Feb 232018
 
 February 23, 2018  Posted by at 10:55 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso Rooster 1938

 

Art Cashin: Once the 10-Year Yield Hits 3% ‘All Hell’ Could Break Loose (CNBC)
China Regulators Take Control Of Insurance Giant Anbang (AFP)
Xi’s Debt Crackdown Goes Into Hyperdrive (BBG)
BIS Suggests Beijing Is Behind China Shadow Banking Sector (F.)
China Is Letting The Yuan Crush The Dollar To Appease Trump (CNBC)
Bond Villain in the World Economy: Latvia’s Offshore Banking Sector (CP)
Reserve Bank Of Australia Accused Of Causing Ponzi Mortgage Market (AFR)
US Shale Investors Still Waiting On Payoff From Oil Boom (R.)
EU Leaders Go to Battle Over Post-Brexit Budget Gap (BBG)
Irish President Criticises EU Treatment Of Greece (IT)
Greek MPs Vote To Investigate Top Politicians In Novartis Bribery Claims (G.)
Greece Is The European Champion In Corporate Taxes (K.)
The Gun-Control Debate Could Break America (French)
50,000 Die In UK ‘Cold Homes Public Health Crisis’ (Ind.)

 

 

The cavalry.

Art Cashin: Once the 10-Year Yield Hits 3% ‘All Hell’ Could Break Loose (CNBC)

It could be a bad day for the markets once the yield on the benchmark 10-year Treasury hits 3%, closely followed trader Art Cashin told CNBC on Thursday. “That 3% level is both a target and a kind of resistance. Everybody knows it’s like touching the third rail,” said Cashin, UBS director of floor operations at the New York Stock Exchange. “The assumption is once they do it, all hell will break loose. So we’ll wait and see.” As of early Thursday, the 10-year yield was slightly lower, around 2.91%, down from Wednesday’s four-year high of 2.95%. Wall Street fears returned Wednesday afternoon after minutes from the Federal Reserve’s latest meeting sent bond yields rising and stocks into a tailspin. The last time the 10-year yield traded above 3% was in January 2014.

“Initially, yields moved down, stocks rallied like crazy,” Cashin recalled about Wednesday, moments after the Fed minutes were released. “Then about eight minutes into that move, stocks looked back and noticed bonds had changed their mind.” The sharp moves seen Wednesday were probably due to “our friends, the long-lost ‘bond vigilantes,'” Cashin told “Squawk on the Street.” The term “bond vigilantes” was coined by market historian Ed Yardeni during the 1980s, referring to traders who sell their holdings in an effort to enforce what they consider fiscal discipline. Selling bonds sends yields higher due to the inverse relationship between bond prices and bond yields. “We’re going to need a couple weeks to see if the bond vigilantes really are back or not,” Cashin said. “Or whether it was simply a fluke. But remembering what bond vigilantes look like, it certainly had fingerprints on them.”

Read more …

Before it burns down the entire financial sector.

China Regulators Take Control Of Insurance Giant Anbang (AFP)

China took over Anbang Insurance for a year on Friday and said its former chairman faces prosecution for “economic crimes”, in the government’s most drastic move yet to rein in politically connected companies whose splashy overseas investments have fuelled fears of a financial collapse. The highly unusual commandeering of Anbang signalled deep official concern over the Beijing-based company’s financial situation and comes as the government looks to address spiralling debt in the world’s second-largest economy. The China Insurance Regulatory Commission said Anbang, which has made a series of high-profile foreign acquisitions in recent years, had violated insurance regulations and operated in a way that may “severely” affect its solvency. The announcement also clarified the fate of Anbang’s chairman Wu Xiaohui, who was reported by Chinese media to have been detained last June.

The insurance regulator confirmed Wu was being “prosecuted for economic crimes”, a startling fall from grace for a man who reportedly married a granddaughter of late Chinese leader Deng Xiaoping. A statement by government prosecutors in Shanghai said Wu was suspected of fraudulent fundraising and “infringement of duties”. Acquisitive private companies such as Anbang, HNA, Fosun and Wanda have increasingly loomed in the government’s cross-hairs as it conducts a sweeping crackdown on potential financial risks. The four firms were in the vanguard of an officially-encouraged surge in multi-billion-dollar overseas deals by Chinese firms to snatch up everything from European football clubs to hotel chains and movie studios, and were until recently considered untouchable because of their political connections.

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China needs to keep its reserves at home.

Xi’s Debt Crackdown Goes Into Hyperdrive (BBG)

If you needed confirmation about China’s determination to rein in surging corporate debt, the dramatic government takeover of Anbang Insurance is pretty much it. The unprecedented seizure of a private insurer underscores President Xi Jinping’s policy drive to cut back on the debt-fueled excesses that have accompanied China’s growth miracle. It’s a direct hit to corporate binge spending that authorities want to stem; it energizes a long running anti-corruption campaign; and it demonstrates that short-term economic pain will be tolerated for the longer-term goal of a more sustainable expansion. For the rest of the world, the intervention offers up a useful reminder: When you do business with China, you do business with the Communist Party.

“It’s a new example of the seriousness of Xi Jinping’s government to insert the party and the state at all levels of business,” said Fraser Howie, co-author of the book “Red Capitalism” who has two decades of experience in China’s financial markets. “They have no qualms about coming in over the top and saying ‘we are going to take this over.’” He likened the takeover to the U.S. Federal Reserve, the Financial Industry Regulatory Authority and the Securities and Exchange Commission coming together to restructure a company. [..] The backdrop to the pincer move on Anbang and its founder Wu Xiaohui, who is to be prosecuted for alleged fraud, is a robust economy that’s giving officials the running room to crack down on debt excesses without depressing growth.

Overseas investment by Chinese companies has been strictly curtailed since last year as part of the broader ambition to shift the economy onto a more sustainable footing after years of debt-fueled expansion. Because China is self financed and credit is steered by state-owned lenders to state-controlled or linked companies, authorities have the luxury of intervening at their whim to shuffle money from one section of the economy to another. That’s one of the key reasons why regulators are able to tackle Anbang and other high profile conglomerates without lawyers, shareholder activists or opposition politicians getting in the way.

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I don’t believe this is the whole story. Shadow banking in China is so lucrative there’s no way foreigners are not heavily involved.

BIS Suggests Beijing Is Behind China Shadow Banking Sector (F.)

Concerns about the scale of shadow banking in China have now risen alongside concerns about the ever-rising debt load across the economy. The IMF, for example, has been consistently warning about this issue, along with Western credit ratings agencies. But the biggest hawk on China’s credit risks has for some time been the Bank for International Settlements (BIS), known as the central banker’s bank. The BIS produced a comprehensive assessment of the “shadow banking” sector last week. The report itself is not very surprising, but it does suggest much coverage of the issue adopts a misplaced tone. The most important insight the report generates is simply that the shadow banking sector in China is almost entirely driven by the traditional, state-dominated banks ; the SOE banks, the Joint Stock banks and the City commercial banks, all of which have significant levels of state involvement.

Indeed it was estimated in 2014 that the Chinese banking system was capitalized by only about 12% private capital, the rest linking back to the Chinese state, either centrally or regionally. In other words, although the phrase “shadow banking” is used in China, in Western economies this usually refers to activity that is quite distinct from the state, where private investors knowingly operate outside of the many regulatory safeguards offered by traditional banking. Whereas in China the state is either the key mediator or even the guarantor of the unregulated activity. In other words, the state in China is freely engaging in unregulated activity, precisely in order to avoid the burdens of their own regulations. This is perhaps why “shadow banking” in China is often–and more accurately–referred to as “banking in the shadows” as it is a substitute for traditional banking, but it takes place out of sight.

This may be well understood by banking professionals, but it is an example of the kind of difference of emphasis that leads to misunderstanding in the markets and the press. The impression that China is somehow slowly getting to grips with a poorly regulated sector, or at least announcing its intention to do so, is quite simply at variance with what is actually going on, which is that the state itself is the source of the problem. The “shadow banking” sector in China has expanded enormously, not in spite of the state but because of it. It both applies the regulations in the formal banking sector, and avoids them in the “shadow banking” sector. None of this changes the fact that the overarching problem is China’s rapidly rising overall debt pile, but we shouldn’t be under any illusions over what exactly is hiding in the shadows. More to the point, if the activities of the Chinese state are hiding in the shadows, it is worth considering what exactly they are hiding from?

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Short term gains. Halt outflows. But a strong yuan wreaks hovoc on exports.

China Is Letting The Yuan Crush The Dollar To Appease Trump (CNBC)

The Chinese yuan has appreciated 10% against the dollar since the start of 2017, quelling some criticism that the export giant has been deliberately suppressing its currency to gain economic advantage over its trading partners. This is all going according to China’s plan, experts said. Although the strength of the yuan against the dollar is in part due to the greenback’s weakness, experts said the world’s second-largest economy is also propping up its currency to appease President Donald Trump. China has “reversed the rise” of the dollar against the yuan, and there’s now “meaningful” strength against the greenback, Bilal Hafeez, global head of G-10 foreign-exchange strategy at Nomura, wrote in a recent note. “Part of this was likely a response to the election of President Trump and the need to avoid being labelled a currency manipulator,” Hafeez added.

On the 2016 campaign trail, Trump repeatedly said he would name China a currency manipulator from his first day in office. That has not happened. [..] China will probably continue to manage its currency in the background even if it keeps its value against the dollar relatively high, analysts said. Morgan Stanley analysts said in a note this week that the trade-weighted yuan should remain “largely stable” around current levels as Beijing’s capital control efforts have worked. “If [the yuan] continues to appreciate rapidly, policy-makers may seek to stem the rise in order to maintain stability in the trade-weighted [yuan], which would likely be achieved by verbal communication and a relaxation of some outbound capital restrictions,” Morgan Stanley added.

Beijing is walking a tricky tightrope as the Communist regime seeks to balance political concerns with economic reforms and the demands that come with a market-based system. In the second half of 2015, the Chinese government shocked markets by devaluing the yuan. That spurred capital flight due to concerns over the health of the world’s second-largest economy — which further depressed the Chinese currency. Beijing has been trying to reverse that damage. “I think they ultimately want a weaker currency, they just don’t know how to achieve it. They tried in 2015, it didn’t work, turned into a vicious cycle and they’re kind of stuck right now with always trying to control everything but not knowing how to get a weaker currency through a structural slowdown in a way that does not cause a lot of disturbances to domestic financial markets for instance,” said Jason Daw at Societe Generale.

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The Russians did it.

Bond Villain in the World Economy: Latvia’s Offshore Banking Sector (CP)

If the world economy were a Bond movie, Latvia’s offshore banking economy would be its Bond villain. Presently, this plucky state of 1.8 million people on Russia’s border is leading the world’s financial press with two major scandals. First, there is their long-standing Central Bank Governor, Mr. Ilmars Rimsevics. While Latvia’s population (disproportionally aged, as many of the young have left to find work abroad) only rivals that of Hamburg, but with a much smaller economy, Mr. Rimsevics nonetheless commands a salary bigger than Central Bank heads of most similar sized countries and in 2016 saw the largest%age salary increase of any EU Central bank head. Regardless of his super-sized income, Mr. Rimsevics has been accused of using his post as a sinecure to increase his pay by several multiples. His ‘victims’ being the banks in Latvia that he oversees, of which one, Norvik, the provenance of a Russian oligarch in London, protested.

[..] The other scandal, more serious, but lacking a face and bereft of central casting’s villainous imagery (e.g., oligarchs at the hunting lodge), is that of ABLV. ABLV is the largest Latvian owned bank. Latvia is a small country with lots of ‘banks.’ ABLV is largely a correspondent bank, or a bank holding deposits of foreigners along with providing them with ‘services’ that conceal the identity of their owners. Correspondent banking, euphemistically in the ‘industry’ called “wealth management” and “tax optimization.” [..] Just as Mr. Rimsevics has seemingly been caught with Russian oligarchs, ABLV has been linked to handling money for North Korea’s weapons program. This crossed the line for the United States, which in the main has vacillated between support and tolerance of offshore banking, but who since 9/11 has become wary of its ‘downsides,’ such as terrorists and ‘axis of evil’ states availing themselves of their helpful services.

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“Yes RBA, you did inflate housing bubble…”

Reserve Bank Of Australia Accused Of Causing Ponzi Mortgage Market (AFR)

For years the Reserve Bank of Australia dismissed our warnings that excessively stimulatory interest rate cuts – which bequeathed borrowers with never-before-seen 3.4% mortgage rates that fuelled double-digit house price inflation – had blown a bubble that presented genuine financial stability risks. This manifested via record increases in speculative investor activity, interest-only loans and, more broadly, Australia’s household debt-to-income and house price-to-income ratios, which leapt into unchartered territory (notably above pre-global financial crisis peaks). The RBA narrative was very different. “Our concern was not that developments in household balance sheets posed a risk to the stability of the banking system,” governor Philip Lowe recently explained.

“Rather, it was more that…the day might come, when faced with bad economic news, households feel they have borrowed too much and respond by cutting their spending sharply, damaging the overall economy.” Nothing to see here when it comes to financial stability, if you believe the weasel words. It turns out Lowe was privately “packing his dacks” after unleashing the mother-of-all-booms powered by the cheapest credit in history. After the sudden deceleration in national house price growth – as documented here – from an 11.5% annualised rate in May 2017 to just 1.9% today, the governor revealed to parliamentarians that he’s now “much more comfortable…than I have been in recent years when I have been appearing before this committee, when I was quite worried”. That’s central speak for petrified.

Lowe conceded that “housing prices were rising very, very quickly – much faster than people’s income – and the level of debt was rising much faster than people’s income”. Yet according to the RBA’s interpretation, the 50% explosion in house prices between 2012 and 2018 was propelled not by the 11 interest rate cuts it bestowed on borrowers over the same period, but by a lack of new housing supply. You have to ignore the record building boom to believe this BS.

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Pay me Ponzi!

US Shale Investors Still Waiting On Payoff From Oil Boom (R.)

U.S. oil production has topped 10 million barrels per day, approaching a record set in 1970, but many investors in the companies driving the shale oil revolution are still waiting for their payday. Shale producers have raised and spent billions of dollars to produce more oil and gas, ending decades of declining output and redrawing the global energy trade map. But most U.S. shale producers have failed for years to turn a profit with the increased output, frustrating their financial backers. Wall Street’s patience ran out late last year as investors called for producers to shift more cash to dividends and share buybacks. “‘Give me some cash, please.’ That’s what investors have said,” said Anoop Poddar, a partner at private equity firm Energy Ventures.

And yet such calls for payouts remain a debate in the industry as oil prices have recently creeped up to four-year highs. Investors demanding immediate returns could risk forcing firms to curb expansion that could have a higher long-term payoff if oil prices continue to rise. For now, share prices of shale producers have yet to fully recover from the 2014 oil price collapse, when many investors took losses as hundreds of firms went bankrupt and those that survived struggled. The energy sector has lagged the rally that took the broader stock market to record highs. The S&P 500 Energy Index remains nearly a third off its peak in mid-2014, when oil prices topped $100 a barrel. The broader S&P 500 index is up 39% during the same period.

This year, five of the 15 largest U.S. independent shale firms have started paying or raised quarterly dividends, the documents show. But six of the firms have never offered a dividend or have not restored cuts implemented since the 2014 oil price collapse. Anadarko Petroleum earlier this month added $500 million to an existing buyback program and raised its dividend by 20%, sending its shares up 4.5% the next trading day. Buybacks reduce the number of shares outstanding, boosting the value of stock that remains.

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This could turn ugly. Very ugly.

EU Leaders Go to Battle Over Post-Brexit Budget Gap (BBG)

Hashing out the European Union’s multiannual budget is a political slugfest at the best of times. Throw in Brexit and the contest looks even more bruising. The U.K.’s scheduled withdrawal from the EU next year will leave a 10 billion-euro ($12.3 billion) annual hole in the bloc’s spending program, the main topic when leaders meet on Friday to map out Europe’s 2021-2027 budget. A Bloomberg survey of government positions reveals splits over how to cover the gap, with at least three net contributors – Sweden, the Netherlands and Austria – saying they won’t pay more. While amounting to only 1 percent of EU economic output, the European budget of 140 billion euros a year provides key funds for farmers, poorer regions and researchers in everything from energy to space technologies.

It’s also a barometer of the political mood in European capitals, signaling the risk of fissures as the EU seeks to maintain unity in the Brexit talks, confront new security challenges and curb democratic backsliding in countries such as Poland. “I expect it to be quite a fight,” said Guntram Wolff, director of the Bruegel think tank in Brussels. “The EU budget hole is quite substantial. You actually have a double challenge: you have to cut some spending and increase money for new priority areas.” [..] Britain’s absence from the next multiannual European spending program is conspicuous because the country is the No. 2 net contributor. Germany, which is the largest, and Italy, the fourth biggest, both say they are open to increasing their payments into the financial framework, the survey shows. Portugal and Estonia, both net recipients of funds, are prepared to raise their contributions, while France and Belgium are still undecided.

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So what’s he going to do about it?

Irish President Criticises EU Treatment Of Greece (IT)

Those responsible for mistaken economic policies that have had such a negative effect on the Greek people need to take responsibility for their actions, President Michael D Higgins has said, on the first day of his state visit. “It is a moral test of all actions that the person who initiates an action must take responsibility for its consequences,” Mr Higgins told his Greek counterpart, Prokopis Pavlopoulos. “It is little less than outrageous that the social consequences of decisions that are taken are not in fact understood and offered to people as choices,” Mr Higgins said, in remarks at a bilateral meeting at the presidential mansion.

Referring to the speech made by Emmanuel Macron on his recent state visit to Athens, Mr Higgins said he had to “say something much stronger” than the French president, who, he noted had acknowledged “that great mistakes, with great effect on the Greek people, have been made and that these were mistakes of the European Union”. “Cohesion, social cohesion, social Europe, must be placed on the top of the agenda that we all now share on the future of the union.” This meant that “we cannot continue adjusting out populations to economics models that not only have failed but have not submitted themselves to empirical tests in relation to their social consequences. “If parliaments and the mediating institutions continue to leach influence because they no longer have any power, because influences are coming from those who have no accountability, then we have a crisis.”

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Note: the whole thing is based on an FBI report, with probes of Novartis going back to at least 2014.

“..bribery scandal [..] the worst since the creation of the modern Greek state almost 200 years ago..”

Greek MPs Vote To Investigate Top Politicians In Novartis Bribery Claims (G.)

The Greek parliament is to investigate 10 of the country’s top politicians over in return for patronage that resulted in huge losses for Greece. After a raucous 20-hour debate, MPs voted early on Thursday to form a parliamentary committee tasked solely with investigating two former prime ministers and eight other ministers in connection with the allegations. The governor of the Bank of Greece, Yannis Stournaras; Europe’s migration commissioner, Dimitris Avramopoulos and the country’s former prime minister Antonis Samaras are among those accused of giving Novartis preferential market treatment. “We will not cover up,” Samaras’s successor, Alexis Tsipras, told parliament. “The Greek people must learn who turned pain and illness into a means of enrichment.”

Officials in Tsipras’ leftist-led administration have described the alleged bribery scandal as the worst since the creation of the modern Greek state almost 200 years ago. It has raised fears of political instability at a time when many had hoped the country was finally returning to normality after years of tumult. All 10 of those implicated vehemently rebutted the charges in often angry and emotional speeches during the debate. Stournaras, a former finance minister who helped steer Greece through some of its darkest days of the debt crisis after the country’s near-economic collapse, described the allegations as “disgusting fabrications”. Panagiotis Pikrammenos, who headed a one-month caretaker administration at the height of the crisis in 2012, came close to tears as he described the allegations against him “as lies and unacceptable slander”.

The cross-party committee, made up of 21 MPs, is expected to be established imminently. It will have the power to decide whether accusations of bribery, breach of duty and money-laundering apply, under a strict statute of limitation, to each of the accused. Under Greek law, parliament must investigate politicians for alleged infractions before they can face judicial prosecution. Few question that wrongdoing was committed. A confidential report by prosecutors originally tipped off by US authorities alleged that bribes of as much as €50m (£44m) were paid to politicians between 2006 to 2015 to promote Novartis’s products. More than 4,500 doctors are accused of malpractice as well. [..] With losses of around €4 billion for the country’s health system, the scandal will have played a significant role in Greece’s financial meltdown.

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How to make sure an economy won’t recover.

Greece Is The European Champion In Corporate Taxes (K.)

Corporate taxation in Greece is burdensome and anti-competitive, the Hellenic Federation of Enterprises (SEV) says in a report published on Thursday, stressing that Greek taxes also fail to draw revenues above the average rate of other European countries that as a rule have lower corporate taxation. According to SEV, the real tax load on corporations has increased considerably, with income tax reverting to the 2006 level plus the income on revenues from dividends: Today income tax comes to 29%, the tax on dividends to 15%, the solidarity levy to 10% and social security contributions for board members to 26.7%. This amounts to 81% of profit distribution, SEV said.

The federation’s analysts argue that profit taxation is above the European Union average and definitely higher than neighboring states that are Greece’s direct rivals within the bloc. If one adds board members’ social security contributions, then Greece has the highest corporate taxes by far, being the only country to have increased its tax sum since 2000, at a time when other states have been reducing the burden. SEV goes on to note that the tax rates are the just tip of the iceberg. The report focuses on the overall framework of corporate taxation that does not allow enterprises to grow and improve their competitiveness in international markets.

The federation highlights six specific problems in the corporate tax framework:
– The option of offsetting losses against future profits in Greece is for just five years, against at least 10 years in most EU states;
– Other countries have special incentives through tax exemption on expenditure, which in Greece are particularly limited;
– There is no framework for favorable regulations and incentives for mergers and acquisitions, which would encourage the streamlining and expansion of companies and reduce bad loans;
– There are no incentives such as accelerated amortization for new investments on equipment, which SEV calculates would have been fiscally neutral;
– Greek amortization rates are noncompetitive, particularly concerning investments in machinery and other equipment, forcing Greek firms to amortize their equipment slowly;
– Finally, Greece retains anachronistic levies such as stamp duty.

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Ignores the role of social media-induced echo chambers.

The Gun-Control Debate Could Break America (French)

Last night, the nation witnessed what looked a lot like an extended version of the famous “two minutes hate” from George Orwell’s novel 1984. During a CNN town hall on gun control, a furious crowd of Americans jeered at two conservatives, Marco Rubio and Dana Loesch, who stood in defense of the Second Amendment. They mocked the notion that rape victims might want to arm themselves for protection. There were calls of “murderer.” Rubio was compared to a mass killer. There were wild cheers for the idea of banning every single semiautomatic rifle in America. The discourse was vicious. It was also slanderous. There were millions of Americans who watched all or part of the town hall and came away with a clear message: These people aren’t just angry at what happened in their town, to their friends and family members; they hate me.

They really believe I’m the kind of person who doesn’t care if kids die, and they want to deprive me of the ability to defend myself. The CNN town hall might in other circumstances have been easy to write off as an outlier, a result of the still-raw grief and pain left in the wake of the Parkland shooting. But it was no less vitriolic than the “discourse” online, where progressives who hadn’t lost anyone in the attack were using many of the same words as the angry crowd that confronted Rubio and Loesch. The NRA has blood on its hands, they said. It’s a terrorist organization. Gun-rights supporters — especially those who oppose an assault-weapons ban — are lunatics at best, evil at worst. This progressive rage isn’t fake. It comes from a place of fierce conviction and sincere belief. Unfortunately, so does the angry response from too many conservatives.

[..] Unlike the stupid hysterics over net neutrality, tax policy, or regulatory reform, the gun debate really is — at its heart — about life and death. It’s about different ways of life, different ways of perceiving your role in a nation and a community. Given these immense stakes, extra degrees of charity and empathy are necessary in public discussion and debate. At the moment, what we have instead are extra degrees of anger and contempt. The stakes are high. Emotions are high. Ignorance abounds. Why bother to learn anything new when you know the other side is evil?

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Major cold spell on the doorstep.

50,000 Die In UK ‘Cold Homes Public Health Crisis’ (Ind.)

Thousands of people are “needlessly” dying each year because they cannot afford to properly heat their homes, new research has revealed. The UK has the second-worst rate of excess winter deaths in Europe, a study by National Energy Action and climate-change charity E3G found. The organisations called for urgent action to end to the devastating but “entirely preventable” tragedy that they say amounts to a “cold homes public health crisis”. The death toll looks set to rise next week as the UK braces for an imminent “polar vortex” predicted to bring harsh frost, snow showers and freezing temperatures. Almost 17,000 people in the UK are estimated to have died in the last five years as a direct result of fuel poverty and a further 36,000 deaths are attributable to conditions relating to living in a cold home, the research found.

The number dying each year is similar to the amount who die from prostate cancer or breast cancer. A total of 168,000 excess winter deaths from all causes have been recorded in the UK over the latest five-year period. Of 30 countries studied, only Ireland has a higher proportion of people dying due to cold weather. The research was published to coincide with Fuel Poverty Awareness Day on Friday which aims to highlight the problems faced by those struggling to keep warm in their homes. It comes just 24 hours after Centrica, which owns British Gas, announced plans to cut 4,000 jobs after a “weak” year in which it made £1.25bn profit. The company’s chief executive, Ian Conn, said the Government’s energy price cap – designed to prevent loyal and vulnerable customers being ripped off – was partly to blame for the layoffs. Pedro Guertler, of E3G, who co-authored the research, said the winter death figures were not only a tragedy but a “national embarrassment”.

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Dec 262017
 
 December 26, 2017  Posted by at 11:19 am Finance Tagged with: , , , , , , , , , , ,  


Edward Hopper Christmas card 1928

 

Shale Gas Fuels 40% Increase In Funding For Plastics Production (G.)
Bitcoin Could Crash Financial Markets Because Of Massive Borrowing (MW)
Was Coinbase’s Bitcoin Cash Rollout A Designed Hit? (Luongo)
Japan PM Abe Urges Firms To Raise Wages By 3% Or More (R.)
Japan’s Household Spending Jumps But BOJ Seen Keeping Stimulus (R.)
Shanghai Sets Population At 25 Million To Avoid ‘Big City Disease’ (G./R.)
Europe Banks Brace For Huge Overhaul That Opens The Doors To Their Data (CNBC)
Scotland United In Curiosity As Councils Trial Universal Basic Income (G.)
UK Asylum Offices ‘In A Constant State Of Crisis’, Say Whistleblowers (G.)
‘Normality’ To Be Restored At Moria By End of January – Greek Minister (K.)
UNHCR Calls For Migrant Transfers, Blames Greece For Grim Conditions (K.)

 

 

It’s up to you to refuse plastics. Nothing else will work.

Shale Gas Fuels 40% Increase In Funding For Plastics Production (G.)

The global plastic binge which is already causing widespread damage to oceans, habitats and food chains, is set to increase dramatically over the next 10 years after multibillion dollar investments in a new generation of plastics plants in the US. Fossil fuel companies are among those who have plooughed more than $180bn since 2010 into new “cracking” facilities that will produce the raw material for everyday plastics from packaging to bottles, trays and cartons. The new facilities – being built by corporations like Exxon Mobile Chemical and Shell Chemical – will help fuel a 40% rise in plastic production in the next decade, according to experts, exacerbating the plastic pollution crisis that scientist warn already risks “near permanent pollution of the earth.”

“We could be locking in decades of expanded plastics production at precisely the time the world is realising we should use far less of it,” said Carroll Muffett, president of the US Center for International Environmental Law, which has analysed the plastic industry. “Around 99% of the feedstock for plastics is fossil fuels, so we are looking at the same companies, like Exxon and Shell, that have helped create the climate crisis. There is a deep and pervasive relationship between oil and gas companies and plastics.” Greenpeace UK’s senior oceans campaigner Louise Edge said any increase in the amount of plastic ending up in the oceans would have a disastrous impact. “We are already producing more disposable plastic than we can deal with, more in the last decade than in the entire twentieth century, and millions of tonnes of it are ending up in our oceans.”

The huge investment in plastic production has been driven by the shale gas boom in the US. This has resulted in one of the raw materials used to produce plastic resin – natural gas liquids – dropping dramatically in price. The American Chemistry Council says that since 2010 this has led to $186bn dollars being invested in 318 new projects. Almost half of them are already under construction or have been completed. The rest are at the planning stage. “I can summarise [the boom in plastics facilities] in two words,” Kevin Swift, chief economist at the ACC, told the Guardian. “Shale gas.”

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For now, crypto is too small to sink anything at all, but a potential future issue is: If derivatives and leverage play such a big role in crypto, how exactly is it different from all other ‘investments’?

Bitcoin Could Crash Financial Markets Because Of Massive Borrowing (MW)

Bitcoin mania is starting to look like a religion. I say that because both bitcoin and religion involve faith in the unknowable. Some bitcoin investors believe the cryptocurrency, along with the underlying blockchain technology, will be a vital part of a new, decentralized, post-government society. I can’t prove that won’t happen — nor can bitcoin evangelists prove it will. Like life after death, they can only say it’s out there beyond the horizon. If you believe in bitcoin paradise, fine. It’s your business … until your faith puts everyone else at risk. As of this month, bitcoin is doing it. Is bitcoin in a price bubble? I think so. Asset bubbles usually only hurt the buyers who overpay, but that changes when you add leverage to the equation.

