John Vachon Koolmotor, Cleveland, Ohio May 1938
Brought to you by QE.
• Cash Beats Stocks And Bonds For First Time In 25 Years (MarketWatch)
Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch. And it might all be down to the notion that central bank-fueled liquidity has peaked. Year-to-date annualized returns are negative 6% for global stocks and negative 2.9% for global government bonds, according to analysts led by Michael Hartnett in a Friday note. The dollar is up 6% and commodities are down 17%, while cash is flat. Here’s what this has to do with the liquidity story:
[Quantitative easing] & zero rates reflated financial assets significantly. The only assets that QE did not reflate were cash, volatility, the US dollar and banks. Cash, volatility, the US dollar are all outperforming big-time in 2015, which tells you markets have been forced to discount peak of global liquidity/higher Fed funds. Frequent flash [crashes] (oil, UST, CHF, bunds, SPX) tell the same story. Peak in liquidity = peak of excess returns = trough in volatility.
The note speaks to what has become a very important theme for investors. While the Bank of Japan and the ECB continue to provide quantitative easing, the Fed has stopped its asset purchases and is moving toward lifting rates from near zero, as is the Bank of England. The notion that liquidity has peaked and that financial markets must now adjust to that new dynamic. Indeed, billionaire hedge-fund investor David Tepper earlier this month argued that as China and other emerging-market central banks shed foreign reserves, liquidity is no longer flowing one direction, making for more volatile conditions.
“Clearly, the fact that spreads have been widening since the middle of 2014 is a very worrisome trend..” “We continue to scratch our heads as to the driver of that.”
• US Bonds Flash Warning Sign (WSJ)
The U.S. corporate-bond market is starting to flash caution signals about the broader economy. The difference in yield, called the “spread,” between bonds from America’s strongest companies and ultrasafe U.S. Treasury securities has been steadily increasing, a trend that in the past has foreshadowed economic problems. Wider spreads mean that investors want more yield relative to Treasurys to own bonds from U.S. companies. It can signal that investors are less confident about companies’ business prospects and financial health, though other factors likely also are at play. Spreads in investment-grade corporate bonds—debt from companies rated triple-B-minus or higher—are on track to increase for the second year in a row, according to Barclays data.
That would be the first time since the financial crisis in 2007 and 2008 that spreads widened in two consecutive years. The previous times were in 1997 and 1998, as a financial crisis roiled Asian countries, and a few years before the dot-com bubble burst in the U.S. Investors and analysts say they are closely watching the action to determine whether trouble is brewing once again. Concerns are growing about companies’ ability to pay back the massive debt load taken on in recent years, as ultralow interest rates spurred corporate finance chiefs to sell record amounts of bonds. There is also anxiety that economic weakness overseas could ultimately spill over into the U.S., a worry highlighted on Thursday when Caterpillar said it could cut more than 10,000 jobs amid a slowdown in construction-equipment sales in China.
“We could see the economy accelerate; we could see this global weakness pass,” said Brian Rehling at Wells Fargo Investment Institute. “But you could also see things go the other way, where the global economy continues to weaken.” [..] As investors grow more skittish, companies looking to sell new debt are being forced to pay up. Altice NV on Friday reduced the size of a junk-bond deal backing its purchase of Cablevision from $6.3 billion to $4.8 billion and paid higher yields than initially expected, according to S&P Capital IQ LCD. The company also increased the size of a term loan to help finance the $10 billion acquisition. “Clearly, the fact that spreads have been widening since the middle of 2014 is a very worrisome trend,” said Krishna Memani at OppenheimerFunds, which oversees some $220 billion. “We continue to scratch our heads as to the driver of that.”
A very extensive overview of what locations in the US are due to default first, and second. Pick your local flavor.
• Waiting for Collapse: USA Debt Bombs Bursting (Edstrom)
) It’s been so easy the past 15 years for local governments in the USA, state governments, government authorities, corporations, banks, hedge funds and the US Federal government to simply say how many millions, billions or trillions of dollars they wanted, pay some high priced call accountants to fill out some paperwork with fine print and voila, millions, billions and trillions of dollars in borrowed money simply appeared. It has been that easy! Now, the government in the USA owes $46 trillion, US corporations owe $15 trillion, US individuals owe $13 trillion plus there are $315 trillion in outstanding Wall Street derivatives. (Few Americans know what a derivative is, but we as a nation are on the hook for up to $315 trillion in additional debt because of these derivatives.)
