevent the trading of interest rate swaps on electronic exchanges, like the ones on which stocks are traded. As a result, the lawsuit alleges, banks have successfully prevented new competition from non-banks in the lucrative market for dealing interest rate swaps, the world’s most commonly traded derivative. The banks “have been able to extract billions of dollars in monopoly rents, year after year, from the class members in this case,” the lawsuit alleged.

The suit was brought by The Public School Teachers’ Pension and Retirement Fund of Chicago, which purchased interest rate swaps from multiple banks to help the fund hedge against interest rate risk on debt. The plaintiffs are represented by the law firm of Quinn, Emanuel, Urquhart, & Sullivan LLP, which has taken the lead in a string of antitrust suits against banks. As a result of the banks’ collusion, the suit alleges, the Chicago teachers’ pension and retirement fund overpaid for those swaps. The suit alleged that since at least 2007 the banks “have jointly threatened, boycotted, coerced, and otherwise eliminated any entity or practice that had the potential to bring exchange trading to buyside investors.” “Defendants did this for one simple reason: to preserve an extraordinary profit center,” the lawsuit said.

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Doesn’t seem to be much doubt left on the Turkey-ISIS connection.

Turkish President Erdogan’s Son Smuggler Of Illegal ISIS Oil (Engdahl)

In October 2014 US Vice President Joe Biden told a Harvard gathering that Erdogans regime was backing ISIS with hundreds of millions of dollars and thousands of tons of weapons& Biden later apologized clearly for tactical reasons to get Erdogans permission to use Turkey’s Incirlik Air Base for airstrikes against ISIS in Syria, but the dimensions of Erdogan’s backing for ISIS since revealed is far, far more than Biden hinted. Erdogans involvement in ISIS goes much deeper. At a time when Washington, Saudi Arabia and even Qatar appear to have cut off their support for ISIS, they remaining amazingly durable. The reason appears to be the scale of the backing from Erdogan and his fellow neo-Ottoman Sunni Islam Prime Minister, Ahmet Davutoglu.

The prime source of money feeding ISIS these days is sale of Iraqi oil from the Mosul region oilfields where they maintain a stronghold. The son of Erdogan it seems is the man who makes the export sales of ISIS-controlled oil possible. Bilal Erdogan owns several maritime companies. He has allegedly signed contracts with European operating companies to carry Iraqi stolen oil to different Asian countries. The Turkish government buys Iraqi plundered oil which is being produced from the Iraqi seized oil wells. Bilal Erdogans maritime companies own special wharfs in Beirut and Ceyhan ports that are transporting ISIS smuggled crude oil in Japan-bound oil tankers.

Girsel Tekin, vice-president of the Turkish Republican Peoples Party, CHP, declared in a recent Turkish media interview: “President Erdogan claims that according to international transportation conventions there is no legal infraction concerning Bilal’s illicit activities and his son is doing an ordinary business with the registered Japanese companies, but in fact Bilal Erdogan is up to his neck in complicity with terrorism, but as long as his father holds office he will be immune from any judicial prosecution.” Tekin adds that Bilal’s maritime company doing the oil trades for ISIS, BMZ Ltd, is a family business and president Erdogans close relatives hold shares in BMZ and they misused public funds and took illicit loans from Turkish banks.

French geopolitical analyst, Thierry Meyssan [..] claims that the Syria strategy of Erdogan was initially secretly developed in coordination with former French Foreign Minister Alain Juppe and Erdogans then Foreign Minister Ahmet Davutoglu, in 2011, after Juppe won a hesitant Erdogan to the idea of supporting the attack on traditional Turkish ally Syria in return for a promise of French support for Turkish membership in the EU. France later backed out, leaving Erdogan to continue the Syrian bloodbath largely on his own using ISIS.

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1984 as the new normal.

How Walmart Keeps an Eye on Its Massive Workforce (Bloomberg)

In the autumn of 2012, when Walmart first heard about the possibility of a strike on Black Friday, executives mobilized with the efficiency that had built a retail empire. Walmart has a system for almost everything: When there’s an emergency or a big event, it creates a Delta team. The one formed that September included representatives from global security, labor relations, and media relations. For Walmart, the stakes were enormous. The billions in sales typical of a Walmart Black Friday were threatened. The company’s public image, especially in big cities where its power and size were controversial, could be harmed. But more than all that: Any attempt to organize its 1 million hourly workers at its more than 4,000 stores in the U.S. was an existential danger.

Operating free of unions was as essential to Walmart’s business as its rock-bottom prices. OUR Walmart, a group of employees backed and funded by a union, was asking for more full-time jobs with higher wages and predictable schedules. Officially they called themselves the Organization United for Respect at Walmart. Walmart publicly dismissed OUR Walmart as the insignificant creation of the United Food and Commercial Workers International (UFCW) union. “This is just another union publicity stunt, and the numbers they are talking about are grossly exaggerated,” David Tovar, a spokesman, said on CBS Evening News that November.

Internally, however, Walmart considered the group enough of a threat that it hired an intelligence-gathering service from Lockheed Martin, contacted the FBI, staffed up its labor hotline, ranked stores by labor activity, and kept eyes on employees (and activists) prominent in the group. During that time, about 100 workers were actively involved in recruiting for OUR Walmart, but employees (or associates, as they’re called at Walmart) across the company were watched; the briefest conversations were reported to the “home office,” as Walmart calls its headquarters in Bentonville, Ark.

The details of Walmart’s efforts during the first year it confronted OUR Walmart are described in more than 1,000 pages of e-mails, reports, playbooks, charts, and graphs, as well as testimony from its head of labor relations at the time. The documents were produced in discovery ahead of a National Labor Relations Board hearing into OUR Walmart’s allegations of retaliation against employees who joined protests in June 2013. The testimony was given in January 2015, during the hearing. OUR Walmart, which split from the UFCW in September, provided the documents to Bloomberg Businessweek after the judge concluded the case in mid-October. A decision may come in early 2016.

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But so do ‘renewable’ energy companies.

Fossil Fuel Companies Risk Wasting $2 Trillion Of Investors’ Money (Guardian)

Fossil fuel companies risk wasting up to $2tn (£1.3tn) of investors’ money in the next decade on projects left worthless by global action on climate change and the surge in clean energy, according to a new report. The world’s nations aim to seal a UN deal in Paris in December to keep global warming below the danger limit of 2C. The heavy cuts in carbon emissions needed to achieve this would mean no new coal mines at all are needed and oil demand peaking in 2020, according to the influential thinktank Carbon Tracker. It found $2.2tn of projects at risk of stranding, ie being left valueless as the market for fossil fuels shrinks. The report found the US has the greatest risk exposure, with $412bn of projects that could be stranded, followed by Canada ($220bn), China ($179bn) and Australia ($103bn).

The UK’s £30bn North Sea oil and gas projects are at risk, the report says, despite government efforts to prop up the sector. Shell, ExxonMobil and Pemex are the companies with the greatest sums potentially at risk, with over $70bn each. The failure of the fossil fuel industry to address climate change is laid out in a second report on Wednesday, in which senior industry figures state there is “a significant disconnect between the changes needed to reduce greenhouse gas emissions to the [2C] level and efforts currently underway”. Lord John Browne, former BP boss, Sir Mark Moody-Stuart, former Shell and Anglo American chair and others say there must be “fundamental reassessment of the fossil fuel industry’s business models” and that companies should seize commercial opportunities in low-carbon energy.

The Carbon Tracker report looked at existing and future projects being considered by coal, oil and gas companies up to 2025 and determined which could proceed if carbon emissions are cut to give a 50% chance of keeping climate change under 2C. Many high-cost projects, including Arctic and deepwater drilling, tar sands and shale oil are unneeded and therefore uneconomic in the 2C scenario, the report found, although some are required to replace fields that are already depleting.

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It’s been over 5 years since the Lagarde list.

Germany Gives Greece Names Of 10,000 Suspected Tax Dodgers (Guardian)

Germany has handed Athens the names of more than 10,000 of its citizens suspected of dodging taxes with holdings in Swiss banks. The inventory, which details bank accounts worth €3.6bn – almost twice the last instalment of aid Athens secured from creditors earlier this week – was given to the Greek finance ministry in an effort to help the country raise tax revenues. “This is an important step for the Greek government to create more honesty regarding tax in the country,” said Norbert Walter-Borjans, finance minister of the regional state of North Rhine-Westphalia. The state disclosed the data through Germany’s federal tax office. Greece’s leftist-led government vowed it would go after tax dodgers as one of the many policy commitments it signed up to when a €86bn bailout between Athens and its partners was agreed after months of wrangling in July.

The financial lifeline was the third since Athens’ near economic meltdown following the first revelations of runaway deficits in May 2010. A total of 10,588 depositors were said to be on the list, including private individuals and companies. Sources said it resembled a “who’s who” of the well-heeled upper echelons of Greek society – able to spend Christmas in villas in Gstaad in Switzerland and summer at sea in luxury pleasure boats. Prime minister Alexis Tsipras, who won snap polls in September pledging to do away with the “old order”, has promised to dismantle Greece’s oligarchical establishment. Mired in a sixth year of recession, with unprecedented levels of poverty and unemployment, it is ordinary Greeks hit by ever-increasing taxes who have borne the brunt of the country’s long-running economic crisis.

New levies are at the basis of the savings Athens agreed to make in exchange for its latest international bailout. With affluent Greeks spiriting their money abroad, the German chancellor Angela Merkel has seen fit to publicly chastise them for failing to pitch in. Tryfon Alexiadis, the deputy finance minister in charge of tax revenues, said the list would be acted on as quickly as possible – even if the government had to assume the innocence of those revealed to be on it. “It will not stay in a drawer for three years,” he told reporters outside parliament on Wednesday. “The list will be evaluated … and we will see what is hidden behind it. All the services of the ministry of finance and the ministry of justice will cooperate so that we have results as soon as possible.”

In October 2010 Greece was given a similar inventory by Christine Lagarde, then French finance minister, of more 2,000 Greeks with deposits at the Geneva branch of HSBC. Successive governments did little to follow up on it with Tsipras accusing predecessors of deliberately keeping the data in a drawer. Estimated at more than $35bn a year, tax dodging is thought to be the biggest drain on the Greek economy. Last month, Alexiadis got a letter in the post with a bullet in it and a note comparing him to a collaborator with Germany’s Nazi forces. Berlin has been the biggest contributor of the €326bn in bailout funding Athens has received to date.

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There is no market left.

Greek Residential Property Price Slide Gains Pace In Third Quarter (Reuters)

Greek residential property prices fell at a faster pace in the third quarter compared to the previous three-month period as economic contraction hit household income and employment, knocking values on banks’ outstanding real estate loans. Property accounts for a large chunk of household wealth in Greece, which has one of the highest home ownership rates in Europe – 80% versus a European Union average of 70%, according to the European Mortgage Federation. Bank of Greece data showed apartment prices fell by 6.1% in the third quarter of 2015 from a year earlier, with the annual pace of price declines accelerating from 5.0% in the second quarter. The price slide had started to ease after a 10.8% fall in 2013 up until the first quarter of 2015. Greece’s real estate market has been hit by property taxes to plug budget deficits, a tight credit market and a jobless rate hovering around 25%.

Residential property prices have dropped by 41.2% from a peak hit in 2008, when the country’s recession began. Greece has been pushed to the brink of default by a debt crisis that at one stage put into question its membership of the eurozone single currency bloc. Its economic prospects have improved after it signed up to a new bailout package worth up to 86 billion euros this summer. Apart from their negative effect on wealth, falling property prices also affect collateral values on banks’ outstanding real estate loans. Greece’s economy shrank 0.5% in the third quarter compared with the first three months of 2015, contracting by a milder-than-expected pace. The EC projects Greece will see a 1.4% recession this year, but the left-wing government expects the €173 billion economy to flatline.

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Slippery slope with regards to UN treaties. But what else is new?

Dutch Court Rules Migrants’ Right To Food, Shelter Not Unconditional (Reuters)

A Dutch high court on Thursday upheld a government policy of withholding food and shelter to rejected asylum-seekers who refuse to be repatriated, giving legal backing to one of Europe’s toughest immigration policies. The Raad van State or Council of State, which reviews the legality of government decisions, found that the new policy of conservative Prime Minister Mark Rutte does not contravene the European Convention on Human Rights. A rejected asylum seeker does not have the right to appeal to the European Social Charter, it said. The Dutch government “has the right, when providing shelter in so-called locations of limited freedom, to require failed asylum-seekers to cooperate with their departure from the Netherlands,” a summary of the ruling said.

As the Netherlands toughened its stance on newcomers in recent years, Dutch policy toward asylum-seekers and immigrants has been criticized by NGOs and the United Nations as overly strict. Thursday’s ruling counters an August report by the U.N.’s Committee on the Elimination of Racial Discrimination, which told the Dutch they should meet migrants’ basic needs unconditionally. “As long as they are in The Netherlands, they have to enjoy minimum standards of living,” co-author Ion Diaconu, wrote at the time. The EU’s leading human rights forum, the 47-nation Council of Europe admonished the Netherlands in 2014 for placing asylum seekers in administrative detention and leaving many “irregular immigrants” in legal limbo and destitution.

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“..they were leaving a homeland where they were fined, jailed and sometimes even executed for their views.”

Good Thing Native Americans Didn’t Treat Pilgrims Like We Treat Syrians (Nevius)

Thanksgiving is as known for being a day to delicately navigate talking to relatives with vastly different political beliefs as it is for overeating. And the hot-button topic certain to be on everyone’s lips will be what do about Syrian refugees. If it were up to 25 Republican governors and the US House of Representatives, the answer would be to keep them out. This is ironic. Today’s Syrian refugees today don’t look, sound or worship like us, but the Pilgrims that landed on Plymouth Rock 400 years ago also didn’t look, sound or worship like we do – and certainly neither looked, sounded nor worshipped like the native inhabitants of America do. They brought Calvinist determination to this country, and we celebrate that, but that determination came pre-packaged with with bigotry and narrow-mindedness.

What came to be known as the Protestant work ethic was driven by the same zeal that caused some of the British exiles who landed on American shores to persecute anyone already here, or who came here after, who wasn’t like them. We praise the Pilgrims’ work ethic as part of our American DNA, but rarely acknowledged the work ethic and determination of the people who already lived here, nor what the Pilgrims and those who came after them did to destroy the indigenous people they met. Though we may never know exactly what transpired on that First Thanksgiving, let’s never forget that it was the Native Americans’ land – and that they brought the food.

If we continue to celebrate the Pilgrims – or even just to use them as an excuse to eat too much pie – we and our lawmakers should acknowledge that turning our backs on Syrian refugees is akin to turning our back on our own foundations. While it’s true that the Pilgrims weren’t exactly fleeing a war-torn country, they were leaving a homeland where they were fined, jailed and sometimes even executed for their views. Calling themselves “saints” or “the godly”, the Pilgrims were religious separatists who argued for a complete break from the state-run Church of England, which ran them afoul of the law and the king. After a decade of exile in the Netherlands that saw “sundry of them taken away by death” and their children tempted by “the great licentiousness of youth in that country”, the Pilgrims partnered with financial backers in England to help them outfit the Mayflower for the long voyage.

In return, they agreed to work for the company to repay their debts. Then they sailed across the pond, exploited the locals and paved the way for the America we have today. Though their behavior in “the new world” was far from saintly, the Pilgrims were still refugees. But today’s conservatives – some of whom would go so far as to float the idea of World War II-style internment camps for Syrian refugees or registration lists for Muslims – can’t stomach the idea that if the Pilgrims were to show up today, the Republican Party would turn would them back at the border. They actually were a lot of what conservatives are mistakenly accusing Syrian refugees of being.

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townhall.com

Nov 232015
 
 November 23, 2015  Posted by at 10:14 am Finance Tagged with: , , , , , , , , ,  


Kennedy and Johnson Dallas, Morning of November 22 1963

Commodity Slump Deepens as Dollar Gains; European Stocks Slide (Bloomberg)
Europe Warned On ‘Permanent’ Downturn Amid PMIs (CNBC)
Euro Drops To Seven-Month Low As Draghi Feeds Bears (Bloomberg)
Zinc Producers Keep Cutting Back, Yet Prices Keep Falling (Bloomberg)
Barclays Bets On Stock Boom As World Money Growth Soars (AEP)
Masters of the Finance Universe Are Worried About China (Bloomberg)
Is the Surge in Stock Buybacks Good or Evil? (WSJ)
You’re Not the Yuan That I Want (Bloomberg)
UK Deficit Could Hit £40 Billion By 2020 On Ill-Advised Cuts (Guardian)
Everything We Hold Dear Is Being Cut To The Bone. Weep For Our Country (Hutton)
Five Years Into Austerity, Britain Prepares For More Cuts (Reuters)
Save The Library, Lose The Pool: Britain’s Austere New Reality (Guardian)
Greek Disposable Income Shrinks Twice As Fast As GDP (Kath.)
Cut Oil Supply or Drop Riyal Peg? Saudis Face ‘Critical’ Choice (Bloomberg)
Oil Deal of the Year: Mexico Set for $6 Billion Hedging Windfall (Bloomberg)
London House Prices Have Nothing on Auckland (Bloomberg)
We Still Haven’t Grasped That This Is War Without Frontiers (Robert Fisk)
Yanis Varoufakis: Europe Is Being Broken Apart By Refugee Crisis (Guardian)
Life After Schengen: What a Europe With Borders Would Look Like (Bloomberg)
Greek Concerns Mount Over Refugees As Balkan Countries Restrict Entry (Guardian)
Why Syrian Refugees Are Not A Threat To America (Forbes)

Can’t believe people would still seek to ignore this. It’s China grinding to a halt.