Leverage means “buying with borrowed money.” So when you buy something with borrowed money and can’t repay it, the lender loses too. The problem spreads further when lenders themselves are leveraged. For bitcoin mania to infect the entire financial system, like securitized mortgages did in 2008, buyers would have to use leverage. The bad news is that a growing number do just that. In the U.S., we have a Financial Stability Oversight Council to watch for system-wide vulnerabilities. The FSOC issued its 164-page annual report this month. Here’s its plan on bitcoin and other cryptocurrencies: It is desirable for financial regulators to monitor and analyze their effects on financial stability. Sounds like FSOC is on the case — or at least will be on it, someday. Meanwhile, this month commodity regulators allowed two different U.S. exchanges to launch bitcoin futures contracts.

Oddly, instead of griping about slow regulatory approval, futures industry leaders think the government moved too fast. To get why, you need to understand how futures exchanges work. One key difference between a regulated futures exchange and a private bet between two parties is that the exchange absorbs counterparty risk. When you buy, say, gold futures, you don’t have to worry that whoever sold you the contract will disappear and not pay up. If you close your trade at a profit, the exchange clearinghouse guarantees payment. The clearinghouse consists of the exchange’s member brokerage firms. They all pledge their own capital as a backstop to keep the exchange running. So when the Commodity Futures Trading Commission (CFTC) gave exchanges the green light to launch bitcoin futures, member firms collectively said (I’ll paraphrase here): “WTF?”

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No matter if crypto surges or collapses in 2018, controversies will be much much bigger than this year. Just getting started.

Was Coinbase’s Bitcoin Cash Rollout A Designed Hit? (Luongo)

[..] if there is a path to harming Bitcoin and the cryptocurrency market available to the money center banks, then they will always opt for it. I’ve been pretty vocal about the need for having a slow, annoying reserve asset in the cryptocurrency space. I’ve talked about it multiple times (here and here). This doesn’t jibe with Bitcoin Cash proponent and Bitcoin.com CEO Roger Ver’s image of Bitcoin. And that is to Roger’s credit, actually. It’s pretty obvious from a cursory glance at Roger’s Twitter feed that he approaches Bitcoin as a radical libertarian/Austrian Economist would — a purely decentralized, trustless money that can wrest control of the world’s monetary system from rentiers in Government and Banking. Music to my ears. On the other hand is the very shady attitude of Blockstream and the Bitcoin Core group who prevailed in the Segwit 2x fight, which, from Roger Ver’s perspective is actually a mop-up operation, not the decisive battle in the war.

“The reason there is so much hostility from Bitcoin Core towards Bitcoin Cash is because Core knows they have stolen the name but are advocating a completely different system than what was originally described by Satoshi. Bitcoin Cash is Bitcoin” — Roger Ver (@rogerkver) December 19, 2017

The real battle for the soul of Bitcoin happened back in August with the fork that created Bitcoin Cash. Complaining about all of these other forks, to Roger, is like closing the barn door after the horses are gone. By keeping Bitcoin slow and expensive they create the need for new solutions to improve it. Why solve a problem when you can artificially create one and then sell everyone the solution? So, I’m ambivalent about this fight for the soul of Bitcoin, because I want a real digital analogue to Gold which only moves the most important transactions. I don’t want all coins to be all things to all people. But, I also know that with this much money at stake there will be pushback from the ‘powers-that-be.’ The Banks and central banks are staring at an existential threat to their future and are doing what they can to stop it from happening. And that, to them, means gaining control over the Bitcoin blockchain. It also means cutting off the means of entry and exit from the cryptocurrency market for average people.

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Unemployment in Japan is almost non-existent, but apparently markets don’t work the way they’re supposed to. Tight labor doesn’t lead to higher wages.

Japan PM Abe Urges Firms To Raise Wages By 3% Or More (R.)

Japanese Prime Minister Shinzo Abe on Tuesday urged companies to raise wages by 3% or more next year, keeping up pressure on firms to spend their huge cash pile on wages to broaden the benefits of his “Abenomics” stimulus policies.“We must sustain and strengthen Japan’s positive economic cycle next year to achieve our long-standing goal of beating deflation,” Abe said in a speech at a meeting of Japan’s biggest business lobby Keidanren. “For that, I’d like to ask companies to raise wages by 3% or higher next spring,” he said. Wages at big companies have been rising slightly more than 2% each year since 2014, government data shows, and an increase of 3% or more next year would help the Bank of Japan to reach its elusive 2% inflation target.

BOJ Governor Haruhiko Kuroda told the same meeting that companies remain hesitant to raise wages because they had become accustomed to prioritising job security over wage hikes during 15 years of deflation. “With consumers remaining reluctant to accept price rises, many firms are concerned about losing customers if they raise prices,” he said. “It seems so difficult for many firms to take the first step to raise their prices, that they wait and see what other firms are doing.” Sadayuki Sakakibara, chairman of Keidanren, made no reference to wages at his speech at the meeting, focusing instead on the need for Japan to get its fiscal house in order. “We’d like to strongly call on the need to restore fiscal health,” as worries over the sustainability of Japan’s social welfare system could discourage consumers to spend, he said.

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“..due mostly to a boost from rising fuel costs that is seen fading in 2018..”

Japan’s Household Spending Jumps But BOJ Seen Keeping Stimulus (R.)

Japan’s households spent more than expected in November while consumer inflation ticked up and the jobless rate hit a fresh 24-year low, offering the central bank some hope an economic recovery will drive up inflation to its 2% target. But the increase in prices was due mostly to a boost from rising fuel costs that is seen fading in 2018, keeping the Bank of Japan under pressure to maintain its huge monetary support even as other central banks seek an end to crisis-mode policies. Minutes of the BOJ’s October rate review showed that while most central bank policymakers saw no need to ramp up stimulus, they agreed on the need to sustain “powerful” monetary easing for the time being. “There’s a chance inflation may gradually accelerate toward the fiscal year beginning in April,” as a tightening job market pressures companies to raise wages, said Takeshi Minami, chief economist at Norinchukin Research Institute.

“But inflation remains distant from the BOJ’s 2% target, so the central bank will probably maintain its current policy framework.” Spending was driven by broadbased gains, with households loosening the purse strings for items such as refrigerators, washing machines, and sporting goods and services such as eating-out and travel. Data also showed wage earners’ disposable income rose 1.8% in November from a year earlier, suggesting that higher incomes have encouraged consumers to open their wallets. The nationwide core consumer price index (CPI), which includes oil goods but excludes volatile fresh food prices, rose 0.9% in November from a year earlier, government data showed on Tuesday, marking the 11th straight month of gains. The pace of price growth was just ahead of October’s 0.8% and a median market forecast of the same rate.

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Illusions of control. China’s no. 1 threat.

Shanghai Sets Population At 25 Million To Avoid ‘Big City Disease’ (G./R.)

China’s financial hub of Shanghai will limit its population to 25 million people by 2035 as part of a quest to manage “big city disease”, authorities have said. The State Council said on its website late on Monday the goal to control the size of the city was part of Shanghai’s masterplan for 2017-2035, which the government body had approved. “By 2035, the resident population in Shanghai will be controlled at around 25 million and the total amount of land made available for construction will not exceed 3,200 square kilometres,” it said. State media has defined “big city disease” as arising when a megacity becomes plagued with environmental pollution, traffic congestion and a shortage of public services, including education and medical care.

But some experts doubt the feasibility of the plans, with one researcher at a Chinese government thinktank describing the scheme as “unpractical and against the social development trend”. Migrant workers and the city’s poor would suffer the most, predicted Liang Zhongtang last year in an interview with state media, when Shanghai’s target was being drafted. The government set a similar limit for Beijing in September, declaring the city’s population should not exceed 23 million by 2020. Beijing had a population of 21.5 million in 2014. Officials also want to reduce the population of six core districts by 15% compared with 2014 levels. To help achieve this goal authorities said in April some government agencies, state-owned companies and other “non-core” functions of the Chinese capital would be moved to a newly created city about 100 kilometres south of Beijing.

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Well, actually, your data, that is.

Europe Banks Brace For Huge Overhaul That Opens The Doors To Their Data (CNBC)

From current accounts to credit cards, established lenders have access to vast amounts of information that financial technology (fintech) competitors could only dream of. In Europe, that could all be about to change. On January 8, banks operating in the European Union will be forced to open up their customer data to third party firms — that is, when customers give consent. EU lawmakers hope that the introduction of the revised Payment Services Directive (PSD2) will give non-banking firms the chance to compete with banks in the payments business and give consumers more choice over financial products and services. Britain’s Competition and Markets Authority (CMA) has set out similar plans to let customers share their data with other banks and third parties.

With customer consent, U.K. banks will be required to give authorized third-party firms access to current account data. Those regulations form part of a conceptual transition known as “open banking.” Under an open banking framework, proponents say, non-banking firms — from corporations as big as Amazon and IBM to start-ups — would be able create new financial products by utilizing the data of banks. Banks will be required to build application programming interfaces (APIs) — sets of code that give third parties secure access to their back-end data. Those APIs serve as channels for developers to get to the data and build their own products and services around it.

Such information could serve as a tool to understand things such as customers’ spending habits or credit history, and could lead to the creation of new services. “In a world of open banking, the customer can choose a provider in each part of the value chain. And each bank has to participate in the value chain as an earners’ right to be there,” Anne Boden, co-founder and chief executive of U.K. mobile-only bank Starling, told CNBC in an interview earlier this year. [..] Some European lenders are giving early signals as to what a post-PSD2 world will look like. Spain’s BBVA, Denmark’s Saxo Bank, Nordic lender Nordea and Ireland’s Ulster Bank have already published open developer portals ahead of the EU legislation.

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UBI experiments that are poorly designed are real threats to the principle.

Scotland United In Curiosity As Councils Trial Universal Basic Income (G.)

In Scotland, a country wearily familiar with divisions of a constitutional nature, the concept of a basic income is almost unique in enjoying multi-party favour. Across the four areas currently designing basic income pilots – Glasgow, Edinburgh, Fife and North Ayrshire – the projects have variously been championed by Labour, SNP, Green and, in one case, Conservative councillors. Matt Kerr, who has tirelessly lobbied for the idea through Glasgow city council, said: “Reactions to basic income have not split along the usual left/right party lines. Some people to the left of the Labour party think that it undermines the role of trade unions and others take the opposite view. But there should be room for scepticism; you need that to get the right policy.” Advocates are aware such unity of purpose is precious and worth preserving.

“The danger is that this falls into party blocks,” said Kerr. “If people can unite around having a curiosity about [it] then I’m happy with that. But having the first minister on board has done us no harm at all.” Inevitably, Sturgeon’s declared interest has invited criticism from her opponents. A civil service briefing paper on basic income, which expressed concerns that the “conflicting and confusing” policy could be a disincentive to work and costed its national roll-out at £12.3bn a year, was obtained by the Scottish Conservatives through a freedom of information request in October. The party accused her of “pandering to the extreme left of the [independence] movement”. But advocates argue the figures fail to take into account savings the scheme would bring.

The independent thinktank Reform Scotland, which published a briefing earlier this month setting out a suggested basic income of £5,200 for every adult, has calculated that much of the cost could be met through a combination of making work-related benefits obsolete and changes to the tax system, including scrapping the personal allowance and merging national insurance and income tax. [..] Joe Cullinane, the Labour leader of North Ayrshire council, said: “We have high levels of deprivation and high unemployment, so we take the view that the current system is failing us and we need to look at something new to lift people out of poverty. “Basic income has critics and supporters on the left and right, which tells you there are very different ways of shaping it and we need to state at the outset that this is a progressive change, to remove that fear and allow people to have greater control over their lives, to enter the labour market on their own terms.”

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“Two whistleblowers claim Home Office departments delay asylum applications for profit..

UK Asylum Offices ‘In A Constant State Of Crisis’, Say Whistleblowers (G.)

Staff in the Home Office’s asylum directorate are undertrained, overworked and operating in a “constant state of crisis”, two whistleblowers have claimed, as applicants endure long waits to have their case dealt with due to internal pressures. The Home Office staff have also told the Guardian that asylum case workers are making poor decisions about applications because they are under pressure to focus on more profitable visa applications. Despite a “shocking increase in complaints (from applicants) and MP enquiries questioning delays”, they say caseworkers have been told to brush off all enquires and “just give standard lines” of response when called to account.

A source from the UK Visa and Immigration Unit (UKVI) has alleged that caseworkers have been ordered to kick applications for spousal visas “into the long grass” because they can make more money for the directorate by processing student visas. Spousal visas, also known as settlement visas, cost more than student visas but take much longer to process. The source also claims visa applications are routinely labelled “complex” or ”non-straightforward” by staff – a term which excuses the UKVI from adhering to their standard processing times – it is, the source claimed, “just a euphemism for ‘there’s more profitable stuff we could be doing’”. Paying hundreds of pounds for priority services to try to avoid delays on decisions is a “waste of time”, they warned applicants.

The allegations reflect concerns expressed in a report earlier this year by David Bolt, the Independent Chief Inspector of Borders and Immigration, who said the Home Office is not “in effective control” of its asylum process. [..] Some of the more shocking findings from Bolt’s report included pregnant women being made to wait more than two years for decisions on their immigration applications; an increasing numbers of applicants having their immigration applications registered as “not straightforward” and endlessly delayed; and Home Office employees being “pushed to the limit” by individual targets and threatened with disciplinary action as deadlines approach.

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At least one more month of utter despair, with little reason to assume any improvement by then. Mouzalas cannot escape his part of the blame.. That said, he’s not lying when he says “Here in Moria we have a problem with unaccompanied minor refugees. We have asked Europe to take a share of these children. It refuses to do so..”

‘Normality’ To Be Restored At Moria By End of January – Greek Minister (K.)

Migration Minister Yiannis Mouzalas said Monday authorities were making huge efforts to improve conditions at the Moria camp on the eastern Aegean island of Lesvos, while accusing European officials of “hypocrisy” for failing to shoulder their share of the burden. Speaking after an unannounced visit at the infamous migrant and refugee processing center, Mouzalas said Greek authorities were hoping to restore “normality” at the facility by the end of January. “It all depends on arrivals,” Mouzalas said. “Today it was good weather and a total of 175 arrivals have been recorded on Lesvos as of this morning,” he said.

Responding to criticism over the scenes of misery and squalor documented by foreign media at Moria last week, the leftist minister said: “Europe must put an end to its hypocrisy.” “Here in Moria we have a problem with unaccompanied minor refugees. We have asked Europe to take a share of these children. It refuses to do so,” Mouzalas said. “It’s very easy to act like a prosecutor. Dealing with the situation in a way that helps refugees and migrants is the hard part. And this is what we are expected to do,” he said. “There is no point in wagging your finger. What you need to do is mobilize the procedures and mechanisms in order to improve conditions and solve problems,” he said.

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And the UNHCR is not beyond blame, either. Pointing fingers at others is always easy, but hard to keep up after two whole years.

UNHCR Calls For Migrant Transfers, Blames Greece For Grim Conditions (K.)

As temperatures drop, the UN refugee agency (UNHCR) once more urged Greek authorities to swiftly transfer thousands of refugees and migrants living in cramped and unsafe island camps to the mainland where better conditions and services are available. “Tension in the reception centers and on the islands has been mounting since the summer when the number of arrivals began rising,” UNHCR spokeswoman Cecile Pouilly told Voice of America. “In some cases, local authorities have opposed efforts to introduce improvements inside the reception centers,” Pouilly was quoted as saying. More than 15,000 people have been transferred to the mainland over the past year.

Meanwhile, speaking to the New Europe news website, the EU’s special envoy on migration, Maarten Verwey, suggested that Greek authorities were to blame for the grim living conditions inside island migrant camps, as recently documented by American news outlet BuzzFeed and Germany’s Deutsche Welle. “The Commission has made the funding available to ensure appropriate accommodation for all. However, the Commission cannot order the creation or expansion of reception capacity, against the opposition of the competent authorities,” Verwey said, according to New Europe.

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Jul 092017
 
 July 9, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle July 9 2017


Hieronymus Bosch St. John on Patmos 1489

 

The Trump Effect Turns Every Paper Into A Tabloid (G.)
G20 Launches Plan To Fight Poverty In Africa (AFP)
The Russian Economy If You Aren’t Wearing NATO Night-Fighting Goggles (Helmer)
Britain Isn’t Greece, Prime Minister (BBG Ed.)
Baby Boomers Not Financially Prepared For Retirement (MW)
UK Homebuyers Desperate To Know Who Really Owns Their Freehold (G.)
Wall Street Cash Pumps Up Shale Oil Production Even as Prices Sag (WSJ)
Polluted Indian River Reported Dead Despite ‘Living Entity’ Status (G.)

 

 

An inevitable story. And a too-easy trap: the Guardian presumes that it itself escapes this. It doesn’t. Blaming Trump for that is false: he doesn’t write the stories. Every news outlet is responsible for its own journalistic standards. “Trump made me do it” lacks all credibility. And besides, the Guardian, like so many US media, has been trying to put Trump down for a long time. Just like it hammered Jeremy Corbyn as ‘unfit’ and much worse until it did an embarrassing 180. Is Trump right in reacting as agressively as he has and does? Perhaps not, probably not. But is he justified? Perhaps he is. In the end for the media this is about the beam in thine own eye.

The Trump Effect Turns Every Paper Into A Tabloid (G.)

You can find exactly the same fractured dialogue in Britain, too. What did the surprise of the Brexit vote show? Here’s another tidal wave of articles talking about the non-metropolitan forgotten masses. That, briefly, seemed a national call for understanding and change, one inchoately confirmed in the June election. But see how deafness and disdain soon set in. Let’s blame something – Boris, Rupert Murdoch, Paul Dacre, the BBC – for Brexit. Let’s contemplate the rise of Jeremy Corbyn and press a panic button. The Mail talks about “fake news, the fascist left and the REAL purveyors of hate”. Guardian columnists denounce the “open sewer” of Dacre coverage. Terms like “Tory scum” float from protesters’ posters into the new mass media. Jon Snow, amongst others, gets pasted for his supposed views about modern Conservatism. Irate Leave MPs stomp on the BBC welcome mat.

And every new day seems to bring fresh ingredients. Kensington council seeks to shut journalists out of its crucial meeting. Andrea Leadsom extols a “patriotic” press. There’s a raw edge to the debate now, sharpened after Grenfell Tower by outbreaks of pure and, sometimes, simulated rage. But: “Sit up, though, and look around. You may notice that, amid almost no public outrage whatsoever, we are quite a lot closer than once we were” to losing press freedom, says Hugo Rifkind in the Times. This is politics, and journalism, from the trenches as trust in the media plummets both here and in the US: American trust in the media down to just 38% in the latest Reuters Institute findings, the UK seven points down to 43%. Blame “deep-rooted political polarisation and perceived mainstream media bias”, says Reuters. In short, blame the frenzied state we’re in.

[..] observe how the new nihilism of scum and sewers brings its own narrow benefits. Richard Cohen in the Washington Post arrives clear-eyed. “Circulation is up. Eyeballs are popping. Trump is political pornography – gripping, exciting, lewd, fascinating. He devours adjectives so that, soon, we run out of them. The bizarre becomes ordinary. But he has done his damage. He has normalised contempt for the news media, framing it as a daily tussle between him, the tribune of the people, and us, vile overeducated snobs.”

And Jeet Heer of the New Republic pushes the argument on a notch as he charts the advantage of Trump’s alignment with the likes of the National Enquirer: “The tabloids offer a sordid vision of society, where the mainstream image of celebrities elides their secretly miserable lives (whether because of addiction, ageing, infidelity, or bankruptcy). In this nihilistic world, everyone is corrupt and every public statement is a lie. And if everyone is equally bad and untrustworthy, there’s no reason to hold Trump to any higher standard. This, ultimately, is why Trump and the tabloids were made for each other: They’re both committed to defining deviancy down.”

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And while we’re at it, Guardian, let’s denounce this kind of thing for what it is. The G20 countries are responsible for poverty in Africa, and they’re not now going to solve it too. Just like the Paris agreement is complete nonsense: schemes to get rich.

G20 Launches Plan To Fight Poverty In Africa (AFP)

G20 nations launched an unprecedented initiative Saturday at the group’s summit in Germany to fight poverty in Africa, but critics called the plan half-hearted. Under German Chancellor Angela Merkel’s “Investment Compacts”, an initial seven African countries would pledge reforms and receive technical support in order to attract new private investment. More than half of Africans are under 25 years old and the population is set to double by mid-century, making economic growth and jobs essential for the young to stop them from leaving, Merkel has said. Germany’s partner nations are Ghana, Ivory Coast and Tunisia, while Ethiopia, Morocco, Rwanda and Senegal are also taking part. Far poorer nations such as Niger or Somalia are so far not on the list.

“We are ready to help interested African countries and call on other partners to join the initiative,” said the G20 in their final communique. The plan, as well as multinational initiatives on helping girls, rural youths and promoting renewable energy, would help “to address poverty and inequality as root causes of migration”. Some 100,000 people, most of them sub-Saharan Africans, have made the dangerous journey to Europe across the Mediterranean in rickety boats this year as the migration crisis shows no sign of abating. Anti-poverty group ONE said that the investment compacts “promised much, but too many G20 partners missed the memo and failed to contribute. “The flimsy foundations must now be firmed up, follow through and improved, especially for Africa’s more fragile states.”

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“..it is the most self-sufficient and diversified economy in the world.” Which is funny when you hear Putin argue against protectionism.

The Russian Economy If You Aren’t Wearing NATO Night-Fighting Goggles (Helmer)

If your enemy is waging economic war on you, it’s prudent to camouflage how well your farms and factories are doing. Better the attacker thinks you’re on your last legs, and are too exhausted to fight back. A new report on the Russian economy, published by Jon Hellevig, reveals the folly in the enemy’s calculation. Who is the audience for this message? US and NATO warfighters against Russia can summon up more will if they think Russia is in retreat than if they must calculate the cost in their own blood and treasure if the Russians strike back. That’s Russian policy on the Syrian front, where professional soldiers are in charge. On the home front, where the civilians call the shots, Hellevig’s message looks like an encouragement for fight-back – the economic policymaker’s equivalent of a no-fly zone for the US and European Union. It’s also a challenge to the Kremlin policy of appeasement.

Hellevig, a Finnish lawyer and investment analyst, has been directing businesses in Russia since 1992. His Moscow-based consultancy Awara has published its assessment of Russian economic performance since 2014 with the title, “What Does Not Kill You Makes You Stronger.” The maxim was first coined by the `19th century German philosopher Friedrich Nietzsche. He said it in a pep talk for himself. Subsequent readers think of the maxim as an irony. Knowing now what Nietzsche knew about his own prognosis but kept secret at the time, he did too. The headline findings aren’t news to the Kremlin. It has been regularly making the claims at President Vladimir Putin’s semi-annual national talk shows; at businessmen’s conventions like the St. Petersburg International Economic Forum (SPIEF); and in Kremlin-funded propaganda – lowbrow outlets like Russia Today and Sputnik News, and the highbrow Valdai Club.

A charter for a brand-new outlet for the claims, the Russian National Convention Bureau, was agreed at the St. Petersburg forum last month. Government promotion of reciprocal trade and inward investment isn’t exceptional for Russia; it is normal practice throughout the world. The argument of the Hellevig report is that the US and NATO campaign against Russia has failed to do the damage it was aimed to do, and that their propaganda outlets, media and think-tanks are lying to conceal the failure. Small percentage numbers for the decline in Russian GDP and related measures are summed up by Hellevig as “belt-tightening, not much more”. Logically and arithmetically, similarly small numbers in the measurement of the Russian recovery this year ought to mean “belt expanding, not much more.” But like Nietzsche, Hellevig is more optimistic.

Here’s what he concludes:
• “Industrial Production was down merely 0.6%. A handsome recovery is already on its way with an expected growth of 3 to 4% in 2017. In May the industrial production already soared by a promising 5.3%.”
• “Unemployment remained stable all through 2014 – 2016, the hoped-for effect of sanctions causing mass unemployment and social chaos failed to materialize.”
• “GDP was down 2.3% in 2014-2016, expected to more than make up for that in 2017 with 2-3% predicted growth.”
• “The really devastating news for ‘our Western partners’ (as Putin likes to refer to them) must be – which we are the first to report – the extraordinary decrease in the share of oil & gas revenue in Russia’s GDP.”
• “In the years of sanctions, Russia has grown to become an agricultural superpower with the world’s largest wheat exports. Already in the time of the Czars Russia was a big grain exporter, but that was often accompanied with domestic famine. Stalin financed Russia’s industrialization to a large extent by grain exports, but hereby also creating domestic shortages and famine. It is then the first time in Russia’s history when it is under Putin a major grain exporter while ensuring domestic abundance. Russia has made an overall remarkable turnaround in food production and is now virtually self-sufficient.”
• “Russia has the lowest level of imports (as a share of the GDP) of all major countries… Russia’s very low levels of imports in the global comparison obviously signifies that Russia produces domestically a much higher share of all that it consumes (and invests), this in turn means that the economy is superbly diversified contrary to the claims of the failed experts and policymakers. In fact, it is the most self-sufficient and diversified economy in the world.

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Bloomberg argues that austerity is bad for Britain but good for Greece. Blind bats.

Britain Isn’t Greece, Prime Minister (BBG Ed.)

Britain’s government isn’t due to announce a new budget until the autumn, but debate is already raging over public-sector pay. With Brexit bearing down, the embattled prime minister, Theresa May, will have to choose between making another embarrassing U-turn and defending a policy that is both unpopular and unnecessary. Sadly for May, the U-turn makes better sense. For years it was an article of faith among Britain’s Conservatives that the budget deficit had to be eliminated — by 2020, if not yesterday. Some Tories are now ready to abandon that line of thinking; others still hold the principle, if not the timetable, sacrosanct. Speaking in Parliament on Wednesday, May came down firmly on the side of austerity: Greece shows you where fiscal indiscipline leads, she argued.

Labour leader Jeremy Corbyn was unmoved. He decried the “low-wage epidemic” and argued that the 1 percent cap on increases in public-sector wages should be removed. Corbyn has a point. Britain’s workers are getting squeezed, especially in the public sector, thanks to rising inflation caused in part by the Brexit-induced fall in sterling. But he’s wrong to look at wages in isolation. Public-sector pay is only one of many claims on the government’s budget. The National Health Service, for instance, is in a state of permanent crisis; spending on care for the elderly and other needs is woefully inadequate. The list of other worthy expenditures is endless. Trying to meet all such claims would indeed be a formula for fiscal collapse. The government has to prioritize.

Where higher wages are needed to recruit and retain workers for essential services, raise them. Where additional public spending is needed to provide vital infrastructure, spur productivity, and support growth, make the investment. In such cases, higher taxes and/or higher public borrowing can be justified. If caps and ceilings are used in a way that makes this necessary flexibility impossible – not as emergency measures, moreover, but as a system of long-term control – they’ll do more harm than good. May’s embrace of blanket austerity, by the way, is bad politics as well as bad economics. Most British voters have forgotten, or never experienced, the ruinous consequences of profligate public spending.

That’s why Corbyn’s expansive promises are more popular than you might expect – and why there’ll be greater support for fiscal control if it’s seen to be smart and discriminating, rather than an act of blind ideological faith. To be sure, the timing for a change of fiscal strategy is hardly propitious. Brexit has alarmed investors, giving the government less room for maneuver. Even so, the government shouldn’t be paralyzed – and shouldn’t argue that cautious flexibility would make the country another Greece. That line won’t fly. Targeted spending to improve vital services and drive future growth is good policy, and Britain’s best buffer against the perils ahead.

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What a surprise. Maybe it’s time to inject some reality.

Baby Boomers Not Financially Prepared For Retirement (MW)

Retirement is right around the corner for baby boomers – if they haven’t already entered it – yet so many are financially unprepared. Baby boomers, or those born between 1946 and 1964, expect they’ll need $658,000 in their defined contribution plans by the time they retire, but the average in those employer-sponsored plans is $263,000, according to a survey of 900 investors by financial services firm Legg Mason. Older boomers, who are 65 to 74, have an average of $300,000. Their asset allocation for all of their investments are also conservative, according to QS Investors, an investment management firm Legg Mason acquired in 2014, with 30% in cash, 24% in equities, 22% in fixed income, 4% in non-traditional assets, 8% in investment real estate, 2% in gold and other precious metals and 8% in other investments.

“They have less than half the assets they hope to have in retirement,” said James Norman, president of QS Investors. “That’s a pretty big miss.” Americans across the country, and all age groups, are drastically under-saved for retirement. Only a third of Americans who have access to a 401(k) plan contribute to it, and previous research suggests the typical middle-aged American couple only has $5,000 saved for the future. Meanwhile, millennials may not be able to picture themselves in retirement at all, though are urged by financial professionals to make a habit of saving, if even only as little as $5. There are a multitude of reasons people may not have enough for retirement, such as having to leave the workforce in between their prime years to care for loved ones, not working long enough to qualify for certain government benefits. or choosing to pay for their childrens’ college tuition instead of saving for their own retirement.

Still, not saving enough was the biggest regret among older Americans, according to a survey of 1,000 participants by personal finance site Bankrate.com. Generation X, or those born between 1965 and 1981, aren’t doing all that much better, though they have the benefit of more time to reach their financial goals. More of them have a defined contribution plan, according to the Legg Mason survey, with an average of $199,000 stashed away for a goal of $541,000 by retirement. They are also investing conservatively, with 25% in cash, 21% in equities, 17% in fixed income, 11% in non-traditional assets, 16% in investment real estate, 7% in gold and other precious metals and 4% in other investments. Conversely, QS Investors suggest their Gen-X aged clients have 80% in equities, which faces more risks from the stock market but could also realize higher returns.