These debt figures continue to escalate with each passing month. Detroit and Puerto Rico have only just begun the debt bombs bursting in the USA, the USA’s slow motion economic collapse. Who’s next? I’m going to tell you about some US local and state governments that have too much debt and are ripe for debt collapse along with a few US government authorities and corporations that borrowed too much money and are also ripe for debt collapse. Mr. Dudley of the New York Federal Reserve Bank recently warned of a wave of US municipal debt collapses coming soon. The problem is bigger than solely US municipalities as Mr. Dudley no doubt is aware.
Chicago or LA, which one is more likely to collapse first? Chicago. Kanakee County IL or Perry County KY? Kanakee County is more likely to go belly up first. Atlantic City (AC) or Yonkers? AC is more likely to bite the dust first. 1 out of 25 states are ready to collapse within months, as are 1 out of 20 US cities, 1 out of 15 US government authorities and 1 out of 7 US corporations. Within a few years, many US cities, counties, authorities, states and corporations will have debt collapsed, before the USA as a nation debt collapses. A tsunami of debt collapses is hitting the USA. The causes are government officials and corporate executives who borrowed too much easy money plus Wall Street bankers and hedge fund vultures who lent too much easy money.
Besides city, county and state collapses, there will also be school debt collapses, hospital debt collapses, government authority debt collapses, individual bankruptcies, corporate debt collapses and finally the nationwide debt collapse of the USA. If change cannot be brought about fast – like increasing revenue (e.g. raising taxes on the rich) or cutting spending (e.g. ending endless war, cutting military/intel spending) or both – then, the best way forward may be to evacuate. Get away from the places about to collapse as quickly as you can. If you find your home is burning to the ground, as I discovered one Sunday evening in New York City in the Summer of 2011, what are you going to do? Evacuate.
TEXT
• China August Industrial Profits Fall 8.8% From A Year Earlier (Reuters)
Profits earned by Chinese industrial companies declined 8.8% in August from a year earlier due to rising costs and persistent falling prices, official data showed on Monday, adding to signs of weakness in the world’s second largest economy. Also hurting firms was the stock market slump, which pushed down their investment returns while yuan fluctuation increased companies’ financial costs in August, the National Bureau of Statistics (NBS) said. During August, profits of industrial companies suffered the biggest annual fall since the NBS began monitoring such data in 2011. For the first eight months of this year, profits were down 1.9% from the year-earlier period, according to the NBS. The bureau said firms were squeezed by rising costs and falling prices with profits falling more quickly in August than in July.
In total, August profits were down 156.6 billion yuan ($24.59 billion) from a year earlier. The NBS said investment returns for industrial companies from a year earlier increased by 4.12 billion yuan in August, compared with a 11.04 billion yuan gain in July. Financial payments of industrial firms’ increased by 23.9% in August from a year earlier, compared to a 3% year-on-year drop in July. A plunge in China’s stock market over the summer and a surprise devaluation in the yuan have roiled global markets, and raised doubts inside and outside China over Beijing’s ability to manage its economy. Among 41 industrial sectors, 31 sectors had year-on-year growth of profit in the first eight months of this year, while 10 recorded drops, the NBS said.
Beijing will spin this as some clean air initiative.
• Chinese Mining Group Longmay To Cut 100,000 Coal Jobs (China Daily)
The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses – one of the biggest mass layoffs in recent years. Heilongjiang Longmay Mining Holding Group Co Ltd, which has a 240,000 workforce, said a special center would be created to help those losing their jobs to either relocate or start their own businesses. Chairman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”. It also plans to sell its non-coal related businesses to help pay off its debts, said Wang. The State-owned mining group has subsidiaries in Jixi, Hegang, Shuangyashan and Qitaihe in Heilongjiang province, which account for about half the region’s coal production.
China’s coal mining industry has been struggling with overcapacity and falling coal prices since 2012. Last year, Longmay launched a management restructuring and cut thousands of jobs to stay profitable, amid the overall industry decline. However, the company still reported around 5 billion yuan ($815 million) in losses. It has been a dramatic fall from grace for the company, which in 2011 reported 800 million yuan in profit with annual production exceeding 50 million metric tons.
Entire political systems in their pockets.
