Snowden Archives - Page 5 of 6 - The Automatic Earth

Next year ends in a 7. If you’re superstitious or a little loose with statistics, that makes us due for another financial crisis. The biggest one-day stock drop in Wall Street history happened in 1987. The Asian crisis was in 1997. And the worst global meltdown since the Great Depression got rolling in 2007 with the failure of mortgage lenders Northern Rock in the U.K. and New Century Financial in the U.S. You can’t really mark the next crisis down on your calendar, of course. The point is that crackups come fairly regularly. And some of the prerequisites for the next one do seem to be falling into place. The IMF may have gotten things about right in its annual Global Financial Stability Report, which was issued in October. It doesn’t sound an alarm but expresses concern.

Short-term risks have actually abated, the IMF says, pointing to rebounding commodity prices, which help some key emerging markets, and the prospect of easier money in developed markets. But, it says, “medium-term risks continue to build.” It cites the unsettled political climate, which makes entrenched problems harder to tackle; some weak financial institutions in developed markets; and heavy corporate debts in emerging markets. Risks that aren’t acute can build for a while before triggering a crisis. What’s indisputable is that debt, the tinder of almost every financial conflagration, is growing rapidly. At 225 percent of world gross domestic product, combined public and private debt outside the financial sector “is currently at an all-time high,” the IMF says. Debt fuels growth but also makes borrowers brittle. Debtors keep owing money even if they lose the ability to repay. If they default, their lenders are damaged and sometimes default on their own obligations, and so the dominoes fall.

The last paragraphs of a piece that just can’t seem to get going, but ends ‘well’. Private debt is by far Australia’s main problem, as it is nearly everywhere else.

• Government Debt Isn’t The Biggest Threat To Australia’s Credit Rating (G.)

The new head of the Reserve Bank, Philip Lowe, told the house economics committee soon after taking over the position last month, that the effects of a ratings downgrade on borrowing costs are “quite small”. He suggested that rather than be the main game, that credit ratings were just “a useful reminder that we need to make sure the recurrent budget is on a good path”. But while our government debt remains “admirable” by international standards, as the secretary of the treasury, John Fraser, noted this week, our levels of private debt are extremely high – indeed fifth-highest in the world. Worryingly, the IMF in its recent fiscal monitor report noted the level of this debt was a concern for Australia’s ongoing financial stability.

Fraser noted this aspect as well in his appearance before the Senate estimates committee, telling the committee that the Treasury, “are also conscious that credit rating agencies are focusing on household debt as well as corporate and government debt”. Policies to lower private debt however are much more thin on the ground than are the cries about the need to cut government spending to reduce government debt. The shadow treasurer, Chris Bowen, this week raised the issue in an opinion piece published by Guardian Australia. He highlighted that the ALP’s policy on capital gains tax and negative gearing, which it took to the last election, was the type of policy proscribed by organisations like the IMF to temper our love of taking on more and more private debt.

Should S&P downgrade Australia’s credit rating, no doubt almost all commentary and debate will focus on government debt. But regardless of whether or not such a downgrade will cause interest rates for governments and companies to rise, private – not government – debt will remain the issue that most urgently needs to be addressed.

Hubris. Largely.

• Britain’s Leading Banks Set To Pull Out Of UK Early Next Year (G.)

Britain’s biggest banks are preparing to relocate out of the UK in the first few months of 2017 amid growing fears over the impending Brexit negotiations, while smaller banks are making plans to get out before Christmas. The dramatic claim is made in the Observer by the chief executive of the British Bankers’ Association, Anthony Browne, who warns “the public and political debate at the moment is taking us in the wrong direction”. A source close to Brexit secretary David Davis said he and the chancellor Philip Hammond had last week sought to offer reassurance that they were determined to secure the status of the City of London.

However, the government’s stated intention to take control of the freedom of movement into the UK is widely recognised among officials to be a hammer blow to any chance of retaining the present terms of trade for banks, particularly given the bellicose rhetoric of major politicians on the continent. The so-called passporting rights for members of the single market allow UK-based banks to offer financial services to companies and individuals across the EU unimpeded, yet the French president François Hollande is among those who have insisted in recent weeks that hard Brexit will mean “hard negotiation” and that Britain will need to “pay the price” of leaving.

A hard Brexit would involve the UK leaving both the single market, a cental pillar of which is freedom of movement, and the customs union, which could potentially reintroduce tariff and non-tariff restrictions on British imports and exports. Browne warns that both British and European politicians who appear to be pursuing “anti-trade” goals need to recognise that “putting up barriers to the trade in financial services across the Channel will make us all worse off”. Browne, whose organisation has been in intense negotiations with the government, further warns the EU that banks based in UK are currently lending £1.1tn, therefore “keeping the continent afloat financially”, and that this arrangement is at risk.

How many times has Time Warner been bought and sold now? Remember AOL?

• AT&T To Buy Time Warner In Deal Trump Says ‘Destroys Democracy’ (G.)

The telecoms giant AT&T has agreed to pay $85bn to buy the media powerhouse Time Warner and create one of the world’s largest media, TV and telecoms firms. The boards of the two companies unanimously approved the deal on Saturday. AT&T will pay $107.50 per Time Warner share, in a combination of cash and stock, worth $85.4 billion overall. The deal, which combines America’s second-largest wireless telecoms company with the owner of HBO, CNN, Cartoon Network and the Warner Brothers movies, is likely to face tough regulatory scrutiny due to fears it could lead to less consumer choice and higher prices. If approved, the deal would be the biggest in the world this year.

AT&T’s CEO, Randall Stephenson, says he does not anticipate government blocking the acquisition, which the company says is expected to go through by the end of 2017. Time Warner’s CEO, Jeff Bewkes, says he expects all of his company’s creative and business executives to stay on “for a number of years”. The Republican presidential nominee said on Saturday he would block the deal if he were elected. In a speech in Gettysburg, Pennsylvania, Donald Trump said AT&T’s purchase of Time Warner would give the combined group “too much concentration of power” and would “destroy democracy”. Speaking about his continuing battle with the “dishonest mainstream media”, Trump said: “They’re trying desperately to suppress my vote and the voice of the American people.

“As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.” Trump said he would also consider “breaking” up the last big media deal, Comcast’s acquisition of NBC Universal in 2013. “Deals like this destroy democracy,” he said.

Hillary and her campaign blaming everything on Russia is prodoundly damaging to the US, and on the office of President of the Unted States in case she gets elected.

• Hillary Has ‘Nothing To Say’ About Email Revealing $12 Million Quid Pro Quo (DM)

A stone-faced Hillary Clinton refused to comment tonight on an email a top aide sent calling a Clinton Foundation quid pro quo a ‘mess’ of the former secretary of state’s own making. ‘I have nothing to say about Wikileaks, other than I think we should all be concerned about what the Russians are trying to do to our election and using Wikileaks very blatantly to try to influence the outcome of the election,’ Clinton said. The Democratic nominee was responding to a question posed by DailyMail.com during a media avail with reporters riding on her campaign plane.

Hacked emails revealed an internal disagreement among Clinton’s aides about her desire to hold a conference in Marrakech, Morocco.The country’s king made a $12 million pledge to fund the Clinton Global Initiative conference – but only if the the likely presidential candidate attended. Top confidante Huma Abedin bluntly wrote in a January 2015 email that ‘if HRC was not part of it, meeting was a non-starter.’ Then she warned: ‘She created this mess and she knows it.’ It was an uncharacteristic remark from Abedin, who is known for her abiding loyalty to Clinton over the years.

Whatever direction the wind comes from.

• Obama Warned of Rigged Elections Back in 2008 (ZH)

At a campaign rally for Hillary Clinton on Thursday in Miami Gardens, Fla., President Obama condemned Donald Trump’s “rigged election” claims, describing these remarks as “dangerous.” “When you try to sow the seeds of doubt in people’s minds about the legitimacy of our election, that undermines our democracy,” he said. “When you suggest rigging or fraud without a shred of evidence, when last night at the debate, Trump becomes the first major party nominee in American history to suggest that he will not concede despite losing…that is not a joking matter,” Obama added.

Trump said at the third presidential debate that he would keep the United States “in suspense” as to whether he would accept the election results. Later, at a campaign rally, he promised in a jesting manner that he would accept the results “if I win” as the crowd roared. But despite condemning Trump for suggesting an election can be rigged, here is a clip of then-candidate Barack Obama in 2008 warning about voter fraud and suggesting Republicans could try to sway the election in their favor. A female audience member asked… “I would just like to know what you can do to reassure us that this election will not be rigged or stolen?” Obama replies…

On politics, he sounds less than crazed.

• Trump Lays Out His Plan For First 100 Days In Office (ZH)

In a keynote speech in Gettysburg, Pa., about his plans for his first 100 days in office, Donald Trump laid out what he sees as the the core priorities of a Trump presidency, while focusing in the early part of the speech on attacks against Hillary Clinton and Wall Street, and repeating his core message by telling his audience that Washington and Wall Street are “rigged” against him and that he is the candidate to bring “the change that has to come.” “I am not a politician,” Trump told the crowd. “But when I saw the trouble our country was in, I felt I had to act.” Then, moments after promising Americans that he represented a break from the status quo, he promised to sue a number of women who have come forward to accuse him of sexual assault, calling them liars.

Trump also railed against the media for seeking to concentrate its power through mergers and for colluding with his accusers to align against his campaign. He added a new threat to his repeated criticisms of U.S. media companies, when he vowed that in his administration such mega mergers as that between AT&T and Time Warner, which was just announced, would not pass as it leads to “too much concentration of power in the hands of too few.” [..] In terms of soundbites, the following quotes stood out.

On the economy:
• “Change has to come from outside our very broken system.”
• “We’ve doubled our national debt to $20 trillion under President Obama.”
• “Nearly 1 in 4 Americans in their prime earning years isn’t even working.”
• “I am asking the American people to dream big once again.”
• “Will withdraw the U.S. from the Trans-Pacific Partnership.
• “Will cancel every un-Constitutional executive action, memorandum, and order issued by President Obama.”
• “We will cancel all federal funding of sanctuary cities.”
• “The veterans will finally be taken care of properly.”
• “If we follow these steps, we will once more have a government of, by, and for the people.”

In terms of actual political measures that Trump would propose and/or enact, he listed the following six:
1) “A Constitutional Amendment to impose term limits on all members of Congress.”
2) “A hiring freeze on all federal employees.”
3) “A requirement that for every new federal regulation, 2 existing regulations must be eliminated.”
4) “A 5-year ban on White House and Congressional officials becoming lobbyists after they leave government.”
5) “A lifetime ban on White House officials lobbying on behalf of a foreign government.”
6) “A complete ban on foreign lobbyists raising money for American elections.”

We’ll see lots of this as things continue to slide downhill.

• Official Publication Says China Needs Xi As Mao-Like Strongman Leader (SCMP)

China needs a leader like Mao Zedong and President Xi Jinping fits the bill, according to a media outlet affiliated to the Communist Party. Analysts said the call to make Xi a strongman leader was an attempt to raise his status to the equivalent of “Great Leader”. The exhortation was made by Peoples’ Tribune, which is affiliated with party organ People’s Daily and came just ahead of a key meeting of top officials this week to lay the groundwork for the leadership reshuffle next year. The article, published on October 18, also echoed praise from senior politicians earlier this year, calling for Xi to be named “the core” of the party leadership – a term that carries strong political meaning.

China needed a strongman politician so the nation could again rise to greatness amid a time of strategic challenges and risks, it said. Xi, as party general secretary, was widely regarded by officials and the public as such a leader, it said. “There is no longer such salutation as ‘leader’ after Mao,” said Chen Daoyin, a political scientist at Shanghai University of Political Science and Law. Mao’s brief successor Hua Guofeng was once called “Wise Leader”, but no one used “leader” to address Deng Xiaoping, Jiang Zemin or Hu Jintao, Chen said. The magazine added that without the awareness of loyalty to the “core” leadership of the party there was a danger policies would never be adhered to outside the walls of Zhongnanhai, the nerve centre of the party and central government.

Jimmy Wales is the founder of Wikipedia.

• Edward Snowden Is A Saint, Not A Sinner (Jimmy Wales)

Wikipedia is founded on a bedrock principle of neutrality, seeking to describe all relevant sides without taking a political stance. As an individual, I, too, try to stay out of most political debates — except where they directly impact my personal passion for the free flow of information. This is one of those times. When I founded Wikipedia in 2001, the Internet was a place where ordinary people could freely create and share with one another. Wikipedia emerged from that egalitarian spirit, as a community committed to the free exchange of knowledge. Our mission was and continues to be to collect the sum total of all human knowledge and make it available to everybody in their own language. Since its founding, Wikipedia has become one of the most popular websites in the world.

And we zealously guard the privacy of our users, both the 75,000 people who write the encyclopedia and the half-billion people who read it. In 2013, when Edward Snowden revealed the scope and scale of the system of mass surveillance that had been built by the National Security Agency and other national security agencies, we were horrified. It is thanks to Snowden that we can now participate in an informed and democratic debate about how the US government subverted the power of the Internet in the name of mass surveillance. As a result of what he disclosed, people began to realize their privacy had been massively eroded over the past decade, and not just by the NSA. They recognized that their personal information was being collected, stored, analyzed and shared.

Text messages, emails and phone records they thought were private were actually up for grabs, easily accessed by the US government either directly from major tech companies or by tapping the cables and switches that comprise the Internet’s “backbone.” And all of the surveillance was done without a warrant. That is why I’ve signed onto the campaign asking President Barack Obama to pardon Snowden. Without him, ordinary people around the world would still know little of the growing dragnet stifling the Internet’s enormous potential for good. As a result of Snowden’s actions, the Internet has become safer and users are better equipped to protect themselves. Since the disclosures began in 2013, the number of websites moving to HTTPS to encrypt traffic has skyrocketed. (This includes Wikipedia and US federal government websites.) Popular messaging apps like WhatsApp have adopted end-to-end encryption [..]

And still there’s talk of recovery. And people who believe it, too.

• 75% Of Young Greeks, Italians Live With Their Parents (Kath.)

Three out of four Greeks aged between 15 and 24 were still living at home in 2014, according to a report by the OECD made public this month. The annual report, called “Society at a Glance,” found that southern European countries hardest hit by the debt crisis had the highest rates of young people remaining with their parents. Greece came second in the list of 35 OECD member states, after Italy, with 76% of young people reporting that they still lived at home. Italy and Greece were followed by Slovakia, Portugal and Spain, while northern European countries, namely Denmark, Sweden, Finland and Norway, had the lowest rates of young people remaining at home. Greece continues to have the highest rate of youth unemployment in the eurozone with more than half of young Greeks jobless and often obliged to live at home.

Meanwhile, where human rights go to drown….

• Rescuers Save 2,400 Migrants In Mediterranean, Recover 14 Bodies (R.)

Rescuers pulled 2,400 boat migrants to safety on Saturday, the Italian coastguard said, adding 14 dead bodies had been recovered in the past two days. The migrants were on rubber boats and other small vessels, it said in a statement. Some 20 operations were carried out on Saturday alone, including rescues involving an Irish naval ship and boats from humanitarian groups Doctors Without Borders and Sea Watch. Doctors Without Borders said in a tweet on Saturday it believed 12 people had died during rescue operations, four of them children. More than 3,100 migrants have gone missing or died this year while trying to use the route from north Africa to Europe by boat, the International Organization for Migration estimates.

Debt Rattle October 1 2016

Oct 012016

October 1, 2016 Posted by Raúl Ilargi Meijer at 9:26 am Finance Tagged with: bees, Brexit, default, Deutsche, elephants, homeless, IPO, rumor, SDR, Snowden, Trump, yuan Comments Off

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

• Why You Should Be Skeptical Of That $5.4 Billion Deutsche Settlement (CNBC)

• A Deutsche Bank Settlement Rumor Overshadows US Equities (R.)

• Deutsche Bank Takes a Lashing From the German Public (WSJ)

• Trump Will Win, Unless the S&P Rallies in October (BBG)

• Global Trade Crashes Back To “Very Old Normal” (ZH)

• Global Corporate Default Tally By Far Highest Since 2009 (Barron’s)

• US, Canadian IPOs Raise Lowest Annual Total Since 1990 (BBG)

• US Consumer Spending Drops, Clouds Fed Rate Hike Outlook (R.)

• China’s Yuan Joins Elite Club Of IMF Reserve Currencies (R.)

• State Spending Keeps China’s Industrial Sector Humming in September (WSJ)

• Has Vancouver Found The Solution To A Super-Heated Housing Market? (G.)

• Bundesbank President Rejects Calls for German Stimulus (WSJ)

• The “Pardon Snowden” Case Just Got Stronger (Cato)

• Brexit Is A ‘Once-in-a-Generation’ Chance To Save UK’s WIldlife (Ind.)

• Bees Added To US Endangered Species List For The First Time (G.)

• Elephants Have Learned To Avoid Poachers By Hanging Out With Rangers (Konbini)

A planted rumor. “..if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now..”

• Why You Should Be Skeptical Of That $5.4 Billion Deutsche Settlement (CNBC)

Shares of Deutsche Bank were leaping in New York trade Friday on a report that it was near a settlement with the U.S. Department of Justice, but there’s reason to be skeptical about the number being cited. Shares of Deutsche Bank have extended their gains, up about 14% in afternoon trading, after an AFP report that Germany’s biggest bank is close to a $5.4-billion dollar settlement with the Justice Department over mortgage bonds. […] But if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now. Its failure to do so indicates the number is not correct.

Any eventual settlement, however, would almost certainly be well below the reported $14-billion opening bid by the Department of Justice in its talks with Deutsche. Deutsche Bank is not publicly commenting on the supposed $5.4-billion figure. The capital market rules say the bank would have to react almost immediately to a report on such a settlement. That’s why two weeks ago, after The Wall Street Journal reported on the initial $14-billion figure, Deutsche Bank quickly put out a release confirming the news. “The negotiations are only just beginning,” Deutsche Bank said at the time. “The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

Far from over: “Once they come to some resolution on the difference between what they are charged, $14 billion, and what they are going to pay, call it $5 or $6 billion, the market is going to be afraid there is a problem..”

• A Deutsche Bank Settlement Rumor Overshadows US Equities (R.)

Deutsche Bank will likely cast a pall over equity markets next week as the largest German lender navigates a possible multi-billion dollar settlement with the U.S. Department of Justice over the sale of mortgage-backed bonds. Deutsche shares traded in the United States hit a record low on Thursday, falling as much as 24% since the DOJ asked the bank to pay $14 billion to settle charges related to its sale of toxic mortgage bonds before the financial crisis. But the stock had its best day in five years Friday, on record volume, after news agency AFP reported that Deutsche was nearing a much-lower $5.4 billion settlement with the DOJ. Analysts at Morgan Stanley estimated Deutsche could pay about $6 billion to settle with the DOJ. Stocks on Wall Street broadly tracked Deutsche over the past few days and will likely continue to do so, analysts say.

“While it is in the headlines, it is an overhang,” said Art Hogan at Wunderlich Securities in New York. “Once they come to some resolution on the difference between what they are charged, $14 billion, and what they are going to pay, call it $5 or $6 billion, the market is going to be afraid there is a problem,” Hogan said. Deutsche’s market capitalization of near $18 billion makes it much smaller than its U.S. peers like Bank of America, at $155 billion, or Citi, at $133 billion. However its trading relationships with the world’s largest financial institutions make a potential breakdown at Deutsche a bigger risk to the wider financial system than any other global bank, the International Monetary Fund said in June. “Its world print and eurocentric role are unrivaled, so it is going to drive the narrative next week,” said Peter Kenny at Global Markets Advisory Group in New York.

Merkel’s room to move is shrinking.

• Deutsche Bank Takes a Lashing From the German Public (WSJ)

Deutsche Bank is getting rough treatment in the market. It is also having a hard time with its own public. The lender, founded in 1870, has turned from an object of patriotic pride into what critics on both sides of the political spectrum openly deride as a national embarrassment. Multibillion-dollar losses last year, investigations into misconduct around the world, concerns about its capital cushion and rich pay have made Deutsche Bank a handy target for left-leaning critics that accuse it of short-term thinking and greed. Many on the far right, meanwhile, regard Deutsche Bank as German in name only. Three out of its past four chief executives have been foreigners, including current CEO John Cryan, helping detractors tar it as the embodiment of out-of-control stateless capitalism.

The sentiment isn’t confined to political circles. A TNS Emnid poll for news magazine Focus conducted on Wednesday and released on Friday showed that 69% of respondents opposed any kind of state aid for Deutsche Bank, with only 24% in favor. “People feel it’s simply unacceptable that banks should be exempted from business risks,” said Frank Decker, politics professor at Rheinische Friedrich-Wilhelms-University in Bonn. [..] the lack of support at home, along with strict bailout rules Germany has backed for banks in the European Union, could limit the government’s room for maneuver should Deutsche Bank end up in a position that it does need help.

Despite the trauma of the financial crisis, large institutions such as Deutsche Bank haven’t learned any lessons, said Manfred Güllner, head of the Forsa polling group, making any bailout a tougher sell than in 2008. “While the returns on savings keep falling in a bottomless pit—and now into negative territory—the banks, as always, keep conducting their risky speculative businesses,” the populist Alternative for Germany party said in a Facebook post Thursday. “Whenever they get in trouble, the politicians are always there to help with taxpayers’ money.”

“When the stock market ends up for the three-month period, the Democrat wins. When it’s negative, the Republican wins.”

• Trump Will Win, Unless the S&P Rallies in October (BBG)

October is the bad boy of the stock market. The Panic of 1907, the Crash of 1929, Black Monday in 1987. It’s notable for another reason, too. The performance of Standard & Poor’s 500-stock index from July 31 to Oct. 31 has a curious way of predicting the winner of the presidential election. As with every prediction, take it with a giant grain of salt. But the pattern is solid, as shown in this chart by Sam Stovall, equity strategist for S&P Global Market Intelligence1. When the stock market ends up for the three-month period, the Democrat wins.

When it’s negative, the Republican wins. Since this July 31, the S&P is in slightly negative territory. Two times the pattern didn’t hold were in 1968 and 1980, when influential third-party candidates were in race, including George Wallace, who took about 14% of the popular vote in ’68. The pattern also failed in 1956, which Stovall says could be attributed to geopolitical events putting the markets on edge. That was the year of the Suez Crisis and the Hungarian Uprising, he noted.

“What if the last 30 years of exuberant world trade growth was the ‘outlier’..”

• Global Trade Crashes Back To “Very Old Normal” (ZH)

“Get used to it” is the message from Goldman Sachs when it comes to the collapse in global trade… What if the last 30 years of exuberant world trade growth was the ‘outlier’ and we are now reverting to the pre-Greenspan normal? As Goldman’s Goohoon Kwon explains, a low trade beta may be normal:

“Finally, another explanation for the trade slowdown is that it simply represents a return to normal. Historical trade data show that the global trade beta was slightly higher than 1 in the early 1950s before rising gradually due to a series of extraordinary events. In the 1960s-1980s, it rose to around 1.5, boosted by multilateral efforts for trade reforms, which reduced average tariffs from 35% in 1947 to 6.4% at the start of the of the Uruguay Round (1986-94) of global trade negotiations. Thereafter, the breakup of the Soviet Union enabled global trade to expand rapidly in the 1990s, and the WTO entry of China in 2001 helped sustain the trade beta at around 2 in the 2000s. There is therefore an argument that a series of largely one-off factors drove the trade beta to unusually high levels.”

And as Goldman warns, there is limited upside to global trade from here…

“Given these structural forces, the outlook for global trade remains weak in our view, though it might rebound somewhat in the short term. Asian trade is likely to recover moderately in coming years, helped by the eventual dissipation of capacity overhangs in China and reductions in internal imbalances in the economy. And further trade liberalization, including in services, presents upside for global trade. However, the restructuring of overcapacity sectors seems to be proceeding slowly so far in Asia, as reflected in low and still-falling capacity utilization in China and Korea. Moreover, the current political backdrops in the major economies suggest that another major push for trade liberalization might be off the table, at least for now.”

By far the worst year since 2009.

• Global Corporate Default Tally By Far Highest Since 2009 (Barron’s)

Three corporate defaults in the past week, two metals companies and one telecom firm, brought the total number of defaults around the world to 130. That’s a lot more than last year. Diane Vazza, head of S&P Global Fixed Income Research says: “The default tally is 60% higher than the count at this time in 2015 and has surpassed the total number of defaults recorded in full-year 2015, 113 defaults. The last time the global tally was higher at this point in the year was in 2009, when it reached 223 during the financial crisis.” Energy and commodity-related firms make up over half of the defaults; 70% are U.S. companies. Vazza notes: “As of Aug. 31, 2016, the global speculative-grade default rate for the energy and natural resources sector was 17.9%–more than seven times higher than the default rate of all other sectors.”

How to make a pretty awful number sound good.

• US, Canadian IPOs Raise Lowest Annual Total Since 1990 (BBG)

It’s been a paltry year for initial public offerings. Fewer than 135 companies have made their debuts in U.S. and Canada, putting 2016 on pace to be the slowest for IPOs since 1990, according to data compiled by Bloomberg. With $14.4 billion raised so far, we’re also on track to witness the lowest annual total on that score since 1990. For the companies that have made it to market, the dearth of activity has helped underpin demand. That’s especially true in the case of tech IPOs, where (as my colleague Shira Ovide has written) the paucity of new issues has left investors scrambling for any new listing, driving valuations to potentially unsustainable levels.

Nutanix, a tech unicorn that priced Thursday evening, will likely continue the trend, with its shares poised for a surge when they begin trading Friday. But another crop of listings – backed by private equity – has also done well out of the chute this year, and may offer the potential for more lasting gains. On average, new issues of private-equity backed companies have rallied 34.5% this year through Thursday, topping the 28.2% average return for all U.S. and Canadian IPOs during the same period, according to data compiled by Bloomberg.

David Stockman put it like this: “They shopped till they dropped.”

• US Consumer Spending Drops, Clouds Fed Rate Hike Outlook (R.)

U.S. consumer spending fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates. The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.1% last month after accounting for inflation. Analysts polled by Reuters had expected a 0.1% gain. “Consumers took a breather in August,” said Chris Christopher of IHS Global Insight. Fed Chair Janet Yellen said last week she expected the U.S. central bank would raise rates once later this year to keep the economy from eventually overheating.

Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed’s next policy meeting in early November and roughly even odds of an increase at its mid-December meeting, according to CME Group. The dollar was little changed against a basket of currencies while U.S. stock prices were trading higher. Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment and falling inventories in the second quarter when the economy expanded at a lackluster 1.4% annual rate.

A mixed blessing.

• China’s Yuan Joins Elite Club Of IMF Reserve Currencies (R.)

China’s yuan joins the IMF’s basket of reserve currencies on Saturday in a milestone for the government’s campaign for recognition as a global economic power. The yuan joins the U.S. dollar, the euro, the yen and British pound in the IMF’s special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.The IMF is adding the yuan, also known as the renminbi, or “people’s money”, on the same day that the Communist Party celebrates the founding of the People’s Republic of China in 1949.

“The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China’s economic development and results of the reform and opening up of the financial sector,” the People’s Bank of China said in a statement. China will use this opportunity to further deepen economic reforms and open up the sector to promote global growth, the central bank added. The IMF announced last year that it would add the yuan to the basket, so actual inclusion is not expected to impact financial markets. But it puts Beijing’s often opaque economic and foreign exchange policy in the international spotlight as some central banks add yuan assets to their official reserves.

Critics argue that the move is largely symbolic and the yuan does not fully meet IMF reserve currency criteria of being freely usable, or widely used to settle trade or widely traded in financial markets. U.S. Republican presidential nominee Donald Trump has said he will formally label China a currency manipulator if he wins November’s election. China stunned investors by devaluing the currency last year and the yuan has since weakened to near six-year lows, adding to worries about already feeble global growth. Some China watchers also fear that Beijing’s commitment to further market opening and financial sector reforms will fade after its diplomatic success, despite repeated reassurances from Beijing it will continue with the process.

Now that China has entered the IMF basket, it’ll get much harder to keep this up: “It’s very clear that this sort of continued funding of industrial overcapacity sectors is unsustainable.”

• State Spending Keeps China’s Industrial Sector Humming in September (WSJ)

Activity in China’s crucial industrial sector appeared to stabilize last month, with an official index on manufacturing holding steady, buoyed by state spending on infrastructure. China’s official manufacturing purchasing managers index was unchanged at 50.4 in September compared with August, the National Bureau of Statistics reported Saturday. The gauge has remained above 50, which separates expansion from contraction, for six out of the past seven months. The September reading matched a median forecast of 50.4 by 11 economists polled by The Wall Street Journal.

Subindexes gave mixed readings. One measured new orders weakening, while another for production showed improvement; both remained above 50. The official nonmanufacturing PMI edged up to 53.7 in September from 53.5 in August. Economists said stepped-up bank lending and spending on government projects is helping to steady an economy that got off to a wobbly start to the year and has been slowing overall in recent years. “You’re seeing a bit of a credit-fueled holding pattern,” said Angus Nicholson, an analyst with IG Markets. “The question is: when does that turn around and when are they going to cut credit? It’s very clear that this sort of continued funding of industrial overcapacity sectors is unsustainable.”

Better question: do other cities have the guts to follow suit?

• Has Vancouver Found The Solution To A Super-Heated Housing Market? (G.)

There is a city which is suffering a worse property bubble than Sydney, whose residents are more priced-out than Londoners, and where there is a greater divide between the housing haves and have-nots than even San Francisco. That city is Vancouver, and in response to these mounting challenges, the west-coast Canadian metropolis recently imposed an extraordinary new tax on foreign buyers – whose impact is now being watched closely by other cities grappling with bloated property markets. On 2 August, Vancouver introduced a tax on anyone from outside Canada wanting to buy a home in its super-heated market. In future, city authorities said, if you weren’t Canadian, you would have to pay an extra 15% on the purchase price.

The impact has, by some measures, been more startling than campaigners could have hoped for. The price of the average detached home reportedly slumped by an astonishing 16.7% in August alone to C$1.47m (£856,000), according to the Real Estate Board of Greater Vancouver. Some agents are reporting that the market has gone from red hot to stone cold in a matter of weeks. British Columbia’s premier, Christy Clark, who introduced the tax, told reporters there will be no going back on it. “The prices were going up way too fast and if we helped slow that down, that’s good,” she said. In the year before the tax, prices in the city were galloping ahead at a rate of 39% a year amid widespread concern that investors, from China in particular, were pricing out local residents.

It is a concern echoed in cities across the Pacific Rim. In June, Sydney introduced a 4% stamp duty surcharge on foreigners buying homes; the following month, Melbourne hiked stamp duty rates from 3% to 7% for foreign buyers – in both cases to deter rampant property speculation. Queensland, whose capital is Brisbane, has followed suit with an extra 3% duty surcharge that will be slapped on “foreign persons” buying residential property and land from 1 October. In Auckland, New Zealand – currently the world’s frothiest property market – property investors are, as of last month, required to put down at least 40% of the purchase price in cash.

By ignoring Germany’s role in destroying the Greek and Italian economies, Weidmann ensures the downfall of the eurozone, and thereby of Germany itself.

• Bundesbank President Rejects Calls for German Stimulus (WSJ)

It’s absurd to ask Germany’s government to spend more to bolster eurozone growth, German Central Bank President Jens Weidmann said on Thursday, rejecting growing pressure on Berlin to loosen its purse strings. Speaking in the German capital, Mr. Weidmann said a fiscal stimulus program in Germany was unnecessary given the nation’s robust economy, and would have few positive effects for other countries anyway. Earlier this month, ECB President Mario Draghi joined the chorus of voices that have criticized Germany for reining in its spending at a time of weak economic growth. “Countries that have fiscal space should use it,” Mr. Draghi said at a news conference. “Germany has fiscal space.”

But Mr. Weidmann argued that Germany’s national debt was already high, and the country’s aging population “calls for lower rather than higher debts.” Mr. Draghi tempered his remarks on Wednesday after a meeting in Berlin with German lawmakers, who grilled him over the ECB’s easy-money policies and their impact on German savers and banks. “Germany does have fiscal space [but] we need to be nuanced,” Mr. Draghi said. “I never argued for irresponsible fiscal expansion.”

It couldn’t be more obvious.

• The “Pardon Snowden” Case Just Got Stronger (Cato)

Yesterday, the Department of Justice Inspector General (DoJ IG) issued a long overdue Congressionally-mandated report on FBI compliance with the PATRIOT Act’s Section 215 “business records” provision between 2012 and 2014. It is the first such report issued that covers the initial period of Edward Snowden’s revelations about widespread domestic mass surveillance by the federal government. Since his indictment for leaking the information to the press, Snowden’s lawyers have argued that he should not be prosecuted under the WW I-era Espionage Act because his revelations served the public interest. The DoJ IG report provides the clearest evidence yet that Snowden’s lawyers are correct (p. 6):

“In June 2013, information about the NSA’s bulk telephony metadata program was publicly disclosed by Edward Snowden. These disclosures revealed, among other things, that the FISA Court had approved Section 215 orders authorizing the bulk collection of call detail records. The telephony metadata collected by the NSA included information from local and long-distance telephone calls, such as the originating and terminating telephone number and the date, time, and duration of each call. The disclosures prompted widespread public discussion about the bulk telephony metadata program and the proper scope of government surveillance, and ultimately led Congress to end bulk collection by the government in the USA Freedom Act.”

Public discussion of the controversy. Very public action by Congress to change the law, addressing at least one major abuse brought to light by Snowden. And there was more (p. 33):

“An [National Security Division] Deputy Unit Chief noted that the number of business records orders reached its peak in 2012 and has declined annually since then, and that the number of [Electronic Communication Transation] requests has declined more than other types of requests. The Deputy Unit Chief said that the Snowden revelations have played a role in this decline, both in terms of the stigma attached to use of Section 215 and increased resistance from providers. The Deputy Unit Chief stated, “I think that it’s possible that folks … have decided it’s not worth pursuing [business records orders], you know, obviously things haven’t been great with providers since Snowden either.” ”

Translation: Snowden’s actions forced companies like Verizon, Yahoo and others to grow a spine and start defending the Fourth Amendment rights of their customers. Earlier this month, a group of non-governmental organizations and individuals launched a campaign to get President Obama to pardon Snowden before he leaves office. We now have the department seeking Snowden’s prosecution offering unambigous evidence that his whistleblowing actions served the public interest. Obama should direct DoJ to drop the case or he should pardon Snowden. Either approach would be in the public interest, just as Snowden’s actions were.

if there’s anyone left claiming to be surprised by Brexit, they must be blind.

• Record Numbers Left Homeless After Eviction By Private Landlords In UK (G.)

Record numbers of families are becoming homeless after being evicted by private landlords and finding themselves unable to afford a suitable alternative place to live, government figures show. The end of an assured shorthold tenancy (AST) was cited by nearly a third of the 15,170 households in England who were classed as homeless in the three months to June – a number that was up 10% on the same period last year. The problem was particularly acute in London, accounting for 41% of all homelessness acceptances in the capital during the period, according to figures from the Department for Communities and Local Government (DCLG). The end of an AST has rapidly become the single biggest cause of homelessness in recent years, triggered by spiralling rent rises and cuts to housing benefit support.

