NPC Shoomaker’s saloon at 1311 E Street N.W. Washington DC 1917
“We started our journey to happiness with making others happy..”
• A Turkish Couple Spent Their Wedding Day Feeding 4,000 Syrian Refugees (i100)
A Turkish couple who got married last week invited 4,000 Syrian refugees to celebrate with them. Fethullah Uzumcuoglu and Esra Polat tied the knot in Kilis province on the Syrian border, which is currently home to thousands of refugees fleeing conflict in the neighbouring country. It’s traditional for Turkish weddings to last between Tuesday to Thursday, culminating in a banquet on the last night, but this couple decided they wanted a celebration with a difference. Hatice Avci, a spokesperson for aid organisation Kimse Yok Mu, told i100.co.uk that the charity feeds around 4,000 refugees who live in and around the town of Kilis, but last Thursday the newlyweds donated the savings their families had put together for a party to share their wedding celebrations with the refugees living nearby instead.
It was the groom’s father, Ali Uzumcuoglu, who originally had the idea to share a bit of wedding joy with those less fortunate. The bride and groom helped distribute the meal themselves and took their wedding pictures with people at the camp, according to local media. Groom Fethullah Uzumcuoglu said that he’d never taken part in something like this before but it was the “best and happiest moment of my life”: “Seeing the happiness in the eyes of the Syrian refugee children is just priceless. We started our journey to happiness with making others happy and that’s a great feeling.” Fethullah said that his friends were so inspired by the day that they’re planning on similar events for their own weddings.
Bloodbath in the making.
• The Devastation in Global Commodity Currencies is Far From Over (Bloomberg)
A bounce in crude oil and other commodity prices Tuesday halted a plunge in currencies of countries linked to natural-resource exports. The respite will be short-lived, according to OppenheimerFunds. The Canadian, Australian and New Zealand dollars are off to the worst start to a year since the financial crisis. The nations are grappling with a 29% drop in raw-material prices amid swelling supplies and slowing demand in China. Next up, they’ll have to contend with the Federal Reserve’s plan to raise interest rates this year, which is forecast to boost the U.S. dollar. “Compared to the U.S. talk about raising rates and tightening policy, the commodity currencies are going in the exact opposite direction,” Alessio de Longis at OppenheimerFunds said. “These currencies are not cheap by any means.”
Even as the Reserve Bank of Australia held interest rates steady and spurred a currency bounce, de Longis said he expects central banks in the commodity-exporting nations to continue easing monetary policy, sending their currencies tumbling versus the greenback.
He projected the Canadian dollar will weaken 14% in the next one to three years. He estimated the Aussie will fall in the same timeframe to 60 cents per U.S. dollar and the kiwi to drop to 50 cents. The Bloomberg Commodity Index fell to a 13-year low Monday after Chinese manufacturing gauges slowed, clouding the outlook for demand. In contrast, the U.S. currency has rallied against all 16 major peers in the past 12 months on signs that the Fed is getting closer to raising rates. “Caution is still in order as today’s Aussie gains are corrective in nature,” Marc Chandler at Brown Brothers Harriman said in a note. “It is obvious that RBA policy must remain accommodative.”
The Fed just writes its own narrative no matter what anyone says.
• Atlanta Fed’s Lockhart: Fed ‘Close’ to Being Ready to Raise Rates (WSJ)
Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September. “I think there is a high bar right now to not acting, speaking for myself,” Mr. Lockhart said. He is among the first officials to speak publicly since the Fed’s policy meeting last week, at which the central bank dropped new hints that a rate increase is coming closer into view, a point he sought to underscore. Mr. Lockhart is watched closely in financial markets because he tends to be a centrist among Fed officials who moves with the central bank’s consensus, unlike those who stake out harder positions for or against changing interest rates.
His comments are among the clearest signals yet that Fed officials are seriously considering a rate increase in September. “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead,” he said at a conference table in a room adjacent to his Atlanta office. His comments follow those of James Bullard, president of the St. Louis Fed, who said in an interview with the Journal on Friday, “we are in good shape” for a rate increase in September. The Fed has held its benchmark federal-funds rate near zero since December 2008 to try to spur borrowing, spending and investment. Most central bank officials, including Chairwoman Janet Yellen, have indicated they expect to start raising the rate this year, but they haven’t decided as a group on when to start.
Such an awfully conservative estimate it’s simple useless.
• The Oil Crash Has Caused a $1.3 Trillion Wipeout (Bloomberg)
It’s the oil crash few saw coming, and few have been spared as it erased $1.3 trillion, the equivalent of Mexico’s annual GDP, in little more than a year. Take billionaire Carl Icahn. When crude was at its peak in June 2014, the activist investor’s stake in Chesapeake Energy was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor’s 500 Index and Icahn has a paper loss of $1.3 billion. The S&P 500, by contrast, is up 6.9% in that time. State pension funds and insurance companies have also been hard hit. Investment advisers, who manage the mutual funds and exchange-traded products that are staples of many retirement plans, had $1.8 trillion tied to energy stocks in June 2014, according to data compiled by Bloomberg.