Commodity Slump Deepens as Dollar Gains; European Stocks Slide (Bloomberg)

A slump in commodities deepened, with industrial metals and oil leading losses as the dollar extended gains. European equities retreated after the region’s equities posted their biggest weekly advance in four weeks. Crude extended its drop below $42 a barrel and copper fell to levels unseen since 2009 as comments from Federal Reserve officials about the prospect of a December rate increase bolstered the greenback. Nickel plunged 4.1% and gold declined, helping send the Bloomberg Commodity Index to a 16-year low. Russia’s ruble and the Australian dollar led commodity-producers’ currencies lower. The Stoxx Europe 600 Index slid, while the euro touched the weakest level in seven months against the dollar.

“This is not a really welcoming environment for risk taking,” said Tim Condon at ING in Singapore. “Liquidity is beginning to dry up as people are waiting for what happens in December with the Fed. Worries about China persist.” The greenback’s surge this year has weighed on material prices at the same time as demand slows in China, the world’s biggest commodity consumer. John Williams, president of the Fed Bank of San Francisco, said at the weekend that there was a “strong case” for a U.S. rate hike at the Fed’s last meeting of 2015. Agricultural commodities face a new headwind after Sunday’s election of Mauricio Macri as Argentina’s president, according to growers and analysts, who said the result heralds the end of punitive export taxes and may unleash an estimated $8 billion in shipments of stored crops.

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But wasn’t eurozone business activity supposed to be great?

Europe Warned On ‘Permanent’ Downturn Amid PMIs (CNBC)

The economic downturn experienced by Europe and its after-effects, such as high unemployment and labor market weakness, could become a permanent fixture in the region, according to a leading think tank. “Europe continues to face the significant challenges of tackling unemployment, underemployment and inactivity,” the Institute for Public Policy Research (IPPR), a U.K.-based left-leaning think tank, said in its latest report on Monday. “The southern European economies in particular are still combating the effects of the sovereign debt crisis – high levels of joblessness and insecure or temporary work.” Across the rest of the continent, the IPPR said that workers could be left behind due to advances in automation and global competition which “act as more long-term headwinds blowing skill supply and demand out of alignment.”

Such headwinds, the IPPR added, “threaten to consolidate some of the medium-term effects of recession into more permanent features of the economy – a prospect that would be deeply alarming.” The 19-country euro zone bloc was plunged into a deep crisis and regional recession following the 2008 financial crisis. The most acute effect of the crisis was the widespread loss of jobs as a result of industry and business cutbacks and closures. The crisis hit southern euro zone countries more than their more prosperous northern counterparts with a number of countries, Greece, Portugal, Spain, Cyprus and Ireland, requiring bailouts of various magnitudes.

Despite a slow economic recovery in most of the euro zone over recent years, unemployment remains a problem and is stubbornly high in several countries. While Germany has the lowest rate of unemployment, at 4.5% in September, according to Eurostat, joblessness in Greece and Spain remains high, at 25%. in Greece (in July) and 21.6% in Spain. For young people aged 16-25, the statistics are even worse. The IPPR said that policymakers needed to respond “by minimizing the long-term erosion of skills as a result of recession, and investing to reshape and re-skill the labor force for the jobs of the future.”

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Wish he would go do just that. In the Arctic.

Euro Drops To Seven-Month Low As Draghi Feeds Bears (Bloomberg)

The euro weakened to a seven-month low after futures traders added to bearish bets and ECB President Mario Draghi encouraged speculation his board will ease policy next week. Europe’s common currency dropped versus the majority of its 10 developed-market peers after Draghi said Friday the ECB will do what it must to raise inflation “as quickly as possible.” The Governing Council meets in Frankfurt on Dec. 3 for its next monetary-policy decision. Hedge funds ramped up wagers on dollar strength last week by the most since August 2014. The Australian dollar tumbled as copper and nickel prices plunged to multi-year lows. “It’s probably reasonable to think we can spend time down below $1.05 now,” for the euro, said Ray Attrill at National Australia Bank in Sydney. “It looks to me like we’re building up into a fairly classic sell the rumor, buy the fact.”

The euro slid 0.2% to $1.0623 at 6:46 a.m. in London Monday. It earlier touched $1.0601, the lowest since April 15. The shared currency traded at 130.83 yen after declining 0.9% to 130.77 at the end of last week. The dollar rose 0.3% to 123.17 yen. Japanese markets are shut for a holiday. The Aussie dollar dropped 0.8% to 71.79 U.S. cents, following a two-week, 2.8% advance. Copper fell through $4,500 for the first time since 2009, while nickel dropped to the lowest level since 2003 after Chinese smelters announced plans to cut production. “The commodity washout is weighing on Aussie sentiment,” Stephen Innes at foreign- exchange broker Oanda wrote.

New Zealand’s dollar weakened 0.7% to 65.17 U.S. cents. Swaps traders increased the odds the Reserve Bank will cut its benchmark interest rate next month to 55%, from 46% a week ago, according to data compiled by Bloomberg. “A mix of U.S. dollar strength and rising expectations of more RBNZ rate cuts” dragged the kiwi lower, said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney. “The accumulation of unimpressive New Zealand economic data and declining dairy prices are weighing on short-term swap rates.” New Zealand’s currency will depreciate to 59 cents by the middle of next year, he said.

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Overcapacity bites.

Zinc Producers Keep Cutting Back, Yet Prices Keep Falling (Bloomberg)

Zinc producers keep on cutting back and yet prices keep on falling. After Glencore cut a third of its supply last month to combat a rout, the price rallied 10% and the gains lasted a month. When producers in China did the same on Friday, the jump was smaller and got rolled back after a day. “The benefit of previous such announcements have been fleeting, and we are not expecting this occasion to be any different,” Australia & New Zealand Banking analyst Daniel Hynes said in a note on Monday. “The market is intently focused on slowing growth in manufacturing activity in China.”

The rapid rollback of zinc’s bounce, which followed the announcement by China suppliers of output cuts for 2016, signals supply curtailments by producers probably won’t be sufficient on their own to change the course of the rout in base metals. That tallies with the view from Goldman Sachs, which said in a note this month recent output cuts aren’t large enough to rescue prices, and that will require a substantial rise in Chinese demand. In addition to zinc, producers have also announced reductions in copper and aluminum. “If you look at the track record of these vaguely worded statements, unless there is a specificity to it, they are generally not fully carried through,” Ivan Szpakowski at Citibank in Hong Kong, said by phone on Monday. “The market is very suspicious.”

A group of 10 Chinese smelters – including Zhuzhou Smelter Group, the country’s top producer – said they planned to lower refined output 500,000 tons next year, according to a joint statement. That represents about 7% of China’s production and over 3.5% of world supply, according to ANZ. Still, prices fell on Monday as base metals sank. Zhuzhou Smelter hasn’t yet completed drafting its production plan for 2016, according to Liu Huichi, the company’s securities representative. The company is still working on meeting the production target for this year, Liu said by phone on Monday.

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Ambrose loves taking “the other side”, but ignores that a soaring money supply is meaningless if there’s no-one to spend it. And that means people, not companies buying their own stock.

Barclays Bets On Stock Boom As World Money Growth Soars (AEP)

Barclays has advised clients to jump into world stock markets with both feet, citing the fastest growth in the global money supply in over thirty years and an accelerating recovery in China. Ian Scott, the bank’s global equity strategist, said the sheer force of liquidity will overwhelm the first interest rate rises by the US Federal Reserve, expected to kick off next month. Global equities rose by an average 15pc over the six months after the last three US tightening cycles began, on average, and Barclays argues that this time stocks are cheaper. The cyclically-adjusted price to earnings ratio (CAPE) for the world’s equity markets is currently 18, compared to 25.5 at the beginning of the last rate rise episode in 2004.

This is roughly 14pc below the CAPE average since 1980, though critics say earnings have been artificially inflated by companies borrowing a rock-bottom rates to buy back their own stock. Mr Scott said the growth of global M1 money – essentially cash and checking accounts – has surged to 11pc in real terms, led by China and the eurozone. This is higher than during the dotcom boom and the pre-Lehman BRICS boom. It is likely to ignite a powerful rally in equities nine months later if past patterns are repeated, although the lags can be erratic, and the M1 data gave false signals in the mid 1990s. Barclays said American stocks are trading at a 30pc premium to the rest of the world. This gap is likely to close as emerging markets – “the epicentre of negative sentiment” – come back from the dead.

The pattern of foreign fund flows into the reviled sector has triggered a contrarian buy-signal. Everything hinges on China where real M1 money has ignited after languishing for over a year. Floor space sold is growing at 20pc and house prices have stabilized. Simon Ward from Henderson Global Investors says real M1 is now surging in China at the fastest rate since the post-Lehman credit blitz, though money data is cooling in the US Chinese fiscal spending has jumped by 36pc from a year ago and bond issuance by local governments has taken off, drawing a line under the recession earlier this year. “A growth revival is under way and will gather strength into the first half of 2016,” he said.

[..] Sceptics abound. Nobody knows for sure what will happen to the most indebted countries if the Fed embarks on a serious tightening cycle. Dollar debts in emerging markets have jumped to $3 trillion, and much higher under some estimates. Private credit in all currencies has risen from $4 trillion to $18 trillion in a decade in these countries. Research by the Bank for International Settlements suggests that rate rises by the Fed ineluctably lifts borrowing costs everywhere.

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“..Singer wrote that the world could face a more severe scenario like a “global central bank panic.”

Masters of the Finance Universe Are Worried About China (Bloomberg)

David Tepper says a yuan devaluation may be coming in China. John Burbank warns that a hard landing there could spark a global recession. Tepper, the billionaire owner of Appaloosa Management, said last week at the Robin Hood Investor’s Conference that the Chinese yuan is massively overvalued and needs to fall further. His comments follow similar forecasts from some of the biggest hedge fund managers, including Crispin Odey, founder of the $12 billion Odey Asset Management, who predicts China will devalue the yuan by at least 30%. The money managers are losing faith in China’s ability to revive its economy, which suffers from rising nonperforming loans and falling exports, after the surprise 1.9% currency devaluation in August and global market rout that followed.

The investors made their dire forecasts after shares of U.S.-traded Chinese companies, which their funds sold in the third quarter, began to rebound in October. “The downside scenario for China seems more intimidating than ever before,” billionaire Dan Loeb wrote on Oct. 30 to investors at Third Point, which manages $18 billion. “The new question is not whether but how severe the slowdown of the world’s foremost growth machine will be.” Goldman Sachs on Thursday echoed the managers’ concerns, saying the biggest risk to a rebound in emerging-market assets next year is a “significant depreciation” of the yuan. Policy makers, facing a stronger dollar and slower growth, may let the currency decline, which would ripple through emerging markets, strategists led by Kamakshya Trivedi wrote. “In our view, the fallout from such a shift is the primary risk,” the analysts said.

[..] Elliott Management’s Paul Singer also warned about global contagion from China’s decline. Singer told investors in an October letter that emerging market countries are “choking” on U.S. dollar-denominated debt that was extended due to low interest rates and monetary stimulus. He said many emerging economies, which are in recession, are “scared to death” about even a 25 basis-point increase in U.S. interest rates. While “muddling along” is still an option, Singer wrote that the world could face a more severe scenario like a “global central bank panic.” He said that policy makers will probably “double down on monetary extremism” in response to deteriorating economies in emerging markets and China.

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It’s about discounting the future as much as you can. Faustian.

Is the Surge in Stock Buybacks Good or Evil? (WSJ)

Corporate stock buybacks are climbing toward a post-financial-crisis high this year, furthering the debate about the use of hundreds of billions of dollars in company cash to enhance quarterly earnings reports. Stock repurchases boost earnings per share, even if total earnings don’t change, by reducing the number of shares. Analysts and investors typically track per-share earnings, not overall earnings. Buybacks have drawn criticism from some fund managers including Larry Fink, chief executive of BlackRock, which oversees $4.5 trillion in assets. He has said some companies invest too much in buybacks and too little in longer-term business growth. Repurchases also have become a political issue. Democratic presidential candidate Hillary Clinton has called for more-frequent and fuller disclosure of them by the companies involved, even as some activist investors push for more buybacks as a way of returning cash to investors.

In the year’s first nine months, U.S. companies spent $516.72 billion buying their own shares, with third-quarter reports still not complete, according to Birinyi Associates. That is the highest amount for the first three quarters since the record year of 2007, the year before the financial crisis. It leaves this year on track for a post-2007 high if fourth-quarter buybacks hold up. Buybacks can have a significant impact on earnings, as was illustrated this quarter by companies including Microsoft, Wells Fargo, Pfizer and Express Scripts. Microsoft turned a decline in total earnings into a per-share gain by repurchasing a little more than 3% of its shares in the past 12 months. Its total third-quarter earnings were down 1.3% from a year earlier, but per-share earnings rose 3.1%, according to FactSet.

For Wells Fargo, a 0.6% increase in total earnings became a 2.9% gain in earnings per share after buybacks. At Pfizer, a 2% overall earnings gain became a 5.3% per-share jump. Express Scripts, a large drug-benefits manager, turned a 2.8% overall gain into a 12.4% per-share increase. Apple Inc. is by far the biggest buyback spender this year, with $30.22 billion, followed by Microsoft, Qualcomm and AIG. This year isn’t on pace to surpass 2007 in total buybacks. But Birinyi’s data show that announcements of planned future buybacks are the highest for any year’s first 10 months, more even than in 2007. “If companies execute their plans, we are looking at a record amount being deployed over the next couple of years,” said Birinyi analyst Robert Leiphart.

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“No one’s ever suggested including the loonie in the SDR.”

You’re Not the Yuan That I Want (Bloomberg)

In its ongoing quest for glory and global influence, China appears to have won a notable victory. The IMF is set to anoint the renminbi – the “people’s currency,” also known by the name of its biggest unit, the yuan – as one of the world’s reserve currencies along with the dollar, pound, euro and yen. For those who fear (or hope) that China will eventually transform the postwar economic order, this appears to be the first step toward dethroning the dollar. The IMF’s decision, however, is mere political theater. The yuan will now be included among the basket of currencies that make up its so-called Special Drawing Rights. As the IMF itself notes, “the SDR is neither a currency, nor a claim on the IMF.” Holders simply have the right to claim the equivalent value in one or more of the SDR’s component currencies. Central banks and investors won’t suddenly be required or even explicitly encouraged to use the yuan.

Indeed, all that’s changed is that it’s now clear that the IMF isn’t blocking the yuan from becoming a true global reserve currency: China is. To the contrary, the IMF appears to be doing everything it can to help China. SDR currencies are meant to be “freely usable,” which the IMF defines as “widely used to make payments for international transactions” and “widely traded in the principal exchange markets.” The yuan’s champions note that the currency has grown from being used in less than one% of international payments in September 2013 to 2.5% in October – among the top five globally. This simple metric, however, enormously overstates the yuan’s influence. Globally, it’s still barely used more than the Canadian and Australian dollars. No one’s ever suggested including the loonie in the SDR.

True, China is the world’s second-largest economy and its biggest trading nation. Yet at the same time, more than 70% of payments made in yuan still go through Hong Kong, primarily due to its strategic location as a shipping and trading hub for the mainland. All but 2% of yuan-denominated letters of credit are issued to Hong Kong, Macau, Singapore, and Taiwan to facilitate trade with China. Even in Asia, the yuan isn’t accepted as collateral for derivatives trading and similar financial transactions. Instead it’s used almost exclusively for trade in physical goods where China is one of the counterparties. Nor is the currency widely traded in financial markets. Hong Kong, the largest center of yuan deposits outside of China, holds less than 900 billion renminbi, or about $140 billion.

That’s $40 billion less than Coca-Cola’s market cap (and barely a fifth the value of Apple’s). The entirety of yuan deposits held outside of China still amounts to less than the market capitalization of the Thai stock market. This isn’t the result of prejudice against China, but deliberate policy. Take the oft-cited statistic that 2% of global reserves are already held in renminbi. Virtually all yuan reserves are held under swap agreements with the People’s Bank of China, rather than as physical currency. That means China’s central bank maintains control over the currency and its pricing and can refuse transactions if needed, as it did last week when it ordered banks to halt renminbi lending offshore. While other central banks have significant latitude to engage in onshore renminbi purchases, they face restrictions on using the currency outside China.

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As Greece and Britain show us, yes you CAN cut a society to death.

UK Deficit Could Hit £40 Billion By 2020 On Ill-Advised Cuts (Guardian)

George Osborne could be forced to borrow billions of pounds more than forecast by 2020 if he sticks with spending cuts that will damage hit economic growth, according to a report by City University. With only days to go before the chancellor’s autumn statement, the report said the Treasury has underestimated the impact of welfare and departmental spending cuts on the broader economy and especially cuts to public sector investment. Without a boost to public infrastructure, private sector businesses will limit their own investment plans, leading to lower productivity and depressed GDP growth over the next four years. By 2020 the government will be forced to report a £40bn deficit instead of the planned £10bn surplus, the report concludes, undermining Osborne’s fiscal charter, which dictates that governments borrow only in times of distress.