In 2010 just 11% of homeless acceptances in England were caused by the end of an AST. The government’s statistical release states: “Affordability [of housing] is an increasingly significant issue, as more households facing the end of a private tenancy are unable to find an alternative without assistance.” Bob Blackman, a Tory backbencher who has drawn up a private member’s bill seeking to require councils to do more to help households at risk of losing their homes, said: “It is a national disgrace when we have the highest number of people in employment ever, we have a low rate of unemployment, that we still have people sleeping rough. Goodness knows what will happen if there is a recession.”

Not if and when the present political climate perseveres.

• Brexit Is A ‘Once-in-a-Generation’ Chance To Save UK’s WIldlife (Ind.)

Brexit will be a “once-in-a-generation chance” to reverse the huge decline in Britain’s wildlife, according to four of the UK’s leading environmental groups. The RSPB, WWF UK, National Trust and The Wildlife Trusts said the British countryside was “key to our identity as a nation” and farmers had the ability address the “urgent challenge of restoring nature”. They called on the Government to replace the much-criticised EU Common Agricultural Policy subsidy system with a British one that pays farmers to maintain “high environmental standards”. Earlier this month, the State of Nature 2016 report – produced by more than 50 organisations – concluded the UK was one of the “most nature-depleted countries in the world”. More than one in seven species face extinction and more than half are in decline.

However, in its response to the conservation groups’ call, the Government insisted the natural environment was “cleaner and healthier than at any time since the industrial revolution”. The National Farmers Union (NFU) said its members understood “the importance of protecting the environment” and complained that some organisations were making suggestions about agricultural policy “without speaking to those the policy most affects”. In a joint statement, called A new policy for our countryside, the four conservation groups said the UK’s departure from the EU “will be one of the most defining events for farming and our environment in living memory”. “[It] provides an unprecedented opportunity to revitalise our countryside in a way that balances the needs of everyone, for generations to come,” they said.

We have created far too great a distance between ourselves and the world that gives us life.

• Bees Added To US Endangered Species List For The First Time (G.)

Seven types of bees once found in abundance in Hawaii have become the first bees to be added to the US federal list of endangered and threatened species. The listing decision, published on Friday in the Federal Register, classifies seven varieties of yellow-faced or masked bees as endangered, due to such factors as habitat loss, wildfires and the invasion of non-native plants and insects. The bees, so named for yellow-to-white facial markings, once crowded Hawaii and Maui but recent surveys found their populations have plunged in the same fashion as other types of wild bees – and some commercial ones – elsewhere in the United States, federal wildlife managers said.

Placing yellow-faced bees under federal safeguards comes just over a week since the US Fish and Wildlife Service proposed adding the imperilled rusty patched bumble bee, a prized but vanishing pollinator once found in the upper midwest and north-eastern United States, to the endangered and threatened species list. One of several wild bee species seen declining over the past two decades, the rusty patched bumble bee is the first in the continental United States formally proposed for protections. The listing of the Hawaii species followed years of study by the conservation group Xerces Society, state government officials and independent researchers. The Xerces Society said its goal was to protect nature’s pollinators and invertebrates, which play a vital role in the health of the overall ecosystem.

Nice, but that’s just a few of them. I think we’re going to end up sending our armies, our children and grandchildren, to Africa and far beyond, to the oceans, to try and keep alive enough of what preceded us on this planet in order to guarantee our own species can survive. But I can’t say I have high hopes.

• Elephants Have Learned To Avoid Poachers By Hanging Out With Rangers (Konbini)

In an effort to protect diminishing elephant herds in the Democratic Republic of Congo’s Virunga National Park, a Kenyan conservation group fitted elephants with collars so they could monitor and track them in real time. Save the Elephants claim some of the herds they track have started changing their behavior to avoid dangerous areas, which the team believes is an adaptation to poaching. “Several elephant families [were seen] clustered around ranger posts, suggesting they had learned to distinguish the heavily armed rangers as harmless,” STE founder Iain Douglas-Hamilton said. In one rebel-afflicted area, elephants had even started hanging out at ranger checkpoints where huge trucks of charcoal and hardwood rumble through every few minutes.

“Yet somehow the elephants sensed that they were safe there and walked close to the voluble rangers.” Elephants that are able to distinguish rangers from poachers represent an incredible feat of animal ingenuity, but according to experts, it’s all quite understandable. According to My Green World, these mammals are similar to gorillas, in that they’re “smart, sensitive, loyal and aware.” But while this is great news for elephants (and bad news for outsmarted poachers), there’s still the matter of curbing the ongoing colossal hunting epidemic. Africa had 1.3 million elephants in the 1970s, but today there are only 500,000. So there is still quite a way to go before elephants can be taken off the endangered species list.

Debt Rattle September 17 2016

Sep 172016

September 17, 2016 Posted by Raúl Ilargi Meijer at 9:01 am Finance Tagged with: Fed, IMF, IYI, media, Putin, Russia, Snowden, Syria, Trump, VW, wealth 1 Response »

DPC Near Lewiston, Minnesota – The Pulpit. 1899

• The Beginning of the End of the World (Umair Haque)

• US Household Net Worth Hits Record $89 Trillion, But There’s A Catch (ZH)

• China’s Holdings of US Treasuries Fall to Lowest Since 2013 (BBG)

• Trump’s Economic Plan: Some Decent Ideas, Lots Of Really Bad Fiscal Math (DS)

• US Is Investigating Bosch in Widening VW Diesel-Cheat Scandal (BBG)

• Why the Fed Destroyed the Market Economy (Gordon)

• IMF’s Lagarde: Big Salary, Big Ideas (TO Sun)

• House Intelligence Committee’s Terrible, Horrible, Very Bad Snowden Report (TCF)

• Western Media Credibility In Free Fall Collapse (Paul Craig Roberts)

• The Intellectual Yet Idiot (Taleb)

• The Existential Madness of Putin-Bashing (Robert Parry)

• Russia Says US Refuses To Share Syria Truce Deal With UN Council (R.)

Nice attempt by Haque, but no, some kind of ‘leadership’ would not solve our problems.

• The Beginning of the End of the World (Umair Haque)

The beginning of the end of the world means that yesterday’s model of prosperity – let’s call it capitalist liberal democracy – has reached its limits. It is like an aging machine that shudders and backfires more violently and regularly, because it is broken. And yet, we are unsure, as a world, where to go next.

Let’s take it in four levels. At the macro level, liberal capitalism’s a set of agreements and institutions. These agreements are being torn up, rejected, abandoned. Witness Brexit. The world is left in a state of void, just as the UK is now. Let me try to translate that: there is not a single leader in the world today who appears to have a vision for a stagnant global economy. The kind of great and radical vision that Keynes, Marshall, JFK had. Maybe we don’t agree with the vision – but what is important is that are visions to discuss, debate, inspire, cohere, lead. That level of vision is missing when it is most badly needed. Without such a vision, what happens?

A void of vision, leadership, direction to fix any of the existential threats of inequality, fragility, insecurity, at the global level inevitably means social discontent, decay, decline. Why be a part of societies and unions that step on your future? The beginning of the end of the world at the social level means: entire societies are beginning to fracture. As they fracture, so there is a return to tribalism, dynasty, feudal and authoritarian ways of ordering society. You don’t have to look much further than the US election to see it. In the void of democracy, feudalism is the darkness, and fascism is midnight. What happens when societies begin to splinter and fracture, regress and decline?

At the institutional level, the level of corporations and organisations, the end of the world means that there is now an even more severe power imbalance. Institutions hold far more power than relatively powerless, ossified, fractured states. And they exercise it. They set the terms and define the rules of trade, freedom, work, reward. What does that mean for people? At the personal level, the end of the world is already here. This is the first generation in modern history that’s going to suffer worse living standards than their parents. The question is: how much worse? Very badly worse. With stagnant incomes, no savings, this generation will never retire, vacation, advance, enjoy, or own. Their relationships, health, and productivity will suffer as a result. The quality of their lives is going to be long, bleak, and pointless. Worked to the grave to make a dwindling number of dynasties wealthy, largely by serving them hand and foot, not really enhancing human life.

Tyler presents inequality as the catch, but the -admittedly related- asset bubble is a much bigger one.

• US Household Net Worth Hits Record $89 Trillion, But There’s A Catch (ZH)

As part of its quarterly Flow of Funds update, earlier today the Fed released snapshot of the US “household” sector as of June 30. What it revealed is that with $103.8 trillion in assets and a modest $14.7 trillion in liabilities, the net worth of the average US household rose to a new all time high of $89.1 trillion, up $1.1 trillion as a result of an estimated $474 billion increase in real estate values, and mostly $750 billion increase in various stock-market linked financial assets like corporate equities, mutual and pension funds. Household borrowing rose at a 4.4% annual rate, with total household liabilities grew growing by $200 billion from $14.5 trillion to $14.7 trillion, the bulk of which was $9.6 trillion in home mortgages. The breakdown of the total household balance sheet as of Q2 is shown below.

And while it would be great news if wealth across America had indeed risen as much as the chart above shows, the reality is that there is a big catch: as shown previously, virtually all of the net worth, and associated increase thereof, has only benefited a handful of the wealthiest Americans. As a reminder, from the CBO’s latest Trends in Family Wealth analysis, here is a breakdown of the above chart by wealth group, which sadly shows how the “average” American wealth is anything but. While the breakdown has not caught up with the latest data, it provides an indicative snapshot of who benefits.

Here is how the CBO recently explained the wealth is distributed: In 2013, families in the top 10% of the wealth distribution held 76% of all family wealth, families in the 51st to the 90th %iles held 23%, and those in the bottom half of the distribution held 1%. Average wealth was about $4 million for families in the top 10% of the wealth distribution, $316,000 for families in the 51st to 90th%iles, and $36,000 for families in the 26th to 50th %iles. On average, families at or below the 25th %ile were $13,000 in debt.

Maybe Draghi and Kuroda can buy them all.

• China’s Holdings of US Treasuries Fall to Lowest Since 2013 (BBG)

China’s holdings of U.S. Treasuries fell in July to the lowest level in more than three years, as the world’s second-largest economy pares its foreign-exchange reserves to support the yuan. The biggest foreign holder of U.S. government debt had $1.22 trillion in bonds, notes and bills in July, down $22 billion from the prior month, in the biggest drop since 2013, according to U.S. Treasury Department data released Friday in Washington and previous figures compiled by Bloomberg. The portfolio of Japan, the largest holder after China, rose $6.9 billion to $1.15 trillion. Saudi Arabia’s holdings of Treasuries declined for a sixth straight month, to $96.5 billion.

The figures compare with official Chinese data showing that the nation’s foreign-exchange reserves were little changed in July at $3.2 trillion, though they’re down from a peak of close to $4 trillion in 2014. The reserves dropped $16 billion in August to the lowest level since 2011. The report, which also contains data on international capital flows, showed net foreign buying of long-term securities totaling $103.9 billion in July. It showed a total cross-border inflow, including short-term securities such as Treasury bills and stock swaps, of $140.6 billion. Net foreign selling of U.S. Treasuries was $13.1 billion in July, while foreigners scooped up a net $26.1 billion in equities, $20.7 billion of corporate debt and $38.9 billion in agency debt, according to the report.

Stockman knows what he’s talking about on this issue, far more than most. Not perfect, but useful.

• Trump’s Economic Plan: Some Decent Ideas, Lots Of Really Bad Fiscal Math (DS)

[..] the Reagan White House—me included – fell for the theory of “dynamic scoring” and that the big cuts in the income tax rates would partially pay for themselves via revenue “flowback”. Back in those days the latter was expressed in an economic forecast known as Rosy Scenario, which assumed that in response to the supply side tax cuts, the US economy would get up on its hind legs and leap forward at a real GDP growth rate of more than 4% per year, and as far as the eye could see. What happened instead, of course, is that the US economy plunged into the drink of the deep 1982 recession and the Federal deficit soared to 5% of GDP—a truly shocking outcome back in those innocent days when the old-time fiscal religion still had roots inside the beltway.

And it would have also caused enormous economic havoc had not the Gipper’s advisors—me included—talked him to signing three tax bills over 1982-1984 that recaptured roughly 40% of the revenue loss from his cherished tax cuts. Even then, the public debt grew by 250% during Reagan’s eight years – or by more than under any peacetime President in American history. Yet even to this day the GOP politicians and their economic advisers profess a case of heavy duty amnesia about what happened, claiming that real GDP grew by upwards of 4.5% and that these results were proof positive that “dynamic scoring” of tax cuts is valid.

Worse still, they appear to have convinced Donald Trump of this same fallacious revisionist history because it was embedded at the core of the Thursday speech’s fiscal math. To wit, Trump claimed that $2.6 trillion or 60% of the revenue loss from his $4.4 trillion tax cut would be recouped by, yes, 4% economic growth as far as the eye can see.

As Merkel pushes back.

• US Is Investigating Bosch in Widening VW Diesel-Cheat Scandal (BBG)

U.S. prosecutors are investigating whether Germany’s Robert Bosch, which provided software to Volkswagen, conspired with the automaker to engineer diesel cars that would cheat U.S. emissions testing, according to two people familiar with the matter. Among the questions the Justice Department is asking in the criminal probe, one of them said, is whether automakers in addition to VW used Bosch software to skirt environmental standards. Bosch, which is also under U.S. civil probe and German inquiry, is cooperating in investigations and can’t comment on them, said spokesman Rene Ziegler.

The line of inquiry broadens what is already the costliest scandal in U.S. automaking history. VW faces an industry-record $16.5 billion, and counting, in criminal and civil litigation fines after admitting last year that its diesel cars were outfitted with a “defeat device” that lowered emissions to legal levels only when it detected the vehicle was being tested. More than a half dozen big manufacturers sell diesel-powered vehicles in the U.S. The people familiar with the matter declined to say whether specific makers are under scrutiny. A second supplier may also be part of the widening probe: When prosecutors in Detroit outlined their case last week against a VW engineer who pleaded guilty to conspiracy in the matter, they said he had help from a Berlin-based company that is 50% owned by Volkswagen, described as “Company A” in a court filing. That company, according to a another person familiar with the matter, is IAV, which supplies VW and other automakers.

“..the data told them to…”

• Why the Fed Destroyed the Market Economy (Gordon)

Kashkari’s a man with crazy eyes. But he’s also a man with even crazier ideas. After stating that politics is not part of presidential election year Fed policy, Kashkari explained how Fed policy is set. “We look at the data,” he said. In hindsight, this clarification was more revealing than the initial denial. Clearly, Kashkari’s never thought about what exactly it is he’s looking at when looking at the data. If he had, he’d likely conclude that the approach of using data to identify apparent aggregate demand insufficiencies and perceived supply gluts is crazy. Unemployment. GDP. Price inflation. These data points are all fabricated and fudged to the government number crunchers’ liking. What’s more, for each headline number there are a list of footnotes and qualifiers. Hedonic price adjustments. Price deflators. Seasonal adjustments. Discouraged worker disappearances. These subjective adjustments greatly affect the results.

Yet what’s even crazier is that Kashkari believes that by finagling around with the price of money the Fed can improve the outputs of their bogus data. According to central planners, better data – i.e. higher GDP, greater consumer demand, 2% inflation – means a better economy. But after 100-years of mismanagement, the last eight being in the radically extreme, the Fed has scored a big fat rotten tomato. The data still stinks – GDP’s still anemic. But the downside of their actions is downright putrid. Policy makers have pushed public and private debt well past their serviceable limits. They’ve debased the dollar to less than 5% of its former value and propagated bubbles and busts in real estate, stock markets, emerging markets, mining, oil and gas, and just about every other market there is. Aside from enriching private bankers, we now know the answer to why the Fed destroyed the market economy. According to Kashkari, the data told them to.

“..a former French finance minister who has more than a passing knowledge of the debt crisis in the country formerly known as Greece..”

• IMF’s Lagarde: Big Salary, Big Ideas (TO Sun)

You probably didn’t get invited to the International Forum of the Americas conference held in Toronto this week. Neither did I. Just as well. From $700 for a “regular” one-day pass to $3,500 for an “executive club” three-day pass, the croissants and coffee must have been vastly superior to the fare at Tim Hortons. We both missed the opportunity to hear Christine Lagarde, the managing director of the IMF, pontificate on the rise of protectionist political rhetoric in the developed world. Lagarde drew criticism for praising Prime Minister Justin Trudeau’s fiscal plan from my friends Tony Clement, who’s in the running for the leadership of the federal Conservatives and Lisa Raitt, who hasn’t yet said whether she will run. Lagarde commented that she hoped Trudeau’s fiscal approach of spend now, pay later would go viral.

It’s an interesting take on how to build a strong, national economy, particularly from a former French finance minister who has more than a passing knowledge of the debt crisis in the country formerly known as Greece. The IMF has been intricately involved in the economic and political meltdown of Greece and, early in her tenure as managing director, Lagarde raised hackles by agreeing Greeks had “had a nice time” but it was now “payback time”. It’s hard to square the gap between praising Trudeau for “stimulus” spending and borrowing, while criticizing Greeks for not paying their way.

[..] I found Lagarde’s comments on the protectionist political wave sweeping over much of the developed world more interesting, and unintentionally, insightful. I had the pleasure of hearing her speak at a forum in New York. She is intelligent, informed and opinionated, all things I like. She’s also an elite, globe-traveling bureaucrat with a $500,000 tax-free salary and an expense account commensurate with a lifestyle unrecognizable to average folk. From her lofty, enlightened position Lagarde offered that blue-collar workers in developed countries should be offered educational opportunities. Apparently that will help them adjust to factory closings.

The author was a cabinet minister in the Conservative government of Ontario premier Mike Harris from 1995 to 2002.

Barton Gellman takes down an idiot report.

• House Intelligence Committee’s Terrible, Horrible, Very Bad Snowden Report (TCF)

Since I’m on record claiming the report is dishonest, let’s skip straight to the fourth section. That’s the one that describes Snowden as “a serial exaggerator and fabricator,” with “a pattern of intentional lying.” Here is the evidence adduced for that finding, in its entirety.

“He claimed to have left Army basic training because of broken legs when in fact he washed out because of shin splints.” This is verifiably false for anyone who, as the committee asserts it did, performs a “close review of Snowden’s official employment records.” Snowden’s Army paperwork, some of which I have examined, says he met the demanding standards of an 18X Special Forces recruit and mustered into the Army on June 3, 2004. The diagnosis that led to his discharge, on crutches, was bilateral tibial stress fractures.

“He claimed to have obtained a high school degree equivalent when in fact he never did.” I do not know how the committee could get this one wrong in good faith. According to the official Maryland State Department of Education test report, which I have reviewed, Snowden sat for the high school equivalency test on May 4, 2004. He needed a score of 2250 to pass. He scored 3550. His Diploma No. 269403 was dated June 2, 2004, the same month he would have graduated had he returned to Arundel High School after losing his sophomore year to mononucleosis. In the interim, he took courses at Anne Arundel Community College.

“He claimed to have worked for the CIA as a ‘senior advisor,’ which was a gross exaggeration of his entry-level duties as a computer technician.” Judge for yourself. Here are the three main roles Snowden played at the Central Intelligence Agency (CIA). (1) His entry level position, as a contractor, was system administrator (one among several) of the agency’s Washington metropolitan area network. (2) After that he was selected for and spent six months in training as a telecommunications information security officer, responsible for all classified technology in U.S. embassies overseas. The CIA deployed him to Geneva under diplomatic cover, complete with an alias identity and a badge describing him as a State Department attache. (3) In his third CIA job, the title on his Dell business card was “solutions consultant / cyber referent” for the intelligence community writ large—the company’s principal point of contact for cyber contracts and proposals. In that role, Snowden met regularly with the chiefs and deputy chiefs of the CIA’s technical branches to talk through their cutting edge computer needs.

“He also doctored his performance evaluations…” Truly deceptive, this. I will tell the story in my book. Suffice to say that Snowden discovered and reported a security hole in the CIA’s human resources intranet page. With his supervisor’s permission, he made a benign demonstration of how a hostile actor could take control. He did not change the content of his performance evaluation. He changed the way it displayed on screen.

But they control.

• Western Media Credibility In Free Fall Collapse (Paul Craig Roberts)

The latest from the Gallup Poll is that only 32% of Amerians trust the print and TV media to tell the truth. Republicans, 18 to 49 year old Americans, and independents trust the media even less, with trust rates of 14%, 26%, and 30%. The only group that can produce a majority that still trusts the media are Democrats with a 51% trust rate in print and TV reporting. The next highest trust rate is Americans over 50 years of age with a trust rate of 38%. The conclusion is that old people who are Democrats are the only remaining group that barely trusts the media. This mistaken trust is due to their enculturation. For older Democrats belief in government takes the place of Republican belief in evangelical Christianity.

Older Democrats are firm believers that it was government under the leadership of President Franklin D. Roosevelt that saved America from the Great Depression. As the print and TV media in the 21st century are firmly aligned with the government, the trust in government spills over into trust of the media that is serving the government. As the generation of Democrats enculturated with this mythology die off, Democratic trust rates will plummet toward Republican levels. It is not difficult to see why trust in the media has collapsed. The corrupt Clinton regime, which we might be on the verge of repeating, allowed a somewhat diverse and independent media to be 90% acquired by six mega-corporations. The result was the disappearance of independence in reporting and opinion.

The constraints that corporate ownership and drive for profits put on journalistic freedom and resources reduced reporting to regurgitations of government and corporate press releases, always the cheapest and uncontroversial way to report. With journalistic families driven out of journalism by estate taxes, the few remaining newspapers become acquisitions like a trophy wife or a collector Ferrari. Jeff Bezos, CEO and founder of amazon.com, handed over $250 million in cash for the Washington Post. Jeff might be a whiz in e-commerce, but when it comes to journalism he could just as well be named Jeff Bozo.

Taleb’s been tweeting on this for a long time. Wonder if he’s read Ivan Illich’s work on institutionalism.

• The Intellectual Yet Idiot (Taleb)

The Intellectual Yet Idiot is a production of modernity hence has been accelerating since the mid twentieth century, to reach its local supremum today, along with the broad category of people without skin-in-the-game who have been invading many walks of life. Why? Simply, in most countries, the government’s role is between five and ten times what it was a century ago (expressed in%age of GDP). The IYI seems ubiquitous in our lives but is still a small minority and is rarely seen outside specialized outlets, think tanks, the media, and universities – most people have proper jobs and there are not many openings for the IYI. Beware the semi-erudite who thinks he is an erudite. He fails to naturally detect sophistry.

The IYI pathologizes others for doing things he doesn’t understand without ever realizing it is his understanding that may be limited. He thinks people should act according to their best interests and he knows their interests, particularly if they are “red necks” or English non-crisp-vowel class who voted for Brexit. When Plebeians do something that makes sense to them, but not to him, the IYI uses the term “uneducated”. What we generally call participation in the political process, he calls by two distinct designations: “democracy” when it fits the IYI, and “populism” when the plebeians dare voting in a way that contradicts his preferences. While rich people believe in one tax dollar one vote, more humanistic ones in one man one vote, Monsanto in one lobbyist one vote, the IYI believes in one Ivy League degree one-vote, with some equivalence for foreign elite schools, and PhDs as these are needed in the club.

More socially, the IYI subscribes to The New Yorker. He never curses on twitter. He speaks of “equality of races” and “economic equality” but never went out drinking with a minority cab driver. Those in the U.K. have been taken for a ride by Tony Blair. The modern IYI has attended more than one TEDx talks in person or watched more than two TED talks on Youtube. Not only will he vote for Hillary Monsanto-Malmaison because she seems electable and some other such circular reasoning, but holds that anyone who doesn’t do so is mentally ill. The IYI has a copy of the first hardback edition of The Black Swan on his shelves, but mistakes absence of evidence for evidence of absence. He believes that GMOs are “science”, that the “technology” is not different from conventional breeding as a result of his readiness to confuse science with scientism.

Everyone should read this. And then realize that Russia in not a threat to us.

• The Existential Madness of Putin-Bashing (Robert Parry)

the United States dispatched financial “experts” – many from Harvard Business School – who arrived in Moscow with neoliberal plans for “shock therapy” to “privatize” Russia’s resources, which turned a handful of corrupt insiders into powerful billionaires, known as “oligarchs,” and the “Harvard Boys” into well-rewarded consultants. But the result for the average Russian was horrific as the population experienced a drop in life expectancy unprecedented in a country not at war. While a Russian could expect to live to be almost 70 in the mid-1980s, that expectation had dropped to less than 65 by the mid-1990s.

The “Harvard Boys” were living the high-life with beautiful women, caviar and champagne in the lavish enclaves of Moscow – as Yeltsin drank himself into stupors – but there were reports of starvation in villages in the Russian heartland and organized crime murdered people on the street with near impunity. Meanwhile, Presidents Bill Clinton and George W. Bush cast aside any restraint regarding Russia’s national pride and historic fears by expanding NATO across Eastern Europe, including the incorporation of former Soviet republics. In the 1990s, the “triumphalist” neocons formulated a doctrine for permanent U.S. global dominance with their thinking reaching its most belligerent form during George W. Bush’s presidency, which asserted the virtually unlimited right for the United States to intervene militarily anywhere in the world regardless of international law and treaties.

Without recognizing the desperation and despair of the Russian people during the Yeltsin era – and the soaring American arrogance in the 1990s – it is hard to comprehend the political rise and enduring popularity of Vladimir Putin, who became president after Yeltsin abruptly resigned on New Year’s Eve 1999. (In declining health, Yeltsin died on April 23, 2007). Putin, a former KGB officer with a strong devotion to his native land, began to put Russia’s house back in order. Though he collaborated with some oligarchs, he reined in others by putting them in jail for corruption or forcing them into exile.

Putin cracked down on crime and terrorism, often employing harsh means to restore order, including smashing Islamist rebels seeking to take Chechnya out of the Russian Federation. Gradually, Russia regained its economic footing and the condition of the average Russian improved. By 2012, Russian life expectancy had rebounded to more than 70 years. Putin also won praise from many Russians for reestablishing the country’s national pride and reasserting its position on the world stage.

Why?

• Russia Says US Refuses To Share Syria Truce Deal With UN Council (R.)

Russia said on Friday that a U.N. Security Council endorsement of a Syria ceasefire deal between Moscow and Washington appeared unlikely because the United States does not want to share the documents detailing the agreement with the 15-member body. Russian U.N. Ambassador Vitaly Churkin and U.S. Ambassador Samantha Power had been due to brief the council behind closed-doors on Friday but that was canceled at the last minute. “The main problem … which in my mind makes it impossible to produce any resolution, is that they are refusing to give those documents to members of the Security Council or even to read those documents to the members of the Security Council,” Churkin told reporters.

“We believe that we cannot ask them (council members) to support documents which they haven’t seen,” said Churkin, suggesting there was lack of unity in U.S. President Barack Obama’s administration toward the agreement. The U.S. mission to the United Nations said it could not agree with Russia on a way to brief the council that would “not compromise the operational security of the arrangement.” [..] Churkin said Russia has given two drafts of a possible Security Council resolution to the United States. He said on Thursday that Moscow hoped a resolution could be adopted next week during the annual U.N. gathering of world leaders. “They, in their typical way, came up with a completely different thing, which is trying to interpret and reinterpret the agreement,” Churkin said, referring to U.S. officials.

Debt Rattle September 7 2016

Sep 072016

September 7, 2016 Posted by Raúl Ilargi Meijer at 9:15 am Finance Tagged with: Barroso, bonds, Calais, debt, ECB, equity, New Zealand, QE, refugees, SDR, Snowden, stocks 2 Responses »

Harris&Ewing “Congressional Union for Woman Suffrage” 1916

• Why More QE Won’t Work: Debt Is Cheap But Equity Is Expensive (BBG)

• ECB Set To Extend QE Well Into Next Year As It Fights Deflation (CNBC)

• Could the ECB Start Buying Stocks? (WSJ)

• Now Companies Are Getting Paid to Borrow (WSJ)

• Message to the Fed: We’re not in Kansas Anymore (Farmer)

• China Grabs Bigger Slice Of Shrinking Global Trade Pie (BBG)

• Why China Isn’t a Financial Center (Balding)

• Time to Worry: Stocks and Bonds Are Moving Together (WSJ)

• First Factories, Now Services Signal Cracks in US Economy (BBG)

• New Zealand Tops World House Price Increase (G.)

• EU Ethics Watchdog Intervenes Over Former EC Chief Barroso’s Goldman Job (G.)

• How Snowden Escaped (NaPo)

• Greece Overhauls Refugee Center Planning As Islands Appeal For Help (Kath.)

• UK Immigration Minister Confirms Work To Start On £1.9 Million Calais Wall (G.)

• Nearly Half Of All Refugees Are Now Children (G.)

Pretending you can save an economy by buying already overpriced stocks is absolute lunacy.

• Why More QE Won’t Work: Debt Is Cheap But Equity Is Expensive (BBG)

As central banks in Europe and Japan gear up to further expand quantitative-easing policies, market participants have issued a flurry of stark warnings about the potentially-negative unintended consequences, from the hit to pension funds to the risk of fueling market bubbles. But the more-prosaic prognostication — that further easing simply won’t stimulate slowing economies by reviving enfeebled corporate investment — may be the hardest-hitting retort from the perspective of central banks in the U.K., euro-area and Japan. While a clutch of reasons for moribund business investment in advanced economies have been advanced, central banks would do well to wake up to another typically over-looked cause, according to a new report from Citigroup.

Corporate investment faces a financing hurdle as the weighted-average cost of capital for companies (known as WACC) remains elevated thanks to the stubbornly high cost of equity, Hans Lorenzen, Citi credit analyst, said in a report published this week. The report pleads with central banks to forgo further asset purchases, citing diminishing returns from such stimulus programs and their questionable efficacy more generally. Corporates aren’t feeling the financing benefits offered by the global fall in real long-term interest rates thanks to a historically-high equity risk premium — which, in simple terms, is the excess return the stock market is expected to earn over a perceived risk-free rate, Lorenzen said.

Although companies typically aren’t dependent on equity issuance to fund investment programs – relying instead on fixed-income markets – the equity risk premium is an important factor influencing investment decisions made by company boards. The higher the cost of equity, the higher the theoretical overall cost of capital for corporates. In other words, investments that don’t on paper appear to make returns materially greater than the company’s WACC will face financing challenges.

Only thing is, we know it’s useless-at least for what it purports to be aimed at.

• ECB Set To Extend QE Well Into Next Year As It Fights Deflation (CNBC)

The ECB is expected to extend its trillion-euro bond-buying program beyond March 2017 and announce to expand the universe of eligibile bonds as part of its seemingly never-ending struggle to kickstart the euro zone’s economy. The central bank and its President Mario Draghi has been trying to push inflation back to its goal of below but close to 2 percent with a plethora of measures and instruments ranging from negative deposit rates to spur lending, a QE program that has been buying €80 billion ($89 billion) in bonds every month and interest rates close to zero – but without a breakthrough success. Analysts believe the ECB’s governing council has its work cut out when it meets to decide on monetary policy Thursday.

The headline rate of inflation remained unchanged at 0.2% in August. Core, or underlying inflation, which excludes energy, goods, alcohol and tobacco, fell from 0.9% in July to 0.8%, according to Eurostat. The eurozone economy slowed slightly in August as Germany’s services sector faltered, according to surveys of purchasing managers, expanding at the weakest pace in 19 months. Amid the factors for the cooling of the economy is the UK’s decision to leave the EU which may have dampened the currency area’s modest recovery. “We think the ECB will expand the duration of its QE programme from March 2017 currently to September 2017,” Nick Kounis at ABN Amro writes. “The ECB will most likely also need to announce changes to its QE programme to increase the universe of eligible assets as it will not be able to meet even its current targets under the current structure.”

It could, but it’s the worst thing it could do.

• Could the ECB Start Buying Stocks? (WSJ)

Central banks have become some of the biggest investors in bond markets. Now some in the financial markets think stocks should benefit more from their largess. Some economists say the ECB, which meets Thursday to decide if it should expand its current bond-buying program, should invest in equities. The reason: It is running out of bonds to buy. A move by the ECB into equities would have big implications for Europe’s stock markets, which have been rocked by a series of shocks this year, from volatility in China to Britain’s vote to leave the EU. The prospect of billions of euros flowing into equities could prop up prices, much as ECB bond purchases have done for debt securities. The signaling effect from the ECB’s unlimited money-printing power may also limit downturns in equities.

Stock purchases don’t appear to be on the near-term agenda. But ECB officials haven’t ruled them out, and the idea could gain steam if they continue to undershoot their 2% inflation target. Some central banks already invest in equities. Switzerland’s central bank has accumulated over $100 billion worth of stocks, including large holdings in blue-chip U.S. companies such as Apple and Coca-Cola. If the ECB decides to raise its stimulus by extending its current bond program, as many analysts expect, fresh questions will be raised about how it will continue to find enough bonds to buy. The bank is already purchasing €80 billion a month of corporate and public-sector bonds to reduce interest rates across the eurozone. Its holdings of public-sector debt reached €1 trillion last week, the ECB said Monday.

The ECB is keeping sick companies alive, destroying price discovery in the process.

• Now Companies Are Getting Paid to Borrow (WSJ)

Investors are now paying for the privilege of lending their money to companies, a fresh sign of how aggressive central-bank policy is upending conventional patterns in finance. German consumer-products company Henkel AG and French drugmaker Sanofi each sold no-interest bonds at a premium to their face value Tuesday. That means investors are paying more for the bonds than they will get back when the bonds mature in the next few years. A number of governments already have been able to issue bonds at negative yields this year. But it is a rare feat for companies, which also ask investors to bear credit risk.

Yields on corporate debt have plunged in recent months as investors have pushed up prices in the scramble for returns. Roughly €706 billion of eurozone investment-grade corporate bonds traded at negative yields as of Sept. 5, or over 30% of the entire market, according to trading platform Tradeweb, up from roughly 5% of the market in early January. [..] Tuesday’s deals, however, are among just a handful of corporate offerings that have actually been sold at negative yields. They include offerings of euro-denominated bonds earlier this year by units of British oil giant BP and German auto maker BMW, according to Dealogic. Germany’s state rail operator, Deutsche Bahn, also has issued euro-denominated bonds at negative yields.

The ECB launched its corporate bond-buying program in early June and had bought over €20 billion of corporate bonds as of Sep. 2. Most of its purchases came in secondary markets, where investors buy and sell already issued bonds. The central bank meets Thursday and will decide if it should expand its current bond-buying program. The purchases have helped set off a burst of issuance following the traditional summer lull in local capital markets. Last month was the busiest August on record for new issuance of euro-denominated, investment grade corporate debt, according to Dealogic.

Kansas is all they know.

• Message to the Fed: We’re not in Kansas Anymore (Farmer)

There is a lasting and stable connection in data between changes in the interest rate and changes in the unemployment rate. Past data suggest that if the Fed were to raise the interest rate at its next meeting, unemployment would increase and output growth would slow. It is fear of that outcome that causes central bank doves to be reluctant to raise the interest rate. But although an interest rate increase has preceded a slowdown by approximately three months in past data, there is a connection at longer horizons between inflation and the T-bill rate. That connection, sometimes called the Fisher relationship after the American economist Irving Fisher, arises from the fact that, risk-adjusted, T-bills and equities should pay the same rate of return.