• VW Proves That Global Business Has Become A Law Unto Itself (Guardian)
A well-functioning capitalism has, and will always need, multiple and powerfully embedded checks and balances – not just on its conduct but on how it defines its purpose. Sometimes those checks are strong, uncompromised unions; sometimes tough regulation; sometimes rigorous external shareholders; sometimes independent non-executive directors and sometimes demanding, empowered consumers. Or a combination of all of the above. CEOs, company boards and their cheerleaders in a culture which so uncritically wants to be pro-business do not welcome any of this: checks and balances get in the way of “wealth generation”. They are dismissed as the work of liberal interferers and apostles of the nanny state. Germany’s economy has been a good example of how checks and balances work well.
But the existential crisis at Volkswagen following its systematic cheating of US regulators over dangerous diesel exhaust emissions shows that any society or company forgets the truth at its peril. Volkswagen abused the system of which it was part. It became an autocratic fiefdom in which environmental sustainability took second place to production – an approach apparently backed by the majority family shareholder, with no independent scrutiny by other shareholders, regulators, directors or consumers. Even its unions became co-opted to the cause. Worse, the insiders at the top paid themselves, ever more disproportionately, in bonuses linked to metrics that advanced the fiefdom’s interests. But they never had to answer tough questions about whether the fiefdom was on the right track.
The capacity to ignore views other than your own, no external sanction and the temptation for boundless self-enrichment can emerge in any capitalism – and when they do the result is toxic. VW, facing astounding fines and costs, may pay with its very existence. So why did a company with a great brand, passionate belief in engineering excellence and commitment to building great cars knowingly game the American regulatory system, to suppress measured emissions of nitrogen dioxide to a phenomenal degree? Plainly, there were commercial and production benefits. It could thus sell the diesel engines it manufactured for Europe in the much tougher regulatory environment – at least for diesel – of the US and challenge Toyota as the world’s largest car manufacturer. Directors, with their bonuses geared to growth, employment and profits, could become very rich indeed.
Bailout?!
• Seven Reasons Volkswagen Is Worse Than Enron (FT)
It has only been a week since the stunning revelation that the Volkswagen group equipped millions of diesel-powered cars with software designed to fool anybody testing their emissions, and just days since the company’s chief executive, Martin Winterkorn, resigned. And yet there are reasons to believe that the fallout from this scandal will be as big as Enron, or even bigger. Most corporate scandals stem from negligence or the failure to come clean about corporate wrongdoing. Far fewer involve deliberate fraud and criminal intent. Enron’s accounting manipulation is often held up as a prime example of the latter and cases featuring the US energy company’s massive financial fraud are therefore taught in business schools around the world. Here are seven reasons why the Volkswagen scandal is worse and could have far greater consequences.
First, whereas Enron’s fraud wiped out the life savings of thousands, Volkswagen’s has endangered the health of millions. The high levels of nitrogen oxides and fine particulates that the cars’ on-board software hid from regulators are hazardous and detrimental to health, particularly of children and those suffering from respiratory disease. Second, led by Volkswagen, Europe’s car manufacturers lobbied hard for governments to promote the adoption of diesel engines as a way to reduce carbon emissions. Whereas diesel engines power fewer than 5% of passenger cars in the US, where regulators uncovered the fraud, they constitute more than 50% of the market in Europe thanks in large part to generous government incentives.
It was bad enough that Enron’s chief executive urged employees to buy the company’s stock. This, however, is the equivalent of the US government offering tax breaks at Enron’s behest to get half of US households to buy stock propped up by fraudulent accounting. Third, the fines and lawsuits facing Volkswagen are likely to surpass Enron in both scale and scope. Volkswagen’s potential liability to Environmental Protection Agency fines is $18bn. Add to this fines in most or all of the 50 US states and class action lawsuits by buyers and car dealers who have seen the value of their cars and franchises diminish overnight and you have a massive legal bill.
Presumably, if you lower performance enough, it might be doable. But that makes it a toss-up between NOx and CO2.
• German Transport Authority Demands VW Car Clean-Up Plan By October 7 (Bloomberg)
Germany’s car regulators have asked Volkswagen to provide a plan by Oct. 7 for if and when its vehicles will meet national emissions requirements, after the company admitted cheating on U.S. air-pollution tests. The Federal Motor Transport Authority sent a letter to VW requesting a “binding” program and schedule for a technical solution, Transport Minister Alexander Dobrindt said Sunday in an e-mailed statement. Volkswagen will present a plan in the coming days for how it will fix its affected vehicles and will notify customers and relevant authorities, Peter Thul, a company spokesman, said by phone. Bild reported earlier about the letter.