“The hit has been huge,” said Chris Beck at Delaware Investments, an asset management firm in Philadelphia. “Everybody was thinking that oil would stay in the $90 to $100 a barrel range.” The California Public Employees Retirement System, a $303 billion fund that provides benefits to 1.72 million people, owned a $91.8 million slice of Pioneer Natural Resources in June 2014. At the time, Pioneer was a $33 billion company and one of the biggest shale producers in Texas. Today, Pioneer is worth $19 billion and Calpers’ stake has lost about $40 million in market value.
Since June 2014, the combined market capitalization of 157 energy companies listed in the MSCI World Energy Sector Index or the Bloomberg Intelligence North America Independent Explorers & Producers Index has lost about $1.3 trillion. If crude rebounds, investors may make some of their money back, though values may not recover as quickly as they fell. After the tech bubble burst in 2000, erasing $7 trillion from the Nasdaq Composite Index, it took almost 15 years for the market to return to its pre-crash level. Oil, which lost more than half its value in the past year, will rise less than $20 through the first quarter of 2016, according to the median estimate compiled by Bloomberg.
Shorts allow for price discovery.
• Chinese Brokers Halt Short Selling as Regulators Tighten Rules (Bloomberg)
Some Chinese brokerages have halted their short-selling businesses after the nation’s regulators tightened rules to freeze out day traders in a fresh bid to arrest a stock-market plunge. Citic Securities, China’s largest brokerage by revenue, is among firms that temporarily stopped short selling by clients after the Shanghai and Shenzhen exchanges unveiled a new measure requiring investors who borrow shares to wait one day to repay the loans. Short selling was suspended to facilitate the adoption of the rule and will resume once the system has adjusted, Citic said in a statement Tuesday. Huatai Securities, Guosen Securities and Great Wall Securities also said they have suspended the practice.
The new T+1 rule on short selling prevents investors from selling and buying back stocks on the same day, a practice that may “increase abnormal fluctuations in stock prices and affect market stability,” the Shenzhen exchange said Monday after the close of trading. China is taking unprecedented measures to stem a stock rout that has wiped almost $4 trillion in market value since mid-June. Exchanges have frozen 38 trading accounts, including one owned by Citadel Securities, as authorities probe whether algorithmic traders are causing disruptions. On Monday, Shanghai’s stock exchange warned two trading accounts for making a “large amount of sell orders affecting security prices or volume.”
€100 billion won’t be nearly enough and they know it.
• Greece Needs €100 Billion Debt Relief As Permanent Depression Looms (Telegraph)
Greece needs a debt write-down of almost €100bn (£70bn) if the country is to stand a chance of clawing its way out of a “prolonged and severe depression”, according to a leading think-tank. In a stark analysis, the National Institute of Economic and Social Research (NIESR) laid bare the impact of VAT hikes and strict budget targets that it said could become “self-defeating”. As Greek bank shares saw a third of their value wiped-off for a second day, NIESR’s analysis showed Greece’s economy will slump back into recession this year and next. By the end of 2016, the economy is forecast to be 30pc smaller than at its peak in 2007 and 7pc smaller than before it joined the euro in 2001.
“We don’t see Greece getting back to the level it was when it joined the euro in 2001, let alone anywhere near where it was before this crisis struck, so this is a prolonged and severe depression for Greece,” said Jack Meaning, research fellow at NIESR. Economists said Greece’s creditors would need to write-off or restructure €95bn of its €320bn debt pile, or around 55pc of gross domestic product (GDP), in order to reduce its debt stock to around 130pc of GDP, from a projection of 186.9pc this year. NIESR said this would make an IMF debt target of 120pc of GDP by 2020 – which it considers to be the maximum sustainable level – “at least possible”.
The think-tank’s forecasts showed the economy is expected to contract by 3pc in 2015 and 2.3pc in 2016, remaining in recession until the second half of 2016. Under current projections, Greece’s economy is not expected to get back to its pre-euro size until the first half of 2023. Simon Kirby, principle research fellow at NIESR, said: “You have to go back to the Great Depression to find economies hit harder by crisis. The 1920s were bad enough for the UK and that was nowhere near this.” Mr Meaning said there remained a “large chance” of a Greek exit fom the single currency, with VAT hikes likely to hit the economy more than suggested by ordinary fiscal multipliers. “Certainly, as the prospects for Greece deteriorate while inside the euro area, questions over Greece remaining a member will persist,” NIESR said.
Absolutely absolutely excellent. Don’t miss Steve’s very clear points on debt. The seesaw metaphor: Germany asks Greece why they’re not up, and Greece replies: because you are!
• Keiser Report: Summer Solutions featuring Prof. Steve Keen (Max Keiser)
In this summer solutions episode of the Keiser Report, Max Keiser and Stacy Herbert are joined by Professor Steve Keen, author of Debunking Economics, to discuss the problem of household debt and an overly large finance sector. They discuss possible solutions, such as perhaps ending the practice of subsidizing too-big-to-fail banks.
Yada yada yada.
