Aug 092015
 August 9, 2015  Posted by at 11:41 am Finance Tagged with: , , , , , , , , , ,  1 Response »

Lewis Wickes Hine Drift Mouth, Sand Lick Mine, near Grafton, West Virginia 1908

China Producer Price Index Falls For 40th Straight Month (Reuters)
Peak Insanity: Chinese Brokers Now Selling Margin Loan-Backed Securities (ZH)
China Cancels $17.6 Billion Construction Projects ‘To Protect Environment’ (RT)
China’s Stock Crash Is Spurring a Shakeout in Shadow Banks (Bloomberg)
Stocks Are A ‘Disaster Waiting To Happen’: Stockman (CNBC)
The Widening Vortex Of Global Finance (Sampath)
Greece’s Collapse Was a Reversion to the Mean… Who’s Next? (Phoenix)
Greek Shipping Industry Extends Its Dominance (WSJ)
German Trade Surplus To Rise To New Record In 2015 (Reuters)
Finland Could Stay Out Of New Greek Bailout, Says Foreign Minister (Reuters)
How England’s Social Care System Fails The Most Vulnerable (Observer)
Oz FinMin Orders Sale Of Residential Properties Owned By Foreign Nationals (AAP)
Why Europe And The US Are Locked In A Food Fight Over TTIP (Bonadio)
Be Afraid: Japan Is About To Do Something That’s Never Been Done Before (ZH)
Petrobras Oil Scandal Leaves Brazilians Lamenting a Lost Dream (NY Times)
How Russian Energy Giant Gazprom Lost $300 Billion (
The Huge Hidden Costs Of Our Fossil-Fueled Economy (Shiller)
Antibiotic Resistance: Zoology To The Rescue (Economist)

“China’s corporate debt stands at 160% of gross domestic product, twice that of the United States..”

China Producer Price Index Falls For 40th Straight Month (Reuters)

China is under growing pressure to further stimulate its economy after disappointing data over the weekend showed another heavy fall in factory-gate prices and a surprise slump in exports. Producer prices in July hit their lowest point since late 2009, during the aftermath of the global financial crisis, and have been sliding continuously for more than three years. Exports tumbled 8.3% in the same month, their biggest fall in four months, as weaker global demand for Chinese goods and a strong yuan policy hurt manufacturers. “Policy focus is definitely the (producer) deflation at this stage,” said Zhou Hao at Commerzbank. He said China’s central bank would likely need to further cut interest rates again, having already cut four times since November in the most aggressive easing in nearly seven years.

The gloom may only deepen in the coming week with a raft of economic data forecast to show renewed weakness in factories, investment and domestic spending. The world’s second-largest economy is officially targeted to grow at 7% this year, still strong by global standards, but some economists believe it is growing at a much slower pace. Economists expect the central bank to cut rates by another 25 basis points this year, and further reduce the amount of deposits banks must hold as reserves by another 100 basis points, according to a Reuters poll last month. The producer price index fell 5.4% from a year earlier, the National Statistics Bureau said on Sunday, compared with an expected 5.0% drop. It was the worst reading since October 2009 and the 40th straight month of price decline.

Falling producer prices are worrying because they eat into the profits of miners and manufacturers and raise the burden of their debts. China’s corporate debt stands at 160% of gross domestic product, twice that of the United States, according to a Thomson Reuters study of over 1,400 firms. In line with the sluggish economy, annual consumer inflation remained muted at 1.6% despite surging pork prices, in line with forecasts and slightly higher than June’s 1.4%.

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It’s like one of those layered cakes..

Peak Insanity: Chinese Brokers Now Selling Margin Loan-Backed Securities (ZH)

One of the reasons why the Chinese dragon quite often appears to be chasing its own tail is that the country is trying to re-leverage and deleverage at the same time. Take China’s local government debt refi effort for instance. Years of off-balance sheet borrowing left China’s provincial governments to labor under a debt pile that amounts to around 35% of GDP and thanks to the fact that much of the borrowing was done via LGFVs, interest rates average between 7% and 8%, making the debt service payments especially burdensome. In an effort to solve the problem, Beijing decided to allow local governments to issue muni bonds and swap them for the LGFV debt, saving around 400 bps in interest expense in the process.

Of course banks had no incentive to make the swap (especially considering NIM may come under increased pressure as it stands), and so, the PBoC decided to allow the banks to pledge the new muni bonds for central bank cash which could then be re-lent into the real economy. So, China is deleveraging (the local government refi effort) and re-leveraging (banks pledge the newly-issued munis for cash which they then use to make more loans) simultaneously. We can see similar contradictions elsewhere in China’s financial markets. For instance, Beijing has shown a willingness to tolerate defaults – even among state-affiliated companies. This is an effort (if a feeble one so far) to let the invisible hand of the market purge bad debt and flush out failed enterprises.

Meanwhile, Beijing is enacting new policies designed to encourage risky lending. In April for instance, the PBoC indicated it was set to remove a bureaucratic hurdle from the ABS issuance process, which means that suddenly, trillions in loans which had previously sat idle on banks’ books, will now be sliced, packaged, and sold. Specifically, the PBoC said regulatory approval would no longer be required to issue ABS (hilariously, successive RRR cuts have served to reduce banks’ incentive to package loans, but we’ll leave that aside for now). Once again, deleveraging (tolerating defaults) and re-leveraging (making it easier for banks to get balance sheet relief via ABS issuance), all at once.

There’s a parallel between this dynamic and what’s taking place in China’s equity markets. That is, a dramatic unwind in the half dozen or so backdoor margin lending channels (a swift deleveraging) has been met with a government-backed effort to prop up the market via China Securities Finance Corp., which has been transformed into a state-controlled margin lending Frankenstein that could ultimately end up with some CNY5 trillion in dry power (a mammoth attempt at re-leveraging). Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans.

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“Even with last year’s 4.5% drop in housing prices, more than 60 million apartments in China remain empty. ”

China Cancels $17.6 Billion Construction Projects ‘To Protect Environment’ (RT)

China has rejected 17 construction projects with a total investment of $17.6 billion, attempting to bolster environmental protection strategies and fight corruption. The projects were among 92 examined by the Ministry of Environmental Protection (MEP), involving a total of more than 700 billion yuan ($112.6 billion) in investment, the Xinhua news agency reported on Friday. The projects’ rejection was said to improve the environmental impact assessment system and fix loopholes that allow corruption. The protection ministry has ordered all the environmental impact assessment agencies cut their links to government at all levels by the end of 2016. It has also launched random inspections of agencies and disqualified dozens of agencies and engineers, according to Xinhua.

MEP has speeded up approval of major projects such as railways and irrigation. Construction of major projects in China has been the main tool for boosting investment and sustaining growth since the beginning of 2015. Investment in the railways rose 22.6% year on year by the end of April. Beijing said in the next two years it would boost investment to foster technological progress in six manufacturing industries, including railway equipment, new-energy vehicles and medical equipment. The country is trying to upgrade its manufacturing sector and stimulate sluggish economic growth. China’s real economy cooling and a 30% stock market slump since the middle of June make it a tough task for Beijing to reach the aimed seven-percent growth in 2015.

Another key factor behind the project’s cancelation may be the real estate market, which has to stay healthy for the country’s targeted growth level. The Chinese government has engineered a property boom during the financial crisis to compensate for the weakness in overseas demand. Later it implemented tightening measures to cool the heated property market. Even with last year’s 4.5% drop in housing prices, more than 60 million apartments in China remain empty. While the real estate sector accounts for about 25-30% of China’s GDP, it’s impossible for the country to prop up the economy without reviving this vital industry.

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Something tells me these analysts have as little overview of the shadow banks as Beijing has.

China’s Stock Crash Is Spurring a Shakeout in Shadow Banks (Bloomberg)

China has been struggling to tame its shadow banks for years. Now, a stock market crash has hamstrung some of the fastest growing ones in a matter of weeks. Loans from sources such as online lenders for equity purchases have plunged by at least 700 billion yuan ($113 billion), a drop of 61% from this year’s peak, after authorities banned them from funding stock buying in July, according to a Bloomberg survey conducted last month. Peer-to-peer Internet lending for the purchases had more than tripled to 8 billion yuan in the second quarter, data from research firm Yingcan Group show. The reversal has helped cull riskier lenders in China’s online market, which was surging before the equity rout wiped out more than $4 trillion.

President Xi Jinping has already curbed traditional forms of unregulated funding – such as trust loans – as part of his effort to wean the economy from debt-fueled growth after corporate defaults mounted. “The new regulations are making the industry more disciplined and transparent,” said Wei Hou at Sanford C. Bernstein. “There may be short-term pain of a number of small players closing down. But it’s good for the industry in the long term.” Peer-to-peer lending was pioneered in the U.S. by companies such as LendingClub Corp., but China is where it’s really taking off. Origination of such loans totaled the equivalent of $41 billion in 2014 and will exceed $332 billion by 2017, according to Maybank Kim Eng. That compares with only $6 billion in the U.S. last year.

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“The point that I’m making is that it’s over.”

Stocks Are A ‘Disaster Waiting To Happen’: Stockman (CNBC)

David Stockman has long warned that the stock market is on the verge of a massive collapse, and the recent price action has him even more convinced than ever that the bottom is about to fall out. “I think it’s pretty obvious that the top is in,” the Reagan administration’s OMB director said Thursday on CNBC’s “Futures Now.” The S&P 500 has traded in a historically narrow range for the better part of 2015, having moved just 1% higher year to date. “It’s just waiting for the knee-jerk bulls, robo traders and dip buyers to finally capitulate.”