VW may have known for years about the implications of software at the center of the test-cheating scandal, newspapers reported. Robert Bosch GmbH warned VW in 2007 that its planned use of the software is illegal, according to Bild. A Volkswagen employee did the same in 2011, Frankfurter Allgemeine Zeitung reported. Volkswagen is investigating and will present its findings as soon as they’re available, Thul said, declining to elaborate.
When it rains…
• VW Scandal to Hurt Its Financing Arm (WSJ)
Volkswagen’s giant U.S. and European financing operations often act as lenders for car buyers and dealers for any of the brands in the company’s stable, from the namesake VW to Bentley, Lamborghini, Audi, Porsche and others. It bundles banking activities, including deposit taking and consumer lending to spur car sales, as well as leasing and insurance operations. The unit’s lending and leasing contracts are backed by cars. If the value of the car drops, the financial services unit may have to book a write-down. Volkswagen Financial Services AG, as it is formally known, is now evaluating whether it has to book charges on the collateral value of cars affected by a recall, a spokesman said. “We’re in talks with Volkswagen to evaluate the potential impact” and aim to produce results next week, he said.
With more than 11,000 employees and assets of around €114 billion, the Financial Services unit contributed €781 million or nearly 14% to the group’s overall net profit of €5.66 billion in the first half, according to an analyst presentation. The entire unit had 12.6 million contracts, 15% of which are in North America and 70% in Europe. The ECB late last week temporarily excluded asset- backed securities originated by Volkswagen AG from its bond buying program to review recent developments, according to a person familiar with the matter. The ECB hopes to complete its review soon, the person said. VW bonds fell last week.
And nothing happened at all..
• VW Staff, Supplier Warned Of Emissions Test Cheating Years Ago (Reuters)
Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported on Sunday, as the automaker tries to uncover how long its executives knew about the cheating. The world’s biggest automaker is adding up the cost to its business and reputation of the biggest scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. Countries around the world have launched their own investigations after the company was caught cheating on tests in the United States. Volkswagen says the software affected engines in 11 million cars, most of which were sold in Europe. The company’s internal investigation is likely to focus on how far up the chain of command were executives who were responsible for the cheating, and how long were they aware of it.
The Frankfurter Allgemeine Sonntagszeitung, citing a source on VW’s supervisory board, said the board had received an internal report at its meeting on Friday showing VW technicians had warned about illegal emissions practices in 2011. No explanation was given as to why the matter was not addressed then. Separately, Bild am Sonntag newspaper said VW’s internal probe had turned up a letter from parts supplier Bosch written in 2007 that also warned against the possible illegal use of Bosch-supplied software technology. The paper did not cite a source for its report. Volkswagen declined to comment on the details of either newspaper report. “There are serious investigations underway and the focus is now also on technical solutions” for customers and dealers, a Volkswagen spokesman said. “As soon as we have reliable facts we will be able to give answers.”
All the smoke and mirrors they can get their hands on.
• VW’s New CEO Is Moving Forward With a Strategy Shift (Bloomberg)
Matthias Mueller pressed the Volkswagen board to move ahead with a reorganization he helped devise before the carmaker was caught up in an emissions-cheating scandal, as the new leader seeks to put his stamp on the company. The former Porsche boss wanted the new strategy to remain on the agenda of the Friday meeting in Wolfsburg, Germany, according to a person familiar with Mueller’s thinking, who asked not to be identified because the discussions were private. Volkswagen had intended to hold off on a reorganization aimed at streamlining decision-making to give the new boss a chance to settle in. But Mueller, who had assisted his predecessor Martin Winterkorn with devising the plan, didn’t want to wait to start making the changes.
Volkswagen said Friday that more authority will be given to individual brands and regions, a departure from the centralized structures that kept key decisions in Wolfsburg and the chief executive officer’s inner circle. The announcement capped a tumultuous week after the company admitted it rigged some diesel engines to cheat on emissions tests. Friday’s meeting, which took place in a newly constructed office building within Volkswagen’s main plant, started before noon and stretched into the evening amid wrangling over who knew what and when. Documents from four years ago that flagged the illegal software was evidently never sent up the chain of command, underscoring the need for external investigators, said another person familiar with the meeting.