Retirement isn’t the picture-perfect image of lounging on a beach with the idea of a 9-to-5 job long gone. Benefits aren’t the same, either – for example, in 1985, retirees could expect Social Security to cover most of their income and employers typically covered most health-care costs. Retirees 30 years ago also probably didn’t expect to live for decades after resigning at 65, whereas now people are being told to plan to live well into their 80s.

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A medieval society.

UK Homebuyers Desperate To Know Who Really Owns Their Freehold (G.)

Buyers who purchased new properties direct from some of the UK’s biggest builders have been left in the dark as investment companies play pass-the-parcel with the land their homes stand on. Take Joanne Darbyshire, 46, and her husband Mark, 47. They bought a five-bedroom house in Bolton from Taylor Wimpey in 2010, and are among thousands of unfortunate leaseholders put on “doubling” ground rent contracts that in extreme cases have left their properties almost worthless, with mortgage lenders refusing loans to future buyers. The only way to escape the escalating payments is to buy the freehold. But in Darbyshire’s case, Taylor Wimpey sold it to Adriatic Land 2 (GR2) in 2012. In January 2017 that company transferred it to Adriatic Land 1 (GR3), while some of Darbyshire’s neighbours have seen their freeholds transferred from Adriatic Land 2 (GR2) to Abacus Land Ltd.

“You have no idea who owns the land under your feet,” says Darbyshire. “Your dream house is traded from one offshore company to another for tax reasons, or who knows what else?” Paul Griffin (not his real name) bought a property from Morris Homes in Winsford, Cheshire, in November 2014. By last year, when he decided to add a conservatory, his freehold was in the hands of Adriatic Land 3 and managed by its fee-collecting agents HomeGround. Young was horrified to discover he had to pay £108 just to look at his file. Although the conservatory didn’t need local authority planning permission and was not subject to building regulations, HomeGround then demanded £1,200 for a “licence” for the work to go ahead. This was broken down into solicitors fees (£480), surveyors (£360), and its own fee of £360.

On top of this it demanded numerous official documents at Young’s expense totalling about £400. Helen Burke (not her real name) in Ellesmere Port, meanwhile, was shocked to discover that after Bellway sold her freehold to Adriatic, the cost of seeking consent for a small single-storey extension rocketed. Initially, she had applied to Bellway – the freeholder at the time – and it wanted £300. But after putting off the work for a few months she discovered that Bellway had sold the freehold to Adriatic Land 4 (GR1) Ltd. HomeGround then demanded £2,440 for consent. That is not planning permission, which householders must obtain separately from the local authority. It is simply a fee charged without any material services provided.

“It’s daylight robbery,” says Burke. “The most disgusting thing is the developers like Bellway think they are doing nothing wrong selling the freeholds on and state that our T&Cs don’t change. Yes, the lease terms don’t change, but for a permission fee to increase from £300 to £2,440 in a matter of months is disgraceful and it should absolutely be pointed out to new homeowners, up front, that this might happen if they don’t buy the freeholds.” Burke said she was quoted £3,750 to buy the freehold off Bellway, but once it was sold to Adriatic the price quadrupled to £13,000. After a long legal battle she has acquired it for £7,680.

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“..$57 billion Wall Street has injected into the sector over the last 18 months.”

Wall Street Cash Pumps Up Shale Oil Production Even as Prices Sag (WSJ)

Easy Wall Street cash is leading U.S. shale companies to expand drilling, even as most lose money on every barrel of oil they bring to the surface. Despite a 17% plunge in prices since April, drillers are on pace to break the all-time U.S. oil production record, topping 10 million barrels a day by early next year if not sooner, according to government officials and analysts. U.S. crude fell again on Friday, dropping 2.8% to $44.23 a barrel on the New York Mercantile Exchange. Yet the U.S. oil rig count rose Friday to the highest level in more than two years. Operators have now put more than 100 rigs back to work from Oklahoma to North Dakota in the past three months. Companies have more capital to keep drilling thanks to $57 billion Wall Street has injected into the sector over the last 18 months.

Money has come from investors in new stock sales and high-yield debt, as well as from private equity funds, which have helped provide lifelines to stronger operators. Flush with cash, virtually all of them launched campaigns to boost drilling at the start of 2017 in the hope that oil prices would rebound. The new wave of crude has again glutted the market. The shale companies are edged even further from profitability, and a few voices have begun to question the wisdom of Wall Street financing the industry’s addiction to growth. “The biggest problem our industry faces today is you guys,” Al Walker, chief executive of Anadarko, told investors at a conference last month.

Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means, Mr. Walker said, adding: “It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.” Even if companies cut back on drilling now, it wouldn’t be enough to stop a new wave of oil from hitting the market in the second half of the year: U.S. shale output typically lags behind new drilling by four to six months, analysts say. “There’s been insufficient discrimination on the part of sources of capital,” said Bill Herbert, an energy analyst with Piper Jaffray’s Simmons. Big shale companies “are able to get what they want and invest what they want.”

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Well, that status was declared dead too. So there. People are next.

Polluted Indian River Reported Dead Despite ‘Living Entity’ Status (G.)

One morning in late March, Brij Khandelwal called the Agra police to report an attempted murder. Days before, the high court in India’s Uttarakhand state had issued a landmark judgment declaring the Yamuna river – and another of India’s holiest waterways, the Ganges – “living entities”. Khandelwal, an activist, followed the logic. “Scientifically speaking, the Yamuna is ecologically dead,” he says. His police report named a series of government officials he wanted charged with attempted poisoning. “If the river is dead, someone has to be responsible for killing it.” In the 16th century, Babur, the first Mughal emperor, described the waters of the Yamuna as “better than nectar”. One of his successors built India’s most famous monument, the Taj Mahal, on its banks.

For the first 250 miles (400km) of its life, starting in the lower Himalayas, the river glistens blue and teems with life. And then it reaches Delhi. In India’s crowded capital, the entire Yamuna is siphoned off for human and industrial use, and replenished with toxic chemicals and sewage from more than 20 drains. Those who enter the water emerge caked in dark, glutinous sludge. For vast stretches only the most resilient bacteria survive. The waterway that has sustained civilisation in Delhi for at least 3,000 years – and the sole source of water for more than 60 million Indians today – has in the past decades become one of the dirtiest rivers on the planet.

“We have water records which show that, until the 1960s, the river was much better quality,” says Himanshu Thakkar, an engineer who coordinates the South Asia Network on Dams, Rivers and People, a network of rights groups. “There was much greater biodiversity. Fish were still being caught.” What happened next mirrors a larger Indian story, particularly since the country’s markets were unshackled in the early 1990s: one of runaway economic growth fuelled by vast, unchecked migration into cities; and the metastasising of polluting industries that have soiled many of India’s waterways and made its air the most toxic in the world.

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May 302017
 
 May 30, 2017  Posted by at 8:50 am Finance Tagged with: , , , , , , , , , , ,  


Inge Morath Paris 1954

 

Australia Hedge Fund Returns Cash To Clients Citing Looming Calamity (SMH)
Hong Kong Throngs of Thousands Defy Bid to Cool Home Market (BBG)
Saudi Foreign Reserves Dip Below $500 Billion in April (BBG)
The Great US Energy Debt Wall (SRSRocco)
Greece, Italy Tensions Hit Euro, Asian Stocks, Lift Yen, Gold (R.)
Draghi Rules Out Including Greece in ECB QE For Now (K.)
Greece Warns Recovery Threatened If Debt Deal Is Blocked At Next Talks (G.)
Deposits And Loans At Greek Banks Continue Slide (K.)
EU Moves To Crack Down On Carmakers In Wake Of VW Emissions Scandal (G.)
Painstaking Detail Of Brexit Process Revealed In EU Documents (G.)
May Battles Against Complacency as UK Election Lead Slips Away (BBG)
Russia Expects China To Help Resolve Syrian Crisis (DS)
Putin, Macron Have ‘Open, Frank Exchange Of Opinions’ (RT)
Let’s All Agree To Lock In This Russophobia For At Least 3.5 More Years (Saker)
The So-Called Resistance (Jim Kunstler)
Germany Steps Up Attack On Trump For ‘Weakening’ The West (G.)
Greece, Germany Agree To Slow Refugee Family Reunification (F24)

 

 

After having milked the bubble for all it’s worth…

Australia Hedge Fund Returns Cash To Clients Citing Looming Calamity (SMH)

Australian asset manager Altair Asset Management has made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars back to its clients, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”. “Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision, however preserving client’s assets is what all fund managers should put before their own interests,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday. The 30-year veteran of funds management said that he had on May 15 advised all Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors”.

Mr Parker said he had “disbanded the team for time being”, including his investment committee of chief economist Steve Roberts, senior healthcare analyst Sally Warneford and independent strategist Gerard Minack. “I would like to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point,” Mr Parker’s statement said. “We think that there is too much risk in this market at the moment, we think it’s crazy,” Mr Parker said more candidly. “Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that’s after we’ve ticked them up over the past year.” “Now we are asking ‘is there any more juice in these companies valuations?’ and the answer is stridently, and with very few exceptions, ‘no there isn’t’.”

Mr Parker outlined a roll call of “the more obvious reasons to exit the riskier asset markets of shares and property”. They included: the Australian east-coast property market “bubble” and its “impending correction”; worries that issues around China’s hot property sector and escalating debt levels will blow up “later this year”; “oversized” geopolitical risks and an “unpredictable” US political environment; and the “overvalued” Aussie equity market. But it was the overheated local property market that was the clearest and most present danger, Mr Parker said. “When you speak to people candidly in the banks, they’ll tell you very specifically that they are extraordinarily worried about the over-leverage of the Australian population in general,” he said.

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More looming calamity.

Hong Kong Throngs of Thousands Defy Bid to Cool Home Market (BBG)

Snaking queues of thousands of prospective apartment buyers in Hong Kong signaled authorities have made no progress in cooling a red-hot property market, where prices are at records. People were lining up on Friday and over the weekend at Victoria Skye, a luxury project at the former airport site of Kai Tak, and at the Ocean Pride development by Cheung Kong Property and MTR. “Successive moves by the government in recent memory to cool the property market only resulted in it becoming crazier,” The Standard newspaper said in an editorial on Monday. “The result is a sea of madness.” The Hong Kong Monetary Authority has been tightening rules for lenders, including restricting levels of lending to developers, as it tries to limit financial risks and take some of the heat out of the market.

The Centaline Property Centa-City Leading Index of existing homes has advanced 23% in the past year, setting new price records week after week. At a Legislative Council meeting on Monday, HKMA Chief Executive Norman Chan said levels of demand were reminiscent of 20 years ago – before Hong Kong suffered a property bust – and he expressed concern that people with limited financial resources were buying just because they thought prices would only keep going up. [..] Developers sold 8,616 homes in the first five months of the year, already more than were sold in any first half since new purchasing rules were introduced in 2013, the Hong Kong Economic Times reported. K&K Property has offered an additional 200 units at Victoria Skye after it sold 306 flats on Saturday, Ming Pao newspaper reported. Cheung Kong will put another 346 up for grabs after selling 496 in a single day, May 26.

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Buying too many weapons. The House of Saud is nervous.

Saudi Foreign Reserves Dip Below $500 Billion in April (BBG)

Saudi Arabia’s net foreign assets dropped below $500 billion in April for the first time since 2011 even after the kingdom raised $9 billion from its first international sale of Islamic bonds. The Saudi Arabian Monetary Authority, as the central bank is known, said on Sunday its net foreign assets fell by $8.5 billion from the previous month to about $493 billion, the lowest level since 2011. That brings the decline this year to $36 billion. “Didn’t really see any major driver for such a huge drop, especially when accounting for the sukuk sale,” said Mohamed Abu Basha at EFG-Hermes, an investment bank. Even if the proceeds from the sale weren’t included, “the reserve decline remains huge,” he said.

Saudi Arabia’s foreign reserves have dropped from a peak of more than $730 billion in 2014 after the plunge in oil prices, prompting the IMF to warn that the kingdom may run out of financial assets needed to support spending within five years. Authorities have since embarked on an unprecedented plan to overhaul the economy and repair public finances. But the pace of the decline in reserves this year has puzzled economists who see little evidence of increased government spending, fueling speculation it’s triggered by capital flight and the costs of the kingdom’s war in Yemen. Finance Minister Mohammed Al-Jadaan said in April that the government didn’t withdraw from its central bank reserves during the first quarter. He said the decline could be attributed to local contractors paying overseas vendors after the government settled its arrears.

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It’s not (just) the shale companies, it’s their lenders who are in danger.

The Great US Energy Debt Wall (SRSRocco)

While the U.S. oil and gas industry struggles to stay alive as it produces energy at low prices, there’s another huge problem just waiting around the corner. Yes, it’s true… the worst is yet to come for an industry that was supposed to make the United States, energy independent. So, grab your popcorn and watch as the U.S. oil and gas industry gets ready to hit the GREAT ENERGY DEBT WALL. So, what is this “Debt Wall?” It’s the ever-increasing amount of debt that the U.S. oil and gas industry will need to pay back each year. Unfortunately, many misguided Americans thought these energy companies were making money hand over fist when the price of oil was above $100 from 2011 to the middle of 2014. They weren’t. Instead, they racked up a great deal of debt as they spent more money drilling for oil than the cash they received from operations.

As they continued to borrow more money than they made, the oil and gas companies pushed back the day of reckoning as far as they could. However, that day is approaching… and fast. According to the data by Bloomberg, the amount of bonds below investment grade the U.S. energy companies need to pay back each year will surge to approximately $70 billion in 2017, up from $30 billion in 2016. That’s just the beginning…. it gets even worse each passing year. As we can see, the outstanding debt (in bonds) will jump to $110 billion in 2018, $155 billion in 2019, and then skyrocket to $230 billion in 2020. This is extremely bad news because it takes oil profits to pay down debt. Right now, very few oil and gas companies are making decent profits or free cash flow. Those that are, have been cutting their capital expenditures substantially in order to turn negative free cash flow into positive.

Unfortunately, it still won’t be enough… not by a long-shot. If we use some simple math, we can plainly see the U.S. oil industry will never be able to pay back the majority of its debt: Shale Oil Production, Cost & Profit Estimates For 2018 • REVENUE = 5 million barrels per day shale oil production x 365 days x $50 a barrel = $91 billion. • EST. PROFIT = 5 million barrels per day shale oil production x 365 days x $10 a barrel = $18 billion. If these shale oil companies do actually produce 5 million barrels of oil per day in 2018, and were able to make a $10 profit (not likely), that would net them $18 billion. However, according to the Bloomberg data, these companies would need to pay back $110 billion in debt (bonds) in 2018. If they would use all their free cash flow profits to pay back this debt, they would still owe $92 billion.

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BILD says Greeks have mentioned defaulting on July payments.

Greece, Italy Tensions Hit Euro, Asian Stocks, Lift Yen, Gold (R.)

Concerns about a Greek bailout, early Italian elections and comments by the ECB chief about the need for continued stimulus all kept the euro under pressure on Tuesday. European geopolitical fears sapped risk appetite, weighing on Asian stocks and lifting safe havens including the yen and gold, though trading was thin with several markets closed for holidays. The euro slid 0.3% to $1.1129 in its fourth session of declines. James Woods at Rivkin Securities in Sydney attributed most of the currency’s decline on Tuesday to a German press report saying Athens may opt out of its next bailout payment if creditors cannot strike a debt relief deal. “The bailout payments are necessary to meet existing debt repayments due in July, so if Greece were to forgo this bailout payment the probability of a default would spike, reopening the discussion around a Grexit from the Euro zone,” Woods said.

However, he cautioned against reading “too much into it” without more details or confirmation, adding it was unlikely Greece would forego the bailout payment at this stage. Euro zone finance ministers failed to agree with the International Monetary Fund on Greek debt relief or to release new loans to Athens last week, but did come close enough to aim to do both at their June meeting. Comments by former Italian Prime Minister Matteo Renzi on Sunday in favour of holding an election at the same time as Germany’s in September also pulled the euro lower. So did a statement by ECB President Mario Draghi reiterating the need for “substantial” stimulus given subdued inflation.

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If he includes Greece, it becomes harder for Germany to plunder it. And they’re not done with that.

Draghi Rules Out Including Greece in ECB QE For Now (K.)

ECB chief Mario Draghi took the wind out of the government’s sails on Monday, telling the European Parliament that the ECB will not consider including Greece in its QE program before the conclusion of its bailout review and its debt is made sustainable. “First, let’s have an agreement, a full agreement, and let’s find measures that will make the debt sustainable through time,” Draghi told European lawmakers in Brussels, adding that he regretted that “a clear definition of the debt measures was not reached in the last Eurogroup.” Draghi also said that after creditors agree on what sort of debt relief measures Greece will get, the Governing Council of the ECB will carry out its own “fully independent” analysis to see if the debt would also be sustainable in adverse scenarios.

His comments came as Prime Minister Alexis Tsipras said that Greece was hoping that there will be an initiative in June for “a definitive settlement of the crisis through a clear solution of reducing the debt.” “Let there be a solution and let it come when it comes,” he said after his meeting in Athens with Estonian Prime Minister Juri Ratas, adding that the sooner the matter is solved the better. The tough road ahead for Greece was reflected in remarks yesterday by Finance Minister Euclid Tsakalotos, who said the country’s inclusion in QE is indeed “a difficult issue.” “The ECB, like our Lord, works in mysterious ways,” he told reporters. Draghi’s remarks were seen as another another blow, if not the killer, to the government’s narrative regarding the time frame it had laid out for the country to get on the road to economic recovery.

More specifically, Prime Minister Alexis Tsipras’s roadmap stipulated that after the second review of the country’s third bailout is wrapped up, creditors and the IMF would agree on how to make the country’s debt sustainable, and this would in turn allow Greece join the QE program, which would pave the way for the country’s return to international markets. But with the review all but concluded, and no definitive statements from the creditors on what sort of debt relief measures it can expect – or when – the best the government can hope for now is that the sequence of events outlined in the Tsipras roadmap will take place in the fall at the earliest, and definitely after the German national elections in September. The way things stand now, the most the government can expect from the June 15 Eurogroup is the release of the bailout tranche of more than €7 billion, but not the reassurance it wants in order to join the QE program.

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That’s exactly why these deals keep on being blocked. The EU doesn’t want a Greek recovery. Cart, horse.

Greece Warns Recovery Threatened If Debt Deal Is Blocked At Next Talks (G.)

Greece on Monday issued a panic warning that its recovery would be thrown into doubt if Brussels blocked a debt deal at the next meeting of euro area finance ministers. Fearing that Germany will insist on delays to an agreement until at least after elections in September, Athens’ finance minister hinted that the beleaguered nation could be plunged deeper into recession after seeing its economy contract by more than 25% since the start of its financial crisis. With £7.5bn in debt repayments due in July and lenders meeting on 15 June to try and reach an agreement after failing last month, Euclid Tsakalotos made an urgent appeal for clarity on Monday. “It is incumbent on all sides to find a solution,” he told foreign correspondents. “There is very little point in entering a [bailout] programme if the goal is not to leave the programme. And leaving the programme should be the responsibility not just of the debt country but the creditor country as well.”

Athens, Tsakalotos continued, had kept its side of the bargain, legislating highly unpopular reforms to produce savings of 2% of GDP, while the EU and IMF had not kept theirs. “We can’t accept a deal which is not what was on the table,” he said. “What was on the table was if Greece carried outs its reform package then creditors would ensure that there would be a clear runway through clarity for debt.” Instead, the IMF had refused to endorse the proposed solution – saying it fell far short of what was necessary to engender debt sustainability – with the result that Athens had been forced to reject it, Tsakalotos added. The Fund and Berlin – the biggest contributor of Greece’s three rescue programs – have long been in disagreement over how to reduce Greek debt.

Tsakalotos was addressing a hastily arranged press conference. Held in the dining room of the Athens’ mansion that houses the prime minister’s office, it appeared to highlight the mood of nervousness pervading the Greek government. With a debt mountain hovering around €314bn – or 180% of GDP – the Syriza-dominated coalition of Alexis Tsipras has long argued that debt relief is essential to foreign investment and economic recovery. [..] ..time, said Tsakalotos on Monday, was running out. “Our ask is … that everyone keeps their side of the bargain. The position [of creditors] is going to be very difficult to defend. What can they say? That the Greek government did everything but we will send it to the rocks.”

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Which will affect Greek banks, which will affect the state, etc etc. There never was another option.

Deposits And Loans At Greek Banks Continue Slide (K.)

Deposits in Greek banks declined by more than €2.4 billion in the first four months of the year, while credit contraction has continued in 2017 for an eighth consecutive year. Still, April was the second month of credit expansion. The sum of Greek deposits reached almost €118.9 billion at the end of last month, down from about €121.4 billion at end-December 2016, due to the uncertainty that has prevailed over the Greek economy this year. Bank of Greece data show a fresh €313.3 million drop in deposits from end-March to end-April – a result of the €665.3 million decline in the cash flow of corporations, from nearly €20.5 billion in March to almost €19.8 billion last month. In fact the picture of corporate deposits in April looks technically better than it would had it not been for the €620 million share capital increase by Fraport Greece and Sklavenitis’s €400 million bond.

The level of savings has practically reverted to what it was in 2001, when Greece was still using the drachma, and forecasts speak of a stable picture with few fluctuations expected in the rest of 2017. Senior bank officials say the next few months will be difficult despite the projections for more revenues from tourism: The tax obligations starting from July, with income tax and later Single Property Tax (ENFIA) deadlines, are expected to eat further into the savings of households and corporations’ cash flow. Meanwhile the difference between loans issued and old loans paid back has remained in negative territory in 2017, reaching a rate of -0.9% in the first four months. However, April showed a positive flow amounting to €659 million after an expansion of €307 million in March.

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Yeah, they’re going to risk bankrupting German and French carmakers, right?

EU Moves To Crack Down On Carmakers In Wake Of VW Emissions Scandal (G.)

The European Union has moved towards cracking down on carmakers who cheat emissions tests by giving the EU executive more powers to monitor testing and impose fines. The European council overcame initial objections from Germany and agreed to try to reform the system for approving vehicles in Europe in the wake of the Volkswagen emissions scandal. The draft now goes for negotiations with the European commission and the European parliament, where the car industry holds a strong influence. “Above all, the objective is building trust and credibility again in the European type-approval system,” said Chris Cardona, the economy minister of Malta, which holds the EU’s six-month rotating presidency.

The VW emissions scandal erupted in September 2015, with the carmaker admitting it had installed software defeat devices in 11m diesel cars worldwide, meaning the vehicles only cut their nitrogen oxide pollution during certification tests. The draft EU rules call for reducing the power of national authorities and empowering the European commission to test and inspect vehicles, to ensure compliance with emissions standards, and to respond to any irregularities. “This will increase the independence and quality of the EU type-approval system,” the council said in a statement. “The commission could also impose fines for infringements on manufacturers and importers of up to €30,000 [£26,000] per noncompliant vehicle.” Under the draft rules, every EU country will be required to check emissions in one in every 50,000 new vehicles based on real driving conditions.

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The EU comes prepared.

Painstaking Detail Of Brexit Process Revealed In EU Documents (G.)

Just 10 days before the general election, the EU published two documents that will affect every person living in Britain for years to come. Despite being dropped into the maelstrom of an election caused by Brexit, there was hardly a murmur. The documents were the most detailed positions yet from the EU’s chief negotiator, Michel Barnier, on the upcoming divorce talks with the UK. In two policy papers, the bloc has elaborated its stance on the Brexit bill and citizens’ rights. [..] The muted reaction can be explained partly by the fact that the texts were published with zero fanfare, when the country was still reeling from the terrorist atrocity in Manchester. Furthermore, the EU documents contain no surprises. The equivalent of dotting the Is and crossing the Ts, they are a reminder the EU has had 11 months to get ready for Brexit.

That is almost one year to assemble squadrons of specialists to pore over EU treaties and legal tomes to map the way ahead. The 10-page paper on the bill does not put a price on the divorce, but sets out in painstaking detail all EU bodies with a vested interest in the spoils – 40 agencies, eight joint projects on new technologies and a panoply of funds agreed by all countries, from aid for refugees in Turkey to supporting peace in Colombia. No detail is too small. Britain is even on the hook for funding teachers at the elite European schools that educate EU civil servants’ children. On citizens’ rights, the EU spells out in greater detail the protections it wants to secure for nearly 5 million people on the wrong side of Brexit – 3.5 million EU nationals in the UK and 1.2 million Britons on the continent.

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Fear is all they have left. Blunt lies about Corbyn.

May Battles Against Complacency as UK Election Lead Slips Away (BBG)

Theresa May began the U.K. election campaign warning that pollsters giving her a 20-point lead could be wrong. With her lead now slashed, she’s hoping they really are. A series of missteps by May and her advisers, along with a populist Labour campaign, have put the prime minister on the defensive. Activists no longer laugh when she raises the prospect of a Corbyn victory at her rallies and some have questioned the wisdom of building a campaign around her own personal brand, urging people to vote for “Theresa May and her team.” Investors have awoken to the fact that May’s promise of “strong and stable” government — never mind a landslide to match Tony Blair’s in 1997 — could be in jeopardy with the pound dipping after a specific poll showed May’s Conservative Party leading the Labour Party by just five points.

“The Tories are right to be worried if the momentum looks to be with Labour, but they can still turn it around,” Andrew Hawkins, chairman of pollsters ComRes, said in a telephone interview. With a nation still in shock over the Manchester bombing and June 8 elections round the corner, May got back to the campaign trail and reverted to her tested lines on Brexit: That Labour leader Jeremy Corbyn cannot be trusted to navigate Britain through two years of talks. “It’s important as people come closer to that vote – that’s only next week – that they focus on the choice that’s there before them,” the prime minister told activists at a rally in Twickenham, southwest London, on Monday. “If I lose just six seats my government loses its majority, that could mean in 10 days time a government in chaos with Jeremy Corbyn in Number 10.”

But gone was the confidence when she stunned Britain by calling a snap election on April 18. On the day of the announcement, an ICM/Guardian poll gave May’s Tories a lead over Labour of 21 points and surveys in the following weekend’s newspapers suggested leads of 24 and 25 points. Now, she is vulnerable to attack. Interviewer Jeremy Paxman quizzed May about her U-turns, in an interview on Sky News on Monday: “You have backed down over social care, and over national insurance. If I was in Brussels, I would think you are a blowhard who collapses at the first sign of gunfire.” Her rival on the other hand has grown more relaxed, holding his own against the same interviewer who has a reputation for being a rottweiler in his style of questioning. In one instance, Corbyn won a big round of applause when asked about whether he’d want to abolish monarchy: “Do you know what? I had a very nice chat with the Queen.”

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US room to move gets smaller fast.

Russia Expects China To Help Resolve Syrian Crisis (DS)

Moscow hopes for China’s help in solving the Syrian crisis and restoring the country, Russian Deputy Foreign Minister Igor Morgulov said Monday. “Our cooperation with China on Syria at various international venues is unprecedented. We blocked six attempts to pass anti-Syrian resolutions in the U.N. Security Council,” Morgulov said at “Russia and China: Taking on a New Quality of Bilateral Relations” international conference. The Russian deputy foreign minister added that Russia values Beijing’s position on the Syrian crisis, and hopes that, “the Chinese partners will continue their efforts to promote a political settlement.”

“Together we call for a peaceful and political-diplomatic solution to conflicts, without double standards, unilateral action or attempts at ousting regimes. Our approaches coincide, among other things, on the uncompromising fight against terrorism,” Morgulov said. Russia and China have repeatedly vetoed U.N. Security Council resolutions imposing sanctions against the Assad regime. Moscow has long-standing links to the Assad regime and is its key ally, while China has an established policy of non-intervention in other countries’ affairs.

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French interests in Russia are substantial. Macron going after RT and Sputnik is a weird way to not offend Merkel.

Putin, Macron Have ‘Open, Frank Exchange Of Opinions’ (RT)

Russian President Vladimir Putin and his French counterpart, Emmanuel Macron, had “difficult” but “frank” talks during their first meeting in Versailles. The two leaders vowed to improve relations and jointly address international problems. The first meeting of the Russian and French leaders lasted almost three hours, with Macron saying that “Franco-Russian friendship” was at the heart of the talks. The French president admitted, however, that he has “some disagreements” with his Russian counterpart, but said that the two leaders discussed them openly in a “frank exchange of views.” Putin also said that the two leaders have some differences, but said that they view many issues in a similar way, and that French-Russian relations could be “qualitatively” improved. “We sought … common ground [in dealing] with key issues of the international agenda. And I believe that we see it. We are able to … at least try to start resolving the key contemporary problems together,” Putin said.

The Russian leader went on to say that his talks with Macron helped the pair to find common points in dealing with major international problems, and the that two sides would try to further bring together their views on these issues. Putin also invited his French counterpart to Russia, saying: “I hope that he will be able to spend several weeks in Moscow.” French President Macron said that serious international problems cannot be resolved without Moscow, as he stressed the importance of the role Russia plays in the modern world. “No major problem in the world can be solved without Russia,” he told the press conference. Macron then said that France is interested in intensifying cooperation with Russia, particularly in resolving the Syrian crisis. The French leader went on to say that this issue demands “an inclusive political solution.”