The study by two academics from City University comes only days before the chancellor is expected to tell parliament that he plans to achieve a budget surplus by 2020 from a mixture cuts to departmental spending, welfare and from higher tax receipts, especially income tax and national insurance. But he is already off track in the current 2015/16 year after a run of poor figures for the public finances. Last week the Office for National Statistics reported that higher government spending and lower corporation tax receipts than expected in October had sent borrowing to highest for that month since 2009. Richard Murphy, an academic at City University who has advised the Labour leader Jeremy Corbyn, said the £50bn gap in borrowing is likely because the Treasury will repeat the same mistakes it made between 2010 and 2015, when the coalition government borrowed £160bn more than predicted.

He said the government planned to ignore a detailed study by the IMF that showed cuts to public expenditure during the recovery from a financial crash can result in lower growth, depressed tax receipts and the need for higher borrowing. The analysis of the multiplier effect from spending cuts shows that far from allowing private consumption and investment to accelerate, it remains modest at best, limiting growth and tax receipts. Murphy said: “The very low multiplier the Treasury uses assumes that cuts in government spending will stimulate growth. That’s an assumption, and not a fact. “It is one the IMF now disagree with. And the result of basing policy on that multiplier is we have more cuts than we need, lower growth in the UK economy as a result, lower earnings for most households and so lower tax revenues – which actually makes balancing the government’s books harder,” he added.

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The world view of a handful crazed rich sociopaths is ruining an entire formerly proud nation.

Everything We Hold Dear Is Being Cut To The Bone. Weep For Our Country (Hutton)

Last Thursday, my wife was readmitted to hospital nearly two years after her first admission for treatment for acute lymphoblastic leukemia. She is very ill, but the nursing, always humane and in sufficient numbers two years ago, is reduced to a heroic but hard-pressed minimum. She has been left untended for hours at a stretch, reduced to tearful desperation at her neglect. The NHS, allegedly a “protected” public service, is beginning to show the signs of five years of real spending cumulatively not matching the growth of health need. Between 2010 and 2015, health spending grew at the slowest (0.7% a year) over a five-year period since the NHS’s foundation. As the Health Foundation observed last week, continuation of these trends is impossible: health spending must rise, funded if necessary by raising the standard rate of income tax.

There will be tens of thousands of patients suffering in the same way this weekend. Yet my protest on their behalf is purposeless. It will cut no ice with either the chancellor or his vicar on earth, Nick Macpherson, permanent secretary at the Treasury. Their twin drive to reduce public spending to just over 36% of GDP in the last year of this parliament is because, as Macpherson declares more fervently than any Tory politician, the budget must be in surplus and raising tax rates is impossible. Necessarily there will be collateral damage. It is obviously regrettable that there are too few nurses on a ward, too few police, too few teachers and too little of every public service. but this is necessary to serve the greater cause of debt reduction. To reduce the stock of the public debt to below 80% of GDP and not pay a penny more in income or property tax, let alone higher taxes on pollution, sugar, petrol or alcohol, is now our collective national purpose.

Everything – from the courts to local authority swimming pools – is subordinate to that aim. Not every judgment George Osborne makes is wrong. He is right to advocate the northern powerhouse, to spend on infrastructure, to stay in the EU, radically to devolve control of public spending to city regions in return for the creation of coherent city governance and to sustain spending on aid and development. It is hard to fault raising the minimum wage or to try to spare science spending from the worst of the cuts. But the big call he is making is entirely misconceived. There is no economic or social argument to justify these arbitrary targets for spending and debt, especially when the cost of debt service, given low interest rates and the average 14-year term of our government debt, has rarely been lower over the past 300 years.

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But £12 billion more for the military.

Five Years Into Austerity, Britain Prepares For More Cuts (Reuters)

After laying off nearly half its staff over the last five years, scaling back street cleaning and relying on volunteers to work at some of its libraries, the London borough of Lewisham is getting ready for what could be much more painful spending cuts. Officials in Lewisham’s town hall, like those across the country, know they will have to shoulder much of finance minister George Osborne’s renewed push to fix Britain’s budget. Osborne is due to announce on Wednesday the details of a new spending squeeze which, according to International Monetary Fund data, ranks as the most aggressive austerity plan among the world’s rich economies between now and 2020. It is also a gamble by Osborne, a leading contender to be the next prime minister, that voters can stomach more cuts.

He rejects accusations that his insistence on a budget surplus by the end of the decade is a choice, saying Britain needs fiscal strength to fight off future shocks to the economy. As in the first five years of his austerity push – which Osborne originally hoped would wipe out the budget deficit – he plans to spare Britain’s health service, schools and foreign aid budget from his new cuts and will increase defense spending. That means that cuts for unprotected areas of government, such as local councils, will be all the deeper. Kevin Bonavia, a councilor who oversees Lewisham’s budget, said the borough had just agreed to merge computing teams with another one on the other side of London as it seeks to make more savings in its back-office operations and protect services.

But voters are likely to notice the cuts more in the years ahead than they have done so far. Rubbish bins may no longer be emptied weekly. Delivery of cooked meals could be replaced with help for people in need to do their own online shopping. Lewisham will also have to find savings in the way it provides social care for the elderly and children, which accounts for the lion’s share of its spending. “We are always trying to rationalize. But we have to do it at pace now, and when you do it at pace, you can make mistakes,” Bonavia, a member of the opposition Labour Party, said.

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You read that right: £12 billion more for the military

Save The Library, Lose The Pool: Britain’s Austere New Reality (Guardian)

On a weekday morning in Blakelaw, two miles from the heart of Newcastle, the scene inside a community centre suggests a perfect example of what David Cameron used to call the “big society”. Local women have gathered for a “coffee and conversation” session, while people nearby are cutting flyers for a residents’ association’s Christmas fair. Meanwhile, an effervescent 36-year-old councillor called David Stockdale is discussing plans to bring a key amenity into community ownership. The prime minister would presumably balk at his terminology: Stockdale proudly talks about a “socialist post office”. Since March 2013, the Blakelaw neighbourhood centre has been run as a not-for-profit local partnership, raising money and rising to the challenges presented by austerity.

When the library that extends off the foyer was threatened with closure, the partnership took over its funding. About six months after Newcastle city council cut all money for youth services, the partnership appointed a full-time youth worker. For all Stockdale’s collectivist passions, if you believe wonders can result from the enforced retreat of the state, what happens here might hint at a positive case study – but scratch the surface and it is a lot more complicated. The coffee-and-conversation women say the weekly sessions are pretty much all the area’s pensioners have left: cuts in council grants stopped the exercise classes and local history group. Doreen Jardine, chair of the residents’ association, says that in the past she had enough money from the council to organise up to seven annual coach trips for local children. She’s now down to two.

And while Stockdale extols self-organisation, he also wonders how his area has reached this point. “This is one of the most deprived communities in Newcastle,” he says. “Can you imagine what we could be doing if we didn’t have to meet the costs of running our library? We run this thing on a shoestring, with the goodwill of a lot of people. And it’s difficult.” It is my fourth journalistic visit to Newcastle in three years. The last time I was here, in November 2014, I talked to people anxious about the city’s fate, and pieced together the story of local austerity with the city’s Labour leader, Nick Forbes.

The council was in the midst of a £100m programme of cuts to be spread from 2013 to 2016. Its projections pointed to additional cuts in 2016-17 of £30m then £20m the next year – and Forbes suggested by that point the financial position would be impossible. “By 2017-18,” he told me, “our estimate is that we will have less than £7m to spend on everything the city council does, above and beyond adult and children’s social care. So it’s completely untenable.” Now, in the buildup to George Osborne’s spending review, the position seems even tougher. The projected cuts for 2017-18 have gone up by £20m, and thanks chiefly to Osborne’s failure to pay down the deficit by his original deadline, another £30m is set to follow in 2018-19.

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That sinking feeling persists.

Greek Disposable Income Shrinks Twice As Fast As GDP (Kath.)

Despite the major decline in disposable incomes, Greece remains among the most expensive countries in Europe in dozens of products and services. For instance, a kilogram of flour in Spain costs €1.03, while in Greece it costs €1.25. An iPhone 6s, with a capacity of 16 gb costs €789 in Greece against €739 in Germany, Portugal and Austria, €749 in France and €770 in Italy, all of them countries with a considerably higher per capita income than Greece.

While prices have started declining marginally in this country since 2013, disposable incomes started shrinking from 2008 by an average rate of 6.7% every year, according to figures collected by the Organization for Economic Cooperation and Development (OECD): This stands nowadays at €17,448 per household, far below the OECD member-state average of €24,339 per year. That means Greece ranks only 27th among the OECD’s 36 member-states in terms of people’s disposable income, way below fellow countries of the European south, such as Portugal, Spain and Italy. In practice the disposable income in Greece appears to have shrunk in the last seven years at a rate almost twice as big as the country’s economic contraction rate.

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Cutting production is not on the table. They simply can’t.

Cut Oil Supply or Drop Riyal Peg? Saudis Face ‘Critical’ Choice (Bloomberg)

The longer oil languishes, the more pressure builds on Saudi Arabia to abandon its currency peg. Contracts used to speculate on the riyal’s exchange rate in the next 12 months climbed to a 13-year high on Thursday, before trimming the increase a day later, according to data compiled by Bloomberg. Six-month agreements rose to near the highest in seven years on Friday. Saudi Arabia is pumping oil at a record level this year, leading OPEC’s effort to defend market share even as oil trades near the lowest level in six years. That’s forced the kingdom to tap savings and sell debt to make up for a plunge in revenue and defend its 30-year-old peg to the dollar. For Bank of America Corp., the country may face a choice next year: cut production to help boost prices or adjust the riyal’s rate to stem a decline in foreign reserves.

“A depeg of the Saudi riyal is our number one black-swan event for the global oil market in 2016, a highly unlikely but highly impactful risk,” BofA strategists led by Francisco Blanch in New York wrote in a Nov. 19 report. “It is a lot easier politically to implement a modest supply cut at first than allow for a full-blown currency devaluation.” One-year forward points for the riyal jumped 167.5 points to 525 on Thursday, before falling to 455 a day later. That reflects expectations for the currency to weaken about 1.2% to 3.7962 per dollar in the next 12 months. Six-month agreements rose on Friday to 152.5, near the highest level since 2008. Weak global growth and inflation as well as a strong dollar will remain a “huge” headwind for dollar-based commodity prices, BofA said. Brent crude closed last week at $44.66 per barrel, down 44% from a year earlier.

Still, Saudi Arabia’s reserves are hardly depleted. While net foreign assets fell to a near three-year low in September as the government drew down financial reserves accumulated over the past decade, they’re among the highest in the region at $646.9 billion. The country’s peg survived low oil prices in the 1990s and revaluation pressure resulting from surging prices in the late 2000s, Shaun Osborne at Scotiabank wrote last week. Pressure may also build on the Chinese yuan amid declining reserves at central banks across the world and with expected U.S. interest-rate increases, BofA said. A meltdown of the yuan may ultimately force Saudi Arabia’s hand because of the “very high sensitivity” of commodities to the currency, the bank said.

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Betting against your own resources is the only way to make money.

Oil Deal of the Year: Mexico Set for $6 Billion Hedging Windfall (Bloomberg)

Mexico is set to get a record payout of at least $6 billion from its oil hedges this year, according to data compiled by Bloomberg. The Latin American country locks in oil sales as a shield against price declines through a series of financial deals with banks including Goldman Sachs, JPMorgan and Citigroup. For 2015, Mexico guaranteed sales at almost $30 a barrel higher than average prices over the past year. The 2015 payment, due next month, is set to surpass the record from 2009, when the Mexican government said it received $5.1 billion after prices plunged with the global financial crisis. The country’s crude has fallen by almost half over the hedging period so far this year. Crude sales historically cover about a third of the government budget.

“The windfall is huge,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd., a London-based consulting company. “This gives Mexico breathing space.” The hedge, which runs from Dec. 1 to Nov. 30, covered 228 million barrels at $76.40 each for the Mexican oil basket, according to government documents and statements. With less than two weeks to the end of the program, the basket has averaged $46.61 a barrel over the period. The difference would result in a payment of around $6.8 billion, not including fees. The final figure could vary from the Bloomberg estimate as some details of the hedge aren’t public and oil prices will change over the next two weeks. The Mexican oil basket fell on Nov. 18 to $33.28 a barrel – its lowest since December 2008.

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“People are sick of seeing these people in the paper who made a million after just mowing the lawn three times,” said Wetzell, the realtor in Devonport.”

London House Prices Have Nothing on Auckland (Bloomberg)

Even with its mold-streaked bathroom and kitchen without a sink, the duplex in bayside Auckland attracted a frenzied bidding war. Now it’s one of the city’s newest million-dollar government-built houses. The two-bedroom, brick cottage on Kerr Street on the city’s inner north shore fetched NZ$1.04 million ($685,000) at an auction in September, netting the vendor, New Zealand’s government, double a valuation used for taxes. Long symbols of economic disadvantage, homes built by the state last century for low-income tenants are on a tear, thanks to their typically generous land sizes and proximity to the city.

The changing fortunes of these modest dwellings — loved and derided by New Zealanders for their functionality over style — reflect a fervor that’s spurred Auckland’s biggest property boom in two decades. The average house price in New Zealand’s largest city is now higher than London’s. “It’s like the supermarket before it closes on Christmas Day — everyone thinks they’d better get in or they’ll miss out,” said Carol Wetzell, a realtor at Barfoot & Thompson in Devonport, the agency that sold the 82-year-old Kerr Street home. State homes, particularly those built from local timber in a wave of government-led construction in the 1940s, are regarded as iconic — products of a time when the government was determined to ensure no one lived in squalor.

Prime Minister John Key was raised in a state house in Christchurch by his widowed immigrant mother, and the Auckland municipal government plans to create a NZ$1.5 million sculpture of one on the city’s waterfront. Now, with house prices up 24% in Auckland in the past year alone, the government can count more than 650 state homes, or “staties,” worth at least NZ$1 million in its Auckland property portfolio, according to data obtained by Bloomberg News via a freedom of information request. Among the most valuable listed by property researcher CoreLogic: a two-bedroom home in the leafy, inner-city suburb of Westmere with a rotting clapboard facade. With the prospect of sea views if renovated, plus space for a tennis court and swimming pool, it’s valued at NZ$2.2 million.

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Blowback for the west’s handling of the Middle East in the past 150 years.

We Still Haven’t Grasped That This Is War Without Frontiers (Robert Fisk)

[..] Isil’s realisation that frontiers were essentially defenceless in the modern age coincided with the popular Arab disillusion with their own invented nations. Most of the millions of Syrian and Afghan refugees who have flooded into Lebanon, Turkey and Jordan and then north into Europe do not intend to return- ever – to states that have failed them as surely as they no longer – in the minds of the refugees – exist. These are not “failed states” so much as imaginary nations that no longer have any purpose. I only began to understand this when, back in July, covering the Greek economic crisis, I travelled to the Greek-Macedonian border with Médecins Sans Frontières. In the fields along the Macedonian border were thousands of Syrians and Afghans.

They were coming in their hundreds through the cornfields, an army of tramping paupers who might have been fleeing the Hundred Years War, women with their feet burned by exploded gas cookers, men with bruises over their bodies from the blows of frontier guards. Two of them I even knew, brothers from Aleppo whom I had met two years earlier in Syria. And when they spoke, I suddenly realised they were talking of Syria in the past tense. They talked about “back there” and “what was home”. They didn’t believe in Syria any more. They didn’t believe in frontiers. Far more important for the West, they clearly didn’t believe in our frontiers either.

They just walked across European frontiers with the same indifference as they crossed from Syria to Turkey or Lebanon. The creators of the Middle East’s borders found that their own historically created national borders also had no meaning to these people. They wanted to go to Germany or Sweden and intended to walk there, however many policemen were sent to beat them or smother them with tear gas in a vain attempt to guard the national sovereignty of the frontiers of the EU. The West’s own shock – indeed, our indignation – that our own precious borders were not respected by these largely Muslim armies of the poor was in sharp contrast to our own blithe non-observance of Arab frontiers.

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No, Europe is being broken apart by the EU.

Yanis Varoufakis: Europe Is Being Broken Apart By Refugee Crisis (Guardian)

Europe’s stumbling response to the refugee crisis is the result of the divisions caused by the six-year monetary crisis which has fragmented the continent and turned nations against each other, former Greek finance minister Yanis Varoufakis has told the Guardian. With thousands of migrants travelling to Europe from Africa, the Middle East and south Asia, Varoufakis said the future of the European Union was threatened by the worst such crisis since 1945. European leaders have agreed a plan to share 120,000 refugees through a quota system, but countries on the Balkan route have begun refusing people of certain nationalities as part of a backlash against migrants in the wake of the Paris attacks. The issue has become symbolic of Europe’s inability to act together.