• Greek Police’s Cyber Crime Unit To Investigate Varoufakis Plan (Kathimerini)
Ilias Zagoraios, the chief prosecutor of the Athens First Instance Court, has asked Greece’s cyber crime unit to investigate whether the public revenues service was hacked as part of an effort to create a parallel payment system under ex-Finance Minister Yanis Varoufakis. The former minister has claimed that he talked to a ministry employee about hacking into the General Secretariat for Public Revenues’ online system during alleged attempts to create a scheme that would help the government overcome liquidity problems. Varoufakis did not clarify whether this breach took place. However, his claims prompted an internal investigation by the general secretary for public revenues, Katerina Savvaidou. Now, a second probe will be carried out by the cyber crime unit, which should be able to provide its findings to Zagoraios before Savvaidou completes her investigation.
Greece is going to haul in the cash. What happens after is a whole different story.
• Greece And Lenders Strike Upbeat Tone, Deal Seen On Bailout (Reuters)
Both Greece and its lenders said on Tuesday they were optimistic they could broker a deal within days on a multi-billion euro bailout, striking a surprisingly upbeat tone on a process previously fraught with bitterness. A bailout worth up to €86 billion must be settled by Aug. 20 – or a second bridge loan agreed – if Greece is to pay off debt of €3.5 billion to the ECB that matures on that day. Wrapping up a day of talks in Athens, Greek Finance Minister Euclid Tsakalotos said negotiations were going better than expected. In Brussels, a Commission official said they were ‘encouraged’ by progress. “We are moving in the right direction and intense work is continuing,” Commission spokeswoman Mina Andreeva told Reuters.
It will be the indebted nation’s third bailout since 2010, designed to stave off bankruptcy and keep the country from toppling out of the euro zone. Negotiations have been tortuous in the past, bogged down in minutiae of reforms ranging from pensions to shop opening hours. Over much of this year they were also peppered with angry outbursts about responsibility, sovereignty and even blackmail. However, sources on the creditors’ side briefed on negotiations described the Greeks as being “very, very cooperative” in talks which resumed in the last week of July after weeks of deadlock over bailout terms. “They (the Greeks) are really working now,” one euro zone official said. “I think (Prime Minister Alexis) Tsipras has told his ministers to cooperate.”
“The potential boost of confidence and hope they inspire when they leave the euro is vastly underestimated. We don’t live in a world merely dictated by numbers and stats. Confidence and hope matter.”
• Short Seller Yu ‘Wildly Bullish’ on Greece in Euro Exit Scenario (Bloomberg)
Daniel Yu, best known for betting against companies via his short-selling firm Gotham City, says he’s waiting in the wings for Greece to leave the euro – so he can start buying. The short seller shot to fame by claiming to expose dubious practices at companies, and says that won’t change any time soon. But now, he’s eyeing Greek shares in the event the country repudiates its debt and exits the shared currency. When, not if, all of that happens, stocks will rise again, he says. “I’m going to be wildly bullish if they leave, I’ll look at anything and everything Greek,” Yu said by phone from New York. “If Greece leaves the euro, it basically means they’re not going to pay their debt, and that’s a good thing. Once you have debt relief, there are so many positive things that can happen to an economy.”
Recently back from a trip to Greece, Yu says the plight of the Mediterranean nation has now caught his attention. With the country running out of money, the IMF and many economists agree that its debt is too large for it to pay. Prime Minister Alexis Tsipras surrendered to the demands of its creditors in a July summit billed as Greece’s last chance to stay in the euro, but he said he capitulated because leaving the currency would have been too destructive. Choosing to remain anonymous until recently, Yu made waves last year after a bearish call on Let’s Gowex. The Madrid Wi-Fi provider filed for insolvency about a week after Gotham said the stock was worthless because it inflated revenue. In April 2014, Yu triggered a 39% one-day drop in Quindell, a U.K. technology company, after questioning its profits.
Famed short sellers making bullish calls is becoming somewhat of a trend: Jon Carnes, ranked the best short worldwide, said last month that he sees the Shanghai Composite Index more than doubling. Carson Block, the founder of Muddy Waters LLC, sent France’s Bollore Group soaring in February after betting the stock could double. In Greece, Yu will likely find plenty of bargains. Its stock market, which just reopened after a five-week shutdown, has already lost more than 85% of its value since 2007. A gauge tracking its banks trades at a record low, down for a sixth year. “The tidal wave is a Grexit, it needs to happen,” Yu said. “The potential boost of confidence and hope they inspire when they leave the euro is vastly underestimated. We don’t live in a world merely dictated by numbers and stats. Confidence and hope matter.”
We simply need a way for sovereigns to restructure their debt. Or they’ll default for no good reason.
• After The Greek Crisis, It’s Time For A New Deal On Debt (Kenneth Rogoff)
The IMF’s acknowledgement that Greece’s debt is unsustainable could prove to be a watershed moment for the global financial system. Clearly, heterodox policies to deal with high debt burdens need to be taken more seriously, even in some advanced countries. Ever since the onset of the Greek crisis, there have been basically three schools of thought. First, there is the view of the troika, which holds that the eurozone’s debt-distressed periphery (Greece, Ireland, Portugal, and Spain) requires strong policy discipline to prevent a short-term liquidity crisis from morphing into a long-term insolvency problem. The orthodox policy prescription was to extend conventional bridge loans to these countries, thereby giving them time to fix their budget problems and undertake structural reforms aimed at enhancing their long-term growth potential.