Stockman, whose past claims have yet to come to fruition, still believes that the excessive monetary policy from central banks around the world has created a “debt supernova,” and all the signs point to “the end of the central bank enabled bubble,” which could cause a worldwide recession. “The larger picture has nothing to do with the jobs report [Friday] or even the September decision by the Fed,” said Stockman. “It has to do with the the fact that the world economy, including the U.S., is heading into what is clearly going to be an epochal deflation to the likes of what we have never experienced in modern time.” According to Stockman, it’s only a matter of time before the collapse in China trickles down to other markets.

“The whole global economy since 2008 has been driven forward by this massive investment and construction and borrowing spree in China,” said Stockman. “The point that I’m making is that it’s over.” For Stockman, there’s no reversing the artificially inflated bubbles created by the Federal Reserve. “I think what we are seeing is the beginning evidence that the central bank-driven credit economy is over and we are in a new era,” said Stockman. “It’s a huge disaster waiting to happen.”

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How risk got financialized.

The Widening Vortex Of Global Finance (Sampath)

[..] .. rising inequality and sky-rocketing financial profits have paralleled the rise of neo-liberalism — a term used to refer to a cluster of economic policies that includes privatisation, cuts in welfare spending, loosening of labour laws, and deregulation of finance. If there is one common factor that undergirds all these economic policies — it is the rise of global finance, or “financialization”, which also denotes the growing penetration of real economic activity (to do with generating surplus value) by finance capital. In his book, The Everyday Life of Global Finance, the economic geographer, Paul Langley, explains how the common view of global finance as something “out there somewhere” — timeless, spaceless, identified with 24X7 global markets — is fallacious.

It is simply not true that finance operates primarily in a rarefied realm of super-specialists far removed from the world of everyday economic activity such as earning, saving and borrowing. On the contrary, Langley argues, global finance has fundamentally reengineered the ordinary ways we think about and manage money. Till the generation say right up to the 1980s, the future was conceived as a realm of uncertainty, one that held possible harm, for which one provisioned through thrift — specifically, savings and insurance. Financialisation is born when uncertainty is quantified into risk. How we frame risk, calculate it, and manage it, decides what we do with our money. In Langley’s formulation, if risk is calculated and managed as a future harm that requires prudence in the present, it makes for an approach of thrift and savings.

But if it is framed as an opportunity that holds the possibility of immense rewards, it mandates an approach where the most rational form of saving becomes investment. Therefore, at the ideological level, financialisation entails two basic manoeuvres: one, the transformation of nebulous uncertainty into quantifiable risk, which is then managed through an array of calculative technologies; two, a shift in the common sense understanding of risk as something potentially harmful, to something potentially rewarding. Given that risk is essentially a financial category, the current civilisational obsession with data is another testament to the growing supremacy of finance capital (in alliance with technology), which wants every piece of the world’s data on anything and everything in order to be able to manage risk optimally for maximum returns.

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Lest we forget… We must, however, be careful where we put the blame for this.

Greece’s Collapse Was a Reversion to the Mean… Who’s Next? (Phoenix)

Because of the rampant fraud and money printing in the financial system, the real “bottom” or level of “price discovery” is far lower than anyone expects due to the fact that the run up to 2008 was so rife with accounting gimmicks and fraud. The Greek debt crisis, like all crises in the financial system today, can be traced to derivatives via the large investment banks. Indeed, we now know that Greece actually used derivatives (via Goldman Sachs) to hide the true state of its debt problems in order to join the Euro. Spiegel:

Creative accounting took priority when it came to totting up government debt. Since 1999, the Maastricht rules threaten to slap hefty fines on euro member countries that exceed the budget deficit limit of three% of gross domestic product. Total government debt mustn’t exceed 60%. The Greeks have never managed to stick to the 60% debt limit, and they only adhered to the three% deficit ceiling with the help of blatant balance sheet cosmetics… “Around 2002 in particular, various investment banks offered complex financial products with which governments could push part of their liabilities into the future,” one insider recalled, adding that Mediterranean countries had snapped up such products.

Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period – to be exchanged back into the original currencies at a later date.

The above story for Greece is illustrative of the story for all “emerging markets” starting in 2003: tons of easy money, rampant use of derivatives for accounting gimmick, and the inevitable collapse. From a big picture scenario, in 2003, the global Central Banks abandoned a focus on inflation and began to pump trillions in loose money into the economy. Because large banks could loan well in excess of $10 for every $1 in capital on their balance sheets, global credit went exponential. The effect was sharply elevated asset prices that greatly benefitted tourism-centric economies such as Greece. As I stated in our issue Price Discovery:

If the foundation of the financial system is debt… and that debt is backstopped by assets that the Big Banks can value well above their true values (remember, the banks want their collateral to maintain or increase in value)… then the “pricing” of the financial system will be elevated significantly above reality. Put simply, a false “floor” was put under asset prices via fraud and funny money. Take a look at the impact this had on Greece’s economy. Below is Greek GDP dating back to the 1960s. Having maintained a long-term trendline of growth the country suddenly saw its GDP MORE THAN DOUBLE in less than 10 years after joining the EU?

In many regards, this “growth” was just a credit binge, much like housing prices, stock prices, etc. By joining the Euro, Greece was able to borrow money at much lower rates (2%-3% vs. 10%-20%). Rather than using these lower rates to pay off its substantial debts, Greece funneled as much money as possible towards Government employees (nearly one in three Greek workers). As a result, Government wages nearly doubled to the point that your typical Government employee was paid 150% more than his or her private sector counterpart. Add to this a pension system in which retirees are paid 92% of their former salaries and you have a debt bomb of epic proportions.

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Yes, there are still rich Greeks.

Greek Shipping Industry Extends Its Dominance (WSJ)

Greece’s shipping magnates, having emerged largely unscathed from both the country’s ravaging financial crisis and one the industry’s longest-ever downturns, are now extending their dominance by snapping up vessels from competitors who haven’t fared as well. The Greek owners, who operate almost 20% of the global fleet of merchant ships, are paying rock-bottom prices because assets once owned by bankrupt shipping lines are now in the hands of creditors, including German banks, who want to clear nonperforming loans from their portfolios. For years, Greece and Germany have been Europe’s shipping powerhouses.

But while the Greeks stuck to a hands-on approach in which the owner arranged everything from financing to chartering and operations, the so-called German KG system largely depended on scores of investors ranging from banks to the country’s wealthy middle class. Many of them put their money into shipping at the peak of the market, before the 2008 economic downturn. “As the global financial crisis took hold and the freight market gradually collapsed, the Greeks stayed above water as they were not overly leveraged and stood on cash generated during the boom years before 2008,” said Basil Karatzas, a New York-based maritime adviser. In Germany, by contrast, a single vessel often had up to 1,000 investors and the system wasn’t strong enough to absorb the market stress, Mr. Karatzas said.

“There were too many conflicts of interest, lopsided market concentration on container ships—which were among the hardest hit—and scores of loans by German banks, which poured billions into new vessels believing that demand will continue to grow,” he said. Analysts say that at the end of 2012, German lenders including HSH Nordbank, Commerzbank and Norddeutsche Landesbank Girozentrale controlled about a third of the $475 billion global ship-finance market. In the past four years, the three banks have set aside more than €3.6 billion in provisions for nonperforming shipping loans as they desperately try to sell vessels once owned by bankrupt shipping lines.

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Illegal under EU treaties.

German Trade Surplus To Rise To New Record In 2015 (Reuters)

Germany’s trade surplus is expected to rise to a new record in 2015 thanks to falls in the prices of imported oil and gas, Der Spiegel reported on Saturday. The Finance Ministry is estimating a trade surplus of 8.1% of economic output after 7.6% last year, the magazine said, citing an internal ministry document. The lower cost of imports of oil and gas is expected to boost the trade balance by around 1.2% alone, the document said. Without the decline in oil and gas prices, the trade surplus would have fallen compared with the previous year. Germany has come under international pressure to reduce its trade surplus, which critics say contributes to imbalances in the world economy.

In a report published last month, the IMF said Berlin should focus on bolstering medium–term growth and reducing external imbalances. The European Commission considers trade surpluses that are repeatedly over 6% of economic output as dangerous for stability and has urged Germany to undertake more investment to stimulate imports. Despite a fall in exports in June, the larger net balance between exports and imports meant that the trade surplus widened to a record €24.0 billion, data published on Friday showed.

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Let Finland be the one to blow up the edifice.

Finland Could Stay Out Of New Greek Bailout, Says Foreign Minister (Reuters)

Finland could stay out of a planned third bailout deal for Greece, the Nordic country’s Eurosceptic foreign minister said on Saturday, amid calls from his nationalist party, The Finns, for a more critical stance toward the EU. Finland has taken one of the hardest lines against bailouts among euro zone members, and got even tougher in May when The Finns joined a new center-right coalition. “Of course we can stay out of (the third bailout), that is possible,” Timo Soini told Reuters on the sidelines of his party’s congress. “We’re really out of patience … Our government has a very tight policy on this. We will not accept increasing Finland’s liabilities, or cuts in Greece’s debts.”

Athens is racing to wrap up agreement on a bailout worth up to €86 billion within days, hoping to receive a first disbursement in time to make a debt repayment to the European Central Bank. Finland has said it could accept a deal under which the EU’s bailout fund, the European Stability Mechanism, would be used only within its current capacity. At a meeting of euro zone finance ministers last month, Finland supported the idea of a temporary ‘Grexit’ – Greece leaving the bloc – but eventually accepted that new loan talks could begin. “If we vote against a deal, it goes to the emergency procedure, and a package is implemented regardless of us,” Soini said, referring to a clause in the fund that allows measures to be passed without unanimous approval if stability is deemed to be at risk.