Countries such as Britain were gripped by “moral panic” at the sight of refugees camped out at Calais, Varoufakis said, while countries such as Hungary had erected razor-wire fences to prevent migrants getting in. “Take a glance at events in Europe over the last 10-15 years ever since monetary union. The project has failed spectacularly,” said Varoufakis, who quit his job in July after failing to win the deal on debt relief that he believed was necessary for the Greek economy to turn the corner. “Europeans are a people divided by a common currency. The euro crisis has fragmented Europe, turning Greeks against Germans, Irish against Spanish etc. “It makes it hard for the EU to function as a political entity, as a unified entity. The centrifugal force of monetary union has made it harder to deal with the refugee crisis. In a sense, it is the straw that has broken the camel’s back.”

Varoufakis, speaking during a short speaking tour of Australia, admitted that he did not have the solution to the refugee crisis. “I don’t have the answer. The numbers of people are very large. But if someone knocks on my door at three in the morning, scared, hungry and having been shot at, as a human it is my moral duty to let them in and give them a drink and feed them. And then ask questions later. Anything else is an affront to European civilisation. “From a European perspective, we have a lot to answer for. Countries such as Iraq and Syria are creations of western imperialism and the cynicism of the west’s treatment of the region in the past has caused a backlash. “The invasion of Iraq was a great example of the inanity of the west. Syria and Iraq were very fragile states but by creating the rupture, it propelled a shockwave.”

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Back to the future.

Life After Schengen: What a Europe With Borders Would Look Like (Bloomberg)

Continental Europeans have gone so long – two decades – without internal border controls that the younger generation doesn’t know what life is like with them. For a glimpse of the past, and the fortress mentality setting in after the Paris terrorist attacks, look no further than France’s frontier with Luxembourg. Five days after the Paris murder spree, the highway into Luxembourg resembled a truck parking lot, with a two-hour wait as the police stopped and, occasionally, searched. “What a pain in the neck,” said Alban Zammit, 43, a shaven-headed French truck driver who travels back and forth across the border with cargoes ranging from batteries to sacks of sugar. “Is it just to give people the impression of increased security?”

To grasp the economic toll in the time-is-money society, imagine commuters and truckers lining up for passport checks every morning to take the George Washington Bridge or Lincoln Tunnel from New Jersey into Manhattan. Rush hour is slow enough as it is. Luxembourg is central to the border-free story. The Grand Duchy is at the heart of Europe, and every day its population of 550,000 swells by 157,000 commuters taking the train or bus, or driving or carpooling in from bedroom communities in France, Germany and Belgium. Schengen, a Luxembourg town just across the Moselle river from where Germany meets France, was the site of the signing of the open-borders treaty in 1985. Border controls were fully abolished in 1995, initially between seven countries.

Now passport-free travel is the norm between 26 European countries, with the island nations of Britain and Ireland as the notable exceptions. Some 400 million people live in the zone that makes travel within Europe like travel between American states, with only signs like “Bienvenue en France” to denote a change of country. The European Commission guesstimates that there are 1.25 billion cross-border journeys annually, but the unsupervised nature of the system makes the true number unknowable. Incantations such as “Schengen is the greatest achievement of European integration” – intoned by the European Union’s home affairs commissioner, Dimitris Avramopoulos, on Wednesday – are now coupled with the fear that the system will be rolled back, and in the worst case abolished.

Before the Paris attacks, five countries had temporarily reimposed passport controls to cope with the unprecedented wave of refugees from the Middle East. France followed suit as the Europe-wide manhunt got under way for the Paris culprits. Brief suspensions are nothing new, and are foreseen during security scares and for countries staging big events like the Group of Seven summit in southern Germany in June or the European soccer championship in Poland in 2012. But never before has there been so much pressure for a wholesale tightening of the system.

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Wonder what Christmas they will have,

Greek Concerns Mount Over Refugees As Balkan Countries Restrict Entry (Guardian)

Concerns are mounting in Greece that the country could have to deal with thousands of trapped migrants and refugees, after border crossings to Balkans countries to the north were abruptly closed. Macedonia’s decision to prohibit entry to anyone not perceived to be from wartorn countries such as Syria, Afghanistan and Iraq has ignited concern that the EU’s weakest member may be left picking up the pieces. “The nightmare scenario has started to develop where Greece is turned from a transit country to a holding country due to the domino effect of European nations closing their borders,” said Dimitris Christopoulos, vice-president of the International Federation for Human Rights. “There is no infrastructure in place to handle people being stuck here,” he told the Guardian.

An estimated 3,600 Europe-bound migrants were stranded on the Greek side of the frontier on Sunday. “More and more are arriving all the time,” said Luca Guanziroli, field officer with the United Nations refugee agency in the border village of Idomeni. “There is a lot of anxiety, a lot of tension.” Labouring under its worst crisis in modern times, debt-stricken Athens is ill-placed to deal with any emergency that might put more burden on a fragile state apparatus. As spontaneous protests erupted at the weekend, the government dispatched its junior interior minister for migration, Yiannis Mouzalas, to Idomeni to hold talks with local officials. One said: “We are very worried. We can hardly cope, and that’s just waving them [refugees] through.”

Those affected by the ban – mainly Iranians, north Africans, Pakistanis and Bangladeshis – demonstrated within spitting distance of Macedonian border guards on Saturday, shouting “we are not terrorists” and “we are not going back”. The UNHCR said it was wrong to profile people on the basis of nationality. “You cannot assume that they are all economic migrants,” said Guanziroli. “You cannot assume that a lot of them aren’t persecuted in their own countries.” Macedonia is not the only state to tighten border controls. In the wake of the Paris attacks, many nations along Europe’s refugee corridor – in the western Balkans and further north – have also restricted access to those not thought to be fleeing war. “This business of placing restrictions and erecting fences to keep terrorists out when terrorists are already in their countries makes no sense whatsoever,” said Ketty Kehayiou, a UNHCR spokeswoman in Athens. “Profiling by nationality defies every convention.”

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“..some of the attackers were French citizens, so they could have come to New York without needing a visa.”

Why Syrian Refugees Are Not A Threat To America (Forbes)

The days following the Paris attacks have seen a backlash against Syrian refugees. The governors of 31 states have refused to accept Syrian refugees, citing security fears. But the numbers don’t back them up. Here are a few powerful statistics. Only 2% of Syrian refugees admitted to America are males of military age. 50% are children, and 25% are above the age of 65, according to the the U.S. Committee for Refugees and Immigrants. There are very few Syrian refugees in the United States. Since Oct. 1 2012, a total of 2,128 of the world’s four million Syrian refugees have been resettled across the United States, with 4,900 more in the pipeline. That’s hardly the unmanageable torrent some Republicans are fearfully describing. Six of the states that are refusing to accept refugees have not had a single refugee settle there since 2012.

For comparison, the U.S. State Department issues visas to tens of thousands of tourists and students each year. They go through some security checks, but they avoid the stringent refugee screening process. It takes at least four years for refugees to be approved to enter the U.S.. The United Nations High Commissioner For Refugees (UNHCR) puts refugees through its own two-year screening process before referring them to the U.S.. The American screening process takes about another two years as well. Lavinia Limon, the chief executive officer of USCRI points out that that’s a long time for undercover terrorists to wait. ”It seems to me that terror networks are better funded than to keep someone in a refugee camp for four years to hope that they’ll be the half of 1% that will get to come in,” she said.

“That’s not very efficient!” She pointed out that some of the attackers were French citizens, so they could have come to New York without needing a visa. Once they get that UNHCR referral, refugees are vetted by a high number of American agencies. Lee Williams of USCRI names a few. “We know they go through the CIA, the FBI, the national counter-terrorism database, and the Department of Defense,” he said. Then they’re vetted by “agencies with acronyms that none of us know about,” he added, describing the process as a “black box.” It works, for the most part.

Since 9/11 just three refugees out of the 784,000 admitted have been arrested on terrorism charges. Two weren’t planning an attack on American soil, and the plans of the third were “barely credible,” according to the Migration Policy Institute. None of the three were Syrian. Once the refugees get to America, they’re placed in one of 300 resettlement sites by one of nine resettlement agencies. The goal of these agencies is to get the refugees to self-sufficiency as quickly as possible, Simon said. 85 percent of family groups are self-sufficient four months after they arrive.

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Oct 282015
 
 October 28, 2015  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , ,  


Lewis Wickes Hine Newsies Gus Hodges, 11, and brother Julius, 5, Norfolk VA 1911

Weak US Business Spending Plans Point To Slower Economic Growth (Reuters)
Chinese Consumer Sentiment Indicator Slumps In October (CNBC)
Japan’s Retail Sales Fall Piles Pressure On Bank of Japan (CNBC)
China Steel Head Says Demand Slumping at Unprecedented Speed (Bloomberg)
Why Don’t We Save Our Steelworkers The Way We Saved Bankers? (Chakrabortty)
In China’s Alleyways, Underground Banks Move Money (WSJ)
Where Are My (Business Cycle) Dragons? (FT)
Fossil Fuel Companies Risk Plague Of Climate Change Lawsuits (AEP)
US Plans to Sell Down Strategic Oil Reserve to Raise Cash (Bloomberg)
VW Posts $3.85 Billion Quarterly Loss, First In 15 Years (Bloomberg)
Canada Can Show That Ending Austerity Makes Sense (Paul Krugman)
EU Net Neutrality Laws Fatally Undermined By Loopholes (Guardian)
Territorial Disputes: The South China Sea (Bloomberg)
US to Begin ‘Direct Action on the Ground’ in Iraq, Syria (NBC)
IMF Paints Gloomy Outlook For Sub-Saharan Africa (Reuters)
Children Hardest Hit By Europe’s Economic Crisis (Reuters)
The End Of Visa-Free Travel In Europe May Be Looming (Bloomberg)
Migrant Crisis Could Prompt EU to Loosen Budget Deficit Rules (WSJ)
Slovenia Considers Calling For EU Military Aid (FT)
The Children’s Feet Are Rotting, In 1 Month All These People Will Be Dead (HP)
So Long And Thanks For All The Poo (WaPo)

Deflation in the US…

Weak US Business Spending Plans Point To Slower Economic Growth (Reuters)

A gauge of U.S. business investment plans fell for a second straight month in September, pointing to a sharp slowdown in economic growth and casting more doubts on whether the Federal Reserve will raise interest rates this year. Other data on Tuesday showed consumer confidence slipped this month amid worries over a recent moderation in job growth and its potential impact on income. Housing, however, remains the bright spot, with home prices accelerating in August. That should boost household wealth, supporting consumer spending and the broader economy, which has been buffeted by a strong dollar, weak global demand, spending cuts in the energy sector and efforts by businesses to reduce an inventory glut.

The continued weakness in business spending, together with the slowdown in hiring, could make it difficult for the Fed to lift its short-term interest rate from near zero in December, as most economists expect. The U.S. central bank’s policy-setting committee started a two-day meeting on Tuesday. “The drift of data suggests that the first time the Fed will raise rates will be in the spring,” said Steve Blitz, chief economist at ITG Investment Research in New York. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.3% last month after a downwardly revised 1.6% decline in August, the Commerce Department said. These so-called core capital goods were previously reported to have dropped 0.8% in August.

The data was the latest dour news for manufacturing, which has borne the brunt of dollar strength, energy sector investment cuts and the inventory correction. Manufacturing accounts for 12% of the economy. In a separate report, the Conference Board said its consumer sentiment index fell to 97.6 this month from a reading of 102.6 in September. Consumers were less optimistic about the labor market, with the share of those anticipating more jobs in the months ahead slipping. There was a drop in the proportion of consumers expecting their incomes to increase and more expected a drop in their income. The downbeat assessment of the labor market follows a step down in job growth in August and September.

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…and in China…

Chinese Consumer Sentiment Indicator Slumps In October (CNBC)

Consumer sentiment in China plunged in October, as the outlook for business conditions plummeted and household finances weakened, a survey showed Wednesday. The Westpac MNI China Consumer Sentiment Indicator fell to 109.7 in October from 118.2 in September, marking the lowest reading since the survey began in 2007. Business outlook over the coming year was the hardest hit, with Business Conditions in One Year registering a 10.3% decline, while the Business Conditions in Five Years component fell 8.2%. Current and expected measures for household finances were also weaker, down 5.3% and 7.3% respectively. The survey is taken from consumers across 30 Chinese cities ranging from tier 1 to tier 3.

Respondents said that they were planning on reducing their shopping and entertainment activities in the near term. “This result openly questions the resilience of the Chinese consumer to the discouraging state of the real economy,” said Huw McKay, senior international economist at Westpac. The survey follows China’s gross domestic product release last week, which showed the world’s second largest economy grew by 6.9% in the three months through September, the slowest pace since 2009. Concerns over the health of the Chinese economy have spilled from Chile to Korea, sparking a sharp sell-off in the price of commodities that Chinese factories traditionally consume in hefty amounts, as well as the currencies of the countries that benefit from selling raw materials to China.

[..] The drop in confidence was most acute among in the 35-to-54-year-old group, with sentiment plunging 11.2% between September and October. In contrast, confidence among the youngest and oldest age cohorts (18-34 and 55-64) declined more moderately by 3.3% and 3.2% respectively, Wesptac said in a statement.

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…and in Japan too..

Japan’s Retail Sales Fall Piles Pressure On Bank of Japan (CNBC)

Japan’s retail sales unexpectedly fell on-year in September, official data showed on Wednesday, suggesting that consumer spending does not the momentum to make up for weak exports and factory output. The retail sales news could add to pressure on the Bank of Japan under to expand monetary stimulus, possibly as soon as its rate review meeting on Friday, when it is also expected to slash its rosy economic and price projections, analysts say. Retail sales fell 0.2% in September from a year earlier, compared with economists’ median estimate for a 0.4% rise, the Ministry of Economy, Trade and Industry said on Wednesday.

The decline, which followed five straight months of gains, was largely due to sluggish demand for cars and fuel, according to the data. On a seasonally adjusted basis, retail sales rose 0.7% in September from the previous month. Japan’s economy shrank in April-June and may suffer another contraction in July-September on weak exports and consumption. Analysts say any rebound in the current quarter will be modest as companies feel the pinch from soft demand in China and other emerging Asian markets.

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…and it’s not just consumers, it’s spending across the board.

China Steel Head Says Demand Slumping at Unprecedented Speed (Bloomberg)

If anyone doubted the magnitude of the crisis facing the world’s largest steel industry, listening to Zhu Jimin would put them right, fast. Demand is collapsing along with prices, banks are tightening lending and losses are stacking up, the deputy head of the China Iron & Steel Association said on Wednesday. “Production cuts are slower than the contraction in demand, therefore oversupply is worsening,” said Zhu at a quarterly briefing in Beijing by the main producers’ group. “Although China has cut interest rates many times recently, steel mills said their funding costs have actually gone up.” China’s mills – which produce about half of worldwide output – are battling against oversupply and sinking prices as local consumption shrinks for the first time in a generation amid a property-led slowdown.

The fallout from the steelmakers’ struggles is hurting iron ore prices and boosting trade tensions as mills seek to sell their surplus overseas. Shanghai Baosteel Group forecast last week that China’s steel production may eventually shrink 20%, matching the experience seen in the U.S. and elsewhere. “China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.” Medium- and large-sized mills incurred losses of 28.1 billion yuan ($4.4 billion) in the first nine months of this year, according to a statement from CISA. Steel demand in China shrank 8.7% in September on-year, it said.

Signs of corporate difficulties are mounting. Producer Angang Steel warned this month it expects to swing to a loss in the third quarter on lower product prices and foreign-exchange losses. The company’s Hong Kong stock has lost more than half its value this year. Last week, Sinosteel, a state-owned steel trader, failed to pay interest due on bonds maturing in 2017. Crude steel output in the country fell 2.1% to 608.9 million tons in the first nine months of this year, while exports jumped 27% to 83.1 million tons, official data show. Steel rebar futures in Shanghai sank to a record on Wednesday as local iron ore prices fell to a three-month low.

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Because there’s a huge global steel oversupply?

Why Don’t We Save Our Steelworkers The Way We Saved Bankers? (Chakrabortty)

Every so often a society decides which of its citizens really matter. Which ones get the star treatment and the big cash handouts – and which get shoved to the bottom of the pile and penalised. These are the big, rough choices post-crash Britain is making right now. A new hierarchy is being set in place by David Cameron in budget after austerity budget. Wealthy pensioners: winners. Young would-be homeowners: losers. Millionaires see their taxes cut to 45%, while the working poor pay a marginal tax rate of 80%. Big business gets to write its own tax code; benefit claimants face harsh sanctions. When the contours of this new social order are easy to spot, they can cause public uproar – as with the cuts to tax credits. Elsewhere, they’re harder to pick out, though still central. It is into this category that the crisis in the British steel industry falls.

It would be easy to tune out the past few weeks’ headlines about plant closures and job losses as just another story of business disaster. But what’s happening to our steelworkers, and what we do to protect them, goes to the heart of the debate about which people – and which places – count in Britain’s political economy. If Westminster lets the UK’s steel industry die, it’s in effect declaring that certain regions and the people who live and work in them are surplus to requirements. That it really doesn’t matter if Britain makes things. That the phrase “skilled working-class jobs” is now little more than an oxymoron. That’s the criteria against which to judge MPs, as they continue to take evidence today on the crisis and then debate options.