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Pretty brilliant. Much more at the link.

Let’s All Agree To Lock In This Russophobia For At Least 3.5 More Years (Saker)

There I was again, flying first class on my shareholders’ dime from New York to San Francisco, when I was deeply saddened to read about the death of Zbigniew Brzezinski, National Security Adviser to Jimmy Carter. For a moment I thought: “Surely I can find some anti-Putin articles to read rather than this one?” Those always make me so happy! But then I remembered that Zbig was a man after my own heart, because he was one of the West’s greatest Russophobes. Even the New York Times talked of his “rigid hatred of the Soviet Union”. Zbig ended the détente led by Nixon as Carter, not Reagan, restarted good, old-fashioned, American Russophobia: Selling the Soviets computers with bugs for industrial sabotage, the propaganda effort of the 1980 Olympic Boycott, the US grain embargo to try and starve the Russian people, the arming of the Taliban’s forerunners to destabilize a left-wing government in Afghanistan and thus unleashing Islamic terrorism on the world, etc.

Just as American Democrats know for an undeniable fact that Jimmy Carter is our nation’s greatest living man of peace, I contend that Zbig’s anti-Russian stance makes him nearly as great a humanitarian, and certainly a model Democrat in 2017. And Zbig knew, as I and all good Democrats know, that the greatest fight of our generation is the fight against Vladimir Putin. Poverty, starvation, refugees, terrorism, climate change – everyone in America is realizing that if we can just get rid of Putin, everything else will surely fall into line. Surely! So I was pretty sad to read of Zbig’s passing, but that’s when it hit me: Just because he’s gone, it doesn’t mean we have to give up hating Russia! We’ve been hating Russia since November – more than 6 months now – and, frankly…it feels awesome! I don’t how long it takes to make a habit permanent, so let’s all agree to lock in this Russophobia for at least 3.5 more years, possibly 7.5!

It would be a fitting testament to a man whose prophetic Russophobia was misunderstood as “anti-communism”. Say it loud: It’s time for progressive Americans to unite behind hating Russians! Again! Let’s party like it’s 1979! Now, I’m as politically-correct a CEO as was ever made -my allegiance to Hillary proves that – but I can tell that some people think that I should equivocate by writing “hating the Russian government” instead of the “Russians”. Well, it’s bold, but being bold is why we CEOs deserve the big bucks and you deserve our crumbs. Not our table crumbs – those are too good for you – I mean the crumbs that fall around our fine, Italian shoes. Here’s the problem with the Russians: Putin’s approval rating is over 85%. It is a testament to the master of evil that he has duped nearly all 144 million Russian citizens. They said that 50 million Elvis fans can’t be wrong, but 124 million Putin fans clearly are. I don’t know anything about Russian domestic politics, but I don’t have to – that’s my right as an American.

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Hillary posing as the resistance says it all. They don’t even have a narrative left.

The So-Called Resistance (Jim Kunstler)

[..] what would a real resistance look like? First, it would oppose the aforementioned asset-stripping that the US economy has become, the transfer of capital in all its forms — monetary, political, cultural, social — from the dis-employed former middle classes to the tiny, select beneficiaries of financial manipulation. Note that the things being manipulated — markets, currencies, securities, and interest rates — are increasingly phantom entities that appear to maintain their value only because the high priests of financial authority say that they do. The shelf-life of that flim-flam approaches its endgame as it self-evidently immiserates the masses and their sheer faith in its recondite promises dwindles away to nothing.

A genuine resistance would begin to deconstruct this clerisy and its institutions, namely Too Big To Fail banks and the Federal Reserve. The best opportunity to accomplish that would have been the early months of Mr. Obama’s turn in the White House, the dark time of the previous financial crash when the damage was fresh and obvious. But the former president blew that under the influence of high priests Robert Rubin and Larry Summers. And the lower order clerics were allowed run their hoodoo machine flat out in the following eight years. Just look at the long chart of the Standard & Poors index. Tragically, this ever-upward arc is now taken to be the normal state of things, and when it fails the implosion will be orders of magnitude more violent than the last time.

One would think that a genuine resistance would also oppose the growing consolidation of power in the now-colossal spying apparatus of the nation — the often averred to “seventeen intel agencies” that show signs of being actively at war against other parts of the government and against citizens themselves. Hence, the non-stop murmur of allegation about “Russian interference in the election,” going back to the summer of 2016 without either any real evidence, or any clarification of what is actually alleged to have happened. Another tragic turn is that this fifth column of rogue intel agencies has recruited the major organs of the news to incessantly repeat its allegations until the public accepts the story as established fact rather than just the manufactured story it so far appears to be. Well, the lives of persons and societies founder on versions of the “reality” they fabricate for their own purposes. A genuine resistance would show foremost some fidelity to a reality beyond the spin-factories of self-delusion.

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Election coming up, perhaps?

Germany Steps Up Attack On Trump For ‘Weakening’ The West (G.)

Germany has unleashed a volley of criticism against Donald Trump, slamming his “short-sighted” policies that have “weakened the west” and hurt European interests. The sharp words from foreign minister Sigmar Gabriel came after the US president concluded his first official tour abroad taking in Saudi Arabia, Israel, Brussels and then Italy for a G7 summit. Angela Merkel warned on Sunday that the US and Britain may no longer be completely reliable partners. Germany’s exasperation was laid bare after the G7 summit, which wrapped up on Saturday with Trump refusing to affirm US support for the 2015 Paris climate accord. Days earlier, in Saudi Arabia, Trump presided over the single largest US arms deal in American history, worth $110bn over the next decade and including ships, tanks and anti-missile systems.

Gabriel said on Monday that “anyone who accelerates climate change by weakening environmental protection, who sells more weapons in conflict zones and who does not want to politically resolve religious conflicts is putting peace in Europe at risk”. “The short-sighted policies of the American government stand against the interests of the European Union,” he said, judging that “the west has become smaller, at least it has become weaker”. “We Europeans must fight for more climate protection, fewer weapons and against religious [fanaticism], otherwise the Middle East and Africa will be further destabilised,” Gabriel said. [..] The relationship between Merkel and Trump contrasts with the warm ties between herself and Barack Obama. The previous US president last week travelled to Berlin to attend a key Protestant conference. Obama’s participation in a forum with Merkel last Thursday came hours before her meeting with Trump in Brussels at the Nato summit.

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Right, election coming up. Which trumps human rights and international law.

Greece, Germany Agree To Slow Refugee Family Reunification (F24)

Greece and Germany have agreed to slow the reunification of refugee families divided between the two nations during their scramble to safety, according to a leaked letter published Monday. “Family reunification transfer to Germany will slow down as agreed,” Greek Migration Minister Yiannis Mouzalas wrote to German Interior Minister Thomas de Maiziere in a May 4 letter obtained by leftist daily Efimerida ton Syntakton. The Greek migration ministry declined to comment, but earlier this month Mouzalas said the slowdown was due to “technical difficulties.” In the letter, Mouzalas reportedly acknowledges that the move – enacted because of the sheer volume of asylum requests – will affect “more than two thousand people” while some “will have to wait for years” to reach Germany even though their requests have been approved.

Asylum seekers – mostly Syrian refugees in Greece’s case – are entitled to join family members elsewhere in the European Union within six months from the date their request is approved. In his letter, Mouzalas said Berlin and Athens had to agree on a “common line” to address “increasingly desperate and critical comments” so that Athens is not blamed for the delays. He then suggests a joint response: “We understand that asylum seekers are eager to meet with their family, but given that both Greece and Germany have very large asylum seeking populations, delays are inevitable.” Ulla Jelpke, a deputy of German far-left Party Die Linke, earlier this month said Berlin had capped the number of refugees eligible for reunification at 70 people per month. Accordingly, Efimerida ton Syntakton said there were just 70 transfers in April compared to 540 in March and 370 in February.

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May 102017
 
 May 10, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle May 10 2017


Dresden February 1945

 

Trump Fires FBI Director Comey, Setting Off US Political Storm (R.)
Turning Gen. Flynn into Road Kill (Robert Parry)
NATO Chief Finds a New Friend in Trump (Spiegel)
Trump Approves Plan to Arm Syrian Kurds (NBC)
Turkey Hopes US Will End Support Of Syrian Kurdish YPG (R.)
Assange: ‘CIA Is Basically Useless, Incompetent’ (Exp.)
Stockman: There Is No Reason To Own Stocks At This Point In The Game (DR)
Shale Drillers Are Outspending the World With $84 Billion Spree (BBG)
UK Tory MPs Could Learn Fate Of Electoral Spending Inquiry By Wednesday (G.)
Anonymous Warns World To ‘Prepare’ For World War 3 (NYP)
French Election A Catastrophe For World Peace (Paul Craig Roberts)
Emmanuel Clinton and the Revolt of the Elites (Escobar)
Paris Afterparty (Jim Kunstler)
Germany: Greek Gold, Real Estate As Collateral If IMF Out Of Program (KTG)
Greek Court Finds New Pension Cuts Illegal Under Greek, European Law (K.)
Damning Findings From EU Audit Of Greek & Italian Refugee “Hotspots” (Oxfam)

 

 

The most striking thing about this is how utterly impossible it has become to find an objective discussion of it. I’ll go with Reuters.

Trump Fires FBI Director Comey, Setting Off US Political Storm (R.)

U.S. President Donald Trump ignited a political firestorm on Tuesday by firing FBI Director James Comey, who had been leading an investigation into the Trump 2016 presidential campaign’s possible collusion with Russia to influence the election outcome. The Republican president said he fired Comey, the top U.S. law enforcement official, over his handling of an election-year email scandal involving then-Democratic presidential nominee Hillary Clinton. The move stunned Washington and raised suspicions among Democrats and others that the White House was trying to blunt the FBI probe involving Russia. Some Democrats compared Trump’s move to the “Saturday Night Massacre” of 1973, in which President Richard Nixon fired an independent special prosecutor investigating the Watergate scandal.

White House officials denied allegations that there was any political motive in the move by Trump, who took office on Jan. 20. Senate Democratic leader Chuck Schumer said he spoke to Trump and told him he was “making a very big mistake” in firing Comey, adding the president did not “really answer” in response. An independent investigation into Moscow’s role in the election “is now the only way to go to restore the American people’s faith,” Schumer said. Though many Democrats have criticized Comey’s handling of the Clinton email probe, they said they were troubled by the timing of Trump’s firing of him.

[..] Pushing back against critics of the move, White House officials said Deputy Attorney General Rod Rosenstein, a career prosecutor who took office on April 25, assessed the situation at the FBI and concluded that Comey had lost his confidence. Rosenstein sent his recommendation to Sessions, who concurred and they forwarded their recommendation to Trump, who accepted it on Tuesday, they said. The White House released a memo in which Rosenstein wrote: “I cannot defend the Director’s handling of the conclusion of the investigation of Secretary Clinton’s emails, and I do not understand his refusal to accept the nearly universal judgment that he was mistaken.”

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The facts are classified.

Turning Gen. Flynn into Road Kill (Robert Parry)

Not to defend retired Lt. Gen. Michael Flynn for his suspect judgment, but it should be noted that his case represents a disturbing example of how electronic surveillance and politicized law enforcement can destroy an American citizen’s life in today’s New McCarthyism. The testimony on Monday by former acting Attorney General Sally Yates and former Director of National Intelligence James Clapper offered no evidence of Flynn’s wrongdoing – those facts were deemed “classified” – yet the pair thoroughly destroyed Flynn’s reputation, portraying him as both a liar and a potential traitor. That Senate Democrats, in particular, saw nothing troubling about this smearing of the former director of the Defense Intelligence Agency and, briefly, President Trump’s national security adviser was itself troubling. Republicans were a bit more skeptical but no one, it seemed, wanted to be labeled as soft on Russia.

So, there was no skepticism toward Yates’s curious assertion that Flynn’s supposed lying to Vice President Mike Pence about the details of a phone call with Russian Ambassador Sergey Kislyak somehow opened Flynn to Russian blackmail – her core explanation for why she rushed to Trump’s White House with warnings of this allegedly grave danger. Yates also talked ominously about “underlying” information that raised further questions about Flynn’s patriotism, but that evidence, too, couldn’t be shared with the American people; it was classified, leaving it to your imagination the depth of Flynn’s perfidy. Despite the thinness of Yates’s charges – and the echoes of Sen. Joe McCarthy with his secret lists of communists that he wouldn’t release – the mainstream U.S. news media has bestowed on Yates a hero status without any concern that she might be exaggerating the highly unlikely possibility that the Russians would have blackmailed Flynn.

Her supposition was that since Vice President Mike Pence’s account of the Kislyak-Flynn conversation deviated somewhat from the details of what was actually said, the Russians would seize on the discrepancy to coerce Flynn to do their bidding. But that really makes no sense, in part, because even if the Russians did pick up the discrepancy, they would assume correctly that U.S. intelligence had its own transcript of the conversation, so there would be no basis for blackmail. Yates’s supposed alarm might make for a good spy novel but it has little or no basis in the real world. But it is hard for Americans to assess her claims because all the key facts are classified.

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NATO has become an anti-ISIS vehicle. Wonder if they realize this. Turkey is a member.

NATO Chief Finds a New Friend in Trump (Spiegel)

In Donald Trump’s eyes, NATO Secretary-General Jens Stoltenberg was actually the head of an alliance that history had made superfluous. The new American president made clear during his election campaign that he considered NATO to be a Cold War relic – cumbersome, expensive and useless. But when Stoltenberg appeared at a joint press conference during a visit to the new U.S. leader in the White House, nary a word indicated any resentment over NATO. “I said it was obsolete. It is no longer obsolete,” Trump said in a spectacular turnaround. So what happened? Stoltenberg chuckles at the question before fastening his seat belt. The Belgian air force passenger jet taxis onto the runway at the airport in Rome as it prepares to take off for Brussels. “We learn something new every day,” he says.

“Donald Trump and I discussed how NATO must further develop because the world has changed.” Above all, change means that the Europeans will have to increase their defense spending in the future – both Republican Trump and Social Democrat Stoltenberg are in agreement on the issue. In recent weeks, an alliance has formed between the two, very different men. The blustering U.S. president, who has little foreign policy experience, and the measured secretary-general from Norway are now pulling together, with both desiring more money for the alliance. Stoltenberg, 58, is now paying visits to European capitals in order to drum up the necessary funds. In two weeks, Trump plans to travel to Europe for the first time as U.S. president, and it is no coincidence that one of his first stops on May 25 will be to the massive new NATO headquarters in Brussels.

In addition to his demand for more money from other alliance members, Trump is also hoping NATO will take on a greater role in the fight against Islamic State (IS). He would like to see NATO join the U.S.-led coalition against the terrorist organization. Stoltenberg has long been of the opinion that the era of peace dividends has passed, particularly given Russia’s annexation of Crimea and the IS establishment of a “caliphate” in Syria and Iraq. But it was only with Trump’s election that his demands have gained significant momentum. Ironically, the very man who until recently considered NATO to be superfluous is now one of Stoltenberg’s closest allies.

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And this flies straight in the face of Turkey’s NATO membership.

Trump Approves Plan to Arm Syrian Kurds (NBC)

Two U.S. defense officials tell NBC News that President Donald Trump has approved a plan to arm the Syrian Kurdish militia — an important U.S. ally in Syria in the fight against ISIS. One of the officials said the move is significant because it supports the notion that the Syrian Democratic Force is the fighting force that will eventually go in to Raqqa, a city in Syria’s center which has been under ISIS control since 2014. The move also reinforces the idea that the entire Syrian Democratic Force, Syrian Kurds (YPG) and the Syrian Arab Coalition, has the backing of the U.S. Trump and members of the Cabinet spoke about it during a meeting late yesterday at the White House with Secretary of Defense James Mattis joining by video teleconference.

The order has been signed and that “allows the process to begin to function,” one official said. Once the order comes to the Pentagon, the U.S. can begin providing the Syrian Kurds with arms and equipment fairly quickly since some equipment is pre-positioned. [..] The Turks will be notified about the decision soon and the officials expect a strong reaction from them. In March, Secretary of State Rex Tillerson traveled to Turkey to meet with President Recep Tayyip Erdogan, who sees the YPG as terrorists.

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Erdogan is not amused. And his recent attack on Israel won’t help.

Turkey Hopes US Will End Support Of Syrian Kurdish YPG (R.)

Turkey hopes the United States will end its policy of supporting the Syrian Kurdish YPG militia, Deputy Prime Minister Nurettin Canikli said on Wednesday, adding that Ankara could not accept its NATO ally backing the group. Canikli’s comments are among the first official responses after U.S. officials said on Tuesday that President Donald Trump has approved supplying arms to the YPG to support an operation to retake the Syrian city of Raqqa from Islamic State. Ankara views the YPG as the Syrian extension of the outlawed Kurdistan Workers Party (PKK), considered a terrorist group by the United States, Turkey and Europe. The United States sees the YPG as a valuable partner in the fight against Islamic State in northern Syria.

“We cannot accept the presence of terrorist organizations that would threaten the future of the Turkish state,” Canikli said in an interview with Turkish broadcaster A Haber. “We hope the U.S. administration will put a stop to this wrong and turn back from it. Such a policy will not be beneficial, you can’t be in the same sack as terrorist organizations.” Turkish President Tayyip Erdogan is expected to meet Trump in Washington next week. Erdogan has repeatedly castigated the United States for its support for the YPG, saying its NATO ally should support it fully in the fight against terrorism. The Pentagon has sought to stress that it saw arming the Kurdish forces as necessary to ensure a victory in Raqqa, Islamic State’s de facto capital in Syria and a hub for planning the group’s attacks against the West.

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Extremely incompetent. But the CIA doesn’t have to be competent, all it has to do is be secretive.

Assange: ‘CIA Is Basically Useless, Incompetent’ (Exp.)

Mr Assange, declared by the Donald Trump administration as US public enemy number one, was speaking ahead of a live Spanish television interview. He told current affairs show When It’s Gone: “The CIA is basically useless. They are extremely incompetent as an organisation. “It is the organisation that gave us the end of democracy in Iran, Pinochet, the destruction of Libya, the rise of ISIS within Libya, al-Qaeda, the Syrian disaster and the Iraq war. “It is one of the most useless organisations in the world.” US intelligence agencies have concluded that Russia was behind the hack, and used Wikileaks to harm the chances of Mrs Clinton and favour Mr Trump. Mr Assange said the release was not intended to affect the election.

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“This is the greatest suckers rally we’ve ever seen.”

Stockman: There Is No Reason To Own Stocks At This Point In The Game (DR)

[..] “There will be panic in the financial markets. This is not priced in. The market isn’t expecting anything. I think it will cause some very difficult times.” The interviewer then asked what his expectations on a government shutdown would look like with Trump.” [..] “I doubt he’ll go for a shutdown by choice. The leadership is not going to stand for it. They have a false idea that Republicans can govern by keeping the Washington Monument open even if we’re bankrupting the country by piling spending. I don’t think they’re going to elect to have a shutdown. What I think is going to happen instead is they’re going to run out of borrowing authority with the debt ceiling, it is now frozen on March 15. We’re locked in at $19.8 trillion so when they run out of cash in a few months, they’ll need a majority in both houses to vote through a multi-trillion bill in both houses. They won’t have the votes.”

[..] “The market is pricing itself for perfection for all of eternity. This is crazy. We’ve got headwinds everywhere. The auto industry is now starting to roll over. The red ponzi in China has only a matter of time before it explodes. We now have debt for the household sector above where it was for the 2008 crisis. I think the market could easily drop to 1,300-1,600 by 30% or more once the fantasy ends. The government will show its true colors. We are headed for a fiscal bloodbath.” Stockman voiced his concern for clarity remarking, “This crazy notion that there is going to be a Trump tax cut and fiscal stimulus must be put to rest once and for all. It’s not going to happen. They can’t pass a tax cut that big without a budget resolution that incorporates $10 or $15 trillion of debt over the next decade. Week by week, slowly the market is beginning to figure this out.

What it means is, all of the corporate insiders are selling stock like there is no tomorrow… where institutional sales of stock have been going up since the election and what we have is the usual end of the cycle. This is the greatest suckers rally we’ve ever seen.” When asked what he would recommend to protect yourself he urged, “The main thing is, get out of the markets. These markets are unstable. They’re rigged and unsustainable… there is no reason to own stocks at this point in the game. It is so overvalued that maybe you can get another two or three out but you’re facing a 30% or 40% down. The risk versus reward is horrible. The bond market is one giant bubble because the central bank’s have been buying bonds worldwide. They’re buying a trillion and still buying a trillion or so on an annual basis. All of that is coming to a halt.”

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Credit is still cheap. Even, or especially, depending on how you look at it, for zombies.

Shale Drillers Are Outspending the World With $84 Billion Spree (BBG)

U.S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices. Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32% to $84 billion, compared with just 3% for international projects, according to analysts at Barclays. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014. That’s bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44% of the reductions announced by the Saudi- and Russia-led group.

“The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.” Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash. The pain also swept across OPEC, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day. Oil prices that initially popped above $55 in the weeks after the cut was announced have since dipped to around $46, reflecting pessimism that the OPEC-led deal can withstand the onslaught of U.S. shale.

[..] EOG, the second-largest U.S. explorer that doesn’t own refineries, plans to boost spending by 44% this year to between $3.7 billion and $4.1 billion. Pioneer is eyeing a 33% increase to $2.8 billion. The sub-group that includes North American shale drillers like EOG and Pioneer is collectively targeting $53 billion in spending this year, up from $35 billion in 2016, according to the Barclays analysts. U.S. oil production is already swelling, even though output from the new wells being drilled won’t materialize above ground for months. The Energy Department’s statistics arm raised its full-year 2017 supply estimate to 9.31 million barrels a day on Tuesday, a 1% increase from the April forecast. Next year, U.S. fields will pump 9.96 million barrels a day, 0.6% more than the department estimated last month.

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What are the odds anyone will be charged that May wants to keep on?

UK Tory MPs Could Learn Fate Of Electoral Spending Inquiry By Wednesday (G.)

Dozens of Conservative MPs expect to learn shortly whether they will be charged with fraud in relation to their spending at the last election, as deadlines for the Crown Prosecution Service to make a decision approaches. MPs and their agents have been under investigation by 14 police forces for more than a year over their spending declarations at the 2015 election. They are now likely to learn their fates before the general election, possibly as soon as Wednesday as the various time limits for bringing charges are coming to an end. If it happens on Wednesday, this could be in time for Theresa May to jettison any candidates facing prosecution before the deadline for final nominations at 4pm on Thursday, but the timeline for replacements would be extremely tight.

Any decision to prosecute them would be an explosive twist in the general election with more than 20 MPs in the last parliament potentially facing charges under the Representation of the People Act. But the bar for prosecution is considered to be high, with the police having to prove intent to submit wrongful expenditure claims. Tory MPs maintain they recorded their spending as directed by the national party. The allegations centre around the declaration of spending on Conservative battle bus tour in 2015, which took activists to dozens of marginal seats before the election. This was declared as national campaign spending, with the Tories some millions below their official limit. But it emerged that the activists had been campaigning on behalf of specific Conservative MPs, rather than the party generally, leading to claims that the spending should have been record as local expenditure.

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Bit of an oddity for now. But events could change that, fast.

Anonymous Warns World To ‘Prepare’ For World War 3 (NYP)

The infamous hacktivist group Anonymous has released a chilling new video — urging people across the globe to “prepare” for World War 3 – as the US and North Korea continue to move “strategic pieces into place” for battle. “All the signs of a looming war on the Korean peninsula are surfacing,” the group says in the ominous six-minute clip, posted on YouTube over the weekend. Using their signature Guy Fawkes character, the hackers make several claims about recent military movements in the region — and alleged warnings made by Japan and South Korea about imminent nuclear attacks from the North — as they deliver their frightening prophecy. “Watching as each country moves strategic pieces into place,” the organization says, in its notorious robotic voice. “But unlike past world wars, although there will be ground troops, the battle is likely to be fierce, brutal and quick. It will also be globally devastating, both on environmental and economical levels.”

According to Anonymous, President Trump’s test of the Minuteman 3 intercontinental ballistic missile last week — coupled with a recent warning from Japanese officials to citizens, telling them to make preparations for a possible nuclear attack — are ultimately proof that all signs are pointing to a major conflict between the US and North Korea. In addition, China reportedly has urged its citizens in the Hermit Kingdom to return home as tensions continue to escalate over their nuclear weapons program. “This is a real war with real global consequences,” the group explains. “With three superpowers drawn into the mix, other nations will be coerced into choosing sides, so what do the chess pieces look like so far?”

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Macron as evil incarnate.

French Election A Catastrophe For World Peace (Paul Craig Roberts)

Marine Le Pen’s defeat, if the vote count was honest, indicates that the French are even more insouciant than Americans. The week before the election the Russian high command announced that Washington had convinced the Russian military that Washington intended a preemptive nuclear first strike against Russia. No European leader saw danger in this annoucement except Le Pen. No European leader, and no one in Washington, has stepped forward to reassure the Russians. In the US apparently only my readers even know of the Russian conclusion. Simply nothing is said in the Western media about the extraordinary risk of convincing Russia that the US is preparing a first strike against Russia. Nothing in the 20th century Cold War comes close to this. Le Pen, as Trump did prior to his castration by the military/security complex, understands that military conflict with Russia means death for humanity.

Why were the French voters unconcerned with what may be their impending deaths? The answer is that the French have been brainwashed into believing that to stand for France, as Marine Le Pen does, is to place patriotism and nationalism above diversity and is fascist. All of Europe, except for the majority of the British, has been brainwashed into the belief that it is Hitler-like or fascist to stand up for your country. For a French man or woman to escape the fascist designation, he or she must be Europeans, not French, German, Dutch, Italian, Greek, Spanish, Portuguese. Brainwashed as the French are that it is fascist to stand up for France, the French voted for the international bankers and for the EU. The French election was a disaster for Europeans, but it was a huge victory for the American neoconservatives who will now be able to push Russia to war without European opposition.

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Macron as a hologram.

Emmanuel Clinton and the Revolt of the Elites (Escobar)

So in the end the West was saved by the election of Emmanuel Macron as President of France: relief in Brussels, a buoyant eurozone, rallies in Asian markets. That was always a no-brainer. After all, Macron was endorsed by the EU, Goddess of the Market, and Barack Obama. And he was fully backed by the French ruling class. This was a referendum on the EU – and the EU, in its current set-up, won. Cyberwar had to be part of the picture. No one knows where the MacronLeaks came from – a last minute, massive online dump of Macron campaign hacked emails. WikiLeaks certified the documents it had time to review as legitimate. That did not stop the Macron galaxy from immediately blaming it on Russia. Le Monde, a once-great paper now owned by three influential Macron backers, faithfully mirrored his campaign’s denunciation of RT and Sputnik, information technology attacks and, in general, the interference of Russia in the elections.

The Macron Russophobia in the French media-sphere also happens to include Liberation, once the paper of Jean-Paul Sartre. Edouard de Rothschild, the previous head of Rothschild & Cie Banque, bought a 37% controlling stake in the paper in 2005. Three years later, an unknown Emmanuel Macron started to rise in the mergers and acquisitions department, soon acquiring a reputation as “the Mozart of finance.” After a brief stint at the Ministry of Finance, a movement, En Marche! was set up for him by a network of powerful players and think tanks. Now, the presidency. Welcome to the revolving door, Moet & Chandon-style. In the last TV face-off with Marine Le Pen, Macron did not shy from displaying condescending/rude streaks and even raked some extra%age points by hammering “Marine” as a misinformed, corrupt, “hate-filled” nationalist liar who “feeds off France’s misery” and would precipitate “civil war.”

That may in fact come back to haunt him. Macron is bound to be a carrier of France’s internal devaluation; a champion of wage “rigor,” whose counterpoint will be a boom of under-employment; and a champion of increasing precariousness on the road to boost competitiveness. Big Business lauds his idea of cutting corporate tax from 33% to 25% (the European average). But overall, what Macron has sold is a recipe for a “see you on the barricades” scenario: severe cuts in health spending, unemployment benefits and local government budgets; at least 120,000 layoffs from the public sector; and abrogation of some key workers’ rights. He wants to advance the “reform” of the French work code – opposed by 67% of French voters – ruling by decree.

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Macron as a greater fool.

Paris Afterparty (Jim Kunstler)

First mistake: Emmanuel Macron’s handlers played Beethoven’s “Ode to Joy” instead of the French national anthem at the winner’s election rally. Well, at least they didn’t play “Deutschland Über Alles.” The tensions in the Euroland situation remain: the 20%-plus youth unemployment, the papered-over insolvency of the European banks, and the implacable contraction of economic activity, especially at the southern rim of the EU. The clash of civilizations brought on by the EU’s self-induced refugee glut still hangs over the continent like a hijab. That there was no Islamic terror violence around the election should not be reassuring. The interests of the jihadists probably lie in the continued squishiness of the status quo, with its sentimental multiculture fantasies — can’t we all just get along? — so En Marche was their best bet. LePen might have pushed back hard. Macron looks to bathe France’s Islamic antagonists in a nutrient-medium of Hollandaise lite.