When the 20-member panel finally dispersed and presented VW’s new CEO, Mueller was flanked by Volkswagen’s power players: Wolfgang Porsche, the head of the family that controls a majority of the company’s voting shares; Bernd Osterloh, the chief representative of Volkswagen’s 600,000 workers; the prime minister of Lower Saxony, Stephan Weil, whose state owns 20% of Volkswagen; and Interim Chairman Berthold Huber. Mueller vowed to do what it takes to fix the company and its tattered reputation. His mission statement was echoed by Osterloh, who said the company needs a new corporate culture that’s more inclusive and avoids a climate in which problems are hidden. Huber called the crisis a “political and moral catastrophe.”
Still, Mueller’s authority isn’t absolute. Winterkorn remains CEO of Porsche Automobil Holding SE, Volkswagen’s dominant shareholder. His continued role is a contentious issue especially for labor leaders, said a person familiar with the issue. The investment vehicle of the Porsche family moved on Saturday to tighten its control of the automaker by buying shares held by Suzuki Motor. The purchase takes the family’s holding in VW to 52.2% from 50.7%.
A test of European democracy bigger than Greece. When the laws of the land you want to secede from won’t allow you to secede…
• Catalan Separatists Claim Election Win As Yes Vote For Breakaway (Guardian)
Separatists took control of Catalonia’s regional government in an election result that could plunge Spain into one of its deepest political crises of recent years, by forcing Madrid to confront an openly secessionist government at the helm of one of its wealthiest regions. A record-breaking number of Catalans cast their vote in Sunday’s election, billed as a de facto referendum on independence. With more than 98% of the votes counted, the nationalist coalition Junts pel Sí (Together for Yes) were projected to win 62 seats, while far-left pro-independence Popular Unity Candidacy, known in Spain as CUP, were set to gain 10 seats, meaning an alliance of the two parties could give secessionists an absolute majority in the region’s 135-seat parliament. “We won,” said Catalan leaderArtur Mas i Gavarró, as a jubilant crowd waved estelada flags at a rally in Barcelona.
“Today was a double victory – the yes side won, as did democracy.” After attempts by Catalan leaders to hold a referendum on independence were blocked by the central government in Madrid, Mas sought to turn the elections into a de facto referendum, pledging to begin the process of breaking away from Spain if Junts pel Sí won a majority of seats. His party fell six seats short of a majority on Sunday. But Mas vowed to push forward with independence. “We ask that the world recognise the victory of Catalonia and the victory of the yes,” he said. “We have won and that gives us an enormous strength to push this project forward.” Junts pel Sí, representing parties from the left and right, as well as grassroots independence activists, captured 39.7% of the vote, while CUP received 8.2%.
The result leaves the separatists with 47.9% of the vote, shy of the 50%, plus one seat, that they would have needed if Sunday’s vote had been a real referendum. It’s a result that will leave the movement struggling to gain legitimacy on the world stage, said political analyst Josep Ramoneda, while setting Madrid and Barcelona on course for a collision. “The government in Catalonia will try to move forward with independence, but this result won’t allow them to take irreversible steps,” he said, pointing to a declaration of independence as an example. “I mean, nobody will recognise that.” Instead, Catalonia will be left to face Madrid alone, who will seek to stymie any attempts to move forward with independence. The Spanish prime minister, Mariano Rajoy, has vowed to use the full power of the country’s judiciary to block any move towards independence.
The war on cash intensifies.
• Sweden’s Negative Interest Rates Have Turned Economics On Its Head (Telegraph)
It has long been believed that when it comes to interest rates, zero is as low as you can go. Who would choose to keep their money in the bank if they had to pay for the privilege? But for the people who control the world’s money, this idea has recently been thrown out of the window. Many central banks have pushed their rates into negative territory and yet the financial system has still to come to an abrupt end. It is a discovery that flips on its head the conventional idea of how authorities could respond to future economic crises; and for central bankers, this has come as a relief. Central bank policymakers had believed they had run out of room to support their respective economies, with their interest rates held close to the floor. Traditionally, it was thought that if you wanted to boost the economy, the central bank would reduce its interest rates.
Normally, the rates offered on savings accounts would follow, and people would choose to spend more, and save less. But there’s a limit, what economists called the “zero lower bound”. Cut rates too deeply, and savers would end up facing negative returns. In that case, this could encourage people to take their savings out of the bank and hoard them in cash. This could slow, rather than boost, the economy. What is happening now should not – according to conventional thinking – be possible. As central bank rates have turned negative, the rates offered on bank deposits have followed. Yet rather than stuffing cash under mattresses, people have left their money in the bank or spent it. Nowhere is the experiment with negative rates more obvious than among Nordic central banks.