“I don’t believe that this (bailout) policy will provide solutions, and I think that, in the longer term, ‘Grexit’ is the most likely scenario.” Soini’s party, formerly known as True Finns, has risen from obscurity within just a few years to become the second-biggest parliament group in an election last April. Its criticisms of the EU and its calls for tougher restrictions on immigration have resonated among many citizens as Finland struggles with recession and rising unemployment. But the party had to make compromises as it agreed for the first time to enter government, teaming up with millionaire prime minister Juha Sipila’s Centre party and the pro-EU National Coalition party.

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All care systems do.

How England’s Social Care System Fails The Most Vulnerable (Observer)

It is written in the dry language of the bureaucrat. But an inspector’s report published just last week into the red-brick Birdsgrove Nursing Home, near Bracknell in Berkshire, accommodating the elderly and frail, as well as people stricken by dementia still makes for uncomfortable reading. “We spoke with a person who was still in bed in night clothes,” the Care Quality Commission (CQC) inspector writes. “It was mid-morning and the person told the inspector they had been awake since 7am and were waiting for two staff to help move them from their bed to their chair, wash them and help them get dressed. The person said they were unsure if they were going to be washed today as they had not been told. They said: ‘You have to get used to it here, it’s a routine.’

“We left the person’s room and shortly afterwards heard them shouting for help. They were shouting: ‘Please help me’ and ‘Help me, please’. The person was in very obvious distress and their shouts for help were loud enough for any staff nearby to hear them. No staff responded to the person’s calls for help. “We went into their room and reassured the person and they became calm. We said we would get a member of staff to come and help them. One inspector spoke with a care worker on the corridor outside the person’s room and told them the person needed help. The care worker said they were helping another person adding: ‘I’m doing her, I don’t want this one wandering off as well.’

“We left the room as the person remained calm. Shortly after we left the room they began shouting for help again in the same manner. A registered nurse was observed standing in the corridor near to the person’s room not reacting to their cries for help. We had to find another member of staff and ask them to come to help the person. A few minutes later a care worker arrived to assist the person. The person’s cries for help were repeatedly ignored.”

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New Zealand and Canada next?

Oz FinMin Orders Sale Of Residential Properties Owned By Foreign Nationals (AAP)

Joe Hockey has ordered the sale of six residential properties owned by foreign nationals. The owners live in four countries, with one investor having two in a Perth suburb, the treasurer told reporters in Sydney on Saturday. Some purchased the properties with Foreign Investment Review Board approval but their circumstances have changed, while others have simply broken the rules, he said. Hockey said the purchase price of the properties – in Sydney, on the outskirts of Brisbane and in Perth – ranged from $152,000 to $1.86 million. The investors voluntarily came forward following the amnesty the federal government announced in May. “They now have 12 months to sell the properties, rather than the normal three-month period, and they will not be referred for criminal prosecution,” he said.

There are 462 other cases under investigation, with the treasurer predicting more divestment orders being made in the future. “I expect more divestment orders will be announced in the not too distant future,” he said. The treasurer urged others to come forward before the November 30 cut off, saying he will introduce tighter rules into parliament during the next two weeks. They will include tougher civil penalties, which will see investors lose the capital gain made on the property, 25% of the purchase price or 25% of the market value of the property. “Australia’s foreign investment policy for residential real estate is designed to increase our housing stock, but those who break the rules and purchase established property illegally are doing so to the detriment of all Australians,” he said.

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TPP looks dead, TTIP up next?!

Why Europe And The US Are Locked In A Food Fight Over TTIP (Bonadio)

Black Forest ham, Asiago, Gorgonzola, Gouda, and many other European geographical indications for foodstuffs are at the centre of a TTIP food fight. They are all protected from imitation by other companies in many countries of the world. Not in the US though. And as the details of the Transatlantic Trade and Investment Partnership are negotiated, the EU wants to stop American manufacturers from being able to falsely label their products with their protected names. Part of the EU’s legal framework for protecting regional food products is that they have acquired a strong reputation among consumers the world over. Favourable climates and centuries-old manufacturing techniques rooted in their protected areas have contributed to build up this renown. They are intellectual property rights that identify “products with a story”.

The US plays by different rules, however. There are numerous American companies that use European geographical and traditional names (including Parmesan, Asiago and feta for cheese) to identify products that have not been produced in the relevant European locations – and often do not have the same quality as the originals. This lack of protection – European negotiators stress – allows an unacceptable exploitation of Europe’s cultural heritage, as well as costing EU manufacturers large amounts of revenue. The US is, however, resisting these claims. Its negotiators maintain that their food producers have been using and trademarking European geographical names for many decades, and it would now be unfair to ask them to stop.

The US also claims that many of the geographical terms, such as Parmesan, Fontina, feta, Gouda and Edam, have become the generic names of the relevant products, and cannot be monopolised by anyone, including the European producers located in those areas. Indeed, most US consumers don’t even know that these terms are actually geographical names. To them they just describe the characteristics of a product. EU-style legal protection – the US argument goes – would basically allow rent-seeking by European food producers. It would amount to a trade barrier, which would force many US producers to go through an expensive re-brand, and would increase final prices for consumers. It would take a heavy toll on the US cheese market in light of the US$21 billion in US cheese production that uses European-origin names.

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How fitting. In the week that we remember Hiroshima and Nagasaki.

Be Afraid: Japan Is About To Do Something That’s Never Been Done Before (ZH)

When the words “mothballed”, “nuclear”, and “never been done before” are seen together with Japan in a sentence, the world should be paying attention… As TEPCO officials face criminal charges over the lack of preparedness with regard Fukushima, and The IAEA Report assigns considerable blame to the Japanese culture of “over-confidence & complacency,” Bloomberg reports,

Japan is about to do something that’s never been done before: Restart a fleet of mothballed nuclear reactors. The first reactor to meet new safety standards could come online as early as next week. Japan is reviving its nuclear industry four years after all its plants were shut for safety checks following the earthquake and tsunami that wrecked the Fukushima Dai-Ichi station north of Tokyo, causing radiation leaks that forced the evacuation of 160,000 people.

Mothballed reactors have been turned back on in other parts of the world, though not on this scale – 25 of Japan’s 43 reactors have applied for restart permits. One lesson learned elsewhere is that the process rarely goes smoothly. Of 14 reactors that resumed operations after four years offline, all had emergency shutdowns and technical failures, according to data from the World Nuclear Association, an industry group. “If reactors have been offline for a long time, there can be issues with long-dormant equipment and with ‘rusty’ operators,” Allison Macfarlane, a former chairman of the U.S. Nuclear Regulatory Commission, said by e-mail.

In case you are not worried enough yet…

As problems can arise with long-dormant reactors, the NRA “should be testing all the equipment as well as the operator beforehand in preparation,” Macfarlane of the U.S. said by e-mail. Although the NRA “is a new agency, many of the staff there have long experience in nuclear issues,” she said. Kyushu Electric has performed regular checks since the reactor was shut to ensure it restarts and operates safely, said a company spokesman, who asked not to be identified because of company policy.

“If a car isn’t used for a while, and you suddenly use it, then there is usually a problem. There is definitely this type of worry with Sendai,” said Ken Nakajima, a professor at Kyoto University Research Reactor Institute. “Kyushu Electric is probably thinking about this as well and preparing for it.”

It’s not the first time a nation has tried this..

In Sweden, E.ON Sverige AB closed the No. 1 unit at its Oskarshamn plant in 1992 and restarted it in 1996. It had six emergency shutdowns in the following year and a refueling that should have taken 38 days lasted more than four months after cracks were found in equipment.

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“..if I speak, the republic is going to fall.” They could triple the health care budget if they get rid of corruption.

Petrobras Oil Scandal Leaves Brazilians Lamenting a Lost Dream (NY Times)

Alberto Youssef, a convicted money launderer and former bon vivant, sat in a Brazilian jail cell in March of last year, getting ready to tell his lawyers a story. It was about an elaborate bribery scheme involving Petrobras, the government-controlled oil giant. He opened with a dire prediction. “Guys,” Mr. Youssef said, “if I speak, the republic is going to fall.” To those lawyers, Tracy Reinaldet and Adriano Bretas, who recently recounted the conversation, this sounded a tad melodramatic. But then Mr. Youssef took a piece of paper and started writing the names of participants in what would soon become known as the Petrobras scandal. Mr. Reinaldet looked at the names and asked, not for the last time that day, “Are you serious?”

[..] Oil was central to Brazil’s strategy, and that gave Petrobras a leading role in the nation’s growing influence — and pride of place. At one time it was the sixth-largest company in the world by market capitalization and accounted for roughly 10% of Brazil’s gross domestic product. For perspective, Apple, which has twice Petrobras’s peak market cap, represents 0.5% of the United States’ gross domestic product. The company has lost more than half its value in the last year, about $70 billion in market cap. Part of that stems from the worldwide decline in oil prices, but none of the company’s rivals have been punished as severely. That plunge has had repercussions for investors worldwide. Petrobras had been a favorite investment for big emerging-market bond funds sold to United States investors, for instance.

In Brazil, Petrobras’s plunge is so cataclysmic, according to analysts, that it is a major reason the economy is expected to contract by more than one%age point this year. Unemployment is up, and Standard & Poor’s has cut the nation’s long-term debt rating to one notch above junk status. All of this has provoked something that transcends outrage. Brazilians are in the midst of an identity crisis. Much of Brazil’s recently acquired cachet looks as if it was the product of fraud, and for an added touch of humiliation, a fraud cooked up at a company long regarded as an emblem of Brazil’s success and aspirations. “I’ve never seen my countrymen so angry,” said Maurício Santoro, a political science professor at Rio de Janeiro State University. “We have this sense that the dream is over.”