This approach has “worked” in Spain, Ireland, and Portugal, but at the cost of epic recessions. Moreover, there is a high risk of relapse in the event of a significant downturn in the global economy. The troika policy has, however, failed to stabilise, much less revive, Greece’s economy. A second school of thought also portrays the crisis as a pure liquidity problem, but views long-term insolvency as an outside risk at worst. The problem is not that the debt of countries on the eurozone’s periphery is too high, but that it has not been allowed to rise nearly high enough. This anti-austerity camp believes that even when private markets totally lost confidence in Europe’s periphery, northern Europe could easily have solved the problem by co-signing periphery debt, perhaps under the umbrella of Eurobonds backed ultimately by all (especially German) eurozone taxpayers.
The periphery countries should then have been permitted not only to roll over their debt, but also to engage in full-on countercyclical fiscal policy for as long as their national governments deemed necessary. In other words, for “anti-austerians,” the eurozone suffered a crisis of competence, not a crisis of confidence. Never mind that the eurozone has no centralised fiscal authority and only an incomplete banking union. Never mind moral-hazard problems or insolvency. And never mind growth-enhancing structural reforms. All of the debtors will be good for the money in the future, even if they have not always been reliable in the past. In any case, faster GDP growth will pay for everything, thanks to high fiscal multipliers. Europe passed up a free lunch.
Nice piece of history.
• Germans Get Debt Relief Twice in 20th Century, But Demand Greeks Pay Up (TRN)
Jayati Ghosh, Professor of Economics at Nehru University, discusses the economic history of Germany’s debt relief in both the 1930s and 1950s and why policies of growth rather than austerity led them to become an economic powerhouse.
DESVARIEUX: So let’s start off in the 1930s. How did Germany handle its debt crisis back then?
GHOSH: Well, remember that this is debt that Germany got essentially because it had to pay war reparations after it lost the first world war. And at that time many economists including John Maynard Keynes had said these reparations are simply too high. And the country will not be able to pay them. But what Germany had to do is to borrow so as to make these payments. And this of course became more and more difficult to manage. The U.S. had been lending Germany money to actually pay this, but when the U.S. had its crash in September ’29, it actually said that it was not going to actually give any more loans and wanted a repayment of the loans it had made. Now, this created all kinds of problems in Germany and the Weimar Republic, actually one of the reasons for its collapse was this.
In 1933 when the Nazis came to power, they unilaterally suspended all debt payments and basically defaulted on the debt.
DESVARIEUX: Okay. Now, let’s fast forward to the 1950s. And this was a post-World War II environment. Germany was granted substantial debt relief. Is that right?
GHOSH: Absolutely. Now, remember that some of this debt was in fact pre-war debt, which was the debt that had been taken on by Germany and not paid since then, since 1933. But more than half of this was actually debt again from the U.S. which was part of the Marshall Plan. The United States after the second world war actually gave a lot of money to Western Europe for its reconstruction and recovery. In many countries it gave grants, but to Germany it gave loans. So more than half of German debt was Marshall Plan loans from the United States. It wasn’t just the war reparations stuff. And another large part of it was the debt that it had incurred in the pre-war period and hadn’t paid.
A group of creditors, about 20 creditors of Germany, which in fact ironically included Greece at the time, got together in negotiations in London in 1953, and they met between February and August in 1953. they ended up with something called the London Agreement, which basically gave Germany very astonishingly generous terms for restructuring its debt and repaying it. What they did is they cut this debt, which was a total of about $32 billion at the time, they cut it by half. And they cut both the pre-war and the post-war part. Most of it was done by the United States, but it was also done by the United Kingdom, and in fact by all the creditors together including Greece.
Why money flows back into banks.
• In Cash-Starved Greece, Plastic Casts Light Into Shadow Economy (Bloomberg)
Greece’s banking crisis is having at least one positive outcome, and it’s made of plastic. In a country where cash is king and undeclared transactions still make up about a quarter of the economy, about 1 million debit cards have been issued by banks since the government closed lenders for three weeks and imposed controls on euro bills. Emergency measures that some officials warned might spur the black market are showing signs of doing the opposite. Alpha Bank issued about 220,000 cards in July, more than all of last year, as mainly pensioners realized that they had to access their money at cash machines and elsewhere, said Leonidas Kasoumis, general manager for household lending.
Supermarket and gasoline sales paid by debit cards doubled in the wake of controls; usage in the countryside tripled, he said. “Capital controls were a big trigger,” Kasoumis said. “It’s good for merchants, because cash is limited; it’s good for banks because it reduces operational costs. But the best news is for the economy.” The restrictions on cash were introduced in late June as banks hemorrhaged money and were kept alive by a drip-feed from the ECB. Greeks can withdraw €420 a week, though there’s no limit on spending with debit cards provided the transaction is within the country. What’s occurred is a shift that’s unprecedented for a country with the smallest number of electronic payments per head in the EU, according to ECB figures.