Sweden – the first to dabble with negative rates – is perhaps the prime candidate for such experimentation. The country already has high savings rates, the third highest in the developed world according to the OECD and, despite growing at healthy rates, there appears to be plenty of slack left in the economy to prevent an overheat. Unemployment is unusually high for an advanced economy at more than 7pc, still well above its pre-crisis levels of sub-6pc. Crucially, the Riksbank’s mandate suggests that such a radical experiment is necessary. Policymakers have battled with deflation since late 2012, and with inflation at minus 0.2pc in August, it remains well below the central bank’s 2pc target.
To a great extent, the Riksbank’s hand has been forced by the plight of the eurozone. A tepid recovery in the currency union has required the ECB to bring in ever-looser policy. As the ECB’s actions have weakened the euro against Sweden’s krona, the cost of importing goods into Sweden has fallen, and weighed down on inflation. The Riksbank has had to cut its own rates in response in an attempt to avoid deep deflation. Sweden’s flexible approach to monetary policy has won it the plaudits of leading credit ratings agency. Standard and Poor’s recently reaffirmed the country’s triple AAA sovereign rating, remarking on the benefits it derives from “ample monetary policy flexibility”. Noting that the Riksbank had introduced both negative interest rates and quantitative easing, S&P said that “should inflation rates stay low or the krona appreciate materially, the central bank could lower the repo rate further”.
It’s bewildering to see people describe QE as a success. But they get away with it.
• Zero Inflation Looms Again for ECB as Oil Drop Counters Stimulus (Bloomberg)
If the euro area is about to run out of inflation – again – it won’t shock Mario Draghi. The ECB said more than three weeks ago that the inflation rate could turn negative this year because of the renewed decline in oil prices. The 19-nation region is set to take a step in that direction on Wednesday, when data will show consumer prices stagnated in September for the first time in five months, according to a Bloomberg survey of economists. Stalled prices would mark a setback for policy makers who have been trying to steer inflation back toward 2% for the better part of two years, and may spark a new debate about deflation risks. Yet while officials have repeatedly stressed that they’re prepared to add stimulus if needed, they’ve also said they want more evidence before making a decision.
“The figures this month are unlikely to prompt any action from the ECB,” said Ben May, an economist at Oxford Economics Ltd. in London. “Quantitative easing has prevented the emergence of second-round effects from the new decline in oil prices and the pickup in core inflation in recent months is a cause for comfort. Some people may be concerned by this new fall in inflation, but the ECB has tried to distance itself from these concerns.” The EU’s statistics office will publish September inflation data on Wednesday. Estimates in the Bloomberg survey range from 0.3% to minus 0.2%. Eurostat will release unemployment data for August at the same time, and the European Commission will issue its latest report on economic confidence on Tuesday.
Oil prices have fallen more than 23% since the end of June, and a barrel of crude now costs about half what it did a year ago. The decline has boosted disposable income, underpinned consumer confidence that is already benefiting from slowly receding unemployment, and turned domestic demand into a key driver of the region’s economic recovery. At the same time, it has made the ECB’s job more complicated.
Basic income is a much better approach than living wage. Huge boost to an economy.
• Tory Welfare Cuts Will Destroy Benefit Of UK’s New Living Wage (Guardian)
A record 6.5 million people – almost a quarter of UK workers – will remain trapped on poverty pay next year, despite George Osborne’s 50p-an-hour increase in the national minimum wage, according to research by the Resolution Foundation thinktank. Adam Corlett, Resolution’s economic analyst, said: “While the chancellor’s new wage floor will give a welcome boost to millions of Britain’s lowest-paid staff, it cannot guarantee a basic standard of living or compensate for the £12bn of welfare cuts that were announced alongside it.” The chancellor announced the introduction of a “national living wage” in his July budget. It was an eyecatching bid for the votes of Britain’s workers and will see the statutory minimum pay rate for over-25s increase from £6.70 an hour to £7.20 next April – and to about £9 an hour by 2020.
But the new national minimum will still fall short of an actual “living wage”, calculated on the basis of the cost of basic essentials, including housing, food and transport, that has been the centrepiece of a long-running public campaign. Supermarket giant Lidl recently became the latest high-profile company to promise its staff this higher rate, which stands at £7.85 outside London and £9.15 in the capital. In its annual Low Pay Britain report, to be published next week, the Resolution Foundation will suggest that the living wage will have to be higher – £8.25 an hour outside the capital in 2016 – in part to compensate for the reductions in tax credits and benefits also announced in the budget. Households that receive less in welfare payments will need higher wages to make ends meet.