What does this crisis look like? Imagine coming to work on a September morning – only to find that you and one in six other employees in your entire industry face redundancy before Christmas. That’s the prospect facing British steelworkers. Motherwell, Middlesbrough, Scunthorpe: some of the most kicked-about places in de-industrialised Britain now face more punishment. Mothball the SSI plant in Redcar and it’s not just 2,200 workers that you send to the dole office and whose families you shove on the breadline. An entire local economy goes on life support: the suppliers of parts, the outside engineers who used to do the servicing, the port workers and hauliers, the cafes and shops. Within days of SSI’s closure, one of Teeside’s biggest employment agencies went into liquidation.

[..] Britain is entering the early stages of yet another industrial catastrophe. It could finally sink a sector, steel, that actually helps reduce the country’s gaping trade deficit. With that will go another pocket of well-paid blue-collar jobs. Chuck in employer contributions to pensions and national insurance, and the total remuneration per SSI staffer is £40,000 a year. Just try getting such pay in a call centre or distribution warehouse, even as a manager. Imagine what would happen if manufacturing were centred around the capital, and its executives had Downing Street on speed dial. Actually, you needn’t imagine – merely remember the meltdown of 2008. Then Gordon Brown was so desperate to save the City that the IMF estimates he propped it up with £1.2 trillion of public money. That’s the equivalent of nearly £20,000 from every man, woman and child in the country doled out to bankers in direct cash, loans and taxpayer guarantees.

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Try ten times that: “..central-bank officials who attempt to say that underground banks handle about 800 billion yuan ($125 billion) annually..”

In China’s Alleyways, Underground Banks Move Money (WSJ)

In a warren of tiny shops beneath grimy residential towers, a white-haired man selling Snickers bars and fizzy drinks from a kiosk no larger than a cashier’s booth is figuring out a way to move $100,000 out of China. That is twice what Chinese are allowed to send out of the country in a year. Licensed banks won’t do it. But middlemen like Mr. Chen, perched in his mini-mart at the front lines of a vast underground currency-exchange and offshore-remittance network, can and often will. “There’s never a certainty that these things can be done,” said Mr. Chen, who declined to give his full name. “But, usually, when things get stricter, the fee will just be a bit higher.” Facing a turbulent stock market and a weakening economy, many Chinese are trying to move money offshore.

That spells business for operations that can end-run capital controls. No official data track the underground transfers, but central-bank officials who attempt to say that underground banks handle about 800 billion yuan ($125 billion) annually, and more than usual this year. One sign of unusually high activity in underground banks is a drop in China’s foreign-exchange reserves, an indicator of demand for hard currency. Reserves fell by a record $93.9 billion in August and $43 billion more in September, though part of the reason was central-bank selling to support the yuan. Often hidden behind the façades of convenience stores and tea shops, they cater to a clientele ranging from corrupt officials hiding gains to middle-class Chinese trying to buy overseas property.

All believe their money is safer abroad or can bring a higher return, a sentiment that has deepened since this summer’s stock-market plunge. New York real-estate agent Jiang Jinjin said she has handled nearly 2,000 residential-property purchases this year for Chinese families with children at Columbia University. “I didn’t sleep much this summer. Too many kids looking for apartments,” she said. Some customers rely on relatives and friends to carry cash over on repeated trips, she said, and some set up U.S. companies. Such firms can be used to overpay for imports, experts on underground banking say. Ms. Jiang said her company checks the provenance of money used to buy real estate.

The outflows have put underground bankers in China in the cross hairs of financial regulators. China’s capital controls were set up to keep funds onshore when the country was starved for investment. Officials consider them still necessary, to prevent sharp outflows of the kind that shocked developing economies in the 1997 Asian financial crisis. Also, too much cash going out could complicate efforts to stimulate growth through interest-rate cuts.

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Early understanding.

Where Are My (Business Cycle) Dragons? (FT)

The Qian Diagram implies a complete circulation with characteristics of contraction and expansion as well as phases of prosperity, recession, depression and recovery. The corresponding economic cycles are as follows: “Hidden Dragon. Do not act” refers to the economy that in a slump or depressed state in which it is hard to do anything; “Dragon appearing in the field” implies an economic recovery, in which successful people can take the opportunity to succeed; “The energetic gentlemen work hard all day” means keeping vigorous through the whole recovery phase, and no one can relax at any time. Being certain about the target and achieving it with effort and prudence, there will be no great harm even if in the face of risks; “Dragon wavering over the depths” refers to the phase from depression to recovery.

During this rising period, the average social profit rate is high and almost every business runs smoothly; “Flying dragon in the heavens” refers to the most economically prosperous period; “Arrogant dragon will have cause to repent” refers to recession in the economic cycle, which suggests things will develop in the opposite direction when they reach an extreme; “A flight of dragon without heads” indicates that in the prosperous period, monopoly will emerge, while after the economy enters recession, monopoly would disintegrate and be replaced instead by a pattern of free competition, which is a symbol of good performance for the economy.

[..] Guanzi is said to be the record of thoughts and remarks by Qi’s famous premier Guan Zhong and his School in the Spring and Autumn Period, which was between 475 B.C. and 221 B.C… Thought on demand management policy as well as fiscal and monetary policies is all covered in Guanzi. There are extensive discussions on the proper fiscal policy that should be undertaken during an economic depression in the Chapter Cheng Ma the sixty-ninth of Guanzi. “When people lose their fundamentals of living in years with frequent floods and droughts, the monarch can recruit those who live in extreme poverty and give them payment through the activities like constructing the palace. Therefore, the purpose of constructing pavilions is to appease national economic fluctuations rather than for enjoyment.” This is the earliest description of policy in Chinese history with characteristics of Keynesianism.

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Ambrose has a hobby horse.

Fossil Fuel Companies Risk Plague Of Climate Change Lawsuits (AEP)

Oil, gas and coal companies face the mounting risk of legal damages for alleged climate abuse as global leaders signal an end to business-as-usual and draw up sweeping plans to curb greenhouse gas emissions, Bank of America has warned. Investors in the City are increasingly concerned that fossil fuel groups and their insurers are on the wrong side of a powerful historical shift and could be swamped with exhorbitant class-action lawsuits along the lines of tobacco and asbestos litigation in the US. “It is setting off alarm bells that there could be these long tail risks,” said Abyd Karmali, Bank of America’s head of climate finance. Mr Karmali said the United Nations’ “COP21” climate summit in Paris in December is likely to be a landmark event that starts to shut the door on parts of the fossil industry.

“It is a non-exchangeable, one-way ticket to a low-carbon economy,” he said. Christiana Figueres, the UN’s top climate official, said 155 countries have already put forward detailed plans covering 88pc of global CO2 emissions, and others are expected to join before the deadline expires. “It is unstoppable. No amount of lobbying at this point is going to change the direction,” she told a Carbon Tracker forum in London. Mrs Figueres said the mood has changed entirely since the failed summit in Copenhagen in 2009. This time China is fully on board. “China is already spending more on renewables than any other country. It is going to introduce its own emissions trading scheme in 2017,” she said. Mrs Figueres said the pledges are not yet enough to cap the rise in average global temperatures to two degrees Centrigrade above pre-industrial levels by 2100 – the “two degree world” deemed the safe limit.

But the Paris accord does promise to “bend” the trajectory to 2.7 degrees and will almost certainly be followed by a series of deals that brings the ultimate target within sight. “We think most countries will be able to over-achieve,” she said. While the exact contours are still unclear, Paris is likely to sketch a way towards zero net emissions later this century. It implies that most fossil fuel reserves booked by major oil, gas and coal companies can never be burned. A deal would also send a moral signal with legal ramifications. Mark Carney, the Governor of the Bank England, warned last month that by those who had suffered losses from climate change may try to bring claims on third-party liability insurance. He specifically mentioned the parallel of asbestos claims in US courts, which have mounted over the years to $85bn and devastated some Lloyd’s syndicates.

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Like Gordon Brown selling England’s gold reserves. Timing is everything.

US Plans to Sell Down Strategic Oil Reserve to Raise Cash (Bloomberg)

The U.S. plans to sell millions of barrels of crude oil from its Strategic Petroleum Reserve from 2018 until 2025 under a budget deal reached on Monday night by the White House and top lawmakers from both parties. The proposed sale, included in a bill posted on the White House website, equates to more than 8% of the 695 million barrels of reserves, held in four sites along the Gulf of Mexico coast. Sales are due to start in 2018 at an annual rate of 5 million barrels, rising to 10 million by 2023 and totaling 58 million barrels by the end of the period. The proceeds will be “deposited into the general fund of the Treasury,” according to the bill. The sale is the second time the U.S. has raised cash from the reserve, created as a counter-balance to the power of Arab producers after the first oil crisis of 1973-74.

The U.S. may sell also additional barrels to cover a $2 billion program from 2017 to 2020 to modernize the strategic reserve, including building new pipelines. The White House on Tuesday urged lawmakers to support the budget deal, including the proposed partial sale of the SPR, saying it was “a responsible agreement that is paid for in a balanced way.” Supporters of the sale argue the U.S. doesn’t require such a big emergency reserve as rising domestic production on the back of the shale boom offsets the need for imports. Critics, including oil analysts and former U.S. energy officials, say using the underground reserve as a piggy bank makes it less effective in meeting its intended purpose: combating a “severe energy disruption.” What’s more, the government would be selling at a time when oil is unlikely to have recovered from its slump over the past 18 months.

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VW must cut investments. They might as well cut their entire diesel division.

VW Posts $3.85 Billion Quarterly Loss, First In 15 Years (Bloomberg)

Volkswagen AG, Europe’s largest automaker, posted a €3.48 billion operating loss for the third quarter, worse than analysts’ estimate of a €3.27 billion loss. The company made €3.23 billion profit in the third-quarter a year ago. The historic loss comes amid a widening global emissions scandal after it was revealed software was used to cheat official exhaust analysis checks. The company also announced it would cut its 2015 profit target, saying earnings before interest and tax would drop “significantly.”

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Afraid it’s too late now. Deflation comes first. Oil is down for the count. Next, watch real estate.

Canada Can Show That Ending Austerity Makes Sense (Paul Krugman)

Canadians were less caught up than the rest of us in the ideology of bank deregulation. As a result, Canada was spared the worst of the 2008 financial crisis. Which brings us to the issue of deficits and public investment. Here’s what the Liberal Party of Canada platform had to say on the subject: “Interest rates are at historic lows, our current infrastructure is aging rapidly, and our economy is stuck in neutral. Now is the time to invest.” Does that sound reasonable? It should because it is. We’re living in a world awash with savings that the private sector doesn’t want to invest and is eager to lend to governments at very low interest rates. It’s obviously a good idea to borrow at those low, low rates, putting those excess savings, not to mention the workers unemployed due to weak demand, to use building things that will improve our future. [..]

Since 2010 public investment has been falling as a share of GDP in both Europe and the US, and it’s now well below pre-crisis levels. Why? The answer is that in 2010 elite opinion somehow coalesced around the view that deficits, not high unemployment and weak growth, were the great problem facing policymakers. There was never any evidence for this view; after all, those low interest rates showed that markets weren’t at all worried about debt. But never mind – it was what all the important people were saying, and all that you read in much of the financial press. And few politicians were willing to challenge this orthodoxy. Those who should have stood up for public spending suffered a striking failure of nerve.

Britain’s Labour Party, in particular, essentially accepted Conservative claims that the nation was facing a fiscal crisis and was reduced to arguing at the margin about what form austerity should take. Even President Barack Obama temporarily began echoing Republican rhetoric about the need to tighten the government’s belt. And having bought into deficit panic, centre-left parties found themselves in an extremely weak position. Austerity rhetoric comes naturally to right-wing politicians, who are always arguing that we can’t afford to help the poor and unlucky (although somehow we’re able to afford tax cuts for the rich). Centre-left politicians who endorse austerity, however, find themselves reduced to arguing that they won’t inflict quite as much pain. It’s a losing proposition, politically as well as economically.

Now come Justin Trudeau’s Liberals, who are finally willing to say what sensible economists have been saying all along. And they weren’t punished politically – on the contrary they won a stunning victory. So will the Liberals put their platform into practice? They should. Interest rates remain incredibly low: Canada can borrow for 10 years at only 1.5%, and its 30-year inflation-protected bonds yield less than 1%. Furthermore, Canada is probably facing an extended period of weak private demand thanks to low oil prices and the likely deflation of a housing bubble. Let’s hope, then, that Trudeau stays with the programme. He has an opportunity to show the world what truly responsible fiscal policy looks like.

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“.. its cut-down nature has prompted the web’s inventor, Tim Berners-Lee, to advise people to “just say no” to it.”

EU Net Neutrality Laws Fatally Undermined By Loopholes (Guardian)

Supporters of net neutrality have accused the European Union of undermining its own net neutrality laws after MEPs voted down amendments aimed at closing loopholes. Net neutrality is the principle that internet service providers should treat all online content equally without blocking or slowing down specific websites on purpose or allowing companies to pay for preferential treatment. The European parliament voted through new rules intended to enshrine that principle in law, but critics say they are fatally undermined by a number of loopholes which “open the door to an end to net neutrality”. An attempt to close those loopholes through amendments failed to gain enough support from MEPs to pass.

Following the vote, the regulations are immediately in force in all EU member states, but national regulators, who are ultimately responsible for overseeing the implementation of the rules, will not be expected to start enforcement for six months. Among the exceptions opposed by net neutrality supporters is one which allows providers to offer priority to “specialised services”, providing they still treat the “open” internet equally. Many had seen the exception as allowing providers to offer an internet fast lane to paying sites, leading to the Italian government to propose removing the exception from the draft regulations. The final draft, however, limits what services can be given priority to uses like remote surgery, driverless cars and preventing terrorist attacks. The regulation also requires that those specialised services cannot be offered if they restrict bandwidth for normal internet users.

A different exception is aimed at situations where the limitation is not speed, but data usage. The EU’s regulations allow “zero rating”, a practice whereby certain sites or applications are not counted against data limits. That gives those sites a specific advantage when dealing with users with strict data caps such as those on mobile internet. The new regulations allow national regulators to decide whether or not to allow zero rating in their own country. The most significant example of the practice is Internet.org, Facebook’s platform for spreading net access to the developing world. The service allows access for free to sites including Facebook and Wikipedia, but its cut-down nature has prompted the web’s inventor, Tim Berners-Lee, to advise people to “just say no” to it.

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A tangled web.

Territorial Disputes: The South China Sea (Bloomberg)

Some things are worth fighting for. What about a few desert islands occupied mainly by birds, goats and moles? China and Japan seem to think so, the rest of the world is alarmed and a look at other territorial disputes around the globe shows that stranger things have happened. There are about 60 such conflicts simmering worldwide. Most will bubble along, unresolved but harmless, 400 years after the Peace of Westphalia established the notion of national sovereignty. Others are more dangerous. China claims more than 80% of the South China Sea and has constructed artificial islands there for potential development. The U.S. sailed a warship through nearby waters in October, showing it doesn’t recognize the features in the Spratly Islands as having the same rights as Chinese territory.

Five other nations claim parts of the same maritime area: Vietnam, the Philippines, Brunei, Malaysia and Taiwan. China’s claim to the oil- and gas-rich waters dates to 1947. In November 2014, China and Japan agreed to disagree about century-old claims to a separate set of islands 1,000 miles to the northeast in the East China Sea. That was progress; a year earlier China had proclaimed an “air defense identification zone” over the islands. Taiwan stakes a claim, too and South Korea flew military planes through the self-proclaimed Chinese zone. President Barack Obama went to Japan in 2014 and promised to defend the disputed islands, called Senkaku in Japanese and Diaoyu in Chinese and administered by Japan since 1972. China is locked in a separate disagreement with India over the two countries’ land border.

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Boots on the ground.

US to Begin ‘Direct Action on the Ground’ in Iraq, Syria (NBC)

Defense Secretary Ashton Carter said Tuesday that the U.S. will begin “direct action on the ground” against ISIS forces in Iraq and Syria, aiming to intensify pressure on the militants as progress against them remains elusive. “We won’t hold back from supporting capable partners in opportunistic attacks against ISIL, or conducting such missions directly whether by strikes from the air or direct action on the ground,” Carter said in testimony before the Senate Armed Services committee, using an alternative name for the militant group. Carter pointed to last week’s rescue operation with Kurdish forces in northern Iraq to free hostages held by ISIS. Carter and Pentagon officials initially refused to characterize the rescue operation as U.S. boots on the ground.

However, Carter said last week that the military expects “more raids of this kind” and that the rescue mission “represents a continuation of our advise and assist mission.” This may mean some American soldiers “will be in harm’s way, no question about it,” Carter said last week. After months of denying that U.S. troops would be in any combat role in Iraq, Carter late last week in a response to a question posed by NBC News, also acknowledged that the situation U.S. soldiers found themselves in during the raid in Hawija was combat. “This is combat and things are complicated,” Carter said.

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The poor were always going to be the first and worst victims.

IMF Paints Gloomy Outlook For Sub-Saharan Africa (Reuters)

This year’s slump in commodity prices and the end of a flood of cheap dollars has pegged back African growth to its weakest in six years and things could get worse if the global economy continues to flounder, the IMF said on Tuesday. In its latest African Economic Outlook, entitled “Dealing with the Gathering Clouds”, the Fund said the poorest continent was likely to grow 3.75% this year and 4.25% next, a big drop from the years before and after the 2008/2009 financial crisis. “The strong growth momentum evident in the region in recent years has dissipated,” the report said. “With the possibility that the external environment might turn even less favourable, risks to this outlook remain on the downside.”