The cash culture contributed to the country’s poor record in curbing the shadow economy and collecting taxes, one of the reasons that led Greece to seek its first bailout from its euro area partners and the IMF in 2010. The increase in cards coming into circulation will help combat that, as more buying and selling of goods and services goes through the books, according to Theodore Kalantonis at Eurobank. Until now, payments on plastic accounted for 6% of the total, one of the lowest rates in Europe, he said.
Demand from businesses for card payment systems has surged, even from non-traditional customers such as dentists and doctors, according to Kalantonis. The largest bank, National Bank of Greece, issued more than 400,000 debit cards during the last four weeks. The number of active Visa debit cards in Greece more than doubled in July from previous months, said Nikos Kabanopoulos, the country manager for Visa Europe. The company, which processes almost 60% of Greek point-of-sale card payments, saw a 135% increase in card transactions in the two weeks immediately after the capital controls were imposed, Kabanopoulos said. In 2014, spending on Visa cards was €1 for every €37 compared to €1 for €6 in Europe as a whole, he said.
” It is only possible to deny the hard economical facts for a certain period of time.”
• The Failure of Politics: Merkel’s Euro Debacle (Daniel Stelter)
In 2010, at the first and definitely not the last height of the euro crisis, Merkel and her team of advisors most probably had the following decision box in mind: How do we minimize the immediate political damage for us in Germany and how do we postpone the long-term political damage — even minimize it when it comes to pass? The short-term political damage would have been clear. Preventing an immediate, uncontrollable collapse of the eurozone was necessary as this would have caused huge financial losses and demolished Merkel`s domestic reputation. But it was also necessary to keep the German public’s illusion that the Euro would only bring benefits — and not lead to bailouts and transfers to other countries.
In addition, it would also have been highly unpopular to admit that, in reality, it was German banks (not Greece and the rest of the periphery countries) that had to be rescued. The former had given way too much credit to the latter and funded an unsustainable consumption boom in today’s crisis countries. Merkel aimed for the upper right box: Happy voters and postponing any damage. Politically, that was understandable enough. But her choice entailed no effective solution of the crisis. With more political courage on her part, she could have opted for a real solution in 2010. Such a solution required fixing the eurozone through a broad debt restructuring and mechanisms for more economic integration, which implies permanent transfers.
Of course, both of these components are highly unpopular among the German public – they were so then and are so today. Thus, she chose the “extend and pretend” option, still aiming for the upper right box hoping for a happy end and avoiding bad news today– by providing “credit” to already over indebted countries. At first it seemed to work. The German public accepted the conditional support and believed its leadership that no taxpayers’ money would be spent for other countries. The eurozone survived but it was not because of the politics implemented by European leaders but due to the ECB that did whatever it took to keep the Euro afloat. Unfortunately for Merkel, it didn’t last. It is only possible to deny the hard economical facts for a certain period of time. The latest effort to “rescue” Greece and the Euro made this transparent for everybody.
The old “fathers of the euro” idealists still think they know just what to do. Here’s thinking someone else should clean up their mess.
• Europe Needs Major Investment To Avoid Another Greece (Delors/Enderlein)
The good news to take from last month’s Greek debt deal is that Greece will remain inside the euro area. At the same time, the negotiations have shown the weaknesses of the single currency. It will take time to assess the full consequences, but in the aftermath of yet another last-minute decision, we see three main dangers and three fundamental challenges. The first danger is complacency. Many in Europe have an interest in looking at Greece as an isolated special case, but the Greek crisis is indicative of more fundamental disagreements on the functioning of the euro-area. If we are honest with ourselves, two key challenges remain unanswered: how to achieve greater risk-sharing and how to achieve greater sovereignty-sharing.
Minimising the consequences of the discussion with Greece would be paramount to not taking up those challenges. The second danger is to indulge in a lengthy blame game. Inevitably, some continue to say that this deal was forced by a certain vision of how the euro-area should function. Others say it is a consequence of the lack of cooperation by the Greek government. We do not believe such debates can contribute to a forward-looking discussion on how to integrate the euro area further and to complete European monetary union. The third danger is the continuation of muddling-through policies.
If Europe requires more sharing of sovereignty and more risk-sharing, the agreement with Greece is just another example of ad-hoc sovereignty-sharing with very limited legitimacy and of ad-hoc risk-sharing through opaque channels such as emergency liquidity assistance. The experience of past years shows that quick-fix solutions run the risk of neglecting the big-picture implications. In this context, the discussions surrounding Greece give rise to three specific challenges that we urge European policy-makers to take up with calm determination. We need a balanced combination of more investments, smart reforms and a quantum leap in integration, based in particular on much stronger Franco-German cooperation.
Transfer union. Too late for Europe to establish one, and that dooms the euro.
• America’s Un-Greek Tragedies in Puerto Rico and Appalachia (Paul Krugman)
On Friday the government of Puerto Rico announced that it was about to miss a bond payment. It claimed that for technical legal reasons this wouldn’t be a default, but that’s a distinction without a difference. So is Puerto Rico America’s Greece? No, it isn’t, and it’s important to understand why. Puerto Rico’s fiscal crisis is basically the byproduct of a severe economic downturn. The commonwealth’s government was slow to adjust to the worsening fundamentals, papering over the problem with borrowing. And now it has hit the wall. What went wrong? There was a time when the island did quite well as a manufacturing center, boosted in part by a special federal tax break. But that tax break expired in 2006, and in any case changes in the world economy have worked against Puerto Rico.