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As always when western media address Russia: beware of hidden political themes.

How Russian Energy Giant Gazprom Lost $300 Billion (

It was not too long ago that Gazprom, Russia’s state-controlled energy conglomerate, was one of the Kremlin’s most powerful weapons. But those days now seem like a distant memory. Today, Gazprom is a financial shadow of its former self. The speed of Gazprom’s decline is breathtaking. At its peak in May 2008, the company’s market capitalisation reached $367bn, making it one of world’s most valuable companies, according to a survey compiled by the Financial Times. Only fellow Exxonmobile and PetroChina were worth more. Gazprom’s deputy chair Alexander Medvedev repeatedly predicted that within a decade the Russian energy giant could be worth $1 trillion.

That prediction now seems foolhardy. Since 2008, Gazprom’s value has plummeted. In early August it had a market capitalisation of $51bn – losing more than $300bn. No company among the world’s top 5,000 has suffered a bigger collapse, Bloomberg Business News reported in April 2014, and by the end of the year net income had fallen by an astonishing 86%. Though share prices have rallied slightly since, indicators suggest Gazprom has further to fall. Lingering uncertainty raises questions about whether it can survive, with production continuing to tumble downward. So what happened? Why is a company with the world’s largest gas reserves, operating in a country bordering China and the European Union – two of the world’s top energy consumers, performing so badly?

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“..costs of the coal companies range mostly from about $40 to $100 for every dollar in profit”

The Huge Hidden Costs Of Our Fossil-Fueled Economy (Shiller)

Extracting fossil fuels is a lucrative business. Last year, ExxonMobil made $32.5 billion in profits. But, arguably, it’s a business built on shaky foundations. If we were to account for the full cost of fossil fuels to the environment, it might completely wipe out the industry’s profitability. That’s the conclusion of a new analysis from the University of Cambridge that tallies up the social cost of producing oil, gas and coal products. Across 20 leading companies, it finds “hidden economic costs” that is, costs that aren’t currently paid of $755 billion in 2008, and $883 billion in 2012. Which is several times what the companies reported in earned income in those years. “The 20 companies as a group are highly profitable, with after tax profits of about 8.2 % of revenues in 2008 and 8.6 % in 2012.

However this does not take account of the hidden economic cost to society that is caused when their products are burned and CO2 is emitted to the atmosphere,” says the paper by Chris Hope, Paul Gilding, and Jimena Alvarez. The researchers studied the accounts of major oil and gas groups like BP, Shell, Statoil, and Petrobras as well as several coal producers like Peabody and Coal India. The calculations are based on a U.S. Environmental Protection Agency model that says each ton of CO2 costs society $105 (in 2008 dollars). That’s higher than the working EPA figure of $37 per ton, but below what some other researchers have calculated it should be. The analysis doesn’t include some major state-owned producers such as Saudi Aramco, which don’t publish open public accounts.

Most of the oil and gas companies have hidden costs of $1.5 to $3 for every dollar is post-tax profit, while costs of the coal companies range mostly from about $40 to $100 for every dollar in profit, the paper says. The coal companies are also the most “unprofitable” with economic costs ranging from two to nine times annual revenues (let alone their profits). The point of the paper is to warn investors that they face risks if society ever wants to account for its losses (which doesn’t look likely at the moment, but still). “These results will be a useful starting point for investors seeking to manage their exposure to climate change risk, and for policy makers interested in fossil fuel companies net contribution to society,” the authors say.

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Love this sort of thinking.

Antibiotic Resistance: Zoology To The Rescue (Economist)

Much is made, in academic circles, of the virtues of interdisciplinary research. Its practice is somewhat rarer. But fresh thinking and an outsider’s perspective often do work wonders, and that may just have happened in the field of antibiotic resistance. Adin Ross-Gillespie of Zurich University is a zoologist, not a physician. But his study of co-operative animals such as meerkats and naked mole rats has led him to think about the behaviour of another highly collaborative group, bacteria. He and his colleagues have just presented, at a conference on evolutionary medicine in Zurich, a way of subverting this collaboration to create a new class of drug that seems immune to the processes which cause resistance to evolve.

Antibiotic resistance happens because, when a population of bacteria is attacked with those drugs, the few bugs that, by chance, have a genetic protection against their effects survive and multiply. As in most cases of natural selection, it is the survival of these, the fittest individuals, that spurs the process on. But Dr Ross-Gillespie realised that, in the case of bacteria, there are circumstances when the survival of the fittest cannot easily occur. One of these is related to the way many bacteria scavenge a crucial nutrient, iron, from the environment. They do it by releasing molecules called siderophores that pick up iron ions and are then, themselves, picked up by bacterial cells. In a colony of bacteria, siderophore production and use is necessarily communal, since the molecule works outside the boundaries of individual cells.

All colony members contribute and all benefit. In theory, that should encourage free riders—bacteria which use siderophores made by others without contributing their own. In practice, perhaps because the bacteria in a colony are close kin, this does not seem to happen. But inverting free riding’s logic makes the system vulnerable to attack, for a bug that contributes more than its share does not prosper. Following this line of thought Dr Ross-Gillespie turned to gallium, ions of which behave a lot like those of iron and can substitute for them in a siderophore, making it useless to a bacterium. In fact, siderophores bind more effectively with gallium than with iron, hijacking the whole process. A judicious dose of gallium nitrate can thus take out an entire bacterial colony, by depriving it of the iron it needs to thrive.

The crucial point is that, because siderophores are a resource in common, a mutated siderophore that did not bind preferentially to gallium would be swamped by the others, would fail to benefit the bug that produced it, and therefore would not be selected for and spread. At least, that was Dr Ross-Gillespie’s theory.

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Sep 142014
 September 14, 2014  Posted by at 6:24 pm Finance Tagged with: , , , , ,  11 Responses »

Harris & Ewing Children at water fountain, Washington, DC 1922

Before I get going, let me recommend two wonderful articles I put in today’s Daily Links list at The Automatic Earth. Which is updated every day around 8am Eastern Time, located at the top of every TAE page, and in more elaborate form, at bottom of the day’s essay; they are links to the things we ourselves read at a daily basis.

The first article is a piece by Umair Haque called The Rupture, in which he tries to put on words what is changing in our lives and our world, and how what we see happen today differs from what we once expected, or what most still expect but can no longer obtain. How our dream of eternal progress and growth has been shattered.

Please don’t miss either of the two pieces, you’ll find them more than worth your time.

The Rupture

The future isn’t one of unalloyed, golden progress anymore. Tomorrow is a tale of decline, degeneration, decay. Rupture. The future isn’t flying cars and food pills and a smarthome and a stable career and comfortable prosperity for every family anymore. Rupture.

The future looks more like this. A story of a burning planet, of imploding middle classes, of lost generations, of empty decades, of mass unemployment, of the rule of law breaking, of democracy cracking, of nations splintering, of tribes warring, of broken dreams, of Greater Depressions, of unending Stagnations, of human possibility itself shattering into a million million pieces. Rupture. The future isn’t the steady, forward march of human advancement anymore.

The second, h/t Stockman, is from Peter St. Onge at Mises, in which he presents what I find a lovely take on the Scotland referendum issue. St. Onge, who, like yours truly, was living in Montréal during the last Québec referendum in 1995, draws parallels between the two votes, and suggests two nice lines of thought: 1) smaller countries tend to be richer, and 2) smaller countries tend not to get involved with truly awful ideas – like war-.

Is Scotland Big Enough To Go it Alone?

Even on physical area Scotland’s no slouch: about the size of Holland or Ireland, and three times the size of Jamaica. The fact that Ireland, Norway, and Jamaica are all considered sustainably-sized countries argues for the separatists here. So small is possible. But is it a good idea? The answer, perhaps surprisingly, is resoundingly “Yes!” Statistically speaking, at least.

Why? Because according to numbers from the World Bank Development Indicators, among the 45 sovereign countries in Europe, small countries are nearly twice as wealthy as large countries. The gap between biggest 10 and smallest 10 ranges between 84% (for all of Europe) to 79% (for only Western Europe).

[..] Even among linguistic siblings the differences are stark: Germany is poorer than the small German-speaking states (Switzerland, Austria, Luxembourg, and Liechtenstein), France is poorer than the small French-speaking states (Belgium, Andorra, Luxembourg, and Switzerland again and, of course, Monaco). Even Ireland, for centuries ravaged by the warmongering English, is today richer than their former masters in the United Kingdom, a country 15 times larger.

Why would this be? There are two reasons. First, smaller countries are often more responsive to their people. The smaller the country the stronger the policy feedback loop. Meaning truly awful ideas tend to get corrected earlier. Had Mao Tse Tung been working with an apartment complex instead of a country of nearly a billion people, his wacky ideas wouldn’t have killed millions. Second, small countries just don’t have the money to engage in truly crazy ideas.

When it comes to the going going gone European economy – or economies -, all we can really say is that Europe only goes through the motions by now, because that’s all that it’s got left. Essentially, the old continent now scrambles to find ways to borrow money without adding debt.

And that idea, absurd as it is, apparently seems attractive to the ‘leadership’, edged on by ultra low interest rates. If Draghi can solemnly declare that the ECB funds rate is now 0.05%, they all start concocting plans to borrow. Because without borrowing, without added debt, they know they’re, for lack of a better term, screwed. Whereas at 0.05%, would could go wrong?