The sclerosis of Europe is assured for now. But events are in charge, not elected officials so much, and Europe’s economic fate may be determined by forces far away and beyond its power to control, namely in China, where the phony-baloney banking system is likely to be the first to implode in a global daisy-chain of financial uncontrolled demolition. Much of that depends on the continuing stability of currencies. The trouble is they are all pegged to fatally unrealistic expectations of economic expansion. Without it, the repayment of interest on monumental outstanding debt becomes an impossibility. And the game of issuing more new debt to pay the interest on the old debt completely falls apart. Once again, the dynamic relationship between real capital creation and the quandaries of the oil industry lurks behind these failures of economy.

In a crisis of debt repayment, governments will not know what else to do except “print” more money, and this time they are liable to destroy faith in the value of “money” the world over. I put “money” in quotation marks because the dollars, euros, yuan, and yen are only worth what people believe them to be, subject to measurement against increasingly fictional indexes of value, such as interest rates, stock and bond markets, government-issued employment and GDP stats, and other benchmarks so egregiously gamed by the issuing authorities that Ole Karl Marx’s hoary warning finally comes to pass and everything solid melts into air.

Revolving credit seemed like a good idea through the 20th century, and it sure worked to build an economic matrix based on cheap energy, which is, alas, no more. What remains is the wishful pretense that the old familiar protocols can still work their magic. The disappointment will be epic, and the result next time may be political figures even worse than LePen and Trump. Consider, though, that what you take for the drumbeat of nationalism is actually just a stair-step down on a much-longer journey out of the globally financialized economy. Because the ultimate destination down this stairway is a form of local autarky that the current mandarins of the status quo can’t even imagine.

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They want it all, all of Greece. Beware.

Germany: Greek Gold, Real Estate As Collateral If IMF Out Of Program (KTG)

The Bavarian Minister of Finance, Markus Soeder (CSU), a fierce Grexit supporter of Merkel’s CDU sister party apparently has moved away from his demand for a Greek euro exit. During a visit to Athens, Soeder said that the problems around Britain’s exit from the EU showed how difficult a Grexit would be. In addition, the Brexit already causes enough uncertainty. and Germany wants neither problems, nor uncertainty that could harm its profits especially before the parliamentary elections in autumn 2017. As Grexit is out of question, Greece should use gold reserves and real estate as collateral if the IMF stays out of the Greek program. However, Markus Soeder brought back an older idea of his, an idea he openly formulated in February 2017: that Greece pledges Gold, cash and real estate in order to get the bailout tranches, the loans by the European creditors, who love to call them financial aid.

“Soeder did not give up serious demands on Greece wile he was in Athens,” German magazine Der Spiegel writes. If the IMF does not participate in the Greek program, “new money can only be provided against collateral such as cash or real estate,” Soeder said. Soeder referred to Finland that participated in the second aid package for Greece only in 2012 and only after then Greek finance minister Evangelos Venizelos signed a bilateral agreement on colateral. “This worked,” the CSU politician said about the deal. Soeder’s demand is, however, amply theoretical, since he continues to regard an IMF participation as indispensable. He has the same problem as Federal Minister of Finance Wolfgang Schäuble (CDU): He strongly rejects further debt relief, as the IMF makes it a condition. “I have made it quite clear that a debt cut is out of question for Germany, as it the idea about issuing Eurobonds or similar.”

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Brussels pisses on Greek courts.

Greek Court Finds New Pension Cuts Illegal Under Greek, European Law (K.)

The Plenary of the State Audit Council has ruled that the cuts to main and supplementary pensions that the government and its creditors have agreed on contravene the European Convention of Human Rights, sources said on Tuesday night. The council also decided that the fiscal bill containing the cuts, to be implemented from 2019, contravenes Greek legislation as it has been tabled to the audit council without an actuarial study. A bill, outlining the pension cuts and other measures agreed with creditors is due to go to a vote in Parliament next week.

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Nothing new here. WIll anything change now that an EU body finds the same many others have before them?

Damning Findings From EU Audit Of Greek & Italian Refugee “Hotspots” (Oxfam)

1. EU Court of Auditors found “overcrowded” camps, migrants “sleeping rough”, and “scant access to basic services” According to the Court of Auditors, hotspots are seriously overcrowded, particularly on the Greek islands of Lesvos, Chios and Samos. People are fleeing from the camps, because they don’t have sufficient access to water and there are too few doctors to provide adequate health care. People also didn’t feel safe in the hotspots since fights often break out in the camps. Many of these people ended up sleeping on the streets outside the hotspots. The appalling situation in hotspots is also documented by NGOs, who have reported that people in the hotspots have been exposed to degrading conditions and had their rights denied. More than 2,000 people were forced to sleep in barely heated tents during the freezing winter.

2. Children held for months in “inappropriate conditions” against international laws and standards, the auditors say The auditors raised serious concerns about the situation of unaccompanied children in hotspots. In most hotspots children were confined either to fenced areas, or accommodated without protection from adults, exposing them to the risk of abuse. Children were held for three months or more closed in behind fences in the Moria hotspot after it was converted to a de-facto detention centre. In some hotspots, girls and boys were held together, against standard practice. NGOs have been raising concerns about this situation for months. Now the Court of Auditors has confirmed that the welfare of the children in Moria was put at risk.

3. ‘‘No framework for remedying bottlenecks or sharing lessons learnt”, the Court found Overall, the ‘hotspot approach’ has been disorganised and inconsistent, the EU auditors found. The absence of consistent guidelines for the way hotspots should be managed means that responsibilities between the various actors are not clearly defined. Conditions and services are far worse in some hotspots than in others. The unfairness of this inconsistency has been criticised by NGOs, who have also highlighted the lack of oversight over decisions and accountability for human rights violations.

Furthermore, it is difficult to track the situation of people in the hotspots and how the management of the camps affects them – because key data is not shared between authorities. Neither the length of time migrants spend in hotspots while waiting to register and complete their asylum application in Greece, nor the total number of migrants identified, registered, or receiving return orders in Italy was shared. The Court of Auditor’s recommendations to better define the roles of the different agencies involved and to appoint a manager for each hotspot exposes that management is currently lacking.

4. The auditors highlight that the “functioning of hotspots is affected by bottle-necks in the follow-up procedures” The hotspots were meant to be just a first step in the EU’s migration response. Member states should then have stepped in to facilitate the relocation and integration of these people across Europe, or facilitate their safe and dignified return. That has not happened. The set-up of the hotspots is a completely new way for national governments to cooperate with EU institutions and agencies within a member state’s territory. If follow up continues to falter, the pressure on the hotspots will only grow. This could lead to people living in the hotspots being exposed to even more suffering, and the risk that authorities will abandon acceptable legal and living standards increases. This has been evident since December, if not earlier.

5. The EU-Turkey deal “had a major impact on the functioning of hotspots” and on detentions, the auditors say The EU-Turkey deal of March 2016 had a great impact on the functioning of the hotspots, as becomes evident when we look at the details of the auditors’ report. When the deal with Turkey was announced, hotspots turned into de-facto detention centres, provoking criticism from many NGOs. But the current European approach only attempts to increase the use of detention for asylum seekers even further. The auditors have detailed the hotspots procedures in the annex to their report, and reading this makes clear how difficult it is not to be detained in the process they record.

The findings of the European Court of Auditors suggest that hotspots are being made to work at the expense of people, for the sake of fulfilling policy objectives. It is vital that safeguards are in place to ensure that people are not forced to stay in the hotspots under the conditions the EU auditors and NGOs have found to be degrading. Very close scrutiny is needed to protect the rights of those who arrive looking for safety on Europe’s shores.

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Jan 182017
 
 January 18, 2017  Posted by at 10:08 am Finance Tagged with: , , , , , , , , , ,  


Albert Freeman Effect of gasoline shortage in Washington, DC 1942

Why Theresa May Is Right To Take A Huge Gamble On Hard Brexit (MW)
Trump Is Waving Adios To The Longstanding ‘Strong Dollar Policy’ (MW)
The Issue Is Not Trump, It’s Us (John Pilger)
Focus Turns To Julian Assange After US Decision To Free Chelsea Manning (G.)
Russia Extends Snowden’s Residency Permit ‘By A Couple Of Years’ (R.)
Putin Mocks Claims That Trump Was Spied On (AFP)
PBOC Cash Injections Surge To Record $60 Billion Before Holidays (BBG)
China New Home Prices Rise 12.4% Y/Y In December (R.)
Rustbelt China Province Admits It Faked Fiscal Data For Years (BBG)
Saudis Claim Victory Over US Shale Industry (AEP)
Rising U.S. Shale-Oil Output Threatens OPEC’s Production Pact (MW)
Italian Conservative Tajani Wins Race To Head European Parliament (R.)
The Bankers Who Fixed The World’s Most Important Number (G.)
Percentage of World Population Age 65+ in 2015 and 2050 (BR)

 

 

While I tend to largely agree with this, I also think what makes these discussions obsolete is that I haven’t seen a single person talk about the possibility that EU will not survive as is, or the single market, and what that would in turn mean for Brexit. Not a single one. Meanwhile, Britain has declared mudslinging its new national sport, and that will continue to make predicting anything at all very hard.

Why Theresa May Is Right To Take A Huge Gamble On Hard Brexit (MW)

First, there is very little evidence that membership of the Single Market is worth the costs. Every country in the world has access to the single market, under WTO Rules, although occasionally subject to some very minor tariffs. What you lose by leaving is any voice in how the rules of that market are set, and the hassle and paperwork involved in exporting. How much that is really worth, it is hard to judge. What we do know is that ever since the single market was launched in 1992, the EU has been one of the slowest-growing regions in the world, and that trade between its member states has started to decline. If it is so important to an economy, that is, to put it mildly, a bit odd. The only honest position is to say we have absolutely no idea what difference it will make. No country has left the single market before. But given the obligations that come with it — especially open borders and budget contributions — it may well not be worth much.

Second, it strengthens the U.K.’s negotiating position. If Britain goes into the haggling over the terms of departure saying it has decided to leave the single market, and that there is nothing it really wants from Brussels, then suddenly the conversation changes. After all, there are two things the EU wants from the U.K.: the net budget contribution, which accounts for 7% of its total spending, and access to our market, given that the U.K. runs a massive trade deficit with Europe. The EU doesn’t have to have either — it will get by OK without them. But they are helpful. If the U.K. can offer both, while asking for virtually nothing in return, it is more likely to get what it genuinely wants — which is mainly free access to Europe for its financial sector.

Finally, the politics look right. The Conservative Party has remarkably and quickly reassembled itself as the Brexit Party. That might be the right or the wrong decision, but it is where the majority of the country is right now. After all, Leave won the referendum despite fierce warnings of catastrophe from the rest of the world. Of its opponents, the Liberal Democrats want to go back in, and Labour is hopelessly undecided. If Brexit is a reasonable success — and that simply means it regains control of its borders, and the economy keeps expanding even if it is at a lower rate than before — then the Tories will be rewarded with power for a generation. That makes it a prize worth fighting for.

True, the risks are great. The potential disruption to the economy may be a lot worse than anyone yet realizes. The pound could collapse, inflation could soar, and joblessness start to rise. If any of that happens, May will go down as a catastrophic prime minister. But it is more likely she has called this right — and a hard Brexit will turn out to be best the best option available.

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Question is, how much can teh US do as long as the USD is the reserve currency and so much global debt is denominated in it?

Trump Is Waving Adios To The Longstanding ‘Strong Dollar Policy’ (MW)

The strong dollar policy—a mantra of Democratic and Republican administrations for more than two decades—may be headed for the scrap heap once Donald Trump is sworn in as president on Friday. Indeed, Trump sent the dollar skittering lower Tuesday after he told The Wall Street Journal that the U.S. currency was “too strong,” in part due to Chinese efforts to hold down the yuan. But while much is made of Trump’s questioning of the need for NATO or the lasting power of the EU, an administration-level push for a weaker currency would hardly be without precedent. It would, however, be an adjustment a generation of investors and traders who came of age in an era when the executive branch at least paid lip service to the notion that a strong dollar was a desirable aim.

The tide last shifted during the Clinton administration after Robert Rubin, the former Goldman Sachs chief, took over as Treasury secretary from Lloyd Bentsen in early 1995. Before that, Bentsen and U.S. Trade Representative Mickey Kantor had often used language that inadvertently—or not—tended to weaken the dollar. Bentsen got the ball rolling early in Clinton’s first term, calling for a stronger yen in a February 1993 appearance and shocking currency traders who duly bid up the Japanese currency. As recounted in a 2001 paper by economists Brad DeLong and Barry Eichengreen, Bentsen saw the stronger yen as potentially helpful in alleviating the U.S. trade deficit, while Kantor saw a weaker dollar providing leverage in trade talks. That may sound a bit familiar. Trump made the U.S. trade deficit a centerpiece of his campaign, using it to argue that it was proof the nation is getting its lunch eaten by competitors in a zero-sum world.

[..] Douglas Borthwick, managing director of Chapdelaine Foreign Exchange, argued in a note earlier this month that an incoming Trump administration, by throwing out the strong dollar policy, could use the currency as a linchpin in implementing its economic agenda: “With a removal of the Strong USD Policy, the US Dollar will weaken against its global counterparts. This will give the FED the ability to normalize US interest rates, as they can use the weaker USD and the resulting inflation as an excuse for raising rates. The FED will then be used by the Administration as a brake on US Dollar weakness. The weaker USD will also force other countries struggling to get their economies moving to rewrite trade agreements in a way that is more advantageous to the US. In other words, we will see a normalization of US Interest rates, and better negotiated trade deals. Both a win for the new Administration.”

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Pilger’s not a fan of Obama. Good read.

The Issue Is Not Trump, It’s Us (John Pilger)

One of the persistent strands in U.S. political life is a cultish extremism that approaches fascism. This was given expression and reinforced during the two terms of Barack Obama. “I believe in American exceptionalism with every fiber of my being,” said Obama, who expanded the United States’ favorite military pastime: bombing and death squads (“special operations”) as no other president has done since the Cold War. According to a Council on Foreign Relations survey, in 2016 alone Obama dropped 26,171 bombs. That is 72 bombs every day. He bombed the poorest people on earth, in Afghanistan, Libya, Yemen, Somalia, Syria, Iraq, Pakistan. Every Tuesday — reported the New York Times — he personally selected those who would be murdered by mostly hellfire missiles fired from drones.

Weddings, funerals, shepherds were attacked, along with those attempting to collect the body parts festooning the “terrorist target.” A leading Republican senator, Lindsey Graham, estimated, approvingly, that Obama’s drones killed 4,700 people. “Sometimes you hit innocent people and I hate that,” he said, “but we’ve taken out some very senior members of Al Qaeda.” Like the fascism of the 1930s, big lies are delivered with the precision of a metronome, thanks to an omnipresent media whose description now fits that of the Nuremberg prosecutor: “Before each major aggression, with some few exceptions based on expediency, they initiated a press campaign calculated to weaken their victims and to prepare the German people psychologically … In the propaganda system … it was the daily press and the radio that were the most important weapons.”

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Assange doesn’t lie. But he may demand the US clarify its positions.

Focus Turns To Julian Assange After US Decision To Free Chelsea Manning (G.)

The decision by the US president, Barack Obama, to commute the sentence of Chelsea Manning has brought fresh attention to the fate of Julian Assange. On Twitter last week, Assange’s anti-secrecy site WikiLeaks posted: “If Obama grants Manning clemency Assange will agree to US extradition despite clear unconstitutionality of DoJ [Department of Justice] case.” Obama’s move will test the promise. The president commuted Manning’s 35-year sentence, freeing her in May, nearly three decades early. In a statement on Tuesday, Assange said Manning should never have been convicted and described her as “a hero, whose bravery should have been applauded not condemned”. Assange went on to demand that the US government “immediately end its war on whistleblowers and publishers, such as WikiLeaks and myself”, but made no mention of the Twitter pledge.

His lawyer said he has been pressing the Justice Department for updates on an investigation concerning WikiLeaks. The transgender former intelligence analyst, born Bradley Manning, was convicted in August 2013 of espionage and other offences after admitting to leaking 700,000 sensitive military and diplomatic classified documents to WikiLeaks in 2010. Assange has been holed up for more than four years at the Ecuadorian embassy in London. He has refused to meet prosecutors in Sweden, where he remains wanted on an allegation of rape, fearing he would be extradited to the US to face espionage charges if he leaves the embassy. In a statement on Tuesday, a lawyer for Assange did not address whether Assange intended to come to the US.

“For many months, I have asked the DoJ to clarify Mr Assange’s status. I hope it will soon,” Assange’s lawyer, Barry Pollack, said in the statement. “The Department of Justice should not pursue any charges against Mr Assange based on his publication of truthful information and should close its criminal investigation of him immediately.” Another Assange lawyer, Melinda Taylor, said: “Julian’s US lawyers have repeatedly asked the Department of Justice to clarify Julian Assange’s status and would like them to do so now by announcing it is closing the investigation and pursuing no charges.”

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Only right thing to do.

Russia Extends Snowden’s Residency Permit ‘By A Couple Of Years’ (R.)

Former U.S. intelligence contractor Edward Snowden has been given leave to remain in Russia for another couple of years, a spokeswoman for the Russian foreign ministry said. “Snowden’s residency in Russia has just been extended by another couple of years,” the spokeswoman, Maria Zakharova, said in a post on Facebook.

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He must be having so much fun with this. And he’s right: “This shows a significant level of degradation of the political elite in the West.”

Putin Mocks Claims That Trump Was Spied On (AFP)

President Vladimir Putin cracked raunchy jokes on Tuesday as he poked fun at claims that Russian secret services filmed US President-elect Donald Trump with prostitutes. Showing he is familiar with the claims in the explosive dossier, Putin launched into a series of ribald jokes about prostitutes, riffing on Trump’s former role as owner of the Miss Universe beauty contest. The unsubstantiated dossier published by American media last week alleged that Russia had gathered compromising information on Trump, namely videos involving prostitutes at a luxury Moscow hotel, supposedly as a potential means for blackmail. In his first public comments on the claims, Putin rubbished the idea that Russian secret services would have spied on Trump during his 2013 visit to Moscow for the Miss Universe final, as alleged in the dossier.

“Trump when he came to Moscow… wasn’t any kind of political figure, we didn’t even know of his political ambitions,” Putin said, responding to a journalist’s question at a news conference. “Does anyone think that our special services chase every American billionaire? Of course not, it’s just completely ridiculous.” Putin also questioned why Trump would feel the need to hire prostitutes, given his opportunities to meet beautiful women at the Miss Universe contest. “He’s a grown-up for a start and secondly a man who spent his whole life organising beauty contests and meeting the most beautiful women in the world,” Putin said. “I can hardly imagine that he ran off to a hotel to meet our girls of ‘lowered social responsibility’,” said Putin, adding jokingly “although they are of course the best in the world. “I doubt Trump fell for that.”

Putin went on to compare those behind the dossier unfavourably with prostitutes. “The people who order falsifications of the kind that are now circulating against the US president-elect – they are worse than prostitutes, they don’t have any moral limits at all. “The fact that such methods are being used against the US president-elect is a unique case: nothing like this has happened before. “This shows a significant level of degradation of the political elite in the West.”

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Xi ordered no market selloffs while he’s in Davos. Joke.

PBOC Cash Injections Surge To Record $60 Billion Before Holidays (BBG)

China’s benchmark money-market rate surged the most in 19 months, with record central bank cash injections being overwhelmed by demand before the Lunar New Year holidays. The People’s Bank of China put in a net 410 billion yuan ($60 billion) through open-market operations on Wednesday, the biggest daily addition since Bloomberg began compiling the data in 2004. That brings the total injections so far this week to 845 billion yuan. The interbank seven-day repurchase rate jumped 17 basis points, the most since June 2015, to 2.58% as of 1:18 p.m. in Shanghai, according to weighted average prices. Demand for cash tends to increase before the Lunar New Year holidays, when households withdraw money to pay for gifts and get-togethers.

Month-end corporate tax payments are adding to the pressure this time, with the break running from Jan. 27 through Feb. 2. The PBOC offered 200 billion yuan of seven-day reverse repos and 260 billion yuan of 28-day contracts, compared with 50 billion yuan of loans maturing on Wednesday. “The PBOC aims to ensure that the liquidity situation remains adequate, while the 28-day reverse repo is apparently targeted at covering the holidays,” said Frances Cheung at Societe Generale. “There could also be preparation for any indirect tightening impact from potential outflows.” China’s central bank has been offering more 28-day reverse repos than one-week loans in the past two weeks, while curbing the injection of cheaper, short-term funds amid efforts to lower leverage in the financial system. It drained a net 595 billion yuan in the first week of January, before switching to a net injection of 100 billion yuan last week as the seasonal funding demand started to emerge.

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The result of cash injections.

China New Home Prices Rise 12.4% Y/Y In December (R.)

Average new home prices in China’s 70 major cities rose 12.4% in December from a year earlier, slowing slightly from a 12.6% increase in November, an official survey showed on Wednesday. Compared with a month earlier, home prices rose 0.3% nationwide, slowing from November’s 0.6%, according to Reuters calculations from data issued by the National Bureau of Statistics (NBS). Shenzhen, Shanghai and Beijing prices rose 23.5%, 26.5% and 25.9%, respectively, from a year earlier. Monthly growth in Shanghai and Shenzhen slowed but was unchanged in Beijing as local governments’ tightening measures took effect.

China relied heavily on a surging real estate market and government stimulus to help drive economic growth in 2016, but policymakers have grown concerned that the property frenzy will fuel price bubbles and risk a market crash, with serious consequences for the broader economy. Soaring home prices have prompted more than 20 Chinese cities to tighten lending requirements on house purchases, while regulators have told banks to strengthen their risk management on property loans.

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Scapegoating. You pick one to make the rest look good in comparison. But this is endemic, in a variety of forms.

Rustbelt China Province Admits It Faked Fiscal Data For Years (BBG)

The rust-belt province of Liaoning fabricated fiscal numbers from 2011 to 2014, local officials have said, raising fresh doubts about the accuracy of China’s economic data just days ahead of the release of the nation’s full-year growth report. City and county governments in the northwestern region committed fiscal data fraud in the period, Governor Chen Qiufa said at a meeting with provincial lawmakers Tuesday, according to state-run People’s Daily. Fiscal revenues were inflated by at least 20 percent, and some other economic data were also false, the paper said, without specifying categories. Chen said the data were made up because officials wanted to advance their careers. The fraud misled the central government’s judgment of Liaoning’s economic status, he said, citing a report from the National Audit Office in 2016.

With growth now moderating, officials have sought to improve the credibility of economic data as diffusing financial risks becomes a key policy consideration, along with keeping growth ticking along at a rapid clip. Ning Jizhe, head of the National Bureau of Statistics, has said China should prevent fake economic data and increase the quality of its statistics. Liaoning has seen an unprecedented purge of more than 500 deputies from its legislature. The deputies were implicated in vote buying and bribery in the first provincial-level case of its kind in the Communist Party’s almost seven-decade rule, according to the official Xinhua News Agency. Former provincial party chief Wang Min, who led Liaoning from 2009 until 2015, was earlier expelled following corruption allegations by China’s top anti-graft watchdog.

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Wonderful pair of articles. Take your pick. Ambrose has one view, while…

Saudis Claim Victory Over US Shale Industry (AEP)

Saudi Arabia’s oil sheikhs insisted defiantly in Davos that they have defeated the challenge of the American shale industry and restored the balance to the global oil markets after two years of trauma and glut. The country’s energy minister Khalid Al-Falih said US oil frackers had survived only by tapping the most prolific wells and would face surging costs once again as recovery builds, while cannibalisation of their plant will prevent a rapid rebound in US output. “Their supply infrastructure has been decimated,” he said, speaking at the World Economic Forum. Mr Al-Falih admitted for the first time that Saudi Arabia’s decision to flood the world crude markets in 2014 and force a collapse in prices was essentially aimed at US shale frackers, a claim always denied in the past.

“If we had cut production and kept prices at three-digit levels, they would have kept adding one million barrels a day each year, for year after year. Saudi production would have been three million barrels day less in 2017 under that scenario. It was not sustainable,” he said. US drillers bridle at the suggestion that the Saudis won, insisting that they held Opec and Russia to a standstill, forcing them to capitulate last November with an agreement by 22 states to trim output by 1.2m barrels a day, and even that may not prove enough. “Opec engaged in a price war against US producers and they lost,” said Kenneth Hersh from Energy Capital. “This has brought the cost structure down for the whole world. There is no longer a cartel any more.”

Amin Nasser, head of Saudi Aramco, insisted that the job of knocking back shale is largely accomplished and that the market would rebalance by the first half of this year. The cycle is now switching to the opposite extreme. He warned that the world needs $1 trillion of fresh investment in oil projects each year just to keep up with growing demand, and the risk of “price spikes” later this decade is rising fast. The warning was echoed by Fatih Birol, head of the International Energy Agency, who fears a looming oil shortage after an unprecedented collapse in spending on exploration and development over the last two years. “Alarm bells will be ringing if there is no major new investment this year,” he said.

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….MarketWatch has the exact opposite.

Rising U.S. Shale-Oil Output Threatens OPEC’s Production Pact (MW)

The oil market got a stark reminder Tuesday that rising oil production in the U.S. could upend efforts by major producers to bring global supply and demand for crude back in to balance. Just ahead of the settlement for oil futures prices on the New York Mercantile Exchange on Tuesday, the Energy Information Administration released a report on drilling productivity—forecasting a monthly rise of 41,000 barrels a day in February oil production to 4.748 million barrels a day. “That is bearish for oil and a concern for OPEC,” said James Williams, energy economist at WTRG Economics, pointing out that the volume of new oil per rig has climbed because of gains in efficiency.

“If maintained, the expected February production gain means production from the shale plays will be up at least a half million barrels per day by the end of the year,” said Williams. Prices for February West Texas Intermediate crude lost the bulk of the day’s gain on Tuesday to settle with a modest 11-cent climb at $52.48 a barrel. “Since rigs are higher now than in December and should continue to increase, that means a half million [barrel-per-day] gain in production by year-end is a conservative estimate,” Williams said. “Most OPEC members expected this, but U.S. shale production will be the closest monitored data after OPEC’s own compliance with quotas,” he said.

Read more …

Backroom dealmaking. Why the EU is on its way out.

Italian Conservative Tajani Wins Race To Head European Parliament (R.)

Centre-right politician Antonio Tajani was elected the new president of the European Parliament on Tuesday after defeating his socialist rival, a fellow Italian, in a daylong series of votes. The new speaker, 63, a former EU commissioner and an ally of former premier Silvio Berlusconi, succeeds German Social Democrat Martin Schulz at a time of crisis for the European Union. Britain wants a divorce deal that needs the legislature’s blessing while old adversary Russia and old ally the United States both pose new threats to EU survivors holding together. Schulz’s tenure saw close cooperation with the centre-right head of the EU executive, Jean-Claude Juncker, but ended with recriminations over the end of a left-right grand coalition. That could spell trouble for the smooth passage of EU laws on a range of issues.

And the win for Tajani, who beat centre-left leader and fellow Italian Gianni Pittella by 351 votes to 282 in a fourth-round runoff, gives the right a lock on three pivotal EU political institutions. That has stirred some calls for change from either Juncker at the European Commission or Donald Tusk, who chairs the European Council of national leaders. However, there is no clear consensus for such changes. Tajani, mindful of the scars left by an unusually bruising battle over a post which can be a powerful influence on which EU rules are made, promised to be “a president for all of you”. His eventual victory came with backing from pro-EU liberals as well as from the ruling conservative parties of Britain and Poland, both of them sharply critical of the EU’s failings. They bristle at the EU impinging on national sovereignty and see it as bureaucratic and wasteful.

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Not THE world, but THEIR world.

The Bankers Who Fixed The World’s Most Important Number (G.)

By the time the market opened in London, Lehman’s demise was official. Hayes instant-messaged one of his trusted brokers in the City to tell him what direction he wanted Libor to move. Typically, he skipped any pleasantries. “Cash mate, really need it lower,” Hayes typed. “What’s the score?” The broker sent his assurances and, over the next few hours, followed a well-worn routine. Whenever one of the Libor-setting banks called and asked his opinion on what the benchmark would do, the broker said – incredibly, given the calamitous news – that the rate was likely to fall. Libor may have featured in hundreds of trillions of dollars of loans and derivatives, but this was how it was set: conversations among men who were, depending on the day, indifferent, optimistic or frightened.

When Hayes checked the official figures later that night, he saw to his relief that yen Libor had fallen. Hayes was not out of danger yet. Over the next three days, he barely left the office, surviving on three hours of sleep a night. As the market convulsed, his profit and loss jumped around from minus $20 million to plus $8 million in just hours, but Hayes had another ace up his sleeve. ICAP, the world’s biggest inter-dealer broker, sent out a “Libor prediction” email each day at around 7am to the individuals at the banks responsible for submitting Libor. Hayes messaged an insider at ICAP and instructed him to skew the predictions lower. Amid the chaos, Libor was the one thing Hayes believed he had some control over. He cranked his network to the max, offering his brokers extra payments for their cooperation and calling in favours at banks around the world.

By Thursday, 18 September, Hayes was exhausted. This was the moment he had been working towards all week. If Libor jumped today, all his puppeteering would have been for nothing. Libor moves in increments called basis points, equal to one one-hundredth of a percentage point, and every tick was worth roughly $750,000 to his bottom line. For the umpteenth time since Lehman faltered, Hayes reached out to his brokers in London. “I need you to keep it as low as possible, all right?” he told one of them in a message. “I’ll pay you, you know, $50,000, $100,000, whatever. Whatever you want, all right?” “All right,” the broker repeated. “I’m a man of my word,” Hayes said. “I know you are. No, that’s done, right, leave it to me,” the broker said.