These days manufacturing favors either very-low-wage nations, or locations close to markets that can take advantage of short logistic chains to respond quickly to changing conditions. But Puerto Rico’s wages aren’t low by global standards. And its island location puts it at a disadvantage compared not just with the U.S. mainland but with places like the north of Mexico, from which goods can be quickly shipped by truck. The situation is, unfortunately, exacerbated by the Jones Act, which requires that goods traveling between Puerto Rico and the mainland use U.S. ships, raising transportation costs even further. Puerto Rico, then, is in the wrong place at the wrong time. But here’s the thing: while the island’s economy has declined sharply, its population, while hurting, hasn’t suffered anything like the catastrophes we see in Europe.
Look, for example, at consumption per capita, which has fallen 30%in Greece but has actually continued to rise in Puerto Rico. Why have the human consequences of economic troubles been muted? The main answer is that Puerto Rico is part of the U.S. fiscal union. When its economy faltered, its payments to Washington fell, but its receipts from Washington — Social Security, Medicare, Medicaid, and more — actually rose. So Puerto Rico automatically received aid on a scale beyond anything conceivable in Europe.
Just like Greece. So Krugman’s argument holds only to a point.
• Misery Deepens For Those In Puerto Rico Who Can’t Leave (AP)
Nearly 10 years into a deep economic slump, Puerto Rico is no closer to pulling out, and, in fact, is poised to plummet further. The unemployment rate is above 12%. Some 144,000 people left the U.S. territory between 2010 and 2013, and about a third of all people born in Puerto Rico now live in the U.S. mainland. Schools and businesses have closed amid the exodus. The population of 3.5 million is expected to drop to 3 million by 2050. The government has tried to boost revenue by hiking the sales tax to 11.5%, higher than any U.S. state, and closing government offices. Its debt-burdened power utility already charges rates that on average are twice those of the mainland, and is under pressure from bondholders to raise them higher.
A $58 million bond payment due Monday went unpaid. If defaults continue, analysts say Puerto Rico will face numerous lawsuits and increasingly limited access to markets, putting a recovery even more out of reach. Carmen Davila, a 65-year-old retired truck driver and window dresser, recently withdrew her money from the bank amid fears the government would shut down and seize it. “Things are happening in Puerto Rico that we’ve never seen before,” Davila said. “Puerto Rico has always had its ups and downs, but you could handle it. This now is serious.” The exodus of people from the island, mainly to central Florida and New York, is palpable. Nearly everyone knows someone who has left, or plans to do so soon. The impact of the departures, and the decline in spending of those remaining, is obvious.
Crowds have thinned at restaurants and movie theaters; families like Davila’s have cut back on summer excursions to beaches and mountains; and even San Juan’s notorious traffic jams have dwindled somewhat. Jose Hernandez said his commute into San Juan’s colonial district, once about two hours, now takes roughly 20 minutes. The 62-year-old lottery vendor would join the departure, too, if not for the grandchildren he helps support – even though he recognizes doing so would only add to the trouble. “Fewer people means there are less of us to help boost the economy,” he said. “This is the worst I’ve seen it. … There are no people on the street. They’ve disappeared.”
And, of course, worse to come.
• Puerto Rico Has Another Debt Worry on the Horizon (NY Times)
While Puerto Rico’s first bond default in its history reverberated through the financial markets on Tuesday, another move by the cash-poor island may provide a clue to where the next trouble spot lies. After openly acknowledging on Monday afternoon that it had not made a $58 million bond payment, the government quietly disclosed in a financial filing later that afternoon that it had temporarily stopped making contributions of $92 million a month into a fund that is used to make payments on an additional $13 billion in bond debt. A small payment from the fund is due on Sept. 1. Unlike the bond payments that went into default on Monday, the ones coming due are on general obligation bonds — the kind many investors have been led to believe would never go into default because the issuer’s full faith, credit and taxing authority stand behind them.
Puerto Rico issued such bonds over the years to raise money for a variety of government projects, and investors bought them eagerly because the island’s constitution explicitly guaranteed that such bonds would be paid. The general obligation payment due to bondholders on Sept. 1 is for a mere $5 million, an amount so small that even if the redemption fund is empty at that point, Puerto Rico could still produce the cash right out of general revenue. It would presumably want to do so because of the constitutional requirement. But a much bigger payment on the general obligation bonds, about $370 million, comes due on Jan. 1. If Puerto Rico misses that one, “it would be an earthquake for the markets,” said Matt Fabian at Municipal Market Analytics. “Defaulting on the Public Finance Corporation bonds was a change in direction,” he said, referring to the government unit whose bonds have been in default since Monday. “Defaulting on the general obligation bonds would change the game entirely.”
Absolutely. Could see it coming from miles and years away. “You have a resource economy that’s been blown apart sitting on top of a housing bubble..”