And that’s how you get to these, for lack of a better term, kinds of weird things:

Show Us The Money: EU Seeks Billions Of Euros To Revive Economy

The European Union sought ways on Saturday to marshal billions of euros into its sluggish economy without getting deeper into debt [..] EU finance ministers tasked the European Commission, the EU executive, and the European Investment Bank (EIB) to draw up a list of projects that would create growth and decide how to finance them.

“We have given a mandate to the Commission and the EIB to swiftly present an initial report on practical measures that can be taken, on profitable investment projects that are justifiable,” Italy’s economy minister, Pier Carlo Padoan, said.

To finance them, the ministers discussed four ideas: an Italian paper on new financing tools for companies, a Franco-German proposal on how to boost private investments, a Polish proposal on creating a joint EU fund worth €700 billion ($907 billion) and a call from incoming European Commission President Jean-Claude Juncker for a €300 billion investment program to revive the European economy.

The European Central Bank’s plan to resurrect a market for asset-backed securities would be another financing tool. “We don’t have a magic wand but we need growth,we need to stimulate demand without taking on debt,” France’s finance minister, Michel Sapin, told reporters. “We need the right mix of public and private money.”

That is a real desperate statement, “We don’t have a magic wand but we need growth”, only it’s not presented as such. It’s presented as just another difficulty that those smart boys who floated to the top will solve for you, you being the much less smart ‘peuple’. The problem, though, is not just that they can’t generate growth, and it’s not just that they don’t have a magic wand, the problem is they’re so desperate they’re more then willing to lie outright to their voters until the cows come home, and then sacrifice them on the altar of their own blind ambitions. It’s all just words, and then you die.

Investment is the new buzz word among ministers, overriding the German mantra of budget cuts. [..] German Finance Minister Wolfgang Schaeuble strongly supports the search for investment, but this week rebuffed calls for Berlin to spend more to boost the euro zone economy…

In a speech to the EU finance ministers in Milan on Thursday, ECB President Mario Draghi described business investment as “one of the great casualties” of the financial crisis, saying it has fallen 20% since 2008. “We will not see a sustainable recovery unless this changes,” he said.

Poland wants a ‘European Fund for Investments’ that would be able to finance, through leveraging its own capital, €700 billion worth of investment. The fund could be a special-purpose vehicle under the umbrella of the European Investment Bank, the EU bank owned by European governments.

Italy’s proposal is a pan-European market, where smaller companies can raise capital, building on its “minibond” legislation in 2012 that allows unlisted companies to issue. That could be part of a EU capital-market union, building on the eurozone’s banking union, but that will need to closely involve London, the leading financial center in Europe.

Did you catch that? “Leveraging its own capital”. That means going to the casino, having $1 in your pocket and putting $1000 on red. That’s what that means. We need growth, and we don’t have a magic wand, but we know a casino. It’s 2014, and when I hear European officials mention terms like “special-purpose vehicle”, I get chills down my spine.

These guys have no idea what they’re doing, but they do it anyway. Because they can. And because there’s nothing else in sight that would let them keep their jobs. They’s rather take your money and put it down at the crap table, than lose their own jobs and cushy plush positions. That is all this is really about.

Europe sees plummeting investments, refuses to wonder why that is happening, and goes to the slot machines to achieve growth, whatever it may mean and however long it may last. Even 5 minutes is deemed acceptable.

And lo and behold, from the deep burrows of highly indebted nothingness, they pretend they’ve found $1.3 trillion. Which they don’t have. But hey, we need growth, right?

ECB Cash Boost May Near $1.3 Trillion, Ex-Official Says

Banks are likely to take close to €1 trillion ($1.3 trillion) in cash auctions at the European Central Bank that begin this year, former Executive Board member Jose Manuel Gonzalez-Paramo said. “I would not be surprised if we see between €700 billion and €900 billion,” in the so-called TLTRO (Targeted Long Term Refinance Operation ) operations that start on Sept. 18, said Gonzalez-Paramo [..]

“The banks are quite happy to request this money, and they are willing to lend. The take-up in Spain could be big.” [..] After a rate cut this month, the TLTRO offer, which is tied to banks’ lending performance, became even more attractive as the funds are lent for four years at the rate prevailing on auction day plus 10 basis points.

The first of two initial operations is alloted on Sept. 18, the second on Dec. 11, and thereafter banks can bid in quarterly operations until June 2016. “You see demand for credit increasing in the case of Spain,” Gonzalez-Paramo said in a Sept. 11 interview in Milan. The ECB’s latest rate cut is “positive, in terms of making the TLTROs more of a success, because now the takeup I think is assured to be on the high side.”

If by now you’re thinking this is absolute gibberish, don’t think there’s anything wrong with you. It is gibberish. Europe’s in a deep debt hole, and all this stuff will achieve is to dig it in deeper. It’s just that to acknowledge that would cost all these primate clowns their coveted seats high up there in the most coveted trees.

The TLTROs are the first shot in a volley of stimulus driven by ECB President Mario Draghi this year. In addition to the liquidity support, the ECB will also start buying asset-backed securities and covered bonds. Draghi said yesterday that the aim is to return the central bank’s balance sheet to the early-2012 level of about €3 trillion.

Right. The central bank balance sheet. It’s how Japan, China and the US keep their economies ‘presentable’ despite the mountains of debt they’re buried in, so why not Europe? Well, maybe because Germany, they only country left that’s not gone full retard Keynes, doesn’t want it.

But Germany may soon be moved out of position by a ‘clever’ redifining of terms, by Mario Draghi, jockeying for position to become Italy’s next best duce, in what can only be described as pure semantics.

Draghi Says ABS Plan Will Proceed Without Government Guarantees

Mario Draghi said his plan to purchase higher quality asset-backed securities will proceed even if support from EU leaders to extend it to riskier debt isn’t forthcoming. “The program is primarily oriented to the purchase of senior tranches; only if it’s going to be extended to mezzanine tranches is there going to be a need for guarantees,” he said at a press conference …

Translation: the ECB doesn’t need permission for what is still considered good assets. But they are actively thinking about moving into toilet paper. Why? Because that’s all there’s left. But they need governments (yes, that would be taxpayers) to guarantee losses on soiled toilet paper.

“It’s going to be much more effective at facilitating credit expansion with also the mezzanine component, and for that we’ll need a guarantee.” To boost slowing euro-area inflation and spur credit, the ECB said this month it will buy ABS and covered bonds in the latest of a series of stimulus measures that included rate cuts and cheap loans to banks. Draghi pledged to buy senior tranches of “simple” and “transparent” ABS, adding that lower-ranking mezzanine tranches could also be part of the purchase plan provided public guarantees were in place.

Translation: without toilet paper, no growth.

Draghi has said details of the ABS plan will be announced after the next monetary policy meeting on Oct. 2. While euro-area governments have expressed support for reviving securitization in the region, they’ve stopped short of pledging new fiscal backing for the ECB’s plan. “If I understand the program correctly, it’s non-discriminatory, it’s open to all countries and all financial institutions, so it could also open to Dutch banks,” Dutch finance minister Jeroen Dijsselbloem said at the same press conference. “Do I support additional guarantees from the government on these products? The answer would be no.”

Translation: Holland doesn’t want to buy used toilet paper.

If the central bank were to buy mezzanine tranches, it could mean banks have to hold lower provisions against the asset, increasing the amount of cash at their disposal. European regulators have required banks to treat ABS as relatively high-risk since the asset class was blamed for helping fuel the financial crisis. “In the meantime and independently, there will be some regulatory evolution in the way ABS are treated,” Draghi said. “The ABS program will be launched regardless of whether there are guarantees or not.”

But if Draghi buys the stuff, the banks who are loaded beyond their necks with the ‘asset’, can use it as collateral to borrow even more. And then house prices across Europe drop. And then all those rich people in Greece, Spain, Portugal etc. will have to make up the difference.

Sounds like a plan to me. All it takes is semantics: what you need is someone to change the definition of what a central bank, or pension fund, can buy, and you‘re off to the races. In the end, everything is just semantics. As long as Draghi is willing to buy worthless paper from banks, why would anyone think there’s a crisis at all?

For a while, it is indeed possible to transfer private debt to the public sector (and that’s what this is, obviously). You just call a spade a dinner table, and a cow a bathroom mirror. Semantics. But only the very thick amongst us will think that doesn’t make problems much worse down the road.

Draghi simply changes the definitions of what he can buy or not, and Angela Merkel lets it go until some clever kraut picks up on it and protests. Great basis for a strong and decisive economic policy. If and when Mario claims that someting, anything, is a ‘security’, it magically is. It’s the emperor’s new clothes all over again. And why does it work? Because the US, China and Japan do it too. All it really takes is access to your taxpayers’ wallets.

Big Guns Fail To Halt Scottish Independence Bandwagon (Guardian)

The 307-year-old union between Scotland and England hangs by a thread as a fresh Guardian/ICM poll put the yes vote in next week’s referendum just two percentage points behind those supporting no. Despite an intense week of campaigning by pro-union politicians and repeated warnings from business, the poll out on Friday found support for the no campaign on 51% and with yes on 49%, once don’t knows were excluded. The Guardian/ICM poll is based on telephone interviews conducted between Tuesday and Thursday, the first such survey ICM has conducted during the campaign. Previous polls suggesting that the race for Scotland was too close to call have been based on internet-based surveys. The headline figures exclude the 17% of voters in Scotland who ICM found were still undecided a mere week before polling day, a substantial proportion that gives the pro-UK campaign hope that it could arrest September’s surge in support for independence.