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Yes, you should be scared. For your children.

Percentage of World Population Age 65+ in 2015 and 2050 (BR)

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Aug 012016
 
 August 1, 2016  Posted by at 8:54 am Finance Tagged with: , , , , , , ,  Comments Off on Debt Rattle August 1 2016


Wyland Stanley Marmon touring car at Yosemite 1919

Abe’s Fiscal Plan Follows a Long Road of Packages That Failed (BBG)
China July Factory Activity Unexpectedly Dips (R.)
China’s Love Affair With U.S. Real Estate Fades (BBG)
For Social Security “Time’s Up – The Pain Must Begin Now” (CH)
Impact Of Poverty Costs The UK £78 Billion A Year (G.)
Did Germany Just Blink? (DQ)
US Shale Producers Weather Oil Price Storm (AEP)
Growing Oil Glut Shows Investors There’s Nowhere to Go But Down (BBG)
Amid Britain Nuclear Debacle, China’s Xinhua Decries ‘Suspicion’ (R.)
Greece Eases Back On Capital Controls In Bid To Reverse Currency Flight (G.)
Building a Progressive International (YV)
India Rescues 10,000 Starving Workers In Saudi Arabia (Sky)

 

 

There’s a hole in the bucket, dear Shinzo.

Abe’s Fiscal Plan Follows a Long Road of Packages That Failed (BBG)

Prime Minister Shinzo Abe’s “bold” plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor. While some analysts say the latest round of spending may buy the economy time, few are convinced it will be enough to dramatically change the course.

First off, much of the 28 trillion yen announced by Abe last week won’t be spending, but lending. And if previous episodes are any guide, an initial sugar hit to markets and growth will quickly fade amid a realization that extra spending does little to cure the economy’s underlying problems. A Goldman Sachs study found that markets gave up their gains in the first month after the cabinet approved the stimulus in 18 of the 25 packages it studied since 1990. Skeptics of Abe’s latest plan aren’t hard to find. Instead of adding to a debt pile already more than twice the economy’s size, more should be done to tackle thorny structural problems such as a declining labor force and protected industries, according to Naoyuki Shinohara, a former Japanese finance ministry official.

“Looking at the history of the Japanese economy, there have been lots of fiscal stimulus packages,” according to Shinohara, who was a top official at the IMF until last year. “But the end result is that it didn’t have much impact on the potential growth rate.”

Read more …

A lot of seemingly contradictory reports today. Manufacturing PMI down, but services PMI up.

China July Factory Activity Unexpectedly Dips (R.)

Activity in China’s manufacturing sector eased unexpectedly in July as orders cooled and flooding disrupted business, an official survey showed, adding to fears the economy will slow in coming months unless the government steps up a huge spending spree. While a similar private survey showed business picked up for the first time in 17 months, the increase was only slight and the much larger official survey on Monday suggested China’s overall industrial activity remains sluggish at best. Both surveys showed persistently weak demand at home and abroad were forcing companies to continue to shed jobs, even as Beijing vows to shut more industrial overcapacity that could lead to larger layoffs.

And other readings on Monday pointed to signs of cooling in both the construction industry and real estate, which were key drivers behind better-than-expected economic growth in the second quarter. The official Purchasing Managers’ Index (PMI) eased to 49.9 in July from the previous month’s 50.0 and below the 50-point mark that separates growth from contraction on a monthly basis. While the July reading showed only a slight loss of momentum, Nomura’s chief China economist Yang Zhao said it may be a sign that the impact of stimulus measures earlier this year may already be wearing off. That has created a dilemma for Beijing as the Communist Party seeks to deliver on official targets, even as concerns grow about the risks of prolonged, debt-fueled stimulus.

“The government has realized the downward pressure is great but they’ve also realized that stimulus to stimulate the economy continuously is not a good idea and they want to continue to focus on reform and deleveraging,” Zhao said.

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Monopoly money running out.

China’s Love Affair With U.S. Real Estate Fades (BBG)

For David Wong, the business of selling homes isn’t as good this year as it was in 2015, and he’s blaming that on a decline in customers from China. “The residential-property market here, especially for those priced between $2.5 million to $3 million, has been affected by China’s measures to control capital flight,” said the New York City-based Keller Williams Realty Landmark broker. “You need to cut the price, or it may take a real long time.” Wong is not the only one who has felt the cooling in the U.S. real estate market for foreign buyers. Total sales to Chinese buyers in the 12 months through March fell for the first time since 2011, to $27.3 billion from $28.6 billion a year earlier, according to an annual research report released by the National Association of Realtors.

The number of properties purchased by Chinese also declined to 29,195 units from 34,327 units. While the total international sales saw its first decline in three years, the 1.25% pace is slower than 4.5% recorded for Chinese buying. In terms of U.S. dollar value, the total share of Chinese buying of international sales dropped from 27.5% to 26.7%. [..] The yuan began plummeting in August, driving the Chinese currency to a five-year low versus the U.S. dollar. The Chinese authorities have been compelled to increasingly tighten the noose on cross-border capital flows to defend the yuan and to slow down the burnout of the nation’s foreign-exchange reserves since then. This includes increasing scrutiny of transfers overseas, to closely check whether individuals send money abroad by breaking up foreign-currency purchases into smaller transactions.

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This is why I recently wrote that a basic income should replace old-age provisions.

For Social Security “Time’s Up – The Pain Must Begin Now” (CH)

In 2010, Social Security (OASDI) unofficially went bankrupt. For the first time since the enactment of the SS amendments of 1983, annual outlays for the program exceeded receipts (excluding interest credited to the trust funds). The deficit has grown every year since 2010 and is now up to 8% annually and is projected to be 31% in 2026 and 44% by ’46. The chart below highlights the OASDI annual surplus growth (blue columns) and total surplus (red line). This chart includes interest payments to the trust funds and thus looks a little better than the unvarnished reality. For a little perspective, the program pays more than 60 million beneficiaries (almost 1 in 5 Americans), OASDI (Old Age, Survivors, Disability Insurance) represents 25% of all annual federal spending, and for more than half of these beneficiaries these benefits represent their sole or primary source of income.

The good news is since SS’s inception in 1935, the program collected $2.9 trillion more than it paid out. The bad news is that the $2.9 trillion has already been spent. But by law, Social Security is allowed to pretend that the “trust fund” money is still there and continue paying out full benefits until that fictitious $2.9 trillion is burned through. To do this, the Treasury will issue another $2.9 trillion over the next 13 years to be sold as marketable debt so it may again be spent (just moving the liability from one side of the ledger, the Intergovernmental, to the other, public marketable). However, according to the CBO, Social Security will have burnt through the pretend trust fund money (that wasn’t there to begin with) by 2029.

Below, the annual OASDI surplus (in red) peaking in 2007, matched against the annual growth of the 25-64yr/old (in blue) and 65+yr/old (grey) populations. The impact of the collapse of the growth among the working age population and swelling elderly population is plain to see. And it will get far worse before it eventually gets better. [..] Americans turning 67 in 2030 will be told that after being mandated to pay their full share of SS taxation throughout their working lifetime, they will not see anything near their full benefits in their latter years. However, those in retirement now and those retiring between now and 2029 are being paid in full despite the shortfall in revenue. They will be paid in full until this arbitrary “trust fund” is theoretically drained.

I have no intention of funding, in full, current retirees benefits with my tax dollars only to know I will hit the finish line with a 30%+ reduction that will only worsen over time. My goal is to pay it forward to my kids and then do my best to never to be a burden to them. The SS (OASDI) benefits must be cut now to be in line with revenues. Raise taxes, lower benefits…your choice. But I’m not about to make the old whole so I can then subsequently see my generation go bankrupt in my latter years.

Read more …

Perfect fit for a basic income. But it won’t come. Austerity as controlled poverty is a power(ful) tool.

Impact Of Poverty Costs The UK £78 Billion A Year (G.)

Dealing with the effects of poverty costs the public purse £78bn a year, or £1,200 for every person in the UK, according to the first wide-ranging report into the impact of deprivation on Britain’s finances. The Joseph Rowntree Foundation (JRF) estimates that the impact and cost of poverty accounts for £1 in every £5 spent on public services. The biggest chunk of the £78bn figure comes from treating health conditions associated with poverty, which amounts to £29bn, while the costs for schools and police are also significant. A further £9bn is linked to the cost of benefits and lost tax revenues. The research, carried out for JRF by Heriot-Watt and Loughborough universities, is designed to highlight the economic case, on top of the social arguments, for tackling poverty in the UK.

The prime minister, Theresa May, has made cutting inequality a central pledge. Julia Unwin, the chief executive of the foundation, said: “It is unacceptable that in the 21st century, so many people in our country are being held back by poverty. But poverty doesn’t just hold individuals back, it holds back our economy too. “Taking real action to tackle the causes of poverty would bring down the huge £78bn yearly cost of dealing with its effects, and mean more money to create better public services and support the economy. UK poverty is a problem that can be solved if government, businesses, employers and individuals work together.”

Read more …

“But did anyone tell you that Germany from 2009 onwards bailed out its failing banks with public money? Banks, that is, with holes in their balance sheets visible from the Moon.”

Did Germany Just Blink? (DQ)

Put simply, the EU is a half-way house with too much democracy and nothing in the way of transfer union. “There are too many moving parts in the electoral politics of 28 nation states, and too many conceivable random-like events that could push political and economic developments in one direction or another, with impossible-to-predict consequences and timelines,” the agency added. The perfect case in point is Italy’s banking crisis. If the country’s struggling banks are not saved with a combination of public and private money — a process that, to all intents and purposes, began on Friday with the announcement of Monte dei Paschi’s suspension of the ECB’s stress test as well as a €5 billion capital expansion later this year — the resulting carnage could unleash not only a tsunami of financial contagion but also an unstoppable groundswell of political opposition to the EU.

For a taste of just how disastrous the political fallout would be for Italy’s embattled premier, Matteo Renzi, here’s an excerpt from a furious tirade given by Italian financial journalist Paolo Barnard on prime-time TV, addressing Renzi directly:

“You went to meet Mrs. Merkel to ask for a minor public funded bail-out of Italian banks and you got a sharp NO. But did anyone tell you that Germany from 2009 onwards bailed out its failing banks with public money? “Banks, that is, with holes in their balance sheets visible from the Moon.

Germany bailed them out to the tune of €704 billion. It was all paid for by European taxpayers’ money, public funds that is. “It was done through the EU Commission of Mr Barroso and by Mr Mario Draghi at the ECB. Didn’t you know that Mr Renzi? Couldn’t you have barked this right into Ms Merkel’s face?”

Barnard rounded off his rant with a rallying call for Italians to follow the UK’s example and demand an exit from the EU — a prospect that should be taken very seriously given that one of the manifesto pledges of Italy’s rising opposition party, the 5-Star Movement, is to call a referendum on Italy’s membership of the euro.

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Ambrose has religion. He believes!

US Shale Producers Weather Oil Price Storm (AEP)

Opec’s worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has failed to break the back of the US shale industry. The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is an illusive victory. North America’s hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.

Scott Sheffield, the outgoing chief of Pioneer Natural Resources, threw down the gauntlet last week – with some poetic licence – claiming that his pre-tax production costs in the Permian Basin of West Texas have fallen to $2.25 a barrel. “Definitely we can compete with anything that Saudi Arabia has. We have the best rock,” he said. Revolutionary improvements in drilling technology and data analytics that have changed the cost calculus faster than most thought possible. The “decline rate” of production over the first four months of each well was 90pc a decade ago for US frackers. This dropped to 31pc in 2012. It is now 18pc. Drillers have learned how to extract more. Mr Sheffield said the Permian is as bountiful as the giant Ghawar field in Saudi Arabia and can expand from 2m to 5m barrels a day even if the price of oil never rises above $55.

His company has cut production costs by 26pc over the last year alone. Pioneer is now so efficient that it already adding five new rigs despite today’s depressed prices in the low $40s, and it is not alone. The Baker Hughes count of North America oil rigs has risen for seven out of the last eight weeks to 374, and this understates the effect. Multi-pad drilling means that three wells are now routinely drilled from the same rig, and sometimes six or more. Average well productivity has risen fivefold in the Permian since early 2012. Consultants Wood Mackenzie estimated in a recent report that full-cycle break-even costs have fallen to $37 at Wolfcamp and Bone Spring in the Permian, and to $35 in the South Central Oklahoma Oil Province. The majority of US shale fields are now viable at $60.

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Once again: demand.

Growing Oil Glut Shows Investors There’s Nowhere to Go But Down (BBG)

Money managers have never been more certain that oil prices will drop. They increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings of Exxon Mobil and Chevron. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week. “The rise in supplies will add more downward pressure,” said Michael Corcelli, chief investment officer at Alexander Alternative Capital, a Miami-based hedge fund. “It will be a long time before we can drain the excess.”

Hedge funds pushed up their short position in West Texas Intermediate crude by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest increase in data going back to 2006. WTI dropped 3.9% to $42.92 a barrel in the report week, and traded at $41.75 at 12:20 p.m. Singapore time. WTI fell by 14% in July, the biggest monthly decline in a year. It’s down by 19% since early June, bringing it close to the 20% drop that would characterize a bear market.

U.S. crude supplies rose by 1.67 million barrels to 521.1 million in the week ended July 22, according to U.S. Energy Information Administration data. Stockpiles reached 543.4 million barrels in the week ended April 29, the highest since 1929. Gasoline inventories expanded for a third week to 241.5 million barrels, the most since April. “The flow is solidly bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It reflects a recognition that the market is, at least for the time being, oversupplied.”

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Hinkley Point is about the worst British plan ever, and that’s saying something.

Amid Britain Nuclear Debacle, China’s Xinhua Decries ‘Suspicion’ (R.)

China will not tolerate “unwanted accusations” about its investments in Britain, a country that cannot risk driving away other Chinese investors as it looks for post-Brexit trade deals, China’s official Xinhua news agency said on Monday. British Prime Minister Theresa May was concerned about the security implications of a planned Chinese investment in the Hinkley Point nuclear plant and intervened to delay the project, a former colleague and a source said on Saturday.The plan by France’s EDF to build two reactors with financial backing from a Chinese state-owned company was championed by May’s predecessor David Cameron as a sign of Britain’s openness to foreign investment.

But just hours before a signing ceremony was due to take place on Friday, May’s new government said it would review the project again, raising concern that Britain’s approach to infrastructure deals, energy supply and foreign investment may be changing. China General Nuclear Power, which would hold a stake of about a third in the project, said on Saturday it respected the decision of the new British government to take the time needed to familiarise itself with the program. Xinhua, in an English-language commentary, said China understood and respected Britain’s requirement for more time to think about the deal. “However, what China cannot understand is the ‘suspicious approach’ that comes from nowhere to Chinese investment in making the postponement,” it said.

The project will create thousands of jobs and create much needed energy following the closure of coal-fired power plants, Xinhua added, dismissing fears China would put “back-doors” into the project. “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out,” it said.

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But please don’t think this means problems are over.

Greece Eases Back On Capital Controls In Bid To Reverse Currency Flight (G.)

More than a year after they were imposed, capital controls in Greece will be substantially eased on Monday in a bid to lure back billions of euros spirited out of the country, or stuffed under mattresses, at the height of the eurozone crisis. The relaxation of restrictions, whose announcement sent shockwaves through markets and the single currency, is aimed squarely at boosting banking confidence in the eurozone’s weakest member. The Greek finance ministry estimates around €3bn-€4bn could soon be returned to a system depleted of more than €30bn in deposits in the run-up to Athens sealing a third bailout to save it from economic collapse last summer.

“The objective is to re-attract money back to the banking system which in turn will create more confidence in it,” said Prof George Pagoulatos who teaches European politics and economy at Athens University. “And there are several billion that can be returned. People just need to feel safe.” As such the loosening of measures initially seen as an aberration in the 19-strong bloc is being viewed as a test case: of the faith Greeks have in economic recovery and the ability of their leftist-led government to oversee it. New deposits will not be subject to capital controls; limits on withdrawals of money brought in from abroad will also be higher; and ATM withdrawals will be raised to €840 every two weeks in a reversal of the policy that allowed depositors to take out no more than €420 every week.

[..] From 2008, the year before the country’s debt crisis erupted, until the end of 2015, an estimated 244,700 small- and medium-sized businesses have closed with many more expected to declare bankruptcy this year. The latest move, which follows easing of transactions abroad, is directed at small entrepreneurs, for years the lifeline of the Greek economy, and individual depositors. But while economists are calling the easing of restrictions a significant step to normalisation, Greek finances are far from repaired. Challenges for the prime minister, Alexis Tsipras, are expected to peak – along with social discontent – in the autumn when his fragile two-party coalition is forced to meet more milestones and creditor demands, starting with the potentially explosive issue of labour reform. Further disbursement of aid – €2.8bn – will depend exclusively on the painful measures being passed.

Read more …

The Great Deflation.

Building a Progressive International (YV)

Politics in the advanced economies of the West is in the throes of a political shakeup unseen since the 1930s. The Great Deflation now gripping both sides of the Atlantic is reviving political forces that had lain dormant since the end of World War II. Passion is returning to politics, but not in the manner many of us had hoped it would. The right has become animated by an anti-establishment fervor that was, until recently, the preserve of the left. In the United States, Donald Trump, the Republican presidential nominee, is taking Hillary Clinton, his Democratic opponent, to task – quite credibly – for her close ties to Wall Street, eagerness to invade foreign lands, and readiness to embrace free-trade agreements that have undermined millions of workers’ living standards.

In the United Kingdom, Brexit has cast ardent Thatcherites in the role of enthusiastic defenders of the National Health Service. This shift is not unprecedented. The populist right has traditionally adopted quasi-leftist rhetoric in times of deflation. Anyone who can stomach revisiting the speeches of leading fascists and Nazis of the 1920s and 1930s will find appeals – Benito Mussolini’s paeans to social security or Joseph Goebbels’ stinging criticism of the financial sector – that seem, at first glance, indistinguishable from progressive goals.
What we are experiencing today is the natural repercussion of the implosion of centrist politics, owing to a crisis of global capitalism in which a financial crash led to a Great Recession and then to today’s Great Deflation.

The right is simply repeating its old trick of drawing upon the righteous anger and frustrated aspirations of the victims to advance its own repugnant agenda. It all began with the death of the international monetary system established at Bretton Woods in 1944, which had forged a post-war political consensus based on a “mixed” economy, limits on inequality, and strong financial regulation. That “golden era” ended with the so-called Nixon shock in 1971, when America lost the surpluses that, recycled internationally, kept global capitalism stable.

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What a crazy story.

India Rescues 10,000 Starving Workers In Saudi Arabia (Sky)

The Indian government has come to the rescue of more than 10,000 of their starving citizens in Saudi Arabia. Some 16,000 kg of food was distributed on Saturday night by the consulate to penniless workers who’ve lost their jobs and not been paid. The issue came to light when a man tweeted India’s foreign minister Sushma Swaraj saying around 800 Indians had not eaten for three days in Jeddah, asking her to intervene. Investigations found that there were thousands starving across Saudi Arabia and Kuwait. Ms Swaraj instructed the consulate to make sure no unemployed worker is to go without food, and is said to have monitored the situation on an hourly basis.

She tweeted: “Large number of Indians have lost their jobs in Saudi Arabia and Kuwait. The employers have not paid wages, closed down their factories. “The number of Indian workers facing food crisis in Saudi Arabia is over ten thousand.” Many workers in Saudi Arabia and Kuwait have been living in inhumane conditions after losing their jobs. Hundreds have been laid off without being paid their wages. Indian newspapers reported that one firm – the Saudi Oger company – did not pay wages for seven months. Of its 50,000 employees, 4,000 were Indians. India’s Consul General Mohammad Noor Rehman Sheikh, told a news agency: “For the last seven months these Indian workers of Saudi Oger were not getting their salaries and the company had also stopped providing food to these workers.”

[..] India’s junior foreign minister VK Singh has been tasked to travel to Saudi Arabia to put in place an evacuation process which is due to begin soon. He had successfully led the evacuation of a large number of Indians from war-torn Yemen and most recently from South Sudan. There are more than three million Indians living and working in Saudi Arabia and more than 800,000 in Kuwait. Falling oil prices have hit the economy of Saudi Arabia and other Gulf countries.

Read more …

Jul 192016
 
 July 19, 2016  Posted by at 3:13 pm Finance Tagged with: , , , , , , ,  


M. King Hubbert

It’s been a while since we posted an article by our friend Euan Mearns, who was active at The Oil Drum at the same time Nicole and I were. Is it really 11 years ago that started, and almost 9 since we left? You know the drill: we ‘departed’ because they didn’t want us to cover finance, which we said was the more immediate crisis, yada yada. Euan stayed on for longer, and the once unequalled Oil Drum is no more.

On one of our long tours, which were based around Nicole’s brilliant public speaking engagements, we went to see Euan in Scotland, he teaches at Aberdeen University. I think it was 2011?! An honor. Anyway, always a friend.

And there’s ono-one I can think of who’d be better at explaining the Peak Oil Paradox in today’s context. So here’s a good friend of the Automatic Earth, Euan Mearns:

 

 

Euan Mearns: Back in the mid-noughties the peak oil meme gained significant traction in part due to The Oil Drum blog where I played a prominent role. Sharply rising oil price, OPEC spare capacity falling below 2 Mbpd and the decline of the North Sea were definite signs of scarcity and many believed that peak oil was at hand and the world as we knew it was about to end. Forecasts of oil production crashing in the coming months were ten a penny. And yet between 2008, when the oil price peaked, and 2015, global crude+condensate+NGL (C+C+NGL) production has risen by 8.85 Mbpd to 91.67 Mbpd. That is by over 10%. Peak oilers need to admit they were wrong then. Or were they?

 

 

Introduction

 

It is useful to begin with a look at what peak oil was all about. This definition from Wikipedia is as good as any:

Peak oil, an event based on M. King Hubbert’s theory, is the point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline. Peak oil theory is based on the observed rise, peak, fall, and depletion of aggregate production rate in oil fields over time.

Those who engaged in the debate can be divided into two broad classes of individual: 1) those who wanted to try and understand oil resources, reserves, production and depletion rates based on a myriad of data sets and analysis techniques with a view to predicting when peak oil may occur and 2) those who speculated about the consequences of peak oil upon society. Such speculation normally warned of dire consequences of a world running short of transport fuel and affordable energy leading to resource wars and general mayhem. And none of this ever came to pass unless we want to link mayhem in Iraq*, Syria, Yemen, Sudan and Nigeria to high food prices and hence peak oil. In which case we may also want to link the European migrant crisis and Brexit to the same.

[* One needs to recall that GWI was precipitated over Kuwait stealing oil from Iraq, from a shared field on the Kuwait-Iraq border, leading to the Iraqi invasion of 1991.]

The peak oil debate on The Oil Drum was a lightning conductor for doomers of every flavour – peak oil doom (broadened to resource depletion doom), economic doom and environmental doom being the three main courses on the menu. The discussion was eventually hijacked by Greens and Green thinkers, who, not content with waiting for doomsday to happen, set about manufacturing arguments and data to hasten the day. For example, fossil fuel scarcity has morphed into stranded fossil fuel reserves that cannot be burned because of the CO2 produced, accompanied by recommendations to divest fossil fuel companies from public portfolios. Somewhat surprisingly, these ideas have gained traction in The United Nations, The European Union and Academia.

It is not my intention to dig too deeply into the past. Firmly belonging to the group of data analysts, in this post I want to take a look at two different data sets to explore where peak oil stands today. Is it dead and buried forever, or is it lurking in the shadows, waiting to derail the global economy again?

 

 

The USA and Hubbert’s Peak

 

The USA once was the poster child of peak oil. The Peak Oil theory was first formulated there by M. King Hubbert who in 1956 famously forecast that US production would peak around 1970 and thereafter enter an era of never-ending decline (Figure 1). Hubbert’s original paper is well worth a read.

Figure 1 From Hubbert’s 1956 paper shows the peak and fall in US production for ultimate recovery of 150 and 200 billion barrels. The 200 billion barrel model shows a peak of 8.2 Mbpd around 1970 that proved to be uncannily accurate.

Looking to Figure 2 we see that Hubbert’s prediction almost came true. US production did indeed peak in 1970 at 9.64 Mbpd while Hubbert’s forecast was a little lower at 8.2 Mbpd. The post-peak decline was interrupted by the discovery of oil on the N slope of Alaska and opening of the Aleyska pipeline in 1977 that was not considered in Hubbert’s work. Herein lies one of the key weaknesses of using Hubbert’s methodology. One needs to take into account known unknowns. We know for sure that unexpected discoveries and unexpected technology developments will occur, it’s just we don’t know, what, when and how big.

Figure 2 In red, US crude oil production from the EIA shows progressive growth from 1900 to 1970. The oil industry believed this growth would continue forever and was somewhat aghast when M. King Hubbert warned the party may end in 1970 which it duly did. The discovery of oil in Alaska created a shoulder on the decline curve. But apart from that, Hubbert’s forecast remained good until 2008 when the shale drillers and frackers went to work. Hubbert’s 1970 peak was matched by crude oil in 2015 and exceeded by C+C+NGL that same year.

Following the secondary Alaska peak of 8.97 Mbpd (crude oil) in 1985, production continued to decline and reached a low of 5 Mbpd (crude oil) in 2008. But since then, the rest is history. The shale drillers and frackers went to work producing an astonishing turnaround that most peak oil commentators, including me, would never have dreamt was possible.

Before going on to contemplate the consequences of the shale revolution, I want to dwell for a moment on the production and drilling activity in the period 1955 to 1990. 1955 to 1970 we see that total rigs* declined from 2683 to 1027. At the same time crude oil production grew from 6.8 to 9.6 Mbpd. It was in 1956 that Hubbert made his forecast and in the years that followed, US production grew by 41% while drilling rigs declined by 62%. No wonder the industry scoffed at Hubbert.

[* Note that Baker Hughes’ archive pre-1987 does not break out oil and gas rigs from the total.]

But then post 1970, as production went into reverse, the drilling industry went into top gear, with operational rigs rising sharply to a peak of 3974 in 1981. But to no avail, production in the contiguous 48 states (excluding Alaska) continued to plunge no matter how hard the oil and its drilling industry tried to avert it. Hubbert must surely have been proven right, and his methodology must surely be applicable not only to the US but to the World stage?

The oil price crash of 1981 put paid to the drilling frenzy with rig count returning to the sub-1000 unit baseline where it would remain until the turn of the century. The bear market in oil ended in 1998 and by the year 2000, the US drilling industry went back to work, drilling conventional vertical wells at first but with horizontal drilling of shale kicking in around 2004/05. Production would turn around in 2009.

Those who would speak out against peak oil in the mid-noughties, like Daniel Yergin and Mike Lynch, would argue that high price would result in greater drilling activity and technical innovation that would drive production to whatever level society demanded. They would also point out that new oil provinces would be found, allowing the resource base to grow. And they too must surely have been proved to be correct.

But there is a sting in the tail of this success story since drilling and producing from shale is expensive, it is dependent upon high price to succeed. But over-production of LTO has led to the price collapse, starving the shale drilling industry of cash flow and ability to borrow, leading to widespread bankruptcy. In fact informed commentators like Art Berman and Rune Likvern have long maintained that the shale industry has never turned a profit and has survived via a rising mountain of never ending debt. Economists will argue, however, that improved technology and efficiency will reduce costs and make shale competitive with other sources of oil and energy. We shall see.

Herein lies a serious conundrum for the oil industry and OECD economies. They may be able to run on shale oil (and gas) for a while at least, but the industry cannot function properly within current market conditions. Either prices need to be set at a level where a profit can be made, or production capped to protect price and market share. This of course would stifle innovation and is not likely to happen until there are queues at gas stations.

 

 

2008-2015 Winners and Losers

 

BP report oil production data for 54 countries / areas including 5 “other” categories that make up the balance of small producers in any region. I have deducted 2008 production (barrels per day) from 2015 production and sorted the data on the size of this difference. The data are plotted in Figure 3.

Figure 3 The oil production winners to the left and losers to the right, 2008 to 2015. The USA is the clear winner while Libya is the clear loser. About half of the countries show very little change. Click chart for a large readable version.

What we see is that production increased in 27 countries and decreased in the other 27 countries. One thing we can say is that despite prolonged record-high oil price, production still fell in half of the world’s producing countries. We can also see that in about half of these countries any rise or fall was barely significant and it is only in a handful of countries at either end of the spectrum where significant gains and losses were registered. Let’s take a closer look at these.

Figure 4 The top ten winners, 2008 to 2015.

The first thing to observe from Figure 4 is that the USA and Canada combined contributed 7.096 Mbpd of the 8.852 Mbpd gain 2008-2015. That is to say that unconventional light tight oil (LTO) production from the USA and LTO plus tar sands production from Canada make up 80% of the global gain in oil production (C+C+NGL). Iraq returning to market in the aftermath of the 2003 war makes up 18%. In other words expensive unconventional oil + Iraq makes up virtually all of the gains although concise allocation of gains and losses is rather more complex than that. Saudi Arabia, Russia, The UAE, Brazil, China, Qatar and Colombia have all registered real gains (5.258 Mbpd) that have been partly cancelled by production losses elsewhere.