The one-year real return on a T-bill is the difference between the interest rate and the expected one-year inflation rate. The one-year real return on holding the S&P 500 is the gain you can expect to make from buying the market today and selling it one year later. Economic theory suggests that the gap between those two expected returns arises from the fact that equities are riskier than T-bills, and importantly, the gap cannot be too big. Therein lies the policy maker’s conundrum. To hit an inflation target of 2%, the T-bill rate must be 2% higher than the underlying risk adjusted real rate: policy makers call this rate r*. There is some evidence that r* is currently very low currently, possibly zero or even negative. But if the Fed were to raise the policy rate to 2% at the next meeting, they are terrified that they might trigger a recession.

Let’s examine that argument. The fact that a rate rise caused a slowdown in past data does not mean that a rate rise will cause a slowdown in future data. This time really is different. It is different because in 2008 the Fed expanded its policy options. Before 2008 the interest rate set by the Fed was the Federal Funds Rate (FFR). That is the overnight rate at which commercial banks can borrow or lend to each other. Before 2008, there was a large and active Fed funds market used by commercial banks to meet reserve requirements. Commercial banks are required to hold roughly 10% of their balance sheets in the form of reserves. In the past, because reserves did not pay interest, banks kept them to a minimum. Excess reserves for much of the post-war period were essentially zero. Firms and households hold cash because they need liquid assets to facilitate trade. But cash is costly to hold because a firm must forgo investment opportunities. In the parlance of economic theory, we say that the FFR is the opportunity cost of holding money.

Trade wars and currency wars a-coming.

• China Grabs Bigger Slice Of Shrinking Global Trade Pie (BBG)

China is eating up a larger chunk of the world’s shrinking trade pie. Brushing off rising wages, a shrinking workforce and intensifying competition from lower cost nations from Vietnam to Mexico, China’s global export share climbed to 14.6% last year from 12.9% a year earlier. That’s the highest proportion of world exports ever in IMF data going back to 1980. Yet even as its export share climbs globally, manufacturing’s slice of China’s economy is waning as services and consumption emerge as the new growth drivers. For the global economy, a slide in China’s exports this year isn’t proving any respite as an even sharper slump in its imports erodes a pillar of demand.

Those trends are likely to be replicated in August data due Thursday. Exports are estimated to fall 4% from a year earlier and imports are seen dropping 5.4%, leaving a trade surplus of $58.85 billion, according to a survey of economists by Bloomberg News as of late Tuesday. While China’s advantage in low-end manufacturing has been seized upon by Donald Trump’s populist campaign for the U.S. presidency, the shift into higher value-added products from robots to computers is also pitting China against developed-market competitors from South Korea to Germany. A weaker yuan risks exacerbating global trade tensions, which became a hot button issue at the G-20 meeting in Hangzhou over cheap steel shipments.

“All the talk we have heard over the last few years about China losing its global competitive advantage is nonsense,” said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. “This will all further fuel increasing trade tensions as already evident in the U.K. with the Brexit vote and in the U.S. with the support for Trump’s populist protectionist platform.”

Many voices proclaim that China’s foray into SDRs will lead to the end of the USD. Balding sees it differently. SDRs signal China’s weaknesses.

• Why China Isn’t a Financial Center (Balding)

Amid all the buzz about China’s hosting the G-20 summit in Hangzhou – all the accords, arguments and alleged snubs – another symbolically significant event was largely obscured. Last week, the World Bank issued bonds denominated in Special Drawing Rights, or SDRs, in China’s interbank market. Beginning in October, the yuan will be included in the basket of currencies used to set the SDRs’ value. To China, this symbolizes its status as a rising power. I’d argue that it instead symbolizes why China is struggling to become a global financial center. Beijing conceived of SDRs as something of a compromise. It would like the global monetary system to be less reliant on the U.S. dollar and more favorable toward its own currency.

Yet it continues to impose capital controls, which limit the yuan’s usage overseas, and it doesn’t want to let the yuan’s value float freely, which would be a prerequisite to its becoming a true reserve currency. China saw SDRs as a way to split the difference, to create a competitor to the dollar and maintain a fixed exchange rate at the same time. The problem is that there’s almost no conceivable reason to use them. SDRs were created as a synthetic reserve asset by the IMF decades ago, under the Bretton Woods system. No country uses them for normal business, and no government is likely to issue bonds denominated in them except for political reasons, as the World Bank is doing. Companies won’t use them either. If a firm wants to borrow to build a plant in Japan, it will issue a bond in yen so it can repay in yen.

If its customers are global, surely an ambitious investment bank would be willing to build a customized currency portfolio index that would match its needs. Rather than using the SDR’s weighting of currencies, the company could sell a bond in a synthetic index of anything: a 25% split between dollars, euros, yen and reals, say. No customer pays in SDRs; why bind yourself to repaying debts in them? The reason China is pushing SDRs is that it hopes to gain the prestige of a global currency without facing the financial pressure to let the yuan float freely or to loosen capital controls. It wants the benefits of global leadership, in other words, but would prefer to avoid the drawbacks. This is precisely the attitude that’s hindering China’s rise as a global financial center.

Distortion is all we have left.

• Time to Worry: Stocks and Bonds Are Moving Together (WSJ)

Wall Street traders and fund managers returning from the summer break are likely to focus on the obvious: a series of central-bank meetings in coming weeks and the imminent U.S. election. They also should be paying close attention to some unusual behavior in the market, where the changing relationship between bonds and stocks may be a sign of trouble ahead. A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa. This summer, the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007.

This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus, and last year’s brief bubble in German bunds. The simplest explanation is that expectations of interest rates being lower for longer—some central bankers have suggested lower forever—pushes the price of everything up, and yields down.

When the focus is on the discount rate used to value all assets, bond and stock prices rise and fall together, creating the inverse relationship between bond yields and shares. Such a focus on monetary policy isn’t healthy. It leaves markets more exposed to sudden shocks, both from changes in policy and from an economy to which less attention is being paid. “It’s a somewhat mercurial thing, but there are big shifts [in correlations], and being on the right side of those big shifts is important,” said Philip Saunders at Investec Asset Management. “You do see some brutal price action at these correlation inflection points.”

What? We have enough waiters?

• First Factories, Now Services Signal Cracks in US Economy (BBG)

Some cracks could be starting to appear in the picture of an otherwise resilient U.S. economy. An abrupt drop in the Institute for Supply Management’s services gauge on Tuesday to a six-year low is the latest in a string of unexpectedly weak data for August. Other less-than-stellar figures include an ISM factory survey showing a contraction in manufacturing; a cooling of hiring; automobile sales falling short of forecasts; and an index of consumer sentiment at a four-month low. While there is hardly any evidence that growth is falling off a cliff, the run of disappointing figures make it tougher to argue that the underlying momentum of the world’s largest economy is holding up.

It also potentially complicates the task of Federal Reserve policy makers, who are debating whether to raise interest rates as soon as this month; traders’ bets on a September move faded further after the report on service industries, which make up almost 90% of the economy. “The latest set of ISM numbers is shockingly weak,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. “It certainly gives the doves at the Fed more ammunition. It makes the Fed’s conversation at the September meeting that much more contentious.” The ISM’s non-manufacturing index slumped to 51.4, the lowest since February 2010, from 55.5 in July, the Tempe, Arizona-based group reported. The figure was lower than the most pessimistic projection in a Bloomberg survey.

The ISM measures of orders and business activity skidded by the most since 2008, when the U.S. was in a recession. Readings above 50 indicate expansion. Stocks fell, bonds climbed and the dollar weakened against most of its major peers after the data were released.

AKA New Zealand has world’s biggest housing bubble.

• New Zealand Tops World House Price Increase (G.)

New Zealand has the world’s most frenetic property market, with prices in Auckland now outstripping London, and possibly dashing the hopes of British buyers hoping to escape Brexit. In a global ranking of house price growth by estate agents Knight Frank, New Zealand was second to Turkey, but once the impact of inflation was stripped out it came top with 11% annual growth. Canada was the only other country to see price growth of 10% or more over the past year. It also recorded the fastest price rises of any country over the past three months. Meanwhile once white-hot property markets in the far east are cooling fast. Taiwan saw price falls of 9.4% over the past year, putting it at the bottom of Knight Frank’s ranking. Hong Kong and Singapore have also seen significant reductions in house prices.

Auckland is at the centre of an extraordinary property boom, with separate data revealing that the city’s average house price last month hit NZ$1m (£550,000) for the first time. The country’s QV house price index found that the typical Auckland home was valued at NZ$1,013,632 in August, an increase of 15.9% over the year. That’s just under £560,000 and higher than the average London property price of £472,384 according to data. Spiralling prices – up NZ$20,000 a month over the past quarter – and the falling pound are likely to deter Britons hoping to emigrate.

After the fact.

• EU Ethics Watchdog Intervenes Over Former EC Chief Barroso’s Goldman Job (G.)

The EU’s ethics watchdog is to look into the former European commission president José Manuel Barroso’s new job with Goldman Sachs, which includes advising the investment bank and its clients on Brexit. In a letter to Barroso’s successor, Jean-Claude Juncker, the EU ombudsman, Emily O’Reilly, said Barroso’s appointment as non-executive chairman of Goldman raised widespread concerns. She cited “understandable international attention given the importance of his former role and the global power, influence, and history of the bank with which he is now connected”. Her intervention comes after EU staff launched a petition calling on EU institutions to take “strong exemplary measures” against Barroso including the loss of his pension while he works for Goldman.

The petition now has more than 120,000 signatures. O’Reilly told Juncker that public unease will be exacerbated by the fact that Barroso is to advise Goldman Sachs on Britain’s exit from the EU. She warned of the danger of a breach of ethics in his interaction with former colleagues, including the EU’s chief Brexit negotiator, Michel Barnier, a former special adviser to Barroso. O’Reilly said new guidance was needed to ensure that EU staff were “not affected by any possible failure on Mr Barroso’s part to comply with his duty to act with integrity”. Barroso joined Goldman less than two years after leaving office at the European commission, but after the 18-month cooling-off period stipulated by European rules.

Great story from an unlikely source, Canada’s right-wing National Post.

• How Snowden Escaped (NaPo)

Edward Snowden, a former U.S. intelligence contractor, became the most wanted fugitive in the world after leaking a cache of classified documents to the media detailing extensive cyber spying networks by the U.S. government on its own citizens and governments around the world. To escape the long arm of American justice, the man responsible for the largest national security breach in U.S. history retained a Canadian lawyer in Hong Kong who hatched a plan that included a visit to the UN sub-office where the North Carolina native applied for refugee status to avoid extradition to the U.S.

Fearing the media would surround and follow Snowden — making it easier for the Hong Kong authorities to arrest the one-time CIA analyst on behalf of the U.S. — his lawyers made him virtually disappear for two weeks from June 10 to June 23, 2013, before he emerged on an Aeroflot airplane bound for Moscow, where he remains stranded today in self-imposed exile. “That morning, I had minutes to figure out how to get him to the UN, away from the media, and out of harm’s way with the weight of the U.S. government bearing down on him. I did what I had to do, and could do, to help him,” Robert Tibbo, the whistleblower’s lead lawyer in Hong Kong told the Post in a wide-ranging interview, the first detailing the chaotic days of Snowden’s escape three years ago. “They wanted the data and they wanted to shut him down. Our greatest fear was that Ed would be found.”

The covert scheme to dodge U.S. attempts to arrest Snowden could have been ripped from the pages of a spy thriller. The fugitive was disguised in a dark hat and glasses and transported by car at night by two lawyers to safe houses on the crowded and impoverished fringes of Hong Kong. Snowden hunkered down in small, cluttered, dingy rooms where as many as four people shared less than 150 square feet. Batteries were removed from cellphones when they gathered, burner phones were used to place calls, SIM cards were exchanged and sophisticated computer encryption was used to communicate when face-to-face meetings were not possible. Snowden rarely ventured out, and only at night where he could easily be lost among the many other asylum seekers. “Nobody would dream that a man of such high profile would be placed among the most reviled people in Hong Kong,” recalled Tibbo, a Canadian-born and educated barrister who has practiced law for 15 years. “We put him in a place where no one would look.”

It is criminal that Europe doesn’t reach out to help. But we still do. Click here and Please Help The Automatic Earth Help The Poorest Greeks And Refugees! This works! No governments, no NGOs. Thats means no overhead, no salaries, just help.

• Greece Overhauls Refugee Center Planning As Islands Appeal For Help (Kath.)

Government officials on Tuesday determined which reception centers for migrants across the country are to close and where new, improved facilities are to open but did not determine a time-frame, even as authorities on the Aegean islands warn of dangerously cramped and tense conditions in local camps. More than 12,500 migrants are currently living in reception centers on five Aegean islands – Lesvos, Chios, Kos, Leros and Samos – and hundreds more are arriving every day from neighboring Turkey. Spyros Galinos, the mayor of Lesvos, which is hosting 5,484 migrants, wrote to Alternate Migration Policy Minister Yiannis Mouzalas on Tuesday to express his concern about the “extremely dangerous conditions” on the island.

He asked the minister for the immediate transfer of migrants from Lesvos to other facilities on the mainland “to avert far worse developments.” However, decongesting facilities on the islands is part of the government’s broader overhaul of a network of reception centers spread across the country. An aide close to Mouzalas determined on Tuesday which camps in northern Greece will close and which will be improved but did not say when this would happen. Among the facilities that are to close are those in Sindos and Oraiokastro, near Thessaloniki, and in Nea Kavala, near Kilkis. Reception centers in Diavata and Vassilika, also in northern Greece, are to be upgraded.

A new reception center for minors is to start operating at the Amygdaleza facility, north of the capital, next Monday. Meanwhile, sources said on Tuesday that child refugees will start attending Greek schools at the end of this month. The 22,000 child refugees currently in Greece will be inducted into the school system in groups. Those aged between 4 and 7 will attend kindergartens to be set up within migrant reception centers. Children aged 7 to 15 will join classes at public schools near the reception centers where they are staying. And unaccompanied minors aged 14 to 18 will be able to join vocational training classes if they so desire.

A tangible monument to incompetence and spectacular failure.

• UK Immigration Minister Confirms Work To Start On £1.9 Million Calais Wall (G.)

Work is about to begin on “a big, new wall” in Calais as the latest attempt to prevent refugees and migrants jumping aboard lorries heading for the Channel port, the UK’s immigration minister has confirmed. Robert Goodwill told MPs on Tuesday that the four-metre high wall was part of a £17m package of joint Anglo-French security measures to tighten precautions at the port. “People are still getting through,” he said. “We have done the fences. Now we are doing the wall,” the new immigration minister told the Commons home affairs committee. Building on the 1km-long wall along the ferry port’s main dual-carriageway approach road, known as the Rocade, is due to start this month.

The £1.9m wall will be built in two sections on either side of the road to protect lorries and other vehicles from migrants who have used rocks, shopping trolleys and even tree trunks to try to stop vehicles before climbing aboard. It will be made of smooth concrete in an attempt to make it more difficult to scale, with plants and flowers on one side to reduce its visual impact on the local area. It is due to be completed by the end of the year. The plan has already attracted criticism from local residents who have started calling it “the great wall of Calais”.

What do you call a world that refuses to protect its children?

• Nearly Half Of All Refugees Are Now Children (G.)

Children now make up more than half of the world’s refugees, according to a Unicef report, despite the fact they account for less than a third of the global population. Just two countries – Syria and Afghanistan – comprise half of all child refugees under protection by the United Nations High Commissioner for Refugees (UNHCR), while roughly three-quarters of the world’s child refugees come from just 10 countries. New and on-going global conflicts over the last five years have forced the number of child refugees to jump by 75% to 8 million, the report warns, putting these children at high risk of human smuggling, trafficking and other forms of abuse.

The Unicef report – which pulls together the latest global data regarding migration and analyses the effect it has on children – shows that globally some 50 million children have either migrated to another country or been forcibly displaced internally; of these, 28 million have been forced to flee by conflict. It also calls on the international community for urgent action to protect child migrants; end detention for children seeking refugee status or migrating; keep families together; and provide much-needed education and health services for children migrants. “Though many communities and people around the world have welcomed refugee and migrant children, xenophobia, discrimination, and exclusion pose serious threats to their lives and futures,” said Unicef’s executive director, Anthony Lake.

“But if young refugees are accepted and protected today, if they have the chance to learn and grow, and to develop their potential, they can be a source of stability and economic progress.”

Debt Rattle June 26 2015

Jun 262015

June 26, 2015 Posted by Raúl Ilargi Meijer at 10:14 am Finance Tagged with: China, default, democracy, Germany, Greece, migrants, robots, Shale, Snowden, surplus, yield 5 Responses »

NPC Dr. H.W. Evans, Imperial Wizard 1925

• Yield-Starved Investors Drive Asset Prices To Dangerous Levels: OECD (Reuters)

• What’s Gone Wrong For Germany Inc.? (Bloomberg)

• Europe: Writing Off Democracy As Merely Decorative (Habermas)

• The Beatings Will Continue Until Morale Improves (Irish Independent)

• Bureaucrazies Versus Democracy (Steve Keen)

• The Courage Of Achilles, The Cunning Of Odysseus (Jacques Sapir)

• Cash-Starved Greek State Posts Surplus (Kathimerini)

• IMF Would Be Other Casualty of Greek Default (El-Erian)

• Breaking Greece (Paul Krugman)

• The Upstarts That Challenge The Power In Beijing (FT)

• With $21 Trillion, China’s Savers Are Set to Change the World (Bloomberg)

• Shadow Lending Crackdown Looms Over China Stock Market (FT)

• Hedge Funds Love Consumer Stocks the Way Cows Love a Trombone (Bloomberg)

• UK Developers Play Flawed Planning To Minimise Affordable Housing (Guardian)

• Indebted Shale Oil Companies See Rough Ride Ahead (Fuse)

• Chief Justice John Roberts’ Obamacare Decision Goes Further Than You Think (MSNBC)

• French Justice Minister Says Snowden And Assange Could Be Offered Asylum (IC)

• Italy Rebukes EU Leaders As ‘Time Wasters’ On Migrants Plan (Reuters)

• Why Do We Ignore The Obvious? (ZenGardner)

• Robots Will Conquer The World and Keep Us As Pets – Wozniak (RT)

The by far biggest issue of our times. The world will never be the same. Ever.

• Yield-Starved Investors Drive Asset Prices To Dangerous Levels: OECD (Reuters)

Encouraged by years of central bank easing, investors are ploughing too much cash into unproductive and increasingly speculative investments while shunning businesses building economic growth, the OECD warned on Wednesday. In its first Business and Finance Outlook, the Organisation for Economic Cooperation and Development highlighted a growing divergence between investors rushing into ever riskier assets while companies remain too risk-averse to make investments. It urged regulators to keep a close eye on investors as they piled into leveraged hedge funds and private equity and poured cash into illiquid assets like high-yield corporate bonds.

Meanwhile, judging by stock market returns, investors were rewarding corporate managers focused on share-buybacks, dividends, mergers and acquisitions rather than those CEOS betting on long-term investment in research and development. “Stock markets in advanced economies are punishing firms that invest,” OECD secretary general Angel Gurria said in a presentation of the report. “The incentives are skewed.” According to the OECD’s research, over the 2009-2014 period buying US shares in companies with a low investment spending while selling those with high capital expenditure would have added 50% to an investor’s portfolio.

Fidelity Worldwide chief investment officer for equities Dominic Rossi begged to differ with the OECD’s pessimism on corporate investment, saying that for every dollar of depreciation companies were reporting that 1.3 was invested. “Our own analysis would point to quite healthy levels of investment,” Rossi said, adding however that it was lower in the Unites States than in other countries.

Can’t hurt to inject some humility there.

• What’s Gone Wrong For Germany Inc.? (Bloomberg)

All is not well in corporate Germany. Be it Deutsche Bank or Deutsche Lufthansa, Siemens or RWE, the missteps plaguing the country’s flagbearers have helped turn the DAX into Europe’s worst-performing benchmark index this quarter and a laggard compared with U.S. gauges. Some of the biggest companies in Europe’s economic powerhouse are in upheaval and finding themselves playing catch-up as competitors adapt more quickly to disruptive technologies and new challengers. The problem: As European peers scale back fixed-income trading and other investment-bank activities, the bank that once boasted about making it through the financial crisis without state aid has pledged to gain market share as others retreat.

The plan hasn’t quite worked out as regulatory demands to rein in risk are shaving profit margins and prompting shareholders to question the bank’s strategy. The precedent: UBS Group. Deutsche Bank has appointed John Cryan to succeed Anshu Jain as co-CEO and become sole CEO next year as the bank prepares to carry out a strategic overhaul not unlike the one Cryan undertook about six years ago as finance chief at the bank’s Swiss rival. Siemens: The problem: Europe’s largest engineering company has frequently lagged the profitability of its biggest competitors. CEO Joe Kaeser’s response has been to shed fringe businesses such as home appliances with annual sales of about €11 billion and focus on energy generation and industrial processes.

That bet has proven ill-timed, with a slump in oil prices prompting even more job cuts. The precedent: General Electric. CEO Jeff Immelt started shedding the entertainment, finance and home appliances arms four years ago as he seeks to focus the Fairfield, Connecticut-based company on its industrial business.

That’s not just in Europe.

• Europe: Writing Off Democracy As Merely Decorative (Habermas)

The latest judgment of the European Court of Justice (ECJ) casts a harsh light on the flawed construction of a currency union without a political union. In the summer of 2012 all citizens owed Mario Draghi a debt of gratitude for uttering a single sentence that saved them from the disastrous consequences of the threat of an immediate collapse of their currency. By announcing the purchase if need be of unlimited amounts of government bonds, he pulled the chestnuts out of the fire for the Eurogroup. He had to press ahead alone because the heads of government were incapable of acting in the common European interest; they remained locked into their respective national interests and frozen in a state of shock. Financial markets reacted then with relief over a single sentence with which the head of the ECB simulated a fiscal sovereignty he did not possess.

It is still the central banks of the member states, as before, which act as the lender of last resort. The ECJ has not ruled out this competence as contrary to the letter of the European Treaties; but as a consequence of its judgment the ECB can in fact, subject to a few restrictions, occupy the room for manoeuvre of just such a lender of last resort. The court signed off on a rescue action that was not entirely constitutional and the German federal constitutional court will probably follow that judgment with some additional precisions. One is tempted to say that the law of the European Treaties must not be directly bent by its protectors but it can be tweaked even so in order to iron out, on a case by case basis, the unfortunate consequences of that flawed construction of the European Monetary Union.

That flaw – as lawyers, political scientists and economists have proven again and again over the years – can only be rectified by a reform of the institutions. The case that is passed to and from between Karlsruhe and Luxembourg shines a light on a gap in the construction of the currency union which the ECB has filled by means of emergency relief. But the lack of fiscal sovereignty is just one of the many weak spots. This currency union will remain unstable as long as it is not enhanced by a banking, fiscal and economic union. But that means expanding the EMU into a Political Union if we want to avoid even strengthening the present technocratic character of the EU and overtly writing off democracy as merely decorative.

Those dramatic events of 2012 explain why Mario Draghi is swimming against the sluggish tide of a short-sighted, nay panic-stricken policy mix. With the change of government in Greece he immediately piped up: “We need a quantum leap in institutional convergence…. We must put to one side a rules-based system for national economic policy and instead hand over more sovereignty to common institutions.” Even if it’s not what one expects a former Goldman Sachs banker to say, he even wanted to couple these overdue reforms with “more democratic accountability” (Süddeutsche Zeitung, March 17, 2015).

“What do you think happened next? Yes, you got it; the mutiny on the Bounty.”

• The Beatings Will Continue Until Morale Improves (Irish Independent)

Did you know that on the same day that Greece – home of the first openly gay city, Sparta – was forced to humiliate itself again at the feet of the EU’s creditor nations, the isolated island of Pitcairn became the smallest nation to legalise same-sex marriage, despite having only 48 inhabitants and no gay couples? While reading about Pitcairn, the expression attributed to Captain Bligh of the stricken HMS Bounty, against whom the mutineers revolted, came to mind. While flogging sailors for small misdemeanours, he is said to have declared: “The beatings will continue until morale improves.” When we see the torture of Greece by its creditors, I see that the EU has taken the same approach with one of its own family. The economic beatings of Greece will continue until its political morale improves.

Have you ever seen anything so stupid? The Greek crisis has gone on for the past five or six years now. It is a brilliant example of Einstein’s observation that the definition of insanity is repeating the same thing over and over again and expecting different results. Yesterday, Greece promised to raise a fresh €8bn in taxes from the rich in order to satisfy the EU creditors. The cycle has been more or less the same, year in year out. Every year, the Greek government cuts spending and raises taxes. This is followed by the economy collapsing, and so tax revenues fall and this means more austerity is demanded – and the process is repeated. All the while, the economy shrinks. It is 25pc smaller than it was in 2009 and wages are down by 35pc. As activity and wages fall, so too does demand.

The EU response is to repeat the beatings. Every time, the EU imposes a creditors’ levy in the form of higher taxes. The people of Greece, knowing that the taxes won’t go to paying for Greek education or health but will line the pockets of rich creditors, try to find ways to avoid paying the creditors’ levy. So what does the EU do? It imposes more taxes on a problem that was in part due to the inability of the government to raise taxes on the rich in the first place. What do you think will happen now? Do you think the Greeks will give in, and say ‘take our money’? Of course they won’t. The rule of the world is the higher the personal tax, the higher the tax evasion. Did we not learn that in our tax amnesties of the 1980s and 1990s?

The Greeks will just find different ways of getting their money out of the country because they know that the money isn’t being raised for Greece, but for Germany. What would you do if you had the ability? So this latest EU solution will fail spectacularly and we will be back at square one. What then? Repeat the beatings until Greek morale improves? [..] What do you think happened next? Yes, you got it; the mutiny on the Bounty.

Steve and I are on the same page. And we both know it too.

• Bureaucrazies Versus Democracy (Steve Keen)

The most recent of the almost daily “Greek Crises” has made one thing clear: the Troika of the IMF, the EU and the ECB is out to break the government of Greece. There is no other way to interpret their refusal to accept the Greek’s latest proposal, which accepted huge government surpluses of 1% of GDP in 2015 and 2% in 2016, imposed VAT increases, and further cut pensions which are already below the poverty line for almost half of Greece’s pensioners. Instead, though the Greeks offered cuts effectively worth €8 billion, they wanted different cuts worth €11 billion. Syriza, which had been elected by the Greek people on a proposal to end austerity, is being forced to continue imposing austerity—regardless of the promises it made to its electorate.

There are many anomalies in Greece—which its creditor overlords are exploiting to the hilt in their campaign against Syriza—but these anomalies alone do not explain Greece’s predicament. If they did, then Spain would be an economic heaven, because none of those anomalies exist there. But Spain is in the same economic state as Greece, because it is suffering under the same Troika-imposed austerity program. The willingness of the Troika to point out Greece’s failures stands in marked contrast to its unwillingness to discuss its own failings too—like, for example, the IMF’s predictions in 2010 of the impact of its austerity policies on Greece. The IMF predicted, for example, that by following its program, Greece’s economy would start growing by 2012, and unemployment would peak at under 15% the same year.

Instead, unemployment has exceeded 25%, and the economy has only grown in real (read “inflation-adjusted”) terms in the last year because the fall in prices was greater than the fall in nominal GDP. That is, measured in Euros, the Greek economy is still shrinking, four years after the IMF forecast that it would return to growth. A huge part of Greece’s excessive government debt to GDP ratio is due to the collapse in GDP, for which the Troika is directly responsible. This trumpeting of Greece’s failures, and unwillingness to even discuss its own, is the hallmark of a bully. And it makes transparently obvious that the agenda underlying the EU itself is fundamentally anti-democratic. Obviously the overthrow of democracy was not the public agenda of the EU—far from it. The core political principles of the EU were always about escaping from Europe’s despotic past, of moving from its conflictual history and the horrors of Nazism towards a collective brotherhood of Europe.

Sapir’s been writing a good series.

• The Courage Of Achilles, The Cunning Of Odysseus (Jacques Sapir)

The latest adventures in the negotiations between the Greek government and its creditors shines a light against the grain of many commentators. They assume that the Greek government “can only give” or “will inevitably give way” and consider each tactical concessions made by the Greek government as “proof” of its future capitulation, or that it regrets the promises of their vows. From this point of view, there is a strange and unhealthy synergy between the most reactionary commentators and others who want to pass for “radicals” who deliberately fail to take into account the complexity of the struggle led by the Greek government. The latter fights with the courage of Achilles and the cunning of Odysseus. Let us note today that all those who had announced the “capitulation” of the Greek government were wrong. We must understand why.

In fact, although the Greek government made significant concessions from the month of February, all these concessions are conditional on a general agreement on the issue of debt. Be aware that it is the burden of repayments that is forcing the Greek government to be in the dependence of its creditors. The tragedy of Greece is that it has made considerable budgetary effort but only to the benefit of creditors. Investment, both tangible and intangible (education, health) has been sacrificed on the altar of creditors. In these circumstances it is hardly surprising that the productive apparatus of Greece is deteriorating and that she regularly loses competitiveness. It is this situation that the current government of Greece, born of the alliance between SYRIZA and ANEL, seeks to reverse. The Greek Government did not request additional money from its creditors. It asked that the money that Greece produces can be used to invest in both the private and public sectors, both in tangible and intangible investments. And on this point, it is not ready to compromise, at least until now.

The creditors of Greece, meanwhile, continue to demand a full refund – despite knowing perfectly weII that this is impossible – so as to maintain the right to take money from Greece via debt interest payments. Everyone knows that no State has repaid all its debt. From this perspective the discourses that are adorned with moral arguments are completely ridiculous. But, it is appropriate to maintain the fiction of the inviolability of debt if we want to maintain the reality of Greece’s flow of money to the creditor countries. When on June 24, Alexis Tsipras noted the failure to reach an agreement, which he summarized in a tweet into two parts, he pointed to this problem.

But no surplus will ever be enough.

• Cash-Starved Greek State Posts Surplus (Kathimerini)

The Greek economy is at its worst point since entering the bailout process over five years ago, as reflected in the data on the execution of the state budget. The result for the first five months may show a surplus, but this is misleading. The shortfall in tax revenues in the year to end-May exceeded €1.7 billion, while, apart from salaries and pensions, the state is not paying its obligations within the country, as expenditure was €2.6 billion less than that provided for in the budget. Had the government not decided to freeze all payments in a bid to secure cash for the timely payment of salaries and pensions, the primary budget balance would have shown a deficit of €1 billion, against the €1.5 billion primary surplus it showed in the January-May period, according to the official data.

However, the cash reserves have now run dry, as according to sources there will not even be enough for the payment of salaries and pensions at the end of June unless the social security funds and local authorities contribute their own reserves. The figures released on Thursday by the Finance Ministry showed that tax revenues were lagging €1.74 billion in the year to end-May, as in direct tax revenues not a single euro has yet been collected from taxpayers and companies in the form of 2015 income tax. Meanwhile, Alternate Finance Minister Nadia Valavani on Thursday issued a decision extending the deadline for the submission of income tax declarations from June 30 to July 27, with the exception of companies that have to file their statements by July 20.

The IMF should be dismantled, along with the EU. These clubs only hurt people.

• IMF Would Be Other Casualty of Greek Default (El-Erian)

All sides are working hard to prevent Greece from defaulting on its debt obligations to the IMF – and with good reason: Such an outcome would have dire consequences not only for Greece and Europe but also for the international monetary system. The IMF’s “preferred creditor status” underpins its ability to lend to countries facing great difficulties (especially when all other creditors are either frozen or looking to get out). Yet that capacity to act as lender of last resort is now under unprecedented threat. Preferred creditor status, though it isn’t a formal legal concept, has translated into a general acceptance that the IMF gets paid before almost any other lender.

And should debtors fail to meet payments, they can expect significant pressure from many of the fund’s other 187 member countries. That’s why instances of nations in arrears to the fund have been limited to fragile and failed states, particularly in Africa. The IMF has been able to act as the world’s firefighter, willing to walk into a burning building when all others run the other way. Time and again, its involvement has proved critical in stabilizing national financial crises and limiting the effects for other countries. Not long ago, it would have been improbable for the IMF to engage in large-scale lending to advanced European economies (the last time it did so before the euro crisis was in the 1970s with the U.K.). And it would have been unthinkable for the fund to worry about not getting paid back by a European borrower.

Yet both are happening in the case of Greece. Moreover, compounding the unprecedented nature of the Greek situation, other creditors (such as the European Central Bank and other European institutions) are in a position to help provide Greece with the money it needs to repay the IMF. Yet that would only happen if an agreement is reached on a policy package that is implemented in a consistent and durable fashion. If Greece defaults to the IMF, it would find its access to other funding immediately and severely impacted, including the emergency liquidity support from the ECB that is keeping its banks afloat. The resulting intensification of the country’s credit crunch would push the economy into an even deeper recession, add to an already alarming unemployment crisis, accelerate capital flight, make capital controls inevitable and, most probably, force the country to abandon Europe’s single currency.

I know, I know, quoting Krugman. Got to get used to that yet.

• Breaking Greece (Paul Krugman)

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?
This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do — see the chart, which compares the projections in the 2010 standby agreement with reality — are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20% below capacity. Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we’re not in high school here. And right now it’s the creditors, much more than the Greeks, who keep moving the goalposts.

So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others? At this point it’s time to stop talking about “Graccident”; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.

Alibaba for president!

• The Upstarts That Challenge The Power In Beijing (FT)

There is an overarching force in China with tentacles reaching deep into almost everybody’s life. That force is not the Communist party, whose influence in people’s day-to-day affairs — though all too real — has waned and can appear almost invisible to those who do not seek to buck the system. The more disruptive force to be reckoned with these days is epitomised by the three large internet groups: Baidu, Alibaba and Tencent, collectively known as BAT, which have turned much of China upside down in just a few short years. Take the example of Ant Financial. Last week, it completed fundraising that values the company at $45bn to $50bn. It operates Alipay, an online payments system that claims to handle nearly $800bn in e-transactions a year, three times more than PayPal, its US equivalent.

That system, an essential part of China’s financial and retail architecture, and one familiar to almost every Chinese urbanite, is no brainchild of the Communist party. Instead it was the creation of Jack Ma, the former English teacher who founded Alibaba. Mr Ma established the system a decade ago as the backbone for Taobao, his consumer-to-consumer business. The name literally means “digging for treasure”, something that Mr Ma, one of China’s richest people, has clearly found. Alibaba handles 80% of China’s ecommerce, according to iResearch, a Beijing-based consultancy. That is a monopolistic position that even the Communist party, with its 87m members out of a population of 1.3bn, can only dream about.

True, the Communist party still regulates where people live (in the city or the countryside), what they publish (though less what they say) and how many children they have (though the one-child policy is fast fading). China’s internet companies, on the other hand, hold ever greater sway on how people shop, invest, travel, entertain themselves and interact socially. The BAT companies, which dominate search, ecommerce and gaming/social media, together with other upstarts, such as Xiaomi, a five-year-old company that has pioneered the $50 smartphone, are upending how people live.

Sounds cute, but will happen when Chinese stock markets crash?

• With $21 Trillion, China’s Savers Are Set to Change the World (Bloomberg)

Few events will be as significant for the world in the next 15 years as China opening its capital borders, a shift that economists and regulators across the world are now starting to grapple with. With China’s leadership aiming to scale back the role of investment in the domestic economy, the nation’s surfeit of savings – deposits currently stand at $21 trillion – will increasingly need to be deployed overseas. That’s also becoming easier, as Premier Li Keqiang relaxes capital-flow regulations. The consequences ultimately could rival the transformation wrought by the Communist nation’s fusion with the global trading system, capped by its 2001 World Trade Organization entry. That stage saw goods made cheaper across the world, boosting the purchasing power of low-income families at the cost of hollowed-out industries.