Hardest-hit have been sub-Sahara’s eight oil exporters – led by top producers Nigeria and Angola – although others such as Ghana, Zambia and South Africa were also suffering from weak minerals prices, power shortages and difficult financing conditions. However, the Fund noted some bright spots, most notably Ivory Coast, which is scheduled to expand as much as 9% this year due to an investment boom that followed the end of a brief civil war in 2012. This weekend’s overwhelmingly peaceful election, which President Alassane Ouattara – a former IMF official – is widely expected to win, has reinforced hopes Francophone Africa’s biggest economy has put its worst years behind it. With commodities revenues forecast to remain depressed for several years, governments have to work quickly to diversify revene sources by improving domestic tax collection, said Antoinette Sayeh, head of the IMF’s Africa department.

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The poor, the young, the old and the sick.

Children Hardest Hit By Europe’s Economic Crisis (Reuters)

Some 26 million children and young people in Europe are threatened by poverty or social exclusion after years of economic crisis, according to a study by the Bertelsmann Foundation which gave Greece the worst marks in the entire EU. Bertelmann’s Social Justice Index, an annual survey of social conditions in the 28-member bloc, found a yawning gap between north and south, and between young and old. In Spain, Greece, Italy and Portugal, the number of children and young people that are under threat because of their economic condition has increased by 1.2 million to 7.6 million since 2007, the study said. In addition, the number of EU citizens between 20 and 24 years old who are neither employed nor in education or training has risen in 25 of the 28 member states since 2008, with Germany and Sweden the only countries where the outlook for this age group has improved.

In Italy, 32% of people in their early 20s fall into this category, while in Spain it is 24.8%. “We cannot afford to lose a generation in Europe, either socially or economically,” said Aart De Geus, chairman of the executive board at Bertelsmann. “The EU and its member states must make special efforts to sustainably improve opportunities for younger people.” By contrast, the study found that a declining number of people aged 65 or older are at risk of poverty, because retirement benefits have not declined as strongly as incomes for younger citizens. Bertelsmann said three Europe-wide trends were exacerbating this gulf between young and old, including growing public debt, stagnating investment in education and research, and rising pressure on the financial viability of social security systems. Sweden, Denmark, Finland, the Netherlands and Czech Republic stood at the top of the social justice rankings, while Greece, Romania, Bulgaria, Italy and Spain were at the bottom.

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And then there’s no reason to be left for the EU.

The End Of Visa-Free Travel In Europe May Be Looming (Bloomberg)

Warnings of an end to visa-free travel intensified in the EU as Slovenia said it may join Hungary in fencing off its borders if the bloc fails to help countries on its southeastern fringe. Slovene Foreign Minister Karl Erjavec said the Adriatic nation will “adopt all measures” to ensure the safety of its citizens and migrants if the situation worsens and the accord reached Sunday in Brussels isn’t implemented, STA news service reported Tuesday. EU President Donald Tusk said the bloc must protect its external frontiers. He echoed an alarm issued Monday by Italian Foreign Minister Paolo Gentiloni, who said free-movement of people, one of the EU’s founding principles, may be at risk. “This challenge has the potential to change the European Union we have built,” Tusk told EU lawmakers on Tuesday in Strasbourg, France.

“It has the potential to create tectonic changes in the European political landscape, and these are not changes for the better.” The leaders of 11 EU and Balkan countries agreed on a 17-point plan on Sunday that offered short-term fixes for the 1 million or more migrants expected in the bloc this year. The deal includes sending about 400 policemen to help Slovenia control its borders, emergency housing for as many as 100,000 refugees, a stepped-up registration system and bolstering policing on the EU’s southeastern edge. Still, with winter approaching, countries continue to squabble over longer-term solutions. Many Balkan countries say they’re being overwhelmed after German Chancellor Angela Merkel said last month there could be no limit on asylum for those who meet the conditions. That coincided with a shift in the route taken by migrants that once led mainly through Libya to Italy. Now most are winding from Turkey to Greece, through the Balkan states, and then further north.

Complaining about a lack of coordination in the EU, countries have embarked on divergent policies. Many eastern members oppose a German-led push to redistribute the refugees across the bloc with mandatory quotas, saying the migrants don’t want to stay on their territory. Amid the bickering, Hungary has drawn criticism for fencing off its borders, while Slovenia has complained Croatia is waving migrants through. The Republic of Macedonia says its southern neighbor Greece is doing the same, without following the rules that arrivals must be registered in the first EU state they enter. Such squabbling helped prompt European Commission President Jean-Claude Juncker to call Sunday’s meeting in Brussels and he said on Tuesday that national cooperation already had improved.
“We are putting an end to all beggar-thy-neighbor policies,” Juncker told the European Parliament. “Instead, countries shall help their neighbors by telling each other what they are doing.”

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The EU must compensate Greece for all costs, not ‘allow’ it to run a bigger deficit. That’s just crazy. And amoral.

Migrant Crisis Could Prompt EU to Loosen Budget Deficit Rules (WSJ)

European Union governments will be able to offset some of the costs related to the migrant crisis from the EU’s budget deficit rules, according to a top EU official in charge of policing national budgets. Under EU rules, governments have to stick to a budget deficit of 3% of GDP or face fines. “It will be a country-by-country assessment, but we will bear in mind the cost entailed by refugee policies more than up to now,” European Commission chief Jean-Claude Juncker told the European Parliament in Strasbourg on Tuesday. Mr. Juncker said that given the “exceptionally serious problem” of the refugee crisis, there will be some room for maneuver for the Commission, the EU executive, when assessing the countries’ budget deficits.

“If a country is making huge efforts, there should be a commensurate understanding of what they have done. If a country is unable to prove it’s affected by the cost of refugee policies, then we won’t necessarily apply the flexibility of the Stability and Growth Pact to them,” Mr. Juncker said. Germany, the main destination country for refugees arriving in Europe, is expected to triple its budget for accommodating asylum seekers to an estimated €15 billion. Germany’s current deficit is within the EU rules, but that may change by the end of the year. Austria and Italy, two countries affected by the migration crisis and whose budgets are likely to surpass the 3% threshold, have already been pressing the Commission to exempt their refugee spending from the EU’s budget assessment.

Fiscal hawks, however, including Germany’s own finance minister, Wolfgang Schäuble, have been wary of supporting that call, for fear that other countries will seize the opportunity and offset budget expenditures which aren’t necessarily refugee-related. Greece, Croatia and Slovenia—all countries on the main migrant route into Europe—are already in breach of the 3% deficit rule. They are likely to get their deadlines for reaching 3% extended if they can prove that the refugee crisis has taken a toll on their already-strapped coffers.

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The EU has no military. Nor would it solve anything. Separate countries do, but can they operate on reign territory?

Slovenia Considers Calling For EU Military Aid (FT)

Slovenia, the tiny Balkan state struggling to cope with the migration crisis, has raised the idea of invoking a never-before-used “solidarity clause” in the EU treaties to formally request European aid and military support. Ljubljana recently floated the option of triggering Article 222, which enables military aid to EU nations overwhelmed by disasters, according to two officials familiar with the talks. It indicates the drastic steps under consideration to deal with a tide of asylum seekers arriving in Europe. The Alpine state of just 2m people has received 84,000 migrants over the past 10 days, leading the government to call in its national army as well as private security personnel to help its small police force. It received a further 8,000 migrants between Monday evening and Tuesday morning — a figure that exceeds the size of Slovenia’s army.

Against that backdrop, one Slovenian government official said invoking Article 222 was a “viable option” as a last resort. Ljubljana has not officially commented on the idea. Alarmed by the potential for Slovenia pulling the bloc’s emergency cord, EU officials have sought to head off a request, in part by arranging for EU countries to provide 400 police to help Ljubljana manage the crisis. Slovenian officials have put a brave face on the meagre results of Sunday’s summit of European leaders on the so-called western Balkans route, but are keeping up threats to take more aggressive steps. Miro Cerar, Slovenia’s prime minister, had warned the EU would “fall apart” unless the “unbearable” pressure was not eased promptly. His foreign minister Karl Erjavec hinted at the potential for a fence, saying “impediments” could be considered to stem the cross-border flows.

The solidarity clause states that EU member states “shall mobilise all the instruments at its disposal, including the military resources” in the event the requesting country is subject to a terrorist attack or is the victim or a man-made or natural disaster. It has never been invoked. Although the clause is explicit in the potential for military aid and the “spirit of solidarity”, it does not say the support would be automatic. Some EU officials are keen for the principle not to be tested. Up to half a million migrants have attempted to pass through the so-called Balkan corridor between Greece and Germany since the start of the year, overwhelming governments and inflaming already tense relations in the region.

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Devastating.

The Children’s Feet Are Rotting, In 1 Month All These People Will Be Dead (HP)

“There are thousands of children here and their feet are literally rotting, they can’t keep dry, they have high fevers and they’re standing in the pouring rain for days on end. You have one month guys, and then all these people will be dead”. Those were the final words of Dr Linda on the phone, a doctor that our volunteer organisations (Help Refugees and CalAid) had asked to fly out to Lesbos in response to an emergency cry for help from an overwhelmed volunteer on the ground. The weight of those words and the responsibility that comes with them felt crippling. But why are we, a film maker, a radio presenter, and a music assistant being tasked with this responsibility? Shouldn’t, as we had presumed, the large charities and governments be taking the charge of care for the precious lives arriving on Europe shores?

Another call came in – this time from volunteers in Serbia – the refugees are burning plastic bags to keep warm, they have nothing else, they are freezing to death, and the fumes from the bags are slowly poisoning them, please send help. Then another – this time from volunteers on Lesbos trying to find out how to order body bags en masse… will they have to resort this? Time will tell, but certainly people there have already started to die. We wished we could pick up the phone and call someone… who? A charity? An emergency team? The government? The army? How could we sit by and watch whilst these people die, and the handfuls of volunteers struggle and suffer too. But who is there to call? The charities are acting slowly, they have protocols to follow, political considerations, red tape, hierarchy and procedures.

Our government’s policy is not to help in Europe, and only to send aid to places like Syria, Lebanon in Jordan. So… it’s left to everyday people, untrained, unprepared, and overwhelmed, to deal with this crisis. Everyday people like us… a small group of friends who nine weeks ago decided to raise a little bit of cash, get a car load of goods and drive it to Calais. We’d heard from friends who’d been there some of the terrible stories of war and persecution, we knew that numbers were growing, that more children were coming everyday, and that conditions were dire. Our plan was to do our bit, pat ourselves on the back, and then go back to our lives feeling that we’d done something good for our fellow mankind.

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Nature is a complex system.

So Long And Thanks For All The Poo (WaPo)

It only takes a glance at a history book and a look out the window to know that our planet has lost many of its biggest creatures: The world that was once home to mammoths and towering dinosaurs can now barely maintain stable populations of rhinos and whales. But according to a new study, we’ve got more to mourn than just the animals themselves. We’ve lost their feces, too — and that’s a bigger problem than you might think. Why should we miss steaming piles of dinosaur dung? According to research published Monday in the Proceedings of the National Academy of Sciences, megafauna play a greater role in the spread of nutrients across the planet than scientists ever realized. The research focused on modeling the distribution of phosphorus, a nutrient necessary for fertilizing plant growth.

Scientists know that animals help carry these nutrients around by, well, not pooping where they eat. Without this process, nutrients would end up following gravity onto the ocean floor, instead of spreading as high as the mountain tops. But these days most of the nutrient recycling that happens is due to bacteria — not wandering poopers. “I wanted to know whether the world of the past with all the endemic animals was more fertile than our current world,” lead study author Chris Doughty of Oxford University told The Post. “Large free-ranging animals are much less abundant than they once were. Today, if scientists were to study the role of animals they would find that it is important but small,” Doughty explained. “However, in the past, we hypothesize that it would have been at least an order of magnitude larger than today.

Essentially, we have replaced wild free-roaming animals with fenced domestic cattle that cannot move nutrients in the same way.” Some of these contributors — the massive land animals that once roamed our planet — are gone for good. But others are dwindling before our very eyes. In one example of the effect, the researchers found that whales — which have seen dramatic population loss in the last century, mainly due to hunting and habitat disruption — used to bring an estimated 750 million pounds of phosphorus up from the deep ocean to the surface each year. Since whales feed deep in the water and come up to breathe — and poop — at the surface, they’re great at helping to recycle these resources.

But today, the researchers estimate, whales only bring 165 million pounds of phosphorus up annually. That’s just 23% of their previous contribution. Phosphorus movement by birds and fish that come inland after eating in the sea (like salmon, for example) are just 4% what they once were.

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 September 3, 2015  Posted by at 8:47 am Finance Tagged with: , , , , , , , , , ,  


Jack Delano Family of Dennis Decosta, Portuguese Farm Security Administration client Dec 1940

Syrians are the Famine Irish of the 21st Century (Glavin)
Shocking Images Of Drowned Syrian Boy Show Tragic Plight Of Refugees (Guardian)
Family Of Drowned Syrian Boy Had Been Rejected By Canada For Refugee Status (NP)
Germany Targets Billions in Refugee Aid by Late September (Bloomberg)
Italy Revives Border Checks (Deutsche Welle)
European Police ‘Scarier Than ISIS Terrorists’ (Finian Cunningham)
The End Of A Flawed Globalisation (Guardian)
Devaluation Strengthens China’s Hand at IMF (WSJ)
Wall Street Surges As Turbulence Becomes The Norm (Reuters)
We Are In A Great Transition Period (Ron Paul)
Wall Street and the Military are Draining Americans High and Dry (Edstrom)
The Chinese Bubble (Beppe Grillo)
Why The Federal Reserve Should Be Audited (John Crudele)
Marc Faber Warns “There Are No Safe Assets Anymore” (ZH)
Giant US Pension Fund To Sell 12% Of Stocks In Fear Of “Another Downturn” (WSJ)
Pimco Assets Drop Below $100 Billion For The First Time Since ’07 (Reuters)
House Sales Plunge In Calgary As Energy Sector Job Losses Mount (Globe and Mail)
Tens Of Thousands Of Greek Companies Fear Closure In Coming Months (Kath.)
Lucky Britain To Win 21st Century Jackpot From Carbon Capture (AEP)
Two More European Countries Ban Monsanto GMO Crops (EcoWatch)

“This Is What It’s Come To: Letting Syria Die, Watching Syrians Drown..”

Syrians are the Famine Irish of the 21st Century (Glavin)

“The worst part of it is the feeling that we don’t have any allies,” Montreal’s Faisal Alazem, the tireless 32-year-old campaigner for the Syrian-Canadian Council, told me the other day. “That is what people in the Syrian community are feeling.” There are feelings of deep gratitude for having been welcomed into Canada, Alazem said. But with their homeland being reduced to an apocalyptic nightmare – the barrel-bombing of Aleppo and Homs, the beheadings of university professors, the demolition of Palmyra’s ancient temples – among Syrian Canadians there is also an unquenchable sorrow. Bashar Assad’s genocidal regime clings to power in Damascus and the jihadist psychopaths of the Islamic State of Iraq and the Levant (ISIL) are ascendant almost everywhere else.

The one thing the democratic opposition wanted from the world was a no-fly zone and air-patrolled humanitarian corridors. Even that was too much to ask. There is no going home now. But among Syrian-Canadians, the worst thing of all, Alazem said, is a suffocating feeling of solitude and betrayal. “In the western countries, the civil society groups – it’s not just their inaction, they fight you as well,” he said. “They are crying crocodile tears about refugees now, but they have played the biggest role in throwing lifelines to the regime. And so I have to say to them, this is the reality, this is the result of all your anti-war activism, and now the people are drowning in the sea.”

Drowning in the sea: a little boy in a red t-shirt and shorts, found face-down in the surf. The boy was among 11 corpses that washed up on a Turkish beach Tuesday. Last Friday, as many as 200 refugees drowned when the fishing boat they were being smuggled in capsized off the Libyan coast. At least 2,500 people, most of them Syrians, have drowned in this way in the Mediterranean already this year.

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Europe is comfortably Teflon coated.

Shocking Images Of Drowned Syrian Boy Show Tragic Plight Of Refugees (Guardian)

The full horror of the human tragedy unfolding on the shores of Europe was brought home on Wednesday as images of the lifeless body of a young boy – one of at least 12 Syrians who drowned attempting to reach the Greek island of Kos – encapsulated the extraordinary risks refugees are taking to reach the west. The picture, taken on Wednesday morning, depicted the dark-haired toddler, wearing a bright-red T-shirt and shorts, washed up on a beach, lying face down in the surf not far from Turkey’s fashionable resort town of Bodrum. A second image portrays a grim-faced policeman carrying the tiny body away. Within hours it had gone viral becoming the top trending picture on Twitter under the hashtag #KiyiyaVuranInsanlik (humanity washed ashore).