Figure 5 The top ten losers, 2008 to 2015.

Looking to the losers (Figure 5) we see that Libya, Iran, Syria, Sudan and Yemen contribute 2.828 Mbpd of lost production that may be attributed to war, civil unrest or sanctions. I am not going to include Venezuela and Algeria with this group and will instead attribute declines in these countries (0.979 Mbpd) to natural reservoir depletion, although a slow down in OECD technical assistance in these countries may have exacerbated this situation. That leaves the UK, Mexico and Norway as the three large OECD producers that register a significant decline (1.687 Mbpd) attributed to natural declines in mature offshore provinces. Let me try to summarise these trends in a balance sheet:

Figure 6 The winner and loser balance sheet.

We see that these 20 countries account for 8.463 Mbpd net gain compared with the global figure of 8.85 Mbpd. We are capturing the bulk of the data and the main trends. In summary:

  • Unconventional LTO and tar sands + 7.096 Mbpd
  • Net conventional gains + 2.592 Mbpd
  • Net conflict losses -1.225 Mbpd

The sobering point here for the oil industry and society to grasp is that during 8 years when the oil price was mainly over $100/bbl, only 2.592 Mbpd of conventional production was added. That is about 3.1%. Global conventional oil production was all but static. And the question to ask now is what will happen in the aftermath of the oil price crash?

One lesson from recent history is that the oil industry and oil production had substantial momentum. It is nearly two years since the price crash, and while global production is now falling slowly it remains in surplus compared with demand. This has given the industry plenty time to cut staff, drilling activity and to delay or cancel projects that depend upon high price. In a post-mature province like the North Sea, the current crisis will also hasten decommissioning. It seems highly likely that momentum on the down leg will be replaced by inertia on the up leg with a diminished industry unwilling to jump back on the band wagon when price finally climbs back towards $100 / bbl, which it surely will do one day in the not too distant future.

For many years I pinned my colours to peak oil occurring in the window 2012±3 years. Noting that the near-term peak was 97.08 Mbpd on July 15 2015 it is time to dust off that opinion (Figure 7). The decline since the July 2015 peak is of the order 2% per annum (excluding the Fort McMurray impact). It seems reasonable to presume that this decline may continue for another two years, or even longer. That would leave global production at around 92 Mbpd mid 2018. It is nigh impossible to predict what will happen, especially in a world over run by political and economic uncertainty. Another major spike in oil price seems plausible and this could perhaps destabilise certain economies, banks and currencies. Should this occur, another price collapse will follow, and it’s not clear that production will ever recover to the July 2015 peak. Much will depend upon the future of the US shale industry and whether or not drilling for shale oil and gas gains traction in other countries.

Figure 7 The chart shows in blue global total liquids production (C+C+NGL+refinery gains+biofuels) according to the Energy Information Agency (EIA). The near term peak was 97.08 Mbpd in July 2015. The decline since then, excluding the Fort McMurray wild fire impact, is of the order 2% per annum. In the current low price environment, it is difficult to see anything arresting this decline before the end of next year. In fact, decline may accelerate and go on beyond the end of 2017. The dashed line shows the demand trajectory and scheduled balancing of supply and demand by the end of this year. By the end of next year the supply deficit could be of the order 3 Mbpd which on an annualised basis would result in a stock draw of 1.1 billion barrels. But remember, forecasts are ten a penny 🙂

 

 

Concluding Thoughts

 

  1. M. King Hubbert’s forecast for US oil production and the methodology it was based on has been proven to be sound when applied to conventional oil pools in the USA. When decline takes hold in any basin or province, it is extremely difficult to reverse even with a period of sustained high price and the best seismic imaging and drilling technology in the world.
  2. On this basis we can surmise that global conventional oil production will peak one day with unpredictable consequences for the global economy and humanity. It is just possible that the near term peak in production of 97.08 Mbpd in July 2015 may turn out to be the all-time high.
  3. Economists who argued that scarcity would lead to higher price that in turn would lead to higher drilling activity and innovation have also been proven to be correct. Much will depend upon Man’s ability to continue to innovate and to reduce the cost of drilling for LTO in order to turn a profit at today’s price levels. If the shale industry is unable to turn a profit then it will surely perish without State intervention in the market.
  4. But from 2008 to 2015, oil production actually fell in 27 of 54 countries despite record high price. Thus, while peak oil critics have been proven right in North America they have been proven wrong in half of the World’s producing countries.
  5. Should the shale industry perish, then it becomes highly likely that Mankind will face severe liquid fuel shortages in the years ahead. The future will then depend upon substitution and our ability to innovate within other areas of the energy sector.

 

 

Related reading:

 

From Rune Likvern:

The Bakken LTO extraction in Retrospect and a Forecast of Near Future Developments

Bakken(ND) Light Tight Oil Update with Sep 15 NDIC Data

Are the Light Tight Oil (LTO) Companies trying to outsmart Mother Nature with their Financial Balance Sheets?

From Enno Peters:

Visualizing US shale oil production

Feb 202016
 
 February 20, 2016  Posted by at 9:18 am Finance Tagged with: , , , , , , , , ,  


Russell Lee “Yreka, California. Magazine stand” 1942

Commodities’ $3.6 Trillion Black Hole (BBG)
‘It’s Going To Be Much Worse Than 2008’ (FS)
Has The Market Crash Only Just Begun? (ZH)
The US Economy Has Not Recovered and Will Not Recover (PCR)
Worldwide M&A Activity Falls 23% (Reuters)
US Shale Faces March Madness With $1.2 Billion in Interest Due (BBG)
Moody’s Tallies 28 Downgrades In The Energy Sector Since December (MW)
Why Oil Rout Is Hurting The Global Economy Instead Of Helping (MW)
China’s Foreign Exchange Reserves Dwindling Rapidly (NY Times)
China ‘Removes’ Top Securities Regulator (Reuters)
Fannie Mae At Risk Of Needing A Bailout (FT)
Independent Modelling May Show Way Out Of Oz Housing Bubble (SMH)
Brexit!? France And Germany Can Not Wait (Gefira)
Tsipras, Merkel, Hollande Agree On Open Borders Until March 6 Summit (Kath.)
EU Summit On Refugee Crisis Ends In Disarray (FT)
Two Children Drown Every Day On Average Trying To Reach Europe (UNHCR)

” If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5% of the total assets of all the world’s publicly traded banks. [..] U.S. subprime mortgages represented less than 1% of listed banks’ assets at the end of 2007.

Commodities’ $3.6 Trillion Black Hole (BBG)

Markets rallied this week after it became clear that some of the world’s biggest oil producers were going to curb production to stop prices from dropping any further. The news also buoyed other commodities, from coal to iron ore. Then everything dropped on Thursday with oil. Before the global financial crisis, a rise in raw-materials prices used to be bad news for the economy and stocks in general. Since central bank easy-money policies took off, that’s become a thing of the past:

One possible explanation is the level of exposure that banks and investors have to the industry. The 5,000 biggest publicly traded companies tracked by Bloomberg in the iron and steel, metals and mining, and energy sectors have a combined $3.6 trillion in debt, according to their most recent financial reports, double what they had at the end of 2008. Much of the increase is due to money that was borrowed to dig mines and wells whose output, at previous prices, would have easily repaid most maturing bonds and loans. But as commodity prices have tumbled, so has the ability of companies to meet their obligations. The Bloomberg Commodity Index is still only 3.9% higher than a 25-year low hit on Jan. 20. Five years ago, those companies tracked by Bloomberg had more operating income than debt, on average. Now, it would take them more than eight years’ worth of current earnings, without provisioning for interest, taxes, depreciation or amortization, to clear their combined net obligations.

Yield-hungry bond investors sucked up a lot of the debt that was issued and now hold about $2.1 trillion of outstanding notes. They’ll be first to feel the pain considering Standard & Poor’s has already downgraded securities equivalent to 47% of that amount and made some 400 negative-ratings moves in the basic materials and energy sectors over the past 12 months alone. Such scale and depth is reminiscent of the way banks were slaughtered by ratings companies during the 2008 financial crisis. It’s unclear where the other portion of the $3.6 trillion in liabilities lies but probably, most of it is owed to banks. If the remaining $1.5 trillion is indeed on the balance sheets of financial institutions, that would represent about 1.5% of the total assets of all the world’s publicly traded banks. That doesn’t seem very significant, or any cause for concern. But to put it in some context, U.S. subprime mortgages represented less than 1% of listed banks’ assets at the end of 2007.

Read more …

“You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.” (h/t Stockman)

‘It’s Going To Be Much Worse Than 2008’ (FS)

Bert Dohmen, founder of Dohmen Capital Research, is uber-bearish and believes that it is time for investors to panic (before everyone else does) given a potential collapse of the stock market greater than what we saw in 2008. Here’s what he had to say on Thursday’s podcast: “Over a year ago we said that we are now in a transition year from a bull market to a bear market and from a growing economy to a recession—and this could be a very deep recession… now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, ‘Is it too late to panic?’ Because…the advice given by so many analysts is ‘Don’t panic, don’t sell, don’t panic.’ And I say, ‘Yes, panic!’ And it’s not too late to panic. Panicking at the right time can save you a lot of money…

I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at $5 or less. Okay, just put that into your portfolio and see if you should be selling some stocks… We here other analysts say, ‘Oh, this is nothing like 2008’ and I agree with that, but I say that because I think it’s going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs…they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that’s how it started.

Now, look at what we have currently. We have every major economic zone in the world in financial trouble. You have Japan with a debt-to-GDP ratio of 280%. You have China at 300% debt-to-GDP. China has over $34 trillion of debt and the banking system is flooded with bad loans. The best estimate—and this was two years ago I wrote a book called The Coming China Crisis—and I said the best estimate is that they have $11 trillion of bad loans in the banking system. $11 trillion is the annual GDP of China—this is huge! You have Europe, you have Latin America in trouble, you have Russia in big trouble, you have Saudi Arabia even thinking about doing an IPO on their big oil company in order to make up for the shortfall of oil revenues. You have every major economic zone in the world in big, big trouble including the US and that is why I say this crisis has the potential of becoming much, much worse than the last one.”

Read more …

“..it can’t be done in a non-messy way.”

Has The Market Crash Only Just Begun? (ZH)

Having successfully called the market’s retreat in the fall of 2015, Universa’s Mark Spitznagel is not taking a victory lap as he warns Bloomberg TV that “the crash has only just begun.” Investors are facing the most binary “let’s make a deal” market in history in Spitznagel’s view: choose Door #1 to bet on Keynesianism, central planners, and monetary interventionism; or Door #2 to bet on free markets and natural price discovery. “There is massive cognitive dissonance here,” Spitznagel explains as history teaches us that door #2 is the right choice… but it’s not possible to do that today as investors have been coerced to choose door #1, but when door #1 is slammed open “we will see that dreaded black swan monster.” That is what is going on right now:

“Investors want to go with The Fed when it’s working – like David Zervos… the problem is, when do you know that it is not working?” “At some point this stops working…” “the market is going through a resolution process, transitioning from the cognitive dissonance of Door #1 to the harsh reality of Door #2… if everyone were to change doors at the same time, that is a market crash… it can’t be done in a non-messy way.”

Must watch reality check behind the smoke and mirrors we call markets… (we note Mark’s excellent analogy starting at around 3:10)

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Amen Paul Craig Roberts.

The US Economy Has Not Recovered and Will Not Recover (PCR)

The US economy died when middle class jobs were offshored and when the financial system was deregulated. Jobs offshoring benefitted Wall Street, corporate executives, and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits. However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits. Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low interest rate policy made possible.

Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it. The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized. Under Fed chairman Bernanke the economy was kept going with Quantitative Easing, a massive increase in the money supply in order to bail out the “banks too big to fail.” Liquidity supplied by the Federal Reserve found its way into stock and bond prices and made those invested in these financial instruments richer.

Corporate executives helped to boost the stock market by using the companies’ profits and by taking out loans in order to buy back the companies’ stocks, thus further expanding debt. Those few benefitting from inflated financial asset prices produced by Quantitative Easing and buy-backs are a much smaller%age of the population than was affected by the Greenspan consumer credit expansion. A relatively few rich people are an insufficient number to drive the economy. The Federal Reserve’s zero interest rate policy was designed to support the balance sheets of the mega-banks and denied Americans interest income on their savings. This policy decreased the incomes of retirees and forced the elderly to reduce their consumption and/or draw down their savings more rapidly, leaving no safety net for heirs.

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As trade plummets, so does M&A. So how are they going to pump up stock prices now? All buybacks all the time?

Worldwide M&A Activity Falls 23% (Reuters)

Worldwide mergers and acquisitions deals have fallen 23% to $336 billion so far this year compared with last year, but cross-border activity by amount targeting U.S.-based companies reached a record high, Thomson Reuters data shows. After hitting a record high by deals value in 2015, worldwide M&A activity has been hurt this year by falling oil prices, worries about slowing growth in China and the health of the financial sector. A trio of deals for U.S. companies topped the list of M&A announced this week, including Chinese company Tianjin Tianhai’s $6.3 billion offer for U.S.-based Ingram Micro, bringing year-to-date China outbound M&A targeting the U.S. to $23.3 billion. China, Ireland and Canada account for 88% of cross-border acquirers in the U.S. so far this year. European M&A activity, which lagged the U.S. in 2015, has hit $92 billion so far this year, up 4% compared with a year ago, after state-owned ChemChina announced it would buy Swiss seeds and pesticides group Syngenta for $43 billion in February.

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$9.8 billion for the year. With hedges disappearing.

US Shale Faces March Madness With $1.2 Billion in Interest Due (BBG)

The U.S. shale industry must come up with $1.2 billion in interest payments by the end of March as $30-a-barrel oil makes it harder for companies to scrape up the cash needed to stay current on their debts. Almost half of the interest is owed by companies with junk-rated credit, according to data compiled by Bloomberg on 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. Energy XXI said in a filing Tuesday that it missed an $8.8 million interest payment. The following day, SandRidge announced that it didn’t make a $21.7 million interest payment. “You’ve seen two of these happen in two days, and I wouldn’t be surprised to see more in the next month as these payments come due,” said Jason Wangler at Wunderlich in Houston.

Energy XXI may not be able to meet its commitments in the next 12 months, raising “substantial doubt regarding the Company’s ability to continue as a going concern,” according to a company filing with the U.S. Securities and Exchange Commission. A company representative didn’t return a phone call and e-mail seeking comment. SandRidge “has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders,” the company said in a statement released Wednesday. “Today’s actions will preserve liquidity and flexibility as we continue to engage in constructive dialogue with our stakeholders,” James Bennett, SandRidge president and chief executive officer, said in the statement.

Oil has tumbled about 70% since a June 2014 peak of $107 a barrel. While prices were high, many drillers spent more money than they earned, plugging the shortfall with debt. That debt has become increasingly burdensome as prices collapse. Since the start of 2015, 48 North American oil and gas producers have declared bankruptcy, owing more than $17 billion, according to law firm Haynes & Boone. Deloitte said this week that bankruptcies in the oil and gas industry could surpass levels seen in the Great Recession.

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And with hedges gone, borrowing gets much more expensive at the same time.

Moody’s Tallies 28 Downgrades In The Energy Sector Since December (MW)

Moody’s Investors Service said Friday it has downgraded a total of 28 energy companies since December, as it continues a global review of the troubled sector. The agency surprised investors in January when it placed the credit ratings of 120 energy companies and 55 mining companies from around the world on review for a possible downgrade. The move came after a deep slump in the price of oil and other commodities, hurt by oversupply and the slowdown in China, a major consumer of natural resources. Today’s tally includes issuers that had already been placed on review in December and surprised some in the market. “Moody’s drops another hammer,” is how analysts at credit research firm CreditSights described the move Friday.

“Over the past several weeks, it has become increasingly clear in our discussions with clients and in hearing from company managements that the agency was taking a very Draconian view of the sector,” they wrote in a note. Moody’s said it downgraded two energy companies by five notches each, sending them deep into speculative-grade, or “junk” territory. Denbury Resources was cut to Caa2 from Ba3, and Whiting Petroleum was cut to Caa1 from Ba2. The agency downgraded seven energy companies by four notches, nine companies by three notches and five companies by two notches. The agency affirmed ratings on another nine companies. It continues to review a total of 137 global issuers for a possible downgrade.

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Oil is everywhere in society. And lots of places rely on mostly high, but certainly somewhat stable, prices.

Why Oil Rout Is Hurting The Global Economy Instead Of Helping (MW)

Saudi Arabia saw Standard & Poor’s cut its credit rating cut two notches this week to A-minus—an unsurprising move that nevertheless helps illustrate why collapsing oil prices haven’t seemed to be the economic boon many had anticipated. In a Thursday note, Carl Weinberg, chief economist at High Frequency Economics, used the downgrade—along with cuts in ratings for Bahrain, Oman and Kazakhstan—to remind clients of his explanation of how falling commodity prices can weigh on global growth. Weinberg has calculated that a $100 drop in the price of a barrel of crude would reduce global income from extraction alone by $3.2 trillion, or about 4.5% of world gross domestic product. That’s to say nothing of the impact on global economic activity from oil sales, transportation and exploration.

The U.S. benchmark settled below $31 a barrel on Thursday, or about $76 below its mid-2014 high after settling as low as $26.21 earlier this month. Brent crude, the global benchmark, ended Thursday at $34.28. It traded around $115 a barrel in mid-2014. It isn’t wrong to assume that those losses would rebound to the benefit of oil consumers, Weinberg says. But the rub lies in the fact that consumers in oil-importing countries may be more likely to stash those savings away while workers in oil-exporting countries would have been more likely to spend that lost income. That means it can take “years or decades” before that savings is translated into spending. He writes:

If purchasing power is transferred from one country to another, and if the countries receiving the windfall have a higher marginal propensity to save than the countries that are paying the transfer, then world GDP will be reduced. So if oil-importing countries tend to have higher incomes and higher savings rates, then world GDP will be reduced. In other words, halving the weekly income of an oil field worker in Nigeria earning near-subsistence wages will likely affect his or her consumption more than reducing the monthly auto fuel bill of a dentist in Belgium by the equivalent amount.

Needless to say, the oil market carnage has translated into real fiscal problems for oil-producing nations. It feeds into ideas that this week’s talk of a production freeze that would include OPEC members and Russia—seemingly shot down by Saudi Arabia after Iran refused to comply—was a sign of desperation. While freezing output at record levels wasn’t seen as likely to do much to alleviate a global glut, oil futures have rallied on the idea that producers are at least talking to each other is an important step. Helima Croft, global head of commodities at RBC Capital Markets, said this week’s talks were “one of the first clear acknowledgments by the oil heavyweights that all isn’t entirely well in the current price environment.”

It might even lay the groundwork for a “more proactive” approach later in the year after OPEC has had a chance to gauge the impact of Iran’s post-sanctions return to the global oil market as well as the trajectory of non-OPEC production, Croft said in a Tuesday note. ”Recently, some leading Saudi experts have suggested that by the June meeting, those variables will be known, and with the supply-and-demand balance expected to be tighter by then, it will be easier for cartel to pull additional barrels if needed in order to accelerate a price recovery,” she wrote.

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“Beijing has also instructed bank branches in Hong Kong to limit their lending of renminbi to make it harder for traders and investors to place bets against the Chinese currency in financial markets.”

China’s Foreign Exchange Reserves Dwindling Rapidly (NY Times)

During China’s biggest boom years, its currency could have risen in value as huge sums in dollars, euros and yen flowed into the country. Instead, Beijing tightly controlled the value of the renminbi, buying up much of the inflows and putting them into its reserves instead. That brought angry accusations from the United States and Europe that it was manipulating its currency to help keep Chinese exports inexpensive and competitive in foreign countries. Now that the renminbi faces pressure to fall, China is spending its reserves in an effort to prop up the currency. But many American lawmakers and presidential candidates still accuse China of keeping its currency artificially weak. The reserves are still considerable, more than double Japan’s, which has the world’s second-largest amount.

The central bank chief, Mr. Zhou, and others have questioned whether the reserves are too big and the money could be better invested if left in the private sector. Mr. Zhou led a move over the last two years to make it easier for Chinese companies and families to invest their own money overseas, only to find in recent months that the outflows have been disconcertingly fast at times. China has taken steps to stem further flows out of the country. This winter the Chinese authorities arrested the leaders of underground banks that were converting billions of renminbi into dollars and euros. They also made it harder for Chinese citizens to use their renminbi to buy insurance policies in dollars. More quietly, Beijing bank regulators have halted sales within China of investment funds known as wealth management products that are denominated in dollars.

Beijing has also instructed bank branches in Hong Kong to limit their lending of renminbi to make it harder for traders and investors to place bets against the Chinese currency in financial markets. “We did receive notice from Beijing in the earlier part of January to be more stringent in approving renminbi-denominated loans,” said a Hong Kong-based China bank executive, who insisted on anonymity for fear of employer retaliation. “It is no fun being caught in the middle, with marketing officers wanting to do more business and the higher-ups telling you to be tougher when reviewing credit proposals.” The erosion of reserves is also politically awkward, given public perception, and Beijing has taken steps aimed directly at shoring them up.

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Big deal. He offered to step down last month. Beijing should understand that heavy-handedness does not boost confidence. What does this say about how Chinese securities have been regulated until today? Not much good.

China ‘Removes’ Top Securities Regulator (Reuters)

China has removed the head of its securities regulator following a turbulent period in the country’s stock markets, appointing a top state banking executive as his replacement, as leaders move to restore confidence in the economy. The announcement on the official Xinhua news agency on Saturday follows a string of assurances from senior leaders following the Lunar New Year holiday that China will underpin its slowing economy and steady its wobbly currency. Xinhua said Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC) since 2013, had been succeeded by Liu Shiyu, chairman of the Agricultural Bank of China Ltd. (AgBank) and a former deputy governor of the central bank. “Xiao’s departure is not a surprise following the recent stock disaster. This is a role vulnerable to public criticism because most Chinese retail investors are destined to lose money in such a market,” said Zhang Kaihua, a fund manager of Nanjing-based hedge fund Huyang Investment.

Xiao and the CSRC came under fire as China’s Shanghai and Shenzhen stock markets slumped as much as 40% in just a few months last summer. In a further blow, a stock index “circuit breaker” introduced in January to limit stock market losses was deactivated after four days of use because it was blamed for exacerbating a sharp selloff. Online media nicknamed Xiao “Mr. Circuit Breaker.” Reuters reported in January that Xiao, 57, had offered to resign following the “circuit-breaker” failure. The CSRC said at the time the information did not conform to the facts. The gyrations in China’s stock markets, an unexpected devaluation of the yuan in August and sharp falls in currency reserves rattled global markets, raising concerns about the health of the economy and Beijing’s ability to steer the country through both a protracted slowdown in growth and a shift away from manufacturing towards services.

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They do it on purpose. Set it up so poorly losses are inevitable, and meanwhile use it to keep housing prices propped up. The taxpayer can fork over the difference.

Fannie Mae At Risk Of Needing A Bailout (FT)

Fannie Mae, the state-sponsored U.S. mortgage backer, is at risk of needing a government bailout that could shake confidence in the housing finance market, senior officials have warned. Fannie Mae’s chief executive and its regulator are sounding the alarm on a decline in the institution’s capital cushion, which is on course to vanish in 2018, when it would have to ask the US Treasury for emergency funds. Their warnings highlight Washington’s inaction on housing policy and its failure to reform the institution, which guarantees nearly $3 trillion of securities and enables 30-year fixed rate loans, following the last financial crisis. Since 2008 Fannie Mae has been in the post-crisis limbo of state-sponsored “conservatorship,” neither fully nationalized nor private, following several unsuccessful attempts by Congress to overhaul it.

Because the government does not let Fannie Mae retain profits, Tim Mayopoulos, its chief executive, told the Financial Times on Friday that its capital buffer, which has dwindled from $30 billion before the crisis to $1.2 billion today, was on track to disappear by January 2018. At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership. So far investors who own Fannie Mae’s mortgage-backed securities have not been spooked, Mr. Mayopoulos said, but he added: “We are a major source of liquidity to the mortgage markets and it would be better to avoid testing the market as to what the breaking point is well in advance of us getting to that point.” His comments came the day after Mel Watt, Fannie Mae’s top regulator, thrust the issue into the spotlight.

Addressing both Fannie Mae and its counterpart Freddie Mac, Mr Watt, director of the Federal Housing Finance Agency, said: “The most serious risk and the one that has the most potential for escalating in the future is the enterprises’ lack of capital.” “If investor confidence in enterprise securities went down and liquidity declined as a result, this could have real ramifications on the availability and cost of credit for borrowers,” he said in a speech. Fannie Mae’s inability to retain profits, which must instead be swept into government coffers, also makes it almost impossible for the institution to exit federal control.

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Refusing to kill the golden goose.

Independent Modelling May Show Way Out Of Oz Housing Bubble (SMH)

Independent modelling has dented the Turnbull government’s attack on Labor’s negative gearing policy, finding it will generate billions for the Commonwealth with the vast bulk of revenue coming from just the top 10% of households who negatively gear their properties. The report’s author says the policy would likely slow the pace of house-price growth and boost new housing construction, making it “potentially the biggest housing affordability policy the country has seen.” Prime Minister Malcolm Turnbull launched a scathing attack on Labor’s negative gearing policy on Friday, saying home owners across the country would see the value of the family home “smashed” by the “very blunt, very crude” idea.

In a clear sign his government is preparing to launch a massive scare campaign in the lead-up to the 2016 election over Labor’s proposal, which is designed to save $32 billion over a decade, Mr Turnbull warned the policy was “calculated” to reduce the value of all homes. n”The Labor Party’s negative gearing policy and its wind-back on the capital gains discount – its increase in tax on capital gains – is a very dangerous one. It’s been very, very poorly thought out,” Mr Turnbull said on Friday. “The consequence of it will be a decline in property prices, every home owner in Australia has a lot to fear from Bill Shorten.”

But independent modelling shows there will be “significant” long-term savings from Labor’s proposal to quarantine negative gearing to new housing investments from July 2017, eventually raising between $3.5 to $3.9 billion a year. It also shows Labor’s proposal to cut the capital gains tax discount from 50% to 25% would raise about $2 billion a year in the long term. It shows the vast majority of savings would be at the expense of the top 10% of earners who negatively gear their properties. It also estimates that by restricting negative gearing to new housing, the policy would “increase the share of investment housing devoted to newly built housing” by 10 to 20%. It does not say house prices would drop. “Our modelling shows that negative gearing benefits high-income families with 52.6% of the benefit going to the top 20% of incomes,” the paper says.

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EU must turn into EMU. Which nobody wants outside of Brussels and EU capitals. Anyway, the coming economic downturn will turn the EMU into a crumbling ruin.

Brexit!? France And Germany Can Not Wait (Gefira)

If London decides to leave the European Union nobody in Europe will even notice. Great Britain is an entirely separate country, isolated from the European Union and does not participate in the Euro or Schengen Agreement. The EU as a political platform is disintegrating and becoming more and more irrelevant and will be displaced by the European Monetary Union (EMU). The center of power in Europe has shifted from the EU to the EMU and London politicians are fully aware of it. A Brexit will accelerate the process of political integration of the EMU members and make the EU politically less significant.

Over the past decade we saw:
• Countries can enter the European Union;
• The very core values of the European Union can be set aside as we saw happening in Turkey just before the European Commission announced to restart Turkey’s accession negotiations;
• Trade relations with Great Britain can be suspended without any upheaval, as we saw it concerning non-EU member Russia;
• Borders can be opened and closed as is the case in south-east Europe due to the refugee crisis;
• The Dublin Regulation can be dissolved overnight in the face of the fact that more than a million refugees have entered Europe since the summer of 2015;

All these events hardly changed the life of the Europeans. Being a member of the European Monetary Union is of another magnitude. The Greek euro crisis changed the lives of millions of Greeks. During the tense days in July 2015, when the future of Greece, the EMU and indirect the future of Europe was at stake, Chancellor Merkel and President Hollande held 24 hours emergency meetings as did the Eurogroup. Great Britain and the European Parliament did not play any role whatsoever in these decisive moments for the future of Europe. Cameron was not even invited to share his opinion.

The European Monetary Union is doomed for further political integration; the euro members have no other option but to create a fiscal union and a banking union. Without these two pillars, the whole Euro will fall apart dragging with it the complete Western financial system. A fiscal and banking union means that these countries have to integrate far beyond the European Union framework. Prime Minister Cameron is an annoyance for the already struggling EMU. The European Monetary Union faces extreme difficulties, as on one hand further integration of the Euro countries is inevitable and on the other hand, the widespread support for this integration is eroding. In 2011, French President Sarkozy told Cameron:”We’re sick of you criticizing us and telling us what to do. You say you hate the euro, you didn’t want to join, and now you want to interfere in our meetings”.

The EMU countries face a big political problem that is to be solved. Germany and France will never let countries outside the EMU have a say in their affairs as Cameron proposed. The diplomatic words from French Prime Minister Manuel Valls make it all clear to London as he said; “a Brexit is a shock for Europe but still members can not pick and choose rules that suit them”. The UK leaving the EU will make life easier for Paris and Berlin as Figaro writes: “Brexit? An opportunity for Europe, for France and for Paris”. When the UK is outside the EU Frankfurt and Paris will have more opportunities to crush London as a financial center. London could not miss Merkel’s warning against gains for British banks under ‘Brexit’. If the UK decides to leave, Berlin and Paris will do definitely more than prevent London banks from making any gain; they will do everything to establish Paris or Frankfurt as the financial center of the EMU at London’s expense.