Some changes are easy to envision: watch out for Mao Zedong’s visage on banknotes as the yuan makes its way into more corners of the globe. China’s giant banks will increasingly dot New York, London and Tokyo skylines, joining U.S., European and Japanese names. Property prices from California to Sydney to Southeast Asia already have seen the influence of Chinese buying. Other shifts are tougher to gauge. International investors including pension funds, which have had limited entry to China to date, will pour in, clouding how big a net money exporter China will be. Deutsche Bank is among those foreseeing mass net outflows, which could go to fund large-scale infrastructure, or stoke asset prices by depressing long-term borrowing costs.

“This era will be marked by China shifting from a large net importer of capital to one of the world’s largest exporters of capital,” Charles Li of Hong Kong Exchanges & Clearing, the city’s stock market, wrote in a blog this month. Eventually, there will be “fund outflows of historic proportions, driven by China’s needs to deploy and diversify its national wealth to the global markets,” he wrote. The continuing opening of China’s capital account will also promote the trading of commodities in yuan, and boost China’s ability to influence their prices, according to an analysis by Bloomberg Intelligence. As was the case with China’s WTO entry, where many of the hurdles had been cleared in the years leading up to 2001, policy makers in Beijing have been easing restrictions on the currency, the flow of money and interest rates for years.

China will fall to bits if there’s a real crackdown.

• Shadow Lending Crackdown Looms Over China Stock Market (FT)

China’s shadow banks, increasingly wary of lending into a slowing economy, have turned to the stock market, fueling a surge in unregulated margin lending that has driven the market’s dizzying gains over the past year. Now regulators are cracking down on shadow lending to stock investors, a campaign analysts say is partly to blame for last week’s 13% fall in the Shanghai Composite Index — the largest weekly drop since the global financial crisis in 2008. “The price of funds has increased, the flow has shrunk, and transaction structures are getting more complicated,” says a Chongqing-based shadow banker who provides grey-market loans to stock investors.

“We’re no longer in a growth period. It’s more like, feed the addiction until you die, earn fast money. No one treats this as their main career.” China officially launched margin trading by securities brokerages as a pilot project in 2010. It expanded the program in 2012 with the creation of the China Securities Finance, established by the state-backed stock exchanges specifically to provide funds for brokerages to lend to clients. Official margin lending totaled Rmb2.2 trillion ($354 billion) as of Wednesday’s close, up from Rmb403 billion a year earlier, according to stock exchange figures. Yet this officially sanctioned margin lending, which is tightly regulated and relatively transparent, is only the tip of the iceberg for Chinese leveraged stock investing.

For standardized margin lending by brokerages, only investors with cash and stock worth Rmb500,000 in their securities accounts may participate. Leverage is capped at Rmb2 in loans for every Rmb1 of the investor’s own funds, and only certain stocks are eligible for margin trading. In the murky world of grey-market margin lending, however, few rules apply. Leverage can reach 5:1 or higher, and there are no limits on which shares investors can bet on. The money for these leveraged bets comes mainly from wealth management products sold by banks and trust companies. WMPs, a form of structured deposit that banks market to customers as a higher-yielding alternative to traditional savings deposits, also spurred China’s original shadow banking boom beginning in 2010.

Can’t go wrong with a headline t like that.

• Hedge Funds Love Consumer Stocks the Way Cows Love a Trombone (Bloomberg)

There’s a mesmerizing video making the rounds on Facebook of a guy who takes a trombone out into an empty cow pasture, sits down in a lawn chair and plays the song “Royals” by the New Zealand singer Lorde. Before he even gets to the first chorus, cows begin hustling over the hill toward the sound of the music. By the end of the video, he has a whole herd crowded together in front of him and they all wag their tales and moo their approval for the trombonist. What on Earth, you may ask, does this Facebook video have to do with the stock market? Great question, thanks for asking! Returns have been a lot like these cows – individual stocks over the last few years have appeared to be moving together like a herd of cows mesmerized by the same trombonist.

Market pundits have lamented this lack of return dispersion again and again and tried to wish it away, without much success. It’s hard to know – without access to a herd of cattle, a trombone and a lot of free time – whether it’s the specific song or the moo-like sound of the instrument itself that has enthralled the cattle. Similarly, it’s not 100% obvious what’s caused the herding in the stock market – maybe it’s the sweet music of low interest rates played by the Federal Reserve that has caused fixed-income cows to march into the stocks pasture, or maybe it’s the growth in popularity of index funds that makes the whole market look like a field of grass rather than a buffet table covered with an assortment of treats.

Yet, there’s an interesting surprise lurking amid all this herding in returns: dispersion among performance of equity hedge funds is actually increasing. The spread between the top fourth and bottom fourth of long-short strategy returns in the Credit Suisse Hedge Fund Index has widened from 10% to as high as 20% over the last year. That type of contrast is usually only seen during very volatile periods, not the calm markets we’ve seen this year, according to Mark Connors, Credit Suisse’s global head of risk advisory.

A great take on UK housing. Don Corleone would be proud.

• UK Developers Play Flawed Planning To Minimise Affordable Housing (Guardian)

Golden towers emerge from a canopy of trees on a hoarding in Elephant and Castle, snaking around a nine-hectare strip of south London where soon will rise “a vibrant, established neighbourhood, where everybody loves to belong”. It is a bold claim, given that there was an established neighbourhood here before, called the Heygate Estate – home to 3,000 people in a group of 1970s concrete slab blocks that have since been crushed to hardcore and spread in mounds across the site, from which a few remaining trees still poke. Everybody might love to belong in Australian developer Lend Lease’s gilded vision for the area, but few will be able to afford it.

While the Heygate was home to 1,194 social-rented flats at the time of its demolition, the new £1.2bn Elephant Park will provide just 74 such homes among its 2,500 units. Five hundred flats will be “affordable” – ie rented out at up to 80% of London’s superheated market rate – but the bulk are for private sale, and are currently being marketed in a green-roofed sales cabin on the site. Nestling in a shipping-container village of temporary restaurants and pop-up pilates classes, the sales suite has a sense of shabby chic that belies the prices: a place in the Elephant dream costs £569,000 for a studio, or £801,000 for a two-bed flat.

None of this should come as a surprise, being the familiar aftermath of London’s regenerative steamroller, which continues to crush council estates and replace them with less and less affordable housing. But alarm bells should sound when you realise that Southwark council is a development partner in the Elephant Park project, and that its own planning policy would require 432 social-rented homes, not 74, to be provided in a scheme of this size – a fact that didn’t go unnoticed by Adrian Glasspool, a former leaseholder on the Heygate Estate.

No ride at all.

• Indebted Shale Oil Companies See Rough Ride Ahead (Fuse)

There has been a lot of speculation about how deeply and how quickly U.S. shale production would contract in the low price environment. The industry has proven resilient, with rig counts having fallen by more than half since October 2014 but actual production not exhibiting a corresponding precipitous decline. That could soon change. Shale companies drastically cut spending and drilling programs following the collapse in oil prices. For example, Continental Resources, a prominent producer in the Bakken, slashed capital expenditures for 2015 from $5.2 billion to $2.7 billion. Whiting Petroleum, another Bakken producer, gutted its capex by half. The list goes on. To be sure, exploration companies are achieving a lot of efficiency gains in their drilling operations.

After years of pursuing a drill-anywhere strategy, many are now approaching the shale patch with more forethought and cost-saving technologies. Oil field service companies are also dropping their rates, allowing for drilling costs to decline. That will allow U.S. companies to squeeze more oil out of shale while spending less. However, the improved productivity could be temporary. Much of the cost reductions have come in the form of layoffs rather than fundamental gains in the cost of operations. If drilling activity picks up in earnest, costs could rise again as workers will need to be rehired. The tumbling “breakeven” costs for producing a barrel of oil could be a bit of a mirage.

If oil prices remain relatively weak, or even drop further in the second half of the year, the problems could start to mount. Shale wells suffer from steep decline rates after an initial rush of output. That means that unless enough new wells are drilled to offset natural decline, overall output could drop precipitously. Add to that the fact that the companies are bringing in 40% less per barrel than they were last year because of lower oil prices, and falling revenues start to become a problem for weaker companies.

Has it really been such a disaster?

• Chief Justice John Roberts’ Obamacare Decision Goes Further Than You Think (MSNBC)

Chief Justice John Roberts did more than simply save Obamacare by ruling for the administration on Thursday – he etched the president’s signature policy into American law for a generation or more. And in a bitter irony for the political right, Robert’s ruling actually puts Obamacare on firmer ground than it would have been if conservatives never brought the suit in the first place. A narrow decision could have simply upheld today’s health care subsidies by accepting the Obama administration’s interpretation of the health law’s tax rules. Roberts’ decision in King v. Burwell goes further, however, in a way many policymakers and critics have yet to fully grasp.

The ruling not only upholds current healthcare subsidies – the first big headline on Thursday – it also establishes an expansive precedent making it far harder for future administrations to unwind them. That is because Roberts’ opinion doesn’t simply find today’s subsidies legal. It holds that they are an integral, essentially permanent part of Obamacare. In other words, for the first time, the Supreme Court is ruling that because Congress turned on this spigot for national health care funding, only Congress can turn it off. That is bad news for potential Republican presidents, who may have hoped that down the road they might hinder Obamacare by executive action. Now their only apparent route to dialing back the policy is by controlling the White House, the House, and a 60-vote margin in the Senate.

Roberts establishes this precedent by essentially wresting power from the White House, and handing it back to Congress. While that might sound like a good thing for Republicans, who control Congress now, the case attacked the statute’s original meaning, so Roberts hands that power to the Democratic Congress that enacted Obamacare. That legal reasoning is the crucial backdrop for one of the most striking lines in the opinion, Roberts’ closing flourish that Congress passed the ACA “to improve health insurance markets, not to destroy them.”

Still a good idea.

• French Justice Minister Says Snowden And Assange Could Be Offered Asylum (IC)

French Justice Minister Christiane Taubira thinks National Security Agency whistleblower Edward Snowden and WikiLeaks founder Julian Assange might be allowed to settle in France. If France decides to offer them asylum, she would “absolutely not be surprised,” she told French news channel BFMTV on Thursday (translated from the French). She said it would be a “symbolic gesture.” Taubira was asked about the NSA’s sweeping surveillance of three French presidents, disclosed by WikiLeaks this week, and called it an “unspeakable practice.”

Her comments echoed those in an editorial in France’s leftist newspaper Libération Thursday morning, which said giving Snowden asylum would be a “single gesture” that would send “a clear and useful message to Washington,” in response to the “contempt” the U.S. showed by spying on France’s president. Snowden, who faces criminal espionage charges in the U.S., has found himself stranded in Moscow with temporary asylum as he awaits responses from two dozen countries where he’d like to live; and Assange is trapped inside the Ecuadorian Embassy in London to avoid extradition to Sweden. Taubira, the chief of France’s Ministry of Justice, holds the equivalent position of the attorney general in the United States.

She has been described in the press as a “maverick,” targeting issues such as poverty and same-sex marriage, often inspiring anger among French right-wingers. Taubira doesn’t actually have the power to offer asylum herself, however. She said in the interview that such a decision would be up to the French president, prime minister and foreign minister. And Taubira just last week threatened to quit her job unless French President François Hollande implemented her juvenile justice reforms.

Explode that union. Get it over with. People are getting killed.

• Italy Rebukes EU Leaders As ‘Time Wasters’ On Migrants Plan (Reuters)

Italian Prime Minister Matteo Renzi rebuked fellow EU leaders on Thursday for failing to agree a plan to take in 40,000 asylum-seekers from Italy and Greece, saying they were not worthy of calling themselves Europeans. EU leaders are divided over a growing migrant crisis in the Mediterranean and have largely left Italy and Greece to handle thousands of people fleeing war and poverty in Africa and the Middle East. “If you do not agree with the figure of 40,000 (asylum seekers) you do not deserve to call yourself Europeans,” Renzi told an EU summit in Brussels. “If this is your idea of Europe, you can keep it. Either there’s solidarity or don’t waste our time,” he said.

Another official described the debate as “controversial”. Much of the tension appeared to be about ensuring that the migration plan was voluntary, not mandatory as the European Commission had initially suggested. Stung by deaths this year of almost 2,000 migrants trying to reach Europe by boat, the European Union has promised an emergency response but not national quotas for taking people. According to a draft final summit communique, governments would agree to relocation over two years from Italy and Greece to other member states of 40,000 people needing protection. It said all member states will participate.

As EU leaders tackled the issue over dinner, some eastern and central European countries, which are reluctant to take refugees, sought guarantees that the system be temporary and voluntary. “We have no consensus on mandatory quotas for migrants, but … that cannot be an excuse to do nothing,” said Donald Tusk, president of the European Council who chairs summits. “Solidarity without sacrifice is pure hypocrisy.”

It’s all in the design. No escaping that.

• Why Do We Ignore The Obvious? (ZenGardner)

I have a hard time with people not being willing to recognize what’s obviously in front of their faces. It’s a voluntary mind game people play with themselves to justify whatever it is they think they want. This is massively exacerbated by an array of social engineering tactics, many of which are to create the very mind sets and desires people so adamantly defend. But that’s no excuse for a lack of simple conscious recognition and frankly makes absolutely no sense. We can’t blame these manipulators for everything. Ultimately we all have free choice. Plainly seeing what’s right in front of our noses, no matter how well sold or disguised, is our human responsibility. That people would relinquish this innate right and capability totally escapes me.

The Handwriting On the Wall Actually, it’s much more obvious than even that. Pointless wars costing millions of innocent lives, poisoned food, air and water, demolished resources, manipulated economies run by elitist bankers who nonchalantly lend money with conditions for “interest”, corporate profiteering at any cost to humanity, a medical system built on sickness instead of health, media mindmush poisoning children and adults alike, draconian clampdowns for any reason, and on and on. Why is this not obvious to people that something is seriously wrong, and clearly intended to be just the way it is? Do they really think it’s gonna iron itself out, especially with clearly psychopathic power mad corrupt maniacs in charge? That’s what they’ll tell you. “Give it time, we’re just going through a hiccup. Everything works out…” yada yada. Why? Because that’s what they want to believe. And the constructed world system is waiting with open arms to reinforce that insanity. And “Heck, if millions of others feel the same as me I can’t possibly be wrong.”

Fear of Drawing Conclusions That’s pretty much the bottom line. Acceptance for seeming security. However, if even one of these inroads of control vectors becomes clear to people then their whole world threatens to turn upside down. When two or more start appearing then the discomfort becomes quite intense, and that’s when the decision takes place. Either they keep pursuing this line of awakened thought or they shut it down. It’s all about comfort. And what a deceptive thing that is! Call it sleepwalking to oblivion or what have you, it’s endemic to today’s dumbed-down society. This is why the education system was their primary target since way back, conditioning humanity from childhood to not think analytically but to simply repeat whatever is in their carefully sculpted curriculum. But most of all do not question authority.

And have a yearly man-eating fest?!

• Robots Will Conquer The World and Keep Us As Pets – Wozniak (RT)

Apple co-founder Steve Wozniak, who used to be gloomy about a distant future dominated by artificial intelligence, now believes it would be good for humanity in the long run. Super smart robots would keep us as pets, he believes. “They’re going to be smarter than us and if they’re smarter than us then they’ll realize they need us,” Wozniak told an audience of 2,500 people at the Moody Theater in Austin, Texas, on Wednesday. The speech was part of the Freescale Technology Forum 2015. “They’ll be so smart by then that they’ll know they have to keep nature, and humans are part of nature. So I got over my fear that we’d be replaced by computers. They’re going to help us. We’re at least the gods originally,” he explained.

The timetable for humans to be reduced from the self-crowned kings of Earth to obsolete sentient life forms sustained by their own creations is measured in hundreds of years, Woz soothed the audience. And for our distant descendants life won’t really be bad. “If it turned on us, it would surprise us. But we want to be the family pet and be taken care of all the time,” he said. “I got this idea a few years ago and so I started feeding my dog filet steak and chicken every night because ‘do unto others,'” he quipped. Wozniak, who invested some $10 million into an IA firm, used to refer to artificial intelligence as “our biggest existential threat.” The concern is shared by some leading IT experts, inventors and scientists, including Elon Musk, Bill Gates and Stephen Hawking.

Debt Rattle June 16 2015

Jun 162015

June 16, 2015 Posted by Raúl Ilargi Meijer at 10:28 am Finance Tagged with: bonds, contagion, eurozone, Greece, inequality, pillaging, pope, reform, regime change, Snowden, starvation 7 Responses »

Dorothea Lange Crossroads grocery store and filling station, Yakima, Washington, Sumac Park 1939

• Greece Accuses Europe Of Plotting Regime Change (AEP)

• Starvation Is The Price Greeks Will Pay For Remaining In The EU (PC Roberts)

• Not Just Greece, Everyone Should Leave The Euro -There’s No Point (Worstall)

• Why Greece Should Choose Eurozone Exit Rather Than Dependence (Irish Times)

• Contagion From Greek Crisis Engulfs Eurozone Bonds (Reuters)

• Defiant Tsipras Accuses Creditors Of ‘Pillaging’ Greece (FT)

• Why Can’t Greece Just Declare Bankruptcy? (Stiglitz/Guzman)

• Greece Isn’t Any Old Troubled Debtor (BBC)

• Ex-IMF Official Says ‘Errors’ By Lenders Worsened Greek Crisis (Kathimerini)

• What Is Reform? The Strange Case Of Greece And Europe (James Galbraith)

• 3% of the World’s Top Scientists are Greek (Greek Reporter)

• Sunday Times ‘Reporter’ ‘Defends’ Snowden ‘Article’ (CNN)

• IMF: Inequality Hurts Economic Growth (Guardian)

• 1% Of Households In 2014 Made Up 42% Of Total Private Global Wealth (Forbes)

• Foreign Investors Pose Threat To US Residential Real Estate (MarketWatch)

• $112 Billion Fund Manager Worries Bond-Market Fire Doors Are Locked (Bloomberg)

• Fast Track Hands the Money Monopoly to Private Banks, Permanently (Ellen Brown)

• CIA Torture Has Broken Spy Agency Rule On Human Experimentation (Guardian)

• How Pension Funds Face Huge Risk From Climate Change (Guardian)

• Pope Warns Of Destruction Of World’s Ecosystem In Leaked Encyclical (Guardian)

Brussels has experince in this.

• Greece Accuses Europe Of Plotting Regime Change (AEP)

Greek premier Alexis Tsipras has accused Europe’s creditor powers of trying to subvert Greece’s elected government after five years of “pillaging”, warning in solemn terms that his country will defend its sovereign dignity whatever the consequences. The defiant stand came as the European Commission lashed out at the Greeks and warned that the country would collapse into a “state of emergency” unless there is a deal to avert a financial crash. Germany’s EU Commissioner Guenther Oettinger said the creditor powers must draw up urgent plans to cope with social unrest in Greece and a break-down of energy supplies and medicine as soon as July. In a terse statement, Mr Tsipras called on the EU institutions and the IMF to “adhere to realism”.

He accused the creditors of “political motives” for demanding further pension cuts, hinting that their real goal is to destroy the credibility of his radical-Left Syriza government and force regime change. “We are not only carrying a historical past underlined with struggles. We are carrying our people’s dignity as well as the aspirations of all Europeans. We cannot ignore this responsibility. It has to do with democracy,” he said. Germany’s Suddeutsche Zeitung reported that the creditors are drawing an ultimatum to the Greeks, threatening to cut off Greek access to the European payments system and forcing capital controls on the country as soon as this weekend. The plan would lead to the temporary closure of the banks, followed by a rationing of cash withdrawals.

Syriza sources have told the Telegraph that Greece may seek an injunction from the European Court of Justice to stop the creditors and the EU institutions acting in a way that breaches Greek treaty rights. This would be an unprecedented move, greatly complicating the picture. Equity markets fell across the Europe and bonds sold off sharply in the high-debt Latin states as investors start to think through the dramatic implications of a Greek default, followed by EMU rupture. “The Greek saga is finally reaching its climax, we think,” said Hans Redeker from Morgan Stanley. Yields on 10-year Portuguese bonds have jumped almost 170 basis points since their lows in March, reaching an eight-month high of 3.22pc. Spain’s yields have jumped by 120 points to 2.35pc.

While these levels are nothing like the panic spikes in past spasms of the EMU debt crisis, they are approaching levels that could soon tighten borrowing conditions for companies and mortgages. It may become harder for these countries to shake off deflation. Mario Draghi, the head of the European Central Bank, said the authorities could handle the immediate fall-out from a Greek default but refused to offer any further assurances. “The consequences in medium to long term to the Union is not something we are in a position to foresee,” he said.

“Why will creating money for Greece create inflation but not for Goldman Sachs, Citibank, and JPMorganChase?”

• Starvation Is The Price Greeks Will Pay For Remaining In The EU (PC Roberts)

Syriza, the new Greek government that intended to rescue Greece from austerity, has come a cropper. The government relied on the good will of its EU “partners,” only to find that its “partners” had no good will. The Greek government did not understand that the only concern was the bottom line, or profits, of those who held the Greek debt. The Greek people are as out to lunch as their government. The majority of Greeks want to remain in the EU even though it means that their pensions, their wages, their social services, and their employment opportunities will be reduced. Apparently for Greeks, being a part of Europe is worth being driven into the ground. The alleged “Greek crisis” makes no sense whatsoever.

It is obvious that Greece cannot with its devastated economy repay the debts that Goldman Sachs hid and then capitalized on the inside information, helping to cause the crisis. If the solvency of the holders of the Greek debt, apparently the NY hedge funds and German and Dutch banks, depends on being repaid, the ECB could just follow the example of the Federal Reserve and print the money to secure the Greek debt. The ECB is already printing 60 billion euros a month to save the European financial system, so why not include Greece? A conservative might say that such a course of action would cause inflation, but it hasn’t. The Fed has been creating money hands over fists for seven years, and according to the government there is no inflation.

We even have negative interest rates attesting to the absence of inflation. Why will creating money for Greece create inflation but not for Goldman Sachs, Citibank, and JPMorganChase? Obviously, the Western world doesn’t want to help Greece. The West wants to loot Greece. The deal is that Greece gets new loans with which to repay existing loans in exchange for selling municipal water companies to private investors (water rates will go up on the Greek people), for selling the state lottery to private investors (Greek government revenues drop, thus making debt repayment more difficult), and for other such “privatizations” such as selling the protected Greek islands to real estate developers. This is a good deal for everyone but Greece.

The eurozone sinks all boats.

• Not Just Greece, Everyone Should Leave The Euro -There’s No Point (Worstall)

If the 100,000 people of my native Bath all use different currencies then trade between the citizenry is going to be rather difficult. If we all use the same currency it will be easier and there will be more trade. Since trade is what gives us Smithian growth (from Adam Smith, the specialisation and division of labour and the trade in the resultant production), makes us all richer, this is a good idea. However, it’s possible to have too much of a good thing. If we’re using the same currency then we must, by definition, have the same monetary policy. And the larger the area we cover the more likely it is that we’ll have two more more areas within which it will react differently to an external or asymmetric shock (the definition of that second simply being a shock that hits different areas in different ways).

This is what Paul Krugman has been talking about with Finland and everyone has been talking about with respect to the property booms in Ireland and Spain a decade back. All of this is background: people have been chewing over how optimal the euro area is ever since the idea was first floated (hint: it’s not optimal). However, note that the size of that optimality depends upon the strength of the two effects. And if that increased trade effect is smaller then the optimal area becomes smaller. And what this most recent research seems to be showing is that there’s no extra trade effect at all:

“More importantly, we find that the trade effects of EMU are different from other currency unions. But, most disturbingly, we find that the precise econometric methodology used to estimate the currency effect on trade matters. A lot. In the large, we find no consistent evidence that EMU stimulated trade. Indeed, we are forced to conclude that econometric methodology matters so much that it undermines confidence in our ability to estimate the effect of currency union on trade.”

A reasonable rule of thumb is that if the effect you’re looking for varies a lot dependent upon the method you’re using to look for it (assuming that all the methods you are using are reasonable) then what you’re finding is not actually the effect, but variances due entirely to the measurement method. But even putting that aside they find that there’s a small through zero to possibly even negative effect upon trade of the currency union of the euro. Or, as we might put it, there’s no benefit and we’re left just with the costs. Things that cost us but have no benefit are things that we shouldn’t be doing. Thus, clearly, we shouldn’t be having the euro. Or, as we might put it, everyone should leave it, not just Greece.

“One doesn’t have to agree with the politics of the far left in Greece to vindicate the integrity of their economic case.”

• Why Greece Should Choose Eurozone Exit Rather Than Dependence (Irish Times)

The narrative of the euro zone crisis, the epicentre of which is Greece, has been airbrushed. Germany’s insistence that the 2012 bailout programme is a realistic reference point for current discussion is misconceived. Its assertion that debt relief can be discussed only after the completion of the current programme, rather than being the obvious starting point for a new agreement, is profoundly mistaken. The tenor of the euro zone’s criticism of the government of Alexis Tsipras has shifted from the patronising to the denunciatory, from faux long-suffering indulgence with a brash upstart to near visceral condemnation. The message is that the grown-ups are “exasperated” and “running out of patience” with Greece.

Germany’s minister for economic affairs, Sigmar Gabriel, argues that “Greece’s game theorists are gambling the future of their country. And Europe’s too.” This is revisionist rhetoric. Greece is more right than its critics. One doesn’t have to agree with the politics of the far left in Greece to vindicate the integrity of their economic case. What is true of a relationship is true also for a country: dependence is never healthy. Continued membership means continued dependence. Given the pressures being exerted on Greece, exit rather than dependence would be the better option. In February German finance minister Wolfgang Schäuble insisted that Greece complete the 2012 programme, regardless of the sea change in politics since then and the evidence that austerity was taking Greece further into recession.

He warned Athens not to question the framework of existing agreements or “everything is over”. It was a calamitous misjudgment. The “negotiations” have demonstrated how big countries behave when small countries step out of line and just how easily history can be rewritten. Tsipras, in an interview with Le Monde, said the euro zone’s dominant players were, by degrees, bringing about the “complete abolition of democracy in Europe” and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the “doctrines of extreme neoliberalism”.

So much for ‘we have it under control’.

• Contagion From Greek Crisis Engulfs Eurozone Bonds (Reuters)

Italian, Spanish and Portuguese bond yields leapt on Tuesday in one of the most serious episodes of contagion since the height of Europe’s debt crisis after the latest breakdown in talks between Greece and its creditors. Except for a jump in May during a global bond sell-off driven by improving inflation expectations, yields on bonds issued by the eurozone’s most vulnerable states were on track for their biggest three-day move since mid-2013. Similarly sharp moves were seen in 2012 as the crisis peaked, although yields on the three countries’ bonds remain far below the highs of above 7% hit in that period.

The moves, analysts say, could impact the dynamic of the negotiations between Greece and European leaders, who may have thought that the relative calm in markets during the protracted talks was a sign that investors thought a Grexit was manageable. “A lot of people, especially in Germany, have seemed relaxed about Greece. We’ve seen comments saying that if Greece exits it’s not such a big thing,” said Jean-Francois Robin, head of rates strategy at Natixis. “The market is just showing exactly the opposite of that.”

Sociopaths.

• Defiant Tsipras Accuses Creditors Of ‘Pillaging’ Greece (FT)

Alexis Tsipras, the Greek prime minister, vowed not to give in to demands made by his country’s international creditors, accusing them of “pillaging” Greece for the past five years and insisting it was now up to them to propose a new rescue plan to save Athens from bankruptcy. Mr Tsipras’ remarks came less than 24 hours after the collapse of last-ditch talks aimed at reaching agreement on the release of €7.2bn in desperately needed rescue funds. The comments were part of a chorus of defiance in Athens that left many senior EU officials convinced they can no longer clinch a deal with Greece to prevent it from crashing out of the eurozone.

Without a deal to release the final tranche of Greece’s current bailout, Athens is likely to default on a €1.5bn loan repayment due to be paid to the IMF in two weeks, an event officials fear would set off a financial chain reaction from which Greece would be unable to recover. “One can only suspect political motives behind the fact that [bailout negotiators] insist on further pension cuts, despite five years of pillaging,” Mr Tsipras said in a statement. “We are carrying our people’s dignity as well as the aspirations of all Europeans. We cannot ignore this responsibility. It is not a matter of ideological stubbornness. It has to do with democracy.”

Reflecting the growing fears of a Greek default, Günther Oettinger, Germany’s European commissioner, called for an “emergency plan, a ‘Plan B’” in case Athens failed to reach a deal, saying this would lead to “a state of emergency” in Greece, including difficulties paying for energy, police services and medicines. The growing signs of breakdown sent the Athens stock exchange down nearly 5% and borrowing costs on Greek bonds sharply higher. The jitters appeared to spread to other peripheral eurozone bonds as well, with sell-offs in benchmark Italian, Spanish and Portuguese debt.

It can. And should.

• Why Can’t Greece Just Declare Bankruptcy? (Stiglitz/Guzman)

Governments sometimes need to restructure their debts. Otherwise, a country’s economic and political stability may be threatened. But, in the absence of an international rule of law for resolving sovereign defaults, the world pays a higher price than it should for such restructurings. The result is a poorly functioning sovereign-debt market, marked by unnecessary strife and costly delays in addressing problems when they arise. We are reminded of this time and again. In Argentina, the authorities’ battles with a small number of “investors” (so-called vulture funds) jeopardized an entire debt restructuring agreed to — voluntarily — by an overwhelming majority of the country’s creditors.

In Greece, most of the “rescue” funds in the temporary “assistance” programs are allocated for payments to existing creditors, while the country is forced into austerity policies that have contributed mightily to a 25% decline in gross domestic product and have left its population worse off. In Ukraine, the potential political ramifications of sovereign-debt distress are enormous. So the question of how to manage sovereign-debt restructuring — to reduce debt to levels that are sustainable — is more pressing than ever. The current system puts excessive faith in the “virtues” of markets. Disputes are generally resolved not on the basis of rules that ensure fair resolution, but by bargaining among unequals, with the rich and powerful usually imposing their will on others.

The resulting outcomes are generally not only inequitable, but also inefficient. Those who claim that the system works well frame cases like Argentina as exceptions. Most of the time, they claim, the system does a good job. What they mean, of course, is that weak countries usually knuckle under. But at what cost to their citizens? How well do the restructurings work? Has the country been put on a sustainable debt path? Too often, because the defenders of the status quo do not ask these questions, one debt crisis is followed by another. Greece’s debt restructuring in 2012 is a case in point. The country played according to the “rules” of financial markets and managed to finalize the restructuring rapidly; but the agreement was a bad one and did not help the economy recover.

Three years later, Greece is in desperate need of a new restructuring. Distressed debtors need a fresh start. Excessive penalties lead to negative-sum games, in which the debtor cannot recover and creditors do not benefit from the larger repayment capacity that recovery would entail.

Note: Peston rarely has anything worth quoting. But even he can see something’s amiss in the Greece ‘debate’.

• Greece Isn’t Any Old Troubled Debtor (BBC)

it is not just the quantum of austerity that divides Athens from its creditors, it is also the method of execution. So the eurozone and IMF want further pension cuts and an increase in VAT on electricity. These measures are toxic for the Greek Syriza government because they are regressive, they disproportionately hurt the poorer Greeks who elected Syriza. So “why insist on pensions?”, says Blanchard. His answer is that pension expenditure in Greece is 16% of GDP, and “transfers from the budget to the pension system are close to 10% of GDP”. Now here in Britain we would think that public spending on pensions of close to a tenth of GDP is incredibly lavish: the equivalent figure for the UK, and indeed for most anglophone countries like the US and Canada, is much lower (at around 6% of GDP in Britain).

But in the UK, US and Canada, private pension saving is much higher than on the continent of Europe. And Greece’s government spending on pensions, as a share of GDP, is very much in the ballpark of spending in the rest of the eurozone: on the basis of the last official OECD figures, which admittedly are five years old, Greece spent less than Italy, France and Austria on pensions and only a bit more than Germany. And there is another thing: in 2009 the OECD calculated that Greek government cash spending on old-age and survivors benefits was 13% of its GDP. If the equivalent figure today is 10%, which is what Blanchard seems to suggest, that implies the outlay on pensions has already been reduced by around 40%, given that Greece’s GDP has shrunk by a quarter.

That said, on the basis of the last Eurostat figures, which are for 2012, Greece’s old-age outlay – including disability and incapacity payments – was considerably higher than the euro area average. So the stats are murky. But it is worth pointing out that Greece has proportionately more old people than the eurozone average, and more poor people (thanks to five years of slump). In other words, it is not obvious that there is outrageous excess in the Greek pension system (and there certainly isn’t in comparison with provision in Blanchard’s French home).

To state the obvious, which seems however to be lost on the leaders of the eurozone, once the euro is not forever for any member, it is not forever for all members. And once that clonking penny drops for global investors, the notion that the whole project will fall apart – not tomorrow, but one day – will increasingly become the default view.

“We should have fought for this from the start.”

• Ex-IMF Official Says ‘Errors’ By Lenders Worsened Greek Crisis (Kathimerini)

Greece’s former representative at the IMF, Panayiotis Roumeliotis, appeared before the parliamentary inquiry into the country’s debt and argued that Greece’s lenders have contributed to worsening the Greek crisis through the policies they advocated. “The mistake made by lenders is that they placed emphasis on the fiscal side and high taxes, which they are continuing to do now,” he said. “This resulted in the recession.” Roumeliotis was Greece’s envoy to the IMF when the first bailout was signed in 2010 and he claimed at the hearing that there was contact at the time between German and French officials to ensure that there would not be a restructuring of Greece debt as much of it was held by German and French banks. “They took too long to restructure Greece’s debt,” he said. “We should have fought for this from the start.”

Galbraith is Varoufakis’ friend and adviser he brought with him from texas.

• What Is Reform? The Strange Case Of Greece And Europe (James Galbraith)

On our way back from Berlin on Tuesday, Greek Finance Minister Yanis Varoufakis remarked to me that current usage of the word “reform” has its origins in the middle period of the Soviet Union, notably under Khrushchev, when modernizing academics sought to introduce elements of decentralization and market process into a sclerotic planning system. In those years when the American struggle was for rights and some young Europeans still dreamed of revolution, “reform” was not much used in the West. Today, in an odd twist of convergence, it has become the watchword of the ruling class.[..]

What is missing from the creditors’ demands is, well, reform. Cuts in pensions and VAT increases are not reform; they add nothing to economic activity or to competitiveness. Fire-sale privatization can lead to predatory private monopolies as anyone living in Latin America or Texas knows. Labor market deregulation is in the nature of an unethical experiment, the imposition of pain as therapy, something the internal records of the IMF as far back as 2010 confirm. No one can suggest that wage cuts can bring Greece into effective competition for jobs in traded goods with either Germany or Asia. Instead, what will happen is that anyone with competitive skills will leave. Reform in any true sense is a process that requires time, patience, planning, and money.