Resolution forecasts that, despite Osborne’s announcement, the number of people struggling to survive on less than the living wage will continue to rise, hitting 6.5 million people, or 24.4% of employees, in 2016 – up from 5 million, or less than 20% of workers, in 2012. Frances O’Grady, general secretary of the TUC, said: “This analysis provides a sobering reality check. While any increase in the minimum wage is to be welcomed, the new supplement will not cure in-work poverty on its own.” She urged ministers to continue encouraging firms to adopt the living wage – a cause backed in the past by many senior Conservatives, including David Cameron and Boris Johnson.
Quite a panel. Steve Keen’s missing though.
• Corbyn Recruits Top Global Economists to Boost Economic Credentials (Bloomberg)
U.K. Labour leader Jeremy Corbyn recruited Nobel Prize-winning economist Joseph Stiglitz and wealth and inequality expert Thomas Piketty to advise his party as he seeks to regain credibility for policies attacked by many academics as potentially disastrous. His finance spokesman, John McDonnell, will outline the opposition’s “new economics” in a speech Monday that will cover his deficit-reduction plans and a goal to “change the economic discourse.” McDonnell’s office would say only that his plans involve a “radical review” of the Bank of England. Appointing Stiglitz – a well-known opponent of western governments’ austerity policies – and Piketty, whose book, “Capital in the 21st Century,” became a best-seller in 2013, mark Corbyn’s effort to restore trust among the business and academic community.
They will serve on a panel that will also include David Blanchflower, a former member of the BOE’s Monetary Policy Committee and labor-market economist who’s been vocal in his criticism of British central-bank policy and the U.K.’s Conservative government. “There is now a brilliant opportunity for the Labour Party to construct a fresh and new political economy which will expose austerity for the failure it has been in the U.K. and Europe,” Piketty said in an e-mailed statement. They’ll be joined on Labour’s Economic Advisory Committee by Mariana Mazzucato of Sussex University and Anastasia Nesvetailova and Ann Pettifor of City University in London, the main opposition party said in an e-mailed statement Sunday as it began its annual conference in Brighton, on England’s south coast.
“Corbynomics” has been the subject of much debate since the anti-austerity lawmaker become frontrunner in the party’s leadership race over the summer. His campaign leaflet “The Economy in 2020,” citing analysis by tax expert Richard Murphy, said the government is missing out on £120 billion ($180 billion) in uncollected revenue a year – enough to give every person in Britain £2,000. Corbyn also suggested creating a National Investment Bank, with the power to issue bonds that would then be acquired by the Bank of England. Corbyn’s form of quantitative easing would be used specifically to kick-start infrastructure projects – for instance building schools and hospitals. Murphy estimated this could generate £50 billion a year.
The Swiss will need US, UK cooperation.
• Swiss Watchdog Says Opens Precious Metal Manipulation Probe (Reuters)
The Swiss competition regulator said on Monday it had opened an investigation into possible manipulation of the precious metals market by several major banks. Switzerland’s WEKO watchdog said its investigation, the result of a preliminary probe, was looking at possible collusion of bid/ask spreads in the market by UBS, Julius Baer, Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui. A WEKO spokesman said the investigation would likely conclude in either 2016 or 2017.
She’s still there? Right to be worried, though. Not worried enough, I’d say.
• Rousseff Worried About Brazilian Companies With Dollar Debt (Bloomberg)
Brazil is “extremely concerned” about companies that have debt in dollars, President Dilma Rousseff told reporters in New York, after volatility in the country’s foreign exchange market last week reached the highest level in almost four years. “Brazil today has sufficient reserves to avoid any problems in relation to disruptions because of the real,” Rousseff said. “The government will take a very clear and firm position, as did the central bank at the end of last week.” Brazil’s currency fell to a historic low last week amid concern about the president’s ability to push budget cuts and tax hikes through Congress. Rousseff has said Brazil is better prepared to recover from this year’s recession, compared to past crises, because it has $370 billion in international reserves.
Rousseff arrived Friday in New York for the United Nations General Assembly after a week of negotiations with political allies over cabinet changes intended to consolidate her fragile ruling coalition and reduce government expenses. Political uncertainty has aggravated what is expected to be Brazil’s longest recession since the 1930s, and was cited by Standard & Poor’s as part of their decision to downgrade Latin America’s largest economy to junk status. Speaking after a meeting with heads of state from Germany, Japan and India, Rousseff repeated Brazil’s demands for reform of the UN Security Council to make it more representative of all member states. She said global challenges such as conflict in the Middle East and Europe’s refugee crisis could be better solved by more collective action.