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Expect refugee numbers to soar over next 2 weeks.

Tsipras, Merkel, Hollande Agree On Open Borders Until March 6 Summit (Kath.)

Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of a European Union summit in Brussels on Friday. At the meeting, which reportedly lasted for an hour, the three leaders discussed the refugee crisis and the Greek bailout. According to a close Tsipras aide, the Greek premier reiterated that Greece would not accept any action against its interests. The three leaders agreed that the key with regard to decreasing the migration flow was Turkey and that NATO’s involvement was a positive development. Tsipras reportedly received assurances from Germany and France that assistance would be provided if necessary.

A pivotal point in the discussion was that the three leaders stressed that there would be no change in the European borders’ status quo until March 6, when a new summit on the refugee crisis is scheduled to take place, after Turkish PM Ahmet Davutoglu canceled his trip to Brussels following a bomb attack in Ankara which claimed the lives of 28 people on Wednesday. The leaders also agreed that representatives of the institutions should return to Athens as soon as possible in order to complete the review.

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Because Brexit allows convenient alternate story line. Much more important than human misery.

EU Summit On Refugee Crisis Ends In Disarray (FT)

Chancellor Angela Merkel hoped this week’s EU summit on migration would provide at least a show of European unity in the refugee crisis. Instead, it ended in disarray. An Austrian plan to cap the entry of asylum-seekers at just 80 a day left the German leader isolated, Greece threatening to scupper any deal on Brexit in response, and leaders more divided than ever over the EU’s biggest challenge in decades. European leaders, from Berlin to Vienna to Athens, are now improvising and pursuing often contradictory policies. Ms Merkel took even her own officials by surprise when she demanded another summit on the refugee crisis on March 6, just before three key German regional elections on March 13 and before the onset of spring boosts the numbers crossing the Aegean.

Refugee arrivals have picked up, with more than 4,800 arriving in Greece from Turkey on Thursday a rate not far off the autumn peak, when an average of 7,000 people a day were arriving. A backlog is building up along the western Balkans route, where fractious states have had to pull together to cope with the arrival of more than 1m people since the start of 2015. In private, previously optimistic officials are starting to despair, with worries shifting to a potential humanitarian disaster on the bloc s south eastern border. An EU leader said: “It’s a serious situation”. Ms Merkel is still banking on a deal with Ankara to secure the vulnerable Greek-Turkish frontier. As the chancellor said in the early hours on Friday: “It is an absolute given that we must urgently move faster”.

But bad luck waylaid even this plan: Turkish prime minister Ahmet Davutoglu cancelled a planned trip to Brussels to discuss migration following a car-bomb attack in Ankara. After the stormy summit debate, a tired looking Ms Merkel put a brave face on events at the 2.30am press conference, pointing to the efforts made in recent weeks to engage with Turkish president Recep Tayyip Erdogan and boost Greece’s sea defences by deploying Nato ships. Meanwhile, Vienna has been accused of trampling on international law, including the Geneva Convention on refugees, throwing already barely enforced rules on asylum into further doubt. “Conventions are like fairies; if you stop believing in them, they die”, said Elizabeth Collett, a director at the Migration Policy Institute.

However, the Austrian public backs its chancellor Werner Faymann’s migrant cap, with Der Standard newspaper on Friday defending him, saying that Brussels had scored “an own goal” by criticising Vienna. Ms Merkel, who rarely criticises EU partners in public, said that she had been “surprised” by Mr Faymann. Privately, German officials are furious that an old ally has broken ranks. Brussels had desperately attempted to force member states to abide by the rules, with little success. Despite EU member states agreeing to share out 160,000 refugees from Italy and Greece among themselves, fewer than 600 have actually been moved. While some leaders such as Viktor Orban, Hungary’s prime minister, have noisily disagreed, others — such as Madrid and Paris — have simply dragged their feet.

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Here’s warning you once again, Brussels, you’re not going to survive this, somone will have your head on a platter for it, and it ain’t going to be silver. Even this UNHCR piece tries to blame the smugglers, but Europe could have provided safe passage all along.

Two Children Drown Every Day On Average Trying To Reach Europe (UNHCR)

Two children have drowned every day on average since September 2015 trying to cross the eastern Mediterranean to find safety with their families in Europe, UNHCR, the UN Refugee Agency, said today. In a joint statement, issued in Geneva, UNHCR, UNICEF and the IOM warned that the number of child deaths was on the increase and called for more measures to increase safety for those escaping conflict and despair. Since last September, when the tragic death of toddler Aylan Kurdi captured the world’s attention, more than 340 children, many of them babies and toddlers, have drowned in the eastern Mediterranean. The total number of children who have died may be even greater, the sister organisations said, with their bodies lost at sea and never recovered.

One of those statistics was seven-year-old Houda from Afghanistan who went missing in a shipwreck off the Greek island of Kos at the end of January. Her mother, father, two sisters and one of her brothers had left Kabul for Istanbul earlier that month after her father, a middle-ranking police officer, received death threats. In Turkey, the family made a deal with a smuggler who promised them an “extra-safe trip in a spacious large boat” to Greece. To pay for the trip, Houda’s father had sold his house and borrowed money from family and friends. At night in a dark bay as they prepared to leave, they saw the boat was little more than a sailing coffin. It was small, old and massively overcrowded with around 80 passengers covering a few metres of deck. They tried to step back, but were forced by the smuggler to board the boat with no questions.

Smugglers allow no last-minute change of mind. Houda’s sister Aisha and her brother Aziz survived that deadly trip, along with 26 others, but her mother, father and an older sister perished. Their bodies were recovered. Houda’s was never found. Aisha and Aziz, 16 and 15 respectively, had learned to swim in school and that saved them. The stretch of the Aegean Sea between Turkey and Greece is now among the deadliest routes in the world for refugees and migrants. “These tragic deaths in the Mediterranean are unbearable and must stop,” said UN High Commissioner for Refugees Filippo Grandi. “Clearly, more efforts are needed to combat smuggling and trafficking. Also, as many of the children and adults who have died were trying to join relatives in Europe, organising ways for people to travel legally and safely, through resettlement and family reunion programmes for example, should be an absolute priority if we want to reduce the death toll,” he added.

With children now accounting for 36% of those on the move, the chance of them drowning on the Aegean Sea crossing from Turkey to Greece has grown proportionately. During the first six weeks of 2016, 410 people drowned out of the 80,000 people crossing the eastern Mediterranean. This amounts to a 35-fold increase year-on-year from 2015. Aisha and Aziz are now accommodated at a transit facility UNHCR runs with a national NGO offering specialized services to unaccompanied refugee children in Greece until they are assigned to a permanent facility. They wish to reunite as soon as possible with what remains of their family. They have a brother in Germany and hope one day to be able to join him there.

“These children expressed incredible dignity and courage throughout the many challenges they faced after the shipwreck. After already identifying the corpses of his own family members at the Coast Guard, Aziz insisted on seeing more pictures in order to recognize fellow travellers and help in their identification so that their families could also find out what had happened to them. They repeatedly expressed their gratitude towards me and other colleagues for the help we provided,” said Georgios Papadimitriou, a senior protection officer with UNHCR.

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Jan 242016
 
 January 24, 2016  Posted by at 7:56 am Finance Tagged with: , , , , , , , ,  


Harris&Ewing “Street scene with snow, F STreet Washington, DC” 1918

Iraq Sells Oil For $22 A Barrel, Calls For IMF Help (BBG)
American Oil Companies Are Starting To Scream “Mayday” (CNN)
US Shale’s Big Squeeze (FT)
Squeezed Primary Dealers Quit European Government Bond Markets (Reuters)
US Banks Cut Off Mexican Clients as Regulatory Pressure Increases (WSJ)
Ideological Divisions Undermine Economics (Economist)
A Greek Conspiracy: How The ECB Crushed Varoufakis’ Plans (Häring)
Britain ‘Poised To Open Door To Thousands Of Migrant Children’ (Guardian)
Germany Scolds Austria For Greek Schengen Threats (AFP)
EU Leaders Consider Two-Year Suspension Of Schengen Rules (Telegraph)

The battle gets ugly.

Iraq Sells Oil For $22 A Barrel, Calls For IMF Help (BBG)

Prime Minister Haidar al-Abadi said the plunge in oil prices means Iraq needs IMF support to continue its fight against Islamic State, a battle he says his country is winning despite little support from its neighbors. “We’ve been anticipating there would be some drop of prices but this has taken us by surprise,” Abadi said of the oil collapse in an interview at the World Economic Forum in Davos, Switzerland. “We can defeat Daesh but with this fiscal problem, we need the support” of the IMF, he said. “We have to sustain the economy, we have to sustain our fight.” The conflict with Islamic State, which swept through swaths of northern Iraq in the summer of 2014, has destroyed economic infrastructure, disrupted trade and discouraged investment.

Iraq is now facing the “double shock” of war as well as the crude-oil price drop, and has “urgent” balance-of-payment and budget needs, the IMF said in January as it approved a staff-monitored program to pave the way for a possible loan. Under the program, Iraq will seek to reduce its non-oil primary deficit. “We have cut a lot of our expenditures, government expenditures,” Abadi said in the interview. But the war brings its own costs. “We are paying salaries for the uniformed armies, for our fighters” and their weapons, Abadi said in Davos. Speaking later in a panel session in the Swiss resort, Abadi said Iraqi oil sold on Thursday for $22 a barrel, and after paying costs the country is left with $13 per barrel.

He called for neighbors to do more to help. The only country to have provided financial assistance is Kuwait, he said, which gave Iraq $200 million. “Daesh is on the retreat and it is collapsing but somebody is sending a life line to them,” Abadi said, citing victories for his forces in the key western city of Ramadi and using an Arabic acronym for Islamic State. “Neighbors are fighting for supremacy, using sectarianism.” Shiite Iran supports several of the biggest militias aiding Iraqi forces in the fight against Islamic State. Its rivalry with the Middle East’s biggest Sunni power, Saudi Arabia, has flared in recent weeks, complicating efforts to end conflicts in Iraq, Syria and Yemen. Iraq has managed to stop the advance of Islamic State in Iraq but if neighbors continue to inflame sectarianism, successes can be reversed, he said. “We are supposed to be in the same boat,” Abadi said. “In reality, we aren’t.”

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“..42nd driller to file for bankruptcy in this commodity crunch..”

American Oil Companies Are Starting To Scream “Mayday” (CNN)

Last year, 42 North American drillers filed for bankruptcy, according to law firm Haynes and Boone. It’s only likely to get worse this year. Experts say there are a lot of parallels between today’s crisis and the last oil crash in 1986. Back then, 27% of exploration and production companies went bust. Defaults are skyrocketing again. In December, exploration and production company defaults topped 11%, up from just 0.5% the previous year, according to Fitch Ratings. That’s a 2,000%-plus jump. It’s just the beginning, says John La Forge, head of real assets strategy at Wells Fargo. If history repeats, people should prepare for the default rate to double in the next year or so. No wonder America’s biggest banks are setting aside a lot of money in anticipation that more energy companies will go belly up.

Energy companies borrowed a lot of money when oil was worth over $100 a barrel. The returns seemed almost guaranteed if they could get the oil out of the ground. But now oil is barely trading just above $30 a barrel and a growing number of companies can’t pay back their debts. “The fact that a price below $100 seemed inconceivable to so many is kind of astonishing,” says Mike Lynch, president of Strategic Energy and Economic Research. “A lot of people just threw money away thinking the price would never go down.” On the last day of 2015, Swift Energy, an “independent oil and gas company” headquartered in Houston, became the 42nd driller to file for bankruptcy in this commodity crunch. The company is trying to sort out over $1 billion in debt at a time when the firm’s earnings have declined over 70% in the past year.

Trimming costs and laying off workers can’t close that kind of gap. “In the 1980s, there was a bumper sticker that people in Texas had that said, ‘God give me one more boom and I promise not to screw it up,'” says Lynch. “People should have those bumper stickers ready again.” The last really big oil bust was in the late 1980s. The Saudis really controlled the price then, says La Forge. Now the Saudis (and other members of OPEC) are in a battle with the United States, which has become a major player again in energy production. No one wants to cut back on production and risk losing market share. “It will be the U.S. companies that go out of business,” predicts La Forge. OPEC countries don’t have a lot of smaller players like the United States does. It’s usually the government that controls oil drilling and production in OPEC nations.

La Forge predicts the governments can hold their position longer. As the smaller players run out of cash, they will get swallowed up by bigger ones. “The big boys and girls will snap up a lot of cheap assets,” predicts Lynch. There’s a lot of debate about whether oil prices have bottomed out. Crude oil hit its lowest price since 2003 this week. But even if prices have stabilized, the worst isn’t over for oil companies. “Some companies went under in 1986-’87 even when prices rebounded,” says La Forge. This week, Blackstone (BGB) CEO Stephen Schwarzman said his firm is finally taking a close look at bargains in the energy sector. One of the largest bankruptcies so far is Samson Resources of Oklahoma. In 2011, private equity firm KKR (KKR) bought it for over $7 billion. Now it’s struggling to deal with over $1 billion in debt that’s due this year alone.

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Can’t read on shale without mention of default anymore.

US Shale’s Big Squeeze (FT)

The boom years left the US oil industry deep in debt. The 60 leading US independent oil and gas companies have total net debt of $206bn, from about $100bn at the end of 2006. As of September, about a dozen had debts that were more than 20 times their earnings before interest, tax, depreciation and amortisation. Worries about the health of these companies have been rising. A Bank of America Merrill Lynch index of high-yield energy bonds, which includes many indebted oil companies, has an average yield of more than 19%. Almost a third of the 155 US oil and gas companies covered by Standard & Poor’s are rated B-minus or below, meaning they are at high risk of default.

The agency this month revised down its expectations of future oil prices, meaning that many of those companies’ ratings are likely to be cut even further. Credit ratings for the more financially secure investment grade companies are also likely to be lowered this time. Some companies under financial strain will be able to survive by selling assets. Private capital funds raised $57bn last year to invest in energy, according to Preqin, an alternative assets research service, and most of that money is still looking for a home. Companies with low-quality assets or excessive debts will not make it. Tom Watters of S&P expects “a lot more defaults this year”. Bankruptcies, a cash squeeze and poor returns on investment mean companies will continue to cut their capital spending.

The number of rigs drilling oil wells in the US has dropped 68% from the peak in October 2014 to 510 this week, and it is likely to fall further. So far, the impact on US oil production has been minimal. Output in October was down 4% from April, as hard-pressed companies squeeze as much revenue as possible out of their assets. Saudi Arabia’s strategy of allowing oil prices to fall to curb competing sources of production appears to be succeeding But Harold Hamm, chief executive of Continental Resources, one of the pioneers of the shale boom, says the downturn in activity is likely to intensify. “We’re seeing capex being slashed to almost nothing,” he says. “At low prices, people aren’t going to keep producing.” He expects US oil production to fall sharply this year, and says people may be surprised by how fast it goes.

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Poor banks.

Squeezed Primary Dealers Quit European Government Bond Markets (Reuters)

A rise in the number of banks giving up primary dealer roles in European government bond markets threatens to further reduce liquidity and eventually make it more expensive for some countries to borrow money. Increased regulation and lower margins have seen five banks exit various countries in the last three months. Others look set to follow, further eroding the infrastructure through which governments raise debt. While these problems are for now masked by the European Central Bank buying €60 billion of debt every month to try to stimulate the euro zone economy, countries may feel the effects more sharply when the ECB scheme ends in March 2017. Since 2012, most euro zone governments have lost one or two banks as primary dealers, while Belgium – one of the bloc’s most indebted states – is down five.

Primary dealers are integral to government bond markets, buying new issues at auctions to service demand from investors and to maintain secondary trading activity. Without their support, countries would find it harder to sell debt, forcing them to offer investors higher interest rates. Over the last quarter alone, Credit Suisse pulled out of most European countries, ING quit Ireland, Commerzbank left Italy, and Belgium did not re-appoint Deutsche Bank as a primary dealer and dropped Nordea as a recognised dealer. In that time, only Danske Bank has added to its primary dealer roles in the bloc’s main markets. But even Danske is worried. “I’ve never seen it so bad,” said Soeren Moerch, head of fixed income trading at Danske Markets.

“When further banks reduce their willingness to be a primary dealer then liquidity will go even lower…we could have more failed auctions and we could see a big washout in the market.” Acting as a dealer has become increasingly expensive for banks under new regulations because of the amount of capital it requires, while trading profits that once made up for the initial spend have diminished in an era of ultra-low rates. “Shareholders would be shocked if they knew the scale of the costs that some businesses are taking,” said one banker who has worked at several major investment houses with primary dealer functions. The decline in dealers comes as many of the world’s largest financial firms, such as Morgan Stanley and Deutsche Bank, launch strategic reviews that are likely to impact their fixed income operations.

The risk that the euro zone could slide back into recession, having barely recovered from its long-running debt crisis, could exacerbate the withdrawal by prompting banks to retreat into their home markets. “It is a negative trend. The opposite that we saw in the first 10 years of the euro,” said Sergio Capaldi at Intesa SanPaolo. “For smaller countries…the fact that there are less players is something that could have a negative affect on market liquidity and borrowing costs.”

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Squeezed them for all they’re worth.

US Banks Cut Off Mexican Clients as Regulatory Pressure Increases (WSJ)

U.S. banks are cutting off a growing number of customers in Mexico, deciding that business south of the border might not be worth the risks in the wake of mounting regulatory warnings. At issue are correspondent-banking relationships that allow Mexican banks to facilitate cross-border transactions and meet their clients’ needs for dealing in dollars—in effect, giving them access to the U.S. financial system. The global firms that provide those services are increasingly wary of dealing with Mexican banks as well as their customers, according to U.S. bankers and people familiar with the matter.

The moves are consistent with a broader shift across the industry, in which banks around the world are retreating from emerging markets as regulators ramp up their scrutiny and punishment of possible money laundering. For many banks, the money they can earn in such countries isn’t worth the cost of compliance or the penalties if they step across the line. U.S. financial regulators have long warned about the risks in Mexico of money laundering tied to the drug trade. The urgency spiked more than a year ago, when the Financial Crimes Enforcement Network, a unit of the Treasury Department, sent notices warning banks of the risk that drug cartels were laundering money through correspondent accounts, people familiar with the advisories said. Earlier, the Office of the Comptroller of the Currency sent a cautionary note to some big U.S. banks about their Mexico banking activities.

But the pain Mexican firms are experiencing is relatively new. The fallout is affecting Mexican banks of various sizes such as Grupo Elektra’s Banco Azteca, Grupo Financiero Banorte and Monex Grupo Financiero, and their customers, the people said. Regulators have consistently said they don’t direct banks to cut ties with specific countries or a large swath of customers. But the advisories, which had nonpublic components that haven’t been previously reported, were interpreted by several big banks as a fresh signal that they do business in Mexico at their own peril, according to people familiar with the matter. “All they know is that sanctions are big and revenues are small,” said Luis Niño de Rivera, vice chairman of Banco Azteca, based in Mexico City. “It’s simple arithmetic: ‘I make a million dollars and they’re going to fine me a billion? I won’t do that.’”

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A field of pretense.

Ideological Divisions Undermine Economics (Economist)

Dismal may not be the most desirable of modifiers, but economists love it when people call their discipline a science. They consider themselves the most rigorous of social scientists. Yet whereas their peers in the natural sciences can edit genes and spot new planets, economists cannot reliably predict, let alone prevent, recessions or other economic events. Indeed, some claim that economics is based not so much on empirical observation and rational analysis as on ideology. In October Russell Roberts, a research fellow at Stanford University’s Hoover Institution, tweeted that if told an economist’s view on one issue, he could confidently predict his or her position on any number of other questions. Prominent bloggers on economics have since furiously defended the profession, citing cases when economists changed their minds in response to new facts, rather than hewing stubbornly to dogma.

Adam Ozimek, an economist at Moody’s Analytics, pointed to Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis from 2009 to 2015, who flipped from hawkishness to dovishness when reality failed to affirm his warnings of a looming surge in inflation. Tyler Cowen, an economist at George Mason, published a list of issues on which his opinion has shifted (he is no longer sure that income from capital is best left untaxed). Paul Krugman chimed in. He changed his view on the minimum wage after research found that increases up to a certain point reduced employment only marginally (this newspaper had a similar change of heart). Economists, to be fair, are constrained in ways that many scientists are not. They cannot brew up endless recessions in test tubes to work out what causes what, for instance.

Yet the same restriction applies to many hard sciences, too: geologists did not need to recreate the Earth in the lab to get a handle on plate tectonics. The essence of science is agreeing on a shared approach for generating widely accepted knowledge. Science, wrote Paul Romer, an economist, in a paper* published last year, leads to broad consensus. Politics does not. Nor, it seems, does economics. In a paper on macroeconomics published in 2006, Gregory Mankiw of Harvard University declared: “A new consensus has emerged about the best way to understand economic fluctuations.” But after the financial crisis prompted a wrenching recession, disagreement about the causes and cures raged. “Schlock economics” was how Robert Lucas, a Nobel-prize-winning economist, described Barack Obama’s plan for a big stimulus to revive the American economy. Mr Krugman, another Nobel-winner, reckoned Mr Lucas and his sort were responsible for a “dark age of macroeconomics”.

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Nice details.

A Greek Conspiracy: How The ECB Crushed Varoufakis’ Plans (Häring)

A central bank governor in Athens conspires with the President of the Republic to sabotage the negotiation strategy of his government to weaken it in its negotiations with the European Central Bank. After the government has capitulated, this governor, who is a close friend of the new finance minister and boss of the finance ministers wife, and the President of the Republic travel together to the ECB to collect their praise and rewards. This is not an invention, this is now documented. On 19 January the German Central Bank in Frankfurt informed the media that the Greek President Prokopis Pavlopoulos visited the ECB and met with ECB-President Mario Draghi, and that he was accompanied by the President of the Greek central Bank, Yanis Stournaras.

Remember. When the Syriza-led government in Athens was in tense negotiations with the European institutions, the ECB excerted pressure by cutting Greek banks off the regular financing operations with the ECB. They could get euros only via Emergency Liquidty Assistance from the Greek central bank and the ECB placed a strict limit on these. Finance minister Yanis Varoufakis worked on emergency plans to keep the payment system going in case the ECB would cut off the euro supply completely. It has already been reported and discussed that a close aide of Stournaras sabotaged the government during this time by sending a memo to a financial journalist, which was very critical with the governments negotiation tactics and blamed it for the troubles of the banks, which the ECB had intensified, if not provoked.

A few days ago, Stournaras himself exposed a conspiracy. He bragged that he had convened former prime ministers and talked to the President of the Republic to raise a wall blocking Varoufakis emergency plan. In retrospect it looks as if Alexis Tsipras might have signed his capitulation to Stournaras and the ECB already in April 2015, when he replaced Varoufakis as chief negotiator by Euklid Tsakalotos, who would later become finance minister after Varoufakis resigned. In this case the nightly negotiating marathon in July, after which Tsipras publicly signed his capitulation, might just have been a show to demonstrate that he fought bravely to the end. Why would I suspect that? Because I learned in a Handelsblatt-Interview with Tsakalotos published on 15 January 2016 that he is a close friend of Stournaras. Looking around a bit more, I learned that Tsakalotos wife is ‘Director Advisor’ to the Bank of Greece.

This is the Wikipedia entry: “Heather Denise Gibson is a Scottish economist currently serving as Director-Advisor to the Bank of Greece (since 2011). She is the spouse of Euclid Tsakalotos, current Greek Minister of Finance.” At the time she entered, Stournaras was serving as Director General of a think tank of the Bank of Greece. The friendship of the trio goes back decades to their time together at a British university. They even wrote a book together in 1992. Thus: The former chief negotiator of the Greek government is and was a close friend of the central bank governor and the central bank governor was the boss of his wife. The governor of the Bank of Greece, which is part of the Eurosystem of central banks, gets his orders from the ECB, i.e. the opposing side in the negotiations. He actively sabotaged the negotiation strategy of his government. If this does not look like an inappropriate association for a chief negotiator, I don’t know what would.

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Someone grabbed Cameron by the nuts?

Britain ‘Poised To Open Door To Thousands Of Migrant Children’ (Guardian)

David Cameron is considering plans to admit thousands of unaccompanied migrant children into the UK within weeks, as pressure grows on ministers to provide a haven for large numbers of young people who have fled their war-torn homelands without their parents. Amid growing expectation that an announcement is imminent, Downing Street said ministers were looking seriously at calls from charities, led by Save the Children, for the UK to admit at least 3,000 unaccompanied young people who have arrived in Europe from countries including Syria and Afghanistan, and who are judged to be at serious risk of falling prey to people traffickers. Government sources said such a humanitarian gesture would be in addition to the 20,000 refugees the UK has already agreed to accept, mainly from camps on the borders of Syria, by 2020.

Following a visit to refugee camps in Calais and Dunkirk on Saturday, Labour leader Jeremy Corbyn called on Cameron to offer children not just a refuge in the UK but proper homes and education, equivalent to the welcome received by those rescued from the Nazis and brought to the UK in 1939. “We must reach out the hand of humanity to the victims of war and brutal repression,” he said. “Along with other EU states, Britain needs to accept its share of refugees from the conflicts on Europe’s borders, including the horrific civil war in Syria. “We have to do more. As a matter of urgency, David Cameron should act to give refuge to unaccompanied refugee children now in Europe – as we did with Jewish Kindertransport children escaping from Nazi tyranny in the 1930s.

And the government must provide the resources needed for those areas accepting refugees – including in housing and education – rather than dumping them in some of Britain’s poorest communities.” Signs that the prime minister may act came after a week in which concern has risen in European capitals, and among aid agencies and charities, about the high number of migrants still pouring into the EU just as cold weather bites along the routes many are taking through the Balkans and central and eastern Europe. With one week of January to go, about 37,000 migrants and refugees have already arrived in the EU by land or sea, roughly 10 times the equivalent total for the month last year. The number of Mediterranean deaths stands at 158 this year.

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It’s a free for all now.

Germany Scolds Austria For Greek Schengen Threats (AFP)

This week Greece slammed a Financial Times report saying several European ministers and senior EU officials believed threatening suspension from Schengen could persuade Greece to protect its borders more effectively. Junior interior minister for migration Yiannis Mouzalas said the report contained ”falsehoods and distortions” but Mikl-Leitner said temporary exclusion was a real possibility. “If the Athens government does not finally do more to secure the (EU’s) external borders then one must openly discuss Greece’s temporary exclusion from the Schengen zone,” Mikl-Leitner said in an interview with German daily Die Welt. “It is a myth that the Greco-Turkish border cannot be controlled,” Mikl-Leitner said.

“When a Schengen signatory does not permanently fulfil its obligations and only hesitatingly accepts aid then we should not rule out that possibility,” she added. “The patience of many Europeans has reached its limit ... We have talked a lot, now we must act. It is about protecting stability, order and security in Europe.” Germany’s Steinmeier criticised Vienna’s warning however. “There won’t be any solution to the refugee crisis if solidarity disappears,” he said. “On the contrary, we must work together and concentrate all our efforts to fight against the causes that are pushing the refugees into flight, to reinforce the EU’s outer borders and to achieve a fair redistribution (of asylum seekers) within Europe.”

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Chance of Schengen survival below zero.

EU Leaders Consider Two-Year Suspension Of Schengen Rules (Telegraph)

The Schengen system of free movement could be suspended for two years under emergency measures to be discussed by European ministers on Monday, as the French Prime Minister warned the crisis could bring down the entire European Union. Manuel Valls said that the “very idea of Europe” will be torn apart until the flows of migrants expected to surge in spring are turned away. On Monday, interior ministers from the EU will meet in Amsterdam to discuss emergency measures to allow states to reintroduce national border controls for two years. The powers are allowed under the Schengen rules, but would amount to an unprecedented abandonment of the 30-year old agreement that allows passport-free travel across 26 states. The measure could be brought in from May, when a six-month period of passport checks introduced by Germany expires.

The European Commission would have to agree that there are “persistent serious deficiencies” in the Schengen zone’s external border to activate it. “This possibility exists, it is there and the Commission is prepared to use it if need be,” said Natasha Bertaud, a spokesman for Jean-Claude Juncker. Greece has been blamed by states for failing to identify and register hundreds of thousands of people flowing over its borders. Other states that have introduced emergency controls are Sweden, Austria, France, Denmark and Norway, which is not in the EU but is in Schengen. “We’re not currently in that situation,” Ms Bertaud added. “But interior ministers will on Monday in Amsterdam have the opportunity to discuss and it’s on the agenda what steps should be taken or will need to be taken once we near the end of the maximum period in May.”

In a further blow, Mr Valls said that France would keep its state of emergency, which has included border checks, until the Islamic State of Iraq and Levant network is destroyed. “It is a total and global war that we are facing with terrorism,” he said. He warned that without proper border controls to turn away refugees, the 60-year old European project could disintegrate. “It’s Europe that could die, not the Schengen area. If Europe can’t protect its own borders, it’s the very idea of Europe that could be thrown into doubt. It could disappear, of course – the European project, not Europe itself, not our values, but the concept we have of Europe, that the founding fathers had of Europe.

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