Pension reform and social insurance, modern labor rights, sensible privatizations and effective tax collection are reforms. So are measures relating to public administration, the justice system, tax enforcement, statistical integrity and other matters, which are agreed in principle and which the Greeks would implement readily if the creditors would permit it – but for negotiating reasons they do not. So would be an investment program emphasizing the advanced services Greece is well-suited to provide, including in health care, elder-care, higher education, research, and the arts. It requires recognizing that Greece cannot succeed by being the same as other countries; it must be different – a country with small shops, small hotels, high culture, and open beaches. A debt restructuring that would bring Greece back to the markets (and yes, that could be done, and the Greeks have a proposal to do it) would also be, on any reasonable reckoning, a reform.

The plain object of the creditors’ program is therefore not reform. It is the doubling-down on debt collection in the face of disaster. Pension cuts, wage cuts, tax increases and fire sales are offered up on the magical thought that the economy will recover despite the burden of higher taxes, lower purchasing power, and external repatriation of profits from privatization. The magic has already been tested for five years, with no success in the Greek case. That is why, instead of recovering as predicted after the bailout of 2010, Greece has suffered a loss of over 25% of its income with no end in sight. That is why the debt burden has gone from about 100% of GDP to 180%, when measured in terms of face values. But to admit this failure, in the case of Greece, would be to undermine the entire European policy project and the authority of those who run it.

Still a very well educated people.

• 3% of the World’s Top Scientists are Greek (Greek Reporter)

Greeks may be only 0.2% of the world population but 3% of top international scientists are of Greek nationality, says a survey. John Ioannidis, Professor of Medicine at Stanford University, conducted the research and presented it on Saturday at the Panhellenic Medical Conference in Athens. Ioannidis gave a lecture in memory of prominent Doctor and Professor Dimitris Trichopoulos who died in December 2014. The title was “The exodus of Greek scientists – a meta-analysis,” and the survey showed statistics for a total of 672 scientists with Greek names who have the most influence in the international scientific bibliography. The professor used statistical data from the Google Scholar database.

On average, the 672 Greek scientists have received 17,000 reports each in the international scientific bibliography. Only one in seven of them (14%) lived or live in Greece, 86% of them live abroad where several of them were born, and 33 of them have passed away. In the wider scientific community there are about 20 million authors who have made at least one scientific publication. Greek names represent about 1% of those, meaning 200,000, while Greek names represent 3% of all scientists. The most ancient Greek scientist, Aristotle, is constantly used as a reference in the scientific bibliography. Statistically, out of the 672 leading Greek scientists, only 95 (14%) are located in Greece.

How one can not be speechless after this 4 minute video is beyond us.

• Sunday Times ‘Reporter’ ‘Defends’ Snowden ‘Article’ (CNN)

CNN’s George Howell speaks with Sunday Times correspondent Tom Harper about reports that Russia and China have decrypted files stolen by NSA leaker Edward Snowden.

As its leadership promotes more of it.

• IMF: Inequality Hurts Economic Growth (Guardian)

The idea that increased income inequality makes economies more dynamic has been rejected by an IMF study, which shows that the widening income gap between rich and poor is bad for growth. A report by five IMF economists dismissed “trickle down” economics, and said that if governments want to increase the pace of growth they should concentrate on helping the poorest 20% of their citizens. The study, covering advanced, emerging and developing countries, said technological progress, weaker trade unions, globalisation and tax policies that favoured thewealthy had all played their part in making widening inequality “the defining challenge of our time”. The IMF report said the way income is distributed matters for growth.

“If the income share of the top 20% [the rich] increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20% [the poor] is associated with higher GDP growth,” said the report. Echoing the frequent warnings about rising inequality from the Fund’s managing director Christine Lagarde, the report says governments around the world need to tackle the problem. It said: “Raising the income share of the poor, and ensuring that there is no hollowing-out of the middle class, is actually good for growth.” The study, however, reflects the tension between the IMF’s economic analysis and the harder-line policy advice given to individual countries, such as Greece, that need financial support.

During its negotiations with Athens, the IMF has been seeking to weaken worker rights, but the research paper found that the easing of labour market regulations was associated with greater inequality and a boost to the incomes of the richest 10%. “This result is consistent with forthcoming IMF work, which finds the weakening of unions is associated with a higher top 10% income share for a smaller sample of advanced economies,” said the study.

Guillotines must follow.

• 1% Of Households In 2014 Made Up 42% Of Total Private Global Wealth (Forbes)

The total number of millionaire households around the world reached a record 17.4 million in 2014, up 13.7% from 15.3 million the year before. Meanwhile, the ultra high net worth set is expected to grow at an equally impressive rate over the next five years. According to the Boston Consulting Group, wealth for the richest global families worth more than $100 million is projected to cross the $18 trillion mark by 2019. Currently, private wealth held by families with a fortune of more than $100 million total a combined $10 trillion, or roughly 6% of global wealth. Those ultra rich fortunes grew by 11% in 2014. To get to $18 trillion by 2019, the report predicts that household wealth will grow at a compound annual rate of about 12% in the next five years.

The report, published Monday, says there are more than 5,000 U.S. households worth $100 million or more. China follows with more than 1,000 ultra rich households. “This top segment is expected to be the fastest growing, in both the number of households and total wealth,” the reports’ authors wrote. In addition, the research shows that the top 1% of households in 2014 made up 42% of total private global wealth. Keep in mind, the survey only analyzes cash deposits, securities and life and pension plans. That means other big drivers of wealth like real estate, business ownership and collections aren’t included in the estimates.

Forbes’ own billionaires list, which analyzes all assets an individual can hold, counts 1,826 individuals from across the world with personal 10-figure fortunes, according to the World Billionaires list released in March. They controled an estimated $7.05 trillion at the time of the report. In the U.S. alone, Forbes estimates that there’s nearing 450 American billionaires. Many investors are “benefiting from the markets going up,” senior partner and wealth management expert Bruce Holley said at a Monday briefing. The amount of wealth held in equities rose to 64.1 trillion, up 17.5% from 2013, according to the report.

All over the Anglo world.

• Foreign Investors Pose Threat To US Residential Real Estate (MarketWatch)

U.S. real estate purchases by foreign nationals over a recent 12-month period totaled $92 billion. The negative impact of foreign investments in American residential real estate might have been badly overlooked by some U.S. government officials — and the potential harm it might cause is largely unknown to the average American. Reports from a variety of sources suggest that a housing recovery is taking place, though not at the pace expected. As of last month, it was still some 16% below its peak in 2008. Yet at the same time, some U.S. cities are experiencing an unusually high demand for residential real estate, with buyers outbidding each other, often by tens, and sometimes hundreds of thousands of dollars.

The same kind of outbidding was going on just prior to the 2007 real-estate crash where wealthy buyers, mostly foreign, were buying homes by paying for them in cash. Average American home owners, of whom one in three is on the verge of financial ruin, aren’t fueling such buying frenzies. Skyrocketing real-estate prices in America’s selected urban centers are likely the result of a foreign influx of cash, more particularly mainland Chinese money, which is now flooding major American cities in the billions of dollars. Last year, Bloomberg revealed a secret path that allows wealthy Chinese to transfer billions overseas. Before that, The Wall Street Journal outlined the questionable mechanics of moving cash out of China, where wealthy mainland Chinese bring their funds to Hong Kong and from there to other parts of the world.

Most of it ends up invested in favorite foreign destinations — namely the U.S., Australia, and Canada. Despite some Chinese banks across the border from Hong Kong allowing for a trial program (introduced in 2011) for overseas property purchases and emigration, the Bloomberg report noted that, “China’s foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert at $50,000 each year and ban them from transferring the currency abroad directly.” So it’s illegal for mainland Chinese to take more than $50,000 out of the country — but wealthy Chinese are smuggling out billions. You can bet your last dollar that a good chunk of that Chinese money (of dubious origin) was earmarked for residential real-estate purchases, that is, the roofs over American heads.

Let ‘er rip.

• $112 Billion Fund Manager Worries Bond-Market Fire Doors Are Locked (Bloomberg)

If you haven’t realized by now that a lot of people are worried about bond-market liquidity, then I’m not sure why you’re bothering to read me. But in the hope that you’ll at least start taking an interest in where your pension fund is hanging out these days, maybe you’ll listen when a guy who manages $112 billion tells you that if bad things happen in bond land, the fire doors might turn out to be locked. Martin Gilbert runs Aberdeen Asset Management which, as previously mentioned, manages rather a lot of money. On Monday, he explained why he’s lined up a $500 million overdraft facility and has a further $1 billion of cash: “It will get ugly. You want bank lines in place in case you have to meet a redemption and there is no market.”

Let’s pause for a second to parse that sentence. Gilbert was talking about the risk of either Greece leaving the euro or the U.S. starting to raise borrowing costs. Either or both could spook investors, who in turn might ask Aberdeen for their money back. Except Aberdeen is concerned it might not be able to sell the things it bought with their money – so it would either have to deplete its cash to make the repayments, or borrow money to meet those redemptions. Setting aside a rainy day fund of $1.5 billion, just in case, is “a substantial amount but you’ve got to be prepared,” Gilbert said.

With the benefit of hindsight, I decided a while ago that the starting gun for the credit crunch was fired on Aug. 9, 2007. That day, BNP Paribas told investors it was freezing redemptions from three of its investment funds because it had decided there was no reliable way to determine the value of the assets in the funds, which in turn would make it impossible to sell things to repay investors. In other words, to echo Aberdeen’s Gilbert, there was no market.

Permanently.

• Fast Track Hands the Money Monopoly to Private Banks, Permanently (Ellen Brown)

On June 3, 2015, WikiLeaks released 17 key documents related to TiSA, which is considered perhaps the most important of the three deals being negotiated for “fast track” trade authority. The documents were supposed to remain classified for five years after being signed, displaying a level of secrecy that outstrips even the TPP’s four-year classification. TiSA involves 51 countries, including every advanced economy except the BRICS. The deal would liberalize global trade in services covering close to 80% of the US economy, including financial services, healthcare, education, engineering, telecommunications, and many more. It would restrict how governments can manage their public laws, and it could dismantle and privatize state-owned enterprises, turning those services over to the private sector.

Recall the secret plan devised by Wall Street and U.S. Treasury officials in the 1990s to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally, so that money would not flee to nations with safer banking laws. The vehicle used was the Financial Services Agreement concluded under the auspices of the World Trade Organization’s General Agreement on Trade in Services (GATS). The plan worked, and most countries were roped into this “liberalization” of their banking rules. The upshot was that the 2008 credit crisis took down not just the US economy but economies globally. TiSA picks up where the Financial Services Agreement left off, opening yet more doors for private banks and other commercial service industries, and slamming doors on governments that might consider opening their private banking sectors to public ownership.

What the f*ck is this? How much Mengele literature have these bozos been reading?

• CIA Torture Has Broken Spy Agency Rule On Human Experimentation (Guardian)

The Central Intelligence Agency had explicit guidelines for “human experimentation” before, during and after its post-9/11 torture of terrorism detainees, the Guardian has learned, which raise new questions about the limits on internal oversight over the agency’s in-house and contracted medical research. Sections of a previously classified CIA document, made public by the Guardian on Monday, empower the agency’s director to “approve, modify, or disapprove all proposals pertaining to human subject research”. The leeway provides the director, who has never in the agency’s history been a medical doctor, with significant influence over limitations the US government sets to preserve safe, humane and ethical procedures on people.

CIA director George Tenet approved abusive interrogation techniques, including waterboarding, designed by CIA contractor psychologists. He further instructed the agency’s health personnel to oversee the brutal interrogations – the beginning of years of controversy, still ongoing, about US torture as a violation of medical ethics. But the revelation of the guidelines has prompted critics of CIA torture to question how the agency could have ever implemented what it calls “enhanced interrogation techniques” – despite apparently having rules against “research on human subjects” without their informed consent.

Indeed, despite the lurid name, doctors, human-rights workers and intelligence experts consulted by the Guardian said the agency’s human-experimentation rules were consistent with responsible medical practices. The CIA, however, redacted one of the four subsections on human experimentation. “The more words you have, the more you can twist them, but it’s not a bad definition,” said Scott Allen, an internist and medical adviser to Physicians for Human Rights. The agency confirmed to the Guardian that the document was still in effect during the lifespan of the controversial rendition, detention and interrogation program.

Just on of the risks to pension funds.

• How Pension Funds Face Huge Risk From Climate Change (Guardian)

The pension funds of millions of people across the world, including teachers, public sector workers, health staff and academics in the UK and US, are heavily exposed to the plummeting coal sector, a Guardian analysis has revealed. It has also found that just a dozen people, including the owner of Chelsea FC, Roman Abramovich, own coal reserves equivalent to the annual carbon emissions of China, the world’s biggest polluter. The UN, which advocates a shift to clean energy, has more than $100m (£65m) invested in coal through its own pension fund. The Guardian examined the ownership of the biggest 50 publicly traded coal companies, ranked by the reserves held which in total are equivalent to more than 11 years of global emissions.

This alone could push the planet past beyond the 2C of climate change deemed dangerous by the world’s governments. A fast-growing, global fossil fuel divestment movement, backed by the Guardian’s Keep it in the Ground campaign, is having particular success in persuading investors to dump coal stocks. The world’s largest sovereign wealth fund, held by Norway, decided earlier this month to sell off more than $8bn of coal assets. The World Bank and the Bank of England have both warned that global action to cut carbon emissions could render fossil fuel reserves worthless, as analyses show most must remain in the ground. Coal, the most polluting fuel, is particularly at risk and investment bank Goldman Sachs declared in January the fuel had reached “retirement age”.

The coal price has crashed by 60% since 2011, as gas, renewable energy and climate policies have damaged demand. Tom Sanzillo, a former New York State comptroller who oversaw a $156bn pension fund, said: “Coal is arguably the worst performing sector in the whole world. Pension funds, which have a fiduciary duty to make money, have no business owning any of these companies. It is not a prospective risk, it is a now risk.” “The coal sector is falling into a financial death spiral,” said Mark Campanale, founder of the Carbon Tracker Initiative, which has pioneered analysis of the financial risks of fossil fuels. “The members of university, healthcare and UN pension funds are smart and informed people; they will be shocked to discover just how far exposed their funds are to coal investment risk.”

How hostile will Washington be when he visits later this year?

• Pope Warns Of Destruction Of World’s Ecosystem In Leaked Encyclical (Guardian)

Pope Francis will this week call for changes in lifestyles and energy consumption to avert the “unprecedented destruction of the ecosystem” before the end of this century, according to a leaked draft of a papal encyclical. In a document released by an Italian magazine on Monday, the pontiff will warn that failure to act would have “grave consequences for all of us”. Francis also called for a new global political authority tasked with “tackling … the reduction of pollution and the development of poor countries and regions”. His appeal echoed that of his predecessor, pope Benedict XVI, who in a 2009 encyclical proposed a kind of super-UN to deal with the world’s economic problems and injustices.

According to the lengthy draft, which was obtained and published by L’Espresso magazine, the Argentinean pope will align himself with the environmental movement and its objectives. While accepting that there may be some natural causes of global warming, the pope will also state that climate change is mostly a man-made problem. “Humanity is called to take note of the need for changes in lifestyle and changes in methods of production and consumption to combat this warming or at least the human causes that produce and accentuate it,” he wrote in the draft. “Numerous scientific studies indicate that the greater part of the global warming in recent decades is due to the great concentration of greenhouse gases … given off above all because of human activity.”

The pope will also single out those obstructing solutions. In an apparent reference to climate-change deniers, the draft states: “The attitudes that stand in the way of a solution, even among believers, range from negation of the problem, to indifference, to convenient resignation or blind faith in technical solutions.” The leak has frustrated the Vatican’s elaborate rollout of the encyclical on Thursday. Journalists were told they would be given an early copy on Thursday morning and that it would be released publicly at noon following a press conference. On Monday evening, the Vatican asked journalists not to publish details of the draft, emphasising that it was not the final text. A Vatican official said he believed the leak was an act of “sabotage against the pope”.

Debt Rattle June 15 2015

Jun 152015

June 15, 2015 Posted by Raúl Ilargi Meijer at 9:14 am Finance Tagged with: bubble, carry trade, China, default, Greece, IMF, Monsanto, real estate, restructuring, Sandy, Snowden 2 Responses »

DPC City Hall and Market Street and west from 11th, Philadelphia 1912

• Tsipras Hardens Greek Stance After Collapse of Talks (Bloomberg)

• Greece Has Nothing To Lose By Saying No To Creditors (Münchau)

• Varoufakis: Debt Restructuring Is The Only Way Forward (Reuters)

• Syriza Left Demands ‘Icelandic’ Default As Greek Defiance Stiffens (AEP)

• IMF ‘Blocked EU Compromise Proposal’ To Let Greece Cut Military Spending (AFP)

• Doctors At Greek State-Run Hospitals At Risk Of Burnout (Kathimerini)

• Finland’s Problem Is The Same As Greece’s (Forbes)

• The Futility of Our Global Monetary Experiment (David Stockman)

• The Sunday Times’ Snowden Story Is Journalism At Its Worst (Glenn Greenwald)

• Five Reasons the MI6 Story is a Lie (Craig Murray)

• Let Me Be Clear – Edward Snowden Is A Hero (Shami Chakrabarti)

• US And Poland In Talks Over Weapons Deployment In Eastern Europe (Guardian)

• The Oil Cash-and-Carry Trade Does The Shipping Tanker Contango (Dizard)

• China To Inject Billions Into European Infrastructure Fund (Reuters)

• China’s Stock Market Value Tops $10 Trillion for First Time (Bloomberg)

• China’s MSCI Reality Check Is Too Big To Ignore (MarketWatch)

• Stand Back: China’s Bubble Will Burst (Clive Crook)

• How Obama’s “Trade” Deals Are Designed To End Democracy (Eric Zuesse)

• Inside The Crazy World Of Canada’s Peak Real Estate (MacLean’s)

• Australian Banks And Real Estate: A Ponzi Scheme That Could Ruin Us? (ABC.au)

• Just 16% Of Hurricane Sandy Funds Given Out By 2014 (NY Post)

• ‘Stop Over-The-Counter Sales of Monsanto’s Round-Up’ – French Minister (RT)

• An Immigrant Is Worth More Than Drugs (Beppe Grillo’s blog)

“One can only read political motives in the creditors’ insistence on new cuts to pensions..”

• Tsipras Hardens Greek Stance After Collapse of Talks (Bloomberg)

Greece and its creditors swapped recriminations over who was to blame for the breakdown of bailout talks, as each side hardened its position after the latest attempt to bridge differences collapsed in acrimony. With markets plunging in Asia and in Europe, Prime Minister Alexis Tsipras portrayed Greece as the torchbearer of democracy faced with unrealistic demands, while the caucus leader of Chancellor Angela Merkel’s parliamentary bloc said Greeks had to “finally reconcile themselves with reality.” “One can only read political motives in the creditors’ insistence on new cuts to pensions after five years of plundering them under the memorandum,” Tsipras was cited as saying in a statement in Efimerida Ton Syntakton newspaper on Monday. “We will wait patiently for the institutions to move toward realism.”

The euro dropped in early trading after the European Commission said negotiations in Brussels had broken up on Sunday after just 45 minutes with the divide between what creditors asked of Greece and what its government was prepared to do unbridged. The focus now shifts to a June 18 meeting in Luxembourg of euro-area finance ministers that may become a make-or-break session deciding Greece’s ability to avert default and its continued membership in the 19-nation euro area. “In the end, this is not the kind of situation where you can have a mechanical agreement for some kind of numbers, where you meet in the middle or something similar,” Valdis Dombrovskis, EC vice president for euro policy, said on Latvian television Monday. “To reach an agreement Greece has to do the work that is necessary.”

The latest failed attempt to find a formula to unlock as much as €7.2 billion in aid for the anti-austerity Syriza-led government brings Greece closer to the abyss. With two weeks until its euro-area bailout expires and no future financing arrangement in place, creditors had set June 14 as a deadline to allow enough time for national parliaments to approve an accord. “If some interpret the government’s honest willingness to reach compromise and the steps it has taken to bridge the differences as weakness, they should consider this: we don’t just carry a heavy history of struggles,” said Tsipras. “We’re carrying on our backs the dignity of a people, but also the hopes of the people of Europe. It’s too heavy a burden to ignore. It’s not a question of ideological stubbornness. It’s a question of democracy.”

“Greece would default on all official creditors, and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later.”

• Greece Has Nothing To Lose By Saying No To Creditors (Münchau)

So here we are. Alexis Tsipras has been told to take it or leave it. What should he do The Greek prime minister does not face elections until January 2019. Any course of action he decides on now would have to bear fruit in three years or less. First, contrast the two extreme scenarios: accept the creditors’ final offer or leave the eurozone. By accepting the offer, he would have to agree to a fiscal adjustment of 1.7% of GDP within six months. My colleague Martin Sandbu calculated how an adjustment of such scale would affect the Greek growth rate. I have now extended that calculation to incorporate the entire four-year fiscal adjustment programme, as demanded by the creditors.

Based on the same assumptions he makes about how fiscal policy and GDP interact, a two-way process, I come to a figure of a cumulative hit on the level of GDP of 12.6% over four years. The Greek debt-to-GDP ratio would start approaching 200%. My conclusion is that the acceptance of the troika’s programme would constitute a dual suicide – for the Greek economy, and for the political career of the Greek prime minister. Would the opposite extreme, Grexit, achieve a better outcome? You bet it would, for three reasons. The most important effect is for Greece to be able to get rid of lunatic fiscal adjustments. Greece would still need to run a small primary surplus, which may require a one-off adjustment, but this is it.

Greece would default on all official creditors, and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later. The second reason is a reduction of risk. After Grexit, nobody would need to fear a currency redenomination risk. And the chance of an outright default would be much reduced, as Greece would already have defaulted on its official creditors and would be very keen to regain trust among private investors.

The third reason is the impact on the economy’s external position. Unlike the small economies of northern Europe, Greece is a relatively closed economy. About three quarters of its GDP is domestic. Of the quarter that is not, most comes from tourism, which would benefit from devaluation. The total effect of devaluation would not be nearly as strong as it would be for an open economy such as Ireland, but it would be beneficial nonetheless. Of the three effects, the first is the most important in the short term, while the second and third will dominate in the long run.

Always was.

• Varoufakis: Debt Restructuring Is The Only Way Forward (Reuters)

Greece Finance Minister Yanis Varoufakis said he could rule out a ‘Grexit’ because it would not be a sensible solution to the Greek debt crisis and in a German newspaper interview on Monday also said a debt restructuring was the only way forward. “I rule out a ‘Grexit’ as a sensible solution,” Varoufakis told mass circulation Bild newspaper, referring to a possible Greek exit from the euro zone. “But no one can rule out everything. I can’t even rule out a comet hitting earth.” Talks on ending the deadlock between Greece and its international creditors broke up in failure, with European leaders venting frustration as Athens stumbled towards a debt default that threatens its future in the euro.

Varoufakis said he believed it could be possible for Greece to reach an agreement with creditors quickly. He said the only way Greece would be able to repay its debts was if there was a restructuring and a deal could be possible if Chancellor Angela Merkel took part in the talks. “We don’t want any more money,” he told the German daily that has been especially critical of the rescue efforts, adding Germany and the rest of the eurozone had already given Greece “far too much” money. “An agreement could be reached in one night. But the chancellor would have to take part.”

He said the austerity program had failed. “There’s no way around it: We have to start all over again. We have to make a clean sweep,” Varoufakis said. He added that his government wanted to prevent a ‘Grexit’ but needed “a restructuring. That’s the only way possible that we can guarantee and also afford to repay so much debt.”

No, they’re not kidding.

• Syriza Left Demands ‘Icelandic’ Default As Greek Defiance Stiffens (AEP)

The radical wing of Greece’s Syriza party is to table plans over coming days for an Icelandic-style default and a nationalisation of the Greek banking system, deeming it pointless to continue talks with Europe’s creditor powers. Syriza sources say measures being drafted include capital controls and the establishment of a sovereign central bank able to stand behind a new financial system. While some form of dual currency might be possible in theory, such a structure would be incompatible with euro membership and would imply a rapid return to the drachma. The confidential plans were circulating over the weekend and have the backing of 30 MPs from the Aristeri Platforma or ‘Left Platform’, as well as other hard-line groupings in Syriza’s spectrum.

It is understood that the nationalist ANEL party in the ruling coalition is also willing to force a rupture with creditors, if need be. “This goes well beyond the Left Platform. We are talking serious numbers,” said one Syriza MP involved in the draft. “We are all horrified by the idea of surrender, and we will not allow ourselves to be throttled to death by European monetary union,” he told the Telegraph. The militant views on the Left show how difficult it could be for premier Alexis Tsipras to rally his party’s support for any deal that crosses Syriza’s electoral ‘red-lines’ on pensions, labour rights, austerity, and debt-relief. Yet they also strengthen his hand as talks with EMU creditors turn increasingly dangerous. Talks between Greece and its EU creditors fell apart once again on Sunday, leaving a final decision on a default to eurozone finance ministers.

Mr Tsipras warned over the weekend in the clearest terms to date that Greece’s creditors should not push him too far. “Our only criterion is an end to the ‘memoranda of servitude’ and an exit from the crisis,” he said. “If Europe wants the division and the perpetuation of servitude, we will take the plunge and issue a ‘big no’. We will fight for the dignity of the people and our sovereignty,” he said. It may soon be too late to push any accord through the German Bundestag and other EMU parliaments before June 30, when Greece faces a €1.6bn payment to the IMF. The interior ministry has already ordered governors and mayors to transfer their cash reserves to the central bank as a precaution, but even this is not enough to avert default without a deal. Yet an official document released this evening in Athens appeared to throw down the gauntlet.

“The government reiterates, in no uncertain terms, that no reduction in pensions and wages or increases, through VAT, in essential goods – such as electricity – will be accepted. No recessionary measure that undermines growth – the experiment has lasted long enough,” it said. European officials examined ‘war game’ scenarios of a Greek default in Bratislava on Thursday, admitting for the first time that they may need a Plan B after all. “It was a preparation for the worst case. Countries wanted to know what was going on,” said one participant to AFP. The creditors argue that ‘Grexit’ would be suicidal for Greece. They have been negotiating on the assumption that Syriza must be bluffing, and will ultimately capitulate. Little thought has gone into possibility that key figures in Athens may be thinking along entirely different lines.

Cutting military spending is a thorny topic. The IMF knows who the paymasters are. Hilarious that they claim to be opposed to “any such “bartering”; it’s all they been doing since January.

• IMF ‘Blocked EU Compromise Proposal’ To Let Greece Cut Military Spending (AFP)

The IMF “torpedoed” a recent attempt by European Commission chief Jean-Claude Juncker to offer Athens a compromise proposal in tortuous debt talks, a German daily reported. Citing a “negotiator” as its source, the Frankfurter Allgemeine Zeitung said there had been “tensions” between the EU Commission and the IMF in recent days as Greece and its creditors race against the clock to come up with a debt deal to avert a catastrophic default by Athens. The compromise that Juncker wanted to present to Greek Prime Minister Alexis Tsipras would have allowed Athens to postpone some €400 million in pension cuts in return for making similar savings on military spending, the newspaper said in its Sunday edition.

But the IMF was opposed to any such “bartering”, the source was quoted as saying in the report. Tsipras meanwhile warned Greece on Saturday to prepare for a “difficult compromise” with its EU-IMF creditors, who are demanding tough reforms in return for unlocking the last tranche of desperately-needed bailout funds ahead of key deadlines at the end of the month. Top Eurozone officials upped the pressure on Friday, saying they were preparing the ground for an Athens default, which could see Greece crashing out of the Eurozone.

Tragedy.

• Doctors At Greek State-Run Hospitals At Risk Of Burnout (Kathimerini)

There are a number of specializations that are especially demanding. For the past four months, the recently opened thoracic surgery clinic at the Attikon Hospital in Athens has been operating with a staff of two. “I have applied for an assistant, someone who is specialized in what we do here, to be temporarily reassigned from another hospital, but what can they do when every hospital is understaffed?” noted the clinic’s director, Pericles Tomos. He has one intern when the work calls for four. Over three months, the two of them conducted 37 surgeries, and they work more than 12 hours a day. The shortage of thoracic surgeons has also hit other hospitals in the country. Over 70% of the positions for this specialization remain open as young doctors with expertise prefer to work abroad.

Similar shortages in other specializations put a greater burden on doctors working at public hospitals. At the capital’s Evangelismos Hospital, heart surgeon Panagiotis Dedeilias works more than 80 hours a week. “I have often felt completely exhausted after working for 36 hours straight,” he told Kathimerini. “I have had interns faint in the operating room because of exhaustion, while I have also seen others growing indifferent toward the job. They may not have lost their ability to diagnose a patient and do what they need to do, but they are cold toward patients’ relatives and seem to be losing their ambition.” Dedeilias has never taken a day off after being on emergency duty for 24 hours. “You can’t leave a patient behind when you know there’s no one to replace you,” said Giorgos Marinos, a doctor who is in charge of running the emergency room at the Laiko Hospital, also in Athens.

It shouldn’t be in the eurozone.

• Finland’s Problem Is The Same As Greece’s (Forbes)

Finland’s central bank governor, Erkki Liikanen, tells us that Finland is going to have to work hard to get through this current difficult economic situation. The country’s GDP is still significantly below pre-crisis levels and it’s likely to be a number of years before there’s a full recovery. But the real point behind this story is that it just doesn’t have to be this way. As Paul Krugman has been pointing out recently and as many others of us have been shouting for years. Finland simply should never have joined the euro, as Greece should not have. As, in fact, pretty much most of the current members should not have joined the single currency.

Further, none of this is a surprise. It’s inherent in the very design of said currency, indeed it was pointed to by Robert Mundell, the man who worked out the economics of single currencies. That it would all go wrong is exactly what the warning about the euro was. It is going wrong, has gone wrong, and for exactly the reason predicted:

Finland is in trouble, and in the words of the central bank this week, the situation is “grave”. While France has often been branded Europe’s “sick man” and Greece’s problems are well known, Finland’s economy is still 5pc smaller than before the financial crisis. The country will barely crawl out of a three-year recession this year, while unemployment is forecast by the OECD to grow in 2015.

Faced with a bloated state, below-par growth, and prices and costs that have risen at a much faster pace than the rest of the eurozone, the medicine is a familiar one. What Finland has to do is have an internal devaluation. That is, it’s got to force down labour prices. That’s something that is difficult and something that can only be done with considerable economic pain. It’s also what Spain, Portugal and the extreme case of Greece have all also had to do. And the reason is that they’re in the euro. As Paul Krugman points out:

What’s going on? Well, in the case of Finland we’re seeing the classic problems of asymmetric shocks in a currency area that isn’t optimal. Finland’s two main export sectors, forest products and Nokia, have tanked; this creates the need for a sharp fall in relative wages to make up for the lost markets, but because Finland doesn’t have its own currency anymore this adjustment must take the form of a slow, grinding internal devaluation (which is, by the way, why the garbled discussion of wages turns the story into nonsense).

“It was digital money conjured out of thin air and they certainly haven’t destroyed or repealed the law of supply and demand.”

• The Futility of Our Global Monetary Experiment (David Stockman)

If they don’t raise the interest rate in June — and I think all the signals now are pretty clear they’re going to find another reason to delay — that will mean seventy-eight straight months of zero rates in the money market. As I always say, the money-market price, that is the Federal Funds Rate or Overnight Money or a short term treasury bill, is the most important price in all of capitalism because that determines the cost of carry, the cost of speculation and gambling. When you conduct a monetary policy that says to the speculators, to the gamblers, “come and get it,” you are guaranteed free money to carry your positions, whether you’re buying German Bonds or you’re buying the S&P 500 Stock Index or the whole array of yielding or price gaining assets that are available in the financial market.

This monetary policy also sends the message that you can leverage and carry those positions for free and roll it day after day without worry because the central bank has pegged your cost and production, and in a sense has pledged on its solemn honor that it will not change without many months of warning. And that’s what this whole thing is about — changing the language and so forth. I think you have created a massive distortion in the very heart of capitalism in the financial system. Second, I think even though they stopped actually adding to their balance sheet in October — when QE supposedly ended in a technical sense — the Fed has put $3.5 trillion worth of basic financial fraud into the world financial system and economy.

After all, when they bought all of that treasury debt and all of those GSE securities, what did they use to pay for it with? It was digital money conjured out of thin air and they certainly haven’t destroyed or repealed the law of supply and demand. So, if you put $3.5 trillion of demand into the fixed income market at points along the yield curve all the way from two years to thirty years, that is an enormous fat sum on the scale. That is an enormous distortion of pricing because you can’t have that much demand without affecting the price. Now, with the ECB at full throttle, and with Japan being almost a lunatic in its mimicking of QE, you are creating the greatest distortion of fixed income pricing or bond market pricing in the history of the world, and the bond market is the monster of the midway.

Essential reading.

• The Sunday Times’ Snowden Story Is Journalism At Its Worst (Glenn Greenwald)

Western journalists claim that the big lesson they learned from their key role in selling the Iraq War to the public is that it’s hideous, corrupt and often dangerous journalism to give anonymity to government officials to let them propagandize the public, then uncritically accept those anonymously voiced claims as Truth. But they’ve learned no such lesson. That tactic continues to be the staple of how major US and British media outlets “report,” especially in the national security area. And journalists who read such reports continue to treat self-serving decrees by unnamed, unseen officials – laundered through their media – as gospel, no matter how dubious are the claims or factually false is the reporting.

We now have one of the purest examples of this dynamic. Last night, the Murdoch-owned Sunday Times published their lead front-page Sunday article, headlined “British Spies Betrayed to Russians and Chinese.” Just as the conventional media narrative was shifting to pro-Snowden sentiment in the wake of a key court ruling and a new surveillance law, the article claims in the first paragraph that these two adversaries “have cracked the top-secret cache of files stolen by the fugitive US whistleblower Edward Snowden, forcing MI6 to pull agents out of live operations in hostile countries, according to senior officials in Downing Street, the Home Office and the security services.” It continues:

Western intelligence agencies say they have been forced into the rescue operations after Moscow gained access to more than 1m classified files held by the former American security contractor, who fled to seek protection from Vladimir Putin, the Russian president, after mounting one of the largest leaks in US history. Senior government sources confirmed that China had also cracked the encrypted documents, which contain details of secret intelligence techniques and information that could allow British and American spies to be identified. One senior Home Office official accused Snowden of having “blood on his hands”, although Downing Street said there was “no evidence of anyone being harmed”.

Aside from the serious retraction-worthy fabrications on which this article depends – more on those in a minute – the entire report is a self-negating joke. It reads like a parody I might quickly whip up in order to illustrate the core sickness of western journalism. Unless he cooked an extra-juicy steak, how does Snowden “have blood on his hands” if there is “no evidence of anyone being harmed?” As one observer put it last night in describing the government instructions these Sunday Times journalists appear to have obeyed: “There’s no evidence anyone’s been harmed but we’d like the phrase ‘blood on his hands’ somewhere in the piece.”

The Sunday Times may yet regret having run it. Already, a vital accusation was silently removed from the digital version.

• Five Reasons the MI6 Story is a Lie (Craig Murray)

The Sunday Times has a story claiming that Snowden’s revelations have caused danger to MI6 and disrupted their operations. Here are five reasons it is a lie.

1) The alleged Downing Street source is quoted directly in italics. Yet the schoolboy mistake is made of confusing officers and agents. MI6 is staffed by officers. Their informants are agents. In real life, James Bond would not be a secret agent. He would be an MI6 officer. Those whose knowledge comes from fiction frequently confuse the two. Nobody really working with the intelligence services would do so, as the Sunday Times source does. The story is a lie.