• ‘Perfect Storm’ Engulfing Canada’s Economy Perfectly Predictable (Tyee)
Economists, an irrational tribe of short-sighted mathematicians, are now calling Canada’s declining economic fortunes “a perfect storm.” It seems to be the only weather that complex market economies generate these days, or maybe such things are just another face of globalization. In any case, economists now lament that low oil prices have upended the nation’s trade balance: “Canada has posted trade deficits every month this year, and the cumulative 2015 total of $13.6 billion is a record, exceeding the next highest, in 2009, of $2.95 billion.” But this unique perfect storm gets darker. China, which Harperites eagerly embraced as the globe’s autocratic growth locomotive, has run out of steam.
As the country’s notorious industrial revolution unwinds, China’s stock market has imploded. Communist party cadres are now moving their money to foreign housing markets in places like Vancouver. Throughout the world, analysts no longer refer to bitumen as Canada’s destiny, but as a stranded asset. They view it as a poster child for over-spending, a symbol of climate chaos, a signature of peak oil and a textbook case of miserable energy returns. Nearly $60 billion worth of projects representing 1.6 million barrels of production were mothballed over the last year. A new analysis by oil consultancy Wood Mackenzie reveals that capital flows into the oilsands could drop by two-thirds in the next few years.
The Bank of Canada doesn’t describe the downturn led by oil’s collapse as a recession because the “R word” smacks of negative thinking or just plain reality. Surely lower interest rates will magically soften the consequences of a decade of bad resource policy decisions, Ottawa’s elites now reason. Meanwhile the loonie, another volatile petro-currency, has predictably dropped to its lowest value in six years along with the price of oil. A Wall Street short seller sums up the mess better than the mathematicians. “You have a resource economy that’s been blown apart sitting on top of a housing bubble,” Marc Cohodes told Maclean’s magazine. “That’s a toxic mix.” And so my editor asked me to write this sentence: I told you so.
That’d be good. But the Chilcot report is still not out.
• Tony Blair Could Face Trial Over ‘Illegal’ Iraq War: Jeremy Corbyn (Guardian)
Tony Blair should stand trial on charges of war crimes if the evidence suggests he broke international law over the “illegal” Iraq war in 2003, the Labour leadership frontrunner Jeremy Corbyn has said. Corbyn called on the former prime minister to “confess” the understandings he reached with George W Bush in the run up to the invasion. Asked on BBC Newsnight whether Blair should stand trial on war crimes charges, Corbyn said: “If he has committed a war crime, yes. Everybody who has committed a war crime should be.” The veteran MP for Islington North was a high-profile opponent of the war and became a leading member of the Stop the War coalition. He said: “It was an illegal war. I am confident about that.
Indeed Kofi Annan [UN secretary general at the time of the war] confirmed it was an illegal war and therefore [Tony Blair] has to explain to that. Is he going to be tried for it? I don’t know. Could he be tried for it? Possibly.” Corbyn said he expects the eventual publication of the Chilcot report will force Blair to explain his discussions with President Bush in the runup to the war. He said: “The Chilcot report is going to come out sometime. I hope it comes out soon. I think there are some decisions Tony Blair has got to confess or tell us what actually happened. What happened in Crawford, Texas, in 2002 in his private meetings with George [W] Bush. Why has the Chilcot report still not come out because – apparently there is still debate about the release of information on one side or the other of the Atlantic.
At that point Tony Blair and the others that have made the decisions are then going to have to deal with the consequences of it.”
On Newsnight, Corbyn made clear that he is opposed to British involvement in air strikes against Islamic State forces in Iraq and Syria. Prime minister David Cameron is hoping to win parliamentary support to extend Britain’s involvement in the aerial bombing of Isis targets from Iraq to Syria. Corbyn said: “I would want to isolate Isis. I don’t think going on a bombing campaign in Syria is going to bring about their defeat. I think it would make them stronger. I am not a supporter of military intervention. I am a supporter of isolating Isis and bringing about a coalition of the region against them.”
“..the US dropped more bombs on North Korea than it had dropped in the entire Pacific theater during World War II.”
• Americans Killed 20% Of North Korea’s Population In Three Years (Fisher)
Perhaps no country on Earth is more misunderstood by Americans than North Korea. Though the country’s leaders are typically portrayed as buffoonish, even silly, in fact they are deadly serious in their cruelty and skill at retaining power. Though the country is seen as Soviet-style communist, in fact it is better understood as a holdover of Japanese fascism. And there is another misconception, one that Americans might not want to hear but that is important for understanding the hermit kingdom: Yes, much of its anti-Americanism is cynically manufactured as a propaganda tool, and yes, it is often based on lies. But no, it is not all lies. The US did in fact do something terrible, even evil to North Korea, and while that act does not explain, much less forgive, North Korea’s many abuses since, it is not totally irrelevant either.