Greek authorities, coping with what has become the biggest migration crisis in living memory, said the boy was among a group of refugees escaping Islamic State in Syria. Turkish officials, corroborating the reports, said 12 people died after two boats carrying a total of 23 people, capsized after setting off separately from the Akyarlar area of the Bodrum peninsula. Among the dead were five children and a woman. Seven others were rescued and two reached the shore in lifejackets but hopes were fading of saving the two people still missing. The casualties were among thousands of people, mostly Syrians, fleeing war and the brutal occupation by Islamic fundamentalists in their homeland.

Kos, facing Turkey’s Aegean coast, has become a magnet for people determined to reach Europe. An estimated 2,500 refugees, also believed to be from Syria, landed on Lesbos on Wednesday in what local officials described as more than 60 dinghies and other “unseaworthy” vessels. Some 15,000 refugees are in Lesbos awaiting passage by cruise ship to Athens’ port of Piraeus before continuing their journey northwards to Macedonia and up through Serbia to Hungary and Germany. Wednesday’s dead were part of a grim toll of some 2,500 people who have died this summer attempting to cross the Mediterranean to Europe, according to the UN refugee agency, UNHCR.

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“The frustration of waiting and the inaction has been terrible.”

Family Of Drowned Syrian Boy Had Been Rejected By Canada For Refugee Status (NP)

The drowned child washed up on a Turkish beach captured in a photograph that went around the world Wednesday was three-year-old Aylan Kurdi. He died, along with his five-year-old brother Galip and their mother Rehan, in a desperate attempt to reach Canada. The Syrian-Kurds from Kobane died along with eight other refugees early Wednesday. The father of the two boys, Abdullah, survived. The father’s family says his only wish now is to return to Kobane with his dead wife and children, bury them, and be buried alongside them. “I heard the news at five o’clock in this morning,” Teema Kurdi, Abdullah’s sister, said Wednesday. She learned of the drowning through a telephone call from Ghuson Kurdi, the wife of another brother, Mohammad. “She had got a call from Abdullah, and all he said was, my wife and two boys are dead.”

Teema, a Vancouver hairdresser who emigrated to Canada more than 20 years ago, said Abdullah and Rehan Kurdi and their two boys were the subject of a “G5” privately sponsored refugee application that the ministry of citizenship and immigration rejected in June, owing to the complexities involved in refugee applications from Turkey. Citizenship and Immigration Minister Chris Alexander could not be reached for comment, but Port Moody – Coquitlam NDP MP Fin Donnelly said he’d hand-delivered the Kurdis’ file to Alexander earlier this year. Alexander said he’d look into it, Donnelly said, but the Kurdis’ application was rejected in June. “This is horrific and heartbreaking news,” Donnelly said. “The frustration of waiting and the inaction has been terrible.”

The family had two strikes against it — like thousands of other Syrian-Kurdish refugees in Turkey, the United Nations would not register them as refugees, and the Turkish government would not grant them exit visas. “I was trying to sponsor them, and I have my friends and my neighbours who helped me with the bank deposits, but we couldn’t get them out, and that is why they went in the boat. I was even paying rent for them in Turkey, but it is horrible the way they treat Syrians there,” Teema said.

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That’s 4 weeks?! Clearly Germany does not see a crisis, nor an emergency. They don’t care if people drown.

Germany Targets Billions in Refugee Aid by Late September (Bloomberg)

Chancellor Angela Merkel’s government is facing up to the cost of caring for refugees pouring into Germany as estimates of the budget impact from Europe’s biggest migrant crisis since World War II increase. Interior Minister Thomas de Maiziere said Wednesday he’ll present a package of measures within three weeks to help fund municipalities, ease building rules and streamline bureaucracy for housing and registering refugees. “We need clarity quickly on financial assistance,” Maiziere told reporters in Berlin. Deputy Finance Minister Jens Spahn, asked in a Bloomberg Television interview in Frankfurt about the price tag of aid to refugees, said, “it will be billions, we’re still calculating.”

As migrants seeking refuge from war and poverty squeeze onto trains to Germany, Merkel says her country may see as many as 800,000 arrivals this year, about four times the level in 2014. That means federal support payments for asylum seekers this year will increase by as much as €3.3 billion, Labor Minister Andrea Nahles told reporters Tuesday. Party leaders of Merkel’s governing coalition will discuss the measures on Sunday and probably complete the legislation by Sept. 24 when Merkel and leaders of Germany’s 16 states meet, de Maiziere said. The measures could be approved by the lower house in October, he said.

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And so it starts.

Italy Revives Border Checks (Deutsche Welle)

Italy has temporarily reinstated border patrols at the frontier with Austria. The move follows an appeal from the southern German state of Bavaria. Following a request from Germany to help stem the flow of refugees, Italy reimposed identification checks in its northern region of South Tyrol on Wednesday. The bilingual province on the border with Austria is the last stop in Italy for migrants who arrive in the country from northern Africa, hoping to travel on other nations in Europe. The regional capital Bolzano said it was ready to “reactivate” controls at the Alpine town of Brennero just as it did for the G7 summit in June, but that it was “a temporary measure to allow Bavaria to reorganize and face the emergency.”

Bavaria registered around 2,500 new refugees on Tuesday, with a total of almost 4,300 new arrivals in the week so far. South Tyrol also agreed to take in 300-400 migrants who had arrived in Munich “for a few days” to take some pressure off the southern German state whose facilities are swamped by migrants arriving not only from the Middle East and Africa, but some Balkan nations as well. Although Italy, Germany, and Austria belong to the Schengen Zone, which largely abolished border controls between signatory countries beginning in the 1990s, its provisions may be lifted in exceptional situations. When Rome suspended Schengen for the G7 in June it caused serious overcrowding in South Tyrol as migrants were forced to postpone their journeys.

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Well, not all of them. But still.

European Police ‘Scarier Than ISIS Terrorists’ (Finian Cunningham)

In what is being described as the worse refugee crisis in Europe since the Second World War, tens of thousands of desperate migrants are streaming across EU borders. They have risked their lives to get there, only to be then attacked by EU «border police», or else targeted by racist street mobs. Welcome to Europe! Destitute and carrying their worldly possessions in nothing but a haversack, men, women and young children are having to outwit truncheon-wielding police ranks in order to try to reach safety. This is in the European Union, whose treaties proclaim to the rest of the world the sanctity of human rights and dignity. Hungary, Romania and Greece have emerged as the new crisis points, replacing Italy as the formerly main refugee route. Crying mothers run with petrified children jostled on their backs into forests or ditches just to escape from teargas-firing riot police.

One distraught woman told a France 24 news crew how she had become separated from her family in the melee. She didn’t know how she would ever find them because she was stranded on the other side of the police cordon. Her missing children and husband had to run away before they were captured by the cops. One young boy from Syria told CNN reporter Awra Damon that his family and many others were forced back by a phalanx of helmet-clad police officers as they attempted to cross the Hungarian border. The little boy said his family fled an area in Syria that is under control of the Islamic State (or ISIS) terror group – the cult jihadist militia notorious for beheading civilians. (The CNN reporter didn’t seem to notice the irony that her TV channel has previously made heaps of news stories out of accusing the Syrian government as being the one who is terrorising its people.)

What does that say about the Hungarian border police when beleaguered refugees are cowering before them? It’s a graphic condemnation of the EU’s border controls being scarier than blood-thirsty terrorists. Last month alone, more than 100,000 migrants crossed EU borders. This is a humanitarian crisis on a scale that evokes the harrowing grainy footage showing wandering masses in the aftermath of World War Two. The vast majority of the refugees to the EU are from war-torn Syria, according to the UN’s International Organisation for Migration. Up to 12 million of Syria’s population – half the total – have been displaced by more than four years of conflict in that country. A war that has been fuelled covertly by the United States, Britain and France seeking regime change against President Bashar al Assad. Also fuelling the war in Syria are Western allies Saudi Arabia, Qatar, Jordan, Turkey and Israel.

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“..the debacle in Asia’s number one economy has blown a hole in a string of hitherto long-held beliefs.”

The End Of A Flawed Globalisation (Guardian)

Clad as it is in jargon and technicalities, financial meltdowns can often seem like an elaborate spectacle taking place in a foreign country. So it is with the trillions wiped off shares since 24 August’s “Black Monday”. Obviously it’s a huge deal, but beyond the numbers on Bloomberg terminals it’s hard to put into perspective. Yet one way to think about what has happened in China over the past couple of weeks is the drawing to a close of an entire system for running the world economy. Over the past two decades, globalisation has fired on two engines: the belief that Americans would always buy the world’s goods, of which the Chinese would make the lion’s share – and lend their income to the Americans to buy more.

That policy regime was made explicit during the Asian crisis of the late 90s, when Federal Reserve head Alan Greenspan slashed US borrowing rates, making it cheaper for Americans to buy imports. And it was talked about throughout the noughties by central bankers fretting about the “Great Wall of Cash” flooding out of China and into western assets. The first big blow to that system came with the banking crisis of 2008, which made plain that the US could no longer afford to continue as the world’s backstop consumer. The latest dent has been made over the past couple of weeks in China. Because the debacle in Asia’s number one economy has blown a hole in a string of hitherto long-held beliefs.

First, it exploded the assumption that China can keep racking up double-digit growth rates forever. Stock markets are only the aggregate of investors’ estimates of the future profitability of the companies listed on them. The crash on the Shanghai Composite suggests that shareholders are no longer so confident of the prospects for Chinese businesses – and with reason: data shows that China’s manufacturing, investment and demand for commodities are all on the slide. More importantly, the last few weeks have shattered faith in the Beijing politburo as technocrats with an incomparably sure touch. Whatever doubts economists might have had over the sustainability of China’s dirty-tech, investment-heavy economic model, they would normally be quelled with the thought that Beijing’s “super-elite” had a textbook for every occasion.

But that was before the shock devaluation of the yuan on 11 August, followed by a jittery press conference called by the People’s Bank of China – after which it spent hundreds of billions buying yuan to keep it strong, effectively reversing the devaluation. Couple all this with the national government’s cack-handed attempts to shore up the stock market and this week’s bizarre and reprehensible “confession” on state TV from a journalist for talking down the stock market – and a picture emerges of a state government unsure how to deal with financial jitters and lashing out at any convenient target.

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Or not.

Devaluation Strengthens China’s Hand at IMF (WSJ)

China’s sudden decision last month to devalue its currency riled neighbors and fueled investors’ fears about a sharp slowdown in the world’s No. 2 economy. But the move has won over the IMF and even secured restrained praise from the U.S. Treasury Department. The currency maneuver has positioned the Chinese government to press for a greater international role for the yuan during visits to a series of Group of 20 meetings starting this week and a visit to Washington later this month. For more than a decade, the U.S. and other countries castigated China for its currency policy, saying the yuan’s level gave the country’s exporters an unfair advantage at the expense of its trading partners.

The Aug. 11 depreciation initially spurred worries in global financial markets as investors saw it as a signal that Beijing was reverting to its old policy playbook in a desperate effort to revive a flagging economy. A number of China experts and Western officials close to the matter say China likely isn’t regressing. “If they wanted to revert to their mercantilist trade policies, they would have moved sooner and they would have moved by a much bigger amount,” said Nick Lardy, a China expert at the Peterson Institute for International Economics. Instead, economists are generally viewing the depreciation as China presented it: as a move to make the country’s exchange rate more market-determined.

Combined with Beijing’s careful management of the currency since then, it is bolstering China’s bid to get the yuan included in the IMF’s basket of reserve currencies after the IMF board’s vote in November, according to people familiar with the matter. They and other experts say China is holding to its currency commitments for now despite discord in its financial markets and deepening international worries about the Chinese economy. Contrary to initial expectations, China’s depreciation of the yuan might actually help mitigate long-simmering tensions between the U.S. and China over the country’s currency policy ahead of a visit by Chinese President Xi Jinping to Washington in late September.

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Volatility.

Wall Street Surges As Turbulence Becomes The Norm (Reuters)

Wall Street stocks jumped almost 2% on Wednesday in the latest volatile session as investors weighed the impact of a stumbling Chinese economy and global market turmoil on the Federal Reserve’s impending decision about when to raise interest rates. U.S. investors have weathered over two weeks of unusually wide-swinging trade that has left the S&P 500 with its worst monthly drop in three years and a loss of 8.5% from an all-time high in May. “What we’re seeing today is not a recovery. It’s market volatility, it’s nervousness, it’s an inability to call the direction of the market,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. “Through now and October we’re going to see a lot more of this, a lot of volatility.”

U.S. labor markets were tight enough to fuel small wage gains in some professions in recent weeks, though some companies already felt a chill from an economic slowdown in China, the Fed said. The combination of more demand for workers and worries about Chinese economic growth underscores the challenge faced by the Fed at a Sept 16-17 meeting where it may decide to raise interest rates for the first time since 2006. The Dow Jones industrial average jumped 1.82% to end at 16,351.31 points. The S&P 500 climbed 1.83% to 1,948.85 and the Nasdaq Composite surged 2.46% to 4,749.98. The CBOE Volatility index .VIX, Wall Street’s “fear gauge,” dipped 11% but stayed in territory not seen since 2011 after Standard & Poor’s cut its credit rating on the United States for the first time.

The recent turbulence has left the S&P 500’s valuation at 15.1 times expected earnings, inexpensive compared to around 17 for much of 2015, according to Thomson Reuters StarMine data. But investors fear that the outlook for earnings may darken as China’s economy loses steam.

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“The big danger is if the results of this failure are total poverty for more and more nations and total war.”

We Are In A Great Transition Period (Ron Paul)

It’s a shame to see what has happened so far in this new century. The last century ended with a victory over defeated communism. I think that was the greatest victory of the 20th century. Events showed that communism did not work. Unfortunately, we jumped to the conclusion that we had an Empire to defend, and that Keynesian economics would solve all of our problems. Printing money, spending money, and debt wouldn’t matter, and we would bring peace to the world and make everyone good democrats. Right now, the refugee crisis that we see in Europe is a failure of government policies and a failure of central banking. In some ways, I think we are in a great transition period. This cannot continue. The big danger is if the results of this failure are total poverty for more and more nations and total war. Or, hopefully, we can wise up and say that these policies have failed.

The American people should lead the charge on this. The policies are lousy, and yet government is always adding more and more of the same. The worse the economy gets, the more we’re starting to hear about socialism and authoritarianism as the cures. So we live in an age in which the policies of the past are coming to an end. The Keynesian model does not work, and our Empire does not work. This total failure has to change, and we need to present the alternative. For me, the alternative is free markets, free society, civil liberties, and a foreign policy where we mind our own business. The alternative is peace and prosperity. We were told about these things in our early years, but it seems they’ve been forgotten. We’d be much better off in this country with such a policy and we could set a standard for the rest of the world.

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Nice set of numbers.

Wall Street and the Military are Draining Americans High and Dry (Edstrom)

The US government often cites $18 trillion as the amount of money that they owe, but their actual debts are higher. Much higher. The government in the USA owes $13.2 trillion in US Treasury Bonds, $5 trillion in money borrowed by the US Federal government from Federal government trust funds like the Social Security trust fund, $0.7 trillion for state bonds issued by the 50 states, $3.7 trillion for the municipal bond market (US towns, cities and counties), $1.97 trillion still owing by Freddie Mac and Fannie Mae, mostly for bad mortgages in years gone by, $6.23 trillion owed by US government authorities other than Fannie Mae and Freddie Mac, $1.04 trillion in loans taken out by the US Federal government (e.g. government credit card balances, short term loans) and $0.63 trillion in loans owed by government authorities (e.g. their government credit card balances, short term loans).

As of April 1, 2015, according to the Federal Reserve Bank’s Financial Accounts of the US report, the government in the USA has $32.77 trillion in debt excluding unfunded government pension debts and unfunded government healthcare costs Debt is money that has to be paid. The government in the USA also has to pay $6.62 trillion for unfunded pension liabilities, as of April 1, 2015. There are thousands of government pension plans in the USA. The Federal Employees Pension Plan is now short $1.9 trillion according to the Fed’s March 2015 statement plus $4.7 trillion in unfunded state and municipal pension liabilities according to State Budget Solutions which calculates on actual pension returns (approx. 2.5% per year from 2009 to 2014, instead of the fantasy ‘assumption’ of an 8% return used by the Fed to guesstimate pension fund money).

The largest governmental pension fund in Puerto Rico ran out money (became insolvent) in 2012 and the government now has to pay $20.5 billion for that. Pension contributions into government pension plans have been less than what these pension plans pay out to retirees which is why the government was short by $6.62 trillion for government pensions as of April 1, 2015. The DJIA has gone down 9.5% since the Spring. $6.3 trillion in governmental pension plan money was invested in Wall Street as of April 1st. Additional government pension plan losses have been, so far this year, $0.6 trillion. As of August 29, 2015, the government in the US owes $7.2 trillion for pensions. Every additional 10% the DJIA drops is another $0.6 trillion in unfunded pension costs that the government has to pay.

The Federal government owed $1.95 trillion in unfunded entitlements for the Federal Employees Pension Fund as of April 1, 2015. Unfunded entitlements are health care benefits for retirees above and beyond Medicare benefits. States, municipalities and governmental authorities owe an additional $4.2 trillion for retiree health benefits. Medicare and Medicaid costs, about $0.83 trillion in 2014, escalate 6% a year and Obamacare adds $0.18 trillion a year in governmental health costs, mostly for subsidies. Medicare, Medicaid and Obamacare costs will escalate to $1.28 trillion in 2018. Bottom line, as of August 29, 2015, the government in the USA owes $46.1 trillion (bonds, unfunded pension costs, unfunded healthcare costs, credit card balances and loans).