Alex Salmond, the SNP leader and first minister, said he was now “more confident than ever” that Scotland would vote yes on 18 September. “Despite Westminster’s efforts we’ve seen a flourishing of national self-confidence,” he said. “It’s this revival in Scottish confidence that tells me we’ll make a great success of an independent Scotland.” At a rally with former prime minister Gordon Brown in Glasgow on Friday night, Labour leader Ed Miliband reached out to the 29% of Labour voters who told ICM they planned to vote yes next week. He said only a no vote could guarantee that Scotland had the money to protect the NHS. “With a vote for no, change is coming with more powers on tax and welfare for a stronger Scotland,” he said. “Change is coming faster with a devolution delivery plan beginning the day after the referendum. And better change, faster change, safer change is the message we will take on to the streets and the doorsteps in the last few days of the campaign.”

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Free Nelson Mandela too!

Europe Fears Scottish Independence Contagion (AFP)

The prospect of Scottish independence is raising fears in Europe that it could inflame other separatist movements at a time when the continent’s unity and even its borders are under threat, analysts say. While nationalists from Catalonia to Flanders will watch Scotland’s referendum with hope, Brussels is nervous about the possibility of a major European Union member like Britain falling apart. The fear of contagion spreads as far as the EU’s eastern frontier, where the Baltic countries worry that Moscow will back their ethnic Russian citizens who could then claim more autonomy. But while the EU might initially make life difficult for a new Scottish nation, it would most likely allow it to join the bloc eventually, experts said. “It is a very difficult situation for the EU if Scotland becomes independent, it really is,” Pablo Calderon Martinez, Spanish and European Studies fellow at King’s College London, told AFP.

The EU already has a lot on its plate as it tackles a stalled economy and high unemployment, and has insisted in recent days that the Scottish vote is an “internal matter.” But European Commission chief Jose Manuel Barroso made the position clear in 2012: any newly independent country emerging from an EU nation would no longer be part of the bloc, and would have to reapply for membership. Barroso outraged nationalists in February when he said it would be “extremely difficult” for Scotland to gain automatic membership, comparing it to Kosovo, which broke away from Serbia. European Council president Herman Van Rompuy meanwhile weighed in on Catalonia in December, saying he was “confident” Spain would remain “united and reliable.”

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Never. Got that? Yes or no, there’s no way back.

After Thursday, Britain Will Never Be The Same Again (Observer)

On Thursday, Scotland will take a decision of seismic consequence for the 307-year-old union. Tempered and tested by the Industrial Revolution, the empire, the carnage of war, the birth of the welfare state, it is a union that has been strengthened by the mutual inventiveness and talents of complementary identities. It has been pluralistic, democratic, multicultural, tolerant (mostly), enlightened (for the most part), liberal. As political unions go, it has been a remarkably successful one. But whatever the decision on Thursday, the result should act as a catalyst for change, a harbinger of constitutional shifts for the whole of Great Britain. The Scottish people set out on this journey alone – but they have unwittingly taken on board passengers from the rest of the union. When Gordon Brown – backed by the three Westminster party leaders – last week promised Scotland “nothing less than a modern form of home rule” if the vote is no, it signalled that the constitutional make-up of these islands is about to change irrevocably.

Ed Miliband goes further: writing for this paper today, he suggests that were he to become prime minister the union would undergo fundamental change. “Scotland’s example will lead the way in changing the way we are governed in England too, with the devolution we need to local government from Cornwall to Cumbria.” Few, if any, people were talking about devolved powers to Cumbria or Cornwall two weeks ago. It is a sign that, regardless of the outcome on Thursday, the first minister, Alex Salmond, has already won a significant victory. The decision by the three main Westminster parties – spooked by a poll showing the yes campaign in the lead – to make significant promises of more devolved power revealed how remote they are from the political and cultural winds swirling in Scotland. Cameron, Miliband and Clegg had 18 months but they waited until the last 10 days to spell out just how profound devolution could be. It wasn’t a terrific advertisement for how well the union is working.

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Love it.

Is Scotland Big Enough To Go it Alone? (

As Scotland goes to the polls to decide on its separation from the United Kingdom, the tone of the campaign is, again, high on passion and, again, secessionists are inching toward the magical 50% line. But don’t uncork the single malt quite yet: as of today (September 2, 2014), bookies in London still put the odds at 4-to-1 against the non-binding referendum. But it remains a real possibility. One core debate is whether Scotland is too small and too insignificant to go it alone. During the Quebec referendum there was a nearly-identical debate, with secessionists arguing that Quebec has more people than Switzerland and more land than France, while federalists preferred to compare Quebec to the US or the “rest-of-Canada” (ROC, in a term from the day).

In a curious coincidence, 2014 Scotland and 1994 Quebec have nearly the same population: about 5–6 million. About the same as Denmark or Norway, and half-a-million more than Ireland. Even on physical area Scotland’s no slouch: about the size of Holland or Ireland, and three times the size of Jamaica. The fact that Ireland, Norway, and Jamaica are all considered sustainably-sized countries argues for the separatists here. So small is possible. But is it a good idea? The answer, perhaps surprisingly, is resoundingly “Yes!” Statistically speaking, at least. Why? Because according to numbers from the World Bank Development Indicators, among the 45 sovereign countries in Europe, small countries are nearly twice as wealthy as large countries. The gap between biggest-10 and smallest-10 ranges between 84% (for all of Europe) to 79% (for only Western Europe).

This is a huge difference: To put it in perspective, even a 79% change in wealth is about the gap between Russia and Denmark. That’s massive considering the historical and cultural similarities especially within Western Europe. Even among linguistic siblings the differences are stark: Germany is poorer than the small German-speaking states (Switzerland, Austria, Luxembourg, and Liechtenstein), France is poorer than the small French-speaking states (Belgium, Andorra, Luxembourg, and Switzerland again and, of course, Monaco). Even Ireland, for centuries ravaged by the warmongering English, is today richer than their former masters in the United Kingdom, a country 15 times larger. Why would this be? There are two reasons. First, smaller countries are often more responsive to their people. The smaller the country the stronger the policy feedback loop. Meaning truly awful ideas tend to get corrected earlier.

Had Mao Tse Tung been working with an apartment complex instead of a country of nearly a billion-people, his wacky ideas wouldn’t have killed millions. Second, small countries just don’t have the money to engage in truly crazy ideas. Like Wars on Terror or world-wide daisy-chains of military bases. An independent Scotland, or Vermont, is unlikely to invade Iraq. It takes a big country to do truly insane things. Of course there are many short-term issues for the Scots to consider, from tax and subsidy splits, to defense contractors relocating to England. And, of course, the deep historico-cultural issues that an America of Franco-British descent should best sit out. Still, as an economist, what we can say is that Scotland’s big enough to “survive” on its own, and indeed is very likely to become richer out of the secession. Nearer to the small-is-rich Ireland than the big-but-poor Britain left behind.

Read more …

Fate of United Kingdom Hangs In Balance After New Scotland Polls (Reuters)

The fate of the United Kingdom remained unclear five days before a historic referendum on Scottish independence as three new polls on Saturday showed a slight lead for supporters of the union, but one saying the separatist campaign was pulling ahead. On the final weekend of campaigning, tens of thousands of supporters of both sides took to the streets of the capital Edinburgh and Scotland’s largest city, Glasgow. Rival leaders worked across the country to convince undecided voters. At stake is not just the future of Scotland, but that of the United Kingdom, forged by the union with England 307 years ago. The battle also took a bitter turn on Saturday when a senior nationalist warned businesses such as oil major BP that they could face punishment for voicing concern over the impact of a secession.

The economic future of Scotland has become one the most fiercely debated issues in the final weeks of impassioned debate. Nationalists accuse British Prime Minister David Cameron of coordinating a scare campaign by business leaders aimed at spooking voters, while unionists say separation is fraught with financial and economic uncertainty. But former Scottish Nationalist Party deputy leader Jim Sillars went much further than separatist leader Alex Salmond, warning that BP’s operations in Scotland might face nationalisation if Scots voted for secession on Thursday. “This referendum is about power, and when we get a ‘Yes’ majority we will use that power for a day of reckoning with BP and the banks,” Sillars, a nationalist rival of Salmond’s, was quoted by Scottish media as saying.

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‘Cool’ London Is Dead, And The Rich Kids Are To Blame (Telegraph)

I have seen the future – and the future is Paris and Geneva. The future is a clean, dull city populated by clean, dull rich people and clean, dull old people. The future is joyless Michelin starred restaurants and shops selling £3,000 chandeliers. In the 1990s, we accidentally stumbled upon the formula for a perfect city. Exactly halfway between East and West, serious history, attractive (but not chocolate-boxy), English-speaking, and a capital for the creative industries and financial services. Better still, years of decline and depopulation had left vast central swathes of the city very affordable. So, the cool kids piled in. And, suddenly, a rather grey, down-at-heel capital, a place that had never quite quite recovered from losing an Empire (and winning a war) began to swing again. Back then we all lived in central London, because we all could. It was normal to leave university and get a flat with your mates in Marylebone or Maida Vale or Primrose Hill or Notting Hill. Not because we were rich, but because London was cheap.