$3 billion spent on no oil at all.
• Shell Halts Alaska Oil Drilling After Disappointing Well Result (Bloomberg)
Royal Dutch Shell will stop further oil and gas exploration offshore Alaska, citing high costs and “challenging” regulation for drilling in the region. Shell forecast it will take related financial charges, according to a company statement on Monday. The balance sheet carrying value of its Alaska position is about $3 billion, with additional future contractual commitments of about $1.1 billion, The Hague, Netherlands-based energy explorer said. The company will abandon the Burger J well in Alaska’s Chukchi Sea, saying indications of oil and gas weren’t sufficient to warrant further exploration. The company holds a 100% working interest in 275 Outer Continental Shelf blocks in the sea, according to the statement. “Shell will now cease further exploration activity in offshore Alaska for the foreseeable future,” the company said. “This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.”
“The exhibition sold out every day of its five-week run, attracting about 4,000 people a day – a total of 150,000 visitors. ”
• Banksy’s Dismaland To Be Taken Down And Sent To Calais To Build Shelters (PA)
Britain’s most disappointing tourist attraction is to be dismantled and sent to Calais to be shelter for migrants, creator Banksy has revealed. Work to take down Dismaland begins on Monday and the elusive street artist said all the timber and fixtures from the ‘bemusement park’ would be sent to the Jungle camp. An estimated 5,000 people displaced from countries including Syria, Libya and Eritrea are believed to be camped in and around the French port. On the Dismaland website, Banksy posted a picture of the migrant camp in Calais and had superimposed onto it his fire-ravaged fairytale Cinderella Castle. In a message accompanying the picture, he wrote: “Coming soon … Dismaland Calais.
“All the timber and fixtures from Dismaland are being sent to the Jungle refugee camp near Calais to build shelters. No online tickets will be available.” The theme park opened at a derelict seaside lido at Weston-super-Mare in Somerset and even though Banksy said it was ‘crap’, thousands of people visited. The controversial attraction featured migrant boats, Jimmy Savile and an anarchist training camp, and there were long queues as visitors waited to get inside when it first opened on 22 August. The exhibition sold out every day of its five-week run, attracting about 4,000 people a day – a total of 150,000 visitors.
North Somerset council, which has described the site as the centre of the contemporary art universe, said it would bring £7m to the local economy, while local business leaders have estimated that the economic benefit to the seaside town could top £20m. Banksy described the park as a festival of art, amusements and entry-level anarchism, adding: “This is an art show for the 99% who’d rather be at Alton Towers.” The Bristol-based artist later told the Sunday Times: “This is not a street art show. It’s modelled on those failed Christmas parks that pop up every December – where they stick some antlers on an Alsatian dog and spray fake snow on a skip. “It’s ambitious, but it’s also crap. I think there’s something very poetic and British about all that.”
Will this ever stop? How many children must drown?
• 500 Migrants Rescued In Mediterranean This Weekend: Italian Coastguard (AFP)
Some 500 migrants were rescued in seven operations launched over the weekend in the Mediterranean, the Italian coastguard said. A spokesman told AFP on Sunday that four of the rescue operations had already wound up but the others were ongoing. “Saturday was quiet on the whole but now there is further movement,” he said. “We have had several interventions – one by a ship belonging to (medical charity) MSF, two coastguard units as well as an Italian naval ship and a ship belonging to EU Navfor Med,” he said. The EU Navfor Med is a military operation launched at the end of June to identify, capture and dispose of vessels and rescue migrants undertaking risky journeys in a desperate bid to try and get to Europe from war-ravaged Syria and other trouble spots.
The mission is equipped with four ships, including an Italian aircraft carrier, and four planes. It is manned by 1,318 troops from 22 European countries. A German frigate named Werra and an MSF (Doctors Without Borders) ship rescued 140 people from a giant dinghy on Saturday afternoon, according to an AFP photographer. The migrants mainly came from the west African countries of Nigeria, Ghana, Senegal and Sierra Leone and left Libya three days earlier. They were rescued about 80 kilometres off the Libyan coast. EU leaders have agreed to boost aid for Syria’s neighbours, including one billion dollars through UN agencies, in a bid to mitigate the refugee influx into Europe.