That act was this: In the early 1950s, during the Korean War, the US dropped more bombs on North Korea than it had dropped in the entire Pacific theater during World War II. This carpet bombing, which included 32,000 tons of napalm, often deliberately targeted civilian as well as military targets, devastating the country far beyond what was necessary to fight the war. Whole cities were destroyed, with many thousands of innocent civilians killed and many more left homeless and hungry. For Americans, the journalist Blaine Harden has written, this bombing was “perhaps the most forgotten part of a forgotten war,” even though it was almost certainly “a major war crime.” Yet it shows that North Korea’s hatred of America “is not all manufactured,” he wrote. “It is rooted in a fact-based narrative, one that North Korea obsessively remembers and the United States blithely forgets.” And the US, as Harden recounted in a column earlier this year, knew exactly what it was doing:
“Over a period of three years or so, we killed off – what – 20% of the population,” Air Force Gen. Curtis LeMay, head of the Strategic Air Command during the Korean War, told the Office of Air Force History in 1984. Dean Rusk, a supporter of the war and later secretary of state, said the United States bombed “everything that moved in North Korea, every brick standing on top of another.” After running low on urban targets, U.S. bombers destroyed hydroelectric and irrigation dams in the later stages of the war, flooding farmland and destroying crops.
100% correct. Cap and trade is a ponzi game.
• Carbon Tax, Cap And Trade Don’t Work (Topple)
Dear Editor, With a federal election coming in October, it is important that Canadians be aware of the candidates’ positions on climate change, formerly called global warming. Most scientists believe that our planet is heating up due to our burning of fossil fuels, thereby causing severe changes to our climate and weather. A minority of scientists attribute climate change to our sun. But politicians are openly speaking of how to address this matter. Some advocate a carbon tax, which would be a straight tax for carbon emissions on consumers and producers. Other politicians call for a cap-and-trade system in carbon, which would raise the price of carbon through a type of stock market in carbon credits. These two proposals would enrich governments and financial elites, and seriously drive up the price of electricity, natural gas, gasoline and the products we make using them.
This has happened in Europe along with much corruption, job loss and economic burdens. The United Nations Panel on Climate Change has called for $120 billion per year through carbon tax or cap-and-trade programs to be transferred by us to developing countries to allow them to catch up to us in development and to address carbon reduction later. Many of these countries are unaccountable dictatorships. If this sounds like a massive wealth transfer, it is. We are already losing many jobs due to the high cost of electricity driven by billions of dollars in subsidies for useless windmills and solar panels, with companies leaving Ontario for cheaper locations. This would multiply and worsen under a carbon tax or cap-and-trade system.
As for Canada, we contribute 1.6 per cent to the world’s carbon dioxide, and our Alberta oil sands contribute .001 per cent. We are a vast northern nation that requires fossil fuels and electricity to heat our homes and to travel. Yet we are targeted by climate change advocates, even though nations such as China and India far outweigh our carbon emissions, and are not targeted for such emissions. In fact, those nations burn overwhelming amounts of dirty coal and yet we are expected to transfer our jobs and money to them.
If carbon dioxide is such a threat to our planet, then why can developing nations be allowed to continue to pour carbon into the Earth’s atmosphere? And why, under the proposed carbon tax or cap-and-trade, can western companies and elites pay a fine for carbon emissions without reducing them? That is a very costly double standard. Canada cannot afford the economic turmoil and job loss that would occur with the so-called remedies to climate change or global warming. Beware of politicians that advocate this economically disastrous proposal.
Nah, a Europe without morals.
• The Migrant Crisis in Calais Exposes a Europe Without Ideas (NY Times)
Europe is caught between those who want to get in, those who want to get out, and those who want to destroy it. The incomers are desperate, the outbound are angry and the destroyers are brandishing flags. This triple onslaught has, for the first time in its history, left the 28-member European Union more vulnerable to fracture than it is susceptible to further integration. A near borderless Europe at peace constitutes the great achievement of the second half of the 20th century. That you can go from Germany to Poland across a frontier near effaced and scarcely imagine the millions slaughtered seven decades ago is testament to the accomplishment. The European Union is the dullest miracle on earth. This Europe is not at immediate risk of disintegration. But it is fraying.
Let’s start with those who want to get in. They have nothing to lose because they have lost everything. In many cases they are from Afghanistan (at war since anyone can remember), from Syria (four million refugees and counting), Somalia, Iraq, Eritrea, the Maghreb or elsewhere in Africa. At the end of odysseys involving leaking boats and looting traffickers, these migrants are forcing their way into the Channel Tunnel. They have blocked traffic and commerce. They have provoked a flare-up of that perennial condition called Anglo-French friction. They have drawn the ire of The Daily Mail (trumpet for a lot of what’s worst in Britain). The paper thinks it may be time to deploy the army. But bringing in the military, or building walls, will resolve nothing.
The 3,000 or so desperate people in Calais are part of a far bigger phenomenon. More than 100,000 refugees or migrants have entered Europe across the Mediterranean so far this year. A not insignificant number have drowned. War, oppression, persecution and economic hardship — combined with the magnetic accessibility even in the world’s poorest recesses of images of prosperity and security — have created a vast migratory wave. From Milan’s central train station to the streets of Calais its impact is apparent. Give me some of that, the disinherited proclaim. Europe has mostly shrugged. Piecemeal small-mindedness, in 28 national iterations, has been the name of the game. There has been no unity or purpose.
After much hand-wringing and wrangling, and pressure from hard-pressed Italy, European leaders did agree to share the “burden” of some 40,000 refugees, a paltry number. More than 3.5 million refugees are now in Jordan, Turkey and Lebanon, countries far less prosperous than European nations. A continent’s shame is written in the migrants’ misery.