2) The argument that MI6 officers are at danger of being killed by the Russians or Chinese is a nonsense. No MI6 officer has been killed by the Russians or Chinese for 50 years. The worst that could happen is they would be sent home. Agents’ – generally local people, as opposed to MI6 officers – identities would not be revealed in the Snowden documents. Rule No.1 in both the CIA and MI6 is that agents’ identities are never, ever written down, neither their names nor a description that would allow them to be identified. I once got very, very severely carpeted for adding an agents’ name to my copy of an intelligence report in handwriting, suggesting he was a useless gossip and MI6 should not be wasting their money on bribing him. And that was in post communist Poland, not a high risk situation.

3) MI6 officers work under diplomatic cover 99% of the time. Their alias is as members of the British Embassy, or other diplomatic status mission. A portion are declared to the host country. The truth is that Embassies of different powers very quickly identify who are the spies in other missions. MI6 have huge dossiers on the members of the Russian security services – I have seen and handled them. The Russians have the same. In past mass expulsions, the British government has expelled 20 or 30 spies from the Russian Embassy in London. The Russians retaliated by expelling the same number of British diplomats from Moscow, all of whom were not spies! As a third of our “diplomats” in Russia are spies, this was not coincidence. This was deliberate to send the message that they knew precisely who the spies were, and they did not fear them.

4) This anti Snowden non-story – even the Sunday Times admits there is no evidence anybody has been harmed – is timed precisely to coincide with the government’s new Snooper’s Charter act, enabling the security services to access all our internet activity. Remember that GCHQ already has an archive of 800,000 perfectly innocent British people engaged in sex chats online.

5) The paper publishing the story is owned by Rupert Murdoch. It is sourced to the people who brought you the dossier on Iraqi Weapons of Mass Destruction, every single “fact” in which proved to be a fabrication. Why would you believe the liars now?

Second that.

• Let Me Be Clear – Edward Snowden Is A Hero (Shami Chakrabarti)

Who needs the movies when life is full of such spectacular coincidences? On Thursday, David Anderson, the government’s reviewer of terrorism legislation, condemned snooping laws as “undemocratic, unnecessary and – in the long run – intolerable”, and called for a comprehensive new law incorporating judicial warrants – something for which my organisation, Liberty, has campaigned for many years. This thoughtful intervention brought new hope to us and others, for the rebuilding of public trust in surveillance conducted with respect for privacy, democracy and the law. And it was only possible thanks to Edward Snowden. Rumblings from No 10 immediately betrayed they were less than happy with many of Anderson’s recommendations – particularly his call for judicial oversight.

And three days later, the empire strikes back! An exclusive story in the Sunday Times saying that MI6 “is believed” to have pulled out spies because Russia and China decoded Snowden’s files. The NSA whistleblower is now a man with “blood on his hands” according to one anonymous “senior Home Office official”. Low on facts, high on assertions, this flimsy but impeccably timed story gives us a clear idea of where government spin will go in the coming weeks. It uses scare tactics to steer the debate away from Anderson’s considered recommendations – and starts setting the stage for the home secretary’s new investigatory powers bill. In his report, Anderson clearly states no operational case had yet been made for the snooper’s charter. So it is easy to see why the government isn’t keen on people paying too close attention to it.[..]

So let me be completely clear: Edward Snowden is a hero. Saying so does not make me an apologist for terror – it makes me a firm believer in democracy and the rule of law. Whether you are with or against Liberty in the debate about proportionate surveillance, Anderson must be right to say that the people and our representatives should know about capabilities and practices built and conducted in our name. For years, UK and US governments broke the law. For years, they hid the sheer scale of their spying practices not just from the British public, but from parliament. Without Snowden – and the legal challenges by Liberty and other campaigners that followed – we wouldn’t have a clue what they were up to.

The narrative machine.

• US And Poland In Talks Over Weapons Deployment In Eastern Europe (Guardian)

The US and Poland are discussing the deployment of American heavy weapons in eastern Europe in response to Russian expansionism and sabre-rattling in the region in what represents a radical break with post-cold war military planning. The Polish defence ministry said on Sunday that Washington and Warsaw were in negotiations about the permanent stationing of US battle tanks and other heavy weaponry in Poland and other countries in the region as part of Nato’s plans to develop rapid deployment “Spearhead” forces aimed at deterring Kremlin attempts to destabilise former Soviet bloc countries now entrenched inside Nato and the EU. Tomasz Siemoniak, the Polish defence minister, had talks on the issue at the Pentagon last month.

Warsaw said on Sunday that a decision whether to station heavy US equipment at warehouses in Poland would be taken soon. Nato’s former supreme commander in Europe, the American admiral James Stavridis, said the decision marked “a very meaningful policy shift”, amid eastern European complaints that western Europe and the US were lukewarm about security guarantees for countries on the frontline with Russia following Vladimir Putin’s seizure of parts of Ukraine. “It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full time on the ground, of course,” the retired admiral told the New York Times.

Nato has been accused of complacency in recent years. The Russian president’s surprise attacks on Ukraine have shocked western military planners into action. An alliance summit in Wales last year agreed quick deployments of Nato forces in Poland and the Baltic states. German mechanised infantry crossed into Poland at the weekend after thousands of Nato forces inaugurated exercises as part of the new buildup in the east. Wary of antagonising Moscow’s fears of western “encirclement” and feeding its well-oiled propaganda effort, which regularly asserts that Nato agreed at the end of the cold war not to station forces in the former Warsaw Pact countries, Nato has declined to establish permanent bases in the east.

“..one of those phenomena you hear about in airport lounges just around the time it is nearly over.”

• The Oil Cash-and-Carry Trade Does The Shipping Tanker Contango (Dizard)

The oil cash-and-carry trade is one of those phenomena you hear about in airport lounges just around the time it is nearly over. At the risk of repeating what your taxi driver told you this morning, oil cash-and-carries are about buying 2m barrels of oil with money borrowed from a “too big to fail” bank, storing it in a very large crude carrier, leaving it at anchor for, say, a year and then selling the oil at a higher price. Easy to understand, if you are the billionaire industrialists the Koch brothers. The cycles of this trade tell us a lot about macro-trade hype, the prospects for interest rates and ship owners’ financing. They can also mislead people about the prospects of the oil price.

I am not worried that the Koch brothers themselves will be tempted by the lure of fast money to overcommit their credit lines to the oil carry trade. I would be more concerned that the investing public, or the “smart money” of private equity funds, will continue to buy bits of crude or tankers, or shares in the companies that own them, in the hope of profiting from a growing market for oil storage. Even as the shares of companies owning bulk carriers have sunk to the bottom of the Mariana trench, tanker equities have steamed ahead. For example, Scorpio Bulkers is down 76% over the past year, while Nordic American Tankers is up over 56%.

No doubt some analyst could point to perceived differences in management quality, but for most investors these are commodity plays: bulkers = China raw material imports; tankers = oil contango. A contango, or a series of prices for future delivery of a commodity that increases over time, can tell a counterintuitive story, particularly for oil. For many, it appears to predict that the price is going up. Most of the time, though, crude oil prices are in backwardation, meaning near-term prices are higher than prices for future delivery. This makes sense when you consider it; if refiners only need oil a couple of months in advance, why not leave it in the ground rather than pay storage and financing costs on that position?

Europe can’t afford to pay for its own infrastructure anymore.

• China To Inject Billions Into European Infrastructure Fund (Reuters)

China will pledge a multi-billion dollar investment in Europe’s new infrastructure fund at a summit on June 29 in Brussels, according to a draft communique seen by Reuters – Beijing’s latest round of chequebook diplomacy to win greater influence. While the exact amount is still to be decided, the pledge will mark the latest step in China’s efforts to shape global economic governance at the expense of the United States, and follows major EU governments’ decision to join the Chinese-led Asian Infrastructure Investment Bank (AIIB) in defiance of Washington. It is expected to come with a request for return investment in China’s westward infrastructure drive – the “One Belt, One Road” initiative – constructing major energy and communications links across Central, West and South Asia to as far as Greece.

“China announced that it would make (X amount) available for co-financing strategic investment of common interest across the EU,” the draft final statement says, adding that agreements will be finalised at another meeting in September. An EU diplomat said the Chinese contribution was likely to be “in the billions”. EU and Chinese officials have told Reuters that Chinese banks are looking mainly at telecoms and technology projects. Chinese Premier Li Keqiang, who will attend the summit in Brussels, will agree with EU leaders that the €315 billion fund will “create opportunities for China to invest in the EU, in particular in infrastructure and innovation sectors”. If sealed, the deal will be a success for EC President Jean-Claude Juncker, who faced scepticism last year when he proposed the European Fund for Strategic Investment (EFSI), because EU governments are putting in little seed money.

France, Germany, Italy and Poland have each announced they will contribute 8 billion euros, while Spain and Luxembourg have pledged smaller contributions. The bloc is relying mainly on private investors and development banks to fund projects selected from an initial list of almost 2,000 submitted by the 28 member states, from airports to flood defenses, that are together worth 1.3 trillion euros. A big Chinese investment might raise questions about governance of the fund, which is so far strictly a European institution. An EU diplomat said it was not known whether China would seek representation commensurate with its stake. The decision to invite China into an EU fund could cause some friction with Washington, which is wary of Beijing’s rising influence and upset that Europe rebuffed its calls to stay out of the AIIB.

What can you say to this other than ‘don’t look down’?

• China’s Stock Market Value Tops $10 Trillion for First Time (Bloomberg)

The value of Chinese stocks rose above $10 trillion for the first time, the latest milestone for the nation’s world-beating rally. Companies with a primary listing in China are valued at $10.05 trillion, an increase of $6.7 trillion in 12 months, according to data compiled by Bloomberg. The gain alone is more than the $5 trillion size of Japan’s entire stock market. The U.S. is the biggest globally, at almost $25 trillion. No other stock market has grown as much in dollar terms over a 12-month period, as Chinese individuals piled into the nation’s equities using borrowed funds to bet gains will continue. Valuations are now the highest in five years and margin debt has climbed to a record, all while the economy is mired in its weakest expansion since 1990.

“This a reflection of the risk-taking attitude of the public,” Hao Hong at Bocom International in Hong Kong, said. “People are taking on an unreasonable amount of risk for deteriorating economic growth.” Outside of China, investors aren’t showing the same enthusiasm toward the nation’s equities. Funds pulled a net $6.8 billion out of Chinese stock funds in the seven days through Wednesday, Barclays Plc. said in a research note, citing EPFR Global data. Dual-listed Chinese shares cost more than twice as much on average on mainland exchanges than they do in Hong Kong. MSCI’s June 9 decision against including mainland equities in its benchmark gauge had little impact on the Shanghai Composite Index, which climbed 2.9% last week to its highest level since January 2008.

Foreigners are limited by quotas when buying shares in Shanghai via an exchange link with Hong Kong, while similar access to Shenzhen-traded stocks will likely start this year, according to the Hong Kong bourse. The Shanghai gauge has rallied 152% in the past 12 months, the most among global benchmark indexes tracked by Bloomberg, and trades at about 26 times reported earnings. Less than a year ago, the gauge was valued at about 9.6 times, the lowest since at least 1998. The Shenzhen Composite Index, tracking stocks on the smaller of China’s two exchanges, trades at 77 times profits after surging 194%.

No confidence.

• China’s MSCI Reality Check Is Too Big To Ignore (MarketWatch)

In recent weeks, much of the debate on China has centered on the idea that it is “too big to be ignored,” meaning the rest of the world would inevitably need to own its equities and currency. But now it’s set for a reality check. In the same week that Chinese A-shares failed to be included in MSCI’s emerging-market benchmark, it was also revealed that global investors pulled $7.9 billion out of Asia. This was the biggest weekly withdrawal in almost 15 years, according to data provider EPFR Global, and the majority reportedly related to China. Take this as a cue to look past China’s size and, instead, consider again its questionable fundamentals.

So far this year, concerns over a potential debt crisis have been drowned out by the roar of China’s domestic equity bull market – the best performing in the world this year by a long margin. But last week’s decision by MSCI tells us it’s too early to consider China a mainstream asset class. Despite much talk of reform, Beijing’s efforts to open its capital markets or make its financial system more transparent have been limited. Yuan internationalization might be accelerating, but a capital-account opening still looks like a distant promise. The decision against effectively forcing global fund managers to benchmark against an index they can still not freely buy and sell, in a currency that is not freely traded, is hard to take issue with.

As well as A-shares, Beijing has been angling to have the yuan recognized as one of the IMF’s benchmark currencies. This again follows the “too big to be ignored” line of thinking for the world’s second-largest economy. But this could be similarly premature when the yuan’s value is still determined by Beijing and not the market. The fact that the PBoC doesn’t issue currency notes larger than 100 yuan ($16) suggests it’s still preoccupied with the risk of capital flight. Rather than IMF technical tests, a simple one would be whether the Communist Party is willing to test its own people’s confidence in the yuan by letting it be freely exchanged? After that, it might be time to consider its merits as a global reserve currency, or whether Chinese shares should become cornerstone holdings in global equities.

“..two-thirds of the country’s newcomers to investing left school before the age of 15..”

• Stand Back: China’s Bubble Will Burst (Clive Crook)

Singapore, which I’m visiting at the moment, opens your mind to the highly improbable. Rich, ethnically diverse, cheerfully efficient, globalized in the extreme, it’s a man-made economic miracle — astonishing proof of what market forces combined with superb top-down direction can achieve. Even in Singapore, though, there are limits to what you can believe. I struggle to imagine, for instance, that China’s stock market isn’t a bubble. China’s leadership has long been impressed with the Singapore model. Since Deng Xiaoping, its government has been much more interested in capitalism in the style of Lee Kuan Yew than class struggle in the style of Karl Marx. In China, the mix of markets and smart management has indisputably worked another miracle, and on a vastly larger scale than Lee’s.

It’s a record that can make investors credulous. Lately, the government has defied predictions of an economic hard landing: The economy has slowed, but hasn’t crashed. Beijing wanted a gentle slowdown – part of its effort to rebalance the economy toward consumption and away from exports and investment – so it pulled some fiscal and monetary levers and that’s what happened. Targeted growth of 7% in GDP this year, fast by any other country’s standards, looks achievable. Many investors seem to think officials can direct the stock market just as precisely. It’s only a matter of time before they’re proved wrong. You could argue, in fact, that they already have been. The government wants a strong stock market for several reasons, including to support demand as property prices sag and growth in credit and investment slow.

It has been talking up share prices. Official news outlets extoll the virtues of stock ownership. But the government surely can’t have wanted the frenzy that in recent months has pushed the valuations of many companies to preposterous levels. Manic episodes rarely end well – and in many respects, this is mania. The Shenzhen market is up almost 200% over the past year. Its price-earnings ratio stands at a little less than 80. (Standard & Poor’s 500 Index is up 9% and has a ratio of 19.) Much of the demand for Chinese shares is credit-fuelled and comes from small investors new to the game. In one week in April Chinese investors opened 4 million new brokerage accounts – and two-thirds of the country’s newcomers to investing left school before the age of 15.

“..an international conquest of democracy, by international corporations.”

• How Obama’s “Trade” Deals Are Designed To End Democracy (Eric Zuesse)

U.S. President Barack Obama has for years been negotiating with European and Asian nations — but excluding Russia and China, since he is aiming to defeat them in his war to extend the American empire (i.e, to extend the global control by America’s aristocracy) — three international ‘trade’ deals (TTP, TTIP, & TISA), each one of which contains a section (called ISDS) that would end important aspects of the sovereignty of each signatory nation, by setting up an international panel composed solely of corporate lawyers to serve as ‘arbitrators’ deciding cases brought before this panel to hear lawsuits by international corporations accusing a given signatory nation of violating that corporation’s ‘rights’ by its trying to legislate regulations that are prohibited under the ’trade’ agreement,

such as by increasing the given nation’s penalties for fraud, or by lowering the amount of a given toxic substance that the nation allows in its foods, or by increasing the percentage of the nation’s energy that comes from renewable sources, or by penalizing corporations for hiring people to kill labor union organizers — i.e., by any regulatory change that benefits the public at the expense of the given corporations’ profits. (No similar and countervailing power for nations to sue international corporations is included in this: the ‘rights’ of ‘investors’ — but really of only the top stockholders in international corporations — are placed higher than the rights of any signatory nation.)

This provision, whose full name is “Investor State Dispute Resolution” grants a one-sided benefit to the controlling stockholders in international corporations, by enabling them to bring these lawsuits to this panel of lawyers, whose careers will consist of their serving international corporations, sometimes as ‘arbitrators’ in these panels, and sometimes as lawyers who more-overtly represent one or more of those corporations, but also serving these corporations in other capacities, such as via being appointed by them to head a tax-exempt foundation to which international corporations ‘donate’ and so to turn what would otherwise be PR expenses into corporate tax-deductions. In other words: to be an ‘arbitrator’ on these panels can produce an extremely lucrative career.

These are in no way democratic legal proceedings; they’re the exact opposite, an international conquest of democracy, by international corporations.

The harder they come.

• Inside The Crazy World Of Canada’s Peak Real Estate (MacLean’s)

A huge chunk of Canadians’ assets are tied up in real estate (roughly 35% in principal residences and another 10% in second properties), and their value has exploded. Some $1.7 trillion in net new wealth has been created from Canadian real estate since 2000. In fact, a growing number of Canadians expect their home to pay for their retirement. Is it any wonder, then, that with so much at stake, emotions run high and disputes turn ugly? “Real estate is seen as a commodity in scarce supply—while there’s actually a lot of it out there, it’s scarce if we can’t afford it,” says John Andrew, an adjunct assistant professor who studies real estate at Queen’s University. “It’s inevitable that you start to see these conflicts. It tends to bring out the worst in people.”

It’s not just battles over monster homes. While bidding wars have become an unwelcome rite of passage in the quest for home ownership in Canada over the past decade, the battles have grown even more irrational and vicious of late as buyers compete for the privilege of owning dilapidated, inner-city homes that often need to be gutted to be saved. As for those priced out of the housing market altogether, there are growing calls for politicians to do something—anything—to bring down the cost of owning a home in Canada. That’s led to a NIMBYish dispute in Calgary over legal basement suites and quasi-xenophobic discussions in Vancouver about the need to clamp down on foreign property buyers—read: mainland Chinese.

One local urban planner has even dubbed Vancouver a “hedge city,” suggesting its single-family homes are little more than a place for wealthy foreigners to park their cash. With all the rage, greed and animosity, the country’s already overheated housing market has hit yet another level—one where desperate, would-be buyers clamour, wild-eyed, for a slice of the action, while existing homeowners go to extreme lengths to protect their property nest eggs. Meanwhile, the rest of the world looks on and wonders: Has Canada gone crazy?

You betcha.

• Australian Banks And Real Estate: A Ponzi Scheme That Could Ruin Us? (ABC.au)

Madness has gripped Sydney’s and parts of Melbourne’s property market; a malaise that, if allowed to continue, could have dire consequences for the nation. So far, much of the debate around the rampant real estate market has revolved around affordability and the worrying concern that we are in the process of creating a class system based upon land ownership as wealth is transferred from a generation entering the workforce to those about to exit it. But a far greater and more immediate danger lurks in the shadows. The prospect of a reversal – of a sudden decline in property values in the two major capitals – would be enough to tip the nation into a severe economic crisis.

It’s not as though it hasn’t happened elsewhere. The collapse in American property markets in 2007 sparked the worst global recession in generations. The UK endured its own crisis borne from overly exuberant real estate speculation. The same thing happened across Europe. The east coast capital city property bubble is being driven by investors who borrowed $11.5 billion in April, a 23.5% rise from a year earlier. They sidelined owner occupiers, who borrowed $9.8 billion. None of this is being fuelled by wages growth. Beneath this month’s GDP figures – which superficially showed an encouraging 0.9% lift for the March quarter – lay the real story. Nominal GDP – a much better proxy for earnings and wages – grew just 0.4% for the quarter and an anaemic 1.2% for the year.

In the past fortnight, the Prime Minister and the Treasurer have been assailed by the nation’s three most powerful economic mandarins, each of whom has directly contradicted the Government mantra on rising property prices. Treasury head John Fraser, Reserve Bank chief Glenn Stevens and financial system inquiry author David Murray have all expressed alarm at recent developments in the eastern states capital city housing markets. They have yet to detail the mechanism by which their unfolding fears could play out if the Sydney and Melbourne housing bubble is not deflated. But here is a likely scenario over how an unfettered boom could wreck the economy.

Katrina, Sandy, big words but..

• Just 16% Of Hurricane Sandy Funds Given Out By 2014 (NY Post)

Just 16% of the money given to the city for Hurricane Sandy projects was doled out in contracts by the end of 2014 even though the storm ravaged the area more than two years before, according to a new analysis. Some Sandy projects were added late in the planning process and the feds had not appropriated all the funding by that time, the Independent Budget Office found. The funding was worth a total $9.7 billion. The MTA said much of the rebuilding and strengthening of the transit system still has to be done such as work on the Cranberry Tube, used by the A and C lines, and the L train s Canarsie Tube.

Those Sandy projects which have been funded are progressing rapidly, rep Kevin Ortiz said. The IBO also said that when the MTA s last capital plan wrapped up it had spent less than half of its funds. The plan ran between 2010 and 2014, and cost $31.9 billion. Many of the projects and contracts expand beyond the four years of the last plan, according to the report. The MTA is facing a $14 billion deficit for its next plan, which funds big-ticket items like new subway cars.

How can France sign up to the TTIP if it does this?

• ‘Stop Over-The-Counter Sales of Monsanto’s Round-Up’ – French Minister (RT)

French environment and energy minister Segolene Royal has asked garden centers to stop self-service sales of Monsanto’s Roundup weed killer to fight the harmful effects of pesticide. “France must be offensive on stopping pesticides,” Segolene Royal told France 3 television on Sunday. “I have asked garden shops to stop over-the-counter sales of Monsanto’s Roundup.” The US agribusiness giant’s weed killer came back under scrutiny in March, after its main active ingredient, glyphosate, was branded “probably carcinogenic to humans” by the International Agency for Research on Cancer (IARC), part of the World Health Organization (WHO).

Earlier this month, the French consumer association CLCV asked authorities to ban glyphosate herbicides, which are used domestically by amateur gardeners in France. On Thursday Royal and the Minister of Agriculture made a joint statement announcing that phytosanitary products used to control plant diseases would only be available to amateur gardeners “through an intermediary or a certified seller” from January 2018. France plans to introduce a full ban on the use of pesticides by home gardeners from 2022, according to the statement made by the environment and energy ministry in April.

In response to the minister’s statement, Monsanto said on Sunday it had no information about a change in authorization for selling Roundup. “Under the conditions recommended on the label, the product does not present any particular risk for the user,” the company said in an email sent to Reuters. Glyphosate is the most-produced weed killer in the world, with applications in agriculture, forestry, industrial weed control, as well as lawn, garden, and aquatic environments, according to the IARC. Monsanto has strongly contested IARC’s classification, saying that “relevant, scientific data was excluded from review.” In the US, the herbicide has been considered safe since 2013, when Monsanto received approval for increased tolerance levels for glyphosate from the US Environmental Protection Agency (EPA).

Immigrants get more money than many residents.

• An Immigrant Is Worth More Than Drugs (Beppe Grillo’s blog)

Giovanni Falcone said “Follow the money and you’ll find the mafia”. Every immigrant arriving in Italy has the right to €1,050 a month to live on. Of this, a percentage goes to the mafia. Judging from the wiretapped conversations that amount ranges from one to two euros a day. For the mafia, immigrants are a source of income. They’re worth more than drugs. A boatload of Africans is worth more than a boatload of cocaine. And so it’s in their interests to get as many as possible to come. The boat handlers are paid by the immigrants – about a thousand euro per person. But who’s really paying the boat handlers?

Is it really the immigrants that, back home, would get by on that amount for years? Or someone else? Is the immigrant getting into a lifetime of debt to get a place on board a boat? And to whom is he indebted? It’s not realistic to think that people who “have lost everything“, who are destitute, who don’t even have the money for a change of clothes, can easily get hold of a thousand euro or even more. Where’s this money coming from? The most obvious response is that the ones paying out are the ones that are making money – htus the mafias.

And that’s how they close the circle – with the boat handlers, the mafias and the immigrants. To be sure, there are also the political parties that create “the moments of crisis” so that they can open up “welcome centres” that can be used to cream off money for themselves and for the mafias. Mafiacapitale is just the tip of the iceberg. Where there are immigrants, there’s the smell of money. It’s a resource to be added to the GDP together with drugs and prostitution. After Rome, there’ll be other cities, other kickbacks, and other politicians. It’s just a matter of time. To resolve the imigration issue, the associated flow of money needs drying up.

Snowden, Putin, Greece: It’s All The Same Story

Jun 142015

June 14, 2015 Posted by Raúl Ilargi Meijer at 7:09 pm Finance Tagged with: EU, Greece, Greenwald, IMF, narrative, NATO, propaganda, Putin, Snowden, spin, US 13 Responses »

Milton Greene “Actress Marilyn Monroe in bed” 1955

Through the last decades, as we have been getting ever more occupied trying to be what society tells us is defined as successful, we all missed out on a lot of changes in our world. Or perhaps we should be gentle to ourselves and say we’re simply slow to catch up.

Which is somewhat curious since we’ve also been getting bombarded with fast increasing amounts of what we’re told is information, so you’d think it might have become easier to keep up. It was not.

While we were busy being busy we for instance were largely oblivious to the fact the US is no longer a beneficial force in the world, and that it doesn’t spread democracy or freedom. Now you may argue to what extent that has ever been true, and you should, but the perception was arguably much closer to the truth 70 years ago, at the end of WWII, then it is today.

Another change we really can’t get our heads around is how the media have turned from a source of information to a source of – pre-fabricated – narratives. We’ll all say to some extent or another that we know our press feeds us propaganda, but, again arguably, few of us are capable of pinpointing to what extent that is true. Perhaps no big surprise given the overdose of what passes for information, but duly noted.

So far so good, you’re not as smart as you think. Bummer. But still an easy one to deny in the private space of your own head. If you get undressed and stand in front of the mirror, though, maybe not as easy.

What ails us is, I was going to say perfectly human, but let’s stick with just human, and leave perfection alone. What makes us human is that it feels good to be protected, safe, and prosperous. Protected from evil and from hard times, by a military force, by a monetary fund, by a monetary union. It feels so good in fact that we don’t notice when what’s supposed to keep us safe turns against us.

But it is what happens, time and again, and, once again arguably, ever more so. What we think the world looks like is increasingly shaped by fiction. Perhaps that means we live in dreamtime. Or nightmare time. Whatever you call it, it’s not real. Pinching yourself is not going to help. Reading Orwell might.

The Sunday Times ran a story today -which the entire world press parroted quasi verbatim- that claimed MI6 had felt compelled to call back some of its operatives from the ‘field’ because Russia and China had allegedly hacked into the encrypted files Edward Snowden allegedly carried with him to Russia (something Snowden denied on multiple occasions).

Glenn Greenwald’s take down of the whole thing is – for good reasons- far better than I could provide, and it’s blistering, it leaves not a single shred of the article. Problem is, the die’s been cast, and many more people read the Times and all the media who’ve reprinted its fiction, than do read Greenwald:

The Sunday Times’ Snowden Story Is Journalism At Its Worst

Western journalists claim that the big lesson they learned from their key role in selling the Iraq War to the public is that it’s hideous, corrupt and often dangerous journalism to give anonymity to government officials to let them propagandize the public, then uncritically accept those anonymously voiced claims as Truth. But they’ve learned no such lesson. That tactic continues to be the staple of how major US and British media outlets “report,” especially in the national security area. And journalists who read such reports continue to treat self-serving decrees by unnamed, unseen officials – laundered through their media – as gospel, no matter how dubious are the claims or factually false is the reporting.

We now have one of the purest examples of this dynamic. Last night, the Murdoch-owned Sunday Times published their lead front-page Sunday article, headlined “British Spies Betrayed to Russians and Chinese.” Just as the conventional media narrative was shifting to pro-Snowden sentiment in the wake of a key court ruling and a new surveillance law, the article claims in the first paragraph that these two adversaries “have cracked the top-secret cache of files stolen by the fugitive US whistleblower Edward Snowden, forcing MI6 to pull agents out of live operations in hostile countries, according to senior officials in Downing Street, the Home Office and the security services.”

Please read Greenwald’s piece. It’s excellent. Turns out the Times made it all up. At the same time, it’s just one example of something much more expansive: the entire world view of the vast majority of Americans and Europeans, and that means you too, is weaved together from a smorgasbord of made-up stories, narratives concocted to make you see what someone else wants you to see.

Last week, the Pew Research Center did a survey that was centered around the question what ‘we’ should do if a NATO ally were attacked by Russia. How Pew dare hold such a survey is for most people not even a valid question anymore, since the Putin as bogeyman tale, after a year and change, has taken root in 99% of western brains.

And so the Pew question, devoid of reality as it may be, appears more legit than the question about why the question is asked in the first place. NATO didn’t really like the results of the survey, but enough to thump some more chests. Here’s from an otherwise wholly forgettable NY Times piece:

Poles were most alarmed by Moscow’s muscle flexing, with 70% saying that Russia was a major military threat. Germany, a critical American ally in the effort to forge a Ukraine peace settlement, was at the other end of the spectrum. Only 38% of Germans said that Russia was a danger to neighboring countries aside from Ukraine, and only 29% blamed Russia for the violence in Ukraine. Consequently, 58% of Germans do not believe that their country should use force to defend another NATO ally. Just 19% of Germans say NATO weapons should be sent to the Ukrainian government to help it better contend with Russian and separatist attacks.

Do we need to repeat that Russia didn’t attack Ukraine? That if after all this time there is still zero proof for that, perhaps it’s time to let go of that idea?

Over the past week, there have been numerous reports of NATO ‘strengthening’ its presence in Eastern Europe and the Baltics. Supposedly to deter Russian aggression in the region. For which there is no evidence. But if you ask people if NATO should act if one of its allies were attacked, you put the idea in people’s heads that such an attack is a real risk. And that’s the whole idea.

This crazy piece from the Guardian provides a very good example of how the mood is manipulated:

US And Poland In Talks Over Weapons Deployment In Eastern Europe

The US and Poland are discussing the deployment of American heavy weapons in eastern Europe in response to Russian expansionism and sabre-rattling in the region in what represents a radical break with post-cold war military planning. The Polish defence ministry said on Sunday that Washington and Warsaw were in negotiations about the permanent stationing of US battle tanks and other heavy weaponry in Poland and other countries in the region as part of NATO’s plans to develop rapid deployment “Spearhead” forces aimed at deterring Kremlin attempts to destabilise former Soviet bloc countries now entrenched inside NATO and the EU.

Warsaw said that a decision whether to station heavy US equipment at warehouses in Poland would be taken soon. NATO’s former supreme commander in Europe, American admiral James Stavridis, said the decision marked “a very meaningful policy shift”, amid eastern European complaints that western Europe and the US were lukewarm about security guarantees for countries on the frontline with Russia following Vladimir Putin’s seizure of parts of Ukraine. “It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full time on the ground, of course,” the retired admiral told the New York Times.

NATO has been accused of complacency in recent years. The Russian president’s surprise attacks on Ukraine have shocked western military planners into action. An alliance summit in Wales last year agreed quick deployments of NATO forces in Poland and the Baltic states. German mechanised infantry crossed into Poland at the weekend after thousands of NATO forces inaugurated exercises as part of the new buildup in the east. Wary of antagonising Moscow’s fears of western “encirclement” and feeding its well-oiled propaganda effort, which regularly asserts that NATO agreed at the end of the cold war not to station forces in the former Warsaw Pact countries, NATO has declined to establish permanent bases in the east.

It’s downright borderline criminally tragic that NATO claims it’s building up its presence in the region as a response to Russian actions. What actions? Nothing was going on until ‘we’ supported a coup in Kiev, installed a puppet government and let them wage war on their own citizens. That war killed a lot of people. And if Kiev has any say in the matter, it ain’t over by a long shot. Poroshenko and Yats still want it all back. So does NATO.

When signing a post-cold war strategic cooperation pact with Russia in 1997, Nato pledged not to station ground forces permanently in eastern Europe “in the current and foreseeable security environment”. But that environment has been transformed by Putin’s decision to invade and annex parts of Ukraine and the 1997 agreement is now seen as obsolete.

Meanwhile, Russia re-took Crimea without a single shot being fired. But that is still what the western press calls aggression. Russia doesn’t even deem to respond to ‘our’ innuendo, they feel there’s nothing to be gained from that because ‘our’ stories have been pre-cooked and pre-chewed anyway. Something that we are going to greatly regret.

There are all these alphabet soup organizations that were once set up with, one last time, arguably, good intentions, and that now invent narratives because A) they can and B) they need a reason to continue to exist. That is true for NATO, which should have been dismantled 25 years ago.

It’s true for the IMF, which was always only a tool for US domination. It’s true for the CIA and FBI, which might keep you safe if that was their intent, but which really only function to keep themselves and their narrow group of paymasters safe.

It’s also true for political unions, like the US and EU. Let’s leave the former alone for now, though much could be said and written about the gaping distance between what the Founding Fathers once envisioned for the nation and what it has since descended into.

Still, that is a story for another day. When we can find our way through the web of narratives that holds it upright. Like the threat from Russia, the threat from China, the threat from all the factions in the Middle East the US itself (helped) set up.

The EU is much younger, though its bureaucrats seem eager to catch up with America in fictitious web weaving. We humans stink at anything supra-national. We can have our societies cooperate, but as soon as we invent ‘greater’ units to incorporate that cooperation, things run off the rails, the wrong people grab power, and the weaker among us get sacrificed. And that is what’s happening once again, entirely predictably, in Greece.

That Spain’s two largest cities, Barcelona and Madrid, have now sworn in far-left female mayors this week will only serve to make things harder for Athens. Brussels is under siege, and it will defend its territory as ‘best’ it can.

What might influence matters, and not a little bit, is that Syriza’s Audit Commission is poised to make public its findings on June 18, and that they yesterday revealed they have in their possession a 2010 IMF document that allegedly proves that the Fund knew back then, before the first bail-out, that the Memorandum would result in an increase in Greek debt.

That’s potentially incendiary information, because the Memorandum -and the bailout- were aimed specifically at decreasing the debt. That -again, allegedly- none of the EU nations have seen the document at the time -let’s see how the spin machine makes that look- doesn’t exactly make it any more acceptable.

Nor of course does the fact that Greece’s debt could and should have been restructured, according to the IMF’s own people and ‘standards’, but wasn’t until 2012, when the main European banks had been bailed out with what was subsequently shoved onto the shoulders of the Greek population, and had withdrawn their ‘assets’ from the country, a move that made Greece’s position that much harder.

The narrative being sold through the media in other eurozone nations is that Greece is to blame, that for instance German taxpayers are on the hook for Greek debts, while they’re really on the hook for German banks’ losing wagers (here’s looking at you, Deutsche!). And that is, no matter how you twist it, not the same story. It’s again just a narrative.

Once more, and we’ve said it many times before, Brussels is toxic -and so is the IMF- and Greece should leave as soon as possible, as should Italy, Spain, Portugal. And we should all resist the spin-induced attempts to demonize Putin, Athens and China any further, and instead focus on the rotten apples in our own basket(s).