And it felt fantastic. Here was a city whose fortunes were reviving and, as 20-somethings, ready to make our mark on the world, we really were bang in the middle of things. Two decades on and you can play a nostalgic little game where you remind yourself what groups London’s inner neighbourhoods were known for 20 years ago. Hampstead: intellectuals; Islington: media trendies; Camden: bohemians, goths and punks; Fulham: thick poshos who couldn’t afford Chelsea; Notting Hill: cool kids; Chelsea: rich people. Now, every single one of these is just rich people. If you want to own a house (or often just a flat) in these places, you need a six figure salary or you can forget it. And, for anyone normal, that means working in finance. As for the bits of London that always were rich – Mayfair, Chelsea and Kensington, they’ve moved up to the next level. Ultra-prime central London is fast becoming a ghost-town where absentee investors park their wealth. As some wag put it, houses in Mayfair are now bitcoins for oligarchs.

So, what does this have to do with Paris and Geneva? The answer is that both are places where the rich have socially cleansed the centres. Inner Paris is a fairytale for wealthy people in their fifties (and outer Paris looks like Stalingrad with ethnic strife) while Geneva has dispensed with the poor altogether. As a result, both cities are safe, pretty and rather boring places to live – and soon London will be too. Why? Because the financiers who can afford inner London neighbourhoods are not cool. Visit Canary Wharf at on any weekday lunchtime and watch the braying, pink-shirted bankers disporting themselves. Not cool. Peruse the shops at Canary Wharf. From Gap to Tiffany’s, they’re all chains stores and you could be anywhere wealthy, safe and dull in the world. Rich people like making money and spending it on dull, expensive things. That’s what they do – and they’re very good it. But being a high-end cog in the machine is not cool.

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Never’s a bit much, perhaps.

America’s Poor Have Never Been Deeper In Debt (Zero Hedge)

Ever since the Lehman bankruptcy, one of the main reasons given by the perpetual apologists about why i) the so-called “recovery” has been the worst in US history and ii) the Fed has been “forced” to conduct 6 years of wealth transferring policies, boosting the stock market to all time highs and creating a record wealth split in US society between the super rich and everyone else (one that surpasses even that seen during the roaring 20s) is that the US consumer, scarred by the economic crash, has been rushing to deleverage and dump as much debt as possible. There are two problems with that story:

First, as we first pointed out in 2012, US households are not deleveraging, they are defaulting, a huge difference which goes to motive and intent, and shows that instead of actively paying down debt households are instead loading up on as much debt as they can, which at some point they simply stop servicing (for a detailed analysis of this disturbing trend, read our series on the student loan bubble).

Second, when it comes to the poorest quartile of US society, some 14 million people, it is dead wrong. In fact, as the Fed’s triennial Survey of Consumer Finances, released last week showed, America’s poorest have never been more in debt! As usual, the full story is one of nuances. As Bloomberg reports, as a result of the first point – mass defaults – US household debt has indeed declined on an average basis. Indeed, average debt burden for all families stood at about 105% of pretax income in 2013, down from about 125% in 2010 and the lowest level since the 2001 survey. Of course, since economists are unable to grasp the difference between default and deleveraging, one look at the chart above gives them reason for hope. As Bloomberg summarizes:

The improved finances, along with more recent signs that consumers are feeling comfortable about borrowing again, has given some economists cause for optimism: The more progress households make in getting out from under their debts, the logic goes, the greater the chances that renewed spending will boost growth.

In reality, the “improved finances”, namely those tens of trillions in financial assets that have been artificially reflated courtesy of the Fed’s monetary policies, have benefited the tiniest sliver of US society – about 1% or less depending on whose calculations one uses. Everyone else, the bulk of US society, was forced to simply stop paying down their credit card and thus “delever.”

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Chinese Growth Slows Most Since Lehman; Electric Output Shrinks (Zero Hedge)

While China may have mastered the art of goalseeking GDP, always coming within 0.1% of the consensus estimate, usually to the upside, even if the bogey has seen dramatic declines in the past few years, dropping from double digit annualized growth to just 7.5% currently and the projections hockey stick long gone… it may need to expand its goalseek template to include the other far more important measure of Chinese economic activity, such as Industrial production, retail sales, fixed investment, and even more importantly – such key output indicators as Cement, Steel and Electricity, because based on numbers released overnight, the Q2 Chinese recovery is now history (as the credit impulse of the most recent PBOC generosity has faded, something we have discussed in the past), and the economy has ground to the biggest crawl it has experienced since the Lehman crash.

What’s worse, and what we predicted would happen when we observed the collapse in Chinese commodity prices ten days ago, capex, i.e. fixed investment, grew at the slowest pace in the 21st century: the number of 16.5% was the lowest since 2001, and suggests that the commodity deflation problem is only going to get worse from here. As JPM summarized earlier today, pretty much every economic data release was a disaster, missing consensus significantly, and suggesting GDP is now trending at an unprecedented sub-7%.

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Read her!

This Changes Everything: Capitalism vs. the Climate (Naomi Klein)

I denied climate change for longer than I care to admit. I knew it was happening, sure. But I stayed pretty hazy on the details and only skimmed most news stories. I told myself the science was too complicated and the environmentalists were dealing with it. And I continued to behave as if there was nothing wrong with the shiny card in my wallet attesting to my “elite” frequent-flyer status. A great many of us engage in this kind of denial. We look for a split second and then we look away. Or maybe we do really look, but then we forget. We engage in this odd form of on-again-off-again ecological amnesia for perfectly rational reasons. We deny because we fear that letting in the full reality of this crisis will change everything. And we are right. If we continue on our current path of allowing emissions to rise year after year, major cities will drown, ancient cultures will be swallowed by the seas; our children will spend much of their lives fleeing and recovering from vicious storms and extreme droughts. Yet we continue all the same.

What is wrong with us? I think the answer is far more simple than many have led us to believe: we have not done the things needed to cut emissions because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have struggled to find a way out of this crisis. We are stuck, because the actions that would give us the best chance of averting catastrophe – and benefit the vast majority – are threatening to an elite minority with a stranglehold over our economy, political process and media. That problem might not have been insurmountable had it presented itself at another point in our history.

But it is our collective misfortune that governments and scientists began talking seriously about radical cuts to greenhouse gas emissions in 1988 – the exact year that marked the dawning of “globalisation”. The numbers are striking: in the 1990s, as the market integration project ramped up, global emissions were going up an average of 1% a year; by the 2000s, with “emerging markets” such as China fully integrated into the world economy, emissions growth had sped up disastrously, reaching 3.4% a year. That rapid growth rate has continued, interrupted only briefly, in 2009, by the world financial crisis. What the climate needs now is a contraction in humanity’s use of resources; what our economic model demands is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.

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Naomi Klein: Richard Branson Cheats On Climate Change Pledge (Guardian)

Richard Branson has failed to deliver on his much-vaunted pledge to spend $3bn (£1.8bn) over a decade to develop a low carbon fuel. Seven years into the pledge, Branson has paid out only a small fraction of the promised money – “well under $300m” – according to a new book by the writer and activist, Naomi Klein. The British entrepreneur famously promised to divert a share of the profits from his Virgin airlines empire to find a cleaner fuel, after a 2006 private meeting with Al Gore. Branson went on to found a $25m Earth prize for a technology that could safely suck 1bn tons of carbon a year from the atmosphere. In 2009, he set up the Carbon War Room, an NGO which works on business solutions for climate change. But by Klein’s estimate, Branson’s “firm commitment” of $3bn failed to materialise.

“So the sceptics might be right: Branson’s various climate adventures may indeed prove to have all been a spectacle, a Virgin production, with everyone’s favourite bearded billionaire playing the part of planetary saviour to build his brand, land on late night TV, fend off regulators, and feel good about doing bad,” Klein writes in This Changes Everything, Capitalism vs The Climate. Klein uses Branson and other so-called green billionaires – such as the former New York mayor, Michael Bloomberg – as case studies for her argument that it is unrealistic to rely on business to find solutions to climate change. Branson routed a first pay-out of his $3bn commitment, about $130m, through a new Virgin investment company into corn ethanol. The fuel has now been widely discredited as a greener alternative to fossil fuels, because of its climate change impacts and for driving up the cost of food.

Virgin went on to look at other biofuels, at one point exploring a project to develop jet fuel from eucalyptus trees. “But the rest of its investments are a grab bag of vaguely green-hued projects, from water desalination to energy efficient lighting, to an in-car monitoring system to help drivers conserve gas,” Klein writes. By last year, the total of those investments, in corn ethanol and elsewhere, amounted to about $230m, she estimates. Branson made an additional small investment in an algae fuel company, Solazyme. But Branson still puts the total spend at well under $300m – just a tenth of his $3bn pledge.

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Where’s my Trojan Horse?

Luhansk To Start Distributing Russian Aid Monday, Trucks Return Home (RT)

The last truck from Russia’s second humanitarian aid convoy to the Eastern Ukrainian city of Lugansk has returned home after delivering its cargo. All vehicles had reached the Ukrainian-Russian border without incidents and the last of them crossed the border in the direction of Russia at around 6:30 pm local time. Early on Saturday, a convoy of 245 trucks colored in white paint crossed the border and headed to Lugansk to bring much needed relief supplies to the residents of the war-torn city. The 2,000 tons of Russian humanitarian aid include food, power generators, water purification systems, medicine and blankets. The convoy was welcomed by the population of Lugansk as people lined up on the sides of the roads and waved Russian flags. After unloading in Lugansk, the trucks made their way back to Russia’s Rostov region, which is bordering Ukraine.

The second Russian convoy has arrived just in time as the city almost ran out of first batch of humanitarian aid delivered on August 22, Valery Potapov, deputy prime minister of the self-proclaimed People’s Republic of Donetsk, said. “The supplies from the first convoy have almost ended. We still have a small amount of canned meat, but we had to use our own stock to provide people with sugar and cereal,” Potapov told RIA-Novosti news agency. The handout of the aid to the people will begin in Lugansk on Monday, he said. Potapov added that its “more or less calm [in Lugansk] because of the so-called the cease-fire” and “people began returning (to their homes) en masse”, which makes it difficult to predict how long the aid will last.