Footprints. The US government has paid Wall Street’s way when Wall Street can’t pay it’s own way. Wall Street has promised to pay more than the US government has promised to pay. $0.5 trillion in margin loans and $3.95 trillion in repurchase agreements pale in comparison to $21 trillion in open credit default swaps, a type of derivative. Bankruptcy legislation in 2005 gave derivatives “super priority” status to be paid first when banks go bankrupt. According to BIS, there were $630 trillion in outstanding derivatives earlier this year, about half in the USA. Since wall street doesn’t have $315 trillion to pay their derivatives, who will pay this amount? And how? Even if only 15% of US derivatives go bad, that’s $47 trillion. How would the US government pay for that? The derivative liabilities arising, due to ongoing Wall Street instability, is an elephant in the room.

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“Since 2008, all the advanced economies have entered a phase of credit contraction (deleverage), whereas China has been moving in the opposite direction..”

The Chinese Bubble (Beppe Grillo)

The devaluation of the currency decided by China’s Central Bank has surprised financial markets. After anchoring the yuan to the dollar within a minimum margin of oscillation, after the Lehman crisis, the Chinese authorities have progressively broadened the oscillation zone and in 2014, they altered it from 1% to 2%. The decision in August to disconnect the yuan from the dollar has made it possible for the market to stabilise fluctuations in the currency and China did not intervene to correct the oscillation in the value of the yuan and thus it allowed the currency to devalue. Why?

Reasons for the devaluation An initial response can be found in the 8% annual fall in Chinese exports reported in the month of July. Connecting the yuan to the dollar after the crisis in 2008, eliminated the exchange rate risk and it facilitated the flow of foreign investments but it also brought about a devaluation of the yuan that penalised the balance of trade. In fact the real Chinese exchange rate increased by 30% between 2008 and 2014, most of which was in that last year following on from expectations of the rise in USA interest rates and the relative increase in the value of the dollar. The result saw a decline in exports to such an extent that it now needs explaining – now at no more than 20% of China’s GDP as compared to 40% a few years ago. Devalue to maintain growth is thus the first and most obvious way of looking at this new mercantilist spirit on the part of the Chinese monetary authorities.

The Chinese property bubble 2008 was the start of the Chinese property bubble. The de facto regime of fixed exchange rates with the dollar and the enormous reserves in foreign currencies have guaranteed the convertibility of the yuan and this has facilitated the flow of capital and the disproportionate expansion of credit to families. Since 2008, all the advanced economies have entered a phase of credit contraction (deleverage), whereas China has been moving in the opposite direction: from 2008 to 2014 private debt in China as a%age of GDP, has gone from 100% to 180% (of this, corporate debt as a%age of GDP has gone from 85% to 140% and for families it has gone up by a bit less than a multiple of three: – from 15% in 2008 to 40% today). This means that the ratio of private debt to GDP in China reached and went beyond the levels that Japan and the United States recorded in a 17 year period: from 1993 to 2010.

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More reasons than we have time to mention.

Why The Federal Reserve Should Be Audited (John Crudele)

It is time for a comprehensive audit of Janet Yellen ’s Federal Reserve — and not just for the reasons presidential candidate Rand Paul and others have given. The Fed needs to be audited to see if its ruling body has broken the law by manipulating financial markets that are outside its jurisdiction. A thorough investigation of the Fed will show once and for all if its former chief Ben Bernanke and current Chairwoman Yellen should go to jail. I know, that’s a bold statement coming as it does on Sept. 1, 2015, with Wall Street still in half-bloom. But it won’t be so preposterous some day in the future if the stock market suffers a full-blown economy-busting collapse and Congress and everyone else are looking for scalps.

The Fed should be audited as a brokerage firm would be — its financial holdings, its transactions, market orders, emails and phone calls. Special attention should be given to what is called the “trade blotter” at the Federal Reserve Bank of New York, which handles all market transactions for the Fed. The Fed’s dealing with foreign central banks — especially at times of market stress — should be given special attention. Trades in the wee hours of the morning should be in the spotlight. Not surprisingly, the Fed is strongly opposed to an audit and sees it as an intrusion into its autonomy. Washington shouldn’t be intimidated. Autonomy? Hah! That ended when the central bank started playing footsie with Wall Street.

Let’s look at what happened to the stock market last week, and it’ll explain what I think those who audit the Fed need to look for. As you probably remember, stocks were headed for oblivion on Monday, Aug. 24. The Dow Jones industrial average was down 1,089 points early in the day before the index rallied for a close that was “only” 588 points lower. China’s problems. Weak US economic growth. Greece. The possibility of an interest-rate hike. Those and other issues were the root causes of last Monday’s woe. But Wall Street’s real problem is that there is a bubble in stock prices created by years of risky monetary policy by the Fed. Quantitative easing, or QE — the experiment in money printing that has kept interest rates super-low — hasn’t helped the economy (and even the Fed of St. Louis concluded that). But QE did force savers into the stock market whether they wanted to take the risk or not.

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“..we have precise statistics who actually benefited from the stock market boom post-2009. This is not even 1% of the population. It’s 0.01%.”

Marc Faber Warns “There Are No Safe Assets Anymore” (ZH)

Markets have “reached some kind of a tipping point,” warns Marc Faber in a brief Bloomberg TV interview. Simply put, he explains, “because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks – there is no safe asset anymore.” The purchasing power of money is going down, and Faber “would rather focus on precious metals because they do not depend on the industrial demand as much as base metals or industrial commodities,” as it’s now “obvious that the Chinese economy is growing at nowhere near what the Ministry of Truth is publishing.” Faber explains more… “I have to laugh when someone like you tries to lecture me what creates prosperity” Some key exceprts…

On what central banks hath wrought… I think that because of modern central banking and repeated interventions with monetary policy, in other words, with QE, all around the world by central banks there is no safe asset anymore. When I grew up in the ’50s it was safe to put your money in the bank on deposit. The yields were low, but it was safe. But nowadays, you don’t know what will happen next in terms of purchasing power of money. What we know is that it’s going down.

On the idiocy of QE…..in my humble book of economics, wealth is being created through, essentially, a mixture of capital spending, and land and labor. And if these three production factors are used efficiently, it then creates a prosperous society, as America became prosperous from its humble beginnings in 1800, or thereabout, to the 1960s, ’70s. But it’s ludicrous to believe that you will create prosperity in a system by printing money. That is economic sophism at its best.

On the causes of iunequality… ..unfortunately the money that was made in U.S. stocks wasn’t distributed evenly. And we have precise statistics, by the way published by the Federal Reserve, who actually benefited from the stock market boom post-2009. This is not even 1% of the population. It’s 0.01%. They took the bulk. And the majority of Americans, roughly 50%, they don’t own any shares anyway. And in other countries, 90% of the population do not own any shares. So the printing of money has a very limited impact on creating wealth.

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Scream.

Giant US Pension Fund To Sell 12% Of Stocks In Fear Of “Another Downturn” (WSJ)

The nation’s second-largest pension fund is considering a significant shift away from some stocks and bonds, one of the most aggressive moves yet by a major retirement system to protect itself against another downturn. Top investment officers of the California State Teachers’ Retirement System have discussed moving as much as 12% of the fund’s portfolio—or more than $20 billion—into U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund. Its holdings of U.S. stocks and other bonds would likely decline to make room for the new investments. The board of the $191 billion fund, which is known by its abbreviation Calstrs, discussed the proposal at a meeting Wednesday. A final decision won’t be made until November.

A wave of deep selloffs over the past two weeks has shattered years of steady gains for U.S. stocks. Calstrs isn’t reacting directly to those sharp price swings, but they are a reminder of the volatility in stocks and how exposed Calstrs is when markets swoon. “There’s no question,” Calstrs Chief Investment Officer Christopher Ailman said in an interview. The recent market volatility “has been painful.” Calstrs currently has about 55% of its portfolio in stocks. The fund’s investment officers began discussing the new tactic—called “Risk-Mitigating Strategies” in Calstrs documents—several months ago as they prepared for a regular three-year review of how Calstrs invests assets for nearly 880,000 active and retired school employees. Mr. Ailman, who has been chief investment officer at the fund since 2000, said he hopes a move away from certain stocks and bonds could help stub out heavy losses during future gyrations. This could include moving out of some U.S. stocks as well as investment-grade bonds.

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“..leaving it with about a third of the money it managed at its 2013 peak..”

Pimco Assets Drop Below $100 Billion For The First Time Since ’07 (Reuters)

Pacific Investment Management Co’s flagship fund dropped below $100 billion in assets for the first time in more than eight years, leaving it with about a third of the money it managed at its 2013 peak. Investors pulled $1.8 billion in assets from the Pimco Total Return Fund in August, down from $2.5 billion the previous month, according to the Newport Beach, California-based firm on Wednesday. After 28 consecutive months of outflows, assets plunged to $98.5 billion as of Aug. 31 from a peak of $293 billion in April 2013, when the mutual fund was the world’s largest and run by Pimco co-founder Bill Gross.

Gross, the bond market’s most renowned investor and long known as the “Bond King,” shocked the investment world nearly a year ago when he quit Pimco for distant rival Janus Capital Group. This is the first time that Total Return assets had less than $100 billion since January 2007, before strong risk-adjusted returns during the financial crisis attracted monstrous inflows of cash from investors seeking the relative safety of bonds. Assets were $99.86 billion in January 2007, according to Morningstar data. Investors have withdrawn record amounts of money since April 2013 because of erratic performance exacerbated by last year’s departures by Gross and Mohamed El-Erian, the former chief executive officer of Pimco and Gross’ heir apparent.

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Sales down 27%, prices down 2%. Next step is obvious.

House Sales Plunge In Calgary As Energy Sector Job Losses Mount (Globe and Mail)

Calgary’s housing market is showing signs of fracturing amid a fresh wave of layoffs announced by major energy companies in the city. Home sales plunged 27% in August from a year earlier, while the benchmark and average resale prices both fell, the Calgary real estate board said Tuesday. The benchmark price slipped 0.09% to $456,300. The average resale price in the city tumbled nearly 2% to $466,570. On a year-to-date basis, average prices fell roughly 1.7% while benchmark prices rose about 2.4% as the number of new listings eased. But overall inventories are swollen at 44% above the same period in 2014 so far this year, pointing to more weakness ahead as job losses in the oil and gas sector mount. Total sales so far this year are down 25%.

“While we’ve managed to come through the spring market with not a lot of change, because there is further expectations of softness in the employment market, these things will start weighing on the housing market as we move into the end of the year,” said Ann-Marie Lurie, chief economist with the board. The weakening housing market is another symptom of oil’s collapse to under $50 a barrel from more than $100 (U.S.) last year – a sharp drop that has forced the city’s energy industry into survival mode. ConocoPhillips and Penn West Petroleum on Tuesday shed a combined 900 positions, adding to thousands of job losses that have piled up as companies dial back spending and halt drilling projects. Alberta’s oil-dependent economy is now expected to contract by 0.6% this year and its deficit could top $6.5-billion (Canadian) as the downturn intensifies, the province’s NDP government said this week.

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The price of a bailout.

Tens Of Thousands Of Greek Companies Fear Closure In Coming Months (Kath.)

Many of the country’s very small enterprises believe the returning recession and the capital controls are likely to finally put them out of business, with about 30% of them facing the threat of closure in the next six months, a survey by the Small Enterprises’ Institute of the Hellenic Confederation of Professionals, Craftsmen and Merchants has shown. It is estimated that the number of enterprises in Greece will drop by about 63,000 in the next six months, and the toll will be higher for very small companies. Indications that appeared in the second half of last year suggesting that the country was finally emerging from its recession have been eclipsed in the last couple of months.

According to the study’s baseline scenario, business closures will lead to some 138,000 people losing their jobs (including employers, the self-employed and salary workers), of whom about 55,000 will be salary workers. In the first half of the year, total job losses in small and very small enterprises amounted to 25,000, of which 15,000 concerned salary workers. The marginal decline in the jobless rate, which came to 25% in May according to the latest ELSTAT figures, seems unlikely to be reproduced in the second half of the year: The survey showed that over 20% of enterprises consider it probable they will have to lay off staff in the next six months. This rate is considerably greater (40.2%) among enterprises employing more than five people.

Three in every seven businesses (43%) are facing difficulties in making salary payments, while one in every four reduced its employees’ salaries during the first half of the year. Over two in five enterprises (41.1%) say they are likely to cut salaries or working hours during the latter half of the year.

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This can only go wrong, as technohappy does: “Access to storage will be much more valuable than the fossil fuels themselves.”[..] “..Coal producers now see carbon capture as their saviour.”

Lucky Britain To Win 21st Century Jackpot From Carbon Capture (AEP)

The energy sheikhs of the next generation will not be those who control vast reserves of oil, gas or coal. Sweeping climate rules are about to turn the calculus upside-down. Greater riches will accrue to those best able to capture carbon as it is burned, and are then able to transport it through a network of pipelines and store it cheaply a mile or more underground. As it happens, Britain is perfectly placed to win the jackpot of the 21st century. China and the US – the twin CO2 giants – have already reached a far-reaching deal to curb greenhouse gases. China has pledged to cap total emissions by 2030. Mexico has vowed to cut gases by 40pc within 15 years, and Gabon by even more. The poisonous North-South conflict that doomed the Copenhagen summit in 2009 has given way to a more subtle mosaic of interests.

There is a high likelihood that 40,000 delegates from 200 countries will agree to legally-binding rules at the COP 21 climate talks in Paris in December. As a matter of pure economics, it makes no difference whether or not you accept the hypothesis of man-made global warming. The political argument has been settled by the world’s dominant powers. The messy compromise will fall far short of capping carbon emissions at 3,000 gigatonnes, the outer limit deemed necessary by scientists to stop temperatures rising by more than two degrees Celsius above pre-industrial levels. (We have used up two-thirds) But it will probably usher in some sort of regime that puts a “non-trivial” price on burning carbon, the first of several escalating accords. Eventually it will be draconian.

“I don’t think people have fully realised that there is a finite budget, and when it’s used up, that’s it,” said Professor Jon Gibbins from Edinburgh University. “We will have to go negative and capture carbon from the air, which will be very expensive.” A new report by Cititgroup – “Energy Darwinism” – says an ambitious COP 21 implies that a third of global oil reserves, half the gas and 80pc of coal reserves cannot be burned, unless carbon capture and storage (CCS) comes to the rescue. It is precisely this prospect of “fossil-dämmerung” that is at last concentrating the mind. The fossil industry itself is embracing the CCS revolution because its own survival depends on it in a “two degree” political world.

Carbon capture has long been dismissed as a pipe-dream. But as so often with technology, the facts on the ground are rapidly pulling ahead of a stale narrative. The Canadian utility SaskPower has already retro-fitted a filtering system onto a 110 megawatt (MW) coal-fired plant at Boundary Dam, extracting 90pc of the CO2 at a tolerable cost. It used Cansolv technology from Shell. “We didn’t intend to build the first one in the world, but everybody else quit,” said Mike Monea, the head of the project. “We have learned so much from the design flaws that we could cut 30pc off the cost of the next plant, but it is already as competitive as gas in Asia,” he said. The capture process uses up 18pc of the power – a cost known as the “parasitic load” – but it is less than the 21pc expected.

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Greece and Latvia.

Two More European Countries Ban Monsanto GMO Crops (EcoWatch)

Two more European countries are rejecting genetically modified organisms (GMOs). Lativia and Greece have specifically said no to growing Monsanto‘s genetically modified maize, or MON810, that’s widely grown in America and Asia but is the only variety grown in Europe. Latvia and Greece have chosen the “opt-out” clause of a European Union rule passed in March that allows member countries to abstain from growing GM crops, even if they are authorized by the EU. Scotland and Germany also made headlines in recent weeks for seeking a similar ban on GMOs. According to Reuters, in many European countries, there is widespread criticism against the agribusiness giant’s pest-resistant crops, claiming that GM-cultivation threatens biodiversity.

Monsanto said it would abide by Latvia’s and Greece’s request to not grow the crops. The company, however, accused the two countries of ignoring science and refusing GMOs out of “arbitrary political grounds.” In a statement, Monsanto said that the move from the two countries “contradicts and undermines the scientific consensus on the safety of MON810.” Monsanto also told Reuters that since the growth of GM-crops in Europe is so small, the opt-outs will not affect their business. “Nevertheless,” the company continued, “we regret that some countries are deviating from a science-based approach to innovation in agriculture and have elected to prohibit the cultivation of a successful GM product on arbitrary political grounds.”

According to NewsWire, the EU’s opt-out clause “directly confronts U.S. free trade deal supported by EU, under which the Union should open its doors widely for the US GM industry.” In a statement on Thursday, the European Commission confirmed its zero-tolerance policy against non-authorized GM products. The commission said that it’s also consulting with the European Food Safety Authority (EFSA) in order to answer “a scientific question” on GMO crops that’s unrelated to trade negotiations with the U.S. The EFSA announced that it would release a scientific opinion on the question by the end of 2017.

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