In short, the propaganda we should be worried about is not Russia’s, it’s our own. And it comes from just about every news article we’re fed. We’re much less than six degrees removed from Orwell.

Debt Rattle June 14 2015

Jun 142015

June 14, 2015 Posted by Raúl Ilargi Meijer at 10:24 am Finance Tagged with: endgame, Greece, IMF, mayors, Memorandum, review, Snowden, Spain, Syriza, TTIP, Ukraine 3 Responses »

Harris&Ewing Newsie, Washington DC 1920

• The IMF Knew In 2010 That The Greek Memorandum Would Increase Debt (SYRIZA)

• Why Greece Should Reject the Latest Offer From Its Creditors (Philippe Legrain)

• The Saga Of The Greek Review That Never Ended (Kathimerini)

• Endgame Looms For Greek Crisis As Both Sides Take Talks To The Brink (Guardian)

• Greece’s Last-Ditch Talks Aim at Agreement Before Monday (Bloomberg)

• Germany Is Bluffing On Greece (Weisbrot)

• Spain Swears In Leftist Mayors for Madrid, Barcelona in Historic Turn (AP)

• Why Keynesian Voodoo Doesn’t Work Anymore (Bawerk)

• US Labor Movement’s War Against Fast-Track May Not Be Over (Guardian)

• Doubts Over EU Proposals For Saving TTIP Deal (Reuters)

• The Warren Buffett Economy – Why Its Days Are Numbered-Part 4 (David Stockman)

• End of the Line: China and Germany Look Ready to Pop (Herry Dent)

• IMF Says It Will Continue To Back Ukraine (DW)

• How One Accounting Rule Wrecked The Middle Class (Daniel Drew)

• Britain Pulls Out Spies As Russia, China Crack Snowden Files (Reuters)

• US Is Poised to Put Heavy Weaponry in Eastern Europe (NY Times)

• Did Mathematician John Nash Help Invent Bitcoin? (CoinDesk)

• Elon Musk Asks Permission To Put 4,000 Internet Satellites Into Orbit (Ind.)

• High-Tech Solar Projects Fail To Deliver (WSJ)

The Audit Commission is set to unveil its findings June 18.

• The IMF Knew In 2010 That The Greek Memorandum Would Increase Debt (SYRIZA)

An IMF document is in the possession of the Greek Audit Commission proving that the creditor knew that the memorandum would increase the Greek debt. The Audit Commission has in its possession a document which shows that the IMF knew from March 2010 that the Greek memorandum would increase Greek debt. The President of the Greek Parliament Zoe Konstantopoulou and the scientific coordinator of the Audit Commission of the Greek debt, Dr. Eric Toussaint, spoke yesterday about the contents of this document.

“We have an internal document of the IMF of March 2010, detailing the measures provided for inclusion in the 2010 Memorandum This is a very detailed and predefined plan, which was not communicated to the parliaments of 14 European Union countries who have lent to Greece nor to the Greek Parliament. Because, as you know, there was a violation of the Greek Constitution in May 2010, when the agreement was concluded, “said Mr. Toussaint.

“During our work, we have also managed to establish that the means used to make the Greek debt restructuring in 2010 was absolutely detrimental, because the rights of the pension funds of Greece and of Greek citizens who held State bonds were sacrificed. For example, there was a haircut of over 50% for some employees of Olympic Airways, who had received government bonds after their dismissal without their own agreement, and through no fault of their own. No compensatory measure was arranged for them. However the big private banks that participated in the haircut received compensation of €30 billion, which was added to the Greek public debt. ” said Toussaint.

On her part the President of the Parliament said: “We seek the truth corresponding to the legitimate and illegitimate parts of the debt and of our burdensome obligation.” The preliminary findings of the Greek debt Audit Commission will be published in June 17-18, 2015.

Legrain gets it too.

• Why Greece Should Reject the Latest Offer From Its Creditors (Philippe Legrain)

Reform — Greece sorely needs it. Cash — the government is running desperately short of it. So it is time for Prime Minister Alexis Tsipras to do what’s best for Greece and accept its creditors’ reform demands in exchange for much-needed cash. That is how the Greek situation is usually framed. It is utterly misleading. Imagine you’re in prison for not being able to pay your debts. (You’re right, it’s almost unthinkable — civilized societies no longer lock up bankrupt individuals. But bear with me.) After five years of misery, you lead a rebellion, take control of the prison, and demand your release. The jailers respond by cutting off your water supply. Should you back down and return to your cell, perhaps negotiating for slightly less unpleasant conditions, in order to obtain a little liquidity?

Or should you keep fighting to be free? That, in essence, is what the standoff between an insolvent Greece and its eurozone creditors is really about. For months, Greece has had “only days” to agree a deal with its creditors before it runs out of cash. Eventually that will be true. But even if Tsipras accepted the creditors’ demands, Greece would still have “only days” before it ran out of cash. The €7.2 billion on offer right now wouldn’t even cover the Greek government’s debt repayments until the end of August. And for a measly two months of liquidity, Tsipras is expected to surrender his democratic mandate: break his election promises, agree to yet more tax increases and spending cuts that would depress Greece’s economy further, and relinquish his demands for debt relief.

Then the wrangling would start again. Because so long as Greece remains in its debtors’ prison, it will be dependent on its jailers for liquidity and therefore expected to comply with whatever additional conditions they impose. Tsipras should not submit to this debt bondage. Nine of every 10 euros that eurozone governments and the IMF have lent to the Greek government since 2010 have gone to repay its unbearable debts, which should instead have been restructured back then. But from now on, every last cent of additional funding would go to pay back debt. The Greek government now has a small primary surplus: It doesn’t need to borrow, except to service its debts of 175% of GDP.

Nice history lesson. Not flawless.

• The Saga Of The Greek Review That Never Ended (Kathimerini)

It was a sunny morning in Brussels on November 7 last year when Greek Finance Minister Gikas Hardouvelis received an e-mail from the team of inspectors of the International Monetary Fund, European Commission and European Central Bank – collectively known as the troika – that changed everything. In that moment it became clear that the review of the Greek reform process was not about to end anytime soon, as the troika was toughening its stance and demanding that Athens complete all the prior actions outlined in its second bailout deal to the letter. The government was shocked as the e-mail came just a few hours after a Eurogroup meeting ended with what appeared to be a positive message for Greece.

It came at the moment when, if the country passed the review that was being carried out – and is still being carried out – it would be able to turn over a new leaf, free of demands for more austerity, and would be able to apply for a precautionary credit line that would allow it access to the markets. That e-mail, however, detailed 19 tough measures the Greek government had a month to implement in order to wrap up the review. For the government, those measures were impossible to implement given the political climate at the time.

Seven months after that e-mail, and with a different government in Athens and the same review still pending, Kathimerini seeks answers as to why the talks with the troika stalled by speaking to the protagonists, and attempts to explain what went wrong, ultimately leading the country to elections on January 25. Did the creditors pull the rug from under Antonis Samaras by increasing their demands, as some of the former prime minister’s associates argue? Was it that the Europeans misread the intentions of the opposition SYRIZA party and its chief, current Prime Minister Alexis Tsipras? Or was it fatigue after years of tough fiscal adjustment that prevented the Greek economy from rebounding?

Endgame’s been looming forever. Why still use that word?

• Endgame Looms For Greek Crisis As Both Sides Take Talks To The Brink (Guardian)

Eleventh-hour talks to avoid Greece defaulting on its debt and plunging the eurozone into crisis intensified at the weekend with Greek officials flying to Brussels only days before a meeting of Europe’s finance ministers that many regard as a final deadline. Almost five months after he assumed power, the Greek prime minister, Alexis Tsipras, has come to a fork in the road: either he accepts the painful terms of a cash-for-reform deal that ensures Greece’s place in the single currency or he decides to go it alone, faithful to the vision of his anti-austerity Syriza party. Either way, the endgame is upon him.

Thursday’s meeting of eurozone finance ministers is viewed as the last chance to clinch a deal before Athens’s already extended bailout accord expires on 30 June. “It is in his hands,” Rena Dourou, governor of the Attica district, said. “Tsipras, himself, is acutely aware of the historic weight his decision will carry.” The drama of Greece’s battle to keep bankruptcy at bay has, with the ticking of the clock, become ever darker in tone. What started out as good-tempered brinkmanship has turned increasingly sour as negotiations to release desperately needed bailout funds have repeatedly hit a wall over Athens’s failure to produce persuasive reforms.

“It is as if they work in Excel and we work in Word,” said one insider. “There just seems to be no meeting of minds.” Last week the mood became more febrile as it emerged that Eurocrats, for the first time, had debated the possibility of cash-starved Athens defaulting. The revelation came amid reports that Germany’s chancellor, Angela Merkel, was resigned to letting Greece go. Berlin is by far the biggest contributor to the €240bn bailout propping up the near-bankrupt state. Last week, the EU council president, Donald Tusk, ratcheted up the pressure, warning: “There is no more time for gambling. The day is coming, I am afraid, that someone says the game is over.”

On Saturday Greek finance minister Yanis Varoufakis hit back, telling Radio 4 that he did not believe “any sensible European bureaucrat or politician” would seriously contemplate the country’s euro exit. “The reason why we are not signing up to what has been offered is because it is yet another version of the failed proposals of the past,” he said. The persistent demand of foreign lenders for pension reform, given the scale of austerity already undertaken in a country that has seen its economy shrink by more than a quarter in the past five years, was not only silly but plainly a deal-breaker, he said. “It is just the kind of proposal that one puts forward if you don’t want an agreement,” insisted the academic-turned-politician.

Endgame, last ditch. Whatever.

• Greece’s Last-Ditch Talks Aim at Agreement Before Monday (Bloomberg)

Greece and its creditors are locked in last-ditch talks, with European Commission President Jean-Claude Juncker trying to broker a deal over the weekend. Prime Minister Alexis Tsipras sent a delegation to Brussels Saturday with a new set of proposals to close differences on pensions, taxes and a primary surplus target. With positions hardening on all sides, the talks are Juncker’s last attempt to try to bring the sides to a compromise, according to a European Union official, who asked not to be identified. Representatives of the Troika are waiting in the wings to join the discussions if progress is made between Greece’s envoy and Juncker’s chief of staff and the aim is to reach an accord before markets open on Monday. Both sides are prepared to continue talks on Sunday.

European leaders have voiced growing exasperation with Greece’s brinkmanship that has pushed Europe’s most-indebted country to the edge of insolvency. Flitting between intransigence and conciliatory overtures, Tsipras has spent four months locked in an impasse with the country’s creditor institutions. The latest Greek counter-proposal is the second in June. The first was roundly dismissed. Greek stocks dropped 5.9% on Friday, with bank shares dropping 12%, as talks remained deadlocked. The yield on Greek 2017 bonds rose 137 basis points to 20.03%. US and European equities and the euro-area’s higher-yielding bonds also tumbled amid growing concern Greece will run out of time for reaching a deal to stave off default.

An attempt by Juncker to broker a compromise allowing Greece to defer €400 million of cuts in small pensions if it reduced military spending by same amount was spiked by the IMF, Frankfurter Allgemeine Sonntagszeitung reported, citing unidentified people with knowledge of the negotiations. With a deadline for a deal looming, Merkel told Tsipras it’s time to accept the framework for financial aid. Greece’s bailout extension expires June 30 and some national parliaments need to ratify any agreement before funds can be disbursed, which narrows the window for a deal.

Germany simply believes its own fiction.

• Germany Is Bluffing On Greece (Weisbrot)

It would be nice to think that the worst features of US foreign policy have changed since the collapse of the Soviet Union, but they have not. The Cold War never really ended, at least insofar as the US is still a global empire and wants every government to put Washington’s interests ahead of those expressed by its own voters. The current hostilities with Russia add a sense of déjà vu, but they are mainly an added excuse for what would be US policy in any case. Once we take all these interests into account and where they converge, the strategy of Greece’s European partners is pretty clear: It’s all about regime change. One senior Greek official involved in the negotiations referred to it as a “slow-motion coup d’état.” And those who were paying attention could see this from the beginning.

Just 10 days after Syriza was elected the ECB cut off its main line of credit to Greece and then capped the amount that Greek banks could lend to the government. All the hype and brinkmanship destabilize the economy, and some of this is an intentional effect of European authorities’ statements and threats. But the direct sabotage of the Greek economy is most important, and it is remarkable that it has gotten so little attention. The unannounced objective is to undermine political support for the Syriza government until it falls and get a new regime that is preferable to the European partners and the US This is the only strategy that makes sense, from their point of view. They will try to give Greece enough oxygen to avoid default and exit, which they really don’t want, but not enough for an economic recovery, which they also don’t want.

Thai is getting Brussels scared. “Madrid and Barcelona for the first time are not going be governed by political parties, but by coalitions made up of social movements..”

• Spain Swears In Leftist Mayors for Madrid, Barcelona in Historic Turn (AP)

Spain’s biggest cities — Madrid and Barcelona — completed one of the nation’s biggest political upheavals in years Saturday by swearing in far-left mayors. The radical leaders have promised to cut their own salaries, halt homeowner evictions and eliminate perks enjoyed by the rich and famous. The landmark changes came three weeks after Spain’s two largest traditional parties were punished in nationwide local elections by voters groaning under the weight of austerity measures and repulsed by a string of corruption scandals. In Madrid, 71-year-old retired judge Manuela Carmena was sworn in to cheers from jubilant leftists who crowded the streets outside city hall shouting “Yes We Can!” as they ended 24 years of city rule by the conservative Popular Party, which runs the national government.

“We want to lead by listening to people who don’t use fancy titles to address us,” Carmena said after being voted in as mayor by a majority of Madrid’s new city councilors. Carmena has vowed among other things to take on wealthy Madrilenos who enjoy exclusive use of the city-owned Club de Campo country club — opening it up to the masses. “We’re creating a new kind of politics that doesn’t fit within the conventions,” she said before being voted in. “Get ready.” In Barcelona, anti-eviction activist Ada Colau was later sworn in as the city’s first female mayor. Smiling broadly, Colau took possession of the city’s mayoral sash and scepter before thanking voters and her coalition partners. “Thank you for making possible something that had seemed impossible,” she said.

Colau has questioned whether it’s worth spending €4 million of city money to help host the glitzy Formula 1 race every other year. She thinks the funds would be better spent on free meals for needy children at public schools. Carmena and Colau ran for office as leaders of leftist coalitions supported by the new pro-worker and anti-establishment Podemos party formed last year. It is led by the pony-tailed college professor Pablo Iglesias, a big supporter of Greece’s governing far-left Syriza Party. Iglesias smiled from a balcony inside Madrid’s city hall as he watched Carmena being sworn in, then pumped his arm into the air with a clenched fist as he celebrated the victory with others on the streets.

The left’s takeover of Madrid, Iglesias said, is the goal his party has nationally for general elections that must be called by Prime Minister Mariano Rajoy by the end of the year. “Our principal objective is to beat the Popular Party in the general elections,” he said. The political fragmentation propelling Carmena and Colau into office marks a historic moment in Spanish politics, said Manuel Martin Algarra at the University of Navarra. “Madrid and Barcelona for the first time are not going be governed by political parties, but by coalitions made up of social movements,” he said.

“Just as with drugs, the abuser must increase the dosage to feel the same high and spend accordingly.”

• Why Keynesian Voodoo Doesn’t Work Anymore (Bawerk)

Keynesian policy of manipulating economic “aggregates” through countercyclical macro-measures appeared to work when balance sheets were not stretched to the brink. As we wrote in “Goebbelnomics”

“If collective exuberance and apathy is the sole cause of the business cycle, then it logically follows that human emotions need to be manipulated accordingly. Only by doing so can policymakers smooth out the ups and downs in economic activity. And what better way to do that then to change the money supplied to the general public.”

While people called this the “most sickening article ever written” it is unfortunately what economics has come down to. Through fractional reserve banking and a central bank freed from the shackles of a barbarous relic, the money supply can be expanded without limit…or at least as long as the greater populace voluntarily will leverage up their balance sheets to buy stuff and simultaneously agree to their own servitude. Nothing more than collective manipulation on a scale that would make Goebbels himself envious. The glaringly obvious result of such policies, gross capital consumption through malinvestments epitomized through a serial bubble economy, did not discourage our money masters. The best and brightest even suggest bubbles are the only remedy to what they believe is some sort of secular stagnation. Just as with drugs, the abuser must increase the dosage to feel the same high and spend accordingly.

Many more rounds to come.

• US Labor Movement’s War Against Fast-Track May Not Be Over (Guardian)

Richard Trumka, president of the AFL-CIO, the main US labor federation, was uncharacteristically ebullient after the House voted down fast track on trade Friday, delivering a sharp rebuke to Barack Obama. Trumka called the vote “a marvelous contrast to the corporate money and disillusionment that normally mark American politics today”. He added that “this was truly democracy in action”, a nod to the millions of Americans who had sent emails, met with lawmakers and marched in the streets to oppose fast track and Trans-Pacific Partnership (TPP), a 12-nation pact that is being negotiated.

Trumka repeatedly boasted that never before had so many unions fought so vigorously on a trade issue – they fear TPP will cause job losses, push down wages and do little to increase worker protections in Asia. Labor’s threats to deny donations and campaign support to Democrats who embraced fast track pressured many lawmakers to vote against, and not risk labor’s ire. Fast-track authority would ease efforts to ratify TPP because it requires an up-or-down vote and prohibits amendments. Even while rejoicing, many fast-track foes voiced fears that the war was not over –House Republicans said they would seek to pass a re-worked bill next week. “I don’t think it’s over yet,” Tim Waters, political director of the United Steelworkers, told the Guardian.

“They’re trying to do everything they can to get this back on track.” Organized labor’s victory – one of its biggest triumphs in years – grew out of a new strategy the AFL-CIO adopted two years ago. Trumka announced that labor would henceforth seek to form broad coalitions out of recognition that it was no longer as powerful and was having a harder time securing legislation it supported. The anti-fast track coalition was immense – labor was at its heart, and it included environmental, faith, immigrant and food safety groups. The coalition spanned the Democratic base, including 2,000 groups, among them the American Civil Liberties Union, Consumers Union, the Electric Frontier Foundation, Friends of the Earth and the National Association for the Advancement of Colored People.

A lot more protest will be needed.

• Doubts Over EU Proposals For Saving TTIP Deal (Reuters)

The European Union has more work to do, experts say, if it hopes to seal a transatlantic trade deal that has been criticized for leaving governments open to international legal action from companies affected by changes to tax and regulation. The European Commission, the EU’s executive arm, is right now negotiating a trade and investment treaty with the United States – the Transatlantic Trade and Investment Partnership (TTIP) – that it says could add €119 billion annually to Europe’s economy and €95 billion to the US economy. However the treaty faces growing opposition in Europe from politicians, labor unions and campaign groups who fear it may prevent governments from being able to ban unsafe products or tax businesses because of a provision protecting investors’ rights.

The provision referring to “fair and equitable treatment”, was introduced to treaties decades ago to allow investors to seek redress if their assets were expropriated by governments. It allows businesses to sue via international courts that do not defer to national interests and has increasingly been used to sanction governments over everything from banning chemicals, withdrawing tax breaks or writing new environmental regulations. Matthias Fekl, French minister for trade, is especially critical of the EU’s plan to include this right to sue in tribunals in the TTIP. He said in a recent interview that France would “never allow private tribunals in the pay of multinational companies to dictate the policies of sovereign states.”

But businesses and their lobby groups have told the European Commission they object to any scaling back in their ability to sue governments or any requirement they do so in national courts. In response, the EC has redrafted parts of the trade treaty to limit the circumstances under which a claim can be made. It has also proposed a new appeals process for governments and suggested new rules for selecting arbitrators – currently mainly corporate lawyers who campaigners say are biased towards corporations. It’s not a watertight solution, some say. “There are definitely some improvements but it’s not a dramatic reform,” said Lise Johnson, Head of Investment Law and Policy at Columbia University’s Center on Sustainable Investment.

“..the real 2014 US unemployment rate was 42.9%, not 5.5%!”

• The Warren Buffett Economy – Why Its Days Are Numbered-Part 4 (David Stockman)

The Fed has generated a $50 trillion financial bubble since Alan Greenspan took the helm in August 1987. After 27 years, honest price discovery has been destroyed, thereby reducing the nerve centers of capitalism – the money and capital markets – to little more than gambling casinos. Accordingly, speculative rent-seeking in the financial arena has replaced enterprenurial innovation and supply side investment and productivity as the modus operandi of the US economy. This has resulted in a severe diminution of main street growth and a massive redistribution of windfall wealth to the tiny share of households which own most of the financial assets. Warren Buffett’s $73 billion net worth is the poster boy for this untoward state of affairs.

The massive and systematic falsification of asset prices which lies at the heart of this deformation of capitalism is a direct and unavoidable consequence of monetary central planning. That is, the pursuit of Keynesian business cycle management and stimulus through central bank interest rate pegging and massive monetization of existing public debt and other securities – especially since the latter has no purpose other than to artificially goose the price of bonds and lower their yields; and also via other indirect methods of financial asset levitation such as the Greenspan/Bernanke/Yellen doctrine of wealth effects and the implicit central bank “put” which underpins the economics of buy-the-dip speculators.[..]

At the present time, there are 210 million adult Americans between the ages of 16 and 68—to take a plausible measure of the potential work force. That amounts to 420 billion potential labor hours, if we accept the convention that all adults are at least theoretically capable of holding a full-time job (2,000 hours/year) and pulling their share of society’s need for production and work effort. By contrast, during 2014 only 240 billion hours were actually supplied to the US economy, according to the BLS estimates. Technically, therefore, there were 180 billion unemployed labor hours, meaning that the real unemployment rate was 42.9%, not 5.5%!

Watch out below.

• End of the Line: China and Germany Look Ready to Pop (Herry Dent)

The US stock market has finally hit a speed bump after more than six years of a Fed- and QE-driven rally. The S&P 500 is up 232% since March of 2009 despite this unprecedented stimulus in the feeblest economic recovery in history. But since late December 2014, US stocks have gone nowhere as investors face some growing realities. GDP, retail sales, production and exports are slowing. The dollar’s sharp rise in recent years has crushed global exports. Long term interest rates are rising consistently… what I call the beginning of the end of stimulus policies designed to keep rates low forever. Meanwhile, in just six months Germany saw its key stock market, the DAX, rise nearly 50% from mid-October into early April. Germany’s bubble has shot up 245% since March 2009 — greater than the US, despite its slower economy. It won’t last! [..]

But if Germany looks bad, there’s nothing short of “terrible” to say about China! China’s stock market makes Germany’s late-stage bubble look pathetic! China saw the shortest and steepest bubble from early 2005 to late 2007, up over 500% in less than two years. Its crash into 2008 was one of the largest, down 72%. After a “dead” market from 2010 into mid-2014, China’s stocks have literally exploded again… up 159% in a straight shot in one year while its economy and exports have continued to slow! A 48% late-stage bubble in Germany unwarranted by its demographics… 159% in China despite its weakening economy.

Dismantle the IMF along with NATO.

• IMF Says It Will Continue To Back Ukraine (DW)

The IMF stated that it can continue backing Ukraine amid stalled negotiations between Kyiv and its private creditors. Christine Lagarde, head of the Washington-based crisis lender, which had launched a four-year loan program of $17.5 billion (15.6 billion euros) in March for Ukraine’s government, said that the IMF was still encouraging a settlement in the debt talks, while highlighting that there were backup options in place. “But in the event that a negotiated settlement with private creditors is not reached and the country determines that it cannot service its debt, the fund can lend to Ukraine consistent with its lending-into-arrears policy,” Lagarde explained. “Rapid completion of the debt operation with high participation is vital for the success of the program, since Ukraine lacks the resources under the program to fully service its debts on the original terms.”

Lagarde had met with Ukrainian Prime Minister Arseniy Yatsenyuk and Finance Minister Natalie Jaresko in Washington earlier this week to discuss economic developments and implementation of economic reforms. Bloomberg Business reported that Jaresko has now been in talks with private creditors for months, seeking a write-down of its debts from creditors who had only offered delayed payments. “I believe that their program warrants the support of the international community, including the private sector, which is indispensable for the success of this program,” Lagarde said. She stressed that the IMF did not have to cut off its funding of the Ukraine government if it stopped servicing its private debts.

Employees are counted as a liablity. Paper clips are an asset.

• How One Accounting Rule Wrecked The Middle Class (Daniel Drew)

Maybe you heard your CEO say, “Our people are our greatest asset.” He’s probably lying. That’s not how he really feels about you. Despite how much management talks about “human capital” as if it were an asset, it’s not. The accounting system that the whole world uses classifies labor as an expense. Anyone who has studied accounting even briefly can see that it’s a lot of bullshit designed to appear objective. In reality, it is filled with assumptions, estimates, and sometimes, fraud. Yes, it is rule-based, but with any system, who makes the rules is often more important than the rules themselves. Accounting is the language of business, and in the mouth of a double-talking CEO, it’s just another way to promote their own interests.

One of the most insidious rules in accounting is that labor must be classified as an expense on the income statement. Actually, it should be classified as an asset on the balance sheet. The accounting profession has rigged the system against the worker. The misclassification of labor as an expense has branded every employee with a negative dollar sign. The way the accounting system defines labor causes CEOs and upper management to view employees as expendable. When profits decline, the CEO says, “It must be those damned employees dragging us down! Let’s fire a few thousand of them. That will get us on track again.”

According to current accounting rules, inanimate objects like pencils, clothing, or any type of inventory are assets, but people are expenses. The CEOs want you to believe that a pen is an asset, but a person with knowledge, skills, and experience is an expense, something that should be avoided. This is actually what they teach business students in school all around the world, and the students just accept it as fact. Have we all gone insane? We are being held captive by dumbass accountants and shrewd CEOs who realize the whole system is rigged in their favor. The proper way to account for labor would be to classify it as an asset on the balance sheet.

The employee would be valued with mark to market accounting at every reporting period, and the value would be determined by calculating the profit per employee, the average tenure, and the net present value of this amount. This would accurately account for the true value of labor. If this rule were implemented, balance sheets would be dramatically altered. Some companies that appeared valuable before might look like complete garbage. Other companies would prove to be much more valuable than previously thought.

Here’s wondering how recent this is.

• Britain Pulls Out Spies As Russia, China Crack Snowden Files (Reuters)

Britain has pulled out agents from live operations in “hostile countries” after Russia and China cracked top-secret information contained in files leaked by former US National Security Agency contractor Edward Snowden, the Sunday Times reported. Security service MI6, which operates overseas and is tasked with defending British interests, has removed agents from certain countries, the newspaper said, citing unnamed officials at the office of British Prime Minister David Cameron, the Home Office (interior ministry) and security services.

The United States wants Snowden to stand trial after he leaked classified documents, fled the country and was eventually granted asylum in Moscow in 2013. Russia and China have both managed to crack encrypted documents which contain details of secret intelligence techniques that could allow British and American spies to be identified, the newspaper said citing officials. However an official at Cameron’s office was quoted as saying that there was “no evidence of anyone being harmed.”

The bogeyman narrative expands.

• US Is Poised to Put Heavy Weaponry in Eastern Europe (NY Times)

In a significant move to deter possible Russian aggression in Europe, the Pentagon is poised to store battle tanks, infantry fighting vehicles and other heavy weapons for as many as 5,000 American troops in several Baltic and Eastern European countries, American and allied officials say. The proposal, if approved, would represent the first time since the end of the Cold War that the United States has stationed heavy military equipment in the newer NATO member nations in Eastern Europe that had once been part of the Soviet sphere of influence. Russia’s annexation of Crimea and the war in eastern Ukraine have caused alarm and prompted new military planning in NATO capitals.

It would be the most prominent of a series of moves the United States and NATO have taken to bolster forces in the region and send a clear message of resolve to allies and to Russia’s president, Vladimir V. Putin, that the United States would defend the alliance’s members closest to the Russian frontier. After the expansion of NATO to include the Baltic nations in 2004, the United States and its allies avoided the permanent stationing of equipment or troops in the east as they sought varying forms of partnership with Russia. “This is a very meaningful shift in policy,” said James G. Stavridis, a retired admiral and the former supreme allied commander of NATO, now at Tufts University.

“It provides a reasonable level of reassurance to jittery allies, although nothing is as good as troops stationed full-time on the ground, of course.” The amount of equipment included in the planning is small compared with what Russia could bring to bear against the NATO nations on or near its borders, but it would serve as a credible sign of American commitment, acting as a deterrent the way that the Berlin Brigade did after the Berlin Wall crisis in 1961. “It’s like taking NATO back to the future,” said Julianne Smith, a former defense and White House official who is now a senior fellow at the Center for a New American Security and a vice president at the consulting firm Beacon Global Strategies.

Interesting argument.

• Did Mathematician John Nash Help Invent Bitcoin? (CoinDesk)

Could John Nash, someone who had been at the forefront of mathematical and economic thought into the prospect of ‘ideal money’, be justly attributed credit for the formation of the electronic cash system of cryptocurrency? He once stated in a lecture:

“The special commodity or medium that we call money has a long and interesting history. And since we are so dependent on our use of it and so much controlled and motivated by the wish to have more of it or not to lose what we have we may become irrational in thinking about it and fail to be able to reason about it like a bout of technology, such as a radio, to be used more or less efficiently.”

Nash described the concept of ideal money as having the function of a standard of measurement and, thus, it should become comparable to the watt, the hour or a degree of temperature. He asserted an ideal form of money should provide a viable solution to the Triffin dilemma – it should serve both short-term domestic and international long-term objectives where central banking money has utterly failed (the average lifespan of a fiat currency is 27 years). Asymptotically ideal money, a concept Nash studied in depth, focuses on the fluctuations and long-term perceived value of money, where the ideal inflation rate is as close to zero as possible, without being negative (deflation). Currently, this accurately describes the economic nature of bitcoin, as it is a disinflationary money supply by design – that is, it is decreasing in its inflationary nature by halving the block reward (and new currency issuance rate) at regular intervals.

The inflation rate of bitcoin asymptotically approaches zero as we inch closer to the currency limit of 21 million units. Nash described this ideal of money as something which could provide a global savings outlet for people who would otherwise be subject to ‘bad money’, or money expected to lose value over time under conditions of inflation among other things. In a paper published in the Southern Economic Journal, Nash described a nonpolitical value standard for comparisons of value, asserting that an industrial consumption price index could be “appropriately readjusted depending on how patterns of international trade would actually evolve”. Moreover, Nash described how actors that were in control of this standard could corrupt this continuity, yet the probability of damages through corruption would be as small as the probability of politicians altering the measurements of meters and kilometers.

And for the subsidies to pay for it.

• Elon Musk Asks Permission To Put 4,000 Internet Satellites Into Orbit (Ind.)

Elon Musk has asked the government to let his private space travel company, SpaceX, put 4,000 satellites into orbit to provide internet for the earth. The PayPal founder hopes that the satellites could take on conventional internet companies by sending internet signals across the globe, allowing it to provide cheap and fast internet even to places that have traditionally struggled to get connected. It hopes to find success by both taking customers from existing internet service providers as well as getting the billions of people that can’t get online onto the internet. Musk has moved forward with the project by filing with the US Federal Communications Commission to ask to be given permission put the satellites into space.

It was first mooted at the beginning of the year, but the submission was made public by the Washington Post. The filing asks to start testing the satellites next year, according to the newspaper. After that, the service could be working in about five years. In the tests, Musk would send the satellites up on a Falcon 9 rocket, made by SpaceX. They would communicate with ground stations in the US, and establish whether those connections would be enough to send information from the ground to the satellites with enough speed and consistency to work for internet connections.

Always over-promise.

• High-Tech Solar Projects Fail To Deliver (WSJ)

Some costly high-tech solar power projects aren’t living up to promises their backers made about how much electricity they could generate. Solar-thermal technology, which uses mirrors to capture the sun’s rays, was once heralded as the advance that would overtake old fashioned solar panel farms. But a series of missteps and technical difficulties threatens to make newfangled solar-thermal technology obsolete. The $2.2 billion Ivanpah solar power project in California’s Mojave Desert is supposed to be generating more than a million megawatt-hours of electricity each year. But 15 months after starting up, the plant is producing just 40% of that, according to data from the US Energy Department.

The sprawling facility uses “power towers”–huge pillars surrounded by more than 170,000 mirrors, each bigger than a king-size bed–to capture the sun’s rays and create steam. That steam is used to generate electricity. Built by BrightSource and operated by NRG Energy, Ivanpah has been advertised as more reliable than a traditional solar panel farm, in part, because it more closely resembles conventional power plants that burn coal or natural gas. Turns out, there is a lot more to go wrong with the new technology. Replacing broken equipment and learning better ways to operate the complex assortment of machinery has stalled Ivanpah’s ability to reach full potential, said Randy Hickok, a senior vice president at NRG.

New solar-thermal technology isn’t as simple as traditional solar panel installations. Since older solar photovoltaic panels have been around for decades, they improve in efficiency and price every year, he said. “There’s a lot more on-the-job learning with Ivanpah,” Mr. Hickok said, adding that engineers have had to fix leaky tubes connected to water boilers and contend with a vibrating steam turbine that threatened nearby equipment.

One big miscalculation was that the power plant requires far more steam to run smoothly and efficiently than originally thought, according to a document filed with the California Energy Commission. Instead of ramping up the plant each day before sunrise by burning one hour’s worth of natural gas to generate steam, Ivanpah needs more than four times that much help from fossil fuels to get plant humming every morning. Another unexpected problem: not enough sun. Weather predictions for the area underestimated the amount of cloud cover that has blanketed Ivanpah since it went into service in 2013.

Debt Rattle February 25 2015

Feb 252015

February 25, 2015 Posted by Raúl Ilargi Meijer at 10:09 am Finance Tagged with: Cameron, Eurogroup, Gazprom, Greece, Lester Brown, sex toy, Snowden, Ukraine, Yellen 5 Responses »

Wyland Stanley “J.A. Herzog Pontiac, 17th & Valencia Sts., San Francisco.” 1936

• Yellen Removes Another Obstacle To An Eventual Rate Hike (MarketWatch)

• US Government’s ‘New Rule’ Allows Banks To Completely Make Sh#t Up (Simon Black)

• Greek Finance Chief: We Want To Regain EU’s Trust (CNBC)

• Greek Finance Minister’s Full Letter To The Eurogroup (Kathimerini)

• Greece Has Lost The Gamble But Can Still Come Up Trumps (Guardian)

• How Addiction To Debt Came Even To China (Martin Wolf)

• China Readies Measures to Counter Housing Market Slump (Bloomberg)

• Britain To Send Military Advisers To Ukraine, Announces Cameron (Guardian)

• UK Military Training In Ukraine: Symbolic Move That Risks Russian Ire (Guardian)

• IMF Package for Ukraine: Some Pesky Macros (Constantin Gurdgiev)

• Kiev Cash-For-Gas Fail Could Cost EU Its Supply In 2 Days – Gazprom (RT)

• East Ukraine Artillery Withdrawal In Focus – As Poroshenko Buys UAE Weapons (RT)

• Lure of Wall Street Cash Said to Skew Credit Ratings (Bloomberg)

• Militants, Migrants And The Med: Europe’s Libya Problem (BBC)

• Lester Brown: ‘Vast Dust Bowls Threaten Tens Of Millions With Hunger’ (Guardian)

• The Amherst Cauldron: The Donbass in New England (Albert Bates at ClubOrlov)

• Kick-The-Can Has Morphed Into A Blatant Farce (David Stockman)

• “Remove From Governments The Ability To Interfere With [Our] Rights” (Snowden)

• London: A Set Of Improbable Sex Toys Poking Gormlessly Into The Air (Guardian)

All these financne guys don’t think she’ll do it without letting them know well in advance. But that would defeat the very purpose.