Meanwhile, Ukraine claimed that the second Russian humanitarian aid convoy entered the country illegally. Ukrainian border officials were not allowed to inspect the cargo, Col. Andrey Lysenko, spokesman for Ukraine’s National Security Council, said. But Russia’s Federal Security Service has denied the claims, saying that it offered full cooperation to the Ukrainian side. “We repeatedly suggested that Ukrainian border guards and customs officers take part in inspections of a humanitarian convoy that was passing through border and customs control at the Donetsk border-crossing point, but the Ukrainian side rejected the offer,” Nikolay Sinitsyn, a spokesman for the FSB’s border department in the southern Russian Rostov region, said.

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Modern democracy.

Ukraine’s Party of Regions Refuses to Participate in Rada Elections (RIA)

The Ukrainian Party of Regions is not planning to take part in the elections to the country’s parliament, Verkhovna Rada, scheduled for October 26, the Ukrainian Party of Regions deputy Mykhailo Chechetov told RIA Novosti. “The Party of Regions made a decision not to participate in the elections. That is why if the elections will still take place and Donbas will not vote, than, in the given circumstances we will be saying that the level of legitimacy [of the elections] does not meet the people’s expectations,” Chechetov said.
On August 27, Ukrainian President Petro Poroshenko signed a decree, dissolving the country’s parliament and setting new elections for October 26. Following his election on May 25 Poroshenko has repeatedly highlighted the need to hold early parliamentary elections, saying the current composition fails to represent the interests of Ukrainian society. A

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Enron Buster Is Back at Justice and Taking Aim at Real People (Bloomberg)

Lawmakers, in what has become something of a Washington ritual, criticized the Justice Department this week for not holding individual bankers to account for the financial crisis. So, the Justice Department has given the job to Godzilla. Leslie Caldwell, the prosecutor who led the government’s prosecution of Enron Corp., took over the Justice Department’s Criminal Division in June after a decade in private practice. Among her priorities, she says, is focusing on the individual actors behind corporate wrongdoing. “Certainly, there are cases where you also want to prosecute the company,” Caldwell said in an interview last week. “But I think you get the best outcome – really across the board in terms of deterrence, in terms of the message to the public – when you prosecute individuals.” Caldwell’s predecessor was accused by lawmakers and the public of not doing enough to convict Wall Street bankers who securitized and sold low-quality mortgages, helping precipitate the financial crisis of 2008.

The government has won multibillion-dollar settlements from some of the world’s largest banks, only to see their shares rise and their executives win higher bonuses. Caldwell herself has been accused of getting the balance wrong between corporate and individual accountability. To hear critics tell it, it was an overzealous prosecution overseen by Caldwell that brought down accounting firm Arthur Andersen. Under Caldwell, the Justice Department’s Enron task force generated dozens of prosecutions. Early in that probe, federal prosecutors won an indictment of Arthur Andersen for shredding massive amounts of Enron-related paperwork — a move that led to the firm’s collapse and the loss of tens of thousands of jobs. When Caldwell returned to Justice in June, an editorial in Investor’s Business Daily declared: “The Justice Department Unleashes a Godzilla on business.”

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Uglier still.

NSA, GCHQ Have Secret Access To German Telecom Networks: Spiegel (RT)

US and UK intelligence services have secret access points for German telecom companies’ internal networks, Der Spiegel reports, citing slides created in the NSA’s ‘Treasure Map’ program used to get near-real-time visualization of the global internet. The latest scandal continues to evolve around the US’ NSA and the British GCHQ, both of which appear to be able to eavesdrop on German giants such as Deutsche Telekom, Netcologne, Stellar, Cetel and IABG network operators, according to Der Spiegel’s report based on material disclosed by Edward Snowden. The Treasure Map program, dubbed “the Google Earth of the Internet,” allows the agencies to expose the data about the network structure and map individual routers as well as subscribers’ computers, smartphones and tablets. The German telecoms had “access points” for technical supervision inside their networks, marked as red dots on such a map, shown on one of the leaked undated slides, Spiegel reports, warning it could be used for planning sophisticated cyber-attacks.

The Treasure map, first mentioned by the New York Times last year, provides “a near real-time, interactive map of the global Internet,” offering a “300,000 foot view of the Internet,” as it gathers Wi-Fi network and geolocation data as well as up to 50 million unique Internet provider addresses. The Federal Office for Information Security (BSI) spokesman told the DPA news agency that the Federal Office for the Protection of the Telekom has been informed, and that the authorities are analyzing the situation. One of the companies, Stellar, meanwhile voiced fury over US and British spying. “A cyber-attack of this kind clearly violates German law,” said one if its heads. Deutsche Telekom and Netcologne said they had not identified any data breaches but Deutsche Telekom’s IT security chief Thomas Tschersich said, that the “access of foreign secret services to our network would be totally unacceptable.” “We are looking into any indication of a possible manipulation. We have also alerted the authorities,” he stated.

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The Rupture (Umair Haque)

Every age has a story it tells about the end of the world. And every age’s story about the end of the world tells us something; not about how the world will end; but about how that age already is. We call those stories eschatologies. I want to tell you a story, too, in this little essay. Of an eschatology. Our eschatology. Remember our collective vision of the future? Imagine the Jetsons. Imagine high modernism. Imagine Mad Men. The perfect suits, the immaculate hair, the endless cocktails, the towering city, the secret affairs, the endless desire. The gleaming seduction of a better tomorrow. What is the future? We thought—no, we believed, with all our might—that the world would inexorably be moved, by our might. In a single direction. The direction of human progress. We were true believers in a faith. That the right, true, and inescapable trajectory of mankind was forward. It was an idea born in the high industrial age. The machine. The factory. The gear. The sudden, furious birth of plenty.

Like a supernova going off in the heart of a human world that hadn’t changed for millennia. Suddenly, we had more than we could imagine. And we thought: this was the future. The right, noble, just, future. Maybe Nietzsche was right. God was dead. But who needed God? We had forged this wondrous future. Through the sweat of our brows and the might of our faith. And so how was it anything less than destined? Fuck Providence. We were something bigger than providence. We were destiny. This was how the future was meant to be. And so this was how the future would surely always be. And then. Something went wrong. It’s hard to say how. But. The future broke. Rupture. The Rupture is the future slowing, stopping, winding down. Fracturing; splitting apart; coming undone. It is the future ending, collapsing, breaking. Once, we subscribed to a naive view of historical progress. That humanity marched forwards into a place we called the “future”. The future stopped happening. For most of us. We got left behind by it.

The future isn’t one of unalloyed, golden progress anymore. Tomorrow is a tale of decline, degeneration, decay. Rupture. The future isn’t flying cars and food pills and a smarthome and a stable career and comfortable prosperity for every family anymore. Rupture. The future looks more like this. A story of a burning planet, of imploding middle classes, of lost generations, of empty decades, of mass unemployment, of the rule of law breaking, of democracy cracking, of nations splintering, of tribes warring, of broken dreams, of Greater Depressions, of unending Stagnations, of human possibility itself shattering into a million million pieces. Rupture. The future isn’t the steady, forward march of human advancement anymore. What is “declining”? Constitutional democracy, opportunity, mobility, material prosperity, law, equity, fairness, a sense of meaning in life…hope for the future. Rupture.

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Quite a tale.

California Solar Projects Plan Undergoing Major Overhaul (SFGate)

With billions of dollars in federal stimulus money in hand, the Obama administration set out five years ago on a grand experiment in the California desert. The goal: Open public lands to renewable-energy development to wean the nation from fossil fuels. The results haven’t been pretty, a fact the administration has tacitly acknowledged by devising a new plan, expected to be released this month, to find better places to put industrial-scale solar farms in the California desert. Quoting songwriter Joni Mitchell in a speech describing the new approach, Interior Secretary Sally Jewell said, “You don’t know what you’ve got till it’s gone.” The solar plants were rushed through the environmental approval process. Miles of unspoiled desert lands were scraped and bulldozed to make way for sprawling arrays of solar panels.

Desert tortoises required mass relocation, and kit fox burrows were destroyed. Surprise troves of American Indian artifacts found in the Mojave Desert were moved to a San Diego warehouse, where they remain. And once it was built, the largest solar plant of its kind in the world – the Ivanpah installation in the Mojave – began igniting birds and monarch butterflies that fly through intensely concentrated, reflected sunbeams aimed at 40-story “power towers,” according to a confidential report by federal wildlife officials. Owned by BrightSource of Oakland, with investment partners Google of Mountain View and NRG Energy of Houston, the 5.4-square-mile, $2.2 billion facility was built with a $1.6 billion federal loan and went online last fall.

BrightSource underestimated how much natural gas it would need to run the Ivanpah plant when the sun doesn’t shine. And scientists now say desert soils contain vast stores of carbon that are unleashed by construction of solar facilities. Research at UC Riverside’s Center for Conservation Biology indicates that carbon-dioxide-emissions savings from many solar plants “will be compromised, or even negated, by the loss of stores of inorganic and organic carbon sequestered by desert native ecosystems.” Within the next few weeks, state and federal agencies plan to release the mammoth Desert Renewable Energy Conservation Plan, nearly five years in the making, that many hope will correct mistakes made when stimulus dollars and California’s quest to slash carbon emissions set off a solar land rush in the Mojave.

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