• Yellen Removes Another Obstacle To An Eventual Rate Hike (MarketWatch)

Federal Reserve Chairwoman Janet Yellen on Tuesday took another step closer to the first rate hike since 2006. In testimony to the Senate, Yellen signaled to financial markets the Fed would soon drop the word “patient” from its forward guidance. She softened the blow with several dovish comments that suggest no hurry about actually moving. Markets had expected that when the Fed dropped “patient” from its policy statement that it would mean the a rate hike would follow in the next couple of meetings. That interpretation came from signals Yellen had sent in December. Now, however, Yellen stressed that the Fed wasn’t on automatic pilot and only wanted the flexibility to move “on a meeting-by-meeting basis.”

Several analysts said a June rate hike remained on the table if the Fed decides to drop the word “patient” from its policy statement on March 17-18. Several Fed officials have said they want to drop “patient” from the Fed’s next policy meeting scheduled in mid-March. Minutes of the January meeting released last week showed Fed officials were concerned with how the market might react if “patient” was dropped. Tom Simons, an economist at Jefferies in New York, said Yellen had effectively neutered the word so it no longer even matters whether the word stays or goes in the Fed’s next policy statement. “Now ‘patient’ doesn’t mean a whole lot,” Simons said.

No end to insanity.

• US Government’s ‘New Rule’ Allows Banks To Completely Make Sh#t Up (Simon Black)

Banks still use accounting tricks to hide their true condition. Bloomberg showcased one such technique last year, exposing the way that many US banks are rebooking their assets from “available for sale (AFS)” to the “held-to-maturity (HTM)” designation. This is a very subtle move that means nothing to most people. But to banks, it’s a highly effective way of concealing losses they’ve suffered in their investment portfolios. Banks ordinarily buy bonds and other securities with the purpose of generating a return on that money until they have to, you know, give it back to their depositors. That’s why they’re called “available for sale,” because the bank has to sell these assets to pay their depositors back. But here’s the problem– many of these investments have either lost money, or they soon will be. And banks don’t want to disclose those losses.

So instead, they simply redesignate assets as HTM. It’s like saying “I don’t care that these bonds aren’t worth as much money as when I bought them because I intend to hold them forever.” Thing is, this simply isn’t true. Banks don’t have the luxury of holding some government bond for the next 30-years. This is money they might have to repay their customers tomorrow, which makes the entire charade intellectually dishonest. That doesn’t stop them. JP Morgan alone boosted its HTM mortgage bonds from less than $10 million to nearly $17 billion (1700x higher) in just one year. This is a huge shift. Nearly every big bank is doing this, and is doing it deliberately. This is no accident. And there’s only one reason to do it—to use accounting minutia to conceal losses. But the accounting tricks don’t stop there. And in many cases they’re fueled by the government.

One recent example is how federal regulators created a new ‘rule’ which allows banks to consciously reduce the risk-weighting they assigns their assets. The Federal Financial Institution Examination Council recently told banks that, “if a particular asset . . . has features that could place it in more than one risk category, it is assigned to the category that has the lowest risk weight.” This gives banks extraordinary latitude to underreport the risk levels of their investments. Bankers can now arbitrarily decide that a risky asset ‘has features’ of a lower risk asset, and thus they can completely misrepresent their investments. Bottom line, it’s becoming extremely difficult to have confidence in western banks’ financial health. They employ every trick in the book to overstate their capital ratios and understate their risk levels. This, backed by a central bank that is borderline insolvent and a federal government that is entirely insolvent.

All the right words.

• Greek Finance Chief: We Want To Regain EU’s Trust (CNBC)

Greece’s new government wants to re-establish trust with the rest of Europe, the country’s finance minister told CNBC, as Athens obtained a four-month extension of its bailout program. “The reason why we have this four-month period is to re-establish bonds of trust between us and our European partners as well as the IMF in order to build a new contract between us and our partners so as to put an end to this debt inflationary spiral,” Yanis Varoufakis said in an interview in Athens. On Tuesday, euro zone finance ministers accepted a list of Greek reform proposals, but warned that the reforms must be expanded in detail before new bailout funding would be released. IMF managing director Christine Lagarde called the proposals “sufficiently comprehensive to be a valid starting point” but said they lacked “clear assurances.”

Varoufakis said implementing new legislation concerning corruption and tax evasion is his top priority. As to whether European officials will approve each and every measure passed in parliament, he said “there is going to be a great deal of toing and froing between us and the institutions and our partners.” The trained economist was also critical of the tense negotiation process with euro zone finance ministers, saying they were dominated by “legalisms.” “You know what I think the main problem is, European finance ministerial meetings are seldom about finance, they’re more about process and rules…and I’m not good at that. I think that when we’re talking about macroeconomics, when we’re talking about Greece’s recovery, I don’t think we have the moral right to talk as if this is applying rules.”

Leftist political party Syrzia’s principal task of reducing Greece’s $366 billion debt has been flatly rejected. Several Greeks, noticeably senior politician Manolis Glezos, claim the party has bent too much to European creditors, making it no different from the previous administration. But Varoufakis rejected the notion that Syrzia has been unfaithful to Greeks: “We got elected to renegotiate Greece’s deal with our partners. What is a negotiation; it’s an attempt to find a compromise. The fact that we compromised is not a U-turn. A U-turn would have been to have led this negotiation to an impasse, and we didn’t do that because we’re interested in a mutually beneficial agreement.”

Click the link to see all the specific proposals for Syriza to comply with EU demands, while keeping its promises to voters. It will undergo a thousand changes, but at least everyone can see now what has been put on the table.

• Greek Finance Minister’s Full Letter To The Eurogroup (Kathimerini)

Dear President of the Eurogroup: In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015. In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery. The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.

Truly Yanis Varoufakis, Minister of Finance, Hellenic Republic=

No broad vision at the Guardian.

• Greece Has Lost The Gamble But Can Still Come Up Trumps (Guardian)

Tsipras and finance minister Yanis Varoufakis have been criticised for sending out mixed messages, referencing Nazi Germany, longingly gazing towards Russia, and even their untucked shirts. But Greece’s liquidity weaknesses were clear long before Syriza won the elections, and were exploited to the fullest by its lenders. The country’s fragility lies in the fact that it cannot fund itself and is shut out of international bond markets. Between this and the absence of a credible plan to exit the euro, even for use as a negotiating tool, Tsipras and Varoufakis were left with very few options. Whether they blundered into a deal or secured it with clever cajoling is a trivial matter at the moment.

Athens’ diplomatic indiscretions and a helter-skelter approach to negotiations have been matched by stubbornness and contempt in other European capitals. In this environment, everyone can shirk their responsibilities. Greek leaders can substitute progressive policymaking with populist bluster, while their European counterparts can continue to peddle the myth that Greeks have received European solidarity but given nothing in return. If all sides withdraw to these positions over the coming months the Greek people, who have experienced the worst economic downturn since the 1930s and the sharpest fiscal adjustment western Europe has ever seen, will pay an even heavier price than they have over the past five years. There is a great historical responsibility on all those involved to ensure that punishment on one side and retribution on the other are not the main policy drivers over the months to come.

There remains a small window of opportunity in which Syriza can change the narrative. One of the most important concessions it gained in Brussels was to be the main author of its own reform programme – previous governments were merely handed a checklist of changes from its lenders. Of course, the creditor nations will still push for some unpopular measures. But Tsipras and Varoufakis will have a unique chance to show if they are truly committed to tackling Greece’s chronic problems brought about by its decaying institutions, including the public administration and judicial system. These changes could have broad appeal among Greeks, and may also help alter the sour mood that has emerged between Greece and the eurozone over the past few weeks.

Worse for the others than it is for China.

• How Addiction To Debt Came Even To China (Martin Wolf)

Balance sheets matter. This is the biggest lesson of the financial crises that have rolled across the world economy. Changes in balance sheets shape the performance of economies, as credit moves in self-fulfilling cycles of optimism and pessimism. The world economy has become credit addicted. China could well be the next victim. If we think about balance sheets in the world economy of today, four questions arise. First, what determines vulnerability? Second, where are vulnerabilities now appearing? Third, how are countries coping with the legacy of old debt crises? Finally, can the world economy cope with the new vulnerabilities? Start with the sources of vulnerability. In economies with liberalized financial sectors, the driver towards disaster is far more often private than public imprudence.

Rising property prices and expanded mortgage lending drive many credit booms. A deterioration in the public sector’s balance sheets usually then follows crises. Failure to recognize this link between private excess and public borrowing is wilful blindness. In an update of work on debt and deleveraging, McKinsey notes that between 2000 and 2007, household debt rose as a proportion of income by one-third or more in the US, the UK, Spain, Ireland and Portugal. All of these countries subsequently experienced financial crises. Indeed, huge increases in private sector credit preceded many other crises: Chile in 1982 was an important example of this connection. Ruchir Sharma of Morgan Stanley argues that the 30 most explosive credit booms all led to a slowdown, often a crisis.

A rapid change in the ratio of credit to gross domestic product is more important than its level. That is partly because some societies are able to manage more debt than others; it is partly because a sudden burst in lending is likely to be associated with a sudden collapse in lending standards. Thus, in seeking new vulnerabilities, we need to look for economies that have had sharp rises in private debt. China leads the pack, with a rise of 70 percentage points in the ratio of corporate and household debt to GDP between 2007 and 2014 . If we add financial sector debt, the rise in gross private indebtedness is 111 percentage points. With government debt included, it is 124 percentage points.

China’s huge credit boom has several disquieting features. Much of the rise in debt is concentrated in the property sector; “shadow banking” — that is lending outside the balance sheets of the formal financial institutions — accounts for 30% of outstanding debt, according to McKinsey; much of the borrowing has been put on off-balance-sheet vehicles of local governments; and, above all, the surge in debt was not linked to a matching rise in trend growth, but rather to the opposite. This does not mean China is likely to experience an unmanageable financial crisis. On the contrary, the Chinese government has all the tools it needs to contain a crisis. It does mean, however, that an engine of growth in demand is about to be switched off. As the economy slows, many investment plans will have to be reconsidered. That may start in the property sector. But it will not end there. In an economy in which investment is close to 50% of GDP, the downturn in demand (and so output) might be far more severe than expected.

More bigger bubble.

• China Readies Measures to Counter Housing Market Slump (Bloomberg)

China is preparing measures to counter a housing market slump and will roll them out if the economy needs support, people with knowledge of the matter said. The government could reduce down-payment requirements for second-home purchases, the people said, declining to be identified as the information isn’t public. Another possible step would be to let homeowners sell properties without paying sales tax after two years, down from five years. China’s new-home prices posted a record year-on-year decline in January, according to Bloomberg Intelligence analysis of government data tracking 70 cities.

Implementation of the new easing policies will depend on whether an economic downturn continues or worsens, the people said. An interest-rate cut in November and the removal of some curbs have failed to revive the property industry. In September, the central bank allowed lower down payments and mortgage rates for some people applying for loans for second homes. As a result of past efforts to curb property speculation and rein in price gains, minimum down payments for second homes are now at least 60%.

On course for dying British boys and girls.

• Britain To Send Military Advisers To Ukraine, Announces Cameron (Guardian)

Britain was pulled closer towards a renewed cold war with Russia when David Cameron announced UK military trainers are to be deployed to help Ukraine forces stave off further Russian backed incursions into sovereign Ukraine territory. The decision – announced on Tuesday but under consideration by the UK national security council since before Christmas – represents the first deployment of British troops to the country since the near civil war in eastern Ukraine began more than a year ago. Downing Street said the deployment was not just a practical bilateral response to a request for support, but a signal to the Russians that Britain will not countenance further large scale annexations of towns in Ukraine.

The prime minister said Britain would be “the strongest pole in the tent”, and argued for tougher sanctions against Moscow if Russian-backed militias in eastern Ukraine failed to observe the provisions of a ceasefire agreement reached this month with the Ukrainian president, Petro Poroshenko. Downing Street said some personnel would be leaving this week as part of the training mission. Initially 30 trainers will be despatched to Kiev with 25 providing advice on medical training, logistics, intelligence analysis and infantry training. A bigger programme of infantry training is expected to follow soon after taking the total number of trainers to 75. They will not be sent to the conflict zone in eastern Ukraine. Personnel involved in the training elements could spend one or two months in the country, with a command and control deployment lasting up to six months. [..]

He said there was no doubt about Russian support for the rebels. “What we are seeing is Russian-backed aggression, often these are Russian troops, they are Russian tanks, they are Russian Grad missiles. You can’t buy these things on eBay, they are coming from Russia, people shouldn’t be in any doubt about that. “We have got the intelligence, we have got the pictures and the world knows that. Sometimes people don’t want to see that but that is the fact.” He added: “If there was major further incursion by Russian-backed forces and effectively Russian forces into Ukraine, we should be clear about what that is. That is trying to dismember a democracy, a member of the United Nations, a sovereign state on the continent of Europe, and it’s not acceptable.”

The level of dumb-f#cked-ness is deafening.

• UK Military Training In Ukraine: Symbolic Move That Risks Russian Ire (Guardian)

Britain’s decision to dip its toe into the Ukraine crisis is hardly likely to have a decisive impact on the outgunned and struggling Ukrainian army, but it serves the symbolic purpose of taking a stake in the country’s defence. The 75 British trainers bound for Ukraine in the coming days will provide instruction in command procedures, tactical intelligence, battlefield first aidand logistics, and assess the national army’s infantry training needs. The overall aim, said UK defence sources, was to “improve the survivability” of Ukrainian troops who have been pummelled by heavy artillery, reportedly from weapons such as self-propelled howitzers supplied by Russia in support of the separatists, some of which appear to have been being fired from Russian soil.

The British trainers will be deployed well away from the frontlines, in western Ukraine, to eliminate the risk of British and Russian soldiers inflicting casualties on each other. But it is likely the move will be seized on in Moscow as proof of President Vladimir Putin’s claims that the Russian-backed separatists are fighting a Nato ‘foreign legion’. American advisers will be arriving in spring to train four companies of the Ukrainian National Guard at the Yavoriv training area near the Polish border. The British effort appears to be coordinated with that mission, and by getting its soldiers on the ground first, David Cameron’s coalition government will seek to counter recent criticism that it has been marginalised in the international diplomacy aimed at stopping the war.

It was a Franco-German initiative that led to the latest ceasefire agreement in Minsk between Putin, Angela Merkel and François Hollande earlier this month. That truce shows little sign of taking hold, and sanctions so far do not seem to have dissuaded Putin from intervention in eastern Ukraine, leaving western capitals struggling to come up with other methods of demonstrating their resolve to resist Russian encroachment. For now, training is seen as being of more long-term value than supplying arms to Ukrainian troops, and less directly confrontational with Moscow. “I think it’s obvious that the prime minister was seriously stung by the domestic political response to his absence from the Minsk diplomacy, and therefore feels compelled to take a strong position,” said Shashank Joshi, senior research fellow at the Royal United Services Institute. “I also think it reflects a not-unreasonable judgment that the Minsk agreement is breaking down, and that further coercive diplomacy is inevitable.

Debt prison. The entire nation.

• IMF Package for Ukraine: Some Pesky Macros (Constantin Gurdgiev)

Ukraine package of funding from the IMF and other lenders remains still largely unspecified, but it is worth recapping what we do know and what we don’t.Total package is USD40 billion. Of which, USD17.5 billion will come from the IMF and USD22.5 billion will come from the EU. The US seemed to have avoided being drawn into the financial singularity they helped (directly or not) to create. We have no idea as to the distribution of the USD22.5 billion across the individual EU states, but it is pretty safe to assume that countries like Greece won’t be too keen contributing. Cyprus probably as well. Ireland, Portugal, Spain, Italy – all struggling with debts of their own also need this new ‘commitment’ like a hole in the head.

Belgium might cheerfully pony up (with distinctly Belgian cheer that is genuinely overwhelming to those in Belgium). But what about the countries like the Baltics and those of the Southern EU? Does Bulgaria have spare hundreds of million floating around? Hungary clearly can’t expect much of good will from Kiev, given its tango with Moscow, so it is not exactly likely to cheer on the funding plans… Who will? Austria and Germany and France, though France is never too keen on parting with cash, unless it gets more cash in return through some other doors. In Poland, farmers are protesting about EUR100 million that the country lent to Ukraine. Wait till they get the bill for their share of the USD22.5 billion coming due.

Recall that in April 2014, IMF has already provided USD17 billion to Ukraine and has paid up USD4.5 billion to-date. In addition, Ukraine received USD2 billion in credit guarantees (not even funds) from the US, EUR1.8 billion in funding from the EU and another EUR1.6 billion in pre-April loans from the same source. Germany sent bilateral EUR500 million and Poland sent EUR100 million, with Japan lending USD300 million. Here’s a kicker. With all this ‘help’ Ukrainian debt/GDP ratio is racing beyond sustainability bounds. Under pre-February ‘deal’ scenario, IMF expected Ukrainian debt to peak at USD109 billion in 2017. Now, with the new ‘deal’ we are looking at debt (assuming no write down in a major restructuring) reaching for USD149 billion through 2018 and continuing to head North from there.

Maybe the Russians will just do it and have the charade over with.

• Kiev Cash-For-Gas Fail Could Cost EU Its Supply In 2 Days – Gazprom (RT)

Russia will completely cut Ukraine off gas supplies in two days if Kiev fails to pay for deliveries, which will create transit risks for Europe, Gazprom has said. Ukraine has not paid for March deliveries and is extracting all it can from the current paid supply, seriously risking an early termination of the advance settlement and a supply cutoff, Gazprom’s CEO Alexey Miller told journalists. The prepaid gas volumes now stand at 219 million cubic meters. “It takes about two days to get payment from Naftogaz deposited to a Gazprom account. That’s why a delivery to Ukraine of 114 million cubic meters will lead to a complete termination of Russian gas supplies as early as in two days, which creates serious risks for the transit to Europe,” Miller said.

Earlier this month, Russian Energy Minister Aleksandr Novak estimated Ukraine’s debt to Russian energy giant Gazprom at $2.3 billion. In the end of 2014, Kiev’s massive gas debt that stood above $5 billion, forced Moscow to suspend gas deliveries to Ukraine for nearly six months. On December 9, Russia resumed its supplies under the so-called winter package deal, which expires on April 1, 2015. [..] On Monday, Ukrainian state energy company Naftogaz accused Gazprom of failing to deliver gas that Kiev had paid for in advance. Naftogaz says Russia has broken an agreement to deliver 114 million of cubic meters of natural gas to Ukraine by delivering only 47 million cubic meters.

During a meeting with President Vladimir Putin on February 20, Russian Prime Minister Dmitry Medvedev expressed concern about an increase in daily applications by Ukraine for the supply of gas, TASS reports. He noted that “Ukraine’s consumers have requested a larger supply; the volume has increased by 2.5 times. This means that the prepaid volumes left are enough for no more than two to three days.”

Kiev is not capable of saying anything true.

• East Ukraine Artillery Withdrawal In Focus – As Poroshenko Buys UAE Weapons (RT)

While the foreign ministers of France, Germany, Russia and Ukraine were meeting in Paris to talk about the Eastern Ukraine peace settlement, it was revealed that the Ukrainian president has struck a deal on arms supplies from the UAE. The four ministers agreed on the need for the ceasefire to be respected, as well as on the need to extend the OSCE mission in Eastern Ukraine, reinforcing it with more funding, personnel and equipment. It’s important for Kiev troops and the rebels to start withdrawing heavy weapons right now, without waiting for the time “when not a single shot is fired,” Russian Foreign Minister Sergey Lavrov said after the meeting.

He added that his German and French counterparts thought it a positive development that the Donetsk and the Lugansk rebels had started to pull their artillery back. “The situation has significantly improved, that was acknowledged by my partners,” Lavrov said. “However, sporadic violations are being registered by the OSCE observers.” The withdrawal of heavy weaponry by Kiev troops and the rebels is part of the ceasefire deal struck in Minsk earlier in February. The Donetsk militia has announced it is complying. “Today at 9 am our units continued the pullback of heavy weaponry from the separation line,” said Eduard Basurin, spokesman for the self-proclaimed Donetsk People’s Republic, Tass news agency reported. [..]

Ukrainian President Petro Poroshenko has meanwhile reached an agreement on weapons supplies from the United Arab Emirates. That’s according to a Facebook post by advisor to Ukrainian Interior Minister, Anton Gerashchenko. The deal was struck with the Crown Prince of Abu Dhabi and deputy supreme commander of the UAE Armed Forces, Mohammed bin Zayed bin Sultan Al Nahyan. “It’s worth emphasizing that unlike Europeans and Americans, the Arabs aren’t afraid of Putin’s threats of a third world war starting in case of arms and ammunition supplies to Ukraine,” Gerashchenko wrote. He also said he believed the UAE blamed Russia for the drop in oil prices. “So, this is going to be their little revenge,” the adviser said.

Gerashchenko said the types of weapons to be delivered and the volume of the supplies could not be disclosed. The UAE supplying weapons to Ukraine could be part of a US covert operation, former US diplomat James Jatras told RT. “This discussion in Washington about supplying weapons has been going on for some time. Usually that indicates that some kind of a covert program is already in operation and that we already are supplying some weapons directly,” he said. Jatras added that it is hard to believe that UAE would sell these weapons to Ukraine “without a green light from Washington.”

Nobody expects anything other than a stink on Wall Street anymore. Pecunia DOES olet.

• Lure of Wall Street Cash Said to Skew Credit Ratings (Bloomberg)

Michelle Choi, an analyst for Moody’s Investors Service, gave a credit rating to bonds issued by a New Jersey town in September. In October, she switched sides and started working for the town’s underwriter, Morgan Stanley. Choi is one of hundreds of employees at Moody’s and other credit-rating companies, including Standard & Poor’s and Fitch Ratings, who’ve gone to work for Wall Street since the 2008 financial crisis exposed the conflicts at the heart of the ratings business. While there’s no evidence that Choi’s job-hunting influenced the grade she gave Evesham Township’s debt, the rising number of job changes in the industry raises a question: can credit analysts be impartial about grading bonds while looking for employment at banks that underwrite them? The ratings companies say the answer is yes.

An academic study by longtime industry observers suggests otherwise. “The fact that analysts can get employed by the issuers is a problem and the SEC should be doing something about it,” said Marcus Stanley, policy director at Americans for Financial Reform, a Washington-based coalition of 200 advocacy groups. Ratings analysts can work for issuers immediately because there’s no rule about a waiting period like there is in other industries. Accountants, in some cases, must wait one year before working for a company they audited. Choi’s new job at Morgan Stanley is “an internal risk function and is not part of the underwriting group,” said Mary Claire Delaney, a Morgan Stanley spokeswoman. Since 2008, more than 300 analysts have left the major ratings companies for jobs at banks and other debt issuers, according to U.S. SEC data.

Last year alone, more than 80 people made the switch, the most since the SEC began compiling such data in 2006. That’s out of a total of about 4,000 analysts employed by the ratings firms, according to SEC data. The migration shows that the credit graders and Wall Street banks are as close as ever. Their symbiotic relationship first came to widespread attention in the aftermath of the 2008 credit bust, when Moody’s and S&P were accused of inflating the rankings of mortgage bonds in order to win and keep business from underwriters. The U.S. Justice Department has been investigating the role the two played in the fiasco, and this month S&P agreed to pay $1.5 billion, without admitting guilt, to settle cases with state and federal authorities. The investigation into Moody’s continues.

More threats.

• Militants, Migrants And The Med: Europe’s Libya Problem (BBC)

Islamic State militants in Libya have vowed to attack Europe. Meanwhile, boatloads of migrants flee the collapsing state for European shores. Could the Mediterranean migration mask an influx of militants? Italy and Egypt have warned that Islamic State (IS) militants could hide among thousands of migrants rescued by European patrols. Both countries are troubled by the situation in Libya and have an interest in influencing it. However, neither has given any evidence to support its warnings. The migrants are mostly from Syria and sub-Saharan Africa. The idea that they pose a threat evokes a vicious logic at odds with humanitarian imperatives: refugees bring conflict, as conflict breeds refugees. What threat do the migrant boats pose? And what – if anything – can be done about it? Last week, Libyan militants allied to IS released a video that appeared to show the beheading of 21 Egyptian prisoners. The choreography echoed videos shot in Iraq and Syria.

However, instead of desert, the prisoners were positioned on a beach, against the grey Mediterranean Sea. Addressing the camera, a masked man promised attacks in Europe. “And now we are south of Rome, on the land of Islam, Libya,” he said, “sending you another message.” The video is thought to have been filmed near Sirte, a Libyan coastal town where Islamic State has gained a foothold. A few miles off that coast last week, an Italian operation rescued some 2,000 migrants from stormy waters. As one of the empty vessels that had carried the migrants was being towed away, a speedboat swept off the Libyan shore. The men aboard it were armed with assault rifles and, according to Italian officials, they wanted their boat back. The confrontation was the latest sign that some of the armed groups thriving in the Libyan chaos are also involved in human-trafficking.

Kudos to the man. A giant.

• Lester Brown: ‘Vast Dust Bowls Threaten Tens Of Millions With Hunger’ (Guardian)

Vast tracts of Africa and of China are turning into dust bowls on a scale that dwarves the one that devastated the US in the 1930s, one of the world’s pre-eminent environmental thinkers has warned. Over 50 years, the writer Lester Brown has gained a reputation for anticipating global trends. Now as Brown, 80, enters retirement, he fears the world may be on the verge of a greater hunger than he has ever seen in his professional lifetime. For the first time, he said tens of millions of poor people in countries like Nigeria, India, Pakistan and Peru could afford to eat only five days a week. Most of the world was exhausting its ground water because of overpumping. Yields were flatlining in Japan. And in northern and western China, and the Sahel region of Africa – an area already wracked by insurgency and conflict – people were running out of land to grow food.

Millions of acres of were turning into wasteland because of over-farming and over-grazing. “We are pushing against the limits of land that can be ploughed and the land available for grazing and there are two areas of the world in which we are serious trouble now,” Brown said. “One is the Sahel region of Africa, from Senegal to Somalia. There is a huge dust bowl forming now that is actually stretching right across the continent and that dust bowl is removing a lot of top soil, so eventually they will be in serious trouble,” he said. In areas of China, villagers were abandoning the countryside because the land was too depleted to raise flocks or grow food. “At some point there will be a reckoning,” he said.

“They will be abandoning so much land, both for farming and for grazing, that it will restrict their efforts to expand food production.” The result would be far worse than anything America saw in the 1930s. “Our dust bowl was serious, but it was confined and within a matter of years we had it under control … these two areas don’t have that capacity.” Brown has previously used his broad vision and his fluency with data to identify and explain major developments in the global food system and environment – as a junior analyst for the US Department of Agriculture, founder of the first US environmental thinktank, the Worldwatch Institute, and now as founder and president at the Earth Policy Institute. This latest warning – that demand for food is fast outstripping supply – may be one of his last as an institutional insider.

Great piece by Albert the Über-Hippie. I finally get to post something by him.

• The Amherst Cauldron (Albert Bates at ClubOrlov)

Wall Street Bankers watch warily from their penthouse eyries the power that populist movements like Occupy is gaining, especially in Albany but also in the New England States. Determined to thwart them, lest a revolt gather momentum against their interests, they decide to funnel millions of dollars to right wing rabble, to cause massive trouble… and to then wrest order out of the ensuing chaos (this part of their plan was always a bit sketchy, but they couldn’t think of anything better). Unfortunately, the only psychologically normal right-wing rabble they can find wouldn’t pass the physical due to weight issues and is permanently glued to giant plasma TV screens with their mouths stuffed full of cheese doodles, and so they have to go with the rejects: skinheads, neo-Nazis, gun freaks and prepper wing-nuts.

A State Department official is tasked with feeding and herding these rejects together. After a sudden and severe downturn in the stock market, the economy goes into free-fall and events spin out of control. Anarchist rallies take place throughout New England. A prominent Goldman Sachs broker’s Connecticut estate is overrun and videos posted to YouTube show pearled chandeliers and gold faucets. Throughout New England, grassroots efforts drive legislators to enact sweeping reforms. A new “uniform code” of banking reforms, designed to break finance cartels and prosecute fraud, takes hold among the states, snatching the initiative away from the bureaucratic heel-draggers at the federal level.

Then comes the great day that changes everything. It starts as a small protest march in Albany, to which the State Police predictably overreact. But then a group of snipers, of unknown provenance, kill a hundred or so people, both protesters and police among them. After that incident, a group of rioters, some secretly in the pay of Wall Street and coordinated by the US State Department, seize the Capitol in Albany. Much to everyone’s surprise, the New York National Guard defects to the rebel side. Despite impassioned pleas from the Canadian Premier, Washington does not send in troops to restore order. In the anarchy that is Albany, a slate of fresh faces wins a statewide referendum and forms a new state government.

It is quickly endorsed by other parts of the emergent “New England Federation” of states, all of which want to push back against the Wall Street bankers and their corruption by enlarging the scope of the uniform code. But the federally-funded wing-nuts also move quickly to consolidate their power, pushing through a wide-reaching agenda of oppressive laws. Some states in New England try to distance themselves, while others serve as apologists. Maine surprises everyone when it decides that it wants nothing to do with any of this and votes to secede and join Canada. Washington vows to take Maine back but it is trying to walk a narrow line with Canada, whose fossil fuel resources it views as indispensable.

David is right of course, but not everyone can afford his lack of patience.

• Kick-The-Can Has Morphed Into A Blatant Farce (David Stockman)

Kick-the-can has morphed into a blatant farce. Everywhere in the world central banks and financial officialdom are engaging in desperate, juvenile maneuvers to buy time – amounting to hardly a few weeks at a go. Never before has the debt-saturated, speculation-ridden global casino rested upon such a precarious foundation. This week, for instance, Janet Yellen will again waste two days of Congressional hearings in forked-tongue equivocations about an absolutely stupid issue. Namely, the exact date when money market interest rates will be permitted to blip upward from the zero bound by even 25 basis points. But this “lift-off” drama is flat-out surreal.

How could it possibly matter whether ZIRP will have been in place by 80 months or 83 months from its inception point way back in December 2008? There is not a single household or business on main street America which will change its behavior in the slightest during the next year regardless of whether the federal funds rate is 5 bps, 30 bps or 130 bps. The whole Kabuki dance in the Eccles Building is about hand signals to Wall Street carry traders; its a reflection of the desperate fear of our monetary politburo that having inflated for the third time this century the mother of all financial bubbles, they must now keep it going literally one meeting at a time—lest it splatter again and destroy the illusion that an egregious spree of money printing has saved the main street economy.

Likewise, it now transpires that the bruising political war of words between the Germans and the “radical” Greek government has been suspended for another few weeks. And the reason is a pathetic fear that unites the parties despite their irreconcilable substantive policy differences. Namely, that the markets will crater upon even a hint that a real solution is on the table, and that the way to keep the beast at bay is to cover their eyes, kick-the-can and hope something turns up to avert the next crisis a few weeks down the road. Still, this is getting beyond juvenile. If there were any adults in the room they would focus on quickly shaping a workable Greek default and exist—-not on perpetuating the lie that Greece can ever recover from its debt servitude to the EU superstate and IMF.

“We will remove from …”

• “Remove From Governments The Ability To Interfere With [Our] Rights” (Snowden)

If people lose their willingness to recognize that there are times in our history when legality becomes distinct from morality, we aren’t just ceding control of our rights to government, but our agency in determing our futures. How does this relate to politics? Well, I suspect that governments today are more concerned with the loss of their ability to control and regulate the behavior of their citizens than they are with their citizens’ discontent. How do we make that work for us? We can devise means, through the application and sophistication of science, to remind governments that if they will not be responsible stewards of our rights, we the people will implement systems that provide for a means of not just enforcing our rights, but removing from governments the ability to interfere with those rights.

You can see the beginnings of this dynamic today in the statements of government officials complaining about the adoption of encryption by major technology providers. The idea here isn’t to fling ourselves into anarchy and do away with government, but to remind the government that there must always be a balance of power between the governing and the governed, and that as the progress of science increasingly empowers communities and individuals, there will be more and more areas of our lives where—if government insists on behaving poorly and with a callous disregard for the citizen—we can find ways to reduce or remove their powers on a new—and permanent—basis. Our rights are not granted by governments. They are inherent to our nature. But it’s entirely the opposite for governments: their privileges are precisely equal to only those which we suffer them to enjoy.

We haven’t had to think about that much in the last few decades because quality of life has been increasing across almost all measures in a significant way, and that has led to a comfortable complacency. But here and there throughout history, we’ll occasionally come across these periods where governments think more about what they “can” do rather than what they “should” do, and what is lawful will become increasingly distinct from what is moral. In such times, we’d do well to remember that at the end of the day, the law doesn’t defend us; we defend the law. And when it becomes contrary to our morals, we have both the right and the responsibility to rebalance it toward just ends.

Brilliant article by Ian Martin.

• London: A Set Of Improbable Sex Toys Poking Gormlessly Into The Air (Guardian)

I wonder what in 100 years from now it will be, London. The city that privatised itself to death. Abandoned to nature, maybe, the whole place a massive, feral version of that mimsy garden bridge over the Thames currently being planned by the giggling classes. Poor London, the ancient and forgotten metropolis, crumbling slowly into an enchanted urban forest. Imagine. In 2115, all the lab-conjured animals in Regent’s Park Jurassic Zoo are free to roam, reliving their evolution. A diplodocus there, grazing in the jungled Mall. Look, a stegosaurus asleep in the ruins of Buckingham Palace. High above the forest canopy, a lone archaeopteryx soars, where once hundreds of drones glided through YouTubed firework displays.

Perhaps eminent historians will study London in the early 21st century, see how its poorer inhabitants were driven out, observe how its built environment was slowly boiled to death by privatisation. And they will wonder why people tolerated this transfer of collective wealth from taxpayers to shareholders. And they will perhaps turn their attention to Eduardo Paolozzi’s fabled mosaics at Tottenham Court Road underground station. Back in 2015, a debate has bubbled briefly, after some of these lovely, publicly owned mosaic murals were quietly dismantled as part of the station’s thorough £400m Crossrail seeing-to. I say “debate”; it was really only that polarised quackbait thing we have now: Click If You Think The Mosaics Are Great, We Should Save What’s Left Of Them v Smash Them Up They’re Ugly, Anyway Who Cares It’s Just Patterns On A Wall.

Arguments about the aesthetics of Paolozzi’s mosaics missed the point, it seemed to me, which has less to do with the merit of the art itself and more to do with what, in the long run, it turned out the art was for. Paolozzi’s legacy had stood intact for three decades. Not just as 1,000 sq m of charming, optimistic art, but as 1,000 sq m of commercial retardant. You can’t paste an ad on to a wallful of public art. You can’t fix one of those irritating micromovies over it, telling a vacuous five-second story about investments or vitamins or hair. The Paolozzi mosaics went up as decorative art, just as privatisation was about to explode like a dirty bomb all over the public realm. What survives at Tottenham Court Road station is a brave, forlorn little seawall set against a stormtide of corporate advertising.

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